-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MKfIygVvENDJbRpCjkqfNDIimL84w8Fv6c6Om+5n6yLsewxVkyX8hsvMXG9qeLqA TYjCmjs3em15UAku0UV+rA== 0000950123-06-003354.txt : 20060317 0000950123-06-003354.hdr.sgml : 20060317 20060317164533 ACCESSION NUMBER: 0000950123-06-003354 CONFORMED SUBMISSION TYPE: SC 13D PUBLIC DOCUMENT COUNT: 6 FILED AS OF DATE: 20060317 DATE AS OF CHANGE: 20060317 SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: DYNTEK INC CENTRAL INDEX KEY: 0000879465 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-BUSINESS SERVICES, NEC [7389] IRS NUMBER: 954228470 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: SC 13D SEC ACT: 1934 Act SEC FILE NUMBER: 005-51733 FILM NUMBER: 06696481 BUSINESS ADDRESS: STREET 1: 18881 VON KARMAN AVENUE STREET 2: SUITE 250 CITY: IRVINE STATE: CA ZIP: 92612 BUSINESS PHONE: 949-955-0078 MAIL ADDRESS: STREET 1: 18881 VON KARMAN AVE STREET 2: SUITE 250 CITY: IRVINE STATE: CA ZIP: 92612 FORMER COMPANY: FORMER CONFORMED NAME: TEKINSIGHT COM INC DATE OF NAME CHANGE: 20000103 FORMER COMPANY: FORMER CONFORMED NAME: TADEO HOLDINGS INC DATE OF NAME CHANGE: 19980212 FORMER COMPANY: FORMER CONFORMED NAME: UNIVERSAL SELF CARE INC DATE OF NAME CHANGE: 19950808 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: MILLER LLOYD I III CENTRAL INDEX KEY: 0000949119 FILING VALUES: FORM TYPE: SC 13D BUSINESS ADDRESS: STREET 1: 4650 GORDON DRIVE CITY: NAPLES STATE: FL ZIP: 33940 BUSINESS PHONE: 9412628577 SC 13D 1 y18806sc13d.txt SCHEDULE 13D SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 SCHEDULE 13D (RULE 13d-101) INFORMATION TO BE INCLUDED IN STATEMENTS FILED PURSUANT TO RULE 13d-1(a) AND AMENDMENTS THERETO FILED PURSUANT TO RULE 13d-2(a) DYNTEK, INC. - -------------------------------------------------------------------------------- (Name of Issuer) Common Stock - -------------------------------------------------------------------------------- (Title of Class of Securities) 268180106 - -------------------------------------------------------------------------------- (CUSIP Number) Lloyd I. Miller, III, 4550 Gordon Drive, Naples, Florida, 34102 (Tel.) (239) 262-8577 - -------------------------------------------------------------------------------- (Name, Address and Telephone Number of Person Authorized to Receive Notices and Communications) March 8, 2006 ------------------------------------------ (Date of Event which Requires Filing of this Statement) If the filing person has previously filed a statement on Schedule 13G to report the acquisition that is the subject of this Schedule 13D, and is filing this schedule because of Rule 13d-1(e), 13d-1(f) or 13d-1(g), check the following box [X]. Note. Schedules filed in paper format shall include a signed original and five copies of the schedule, including all exhibits. See Rule 13d-7 for other parties to whom copies are to be sent. (Continued on following pages) Page 1 of 8 pages - ---------------- (1) The information required on the remainder of this cover page shall not be deemed to be "filed" for the purpose of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liabilities of that section of the Act but shall be subject to all other provisions of the Act (however, see the Notes). CUSIP NO. 268180106 13D PAGE 2 OF 8 1 NAME OF REPORTING PERSON S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON Lloyd I. Miller, III ###-##-#### 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (A) [ ] (B) [ ] 3 SEC USE ONLY --------------- 4 SOURCE OF FUNDS* PF-AF-OO 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) OR 2(e) [ ] 6 CITIZENSHIP OR PLACE OF ORGANIZATION United States NUMBER OF 7 SOLE VOTING POWER SHARES 139,657,772 BENEFICIALLY OWNED BY 8 SHARED VOTING POWER EACH 155,618,476 REPORTING PERSON 9 SOLE DISPOSITIVE POWER WITH 139,657,772 10 SHARED DISPOSITIVE POWER 155,618,476 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 295,276,248 ** The shares reported herein consist of (i) 7,787,984 shares of common stock, (ii) warrants to purchase 1,461,538 shares of common stock, (iii) a $3,000,000 Junior Secured Convertible Promissory Notes due March 2011 immediately convertible into 150,000,000 shares of common stock at an initial conversion rate of $0.02 and (iv) a warrant to purchase 15.81% of the Issuer's common stock outstanding on the date of exercise calculated on a fully diluted basis (as of the date hereof exercisable into 136,026,726 shares). 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* [ ] 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 67.7% 14 TYPE OF REPORTING PERSON* IN-IA-OO *SEE INSTRUCTIONS BEFORE FILLING OUT! Page 3 of 8 ORIGINAL REPORT ON SCHEDULE 13D ITEM 1. SECURITY AND ISSUER This statement relates to the Common Stock, par value $0.0001 per share (the "Shares") of Dyntek, Inc. (the "Company"). The Company has its principal executive offices at 19700 Fairchild Road, Suite 230, Irvine, California 92612. ITEM 2. IDENTITY AND BACKGROUND This statement is filed by Lloyd I. Miller, III ("Miller" or the "Reporting Person"). Miller's principal business address is 4550 Gordon Drive, Naples, Florida 34102. Miller's principal occupation is investing assets held by or on behalf of his family. During the past five years, Miller has not been convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors) and has not been a party to civil proceedings of a judicial or administrative body of competent jurisdiction as a result of which Miller was or is subject to a judgment, decree or final order enjoining future violations of, or prohibiting or mandating activities subject to, federal or state securities laws or finding any violation with respect to such laws. Miller is a United States citizen. ITEM 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATIONS Miller is an advisor to the trustee of Trust A-4. Trust A-4 was created pursuant to a Declaratory Judgment, signed by the Honorable Wayne F. Wilke for the Court of Common Pleas, Probate Division, Hamilton County, Ohio, on October 27, 1992, pursuant to which Trust A was split into four separate trusts. Trust A was created pursuant to an Amended and Restated Trust Agreement, dated September 20, 1983 (the "Trust Agreement"). The Trust Agreement is hereby incorporated by reference to the Schedule 13D filed by Miller in Stamps.com Inc. on April 30, 2002 as Exhibit 99.1. Miller was named as the advisor to PNC Bank, Ohio, N.A. (formerly The Central Trust Company, N.A., Cincinnati, Ohio), the trustee named in the Trust Agreement. All of the Shares Miller is deemed to beneficially own as the advisor to the trustee of Trust A-4 were purchased by funds generated and held by Trust A-4. The aggregate amount of funds used for the purchase of the Shares and the warrants to purchase Shares in Trust A-4 was $5,025,318.05. Such amount of consideration consists in part of $3,000,000.00 used to purchase from the Company a $3,000,000.00 Junior Secured Convertible Promissory Note due March 1, 2011 (the "Junior Secured Convertible Note"). A copy of the Junior Secured Convertible Note is attached hereto as Exhibit 99.9. Miller is the manager of Milfam LLC, an Ohio limited liability company established pursuant to the Operating Agreement of Milfam LLC (the "Operating Agreement"), dated as of December 10, 1996. The Operating Agreement is hereby incorporated by reference to the Schedule 13D filed by Miller in Stamps.com Inc. on April 30, 2002 as Exhibit 99.2. Milfam LLC is the general partner of Milfam II L.P., a Georgia limited partnership established pursuant to the Partnership Agreement for Milfam II L.P. (the "Milfam II Partnership"), dated December 11, 1996. The Milfam II Partnership is hereby incorporated by reference to the Schedule 13D filed by the Reporting Person in Stamps.com Inc. on April 30, 2002 as Exhibit 99.4. All of the Shares Miller is deemed to beneficially own as the manager of the general partner of Milfam II L.P. were purchased with money contributed to Milfam II L.P. by its partners, or money generated and held by Milfam II L.P. The aggregate purchase price for the Shares and the warrants to purchase Shares in Milfam II L.P. was $1,252,181.00. Page 4 of 8 All of the warrants to purchase Shares by Miller on his own behalf, were purchased with personal funds generated and held by Miller. The acquisition of a warrant to purchase 500,000 Shares by Miller was part of a debt transaction whereby Miller entered into a Note Purchase Agreement (the "Bridge Note Agreement"), dated October 26, 2005, with the Company and SACC Partners, L.P. ("SACC Partners") The form of the Bridge Note Agreement, dated as of October 26, 2005, by and among the Company and the purchasers named therein, including Miller, is hereby incorporated by reference to the Form 10-Q for the quarter ended September 30, 2005 and filed by the Company on November 11, 2005 as Exhibit 10.3. In connection with such transaction, Miller acquired a Secured Promissory Note in the original principal amount of $1,250,000.00 (the "Bridge Note"). The form of Bridge Note issued to Miller is hereby incorporated by reference to the Form 10-Q for the quarter ended September 30, 2005 and filed by the Company on November 11, 2005 as Exhibit 10.4. In connection with the issuance of this Bridge Note, the Company issued Miller a warrant to purchase an aggregate 500,000 shares of its common stock. Miller paid $1,250,000.00 for the Bridge Note and the warrant to purchase 500,000 Shares. On March 8, 2006, Miller entered into a Note Purchase Agreement by and among the Company, and certain purchasers thereto, including Miller (the "March Note Purchase Agreement"). A copy of the March Note Purchase Agreement is attached hereto as Exhibit 99.7. In connection with the March Note Purchase Agreement Miller acquired a Secured Promissory Note due March 1, 2010 in the original principal amount of $5,300,000.00 (the "Senior Secured Note") and a warrant to purchase 15.81% of shares of the common stock outstanding on the date of exercise on a fully diluted basis (the "Debt Financing Warrant"). A copy of the Senior Secured Note is attached hereto as Exhibit 99.8 and a copy of the Debt Financing Warrant is attached hereto as Exhibit 99.10. Miller paid $5,300,000.00 for the Senior Secured Note and the Debt Financing Warrant. ITEM 4. PURPOSE OF THE TRANSACTION As more specifically described in the Company's Form 8-K filed with the SEC on March 8, 2006, the Company completed a debt financing and private placement of equity securities (the "Debt/Equity Transaction"). Upon consummation of the Debt/Equity Transaction, Miller's beneficial ownership of the Company's common stock (including debt and equity securities exercisable for or convertible into common stock) increased from 11.2% to 67.7% of the Company's common stock, thereby requiring the filing of this Schedule 13D. The foregoing percentage does not take into account the exercise or conversion of other outstanding convertible or exercisable securities of the Company, which would have the effect of reducing the percentage beneficial ownership of the Reporting Person. On March 8, 2006, a Note Purchase Agreement was entered into by and among DynTek, Inc., and Miller, Trust A-4 and SACC Partners, as purchasers. Pursuant to the March Note Purchase Agreement the Company issued Miller the Senior Secured Note in the original principal amount of $5,300,000. As a condition to the purchase of Senior Secured Note, the Company issued Miller the Debt Financing Warrant which provides Miller with the right to purchase 15.81% of shares of the Company's common stock outstanding on the date of exercise on a fully diluted basis. The Debt Financing Warrant is immediately exercisable at $0.001 per share of common stock, until December 31, 2016. Pursuant to the March Note Purchase Agreement, the Company also issued the Junior Secured Convertible Note to Trust A-4 in the original principal amount of $3,000,000. The Junior Secured Convertible Note may be converted into common stock of the Company at any time at the election of the holder at a conversion price of $0.02 per share of common stock. As a condition to the closing of the transactions described in the March Note Purchase Agreement, Alan Howe was nominated by the purchasers thereto to the Board of Directors of the Company, which appointment was effective on March 8, 2006. Pursuant to board resolutions, the Page 5 of 8 Company, also as a condition to closing, provided approval of the March Note Purchase Agreement and all related ancillary documents pursuant to Section 203 of the Delaware General Corporation Law. Such board approval removes a possible prohibition on the Company from entering into any future business combinations with the Reporting Person or any of his affiliates. In connection with the Debt/Equity Transaction, the Company also entered into negotiated settlements with certain secured creditors, including Miller, whereby Miller agreed to convert the principal and outstanding amount of $1,304,657.53 owed under the Bridge Note into common stock of the Company at a conversion rate of $0.02 (the "Conversion and Settlement Agreement"). The conversion will occur as of the earlier of the date immediately following the effective date of the Company's planned 1-for-10 reverse stock split or June 30, 2006. A copy of the Conversion and Settlement Agreement is attached hereto as Exhibit 99.6. Except as described above in this Item 4 and herein, the Reporting Person does not have any specific plans or proposals that relate to or would result in any of the actions or events specified in clauses (a) through (j) of Item 4 of Schedule 13D. Miller reserves the right to change plans and take any and all actions that Miller may deem appropriate to maximize the value of his investments, including, among other things, purchasing or otherwise acquiring additional securities of the Company, selling or otherwise disposing of any securities of the Company beneficially owned by him, in each case in the open market or in privately negotiated transactions or formulating other plans or proposals regarding the Company or its securities to the extent deemed advisable by Miller in light of his general investment policies, market conditions, subsequent developments affecting the Company and the general business and future prospects of the Company. Miller may take any other action with respect to the Company or any of the Company's debt or equity securities in any manner permitted by applicable law. ITEM 5. INTEREST IN SECURITIES OF THE ISSUER (a) Miller may be deemed to beneficially own 295,276,248 (67.7% of the outstanding Shares, based on (i) 148,715,911 Shares outstanding after consummation of the Debt/Equity Transaction, (ii) warrants to purchase 1,461,538 Shares beneficially held by Miller, (iii) 150,000,000 shares (assuming a full conversion of the $3,000,000 Junior Secured Convertible Note into Shares at the current conversion rate of $0.02) and (iv) a warrants to purchase 15.81% of shares of common stock of the company outstanding on the date of exercise calculated on a fully diluted basis (currently the warrant could be exercised into 136,026,726 Shares calculated on a fully diluted basis). As of the date hereof, 155,618,476 of such beneficially owned Shares are owned of record by Trust A-4 (total includes a warrant to purchase 480,769 Shares and 150,000,000 Shares that can be acquired upon the conversion of the Junior Secured Convertible Note); 3,131,046 of such beneficially owned Shares are owned of record by Milfam II L.P. (total includes a warrant to purchase 480,769 Shares); and 136,526,726 Shares are beneficially owned of record by Miller directly (total includes a warrant to purchase 500,000 Shares and the 136,026,726 shares per the exercise of the Debt Financing Warrant). (b) Miller may be deemed to have shared voting and dispositive power for all such shares held of record by Trust A-4. Miller may be deemed to have sole voting power for all such shares held of record by Milfam II L.P. and Miller directly. (c) The following details the transactions effected by Miller during the past 60 days. On March 8, 2006, Trust A-4 acquired the Junior Secured Convertible Note for a purchase Page 6 of 8 price of $3,000,000 in connection with the March Note Purchase Agreement. Also, on such date, Miller acquired the Debt Financing Warrant entitling Miller to acquire up to 15.81% of the shares of capital stock of the Company outstanding at the time of exercise calculated on a fully diluted basis. Miller acquired the Debt Financing Warrant in connection with the purchase of the Senior Secured Note for a purchase price of $5,300,000 pursuant to the terms of the March Note Purchase Agreement. (d) Other than for shares held directly by Miller, persons other than Miller have the right to receive and the power to direct the receipt of dividends from, or the proceeds from the sale of, the reported securities. (e) Not Applicable. ITEM 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT TO SECURITIES OF THE ISSUER Trust Agreement: The Trust Agreement provides, in pertinent part, that the Trustee shall not make any investments, reinvestments or changes in investments of the assets of Trust A without first consulting with and obtaining the advice of the advisor. The Trustee need not act in accordance with the advice and counsel of the advisor, but if it does so, the Trustee shall not be liable to any person for or as a result of any action or failure to act if in accordance with such advice and counsel. The Trustee need not obtain the advice and counsel of the advisor if the Trustee requests such advice and counsel in writing and if the advisor fails to reply to the Trustee within five days from the date of such request by telephone, telegram, mail or in person. The Operating Agreement: While Lloyd I. Miller, III serves as manager, he shall have complete control over all of the affairs of Milfam LLC and need not seek the consent or approval of any Member with respect to any action. Milfam II Partnership: The Milfam II Partnership provides, in pertinent part, that the General Partner shall have the full and exclusive right to manage and control the business and affairs of Milfam II, L.P. and to make all decisions regarding the affairs of Milfam II, L.P. In the course of such management, the General Partner may acquire, encumber, hold title to, pledge, sell, release or otherwise dispose of Partnership Property and interest therein when and upon such terms as it determines to be in the best interest of the Milfam II, L.P. The General Partner shall have all of the rights, powers and obligations of a partner of a partnership without limited partners, except as otherwise provided under the Act. Conversion and Settlement Agreement: On March 8, 2006, Lloyd I. Miller, III signed a Conversion and Settlement Agreement with the Company pursuant to which Miller expects to convert into Common Stock of the Company $1,304,657.53 in principal and accrued interest under the Bridge Note. The conversion will be effected at a conversion rate of $0.02 per share and will occur as of the earlier of the date immediately following the effective date of the Company's planned 1-for-10 reverse stock split or June 30, 2006. ITEM 7. MATERIALS TO BE FILED AS EXHIBITS: 99.1 Amended and Restated Trust Agreement, dated September 20, 1983, between Lloyd I. Miller and PNC Bank, Ohio, N.A. (formerly The Central Trust Company, N.A., Cincinnati, Ohio) (Filed as Exhibit 99.1 to Schedule 13D of Lloyd I. Miller, III for Page 7 of 8 Stamps.com Inc. on April 30, 2002 as Exhibit 99.1 and incorporated herein by reference). 99.2 Operating Agreement of Milfam LLC, an Ohio limited liability company, entered into as of December 10, 1996 (Filed as Exhibit 99.2 to Schedule 13D of Lloyd I. Miller, III for Stamps.com Inc. on April 30, 2002 and incorporated herein by reference). 99.3 Partnership Agreement of Milfam II L.P. (Filed as Exhibit 99.4 to Schedule 13D of Lloyd I. Miller, III for Stamps.com Inc. on April 30, 2002 and incorporated herein by reference). 99.4 Form of Note Purchase Agreement by and among DynTek, Inc. and the purchasers named therein, dated as of October 26, 2005 (Filed as Exhibit 10.3 to Form 10Q for the quarter ended September 30, 2005 by DynTek, Inc. with the SEC on November 11, 2005 and incorporated herein by reference). 99.5 Form of Bridge Note, dated as of October 26, 2005, issued by DynTek, Inc. in favor of certain investors, including Miller (Filed as Exhibit 10.4 to Form 10Q for the quarter ended September 30, 2005 by DynTek, Inc. with the SEC on November 11, 2005 and incorporated herein by reference). 99.6 Conversion and Settlement Agreement, by and between DynTek, Inc. and Lloyd I. Miller, III, dated as of March 8, 2006. 99.7 Note Purchase Agreement, dated as of March 8, 2006, by and among DynTek, Inc., as the company, and Lloyd I. Miller, III, Trust A-4 and SACC Partners, L.P., as the purchasers. 99.8 Secured Promissory Note, dated as of March 8, 2006, and issued by DynTek, Inc. and payable to the order of Lloyd I. Miller, III. 99.9 Junior Secured Convertible Promissory Note, dated as of March 8, 2006, and issued by DynTek, Inc. and payable to the order of Trust A-4 - Lloyd I. Miller. 99.10 Purchase Warrant issued to Lloyd I. Miller, III to purchase 15.81% of Shares of Common Stock of the Company outstanding on the date of Exercise by DynTek, Inc. Page 8 of 8 After reasonable inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct. Dated: March 17, 2006 By: /s/ Lloyd I. Miller, III --------------------------------- Lloyd I. Miller, III EX-99.6 2 y18806exv99w6.txt CONVERSION AND SETTLEMENT AGREEMENT EXHIBIT 99.6 CONVERSION AND SETTLEMENT AGREEMENT This Conversion and Settlement Agreement (the "Agreement") is entered into as of March 8, 2006 (the "Effective Date") by and between, DynTek, Inc., a Delaware corporation ("DynTek"), and Lloyd I. Miller, III (the "Holder"). RECITALS A. WHEREAS, as of the Effective Date, Holder is owed a total of $1,304,657.53 in principal and accrued but unpaid interest (the "Payable Amount") pursuant to that certain Secured Promissory Note dated October 26, 2005 (the "Bridge Note"), which was issued pursuant to that certain Note Purchase Agreement dated as of an even date therewith, by and among DynTek and the purchasers named therein (the "Bridge Note Purchase Agreement"); B. WHEREAS, payment of all principal and interest under the Bridge Note, as well as performance of the obligations of DynTek and its wholly-owned subsidiary, DynTek Services, Inc., is secured by a perfected security interest under a Security and Pledge Agreement (the "Security Agreement") entered into on October 26, 2005, between the holders of the Bridge Notes and DynTek; C. WHEREAS, DynTek proposes to enter into a Note Purchase Agreement by and among DynTek, SACC Partners, L.P., Lloyd I. Miller, III and Trust A-4 - Lloyd I. Miller, pursuant to which DynTek will issue approximately (i) $6.7 million in new senior secured promissory notes (the "Senior Notes"), due March 1, 2010 (the "Senior Debt Financing") to SACC Partners, L.P. and Lloyd I. Miller, III (the "Senior Lenders"), and (ii) $3.0 million in new junior secured convertible promissory notes convertible at $0.02 per share (the "Junior Notes") to Trust A-4 - Lloyd I. Miller (the "Junior Lender"), due March 1, 2011 (the "Junior Debt Financing," and together with the Senior Note Financing, the "New Debt Financings"); D. WHEREAS, concurrently with the closing of the New Debt Financings, DynTek proposes to enter into (i) a Common Stock Purchase Agreement to be entered into by and among DynTek and certain accredited investors (the "Investors"), which provides for (i) the sale and issuance of up to 75,000,000 shares of common stock, par value $0.0001 (the "Common Stock") by DynTek at a purchase price per share equal to $0.02 per share (the "First PIPE Offering"); E. WHEREAS, on or before April 30, 2006, DynTek proposes to enter into (i) a Common Stock Purchase Agreement with the Investors, which provides for (i) the sale and issuance of up to an additional 150,000,000 shares of Common Stock by DynTek at a per share price equal to $0.02 per share (the "Second PIPE Offering"), and (ii) a Registration Rights Agreement (the "Registration Agreement") between DynTek and the Investors to provide for the registration with the Securities and Exchange Commission (the "SEC") of the shares of Common Stock sold to the Investors in the First PIPE Offering and the Second PIPE Offering, respectively, and which will be filed as soon as practicable after the closing of the Second PIPE Offering and in no event later than June 30, 2006; F. WHEREAS, each of the New Debt Financings and the First and Second PIPE Offerings is contingent on Holder converting the Payable Amount into shares of Common Stock of DynTek; G. WHEREAS, to induce Holder to enter into this Agreement, DynTek has agreed to convert the Bridge Note into shares of DynTek Common Stock at a conversion price of $0.02 per share (the "Conversion Price"); H. WHEREAS, subject to the terms and conditions herein, Holder wishes to convert the Payable Amount into shares of Common Stock of DynTek, and DynTek wishes to issue such shares to Holder in reliance upon the exemption from securities registration afforded by Section 4(2) of the Securities Act of 1933, as amended (the "Securities Act") and Rule 506 under Regulation D; I. WHEREAS, DynTek has agreed to register for resale all of the Conversion Shares (as defined in Section 1 below); and J. WHEREAS, Holder's conversion of the Payable Amount into shares of Common Stock of DynTek will effectuate a complete settlement on the Payable Amount and provide a release of DynTek from any present or further liability with respect to the Payable Amount or the Security Agreement. NOW, THEREFORE, in consideration of the obligations set forth below, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: AGREEMENT 1. CONVERSION. Subject to the terms and conditions of this Agreement, Holder hereby irrevocably elects to convert (the "Conversion") the Payable Amount into that number of shares of Common Stock of DynTek equal to the Payable Amount divided by the Conversion Price, or 65,232,877 shares (the "Conversion Shares"). Holder shall deliver the Bridge Note for cancellation concurrently with the execution of this Agreement; provided, however that (i) the Bridge Note will not be cancelled until the Conversion Date, and (ii) the Bridge Note will be returned to Holder and will continue to accrue interest from the Effective Date if the Conversion is not completed on or before June 30, 2006. The Conversion shall be effective as of the date immediately following the effective date of DynTek's 1-for10 reverse stock split (the "Conversion Date") or June 30, 2006, whichever is earlier. Within five (5) business days following the Conversion Date, DynTek shall issue, or cause to be issued by submitting an instruction letter to its transfer agent instructing the transfer agent to issue, to Holder a certificate representing the Conversion Shares to which Holder is thereby entitled. If the shares of Common Stock are to be issued in the name of a person other than Holder, Holder will pay all transfer taxes payable with respect thereto, if any. No fee will be charged to Holder for the Conversion, except for any applicable transfer taxes. 2. PAYABLE AMOUNT. Holder hereby represents that the Payable Amount is the entire outstanding obligation of DynTek to Holder as of the Effective Date and that no other liabilities or obligations have accrued as of the Effective Date for which DynTek is responsible; provided, 2 however, that additional interest will accrue on the Bridge Note from the Effective Date through the Conversion Date if the Conversion is not completed on or before June 30, 2006. 3. REPRESENTATIONS AND WARRANTIES OF DYNTEK. DynTek hereby represents and warrants to Holder that: 3.1 Organization and Qualification. DynTek is duly incorporated, validly existing and in good standing under the laws of the state of Delaware, with full power and authority (corporate and other) to own, lease, use and operate its properties and to carry on its business as and where now owned, leased, used, operated and conducted. DynTek is qualified and in good standing in each jurisdiction where the properties owned, leased or operated, or the business conducted, by it require such qualification, except where the failure to so qualify or be in good standing is not reasonably likely to have a material adverse effect on DynTek. 3.2 Authorization; Enforcement. (a) DynTek has all requisite corporate power and authority to enter into and to perform its obligations under this Agreement, to consummate the transactions contemplated hereby and to issue the Conversion Shares in accordance with the terms hereof; (b) the execution, delivery and performance of this Agreement by DynTek and the consummation by it of the transactions contemplated hereby have been duly authorized by the DynTek's Board of Directors and no further consent or authorization of DynTek, its Board or Directors, or its stockholders is required; (c) this Agreement has been duly executed by DynTek; and (d) this Agreement constitutes a legal, valid and binding obligation of DynTek enforceable against the Company in accordance with its terms, subject to the effect of any applicable bankruptcy, insolvency, reorganization, or moratorium or similar laws affecting the rights of creditors generally and the application of general principles of equity. 3.3 Valid Issuance. Upon issuance in accordance with the terms of this Agreement, the Conversion Shares will be duly authorized and will be validly issued, fully paid and non-assessable, free from all taxes, liens, claims, encumbrances and charges with respect to the issue thereof, will not be subject to preemptive rights or other similar rights of stockholders of DynTek, and will not impose personal liability on the holders thereof. 4. REPRESENTATIONS AND WARRANTIES OF HOLDER. Holder hereby represents and warrants to DynTek that: 4.1 Accredited Investors. Holder is: (i) experienced in making investments of the kind contemplated by this Agreement; (ii) able, by reason of business and financial experience, to protect its own interests in connection with the transactions contemplated by this Agreement; (iii) able to afford the entire loss of its investment in the Conversion Shares; (iv) an "accredited investor" as that term is defined in Rule 501(a) of Regulation D; and (v) not a broker-dealer or an affiliate of a broker-dealer as such terms are defined in the Securities Exchange Act of 1934, as amended (the "Exchange Act"). 4.2 No Public Distribution. Holder is acquiring the Conversion Shares for its own account, for investment purposes only, and not with a present view towards the public sale or distribution thereof, except pursuant to a sale or sales that are registered under the Securities Act or exempt from such registration; provided, however, that by making the representations herein, Holder does not agree to hold any of the Conversion Shares for any minimum or other specific term and reserves the right to dispose of the Conversion Shares at any time in accordance with or pursuant to a 3 registration statement or an exemption under the Securities Act. Holder has not been organized for the purpose of investing in securities of DynTek, although such investment is consistent with its purposes. 4.3 Subsequent Offers and Sales. All subsequent offers and sales of the Conversion Shares by Holder shall be made pursuant to an effective registration statement under the Securities Act or pursuant to an applicable exemption from such registration; provided that any offers and sales made pursuant to an applicable exemption from registration will be accompanied by a legal opinion obtained by Holder, which legal opinion shall be reasonably satisfactory to DynTek and DynTek's legal counsel. 4.4 Accuracy of Holder's Representations and Warranties. Holder understands that the Conversion Shares are being offered and sold to it in reliance upon exemptions from the registration requirements of the United States federal securities laws, and that DynTek is relying upon the truth and accuracy of Holder's representations and warranties contained herein in order to determine the availability of such exemptions and the eligibility of Holder to acquire the Conversion Shares accordance with the terms and provisions hereof. 4.5 Financial Information. Holder (i) has been provided with and has reviewed all requested information concerning the business of DynTek, including, without limitation, DynTek's audited financial statements for the fiscal year ended June 30, 2005 and (ii) has had all requested access to the management of DynTek and has had the opportunity to ask questions of the management of DynTek. 4.6 Brokers. Holder has not employed, engaged or retained, or otherwise incurred any liability to, any person as a broker, finder, agent or other intermediary in connection with the transactions contemplated herein. 4.7 No General Solicitation. Holder has not learned of the investment in the Conversion Shares as a result of any public advertising or general solicitation. 4.8 Legends. Holder understands that until (a) the Conversion Shares may be sold pursuant to an applicable exemption from registration or (b) such time as the Conversion Shares have been registered for resale under the Securities Act as contemplated by Section 5 herein, the certificates representing the Conversion Shares will bear a restrictive legend in substantially the following form (and a stop-transfer order may be placed against transfer of the certificates for such Securities): THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES. THE SECURITIES MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER APPLICABLE SECURITIES LAWS, OR UNLESS OFFERED, SOLD OR TRANSFERRED PURSUANT TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THOSE LAWS. 4 4.9 Residency. Holder is a resident of (or, if an entity, has its principal place of business in) the jurisdiction set forth below such Holder's name on the signature page hereto. 5. REGISTRATION. Holder shall have the registration rights as set forth in the Note Purchase Agreement with respect to the Conversion Shares and the warrants issued to Holder on October 26, 2005 in connection with the Bridge Loan. 6. GENERAL RELEASE. 6.1 RELEASE. Upon the Conversion Date, Holder on behalf of itself and on behalf of its affiliates, as well as its respective directors, officers, equityholders, agents and employees, past and present (collectively, the "Releasing Parties") hereby agrees to waive and release all claims relating in any way to Holder's right to collect the Payable Amount (such waiver and release shall not include the Holder's right to receive the Conversion Shares and the related rights of Holder under this Agreement and for any obligations pursuant to expense reimbursement and other provisions of the Bridge Note Purchase Agreement and related documentation which by their terms survive the payment of the Payable Amount) (the "Release Claims"). For the avoidance of doubt, the warrant issued to the Holder by DynTek on October 26, 2005, to purchase 500,000 shares of DynTek common stock (subject to adjustment pursuant to the terms thereof) at an initial exercise price of $0.10 (subject to adjustment pursuant to the terms thereof) shall remain in full force and effect pursuant to the terms thereof and the related provisions of the Bridge Note Purchase Agreement thereto shall expressly survive the conversion in full of the Payable Amount. 6.2 UNKNOWN CLAIMS. It is further understood and agreed that as a condition of this Agreement, all rights under Section 1542 of the Civil Code of the State of California are expressly waived by Holder. Such Section reads as follows: "A general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the release, which if known by him must have materially affected his settlement with the debtor." Notwithstanding Section 1542, and for the purpose of implementing a full and complete release and discharge of the Released Claims, Holder, for itself and on behalf of the applicable Releasing Parties, expressly acknowledges that the foregoing release is intended to include, and does include in its effect, without limitation, all Released Claims which the Releasing Parties do not know or suspect to exist in their favor against DynTek at the time of execution hereof, and that the foregoing release expressly contemplates the extinguishment of all such claims. 7. MISCELLANEOUS PROVISIONS. 7.1 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement of the parties and supersedes all prior agreements and undertakings, both written and oral, between the parties, or any of them, with respect to the subject matter hereof. 7.2 GOVERNING LAW. This Agreement is made under and shall be governed by and construed in accordance with the laws of the State of California. Any action or proceeding brought to enforce this Agreement shall be instituted and maintained in Orange County, California and the parties hereto consent to such jurisdiction. 5 7.3 ASSIGNMENT. Neither this Agreement nor any duties or obligations under this Agreement may be assigned by either party without the prior written consent of the other party. 7.4 ATTORNEYS' FEES. If any action is brought to enforce or interpret the provisions of this Agreement, the prevailing party in such action will be entitled to its reasonable attorneys' fees and costs incurred, in addition to any other relief to which such party may be entitled. 7.5 WAIVER OF BREACH. The waiver of either party of a breach of any provision of this Agreement shall not operate or be construed as a waiver of any subsequent breach of this Agreement. 7.6 SEVERABILITY. To the extent any provision of this Agreement shall be invalid or unenforceable, it shall be considered deleted herefrom and the remainder of such provision and of this Agreement shall be unaffected and shall continue in full force and effect. In furtherance and not in limitation of the foregoing, should the duration or the geographical extent of or business activities covered by any provision of this Agreement be in excess of that which is valid and enforceable under applicable law, then such provision shall be construed to cover only the maximum duration, extent or activities which may validly and enforceably be covered under applicable law. 7.7 AUTHORITY. Each individual signing for each of the parties herein warrants and represents that he is an authorized agent of such party, for whose benefit he is executing this Agreement, and is authorized to execute the same. 7.8 FURTHER ASSURANCES. Each party agrees to execute such other and further instruments and documents as may be necessary or proper in order to complete the transactions contemplated by this Agreement. 7.9 AMENDMENTS. No amendment or modification of this Agreement shall be deemed effective unless made in writing signed by the parties hereto. 7.10 COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. [SIGNATURE PAGE FOLLOWS] 6 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date and first set forth above. DYNTEK, INC. By: C.W. Zubin, Jr. ------------------------------------ Name: C.W. Zublin, Jr. Its: C.E.O. DynTek's address for notices: DynTek, Inc. 19700 Fairchild Road, Suite 230 Irvine, CA 92612 LLOYD I. MILLER, III By: Lloyd I. Miller, III ------------------------------------ Name: Lloyd I. Miller, III Holder's Address for notices: 4550 Gordon Drive Naples, Florida 34102 With a copy to: Paul N. Silverstein, Esq. Andrews Kurth, LLP 450 Lexington Avenue, 15th Floor New York, NY 10017 Facsimile: 212-850-2929 7 EX-99.7 3 y18806exv99w7.txt NOTE PURCHASE AGREEMENT EXECUTION VERSION EXHIBIT 99.7 NOTE PURCHASE AGREEMENT BETWEEN DYNTEK, INC. AND THE PURCHASERS NAMED IN SCHEDULE I DATED AS OF MARCH 8, 2006 INDEX TO SCHEDULES SCHEDULE I Schedule of Purchasers SCHEDULE II Trade Creditors SCHEDULE III Note Holders SCHEDULE IV Disclosure Schedules SCHEDULE V Use of Proceeds INDEX TO EXHIBITS EXHIBIT A Form of Senior Note EXHIBIT B Form of Settlement and Release Agreement EXHIBIT C Form of Conversion and Settlement Agreement EXHIBIT D Form of Warrant EXHIBIT E Form of Security and Pledge Agreement (Senior Notes) EXHIBIT F Form of Junior Note EXHIBIT G Form of Security and Pledge Agreement (Junior Notes) THIS NOTE PURCHASE AGREEMENT (the "Agreement") is dated as of March 8, 2006, between DynTek, Inc., a Delaware corporation (the "Company"), and the purchasers named in the attached Schedule I (each individually a "Purchaser" and collectively the "Purchasers"). WHEREAS, the Company wishes to issue and sell to the Purchasers up to an aggregate of $6,700,000 in principal amount of its senior secured promissory notes; and WHEREAS, the Company wishes to issue and sell to a Purchaser up to an aggregate of $3,000,000 in principal amount of a junior secured promissory note; and WHEREAS, the Purchasers, severally, wish to purchase the notes on the terms and subject to the conditions set forth in this Agreement. NOW, THEREFORE, in consideration of the premises and the mutual covenants contained in this Agreement, the parties agree as follows: ARTICLE I PURCHASE AND SALE OF NOTES AND TERMS OF NOTES SECTION 1.01. THE SENIOR NOTES. The Company has authorized the issuance and sale to the Purchasers, in the respective amounts set forth in the Schedule of Purchasers attached hereto in Schedule I, of the Company's Senior Secured Promissory Notes, due March 1, 2010 (the "Senior Note Maturity Date"), in the original aggregate principal amount of up to $6,700,000. The Senior Notes will be substantially in the form set forth in Exhibit A hereto and are herein referred to individually as a "Senior Note" and collectively as the "Senior Notes," which terms will also include any notes delivered in exchange or replacement therefor. SECTION 1.02. THE JUNIOR NOTE. The Company has authorized the issuance and sale to the Purchaser, set forth in the Schedule of Purchasers attached hereto in Schedule I, of the Company's Junior Secured Convertible Promissory Note (the "Junior Note", and collectively with the Senior Notes referred to as the "Notes," which term will also include any notes delivered in exchange or replacement therefor), due March 1, 2011 (the "Junior Note Maturity Date"), in the original aggregate principal amount of up to $3,000,000. The Junior Note will be substantially in the form set forth in Exhibit F hereto. SECTION 1.03. PURCHASE AND SALE OF NOTES. The Company agrees to issue and sell to the Purchasers, and, subject to and in reliance upon the representations, warranties, terms and conditions of this Agreement, the Purchasers, severally and not jointly, agree to purchase, the Notes set forth opposite their respective names in the Schedule of Purchasers attached as Schedule I for the aggregate purchase price set forth therein. The consideration to be paid for the Notes will consist of $9,700,000 cash. The closing of such purchase and sale (the "Closing") will be held at the office of Paul, Hastings, Janofsky & Walker LLP, 695 Town Center Drive, Costa Mesa, CA 92626, on March 8, 2006 (the "Closing Date") at 10:00 A.M., Pacific Standard Time, or on such other date and at such time as may be mutually agreed upon. At the Closing, the Company will issue and deliver to each Purchaser one Senior Note or one Junior Note, as the case may be, payable to the order of such Purchaser, in the principal amount set forth opposite such Purchaser's name in the Schedule of Purchasers attached as Schedule I against delivery to the Company of a check payable to the order of the Company, in the amount set forth opposite the name of such Purchaser under the heading "Aggregate Purchase Price for Notes" on Schedule I, less the Purchaser's reasonable estimated expenses to be paid by the Company pursuant to Section 7.01, transference of such sum to the account of the Company by wire transfer, or delivery or transference of such sum to the Company by any combination of such methods of payment. SECTION 1.04. PAYMENTS AND ENDORSEMENTS. Payments of principal and interest on the Notes will be made directly by check duly mailed or delivered to the Purchasers at their addresses referred to in the Schedule of Purchasers attached as Schedule I or made to the account of the Purchaser by wire transfer referred to in the Schedule of Purchasers attached as Schedule I or indicated in any notice delivered by a Purchaser to the Company, without any presentment or notation of payment, except that prior to any transfer of any Note, the holder of record will endorse on such Note a record of the date to which interest has been paid and all payments made on account of principal of such Note. SECTION 1.05. INTEREST RATE FOR SENIOR NOTE; PAYMENT OF PRINCIPAL AND INTEREST FOR SENIOR NOTE. The Senior Notes will accrue interest at the rate of 8% per annum if paid in cash or 11% per annum if paid in kind. The Company in its sole discretion may elect to pay in cash or in kind until March 31, 2009, after which interest will be paid in cash. Interest will be due and payable quarterly in arrears on the last day of each fiscal quarter (each, a "Senior Note Interest Payment Date"), with the first interest payment due June 30, 2006. If the Company chooses to make interest payments in kind, the amount of accrued interest to be so paid will be added to the principal amount of the Senior Notes on the applicable Senior Note Interest Payment Date. Principal will be amortized over three years and payable in equal monthly installments on the last day of each month beginning on March 31, 2009. The Senior Notes and all accrued but unpaid interest thereon shall be due and payable in full at the Senior Note Maturity Date unless earlier redeemed pursuant to the terms and conditions set forth in Section 1.06 herein. SECTION 1.06. PREPAYMENT OF SENIOR NOTES. The Senior Notes will be payable by the Company prior to the Senior Note Maturity Date as follows (all prepayments made by the Company to the Senior Note holders under this Agreement shall be made by wire transfer of immediately available funds in the lawful currency of the United States without setoff or withholding of any kind): (A) Voluntary Prepayment by the Company. At any time until the Senior Notes have been repaid in full, the Company may, at its sole option, redeem the entire outstanding principal amount of the Senior Notes (including any and all accrued but unpaid interest on such principal amount) through the date of repayment on such principal amount (such entire outstanding principal amount, plus all such accrued but unpaid interest, hereinafter referred to for purposes of this Section 1.06 as the "Redemption Amount") by paying to the holders of the Senior Notes 105% of the Redemption Amount, with such payments to be apportioned ratably among the Purchasers or their transferees according to the unpaid principal balance and accrued but unpaid interest thereon to which such payments relate. (B) Prepayment on Change of Control. At any time until the Senior Notes have been repaid in full, the Company will redeem the Senior Notes in their entirety upon the occurrence of a Change of Control by paying to the holders of the Senior Notes 105% of the Redemption Amount on the closing date of the Change of Control. Such payments will be apportioned ratably among the Senior Note holders according to the unpaid principal balance and accrued but unpaid interest thereon to which such payments relate. For purposes of this Section 1.06(b), "Change of Control" means the event of (i) a merger, consolidation, recapitalization or share exchange in which the holders of the voting stock of the Company immediately prior to such merger, consolidation, recapitalization or share exchange will not own 50% or more of the voting stock of the continuing or surviving corporation or other entity, or the parent company of such corporation or other entity, immediately after such merger, consolidation, recapitalization or share exchange, (ii) the sale, assignment, conveyance, transfer, lease or other disposition (other than the grant of a security interest) of all or substantially all of the assets of Company to any person or group of related persons, or (iii) any sale or other disposition of the voting stock of the Company representing 50% or more of the total voting power of the Company's outstanding capital stock in a single transaction or a series of related transactions to any person, or group of related persons; provided, however that none of the following events shall be deemed to be a Change of Control for purposes of this Agreement: (A) the Company's issuance of shares of its Common Stock, $0.0001 par value (the "Common Stock") to any of its existing unsecured trade creditors set forth on Schedule II which opt to convert trade debt (as of the date of this Agreement) up to the amount set forth on Schedule II into Common Stock at a conversion rate of $0.02 per share within three business days of the date immediately following the effective date of the Reverse Stock Split (as defined below in Section 1.15(g)), or June 30, 2006, whichever is earlier, pursuant to a Settlement and Release Agreement substantially in the form set forth as Exhibit B; and (B) the Company's issuance of Common Stock within the earlier of (i) three business days of the effective date of the Reverse Stock Split, or (ii) June 30, 2006, pursuant to a conversion and settlement agreement, substantially in the form of Exhibit C hereto (a "Conversion and Settlement Agreement"), with each and all of the holders (all of such holders are set forth on Schedule III) of the Company's: (a) 9% Senior Subordinated Convertible Notes dated as of October 15, 2004 (the "9% Notes"), (b) Amended and Restated 9% Senior Subordinated Convertible Notes dated as of October 26, 2005 (the "Amended 9% Notes"), (c) Secured Promissory Notes dated as of October 26, 2005 (the "Bridge Notes"), and (d) Secured Promissory Notes dated as of September 20, 2005 issued to the former shareholders of Integration Technologies, Inc. (the "Acquisition Notes" and together with the 9% Notes, the Amended 9% Notes and the Bridge Notes, the "Outstanding Notes"). (C) Prepayment on Sale of Assets. At any time until the Senior Notes have been repaid in full, the Company will redeem all or a portion of the Redemption Amount immediately upon the occurrence of a Substantial Asset Sale as follows: Upon the occurrence of a Substantial Asset Sale, (i) 50% of the gross proceeds of such sale (the "Asset Sale Prepayment Amount") will be paid to the Purchasers or subsequent transferees of the Senior Notes in respect of the Redemption Amount; and (ii) a prepayment penalty equal to 2% of the Asset Sale Prepayment Amount will be paid by the Company to the Purchasers or subsequent transferees of the Senior Notes. Such payments will be apportioned ratably among the Senior Note holders according to the unpaid principal balance and accrued but unpaid interest thereon to which such payments relate. For purposes of this Section 1.06(c), a "Substantial Asset Sale" is any voluntary or involuntary sale or series of sales of the Company's assets (including casualty losses or condemnations) which generate(s) (i) gross proceeds of $100,000 or more in the case of a single-asset sale, or (ii) aggregate gross proceeds of $100,000 or more over any 12-month period in the case of a series of asset sales. SECTION 1.07. WARRANTS FOR SENIOR NOTES. At the Closing, the Company will issue to the Purchasers of Senior Notes pro rata, according to each Purchaser's proportion of the aggregate principal amount of the Senior Notes, warrants for the purchase of an aggregate of 19.9% of the Common Stock of the Company, exercisable at $0.001 per share, in the form set forth as Exhibit D. SECTION 1.08. INTEREST RATE FOR JUNIOR NOTE; PAYMENT OF PRINCIPAL AND INTEREST FOR JUNIOR NOTE. The Junior Note will accrue interest at the rate of ten percent (10%) per annum, compounding quarterly. 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 Company's sole option, all interest payments due and payable through 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 Junior Note on the applicable Interest Payment Date, and interest will accrue on the aggregate principal amount. All interest payments due and payable after June 30, 2009 must be paid in cash. The Junior Note shall be due and payable in full at the Junior Note Maturity Date unless earlier converted in accordance with Section 3 of the Junior Note. SECTION 1.09. REDEMPTION OF JUNIOR NOTE. Until March 1, 2010, the Company may not prepay the Junior Note in whole or in part without the prior written consent of the holder thereto, which may be given or withheld in such holder's sole discretion. At anytime from March 1, 2010 until the Junior Note Maturity Date, the Company may prepay this Junior Note in whole or in part at any time without penalty. SECTION 1.10. CONVERSION OF JUNIOR NOTE. All or any part of the principal plus accrued but unpaid interest on the Junior Note may be converted at any time into a number of fully paid and nonassessable shares of Common Stock of the Company, at the sole option of the holder of the Junior Note, pursuant to the terms and conditions of conversion set forth in the Junior Note. SECTION 1.11. PAYMENT ON NON-BUSINESS DAYS. Whenever any payment to be made will be due on a Saturday, Sunday or a public holiday under the laws of the State of California, such payment may be made on the next succeeding business day, and such extension of time will in such case be included in the computation of payment of interest due. SECTION 1.12. REGISTRATION OF NOTES. The Company will maintain at its principal office a register of the Notes and will record therein the names and addresses of the registered holders of the Notes, the address to which notices are to be sent and the address to which payments are to be made as designated by the registered holder if other than the address of the holder, and the particulars of all transfers, exchanges and replacements of Notes. No transfer of a Note will be valid unless made on such register for the registered holder or his executors or administrators or his or their duly appointed attorney, upon surrender therefor for exchange as hereinafter provided, accompanied by an instrument in writing, in form and execution reasonably satisfactory to the Company. Each Note issued hereunder, whether originally or upon transfer, exchange or replacement of a Note or Notes, will be registered on the date of execution thereof by the Company and will be dated the date to which interest has been paid on such Notes or Note. The registered holder of a Note will be that person in whose name the Note has been so registered by the Company. A registered holder will be deemed the owner of a Note for all purposes of this Agreement and, subject to the provisions hereof, will be entitled to the principal and interest evidenced by such Note free from all equities or rights of setoff or counterclaim between the Company and the transferor of such registered holder or any previous registered holder of such Note. SECTION 1.13. TRANSFER AND EXCHANGE OF NOTES. The registered holder of any Note or Notes may, prior to maturity or prepayment thereof, surrender such Note or Notes at the principal office of the Company for transfer or exchange; provided, however, the registered holder of any Note or Notes will not transfer any such Note (a) to any person or entity which is not an "accredited investor" within the meaning of Rule 501 under the Securities Act of 1933, as amended (the "Securities Act"), (b) to any person or entity that could result in the loss of the exemption from registration under the Securities Act applicable to the original sale of the Notes, as determined in the reasonable discretion of the Company pursuant to a written opinion of the Company's counsel, and (c) so long as no Event of Default has occurred, without the consent of the Company, which consent will not be unreasonably withheld. Within a reasonable time after notice to the Company from a registered holder of its intention to make such exchange and without expense (other than transfer taxes, if any) to such registered holder, subject to the Company's consent, if such consent is required by this Section 1.13, the Company will issue in exchange therefor another Note or Notes, in such denominations as requested by the registered holder, for the same aggregate principal amount as the unpaid principal amount of the Note or Notes so surrendered and having the same maturity and rate of interest, containing the same provisions and subject to the same terms and conditions as the Note or Notes so surrendered. Each new Note will be made payable to such person or persons, or registered assigns, as the registered holder of such surrendered Note or Notes may designate, and such transfer or exchange will be made in such a manner that no gain or loss of principal or interest will result therefrom. SECTION 1.14. REPLACEMENT OF NOTES. Upon receipt of evidence satisfactory to the Company of the loss, theft, destruction or mutilation of any Note and, if requested in the case of any such loss, theft or destruction, upon delivery of an indemnity bond or other agreement or security reasonably satisfactory to the Company, or, in the case of any such mutilation, upon surrender and cancellation of such Note, the Company will issue a new Note, of like tenor and amount and dated the date to which interest has been paid, in lieu of such lost, stolen, destroyed or mutilated Note; provided, however, if any Note of which a Purchaser whose name is set forth in the Schedule of Purchasers attached as Schedule I, its nominee, or any of its partners is the registered holder is lost, stolen or destroyed, the affidavit of the President, Treasurer or any Assistant Treasurer or any other authorized representative of the registered holder setting forth the circumstances with respect to such loss, theft or destruction will be accepted as satisfactory evidence thereof, and no indemnification bond or other security will be required as a condition to the execution and delivery by the Company of a new Note in replacement of such lost, stolen or destroyed Note other than the registered holder's written agreement to indemnify the Company. SECTION 1.15. EVENTS OF DEFAULT. If any of the following events ("Events of Default") shall occur and be continuing: (A) The Company will fail to pay any installment of principal of, or interest due on, any of the Notes within five (5) calendar days of the date such installment is due; (B) Any material representation or warranty made by the Company in this Agreement or the Security and Pledge Agreements (as hereinafter defined), or by the Company (or any officers of the Company) in any certificate, instrument or written statement contemplated by or made or delivered pursuant to or in connection with this Agreement or the Security and Pledge Agreements will prove to have been incorrect when made in any material respect; (C) The Company will fail to perform or observe any other material term, covenant or agreement contained in this Agreement, the Security and Pledge Agreements, the Notes or any agreement executed and delivered by the Company in connection with this Agreement or the Security and Pledge Agreements on its part to be performed or observed and any such failure remains unremedied for ten (10) business days after written notice thereof will have been given to the Company by any registered holder of the Notes; (D) The Company will fail to pay any indebtedness in excess of an aggregate of $100,000 for borrowed money (other than as evidenced by the Notes) owing by the Company, or any interest or premium thereon, when due (or, if permitted by the terms of the relevant document, within any applicable grace period), whether such indebtedness will become due by scheduled maturity, by required prepayment, by acceleration, by demand or otherwise, or will fail to perform any term, covenant or agreement on its part to be performed under any agreement or instrument evidencing or securing or relating to any indebtedness in excess of an aggregate of $100,000 owing by the Company when required to be performed (or, if permitted by the terms of the relevant document, within any applicable grace period), if the effect of such failure to pay or perform is to accelerate, or to permit the holder or holders of such indebtedness, or the trustee or trustees under any such agreement or instrument to accelerate, the maturity of such indebtedness, unless such failure to pay or perform will be waived by the holder or holders of such indebtedness or such trustee or trustees; (E) The Company will be involved in financial difficulties as evidenced (i) by its admitting in writing its inability to pay its debts generally as they become due; (ii) by its commencement of a voluntary case under Title 11 of the United States Code as from time to time in effect, or by its authorizing, by appropriate proceedings of its Board of Directors or other governing body, the commencement of such a voluntary case which is not dismissed within sixty (60) days; (iii) by its filing an answer or other pleading admitting or failing to deny the material allegations of a petition filed against it commencing an involuntary case under said Title 11, or seeking, consenting to or acquiescing in the relief therein provided, or by its failing to controvert timely the material allegations of any such petition; (iv) by the entry of an order for relief in any involuntary case commenced under said Title 11; (v) by its seeking relief as a debtor under any applicable law, other than said Title 11, of any jurisdiction relating to the liquidation or reorganization of debtors or to the modification or alteration of the rights of creditors, or by its consenting to or acquiescing in such relief; (vi) by the entry of an order by a court of competent jurisdiction (a) finding it to be bankrupt or insolvent, (b) ordering or approving its liquidation, reorganization or any modification or alteration of the rights of its creditors, or (c) assuming custody of, or appointing a receiver or other custodian for, all or a substantial part of its property; or (vii) by its making an assignment for the benefit of, or entering into a composition with, its creditors, or appointing or consenting to the appointment of a receiver or other custodian for all or a substantial part of its property; (F) The Company shall fail to perform any of its obligations under Section 5.21, Section 5.22, Section 5.23 or Article VI of this Agreement; (G) The Company shall fail to effect a one-for-ten reverse stock split of its Common Stock (the "Reverse Stock Split") within 90 days following the Closing Date; (H) The Company shall fail to reduce Chief Executive Officer Casper Zublin's salary by $100,000 ratably over the 48 months within 15 days following the Closing Date, with such reduction to be set forth in a written agreement between the Company and Mr. Zublin in form and substance reasonably satisfactory to the Purchasers; (I) The Company shall fail to complete the conversion of all of the obligations outstanding under the Outstanding Notes into Common Stock of the Company at a conversion rate of $0.02 per share on or before the earlier of (a) three business days following the effective date of the Reverse Stock Split, or (b) June 30, 2006; (J) Any judgment, writ, warrant of attachment or execution or similar process will be issued or levied against a substantial part of the property of the Company and such judgment, writ, or similar process will not be released, vacated or fully bonded within sixty (60) days after its issue or levy; or (K) The Company shall fail to effect, as set forth on Schedule C of the respective Security and Pledge Agreements, the termination within (i) ten (10) calendar days of the Closing Date of each of those certain financing statements on file by Laurus Master Fund, Ltd., C.W. Zublin, Jr. Trust, Glen Ackerman, and Lisa Ackerman in any jurisdiction purporting to evidence a security interest in any assets of the Company or its affiliates and (ii) thirty (30) calendar days of the Closing Date of any and all other financing statements on file in any jurisdiction purporting to evidence a security interest in any assets of the Company or its affiliates, other than the financing statements evidencing the security interests of the Purchasers pursuant to the Security and Pledge Agreements. then, and in any such event, any holder of any Note may, by notice to the Company, declare the entire unpaid principal amount of the Note, all interest accrued and unpaid thereon and all other amounts payable under this Agreement to be forthwith due and payable, whereupon the Note, all such accrued interest and all such amounts will become and be forthwith due and payable (unless there will have occurred an Event of Default under subsection 1.15(e) in which case all such amounts will automatically become due and payable), without presentment, demand, protest or further notice of any kind, all of which are hereby expressly waived by the Company. ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE COMPANY The Company represents and warrants to the Purchasers that, as of the Closing and except as set forth in the Disclosure Schedule attached as Schedule IV (which Disclosure Schedule makes explicit reference to the particular representation or warranty as to which exception is taken, which in each case will constitute the sole representation and warranty as to which such exception will apply): SECTION 2.01. ORGANIZATION, QUALIFICATIONS AND CORPORATE POWER. (A) The Company is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware and is duly licensed or qualified to transact business as a foreign corporation and is in good standing in each jurisdiction in which the nature of the business transacted by it or the character of the properties owned or leased by it requires such licensing or qualification, except where the failure to be so licensed or qualified does not have a material adverse effect on the Company's business or financial condition. The Company has the corporate power and authority to own and hold its properties and to carry on its business as now conducted and as proposed to be conducted, to execute, deliver and perform this Agreement and the Security and Pledge Agreements, and to issue, sell and deliver the Notes and the Warrants. (B) The Company has no subsidiaries, other than as set forth on Schedule IV. The Company does not (i) own of record or beneficially, directly or indirectly, (A) any shares of capital stock or securities convertible into capital stock of any other corporation or (B) any participating interest in any partnership, joint venture or other non-corporate business enterprise or (ii) control, directly or indirectly, any other entity, other than as set forth on Schedule IV. SECTION 2.02. AUTHORIZATION OF AGREEMENTS, ETC. (A) The execution and delivery by the Company of this Agreement and the Security and Pledge Agreements, the performance by the Company of its obligations hereunder and thereunder, the issuance, sale and delivery of the Notes and the Warrants have been duly authorized by all requisite corporate action and will not (i) violate any provision of law, any order of any court or other agency of government, (ii) violate the Certificate of Incorporation or the By-laws of the Company, each as amended, (iii) violate any provision of any indenture, agreement or other instrument to which the Company or any of its properties or assets is bound, (iv) conflict with, result in a breach of or constitute (with due notice or lapse of time or both) a default under any such indenture, agreement or other instrument, or (v) result in the creation or imposition of any lien, charge, restriction, claim or encumbrance of any nature whatsoever upon any of the properties or assets of the Company, except in the case of clauses (i), (iii), (iv) and (v), as would not have a material adverse effect on the Company. (B) The Notes and the Warrants have been duly authorized and, when issued in accordance with this Agreement, will be free and clear of all liens, charges, restrictions, claims and encumbrances imposed by or through the Company. Except as set forth on Schedule IV, the issuance, sale and delivery of the Notes and the Warrants are not subject to any preemptive right of shareholders of the Company or to any right of first refusal or other right in favor of any person. SECTION 2.03. VALIDITY. Each of this Agreement, the Security and Pledge Agreements and the Notes and the Warrants have been duly executed and delivered by the Company and constitute the legal, valid and binding obligations of the Company, enforceable in accordance with their terms. SECTION 2.04. AUTHORIZED CAPITAL STOCK. The authorized capital stock of the Company consists of 450,000,000 shares of Common Stock, $.0001 par value per share, and 10,000,000 shares of preferred stock, $0.0001 par value per share ("Preferred Stock"). As of the date of this Agreement, 81,164,636 shares of Common Stock and no shares of Preferred Stock were validly issued and outstanding, fully paid and nonassessable. Except as disclosed in SEC Reports (as defined below), there are no options, warrants and convertible securities of the Company, and any other rights to acquire securities of the Company. All outstanding securities of the Company are validly issued, fully paid and nonassessable. No stockholder of the Company is entitled to any preemptive rights with respect to the purchase of or sale of any securities of the Company. SECTION 2.05. SEC FILINGS, OTHER FILINGS AND REGULATORY COMPLIANCE. Since January 1, 2002, the Company has timely made all filings required to be made by it under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). The Company has delivered or made accessible to the Purchasers true, accurate and complete copies of (a) the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 2005, (b) the Company's Quarterly Reports on Form 10-Q for the fiscal quarters ended September 30, 2005 and December 31, 2005, (c) the Company's definitive proxy statement dated November 17, 2005 relating to its Annual Meeting of Stockholders, and (d) all the Company's Current Reports on Form 8-K filed since July 1, 2005 (collectively, the "SEC Reports"). The SEC Reports when filed, complied in all material respects with all applicable requirements of the Exchange Act and the Sarbanes-Oxley Act of 2002, if and to the extent applicable, and the rules and regulations of the Securities and Exchange Commission (the "SEC") thereunder applicable to the SEC Reports. None of the SEC Reports, at the time of filing, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein not misleading in light of the circumstances in which they were made. The Company has taken, or will have taken prior to the Closing, all necessary actions to maintain eligibility of its Common Stock for trading on OTC Bulletin Board under all currently effective inclusion requirements. Each balance sheet included in the SEC Reports (including any related notes and schedules) fairly presents in all material respects the consolidated financial position of the Company as of its date, and each of the other financial statements included in the SEC Reports (including any related notes and schedules) fairly presents in all material respect the consolidated results of operations of the Company for the periods or as of the dates therein set forth in accordance with generally accepted accounting principles ("GAAP") consistently applied during the periods indicated or as a result of year end adjustments and except as may be indicated in the notes thereto or, in the case of interim consolidated financial statements, where information and footnotes contained in such financial statements are not required to be in compliance with GAAP). Such financial statements included in the SEC Reports were, at the time they were filed, consistent with the books and records of the Company in all material respects and complied as to form in all material respects with then applicable accounting requirements and with the rules and regulations of the SEC with respect thereto. The Company keeps accounting records in which all material assets and liabilities, and all material transactions, including off-balance sheet transactions, of the Company are recorded in accordance with GAAP. SECTION 2.06. GOVERNMENTAL APPROVALS. Subject to the accuracy of the representations and warranties of the Purchasers set forth in Article III, no registration or filing with, or consent or approval of or other action by, any federal, state or other governmental agency or instrumentality is or will be necessary for the valid execution, delivery and performance by the Company of this Agreement, the issuance, sale and delivery of the Notes and the Warrants, other than filings pursuant to state securities laws (all of which filings have been made by the Company, other than those which are required or permitted to be made after the Closing and which will be duly made on a timely basis) in connection with the sale of the Notes and the Warrants. SECTION 2.07. OFFERING OF THE NOTES. Except for the filing of a registration statement on Form S-1 with the SEC on November 25, 2005 in connection with a proposed rights offering, which registration statement was withdrawn as of February 3, 2006, neither the Company, nor any of its affiliates, nor any person acting on its or their behalf, has directly or indirectly made any offers or sales in any security or solicited any offers to buy any security under circumstances that would require registration under the Securities Act of the issuance of the Notes and the Warrants to the Purchasers. Based upon the policy position of the SEC, as described in the SEC staff's No-Action Letters dated June 26, 1990 to Black Box Incorporated and February 28, 1992 to Squadron, Ellenoff, Pleasant & Lehrer, and the Purchasers' representations in Article III, the issuance of the Notes and the Warrants to the Purchasers will not be integrated with any other issuance of the Company's securities (past, current or future) for purposes of the Securities Act. SECTION 2.08. MATERIAL CHANGES. Except as set forth in Schedule IV attached hereto, since June 30, 2005, there has not been (i) any direct or indirect redemption, purchase or other acquisition by the Company of any shares of Common Stock; (ii) any declaration, setting aside or payment of any dividend or other distribution by the Company with respect to the Common Stock; (iii) any material liabilities (absolute, accrued or contingent) incurred or assumed by the Company, other than current liabilities incurred in the ordinary course of business, liabilities under contracts entered into in the ordinary course of business, purchase price payment obligations incurred in connection with the acquisition of Red Rock Communications Solutions, Inc. and Integration Technologies, Inc. and liabilities not required to be reflected on the Company's financial statements pursuant to GAAP; or (iv) any mortgage, pledge, security interest, encumbrance, lien or charge of any kind (including any conditional sale or other title retention agreement, any lease in the nature thereof, and the filing of or agreement to give any financing statement under the Uniform Commercial Code or comparable law of any jurisdiction in connection with such mortgage, pledge, security interest, encumbrance, lien or charge) (each, a "Lien") or adverse claim on any of the Company's properties or assets, except for Liens for taxes not yet due and payable, interest of lessors under operating capital leases, purchase money liens, amounts deposited for security for surety bonds, Liens incurred in connection with the Company's credit facility with New England Technology Finance, LLC, Liens incurred in the ordinary course of business or Liens that are not material in amount to the Company and its subsidiaries. SECTION 2.09. LITIGATION. Except as disclosed in the Schedule IV attached hereto, there is no action, suit, proceeding or investigation pending or, to the Company's knowledge, currently threatened against the Company or any of its subsidiaries that questions the validity of this Agreement or the right of the Company to enter into it, or to consummate the transactions contemplated hereby, or that could reasonably be expected to result, either individually or in the aggregate, in a material adverse effect on the Company. The foregoing includes, without limitation, actions pending or, to the Company's knowledge, threatened involving the prior employment of any of the Company's employees or their use in connection with the Company's business of any information or techniques allegedly proprietary to any of their former employers. Neither the Company nor any of its subsidiaries is a party to or subject to the provisions of any order, writ, injunction, judgment or decree of any court or governmental authority. Except as disclosed in Schedule IV attached hereto, there is no action, suit, proceeding or investigation by the Company or any of its Subsidiaries currently pending or which the Company or any of its subsidiaries currently intends to initiate, which could reasonably be expected to have a material adverse effect. SECTION 2.10. OWNERSHIP OF PROPERTY; LIENS. The Company and each of its subsidiaries has good and marketable title in fee simple, or a valid leasehold interest in, all of its real property; and good title to, or a valid leasehold interest in, all of its other property, and none such property is subject to any Lien except as set forth on Schedule IV attached hereto. SECTION 2.11. INTELLECTUAL PROPERTY RIGHTS. To the best of its knowledge, the Company owns or possesses the licenses or rights to use all patents, patent applications, patent rights, inventions, know-how, trade secrets, trademarks, trademark applications, service marks, service names, trade names and copyrights necessary to enable it to conduct its business as now operated (the "Intellectual Property"). Except as set forth in Schedule IV attached hereto, there are no material outstanding options, licenses or agreements relating to the Intellectual Property, nor is the Company bound by or a party to any material options, licenses or agreements relating to the patents, patent applications, patent rights, inventions, know-how, trade secrets, trademarks, trademark applications, service marks, service names, trade names or copyrights of any other person or entity. Except as set forth in Schedule IV attached hereto, there is no claim or action or proceeding pending or, to the Company's knowledge, threatened that challenges the right of the Company with respect to any Intellectual Property. Except as set forth in Schedule IV attached hereto, to the knowledge of the Company, the Company's Intellectual Property does not infringe any intellectual property rights of any other person which, if the subject of an unfavorable decision, ruling or finding would have a material adverse effect. SECTION 2.12. INSURANCE. The Company is insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as management of the Company believes to be prudent and customary in the businesses in which the Company is engaged. SECTION 2.13. BROKERS. The Company has no contract, arrangement or understanding with any broker, finder or similar agent with respect to the transactions contemplated by this Agreement. SECTION 2.14. NON-OPERATIONAL SUBSIDIARIES. Neither BugSolver.Com, Inc., TekInsight e-Government Services, Inc., nor TekInsight Research, Inc. operates any business, nor does any such entity own any material assets. SECTION 2.15. FEDERAL RESERVE REGULATIONS. The Company is not engaged in the business of extending credit for the purpose of purchasing or carrying margin securities (within the meaning of Regulation G of the Board of Governors of the Federal Reserve System), and no part of the proceeds of the Notes will be used to purchase or carry any margin security or to extend credit to others for the purpose of purchasing or carrying any margin security or in any other manner which would involve a violation of any of the regulations of the Board of Governors of the Federal Reserve System. SECTION 2.16. OFFICE HEADQUARTERS. The sole lease agreement now currently in full force and effect for the Company's principal place of business is that certain Office Lease Agreement, made and entered into as of the 21st day of July, 2003, by and between CA-Fairchild Corporate Center Limited Partnership, a Delaware limited partnership, as landlord, and Integration Technologies, Inc., a California corporation, tenant (as amended, supplemented, or otherwise modified from time to time) (the "Office Lease"). SECTION 2.17. REPRESENTATIONS COMPLETE. The representations and warranties made by the Company in this Agreement, the statements made in any certificates furnished by the Company pursuant to this Agreement, and the statements made by the Company in any documents mailed, delivered or furnished to the Purchasers in connection with this Agreement, taken as a whole, do not contain and will not contain, as of their respective dates and as of the Closing Date, any misstatements of material fact or omit to state any material fact necessary in order to make the statements contained herein or therein, in the light of the circumstances under which they were made, not misleading. ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS Each Purchaser severally represents and warrants (except, with respect to the first sentence of (f) below, as to which Lloyd I. Miller, III and Trust A-4 - - Lloyd I. Miller, make no representation or warranty) to the Company that: (A) it is a "large institutional accredited investor" as such term is used in the SEC staff's No-Action Letter dated February 28, 1992 to Squadron, Ellenoff, Pleasant & Lehrer, or, if a Purchaser is not an institution, it beneficially owns and invests on a discretionary basis at least $100,000,000 in securities of issuers that are not affiliated with such Purchaser, and was not organized for the specific purpose of acquiring the Notes; (B) it has sufficient knowledge and experience in investing in companies similar to the Company in terms of the Company's stage of development so as to be able to evaluate the risks and merits of its investment in the Company and it is able financially to bear the risks thereof; (C) it has had an opportunity to discuss the Company's business, management and financial affairs with the Company's management; (D) the Notes being purchased by it are being acquired for its own account for the purpose of investment and not with a view to or for sale in connection with any distribution thereof; (E) it understands that (i) the Notes have not been registered under the Securities Act, by reason of their issuance in a transaction exempt from the registration requirements of the Securities Act pursuant to Section 4(2) thereof or Rule 505 or 506 promulgated under the Securities Act, (ii) the Notes must be held indefinitely unless a subsequent disposition thereof is registered under the Securities Act or is exempt from such registration, (iii) the Notes will bear a legend to such effect and (iv) the Company will make a notation on its transfer books to such effect; (F) in the case of SACC Partners, L.P., all limited partnership action on the part of such Purchaser and its partners necessary for the performance of such Purchaser's obligations under this Agreement and the Security and Pledge Agreements, and the transactions contemplated hereby and thereby, will be taken prior to the Closing. This Agreement and the Security and Pledge AgreementS are valid, binding and enforceable obligations of Purchaser, subject to applicable bankruptcy, insolvency, reorganization or similar laws relating to or affecting the enforcement of creditor's rights and to the availability of the remedy of specific performance. The Purchaser has all requisite legal and limited partnership power to execute and deliver this Agreement and the Security and Pledge Agreements; (G) it understands that (i) the Notes are being offered and sold to Purchaser in reliance upon specific exemptions from the registration requirements of United States federal and state securities laws, and (ii) that the Company is relying upon the truth and accuracy of, and Purchaser's compliance with, the representations, warranties, agreements, acknowledgments and understandings of Purchaser set forth herein in order to determine the availability of such exemptions and the eligibility of Purchaser to acquire the Notes; (H) The Company or its counsel have made available all materials relating to the business, finances and operations of the Company and materials relating to the offer and sale of the Notes which have been specifically requested by such Purchaser. Each Purchaser has been afforded the opportunity to ask questions of the Company, was permitted to meet with the Company's officers and has received what such Purchaser believes to be complete and satisfactory answers to any such inquiries. Neither such inquiries nor any other due diligence investigation conducted by the Purchasers or any of their respective representations will modify, amend or affect such Purchaser's right to rely on the Company's representations and warranties contained herein. Each Purchaser understands that such Purchaser's investment in the Securities involves a high degree of risk, including without limitation the risks and uncertainties disclosed in the SEC Documents. Each Purchaser acknowledges it has reviewed the disclosures presented under the caption "Risk Factors" in the Company's Form 10-Qs and Form 10-Ks; (I) it understands that no United States federal or state agency or any other government or governmental agency has passed upon or made any recommendation or endorsement of the Notes; and (J) it is a resident of the jurisdiction set forth under Purchaser's name on Schedule I hereto. ARTICLE IV CONDITIONS TO THE OBLIGATIONS OF THE PURCHASERS The obligation of each Purchaser to purchase and pay for the Notes being purchased by it on the Closing Date is, at its option, subject to the satisfaction, on or before the Closing Date of the following conditions: (A) SECURITY AND PLEDGE AGREEMENTS. A Security and Pledge Agreement by and among the Company, DynTek Services, Inc., and the holders of the Senior Notes, in the form attached as Exhibit E (the "Senior Security and Pledge Agreement"), and all related financing statements and a Security and Pledge Agreement by and among the Company, DynTek Services, Inc. and the holders of the Junior Note, in the Form attached as Exhibit G (the "Junior Security and Pledge Agreement", and collectively with the Senior Security and Pledge Agreement, the "Security and Pledge Agreements") and other similar instruments and documents, will have been executed and delivered to the Purchasers by a duly authorized officer of the Company and a duly authorized officer of each of the subsidiaries of the Company party thereto. (B) LEGAL OPINION. The Purchasers will have received an opinion of the Company's counsel, dated the Closing Date, with respect to legal matters customary for transactions of this type, in a form reasonably acceptable to the Purchasers. (C) REPRESENTATIONS AND WARRANTIES TO BE TRUE AND CORRECT. The representations and warranties contained in Article II will be true, complete and correct on and as of the Closing Date with the same effect as though such representations and warranties had been made on and as of such date (except to the extent that the representation or warranty speaks to a specific date), and the President and Chief Financial Officer of the Company will have certified to such effect to the Purchasers in writing. (D) PERFORMANCE. The Company will have performed and complied in all material respects with all covenants and agreements contained herein required to be performed or complied with by it prior to or at the Closing Date and the President and Chief Financial Officer of the Company will have certified to the Purchasers in writing to such effect and to the further effect that all of the conditions set forth in this Article IV have been satisfied. (E) ALL PROCEEDINGS TO BE SATISFACTORY. All corporate and other proceedings to be taken by the Company in connection with the transactions contemplated hereby and all documents incident thereto will be satisfactory in form and substance to the Purchasers and their counsel, and the Purchasers and their counsel will have received all such counterpart originals or certified or other copies of such documents as they reasonably may request. (F) SUPPORTING DOCUMENTS. The Purchasers and their counsel will have received copies of the following documents: (i) (A) the Certificate of Incorporation of the Company, as amended, certified as of a recent date by the Secretary of State of the State of Delaware, and (B) a certificate of said Secretary dated as of a recent date as to the due incorporation and good standing of the Company, the payment of all excise taxes by the Company and listing all documents of the Company on file with said Secretary; (ii) a certificate of the Secretary or an Assistant Secretary of the Company dated the Closing and certifying: (A) that attached thereto is a true and complete copy of the Bylaws of the Company as in effect on the date of such certification; (B) that attached thereto is a true and complete copy of all resolutions adopted by the Board of Directors of the Company authorizing the execution, delivery and performance of this Agreement and the Security and Pledge Agreements, the issuance, sale and delivery of the Notes and the Warrants, and that all such resolutions are in full force and effect and are all the resolutions adopted in connection with the transactions contemplated by this Agreement; (C) that the Certificate of Incorporation of the Company has not been amended since the date of the last amendment referred to in the certificate delivered pursuant to clause (i)(B) above; and (D) to the incumbency and specimen signature of each officer of the Company executing any of this Agreement, the Security and Pledge Agreements, the Notes, the Warrants and any certificate or instrument furnished pursuant hereto, and a certification by another officer of the Company as to the incumbency and signature of the officer signing the certificate referred to in this clause (ii); and (iii) such additional supporting documents and other information with respect to the operations and affairs of the Company as the Purchasers or their counsel reasonably may request. All such documents will be satisfactory in form and substance to the Purchasers and their counsel. (G) PREEMPTIVE AND FIRST REFUSAL RIGHTS. All stockholders of the Company having any preemptive or first refusal rights with respect to the issuance of the Notes will have irrevocably waived the same in writing or all such rights will have expired. (H) FEES OF PURCHASERS' COUNSEL. The Company will have paid in accordance with Section 7.01 the fees and disbursements of each Purchaser's counsel invoiced at the Closing; provided, however, that the Purchasers may deduct such amounts from the consideration to be delivered to the Company for the purchase of the Notes pursuant to Section 1.03. (I) TERMINATION BY EITHER PURCHASER. Neither Purchaser will be obligated to complete the purchase of the Notes if the other Purchaser elects not to complete the transaction. (J) CONVERSION OF EXISTING DEBT. On or before the Closing Date, the Company shall have entered into a binding, written Conversion and Settlement Agreement, substantially in the form of Exhibit C with each and every holder of the 9% Notes, the Amended 9% Notes, the Bridge Notes and the Acquisition Notes, respectively. (K) BOARD OF DIRECTORS. Effective as of the Closing Date, Robert Webber and Marshall Toplansky shall have resigned from the Company's Board of Directors, and Alan Howe shall have been appointed to the Company's Board of Directors. (L) RENEGOTIATION OF TRADE DEBT. At least $575,000 in face amount of the Company's existing unsecured trade debt set forth on Schedule II shall have been renegotiated pursuant to the terms of a Settlement and Release Agreement substantially in the form of Exhibit B, and such Settlement and Release Agreements shall have been duly entered into by the Company with those certain trade creditors pursuant to binding, written agreements. (M) EQUITY INVESTMENT. A private placement of the Company's Common Stock of at least $1,000,000 at a price per share of $0.02 by Network 1 Financial Services, Inc. (the "Private Placement") shall be subject to a binding, written agreement with the Company which shall close before the closing of this Agreement. (N) WARRANT. The Company shall have issued to the Purchasers of Senior Notes pro rata, according to each such Purchaser's proportion of the aggregate principal amount of the Senior Notes, warrants for the purchase of an aggregate of 19.9% of the Common Stock of the Company, exercisable at $0.001 per share, in the form set forth as Exhibit D. ARTICLE V COVENANTS OF THE COMPANY The Company agrees that, so long as any Notes are outstanding, except to the extent compliance in any case or cases is waived in writing by the holders of the entire aggregate unpaid principal amount of the Notes then outstanding: SECTION 5.01. FINANCIAL STATEMENTS, REPORTS, ETC. The Company will furnish to each Purchaser: (A) within ninety (90) days after the end of each fiscal year of the Company a consolidated balance sheet of the Company and its subsidiaries, if any, as of the end of such fiscal year and the related consolidated statements of income for the fiscal year then ended, prepared in accordance with GAAP and certified by a firm of independent public accountants of recognized national standing selected by the Board of Directors of the Company; (B) within forty five (45) days after the end of each fiscal quarter in each fiscal year a consolidated balance sheet of the Company and its subsidiaries, if any, and the related consolidated statements of income unaudited but prepared in accordance with generally accepted accounting principles and certified by the Chief Financial Officer of the Company, such consolidated balance sheet to be as of the end of such fiscal quarter and such consolidated statements of income to be for such fiscal quarter and for the period from the beginning of the fiscal year to the end of such fiscal quarter; (C) promptly after the commencement thereof, notice of all actions, suits, claims, proceedings, investigations and inquiries of the type described in Section 2.09 of this Agreement that could materially adversely affect the Company or any of its subsidiaries, if any; (D) promptly upon sending, making available or filing the same, all press releases, reports and financial statements that the Company sends or makes available to its stockholders or directors or files with the SEC; and (E) promptly, from time to time, such other information regarding the business, prospects, financial condition, operations, property or affairs of the Company and its subsidiaries as such Purchaser reasonably may request. Notwithstanding this Section 5.01, so long as the Company is required to make filings pursuant to the Exchange Act and makes such filings in a timely manner, the Company will be deemed to have furnished to the Purchasers the financial statements and other reports required by this Section 5.01. SECTION 5.02. CORPORATE EXISTENCE; MAINTENANCE OF BUSINESS. The Company will, and will cause each of its subsidiaries to, preserve and maintain its existence. The Company will, and will cause each of its subsidiaries to, preserve and keep in force and effect all licenses, permits, franchises, approvals, patents, trademarks, trade names, trade styles, copyrights, and other proprietary rights necessary to the conduct of its business where the failure to do so could reasonably be expected to have a material adverse effect. SECTION 5.03. PROPERTIES, INSURANCE. The Company will maintain as to its properties and business, with financially sound and reputable insurers, insurance against such casualties and contingencies and of such types and in such amounts as is customary for companies similarly situated, which insurance will be deemed by the Company to be sufficient. SECTION 5.04. USE OF PROCEEDS. The Company will use the proceeds from the sale of the Senior Notes, less the amounts withheld pursuant to Section 7.01, solely to repay all outstanding obligations of the Company to the Laurus Master Fund Ltd,. as set forth on Schedule V. The Company will use the proceeds from the sale of the Junior Note, less the amounts withheld pursuant to Section 7.01, solely to repay any remaining outstanding obligations to the Laurus Master Fund, Ltd. after the proceeds of the Senior Notes are depleted, with any remaining proceeds from the Junior Notes to be used solely for the purposes set forth on Schedule V. SECTION 5.05. COMPLIANCE WITH LAWS. The Company will comply with all applicable laws, rules, regulations and orders, noncompliance with which could materially adversely affect its business or condition, financial or otherwise. SECTION 5.06. KEEPING OF RECORDS AND BOOKS OF ACCOUNT. The Company will keep adequate records and books of account, in which complete entries will be made in accordance with generally accepted accounting principles consistently applied, reflecting all financial transactions of the Company, and in which, for each fiscal year, all proper reserves for depreciation, depletion, obsolescence, amortization, taxes, bad debts and other purposes in connection with its business will be made. SECTION 5.07. DIVIDENDS AND CERTAIN OTHER RESTRICTED PAYMENTS. The Company will not, nor will it permit any of its subsidiaries to, (a) declare or pay any dividends on or make any other distributions in respect of any class or series of its capital stock or other equity interests or (b) directly or indirectly purchase, redeem, or otherwise acquire or retire any of its capital stock or other equity interests or any warrants, options, or similar instruments to acquire the same. SECTION 5.08. MATERIAL CONTRACTS. The Company will not, nor will it permit any of its subsidiaries to, enter into any contract, agreement or business arrangement which requires annual expenditures of $2,500,000 or more. SECTION 5.09. CAPITAL EXPENDITURES. The Company will not, nor will it permit any of its subsidiaries to, incur any Capital Expenditures other than in the ordinary course consistent with past practice. For purposes of this Agreement, "Capital Expenditures" means, with respect to any person or entity for any period, the aggregate amount of all expenditures (whether paid in cash or accrued as a liability) by such person or entity during that period for the acquisition or leasing (pursuant to a capital lease) of fixed or capital assets or additions to property, plant, or equipment (including replacements, capitalized repairs, and improvements) which should be capitalized on the balance sheet of such person or entity in accordance with GAAP. SECTION 5.10. MERGERS, CONSOLIDATIONS AND ASSET SALES. The Company will not, nor will it permit any of its subsidiaries to, be a party to any merger or consolidation, or sell, transfer, lease or otherwise dispose of all or any substantial part of its assets; provided, however, that the Company shall have the sole discretion to discontinue its or any of its subsidiaries' Business, Process Outsourcing, or BPO, services segment at any time. The Company will not, nor will it permit any of its subsidiaries to sell, transfer, lease or otherwise make any Substantial Asset Sale (as such term is defined in Section 1.06) for consideration other than cash while the Notes or any part thereof remain outstanding. SECTION 5.11. ACQUISITIONS. The Company will not, nor will it permit any of its subsidiaries to, directly or indirectly, acquire all or any substantial part of the assets or business of any other entity or division thereof. SECTION 5.12. PREPAYMENT OF INDEBTEDNESS. The Company will not, nor will it permit any of its subsidiaries, to prepay any indebtedness for borrowed money; provided, however, that this Section 5.12 will not prohibit the Company from redeeming the Notes pursuant to the terms of this Agreement. SECTION 5.13. ISSUANCE OF SHARES. The Company will not, nor will it permit any of its subsidiaries to issue, assign, sell or transfer any shares of capital stock or other equity interests of the Company or such subsidiary; provided, however, that the foregoing will not operate to prevent (a) Liens on the capital stock or other equity interests of subsidiaries of the Company pursuant to the amended and restated Security and Pledge Agreements; (b) the issuance, sale, and transfer to any person of any shares of Common Stock of the Company pursuant to (i) the Private Placement or warrants issued in connection therewith or the issuance by the Company of shares of Common Stock upon the exercise of such warrants, (ii) execution and consummation of the terms of the Conversion and Settlement Agreements, or (iii) the Settlement and Release Agreements; (c) the issuance of the Junior Note to the Purchaser set forth on Schedule I hereto, or the issuance of Common Stock upon conversion thereof; (d) the issuance by the Company to the Purchasers of the warrants in the form set forth in Exhibit D hereto, or the issuance by the Company of shares of Common Stock upon the exercise of such warrants; (e) the issuance of options or rights to purchase Common Stock under the Company's equity incentive plans, as amended, in effect as of the date hereof; or (f) the issuance of shares upon the exercise or conversion of securities exercisable or convertible into shares of the Company's Common Stock that are outstanding as of the date hereof or otherwise permitted to be issued under this Section 5.13. SECTION 5.14. EXECUTIVE AND OFFICER COMPENSATION. The Company will not, nor will it permit any of its subsidiaries to, grant any increase in the compensation of officers or executive employees (excluding any such increase required under a currently effective employment agreement by and between such officer or executive employee and the Company). SECTION 5.15. CHANGE IN THE NATURE OF BUSINESS. The Company will not, nor will it permit any of its subsidiaries to, engage in any business or activity other than the general nature of the business engaged in by it as of the Closing Date or discontinue its engagement in any business or activity engaged in by it as of the Closing Date; provided, however, that the Company shall have the sole discretion to discontinue its or any of its subsidiaries' BPO services segment at any time. SECTION 5.16. RENEGOTIATION OF TRADE DEBT. The Company will continue to use its reasonable best efforts to renegotiate the entire amount of its trade debt set forth on Schedule II. SECTION 5.17. REVERSE STOCK SPLIT. The Company will use its reasonable best efforts to effect the Reverse Stock Split within 90 days following the Closing Date. SECTION 5.18. VOTING RIGHTS FOR WARRANTS AND JUNIOR NOTE. Unless enforcement of this covenant is waived in writing by written notice to the Company given by all of the Senior Note holders not later than thirty (30) calendar days prior to the record date of the Company's next Annual Meeting of Stockholders, the Company, at its next Annual Meeting of Stockholders will use reasonable best efforts to obtain stockholder approval of an amendment to the Company's Second Amended and Restated Certificate of Incorporation to confer upon the holder of (i) the Warrants the power to vote, in respect to the corporate affairs and management of the Company, that number of shares of Common Stock into which such Purchaser's Warrant may then be exercised in accordance with Section 221 of the General Corporation Law of the State of Delaware and (ii) the Junior Note the power to vote, in respect to the corporate affairs and management of the Company, that number of shares of Common Stock into which such Junior Note may then be converted in accordance with Section 221 of the General Corporation Law of the State of Delaware SECTION 5.19. COMPLIANCE WITH SECURITY AND PLEDGE AGREEMENTS. The Company will comply at all times with all of the terms and conditions of the Security and Pledge Agreements. SECTION 5.20. TERMINATION OF FINANCING STATEMENTS. Either within ten (10) calendar days after the Closing Date or thirty (30) calendar days after the Closing Date, as more specifically set forth on Schedule C of the respective Security and Pledge Agreements, the Company will take all necessary actions to terminate all financing statements in any jurisdiction which purport to evidence a security interest in any asset of the Company or its affiliates in respect of all entities set forth on Schedule C of the respective Security and Pledge Agreements, including, without limitation, in favor of the Laurus Master Fund, Ltd. or any affiliate thereof; provided, however, the Company will not terminate any financing statement evidencing a security interest of any of the Purchasers pursuant to the Security and Pledge Agreements. SECTION 5.21. DEPOSIT ACCOUNT. Within (i) ten (10) business days after the Closing Date, the Company shall take all necessary actions to execute, deliver and establish a control agreement by and for the benefit of the Purchasers in respect of that certain deposit account held by the Company at LaSalle Bank Midwest N.A.(Account No. 6856286387 and ABA No. 07200805) and such control agreement shall be in form and substance reasonably satisfactory to the Purchasers and accompanied by an opinion of counsel to the Company addressed to the Purchasers regarding the creation and perfection of the Purchasers' respective security interests in such deposit account and such other matters as the Purchasers may reasonably request and (ii) fifteen (15) business days after the Closing Date, the Company shall use commercially reasonable best efforts to execute, deliver and establish a control agreement by and for the benefit of the Purchasers in respect of that certain escrow account established in connection with an Escrow Agreement, dated as of September 22, 1997, by and among, Dyntek, Inc. (f/k/a Data Systems Network Corporation, a predecessor entity to Dyntek, Inc.), Hooper Holmes, Inc. and JPMorgan Chase Bank, N.A. (f/k/a NBD Bank which was a predecessor entity to JPMorgan Chase Bank, N.A.) (as amended, supplemented or modified from time to time) (the "Escrow Account") and such control agreement shall be in form and substance reasonably satisfactory to the Purchasers and accompanied by an opinion of counsel to the Company addressed to the Purchasers regarding the creation and perfection of the Purchasers' respective security interests in such Escrow Account and such other matters as the Purchasers may reasonably request. SECTION 5.22. MORTGAGE LEASEHOLD. Within thirty (30) business days after the Closing Date, the Company shall use its reasonable best efforts to take all action necessary to execute, deliver and establish a mortgage over the Company's leasehold interest in its office headquarters referred to in Section 2.16 hereof for the benefit of the Purchasers, with such mortgage to be in form and substance satisfactory to the Purchasers and accompanied by an opinion of counsel to the Company addressed to the Purchasers regarding the creation and perfection of the Purchasers' respective security interests in such leasehold interest and such other matters as the Purchasers may reasonably request. SECTION 5.23. DELIVERY OF CERTIFICATES. Within five (5) business days of the Closing Date, the Company shall deliver to the Purchasers the certificates for all shares or units of DynTek Services, Inc. evidenced by a certificate duly endorsed in blank for transfer or accompanied by an appropriate assignment or an appropriate undated stock power or powers, in every case sufficient to transfer title thereto. ARTICLE VI REGISTRATION SECTION 6.01. PIGGYBACK REGISTRATION. If, prior to June 30, 2006, the Company proposes to register (including for this purpose a registration effected by the Company for stockholders other than the Purchasers) the sale of any of its securities under the Securities Act, then the Company will promptly give the Purchasers written notice thereof and will use its reasonable best efforts to include in such registration (A) all or any part of the shares of Common Stock issuable by the Company upon the exercise of warrants or conversion of notes (including, for the avoidance of doubt, the Junior Note) issued by the Company to SACC Partners L.P., Lloyd I. Miller, III and the Purchasers hereto (i) on October 26, 2005 and (ii) on the Closing Date; and (B) all Conversion Shares (as such term is defined in those certain Conversion and Settlement Agreements executed as of the date hereof by and between (x) the Company and SACC Partners, L.P. and (y) the Company and Lloyd I. Miller, III) (collectively, the "Registrable Securities"). This requirement does not apply to Company registrations on Form S-4 or S-8 or their equivalents relating to equity securities to be issued solely in connection with an acquisition of any entity or business or equity securities issuable in connection with stock option or other employee benefit plans. Each Purchaser must give its request for registration under this paragraph to the Company in writing within 10 days after receipt from the Company of notice of such pending registration. If the registration for which the Company gives notice is a public offering involving an underwriting, the Company will so advise the Purchasers as part of the above-described written notice. In that event, if the managing underwriter(s) of the public offering impose a limitation on the number of shares of Common Stock that may be included in the Registration Statement because, in such underwriter(s)' judgment, such limitation would be necessary to effect an orderly public distribution, then the Company will be obligated to include only such limited portion, if any, of the Registrable Securities with respect to which the Purchasers have requested inclusion hereunder. Any exclusion of Registrable Securities will be made pro rata among all holders of the Company's securities seeking to include shares of Common Stock in proportion to the number of shares of Common Stock sought to be included by those holders. However, the Company will not exclude any Registrable Securities unless the Company has first excluded all outstanding securities the holders of which are not entitled by right to inclusion of such securities in such Registration Statement or are not entitled pro rata inclusion with the Registrable Securities. SECTION 6.02. MANDATORY REGISTRATION. If, at anytime on or after June 30, 2006, the resale of any Registrable Securities have not been registered by the Company pursuant to Section 6.01 hereof, the Purchasers may deliver notice to the Company to require that the Company register all Registrable Securities on a registration statement on Form S-1, or other form then available to the Company under applicable SEC rules and regulations (the "Registration Statement"), covering the resale of all of the Registrable Securities. The date on which the Company receives such notice is referred to herein as the "Demand Date." The Company shall use commercially reasonable best efforts (i) to cause such Registration Statement to be filed under the Securities Act as promptly as practicable after receipt of notice of such demand, but in any event not more than 30 days following the Demand Date and (ii) to cause such Registration Statement to be declared effective under the Securities Act as promptly as practicable, but in any event no later than 90 days following the Demand Date (the "Demand Effective Date"). However, so long as the Company has filed the Registration Statement within 30 days after the Demand Date, (a) if the SEC takes the position that registration of the resale of the Registrable Securities by the Purchasers is not available under applicable laws, rules and regulations and that the Company must register the offering of the Registrable Securities as a primary offering by the Company, or (b) if the Registration Statement receives SEC review, then the Demand Effective Date will be the 120th day after the Demand Date. In the case the SEC takes the position that resale registration is not available, the Company will, within 40 business days after the date the Company receives such SEC response, file a Registration Statement as a primary offering. The Company's best efforts will include, without limitation, promptly responding to all comments received from the staff of the SEC. If the Company receives notification from the SEC that the Registration Statement will receive no action or review from the SEC, then the Company will cause the Registration Statement to become effective within five business days after such SEC notification. Once the Registration Statement is declared effective by the SEC, the Company will cause the Registration Statement to remain effective throughout the Registration Period, except as permitted under this Section. "Registration Period" means the period between the Demand Date and the earlier of the date on (i) which (x) all of the Registrable Securities have been sold by the Purchasers pursuant to a Registration Statement and (y) are freely tradable under the Securities Act, or (ii) all the Registrable Securities may be immediately sold by the Purchasers without registration and without restriction as to the number of Registrable Securities to be sold, pursuant to Rule 144 or otherwise. On the date of each monthly anniversary of the date on which any breach of this Section 6.02 first occurs (including failure to file a Registration Statement or to cause a Registration Statement to be declared effective within the time periods set forth herein) until the applicable default is cured (each, a "Payment Date"), the Company shall issue to the Purchasers as damages additional shares of the Company's Common Stock equal to 2.0% of the aggregate amount of the Registrable Securities, and all such shares shall become Registrable Securities; provided, however, that the total number of shares of the Company's Common Stock payable pursuant to this Section 6.02 to any Purchaser shall not exceed the number of shares, less one share, which, if issued, would have, at the time of the Closing Date or Payment Date, required stockholder approval of such issuance pursuant to Section 4350(i)(1)(D) of the Nasdaq Marketplace Rules if the Company is then subject to such rule. In the event the number of shares of the Company's Common Stock issuable under this Section 6.02 is restricted by the limitations of the previous sentence, the Company may waive such limitation or, at the Company's election, the balance of the damages payable by the Company pursuant to this Section 6.02 may be paid in cash (valuing the shares not so issued at the average of the closing prices of the Company's Common Stock over the twenty (20) trading days immediately preceding the one-month anniversary of the default which requires the issuance of shares) on the applicable Payment Date in accordance with payment instructions provided by each Purchaser. SECTION 6.03. CONTINUED EFFECTIVENESS OF REGISTRATION STATEMENT. Subject to the limitations set forth in Section 6.08, the Company will keep the Registration Statement covering the Registrable Securities effective under Rule 415 at all times during the Registration Period. In the event that the number of shares available under a Registration Statement filed pursuant to this Agreement is insufficient to cover all of the Registrable Securities issued, the Company will (if permitted) amend the Registration Statement or file a new Registration Statement (on the short form available therefor, if applicable), or both, so as to cover all of the Registrable Securities. The Company will file such amendment or new Registration Statement as soon as practicable, but in no event later than 30 business days after the necessity therefor arises (based upon the market price of the Common Stock and other relevant factors on which the Company reasonably elects to rely). The Company will use its best efforts to cause such amendment or new Registration Statement to become effective as soon as is practicable after the filing thereof, but in no event later than 90 days after the date on which the Company reasonably first determines the need therefor. SECTION 6.04. ACCURACY OF REGISTRATION STATEMENT. Any Registration Statement (including any amendments or supplements thereto and prospectuses contained therein) filed by the Company covering Registrable Securities will not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein, or necessary to make the statements therein, in light of the circumstances in which they were made, not misleading. The Company will prepare and file with the SEC such amendments (including post-effective amendments) and supplements to the Registration Statement and the prospectus used in connection with the Registration Statement as may be necessary to permit sales pursuant to the Registration Statement at all times during the Registration Period, and, during such period, will comply with the provisions of the Securities Act with respect to the disposition of all Registrable Securities of the Company covered by the Registration Statement until the termination of the Registration Period, or if earlier, until such time as all of such Registrable Securities have been disposed of in accordance with the intended methods of disposition by the seller or sellers thereof as set forth in the Registration Statement. SECTION 6.05. FURNISHING DOCUMENTATION. The Company will furnish to the Purchasers, or to their legal counsel, (a) promptly after such document is filed with the SEC, one copy of any Registration Statement filed pursuant to this Agreement and any amendments thereto, each preliminary prospectus and final prospectus and each amendment or supplement thereto; and (b) a number of copies of a prospectus, including a preliminary prospectus, and all amendments and supplements thereto, and such other documents as the Purchasers may reasonably request in order to facilitate the disposition of the Registrable Securities owned by the Purchasers. The Company will promptly notify by facsimile or email the Purchasers of the effectiveness of the Registration Statement and any post-effective amendment. SECTION 6.06. ADDITIONAL OBLIGATIONS. The Company will use its best efforts to (a) register and qualify the Registrable Securities covered by a Registration Statement under such other securities or blue sky laws of such jurisdictions as the Purchasers reasonably request, (b) prepare and file in those jurisdictions any amendments (including post-effective amendments) and supplements to such registrations and qualifications as may be necessary to maintain their effectiveness during the Registration Period, (c) take any other actions necessary to maintain such registrations and qualifications in effect at all times during the Registration Period, and (d) take any other actions reasonably necessary or advisable to qualify the Registrable Securities for sale in such jurisdictions. Notwithstanding the foregoing, the Company is not required, in connection with such obligations, to (i) qualify to do business in any jurisdiction where it would not otherwise be required to qualify but for this Section 6.06, (ii) subject itself to general taxation in any such jurisdiction, (iii) file a general consent to service of process in any such jurisdiction, (iv) provide any undertakings that cause material expense or material burden to the Company, or (v) make any change in its charter or bylaws, which in each case the Board of Directors of the Company determines to be contrary to the best interests of the Company and its stockholders. SECTION 6.07. UNDERWRITTEN OFFERINGS. If the Purchasers select underwriters reasonably acceptable to the Company for an underwritten offering, the Company will enter into and perform its obligations under an underwriting agreement in usual and customary form including, without limitation, customary indemnification and contribution obligations, with the managing underwriter of such offering. SECTION 6.08. SUSPENSION OF REGISTRATION. (A) The Company will notify (by telephone and also by facsimile and reputable overnight courier) the Purchasers of the happening of any event of which the Company has knowledge as a result of which the prospectus included in the Registration Statement as then in effect includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. The Company will make such notification as promptly as practicable (but in no event more than two business days) after the Company becomes aware of the event, will promptly (but in no event more than ten business days) prepare and file a supplement or amendment to the Registration Statement to correct such untrue statement or omission, and will deliver a number of copies of such supplement or amendment to the Purchasers as they may reasonably request. (B) Notwithstanding the obligations under Section 6.08(a), if in the good faith judgment of the Company, following consultation with legal counsel, it would be detrimental to the Company and its stockholders for resales of Registrable Securities to be made pursuant to the Registration Statement due to the existence of a material development or potential material development involving the Company which the Company would be obligated to disclose in the Registration Statement, but which disclosure would be premature or otherwise inadvisable at such time or would reasonably be expected to have a material adverse effect upon the Company and its stockholders, the Company will have the right to suspend the use of the Registration Statement for a period of not more than forty-five (45) days; provided, however, that the Company may so defer or suspend the use of the Registration Statement no more than one time in any twelve-month period. (C) Subject to the Company's rights under this Article VI, the Company will use its reasonable best efforts to prevent the issuance of any stop order or other suspension of effectiveness of a Registration Statement and, if such an order is issued, will use its best efforts to obtain the withdrawal of such order at the earliest possible time and to notify the Purchasers of the issuance of such order and the resolution thereof. (D) Notwithstanding anything to the contrary contained in this Agreement, if the use of the Registration Statement is suspended by the Company, the Company will promptly (but in no event more than two business days) give notice of the suspension to the Purchasers, and will promptly (but in no event more than two business days) notify the Purchasers as soon as the use of the Registration Statement may be resumed. SECTION 6.09. TRANSFER AGENT; REGISTRAR. The Company will provide a transfer agent and registrar, which may be a single entity, for the Registrable Securities not later than the effective date of the Registration Statement. SECTION 6.10. SHARE CERTIFICATES. The Company will cooperate with the Purchasers and with the managing underwriter(s), if any, to facilitate the timely preparation and delivery of certificates (not bearing any restrictive legends) representing Registrable Securities to be offered pursuant to a Registration Statement and will enable such certificates to be in such denominations or amounts as the case may be, and registered in such names as the Purchasers or the managing underwriter(s), if any, may reasonably request. SECTION 6.11. PLAN OF DISTRIBUTION. At the reasonable request of the Purchasers, the Company will promptly prepare and file with the SEC such amendments (including post-effective amendments) and supplements to the Registration Statement, and the prospectus used in connection with the Registration Statement, as may be necessary in order to change the plan of distribution set forth in such Registration Statement. SECTION 6.12. SECURITIES LAWS COMPLIANCE. The Company will comply with all applicable laws related to any Registration Statement relating to the offer and sale of Registrable Securities and with all applicable rules and regulations of governmental authorities in connection therewith (including, without limitation, the Securities Act, the Exchange Act and the rules and regulations promulgated by the SEC). SECTION 6.13. FURTHER ASSURANCES. The Company will take all other reasonable actions as the Purchasers or the underwriters, if any, may reasonably request to expedite and facilitate disposition by such Purchaser of the Registrable Securities pursuant to the Registration Statement. SECTION 6.14. EXPENSES. The Company will bear all reasonable expenses, other than underwriting discounts and commissions, and transfer taxes, if any, incurred in connection with registrations, filings or qualifications pursuant to Article VI of this Agreement, including, without limitation, all registration, listing and qualifications fees, printers and accounting fees, the fees and disbursements of counsel for the Company, and the reasonable fees and disbursements of the Purchasers' legal counsel. SECTION 6.15. INDEMNIFICATION. In the event that any Registrable Securities are included in a Registration Statement under this Agreement: (A) To the extent permitted by law, the Company will indemnify, defend and hold harmless each Purchaser that holds Registrable Securities, and agents, employees, attorneys, accountants, underwriters (as defined in the Securities Act) for such Purchasers and any directors or officers of such Purchasers or such underwriter and any person who controls the Purchasers or such underwriter within the meaning of the Securities Act or the Exchange Act (each, a "Purchaser Indemnified Person") against any losses, claims, damages, expenses or liabilities (collectively, and together with actions, proceedings or inquiries by any regulatory or self-regulatory organization, whether commenced or threatened in respect thereof, "Claims") to which any of them become subject under the Securities Act, the Exchange Act or otherwise, insofar as such Claims arise out of or are based upon any of the following statements, omissions or violations in a Registration Statement filed pursuant to this Agreement, any post-effective amendment thereof or any prospectus included therein: (a) any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement or any post-effective amendment thereof or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, (b) any untrue statement or alleged untrue statement of a material fact contained in the prospectus or any preliminary prospectus (as it may be amended or supplemented) or the omission or alleged omission to state therein any material fact necessary to make the statements made therein, in light of the circumstances under which the statements therein were made, not misleading, or (c) any violation or alleged violation by the Company of the Securities Act, the Exchange Act or any other law, including without limitation any state securities law or any rule or regulation thereunder (the matters in the foregoing clauses (a) through (c) being, collectively, "Violations"). Subject to the restrictions set forth herein with respect to the number of legal counsel, the Company will reimburse the Purchasers and each such attorney, accountant, underwriter or controlling person and each such other Purchaser Indemnified Person, promptly as such expenses are incurred and are due and payable, for any legal fees or other reasonable expenses incurred by them in connection with investigating or defending any Claim. Notwithstanding anything to the contrary contained herein, the indemnification contained in this Section 6.15 (i) does not apply to a Claim by a Purchaser Indemnified Person arising out of or based upon a Violation that occurs in reliance upon and in conformity with information furnished in writing to the Company by such Purchaser Indemnified Person expressly for use in the Registration Statement or any such amendment thereof or supplement thereto, if such prospectus or supplement thereto was timely made available by the Company; and (ii) does not apply to amounts paid in settlement of any Claim if such settlement is made without the prior written consent of the Company, which consent will not be unreasonably withheld. This indemnity obligation will remain in full force and effect regardless of any investigation made by or on behalf of the Purchaser Indemnified Persons and will survive the transfer of the Registrable Securities by the Purchasers. (B) In connection with any Registration Statement in which a Purchaser is participating, each such Purchaser will indemnify and hold harmless, the Company, each of its directors, each of its officers who signs the Registration Statement, each person, if any, who controls the Company within the meaning of the Securities Act or the Exchange Act, and any other stockholder selling securities pursuant to the Registration Statement or any of its directors or officers or any person who controls such stockholder within the meaning of the Securities Act or the Exchange Act (each a "Company Indemnified Person") against any Claim to which any of them may become subject under the Securities Act, the Exchange Act or otherwise, insofar as such Claim arises out of or is based upon any Violation, in each case to the extent (and only to the extent) that such Violation occurs in reliance upon and in conformity with written information furnished to the Company by such Purchaser expressly for use in such Registration Statement. Such Purchaser will promptly reimburse each Company Indemnified Person for any legal or other expenses (promptly as such expenses are incurred and due and payable) reasonably incurred by them in connection with investigating or defending any such Claim. However, the indemnity agreement contained in this section does not apply to amounts paid in settlement of any Claim if such settlement is effected without the prior written consent of such Purchaser, which consent will not be unreasonably withheld, and no such Purchaser will be liable under this Agreement for the amount of any Claim that exceeds the net proceeds actually received by such Purchaser as a result of the sale of Registrable Securities pursuant to such Registration Statement. This indemnity will remain in full force and effect regardless of any investigation made by or on behalf of a Company Indemnified Party and will survive the transfer of the Registrable Securities by the Purchasers. (C) If any proceeding shall be brought or any claim asserted against any person entitled to indemnity hereunder (an "Indemnified Party"), such Indemnified Party promptly shall notify the person from whom indemnity is sought (the "Indemnifying Party") in writing, and the Indemnifying Party shall assume the defense thereof, including the employment of counsel reasonably satisfactory to the Indemnified Party and the payment of all reasonable fees and expenses incurred in connection with defense thereof; provided, however, that the failure of any Indemnified Party to give such notice shall not relieve the Indemnifying Party of its obligations or liabilities pursuant to this Agreement, except (and only) to the extent that such failure shall have proximately and materially adversely prejudiced the Indemnifying Party. (D) An Indemnified Party shall have the right to employ separate counsel in any such proceeding and to participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such Indemnified Party or Indemnified Parties unless: (i) the Indemnifying Party has agreed in writing to pay such fees and expenses; (ii) the Indemnifying Party shall have failed promptly to assume the defense of such proceeding and to employ counsel reasonably satisfactory to such Indemnified Party in any such proceeding; or (iii) the named parties to any such proceeding (including any impleaded parties) include both such Indemnified Party and the Indemnifying Party, and such Indemnified Party shall have been advised by counsel that a conflict of interest is likely to exist if the same counsel were to represent such Indemnified Party and the Indemnifying Party (in which case, if such Indemnified Party notifies the Indemnifying Party in writing that it elects to employ separate counsel at the expense of the Indemnifying Party, the Indemnifying Party shall not have the right to assume the defense thereof and such counsel shall be at the reasonable expense of the Indemnifying Party; provided, however, that in no event shall the Indemnifying Party be responsible for the fees and expenses of more than one separate counsel). The Indemnifying Party shall not be liable for any settlement of any such proceeding effected without its written consent, which consent shall not be unreasonably withheld. No Indemnifying Party shall, without the prior written consent of the Indemnified Party, effect any settlement of any pending proceeding in respect of which any Indemnified Party is a party, unless such settlement includes an unconditional release of such Indemnified Party from all liability on Claims that are the subject matter of such proceeding. (E) Subject to the foregoing, all reasonable fees and expenses of the Indemnified Party (including fees and expenses to the extent incurred in connection with investigating or preparing to defend such proceeding in a manner not inconsistent with this Section) shall be paid to the Indemnified Party, as incurred, within ten (10) business days of written notice thereof to the Indemnifying Party, which notice shall be delivered no more frequently than on a monthly basis (regardless of whether it is ultimately determined that an Indemnified Party is not entitled to indemnification hereunder; provided, that the Indemnifying Party may require such Indemnified Party to undertake to reimburse all such fees and expenses to the extent it is finally judicially determined that such Indemnified Party is not entitled to indemnification hereunder). SECTION 6.16. TRANSFER. The rights of the Purchasers hereunder, including the right to have the Company register Registrable Securities pursuant to this Agreement, may be assigned by the Purchasers to transferees or assignees of all or any portion of the Registrable Securities, but only if (a) the Purchaser agrees in writing with the transferee or assignee to assign such rights, and a copy of such agreement is furnished to the Company within a reasonable time after such assignment, (b) the Company is, within a reasonable time after such transfer or assignment, furnished with written notice of the name and address of such transferee or assignee and the securities with respect to which such registration rights are being transferred or assigned, (c) after such transfer or assignment, the further disposition of such securities by the transferee or assignee is restricted under the Securities Act and applicable state securities laws, (d) at or before the time the Company received the written notice contemplated by clause (b) of this sentence, the transferee or assignee agrees in writing with the Company to be bound by all of the provisions contained herein, (e) such transfer is made in accordance with the applicable requirements of this Agreement, and (f) the transferee is an "accredited investor" as that term is defined in Rule 501 of Regulation D. ARTICLE VII MISCELLANEOUS SECTION 7.01. EXPENSES. Each party hereto will pay its own expenses in connection with the transactions contemplated hereby, whether or not such transactions will be consummated; provided, however, that the Company will pay the reasonable fees and disbursements of each of the Purchasers' special counsel, Paul, Hastings, Janofsky & Walker LLP and Andrews Kurth LLP, in connection with such transactions and with the Bridge Loan, upon delivery of a reasonably itemized invoice setting forth the services performed by such special counsel in connection with such transactions. The Purchasers may deduct such fees from the amount to be delivered for the purchase of the Notes pursuant to Section 1.03. The Company shall also promptly pay upon demand the fees and disbursements of each Purchaser's counsel incurred in connection with any amendments, modifications, supplements or waivers in connection with this Agreement or any ancillary document related thereto upon delivery of a reasonably itemized invoice setting forth the services performed by such special counsel in connection with such transactions. SECTION 7.02. SURVIVAL OF AGREEMENTS. All covenants, agreements, representations and warranties made in this Agreement, the Security and Pledge Agreements or any certificate or instrument delivered to the Purchasers pursuant to or in connection with this Agreement or the Security and Pledge Agreements will survive the execution and delivery of this Agreement or the Security and Pledge Agreements, the issuance, sale and delivery of the Notes and Warrants, and with respect to the Notes, until the repayment of the Notes in full. SECTION 7.03. BROKERAGE. Each party hereto will indemnify and hold harmless the others against and in respect of any claim for brokerage or other commissions relative to this Agreement or to the transactions contemplated hereby, based in any way on agreements, arrangements or understandings made or claimed to have been made by such party with any third party. SECTION 7.04. PARTIES IN INTEREST. All representations, covenants and agreements contained in this Agreement by or on behalf of any of the parties hereto will bind and inure to the benefit of the respective successors and assigns of the parties hereto whether so expressed or not. Without limiting the generality of the foregoing, all representations, covenants and agreements benefiting the Purchasers will inure to the benefit of any and all subsequent holders from time to time of Notes and Warrants. SECTION 7.05. NOTICES. All notices, requests, consents and other communications hereunder will be in writing and will be delivered in person, mailed by certified or registered mail, return receipt requested, or sent by telecopier or recognized overnight courier service, addressed as follows: if to the Company: 19700 Fairchild Road, Suite 230 Irvine, California 92612 fax: (949) 955-0086 Attention: Chief Financial Officer with a copy to: Christopher Ivey, Esq. Stradling Yocca Carlson & Rauth 660 Newport Center Drive, Suite 1600 Newport Beach, CA 92660 fax: (949) 725-4100 If to any Purchaser, at the address of such Purchaser set forth in Schedule I, and If to Lloyd I. Miller, III, with a copy to: Paul N. Silverstein, Esq. Andrews Kurth LLP 450 Lexington Avenue New York, NY 10017 fax: (212) 850-2929 If to SACC Partners LP, with a copy to: Peter J. Tennyson, Esq. Paul, Hastings, Janofsky & Walker LLP 695 Town Center Drive, 17th Floor Costa Mesa, CA 92626 fax: (714) 668-6337 SECTION 7.06. GOVERNING LAW. This Agreement will be governed by and construed in accordance with the substantive laws of the State of California without regard for conflicts of laws or choice of laws principles. SECTION 7.07. ENTIRE AGREEMENT. This Agreement, including the Schedules and Exhibits hereto, along with the Notes, the Warrants and the Security and Pledge Agreements, constitutes the sole and entire agreement of the parties with respect to the subject matter hereof. All Schedules and Exhibits hereto are hereby incorporated herein by reference. There are no other agreements of the parties and no party is relying on any representations of the other not expressly set forth herein or any ancillary document related hereto or thereto. All Schedules and Exhibits hereby are hereby incorporated herein by reference. SECTION 7.08. COUNTERPARTS. This Agreement may be executed in two or more counterparts, each of which will be deemed an original, but all of which together will constitute one and the same instrument. SECTION 7.09. AMENDMENTS. This Agreement may not be amended or modified, and no provisions hereof may be waived, without the written consent of the Company and the holders of at least 66(2)/3% of the outstanding principal amount of the Notes. SECTION 7.10. SEVERABILITY. If any provision of this Agreement will be declared void or unenforceable by any judicial or administrative authority, the validity of any other provision and of the entire Agreement will not be affected thereby. SECTION 7.11. TITLES AND SUBTITLES. The titles and subtitles used in this Agreement are for convenience only and are not to be considered in construing or interpreting any term or provision of this Agreement. SECTION 7.12. NO PUBLICITY. Except as expressly provided below, no party will make, issue or release any public announcement, press release, statement or acknowledgment (collectively, "Public Announcement") of the existence of, or reveal publicly the terms, conditions and status of, the transactions contemplated hereby, without the prior written consent of the other party as to the content and time of release of and the media in which such Public Announcement is to be made; provided, however, that in the case of a Public Announcement which a party is required by law to make, issue or release, the making, issuing or releasing of any such Public Announcement, by a party so required to do so will not constitute a breach if such party has given, to the extent reasonably possible, not less than two (2) business days prior notice to the other party, and has attempted, to the extent reasonably possible, to allow the other party to review and approve such Public Announcement; provided further, however, that upon the Company's making of Public Announcement regarding the existence of, or the terms, conditions and status of, the transactions contemplated hereby, whether pursuant to the filing of a Form 8-K or otherwise, subject to the consent of the Company, which consent may not be unreasonably withheld, the Purchasers may advertise the closing of the transactions contemplated by this Agreement, and make appropriate announcements of the financial arrangements entered into among the parties hereto, including, without limitation, announcements commonly known as tombstones, in such trade publications, business journals, newspapers of general circulation and to such selected parties as the Purchasers will deem reasonably appropriate. SECTION 7.13. USURY SAVINGS CLAUSE. The parties intend to comply at all times with applicable usury laws. If at any time such laws would render usurious any amounts due under the Notes under applicable law, then it is the parties' express intention that the Company not be required to pay interest on the Notes at a rate in excess of the maximum lawful rate, that the provisions of this Section 7.13 will control over all other provisions of the Notes which may be in apparent conflict hereunder, that such excess amount will be immediately credited to the principal balance of the Notes (or, if the Notes have been fully paid, refunded by the Purchaser to the Company), and the provisions thereof will immediately reformed and the amounts thereafter decreased, so as to comply with the then applicable usury law, but also so as to permit the recovery of the fullest amount otherwise due under the Notes. The Company hereby represents and warrants that its assets are sufficient to meet the requirements for exemption from the usury laws of the State of California as provided by Section 25118 of the California Corporations Code or any successor statute. SECTION 7.14. FURTHER ASSURANCES. The Company agrees to (i) execute and deliver, or cause to be executed and delivered, all such other and further agreements, documents and instruments and (ii) take or cause to be taken all such other and further actions as any Purchaser may reasonably request to effectuate the intent and purposes, and carry out the terms, of this Agreement. [SIGNATURE PAGE FOLLOWS] IN WITNESS WHEREOF, the Company and the Purchasers have executed this Note Purchase Agreement as of the day and year first above written. DYNTEK, INC. By: C.W. Zublin, Jr. ------------------------------------ Name: C.W. Zublin, Jr. Title: C.E.O. PURCHASERS: SACC PARTNERS, L.P. By: Bryant Riley --------------------------------- Name: Bryant Riley Title: General Partner LLOYD I. MILLER, III By: Lloyd I. Miller, III --------------------------------- Name: Lloyd I. Miller, III TRUST A-4 - LLOYD I. MILLER By: PNC Bank, National Association, Its: Trustee By: Lloyd I. Miller, III --------------------------------- Name: Lloyd I. Miller, III Title: Investment Advisor to Trustee DISCLOSURE SCHEDULES OF DYNTEK, INC. IN CONNECTION WITH THE NOTE PURCHASE AGREEMENT BY AND AMONG DYNTEK, INC., AND THE PURCHASERS NAMED THEREIN MARCH 8, 2006 DISCLOSURE SCHEDULES These Disclosure Schedules (hereinafter called the "Schedule," and specific sections within this Schedule may be referred to by Schedule number) are furnished by DYNTEK, INC., a Delaware corporation (the "Company") pursuant to that certain Note Purchase Agreement dated as of March 8, 2006 (the "Agreement") by and between the Company and the purchasers named therein (the "Purchasers"). Capitalized terms used herein, unless otherwise defined herein, shall have the meanings ascribed to them in the Agreement. Terms of documents summarized herein are qualified in their entirety by the documents themselves, provided that nothing is misleading in such summaries. Each Section qualifies the correspondingly numbered section or subsection thereof in Article IV of the Agreement, as applicable. The titles and headings used herein are for reference purposes only and shall not in any manner limit the construction of these Schedules, and any disclosure made under any subheading hereunder is deemed made for all provisions of that corresponding section in the Agreement. SECTION 2.01 ORGANIZATION, QUALIFICATIONS AND CORPORATE POWER (b) (1) Subsidiaries of DynTek, Inc.: NAME OF SUBSIDIARY STATE OF INCORPORATION - ------------------ ---------------------- BugSolver.Com, Inc. (*) Delaware DynTek Services, Inc. ("DSI") (*) Delaware TekInsight e-Government Services, Inc. (*) Delaware TekInsight Research, Inc. (*) New York (*) The Company owns 100% of the issued and outstanding capital stock of each of the subsidiaries listed above. (2) The Company owns approximately seventeen percent (17%) of the outstanding common stock of TekInsight, LLC, a Delaware limited liability company. SECTION 2.02 AUTHORIZATION OF AGREEMENTS, ETC. (a) 1. On November 15, 2004, the Company issued that certain Amended and Restated Secured Convertible Term Note, as amended by that certain Agreement to Amend the Amended and Restated Secured Convertible Term Note and Common Stock Purchase Warrant dated October 26, 2005 (the "Laurus Note") to Laurus Master Fund, Ltd., c/o Ironshore Corporate Services Ltd., P.O. Box 1234 G.T., Queensgate House, South Church Street, Grand Cayman, Cayman Islands, ("Laurus"), for an aggregate principal amount of $6,649,999. In connection with the issuance of the Note, the Company and Laurus entered into that certain Security Agreement dated January 30, 2004 (the "Security Agreement"), pursuant to which the Company granted to Laurus a security interest in substantially all of the Company's assets (the "Collateral") and covenanted to keep the Collateral free and clear of all attachments, levies, taxes, liens, security interests and encumbrances of every kind and nature. Upon receipt of the consideration to be paid for the Notes, the Company will pay Laurus $6,731,784.84 (the "Payoff Amount"), which sum equals the Company's outstanding obligations under the Laurus Note, including the outstanding principal amount plus all unpaid interest accrued through the payoff date. Pursuant to the terms of that certain payoff letter dated February 23, 2006 (the "Payoff Letter"), issued by Laurus to the Company, Laurus acknowledges and agrees that (i) receipt of the Payoff Amount will constitute payment in full of the Company's outstanding obligations under the Laurus Note, (ii) Laurus will release all security interests and liens which the Company may have granted to Laurus, and (iii) Laurus will, at the Company's expense, terminate all of its agreements with the Company, other than in respect of (x) indemnification and expense reimbursement provisions of such agreements and such other provisions thereof as expressly survive the payment in full of the Company's outstanding obligations, or (y) any options and/or warrants received by Laurus from the Company. 2. In connection with that certain 9% Senior Subordinated Convertible Note Purchase Agreement, dated as of October 15, 2004, between the Company and the purchasers named therein (the "9% Holders") (the "9% Agreement"), the Company sold and issued an aggregate of $4,438,775 in principal amount of 9% Senior Subordinated Convertible Notes originally due September 30, 2007 (each a "9% Note" and collectively, the "9% Notes"). On October 26, 2005, DynTek amended and restated the 9% Notes (the "Amended and Restated Notes") representing a majority of the outstanding principal to defer the start of monthly principal payments until January 1, 2007, but without changing the maturity date. Each 9% Note provides that so long as the Company shall have any obligation under such 9% Note, the Company shall not, without the written consent of the holders of a majority of the then outstanding principal amount of the 9% Notes, create, incur, assume or suffer to exist any liability for borrowed money senior or pari passu in rank to the 9% Notes. Each holder of a 9% Note, as set forth in Schedule III to the Agreement, has entered into a conversion and settlement agreement, in substantially the form as provided in Exhibit C to the Agreement (the "Conversion and Settlement Agreement"), pursuant to which such holder agreed to convert the outstanding principal amount and accrued but unpaid interest thereunder (the "9% Payable Amount") into shares of Common Stock of the Company at a conversion price of $0.02 per share (the "9% Conversion Shares"). By executing the Conversion and Settlement Agreement, each 9% holder, among other things, has agreed to waive and release all claims, known and unknown, which it has or might have against the Company and any of the Company's respective subsidiaries, affiliated corporations and/or business entities, as well as their respective directors, officers, shareholders, agents and employees, past and present, arising under or in connection with (a) all claims relating in any way to any aspect of (i) the 9% Note, (ii) the 9% Agreement, or (iii) the Registration Rights Agreement dated October 15, 2004, by and between the Company and the investors named therein, as amended by that certain Amendment No.1 to Registration Rights Agreement dated October 26, 2005, pursuant to any applicable federal, state or local law, regulation or ordinance or public policy, contract, tort or property law theory, or any other cause of action whatsoever that arose on or before the effective date and (b) all claims relating in any way to such holder's right to collect the 9% Payable Amount, except for such holder's right to receive the 9% Conversion Shares and the related rights of such holder under such Conversion and Settlement Agreement. 3. In connection with that certain Note Purchase Agreement, dated as of October 26, 2005 (the "Bridge Agreement"), between the Company and the purchasers named therein (the "Bridge Note Holders"), the Company sold and issued an aggregate of $2,500,000 in principal amount of Secured Promissory Notes due December 31, 2006 (each a "Bridge Note" and collectively, the "Bridge Notes"). Pursuant to the terms of the Conversion and Settlement Agreement, in substantially the form as provided in Exhibit C to the Agreement, each holder of a Bridge Note, as set forth on Schedule III to the Agreement, has agreed to convert the outstanding principal amount and accrued but unpaid interest thereunder (the "Bridge Payable Amount") into shares of Common Stock of the Company at a conversion price of $0.02 per share (the "Bridge Conversion Shares"). By executing the Conversion and Settlement Agreement, each Bridge Note Holder, among other things, has agreed to waive and release all claims relating in any way to such holder's right to collect the Bridge Payable Amount, except for such holder's right to receive the Bridge Conversion Shares and the related rights of such holder under the Conversion and Settlement Agreement. 4. As of September 19, 2005, the Company had not paid certain shareholders of Integration Technologies, Inc. their respective portions of the EBITDA Earn-Out Consideration, the Revenue Earn-Out Consideration and other amounts owed (the "Acquisition Payments") under that certain Agreement and Plan of Merger dated October 14, 2004 (the "Merger Agreement"). To satisfy the Acquisition Payments, the Company issued to such ITI shareholders secured promissory notes (each an "ITI Note," and together, the "ITI Notes"), each bearing simple interest at a rate of 8.9% per annum in the aggregate principal amount of the Acquisition Payments (the "ITI Payable Amount"). Pursuant to the terms of the Conversion and Settlement Agreement, in substantially the form as provided in Exhibit C to the Agreement, each holder of an ITI Note, as set forth on Schedule III to the Agreement, has agreed to convert the ITI Payable Amount thereunder into shares of Common Stock of the Company at a conversion price of $0.02 per share (the "ITI Conversion Shares"). By executing the Conversion and Settlement Agreement, each ITI Note Holder, among other things, has agreed to waive and release all claims, known and unknown, which it has or might have against the Company and any of the Company's respective subsidiaries, affiliated corporations and/or business entities, as well as their respective directors, officers, shareholders, agents and employees, past and present, arising under or in connection with (a) all claims relating in any way to any aspect of (i) the ITI Note, or (ii) the Merger Agreement, pursuant to any applicable federal, state or local law, regulation or ordinance or public policy, contract, tort or property law theory, or any other cause of action whatsoever that arose on or before the effective date and (b) all claims relating in any way to such holder's right to collect the ITI Payable Amount, except for such holder's right to receive the ITI Conversion Shares and the related rights of such holder under the Conversion and Settlement Agreement. (b) The issuance of the Notes, with a conversion price of $0.02 per share, as well as the issuance of the 19.9% Warrant at $0.001 per share, will trigger certain anti-dilution provisions of outstanding warrants, thereby (a) reducing the exercise price of such warrants to $0.02 per share or $0.001 per share, as applicable, and (b) increasing the number of shares exercisable under such warrant by the percentage decrease in the exercise price. SECTION 2.04 AUTHORIZED CAPITAL STOCK (1) Concurrent with the closing of the senior and junior debt financings with SACC Partners, L.P. and Lloyd I. Miller, III, or certain affiliates thereof, the Company will enter into (i) a Common Stock Purchase Agreement with certain accredited investors (the "Investors"), which provides for (i) the sale and issuance of up to 75,000,000 shares of common stock, par value $0.0001 (the "Common Stock") by the Company at a per share price equal to $0.02 per share and (ii) the sale and issuance of warrants to purchase such number of shares of the Company's Common Stock (the "Warrant Shares") equal to twenty percent (20%) of the Common Shares, rounded down to the nearest whole share (the "First PIPE Offering"). (2) The issuance of the Notes, with a conversion price of $0.02 per share, as well as the issuance of the 19.9% Warrant at $0.001 per share, will trigger certain anti-dilution provisions of outstanding warrants, thereby (a) reducing the exercise price of such warrants to $0.02 per share or $0.001 per share, as applicable, and (b) increasing the number of shares exercisable under such warrant by the percentage decrease in the exercise price. SECTION 2.08 MATERIAL CHANGES (1) On July 13, 2005, the Company's board of directors approved, and the Company entered into, an employment agreement with Casper Zublin, Jr., in connection with his appointment as the Company's Chief Executive Officer. This agreement supersedes his prior employment agreement and has an initial term of one year, which term is automatically renewed for successive, additional one-year periods. Pursuant to the employment agreement, Mr. Zublin is entitled to receive a base salary of $250,000, an annual bonus based on the achievement of certain criteria established by the board of directors, and an option to purchase 1,000,000 shares of the Company's Common Stock at a purchase price of $0.30 per share. (2) On July 13, 2005, the Company's board of directors approved, and the Company entered into, an employment agreement with Robert Webber, in connection with his appointment as the Company's President and Chief Financial Officer. This agreement supersedes his prior employment agreement and has an initial term of one year, which term is automatically renewed for successive, additional one-year periods. Pursuant to the employment agreement, Mr. Webber is entitled to receive a base salary of $250,000, an annual bonus based on the achievement of certain criteria established by the board of directors, and an option to purchase 1,000,000 shares of the Company's Common Stock at a purchase price of $0.30 per share. (3) On August 8, 2005, the Company, and New England Technology Finance, LLC ("NETF"), an affiliate of Global Technology Finance, which operates in partnership with Credit Suisse First Boston, CIT Group, Inc. and others, entered into a series of related agreements that together provide a working capital credit facility for the Company. The new credit facility is comprised of two primary components. First, pursuant to the terms of an Asset Purchase and Liability Assumption Agreement (the "APLA"), NETF will finance certain of the Company's qualified product purchases, the Company will assign its accounts receivable resulting from the sale of such products to NETF, and NETF will assume liability for payment to product vendors. As consideration for the product financing provided by NETF, the Company will pay NETF a finance and servicing fee calculated on a monthly basis depending on the Company's gross profit margin on such products, and days sales outstanding, which fee is expected to be less than the fees charged under the Company's prior financing arrangement with Textron. In addition to the payment of the finance fee, as consideration for the product financing and vendor services provided by NETF, the Company shall also provide certain billing and collection services in connection with the purchased assets. The Company has an obligation to repurchase accounts sold to NETF at a purchase price equal to the outstanding face amount of such account under certain conditions, which include, among others, if an account remains unpaid for a certain period of time. The APLA also provides for a termination fee payable by the Company if the APLA is terminated prior to the end of its term as a result of the occurrence of certain events, which include, among others, any default by the Company in the performance of its material obligations. The APLA has an initial term of 3 years and is automatically extended for additional 1 year periods unless terminated earlier pursuant to the terms of the agreement. Second, pursuant to the terms of an Asset Purchase Agreement (the "APA"), NETF purchased $7,500,000 of the Company's other qualified accounts receivables (including services and products). Proceeds were used to pay off the then-existing $4,800,000 balance of the Company's $7,000,000 credit line with Textron, for acquisition debt, and general corporate purposes. In addition to the accounts receivable purchased on August 8, 2005, NETF may purchase up to 80% of the Company's additional qualified accounts receivable in the future on the same terms. (4) On September 20, 2005, the Company entered into promissory notes with three former shareholders of ITI, including the Company's current chief executive officer, Casper Zublin, Jr., to defer an aggregate of $2,574,755 in payments due in connection with the acquisition of ITI. Principal payments are due quarterly beginning in September 2005, with the balance due on July 31, 2006 (the "Maturity Date"). The Notes bear interest at a rate of 8.9%, which interest is payable in shares of the Company's Common Stock at a price equal to the average per share closing price for the 20 trading days ending on the second trading day prior to the Maturity Date. In September 2005, the Company paid $643,688.85 due under such Notes, with a principal balance of $1,931,066 still remaining. The Company failed to pay the balance due on the Maturity Date. Please see Section 2.02(a)(4) above. The ITI Notes, including the principal amount remaining plus accrued but unpaid interest thereunder, will be converted into shares of Common Stock of the Company at a conversion price of $0.02 per share. The ITI Noteholders are entitled to certain registration rights in connection with the receipt of the ITI Conversion Shares, as set forth in Section 5 of the Conversion and Settlement Agreement. A description of the release of any potential claims of the ITI noteholders against the Company is also set forth in Section 2.02(a)(4) above, and is more fully described in Section 6 of the applicable Conversion and Settlement Agreement. (5) On October 26, 2005, the Company entered into a Note Purchase Agreement with each of SACC Partners, L.P. and Lloyd Miller, whereby it obtained an aggregate loan of $2,500,000 pursuant to two Secured Promissory Notes (the "Bridge Notes") each in the original principal amount of $1,250,000. The Bridge Notes bear interest at a rate of 12% per annum until March 1, 2006, 14% per annum from March 1, 2006 until April 1, 2006, 16% per annum from April 1, 2006 until May 1, 2006, 18% per annum from May 1, 2006 until June 1, 2006, and 20% per annum from June 1, 2006 until they are due and payable on December 31, 2006. Payment of all principal and interest under the Bridge Notes, as well as performance of the obligations of the Company and DSI, are secured by a perfected security interest under a Security and Pledge Agreement (the "Security Agreement") entered into on October 26, 2005, between the holders of the Bridge Notes and the Company. The Security Agreement grants the holders a lien to substantially all assets of the Company, which lien is subordinated to the perfected security interests held by existing secured lenders. Please see Section 2.02(a)(3) above. The Bridge Notes, including the principal amount remaining plus accrued but unpaid interest thereunder, will be converted into shares of Common Stock of the Company at a conversion price of $0.02 per share. The Bridge Noteholders are entitled to certain registration rights in connection with the receipt of the Bridge Conversion Shares, as set forth in Section 5 of the Conversion and Settlement Agreement. A description of the release of any potential claims of the Bridge Payable Amount against the Company is also set forth in Section 2.02(a)(3) above, and is more fully described in Section 6 of the applicable Conversion and Settlement Agreement. In connection with the issuance of the Bridge Notes, the Company also issued warrants to purchase shares of its Common Stock (the "Bridge Warrants"). The Bridge Warrants are exercisable for an aggregate 1,000,000 shares of its Common Stock at an initial exercise price equal to the greater of $0.10 per share or the price per share at which Common Stock is sold in any rights offering to record holders of its Common Stock. The Bridge Warrants expire on October 26, 2015. (6) On November 14, 2004, the Company issued the Laurus Note to Laurus for an aggregate principal amount of $6,649,999, pursuant to which the Company was obligated to make monthly principal payments beginning on December 1, 2005 (the "First Amortization Date") and ending on January 30, 2007 (the "Maturity Date"), on which date the aggregate principal amount of the Laurus Note plus any accrued interest is required to have been paid in full. In connection with the issuance of the Laurus Note, the Company issued Laurus a five-year Amended and Restated Warrant (the "Laurus Warrant") to purchase 1,046,150 shares of the Company's Common Stock, exercisable at $0.65 per share. Pursuant to that certain Agreement to Amend the Amended and Restated Secured Convertible Term Note and Common Stock Purchase Warrant, entered into on October 26, 2005, Laurus agreed to defer the First Amortization Date and Maturity Date under the Laurus Note each by three (3) months. Accordingly, the First Amortization Date and start of monthly principal payments was to occur on March 1, 2006 and the Maturity Date was extended to April 30, 2007. In addition, in exchange for the deferral under the Laurus Note, the Company amended the Laurus Warrant to reduce the initial exercise price thereof to $0.25 per share. As described in Section 2.02(a)(1) above, the Laurus Note will be paid off upon the Company's receipt of the consideration to be paid for the Notes issued pursuant to this Agreement. (7) On October 15, 2004, the Company issued the 9% Notes to the 9% Note Holders for an aggregate principal amount of $4,500,000 and bearing 9% interest per annum with a maturity of three (3) years. As issued, the 9% Notes were convertible into shares of the Company's Common Stock at a conversion price of $0.65 per share, subject to certain adjustments. As of October 31, 2005, $3.35 million of principal under the 9% Notes remained outstanding. In connection with the issuance of the 9% Notes, DynTek issued warrants to purchase 3,461,538 shares of its Common Stock exercisable at $0.7475 per share (the "9% Warrants"). In addition, the Company entered into a Registration Rights Agreement (the "Registration Agreement") obligating the Company to register for resale the shares of its Common Stock issuable upon the conversion of the 9% Notes and the exercise of the associated 9% Warrants. On October 26, 2005, the Company amended and restated the 9% Notes representing $2,898,000 in outstanding principal (the "Amended 9% Notes") to defer the start of monthly principal payments until January 1, 2007, but without changing the maturity date. In exchange for deferral of principal payments, the Company (i) reduced the conversion price under the Amended 9% Notes to $0.22 per share, (ii) amended the 9% Warrants to reduce the initial exercise price to $0.22 per share (the "Amended 9% Warrants") and (iii) increased the number of shares purchaseable under the Amended 9% Warrants by an aggregate of 491,400 shares. In connection with the Amended 9% Notes, the Company agreed to amend warrants held by Centrecourt Asset Management and its affiliated funds, to reduce the initial exercise price of such warrants to $0.22 per share. The Registration Agreement was amended to provide for mandatory registration of the Company's Common Stock issuable upon conversion of the Amended 9% Notes and exercise of the Amended 9% Warrants. The Company filed a registration statement on Form S-1 with the Securities and Exchange Commission on November 25, 2005 to register the shares of Company Common Stock issuable upon the conversion or exercise of the Amended 9% Notes or Amended 9% Warrants, as applicable, which such registration statement has been withdrawn effective as of February 3, 2006. Please see Section 2.02(a)(2) above. The 9% Notes, including the principal amount remaining plus accrued but unpaid interest thereunder, will be converted into shares of Common Stock of the Company at a conversion price of $0.02 per share. The 9% Noteholders are entitled to certain registration rights in connection with the receipt of the 9% Conversion Shares, as set forth in Section 5 of the Conversion and Settlement Agreement. A description of the release of any potential claims of the 9% holders against the Company is also set forth in Section 2.02(a)(4) above, and is more fully described in Section 6 of the Conversion and Settlement Agreement. (8) At the Annual Meeting of Stockholders of DynTek held on December 13, 2005, the Company's stockholders (i) authorized the Board to amend the Company's Second Amended and Restated Certificate of Incorporation to effect a reverse stock split of the Company's outstanding Common Stock by a ratio of 1-for-10 (ii) authorized an amendment to the Company's Second Amended and Restated Certificate of Incorporation to increase the number of shares of its capital stock that the Company would have the authority to issue from 160,000,000 shares to 460,000,000 shares, and its Common Stock that the Company would have authority to issue from 150,000,000 shares to 450,000,000 shares, and (iii) authorized an amendment to the Company's 2005 Stock Incentive Plan (the "Incentive Plan") to (i) increase the number of shares of Common Stock issuable thereunder by 25,000,000 shares, bringing the total number of shares issuable thereunder to 30,000,000, and (ii) increase the total number of shares of Common Stock that may be acquired by any one individual pursuant to options or restricted stock awards granted under the 2005 Stock Incentive Plan in any one calendar year from 1,500,000 shares to 7,500,000 shares. (9) On December 9, 2005, DynTek amended its publicly-traded Class A Warrants (the "Class A Warrants") to extend their expiration date from December 11, 2005 to December 11, 2007. In addition, on February 24, 2006, DynTek again amended the Class A Warrants to reduce the exercise price from $2.00 per share to $0.02 per share. SECTION 2.09 LITIGATION None. SECTION 2.10 OWNERSHIP OF PROPERTY; LIENS (i) Please see disclosure in each of Sections 2.02(a), Section 2.08(3)-(5) hereof. (ii) As of the date hereof, the following nine UCC-1 Financing Statements, copies of which have been provided to the Purchasers, have been filed against the Company in the State of Delaware: 1. Secured Party: Ingram Micro, Inc. Filing No.: 51002774 Filed: 04/01/05 Expires: 04/01/10 2. Secured Party: Laurus Master Fund, Ltd. Filing No.: 51618215 Filed: 05/25/05 Expires: 05/25/10 3. Secured Party: New England Technology Finance, LLC Filing No.: 52420843 Filed: 08/04/05 Expires: 08/04/10 4. Secured Party: New England Technology Finance, LLC Filing No.: 52420868 Filed: 08/04/05 Expires: 08/04/10 5. Secured Party: New England Technology Finance, LLC Filing No.: 52420884 Filed: 08/04/05 Expires: 08/04/10 6. Secured Party: SACC Partners, L.P. and Lloyd I. Miller Filing No.: 53415040 Filed: 10/27/05 Expires: 10/27/10 7. Secured Party: C.W. Zublin, Jr. Trust Filing No.: 60283747 Filed: 01/24/06 Expires: 01/24/11 8. Secured Party: Glen Ackerman Filing No.: 60283150 Filed: 01/24/06 Expires: 01/24/11 9. Secured Party: Lisa Ackerman Filing No.: 60283572 Filed: 01/24/06 Expires: 01/24/11 (iii) As of the date hereof, the following fourteen UCC-1 Financing Statements, copies of which have been provided to the Purchasers, have been filed against DSI in the State of Delaware: 1. Secured Party: Laurus Master Fund, Ltd. Filing No.: 51618223 Filed: 05/25/05 Expires: 05/25/10 2. Secured Party: New England Technology Finance, LLC Filing No.: 52420850 Filed: 08/04/05 Expires: 08/04/10 3. Secured Party: New England Technology Finance, LLC Filing No.: 52420835 Filed: 08/04/05 Expires: 08/04/10 4. Secured Party: New England Technology Finance, LLC Filing No.: 52420827 Filed: 08/04/05 Expires: 08/04/10 5. Secured Party: SACC Partners, L.P. and Lloyd I. Miller Filing No.: 53415040 Filed: 10/27/05 Expires: 10/27/10 6. Secured Party: Fidelity Leasing, a Div. of EAB Leasing Corp. Filing No.: 21165384 Filed: 04/22/02 Expires: 04/22/07 7. Secured Party: Ingram Micro Inc. Filing No.: 21196934 Filed: 05/14/02 Expires: 05/14/07 8. Secured Party: CCA Financial, LLC Filing No.: 30489495 Filed: 02/27/03 Expires: 02/27/08 9. Secured Party: C Leasing Company, Subsidiary of Bank of the West Filing No.: 40564338 Filed: 02/18/04 Expires: 02/18/09 10. Secured Party: E Plus Government, Inc. Filing No.: 43687839 Filed: 12/30/04 Expires: 12/30/09 11. Secured Party: E Plus Government, Inc. Filing No.: 52119502 Filed: 07/11/05 Expires: 07/11/10 12. Secured Party: E Plus Government, Inc. Filing No.: 52119510 Filed: 07/11/05 Expires: 07/11/10 13. Secured Party: Hitachi Capital America Corp. Filing No.: 51892661 Filed: 06/21/05 Expires: 06/21/10 14. Secured Party: Hitachi Capital America Corp. Filing No.: 51892810 Filed: 06/21/05 Expires: 06/21/10 SECTION 2.11 INTELLECTUAL PROPERTY RIGHTS None. -1- EX-99.8 4 y18806exv99w8.txt SECURED PROMISSORY NOTE EXHIBIT 99.8 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. SECURED PROMISSORY NOTE Note No. 2006-01 $5,300,000 March 8, 2006 FOR VALUE RECEIVED, subject to the terms and conditions of this 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 Lloyd I. Miller, III (the "Holder") with his principal office located at 4550 Gordon Drive, Naples, Florida, 34102, the principal sum of Five Million Three Hundred Thousand Dollars ($5,300,000), in lawful money of the United States and in immediately available funds, on March 1, 2010 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 5(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 at the rate of eight percent (8%) 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 through March 31, 2009 may be paid in kind at the rate of eleven percent (11%) 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. Principal will be amortized over three years and payable, as set forth on Schedule A, in equal monthly installments on the last day of each month beginning on March 31, 2009, with the balance to be paid in full on the Maturity Date. All interest payments due and payable after March 31, 2009 must be paid in cash. This Note is one of the Notes issued pursuant to that certain Note Purchase Agreement dated March 8, 2006 among the Borrower and the purchasers named therein (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. 1. Definitions. Unless the context otherwise requires, the following terms shall have the following respective meanings: "Borrower" has the meaning ascribed to such term in the first paragraph of this Note. "Event of Default" has the meaning ascribed to such term in Section 4(a) of this Note. "Holder" has the meaning ascribed to such term in the first paragraph of this Note. "Maturity Date" has the meaning ascribed to such term in the first paragraph of this Note. "Note" has the meaning ascribed to such term in the first paragraph of this instrument. "Note Purchase Agreement" has the meaning ascribed to such term in the second paragraph of this Note. "Security Agreement" has 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. Prepayment. The Note may be paid prior to the Maturity Date only as provided in Section 1.06 the Note Purchase Agreement, which section is incorporated herein by reference. 4. Events of Default. (a) Events Constituting An Event of Default. Any of the events set forth in Section 1.15 of the Note Purchase Agreement, which section is incorporated herein by reference, shall constitute an "Event of Default" under this Note. -2- (b) Consequences of an Event of Default. Upon the occurrence of an Event of Default or at any time thereafter, the registered holder of the Note may, by notice to the Borrower, declare the entire unpaid principal amount of the Note, all interest accrued and unpaid thereon and all other amounts payable under this Note to be forthwith due and payable, whereupon the Note, all such accrued interest and all such amounts will become and be forthwith due and payable (unless there will have occurred an Event of Default under subsection 1.15(e) of the Notice Purchase Agreement, in which case all such amounts will automatically become due and payable) without offset or counterclaim of any kind and without presentment, demand, protest or further notice of any kind, and without regard to the running of the statute of limitations, all of which are by this Note expressly waived by the Borrower. 5. General Matters. (a) Applicable Law. This Note shall be governed by the internal laws (and not the law of conflicts) of the State of California. (b) Fees and Expenses. In the event that any suit or action is instituted to enforce any provision under this Note, the prevailing party in such dispute shall be entitled to recover from the losing party all fees, costs and expenses of enforcing any right of such prevailing party under or with respect to this Agreement, including without limitation, such reasonable fees and expenses of attorneys and accountants, which shall include, without limitation, all fees, costs and expenses of appeals. Notwithstanding the foregoing, the Borrower agrees to pay and hold Holder harmless against liability for the payment of the reasonable fees and expenses of Holder (including, without limitation, attorneys' fees and expenses and out of pocket expenses of Holder and its representatives, including, without limitation, fees and expenses for travel, background investigations and outside consultants) arising in connection with any refinancing or restructuring of the credit arrangements provided under this Note in the nature of a "work-out" or pursuant to any insolvency or bankruptcy proceedings. (c) Amendment or Waiver. Any term of this Note may be amended, and the observance of any term of this Note may be waived (either generally or in a particular instance and either retroactively or prospectively) only by the written consent of the Holder. (d) Headings. The headings in this Note are for purposes of convenience of reference only, and shall not be deemed to constitute a part of this Note. (e) Notices. All notices, requests, consents and other communications required or permitted hereunder shall be in writing (including telecopy or similar writing) and shall be sent to the address of the party set forth in the Note Purchase Agreement. Any notice, request, consent or other communication hereunder shall be deemed to have been given and received on the day on which it is delivered (by any means including personal delivery, overnight air courier, United States mail) or -3- telecopied (or, if such day is not a business day or if the notice, request, consent or communication is not telecopied during business hours of the intended recipient, at the place of receipt, on the next following business day). Any of the parties hereto may, by notice given hereunder, designate any further or different address and/or number to which subsequent notices or other communications shall be sent. Unless and until such written notice is received, the addresses and numbers as provided herein shall be deemed to continue in effect for all purposes hereunder. (f) Usury Limitation. In no event shall the amount paid or agreed to be paid to the Holder for the use or forbearance of money to be advanced hereunder exceed the highest lawful rate permissible under the then applicable usury laws. If it is hereafter determined by a court of competent jurisdiction that the interest payable hereunder is in excess of the amount which the Holder may legally collect under the then applicable usury laws, such amount which would be excessive interest shall be applied to the payment of the unpaid principal balance due hereunder and not to the payment of interest or, if all principal shall previously have been paid, promptly repaid by the Holder to the Borrower. (g) Severability. Every provision of this Note is intended to be severable. If any term or provision hereof is declared by a court of competent jurisdiction to be illegal or invalid, such illegal or invalid term or provision shall not affect the balance of the terms and provisions hereof, which terms and provisions shall remain binding and enforceable. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] -4- IN WITNESS WHEREOF, the Borrower has caused this Note to be executed as of the day and year first above written. DYNTEK, INC., a Delaware corporation By: C.W. Zublin, Jr. ------------------------------------ Name: C.W. Zublin, Jr. Title: C.E.O. -5- Schedule A [SET FORTH PAYMENT SCHEDULE] EX-99.9 5 y18806exv99w9.txt JUNIOR SECURED CONVERTIBLE PROMISSORY NOTE EXHIBIT 99.9 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 Note No. __________ $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. -2- "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 -3- 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 shares of its Common Stock, the number of shares of Common Stock issuable to Holder immediately before that subdivision shall be proportionately increased, and conversely, if the Borrower at any time or from time to time after the date of this Note combines shares of Common Stock into a smaller number of shares, the number of shares of Common Stock issuable to Holder immediately before the combination shall be proportionately decreased. In either case, the Conversion Price will be proportionately adjusted as well. Any adjustment under this clause (a) shall become effective at the close of business on the date the subdivision or combination becomes effective. (b) Adjustment for Certain Dividends and Distributions. If the Borrower at any time or from time to time after the date of this Note makes, or fixes a record date for the determination of holders of shares of Common Stock entitled to receive a dividend or other distribution payable in additional shares of Common Stock, then and in each such event, the number of shares of Common Stock issuable to Holder shall be increased as of the time of such issuance, or, in the event such record date is fixed, as of the close of business on such record date, by multiplying the maximum number of shares of Common Stock issuable to Holder by a fraction (i) the numerator of -4- which shall be the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance or the close of business on such record date plus the number of shares of Common Stock issuable in payment of such dividend or distribution plus the number of shares of Common Stock issuable upon the conversion or exercise of the Borrower's outstanding convertible securities, warrants and options, and (ii) the denominator of which is the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance or the close of business on such record date, plus the number of shares of Common Stock issuable upon the conversion or exercise of the Borrower's outstanding convertible securities, warrants and options. (c) Adjustments for Other Dividends and Distributions. In the event the Borrower at any time or from time to time after the date of this Note makes, or fixes a record date for the determination of holders of shares of Common Stock entitled to receive a dividend or other distribution payable in securities of the Borrower other than the shares of Common Stock, then and in each such event, provision shall be made so that the Holder, upon conversion of this Note, shall receive upon conversion thereof, in addition to the number of shares of Common Stock receivable thereupon, the amount of securities of the Borrower which the Holder would have received had Holder been a holder of Common Stock on the date of such event and had thereafter, during the period from the date of such event to and including the Conversion Date, retained such securities receivable as aforesaid during such period, subject to all other adjustments called for during such period under this Section 4 with respect to the rights of the Holder. (d) Adjustment for Reorganization, Consolidation, Merger. In the event of any reorganization of the Borrower (or any other corporation, the stock or other securities of which are at the time receivable upon the conversion of this Note) after the date hereof, or if, after such date, the Borrower (or any such other corporation) shall consolidate with or merge into another corporation or convey all or substantially all its assets to another corporation, and to the extent any such transaction does not result in the automatic conversion of this Note in accordance with the terms hereof, then and in each such case Holder, upon the conversion hereof as provided herein, at any time after the consummation of such reorganization, consolidation, merger or conveyance, shall be entitled to receive, in lieu of the stock receivable upon the conversion of this Note prior to such consummation, the stock or other securities or property to which such Holder would have been entitled upon such consummation if such Holder had converted this Note immediately prior thereto. In the event of such a reorganization, consolidation or merger, the corporation whose stock or other securities or property to which Holder would be entitled shall execute and deliver to Holder no later than the closing of such transaction an instrument or other writing, reasonably satisfactory to Holder, acknowledging its obligation to issue such stock or other securities or other property upon the conversion of this Note. -5- (e) Adjustment for Reclassification, Exchange and Substitution. In the event that at any time or from time to time after the date of this Note, the shares of Common Stock are changed into the same or a different number of shares of any class of stock, whether by recapitalization, reclassification or otherwise (other than a subdivision or combination of shares or stock dividend or a reorganization, merger, consolidation or sale of assets, provided for elsewhere in this Section 4), then and in any such event the kind and amount of stock and other securities and property receivable upon such recapitalization, reclassification or other change shall be used for calculation of the number of shares of Common Stock issuable to the Holder, all subject to further adjustment as provided in this Note. (f) Sale of Shares Below Conversion Price. (i) In case at any time on or after the date first written above, the Borrower shall issue or sell shares of its Common Stock or instruments convertible into or exercisable for Common Stock (collectively, the "Newly Issued Shares"), at a price below the Conversion Price in effect at the time of such issuance (the "Base Share Price"), then the Conversion Price shall be reduced to equal the Base Share Price. In each such case, the Conversion Price shall be reduced as of the opening of business on the date immediately following such issue or sale of Newly Issued Shares. In no instance shall an adjustment be made under this Section 4(f)(i) if it would cause the Conversion Price to be increased. (ii) Notwithstanding the foregoing, no adjustment shall be made under this Section 4(f) by reason of: (1) the issuance, sale, and transfer to any person of any shares of Common Stock of the Company in connection with (i) the Private Placement (as defined in the Note Purchase Agreement), (ii) execution and consummation of the terms of the Conversion and Settlement Agreements (as defined in the Note Purchase Agreement), or (iii) settlement of unsecured trade debt pursuant to those certain Settlement and Release Agreements (as defined in the Note Purchase Agreement) dated as of the date hereof; (2) the issuance by the Borrower of the Warrants (as defined in that certain Note Purchase Agreement dated as of the date hereof, by and between the Borrower and the purchasers named therein (the "Note Purchase Agreement")) or the issuance by the Borrower of shares of Common Stock upon the exercise of the Warrants in accordance with the terms of the Note Purchase Agreement; (3) the issuance by the Borrower of shares of Common Stock upon the exercise or conversion of securities of the Borrower outstanding as of the date of this Agreement; and -6- (4) the issuance by the Borrower of shares of Common Stock or options or other rights to purchase Common Stock pursuant to any equity incentive plan in effect on the date hereof. (g) Certificate as to Adjustment. In each case of an adjustment of the Conversion Price or the number of shares of Common Stock issuable upon conversion of the Notes, upon the request of the Holder, the Borrower shall compute such adjustment in accordance with the provisions of this Note and prepare a letter or certificate setting forth such adjustment, and showing in detail the facts upon which such adjustment is based. Notwithstanding the delivery of such letter or certificate, Holder shall have the right to dispute the calculation of such adjustment by written notice to Borrower setting forth Holder's alternative calculation of such adjustment. 5. Events of Default. (a) Events Constituting An Event of Default. Any of the events set forth in Section 1.15 of the Note Purchase Agreement, which section is incorporated herein by reference, shall constitute an "Event of Default" under this Note. (b) Consequences of an Event of Default. Upon the occurrence of an Event of Default or at any time thereafter, the registered holder of the Note may, by notice to the Borrower, declare the entire unpaid principal amount of the Note, all interest accrued and unpaid thereon and all other amounts payable under this Note to be forthwith due and payable, whereupon the Note, all such accrued interest and all such amounts will become and be forthwith due and payable (unless there will have occurred an Event of Default under subsection 1.15(e) of the Note Purchase Agreement, in which case all such amounts will automatically become due and payable) without offset or counterclaim of any kind and without presentment, demand, protest or further notice of any kind, and without regard to the running of the statute of limitations, all of which are by this Note expressly waived by the Borrower. 6. Registration. Pursuant to the terms and conditions of the Note Purchase Agreement, the Common Stock to be issued to the Holder upon conversion will be registered with the Securities and Exchange Commission under a registration statement on Form S-1 or any other form then available to the Company under applicable SEC rules and regulations and will not be subject to any restrictions on transfer. 7. General Matters. (a) Applicable Law. This Note shall be governed by the internal laws (and not the law of conflicts) of the State of California. (b) Fees and Expenses. In the event that any suit or action is instituted to enforce any provision under this Note, the prevailing party in such dispute shall be entitled to recover from the losing party all fees, costs and expenses of enforcing -7- any right of such prevailing party under or with respect to this Agreement, including without limitation, such reasonable fees and expenses of attorneys and accountants, which shall include, without limitation, all fees, costs and expenses of appeals. Notwithstanding the foregoing, the Borrower agrees to pay and hold Holder harmless against liability for the payment of the reasonable fees and expenses of Holder (including, without limitation, attorneys' fees and expenses and out of pocket expenses of Holder and its representatives, including, without limitation, fees and expenses for travel, background investigations and outside consultants) arising in connection with any refinancing or restructuring of the credit arrangements provided under this Note in the nature of a "work-out" or pursuant to any insolvency or bankruptcy proceedings. (c) Amendment or Waiver. Any term of this Note may be amended, and the observance of any term of this Note may be waived (either generally or in a particular instance and either retroactively or prospectively) only by the written consent of the Holder. (d) Headings. The headings in this Note are for purposes of convenience of reference only, and shall not be deemed to constitute a part of this Note. (e) Notices. All notices, requests, consents and other communications required or permitted hereunder shall be in writing (including telecopy or similar writing) and shall be sent to the address of the party set forth in the Note Purchase Agreement. Any notice, request, consent or other communication hereunder shall be deemed to have been given and received on the day on which it is delivered (by any means including personal delivery, overnight air courier, United States mail) or telecopied (or, if such day is not a business day or if the notice, request, consent or communication is not telecopied during business hours of the intended recipient, at the place of receipt, on the next following business day). Any of the parties hereto may, by notice given hereunder, designate any further or different address and/or number to which subsequent notices or other communications shall be sent. Unless and until such written notice is received, the addresses and numbers as provided herein shall be deemed to continue in effect for all purposes hereunder. (f) Usury Limitation. In no event shall the amount paid or agreed to be paid to the Holder for the use or forbearance of money to be advanced hereunder exceed the highest lawful rate permissible under the then applicable usury laws. If it is hereafter determined by a court of competent jurisdiction that the interest payable hereunder is in excess of the amount which the Holder may legally collect under the then applicable usury laws, such amount which would be excessive interest shall be applied to the payment of the unpaid principal balance due hereunder and not to the payment of interest or, if all principal shall previously have been paid, promptly repaid by the Holder to the Borrower. (g) Severability. Every provision of this Note is intended to be severable. If any term or provision hereof is declared by a court of competent jurisdiction -8- to be illegal or invalid, such illegal or invalid term or provision shall not affect the balance of the terms and provisions hereof, which terms and provisions shall remain binding and enforceable. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] -9- IN WITNESS WHEREOF, the Borrower has caused this Note to be executed as of the day and year first above written. DYNTEK, INC., a Delaware corporation By: C.W. Zublin, Jr. ------------------------------------ Name: C.W. Zublin, Jr. Title: C.E.O. -10- EX-99.10 6 y18806exv99w10.txt PURCHASE WARRANT EXHIBIT 99.10 THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE SECURITIES LAWS AND MAY NOT BE SOLD, EXCHANGED, HYPOTHECATED OR TRANSFERRED IN ANY MANNER EXCEPT PURSUANT TO A REGISTRATION OR AN EXEMPTION FROM SUCH REGISTRATION. PURCHASE WARRANT Issued to: LLOYD I. MILLER, III Exercisable to Purchase 15.81% of Shares of Common Stock of the Company outstanding on the date of Exercise of DYNTEK, INC. Void after December 31, 2016 This is to certify that, in exchange for the Warrantholder's commitment to purchase one or more of the Company's Senior Secured Promissory Notes, due March 1, 2010, in the original aggregate principal amount of $5,300,000, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, and subject to the terms and conditions set forth below, the Warrantholder is entitled to purchase, and the Company promises and agrees to sell and issue to the Warrantholder, at any time on or after March 8, 2006 (the "Effective Date"), pursuant to Section 2 hereof, up to that number of shares of Common Stock of the Company equal to 15.81% of the shares of capital stock of the Company outstanding at the time of exercise, calculated on a fully diluted basis. This Warrant certificate is issued subject to the following terms and conditions: 1. Definitions of Certain Terms. Except as may be otherwise clearly required by the context, the following terms have the following meanings: (a) "Adjustment Threshold" will be $0.001 per share subject to adjustment from time to time pursuant to Section 3(c) of this Agreement. (b) "Common Stock" means the common stock, $0.0001 par value, of the Company. (c) "Company" means DynTek, Inc., a Delaware corporation. (d) "Effective Date" has the meaning set forth in the preamble to this Agreement. (e) "Exercise Period" means the period of time commencing on the Effective Date and ending at 5 p.m. Pacific Time on December 31, 2016. (f) "Exercise Price" means the price at which the Warrantholder may purchase one Share upon exercise of Warrants as determined from time to time pursuant to the provisions hereof. The Exercise Price will be $0.001 per Share. (g) "Note Purchase Agreement" means that certain Note Purchase Agreement, dated as of the Effective Date, by and among, the Company, the initial Warrantholder, SACC Partners, L.P. and Trust A-4 - Lloyd I. Miller. (h) "Securities Act" means the Securities Act of 1933, as amended. (i) "Securities Exchange Act" means the Securities Exchange Act of 1934, as amended. (j) "Share" or "Shares" refers to one or more shares of Common Stock issuable on exercise of the Warrant. -2- (k) "Warrant" means the warrant evidenced by this certificate or any certificate obtained upon transfer or partial exercise of the Warrant evidenced by any such certificate. (l) "Warrants" means all warrants issued pursuant to the Note Purchase Agreement by and among the Warrantholders and the Company. (m) "Warrantholder" means a record holder of the Warrant or Shares. The initial Warrantholder is set forth on the cover page of this Warrant. 2. Exercise of Warrants. All or any part of the Warrant may be exercised during the Exercise Period by surrendering the Warrant, together with appropriate instructions, duly executed by the Warrantholder or by its duly authorized attorney, and delivery of payment in full by the Warrantholder, in lawful money of the United States, of the Exercise Price payable with respect to the Shares being purchased at the office of the Company, 19700 Fairchild Road, Suite 230, Irvine, California 92612, Attention: Chief Financial Officer, or at such other office or agency as the Company may designate. The date on which such instructions and the Exercise Price are received by the Company shall be the date of exercise. Upon receipt of notice of exercise and the Exercise Price, the Company shall immediately instruct its transfer agent to prepare certificates for the Shares to be received by the Warrantholder and shall use commercially reasonable efforts to cause such certificates to be prepared and delivered to the Warrantholder in accordance with the Warrantholder's instructions within three business days after the date of exercise. If the Warrantholder shall provide the Company with an opinion of counsel to the effect that the legend set forth on the face of this Warrant is not required, such certificates shall not bear a legend with respect to the Securities Act. If fewer than all the Shares purchasable under the Warrant are purchased, the Company will, upon such partial exercise, execute and deliver to the Warrantholder a new Warrant certificate (dated the date hereof), in form and tenor similar to this Warrant certificate, evidencing that portion of the Warrant not exercised. The Shares to be obtained on exercise of the Warrant will be deemed to have been issued, and any person exercising the Warrants will be deemed to have become a holder of record of those Shares, as of the date of the payment of the Exercise Price. 3. Adjustments in Certain Events. The number, class, and price of the Shares for which this Warrant is exercisable are subject to adjustment from time to time upon the happening of certain events as follows: (a) Notwithstanding the fact that the Company may divide its Common Stock into a greater number of shares, pay a dividend on its Common Stock or combine its Common Stock into a smaller number of shares, in no event shall the Exercise Price be increased as a result of such action with respect to the Common Stock of the Company. (b) In case of any change in the Common Stock through merger, consolidation, reclassification, reorganization, partial or complete liquidation, purchase of substantially all the assets of the Company, or other change in the capital structure of the Company, then, as a condition of such change, lawful and adequate provision will be made -3- so that the holder of this Warrant will have the right thereafter to receive upon the exercise of the Warrant the kind and amount of shares of stock or other securities or property to which he would have been entitled if, immediately prior to such event, he had held the number of Shares obtainable upon the exercise of the Warrant. In any such case, appropriate adjustment will be made in the application of the provisions set forth herein with respect to the rights and interest thereafter of the Warrantholder, to the end that the provisions set forth herein will thereafter be applicable, as nearly as reasonably may be, in relation to any shares of stock or other property thereafter deliverable upon the exercise of the Warrant. The Company will not permit any change in its capital structure to occur unless the issuer of the shares of stock or other securities to be received by the holder of this Warrant, if not the Company, agrees to be bound by and comply with the provisions of this Warrant. (c) Subsequent to the effective date, if the Company shall sell or issue shares of Common Stock (other than Excluded Stock, as defined hereinafter for a consideration per share less than the Adjustment Threshold, then, upon such sale or issuance, the Exercise Price shall be adjusted so that the Exercise Price shall equal the price determined by dividing the aggregate amount of consideration, if any, received, or to be received, by the Company upon such issuance or sale by the number of shares sold, issued or issuable. Upon any adjustment of the Exercise Price pursuant to this Section 3(c), the adjusted Exercise Price shall be the Adjustment Threshold with respect to future issuances by the Company after any such adjustment. (i) For purposes of this Section 3(c), the consideration received by the Company for the issue of any shares of Common Stock shall be computed as follows: (A) insofar as it consists of cash, at the aggregate amount of cash received by the Company before deducting any reasonable discounts, commissions or other expenses allowed, paid or incurred by the Company for any underwriting or otherwise in connection with such issuance; (B) insofar as it consists of property other than cash, at the fair market value thereof at the time of such issue, as determined in good faith by the Company's Board of Directors; and (C) in the event that it consists of consideration covering both cash and property, aggregate value of all such consideration so received, computed as provided in clauses (A) and (B) above, as reasonably determined in good faith by the Company's independent auditors. (ii) For purposes of this Section 3(c), "Excluded Stock" shall mean (A) all shares issuable upon the exercise or conversion of currently outstanding warrants, options, other rights to purchase Common Stock and convertible securities outstanding as of the Effective Date, (B) all shares issued or issuable pursuant to any incentive plan or arrangement approved by the Board of Directors for the benefit of the Company's employees, officers, directors or consultants or others with important business relationships with the Company; provided that the number of shares issued or issuable to officers and directors of the Company who are reporting persons under -4- Section 16 of the Securities Exchange Act under this subsection and after the Effective Date shall not exceed the number of shares equal to five percent (5%) of the fully diluted outstanding shares of Common Stock of the Company, calculated using the treasury stock method immediately prior to the issuance of such shares of Common Stock, in the aggregate, subject to adjustment for subdivisions and combinations and net of any repurchases of such shares or cancellations or expirations of rights to purchase. (iii) In the event of any change in the Exercise Price as a result of the issuance of such rights, warrants or options or such convertible securities, the Exercise Price shall be recomputed to reflect such change, but no further adjustment shall be made for the actual issuance of Common Stock or any payment of such consideration upon the exercise of any such rights, warrants or options or the conversion of such securities. (iv) Upon the expiration of any such rights, warrants or options or the termination of any such rights or convertible securities, the Exercise Price, to the extent in any way affected by or computed using such rights, warrants or options or convertible securities, shall be recomputed to reflect the issuance of only the number of shares of Common Stock actually issued upon the exercise of such rights, warrants or options or upon the conversion of such securities. (d) For purposes of this Section 3, the sale or issuance by the Company of rights, warrants or options to purchase Common Stock or securities convertible into Common Stock shall be deemed to be the sale or issuance of shares of Common Stock (in which event the subsequent exercise thereof shall not be deemed to be a separate sale or issuance for purposes of this Section 3), and the consideration therefor shall consist of the consideration received by the Company upon issuance of such rights, warrants, options or convertible securities plus any consideration to be received upon the exercise or conversion thereof. (e) When any adjustment is required to be made in the number of Shares or other securities or property purchasable upon exercise of the Warrant, the Company will promptly determine the new number of such Shares or other securities or property purchasable upon exercise of the Warrant and (i) prepare and retain on file a statement describing in reasonable detail the method used in arriving at the new number of such Shares or other securities or property purchasable upon exercise of the Warrant and (ii) cause a copy of such statement to be mailed to the Warrantholder within thirty (30) days after the date of the event giving rise to the adjustment. (f) No fractional shares of Common Stock or other securities will be issued in connection with the exercise of the Warrant, but the Company will pay, in lieu of fractional shares, a cash payment therefor on the basis of the mean between the bid and asked prices of the Common Stock in the over-the-counter market or the closing price on a national securities exchange or Nasdaq on the day immediately prior to exercise. (g) If securities of the Company or securities of any subsidiary of the Company are distributed pro rata to holders of Common Stock, such number of such -5- securities will be distributed to the Warrantholder or his assignee upon exercise of this Warrant as the Warrantholder or assignee would have been entitled to if the portion of the Warrant evidenced by this Warrant certificate had been exercised prior to the record date for such distribution. The provisions with respect to adjustment of the Common Stock provided in this Section 3 will also apply to the securities to which the Warrantholder or his assignee is entitled under this subsection 3(g). (h) In the event (i) the Company establishes a record date to determine the holders of any class of securities who are entitled to receive any dividend or other distribution or (ii) there occurs any change in the Common Stock through merger, consolidation, reclassification, reorganization, partial or complete liquidation, purchase of substantially all of the assets of the Company or other change in the capital structure of the Company, the Company shall give to the holder hereof a notice specifying (a) the date of such record date for the purpose of such dividend or distribution and a description of such dividend or distribution, (b) the date on which any such merger, consolidation, reclassification, reorganization, sale, liquidation or other change in the capital structure of the Company is expected to become effective, and (c) the time, if any, that is to be fixed, as to when the holders of record of Common Stock (or other securities) shall be entitled to exchange their shares of Common Stock (or other securities) for securities or other property deliverable upon such merger, consolidation, reclassification, reorganization, sale, liquidation or other change in the capital structure of the Company. Such written notice shall be given to the holder of this Warrant at least ten (10) days prior to the date specified in such notice on which any such action is to be taken. 4. Registration. Warrantholder shall have the registration rights as set forth in the Note Purchase Agreement pursuant to Article VI which is hereby incorporated by reference. 5. Reservation of Shares. The Company agrees that the number of shares of Common Stock or other securities sufficient to provide for the exercise of the Warrant upon the basis set forth above will at all times during the term of the Warrant be reserved for exercise. If at any time the Company does not have a sufficient number of shares of Common Stock or other securities authorized to provide for the exercise of the Warrant, the Company shall take such actions as may be reasonably necessary to increase the number of authorized shares of Common Stock or other securities to provide for exercise of the Warrant. 6. Validity of Shares. All Shares or other securities delivered upon the exercise of the Warrant will be duly and validly issued in accordance with their terms, and, in the case of capital stock, will, when issued and delivered in accordance with their terms against payment therefor as provided in the Warrant, be fully paid and nonassessable, and the Company will pay all documentary and transfer taxes, if any, in respect of the original issuance thereof upon exercise of the Warrant. 7. Transfer. This Warrant may be freely sold, transferred, assigned or hypothecated by the Warrantholder. The Warrant may be divided or combined, upon request to the Company by the Warrantholder, into a certificate or certificates evidencing the same aggregate number of Warrants. -6- 8. Voting Rights. Pursuant to the terms of Section 5.18 of the Note Purchase Agreement, the Company will use its reasonable best efforts to obtain stockholder approval of an amendment to its Certificate of Incorporation pursuant to Section 221 of the Delaware General Corporation Law to provide that the Warrentholders may vote the Shares issuable upon exercise of the Warrants prior to such exercise and issuance as though the Warrants had been exercised and the Shares issued. 9. No Rights as a Stockholder. Except as otherwise provided herein, the Warrantholder will not, by virtue of ownership of the Warrant, be entitled to any rights of a stockholder of the Company but will, upon written request to the Company, be entitled to receive such quarterly or annual reports as the Company distributes to its stockholders. 10. No Dividend. Except to the extent compliance is waived in writing by the Warrantholder, for as long as all or any portion of this warrant shall remain outstanding, the Company will not, nor will it permit any of its subsidiaries to declare or pay any dividends on or make any other distributions in respect of any class or series of its capital stock or other equity interests. 11. Notice. Any notices required or permitted to be given under the terms of this Warrant must be sent by certified or registered mail (return receipt requested) or delivered personally or by courier (including a recognized overnight delivery service) or by facsimile and will be effective five (5) days after being placed in the mail, if mailed by regular U.S. mail, or upon receipt, if delivered personally, by courier (including a recognized overnight delivery service) or by facsimile, in each case addressed to a party. The addresses for such communications are: If to the Company: Chief Financial Officer DynTek, Inc. 19700 Fairchild Road, Suite 230 Irvine, California 92612 Fax (949) 955-0086 If to a Warrantholder: to the address set forth immediately below the Warrantholder's name on the signature pages hereto. Each party will provide written notice to the other parties of any change in its address. 12. Governing Law; Jurisdiction; Jury Trial Waiver. This Warrant will be governed by and interpreted in accordance with the laws of the State of Delaware without regard to the principles of conflict of laws. The parties hereto hereby submit to the exclusive jurisdiction of the United States federal and state courts located in the County of New Castle, State of Delaware with respect to any dispute arising under this Warrant. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT THAT IT MAY HAVE TO, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION HEREWITH. -7- 13. Entire Agreement. This Warrant, the exhibits and schedules hereto, and the documents referred to herein, constitute the entire agreement and understanding of the parties hereto with respect to the subject matter hereof, and supersede all prior and contemporaneous agreements and understandings, whether oral or written, between the parties hereto with respect to the subject matter hereof. 14. Waiver; Consent. This Warrant may not be changed, amended, terminated, augmented, rescinded or discharged (other than by performance), in whole or in part, except by a writing executed by the parties hereto, and no waiver of any of the provisions or conditions of this Warrant or any of the rights of a party hereto shall be effective or binding unless such waiver shall be in writing and signed by the party claimed to have consented thereto. Any amendment or waiver signed by Warrantholders holding Warrants to purchase a majority of all of the Shares issuable upon exercise of the Warrants then outstanding shall be binding upon all Warrantholders. 15. No Impairment. The Company will not, by amendment of its Certificate of Incorporation, or through reorganization, consolidation, merger, dissolution, issue or sale of securities, sale of assets 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 action as may be necessary or appropriate in order to protect the rights of the Warrantholder of this Warrant against dilution or other impairment. 16. Remedies. The Company stipulates that the remedies at law of the Warrantholder of this Warrant in the event of any default or threatened default by the Company in the performance of or compliance with any of the terms of this Warrant are not adequate and may be enforced by a decree for the specific performance of any agreement contained herein or by an injunction against a violation of any of the terms hereof or otherwise. 17. Severability. If one or more provisions of this Warrant are held to be unenforceable under applicable law, such provision shall be excluded from this Warrant and the balance of the Warrant shall be interpreted as if such provision were so excluded and the balance shall be enforceable in accordance with its terms. [SIGNATURES ON FOLLOWING PAGE] -8- [SIGNATURE PAGE TO PURCHASE WARRANT] IN WITNESS WHEREOF, the parties hereto have executed this Warrant effective as of the date set forth below. Dated as of March 8, 2006 DYNTEK, INC. By: C.W. Zublin, Jr. ----------------------------------- Its: C.E.O. Agreed and Accepted as of March 8, 2006 LLOYD I. MILLER, III By: Lloyd I. Miller, III ----------------------------------- Name: Lloyd I. Miller, III NOTICE OF EXERCISE To: DYNTEK, INC. The undersigned hereby elects to purchase ___________ shares of Common Stock (the "Shares") of DynTek, Inc., a Delaware corporation (the "Company") pursuant to the terms of the attached Warrant, and tenders herewith payment of the purchase price pursuant to the terms of the Warrant. Please issue certificates representing the Common Stock purchased hereunder in the names and in the denominations indicated below. Please issue a new Warrant for the unexercised portion of the attached Warrant, if any, in the name of the undersigned. Dated: ------------------------------ ---------------------------------------- No. Warrant Shares: Name: ----------------- ---------------------------------- Print Name of Stockholder: Title: ------------------------ --------------------------------- -----END PRIVACY-ENHANCED MESSAGE-----