**Exhibit 10.8**

 

**THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTEREDUNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”).  THE SECURITIES MAY NOT BE SOLD,TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENTFOR THE SECURITIES UNDER THE SECURITIES ACT, OR AN OPINION OF COUNSEL, IN FORM,SUBSTANCE AND SCOPE CUSTOMARY FOR OPINIONS OF COUNSEL IN COMPARABLETRANSACTIONS, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR UNLESS SOLDPURSUANT TO RULE 144 UNDER THE SECURITIES ACT.**

** **

**AMENDED AND RESTATED**

** **

**9% SENIOR SUBORDINATED CONVERTIBLE NOTE**

** **
| November , 2005 |   | $[           ] |
|-----------------|--------|-----------------------------------------------------------------------|

 

FOR VALUE RECEIVED, DYNTEK, INC., a corporationorganized under the laws of the State of Delaware (hereinafter called the “**Borrower**”), hereby promises to pay to the order of [           ](the “**Holder**”) the sum of $[           ](the “**Principal Amount**”), payable $[           ]on the first day of each month commencing January 1, 2007 (“**Mandatory Prepayments**”), with any remaining Principal Amountdue on October 1, 2007 (the “**Maturity  Date**”), and to pay interest on theunpaid Principal Amount from the date of this Amended and Restated 9% SeniorSubordinated Convertible Note (the “**Note**”) at therate of nine percent (9%) per annum from the date hereof (the “**Issue Date**”), payable quarterly on April 1, July 1,October 1 and January 1 (each quarterly interest payment datehereinafter collectively referred to as an “**InterestPayment Date**”), and at Maturity, whether by declaration,acceleration or otherwise.  Any PrincipalAmount of or interest on this Note which, to the extent not converted inaccordance with the provisions hereof, is not paid when due shall bear interestat the rate of sixteen percent (16%) per annum (“**DefaultInterest**”) from the due date thereof until the same is paid.  Interest shall be calculated based on a 360-dayyear and shall commence accruing on the Issue Date.  This Note amends and restates in its entiretythat certain 9% Senior Subordinated Convertible Note (the “**OriginalNote**”) made by Borrower in favor of Holder on October 15, 2004in an aggregate principal amount of $[           ]in accordance with the terms and conditions of that certain 9% SeniorSubordinated Convertible Note Purchase Agreement, dated as of October 15,2004, between the Borrower, the Holder and the other purchasers named therein(the “**Purchase Agreement**”).

 

Each capitalized term used, but not otherwise defined,herein shall have the meaning ascribed thereto in the Purchase Agreement; *provided, however*, that notwithstanding anything herein ortherein, the terms of this Note shall be binding and control in the event andto the extent that any term or provision of the Purchase Agreement isinconsistent with or contrary to a term or provision of this Note.  For purposes hereof, (i) the term “**Notes**” shall be deemed to refer to this Note, all otherconvertible notes issued pursuant to the Purchase Agreement and all amended

 

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and restated convertiblenotes issued in replacement hereof or thereof, and (ii) the shares of theBorrower’s Common Stock that are issuable upon conversion of the Original Noteimmediately prior to this Note, or [           ]shares of Common Stock, are referred to herein as the “**OriginalShares,**” and (iii) the shares of the Borrower’s Common Stockthat are issuable upon the conversion of this Note, less the Original NoteShares are referred to herein as the “**Additional Note Shares**.”

 

Interest on the unpaid Principal Amount hereof, otherthan in connection with a prepayment of the Principal Amount at the option ofthe Borrower, and any installment of Mandatory Prepayment of the PrincipalAmount hereof may, at the option of the Borrower, be paid in shares of CommonStock (as defined in the Purchase Agreement) with an aggregate value, valuingeach share at the Conversion Price, equal in value to the amount of interest orMandatory Prepayment of the Principal Amount payable, provided that suchpayments may be made in shares of Common Stock (“**PaymentShares**”) only if the Borrower satisfies the Liquidity Conditions (asdefined herein) and provided further, that the Closing Price of the CommonStock shall be 115% of the Conversion Price on each of the ten (10) TradingDays prior to the date of payment (the “**Borrower ConversionCondition**”) and that the Borrower has provided written notice to theHolder of its election to issue Payment Shares at least ten (10) Trading Daysprior to the date of payment if the Borrower Conversion Condition is satisfied.    “**Liquidity Conditions**” shall mean that (i) all of theshares of Common Stock issuable upon conversion of the Notes are (x) authorizedand reserved for issuance, (y) registered for resale under the 1933 Act by theHolders of the Notes (or may otherwise be resold publicly without restriction)and (z) eligible to be traded on Nasdaq, the NYSE, the AMEX, Nasdaq SmallCap orthe OTC Electronic Bulletin Board and (ii) there is not then a continuingMandatory Redemption Event.  “**Closing Price**,” as of any date, means the last sale price ofthe Common Stock on Nasdaq as reported by Bloomberg Financial Markets or anequivalent reliable reporting service mutually acceptable to and hereafterdesignated by the holders of a majority of the outstanding Principal Amount ofthe Notes and the Borrower (“**Bloomberg**”) or,if Nasdaq is not the principal trading market for such security, the last saleprice of such security on the principal securities exchange or trading marketwhere such security is listed or traded as reported by Bloomberg, or, if nolast sale price of such security is available in any of the foregoing manners,the average of the bid prices of any market makers for such security that arelisted in the “pink sheets” by the National Quotation Bureau, Inc.  If the Closing Price cannot be calculated forsuch security on such date in the manner provided above, the Closing Priceshall be the fair market value as mutually determined by the Borrower and theholders of a majority of the outstanding Principal Amount of the Notes forwhich the calculation of the Closing Price is required.  “**Trading Day**”shall mean any day on which the Common Stock is traded for any period onNasdaq, or on the principal securities exchange or other securities market onwhich the Common Stock is then being traded.

 

All payments shall be made at such address as the Holder shallhereafter give to the Borrower by written notice made in accordance with theprovisions of this Note.  The MaturityDate is subject to extension, at the option of the Holder, as provided in Article IVhereof.

 

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**I.  REDEMPTION**

** **

**A.            MandatoryRedemption**. If any of the following events (each, a “**MandatoryRedemption Event**”) shall occur:

 

**1.            **The Borrower fails to pay thePrincipal Amount hereof or interest thereon when due, whether on the InterestPayment Date, the Maturity Date, or upon Mandatory Prepayment pursuant to Article I.B,upon acceleration or otherwise;

 

**2.            **The Borrower (i) fails to issueshares of Common Stock to any holder of the Notes upon exercise by the holderof its conversion rights in accordance with the terms of the Notes (for aperiod of at least sixty (60) days if such failure is solely as a result of thecircumstances governed by the second paragraph of Article II.E below andthe Borrower is using its best efforts to authorize a sufficient number ofshares of Common Stock as soon as practicable), (ii) fails to transfer orto cause its transfer agent to transfer (electronically or in certificatedform) any certificate for shares of Common Stock issued to any Holder uponconversion of or otherwise pursuant to the Notes as and when required by theNotes, the Purchase Agreement or the Registration Rights Agreement, dated as ofOctober 15, 2004, by and among the Borrower and the other signatoriesthereto, as amended (the “**Registration RightsAgreement**”), (iii) fails to remove any restrictive legend (orto withdraw any stop transfer instructions in respect thereof) on anycertificate or any shares of Common Stock issued to the holders of the Notesupon conversion of or otherwise pursuant to the Notes as and when required bythe Notes, the Purchase Agreement or the Registration Rights Agreement, and anysuch failure shall continue uncured (or any announcement, statement or threatnot to honor its obligations shall not be rescinded in writing) for fifteen(15) Trading Days after the Borrower shall have been notified thereof inwriting by any holder of the Notes or (iv) fails to fulfill itsobligations pursuant to Article IV, excluding subsection (e), of thePurchase Agreement (or makes any announcement, statement or threat that it doesnot intend to honor the obligations described in this paragraph), and any suchfailure shall continue uncured (or any announcement, statement or threat not tohonor its obligations shall not be rescinded in writing) for ten (10) daysafter the Borrower shall have been notified thereof in writing by any Holder ofthe Notes;

 

**3.            **The Borrower fails to maintaineffectiveness with the Securities and Exchange Commission (the “**SEC**”) of any Registration Statement (as defined in theRegistration Rights Agreement), after its initial effectiveness and during theRegistration Period (as defined in the Registration Rights Agreement), or salesof all of the Registrable Securities, excluding the Additional RegistrableSecurities (as defined in Amendment No. 1 to Registration RightsAgreement, dated November     , 2005, by and among theBorrower and the purchasers set forth in Schedule 1 thereto (“**Amendment No. 1**”)) otherwise cannot be made thereunder(whether by reason of the Borrower’s failure to amend or supplement theprospectus included therein in accordance with the Registration RightsAgreement, the Borrower’s failure to file and obtain effectiveness with the SECof an additional Registration Statement required pursuant to Section 2(i) ofthe Registration Rights Agreement or otherwise) for more than thirty (30)consecutive days or more than sixty (60) days in any twelve (12) month periodafter such Registration Statement becomes effective;

 

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**4.            **The Borrower fails to obtaineffectiveness with the SEC of a Registration Statement required to be filedunder Amendment No. 1 within the time periods set forth therein, or salesof all of the Additional Registrable Securities otherwise cannot be madethereunder (whether by reason of the Borrower’s failure to amend or supplementthe prospectus included therein in accordance with Amendment No. 1, theBorrower’s failure to file and obtain effectiveness with the SEC of anadditional Registration Statement required pursuant to Section 2(i) ofthe Registration Rights Agreement or otherwise) for more than thirty (30)consecutive days or more than sixty (60) days in any twelve (12) month periodafter such Registration Statement becomes effective;

 

**5.            **The Borrower or any subsidiary of theBorrower shall make an assignment for the benefit of creditors, or apply for orconsent to the appointment of a receiver or trustee for it or for all orsubstantially all of its property or business; or such a receiver or trusteeshall otherwise be appointed;

 

**6.            **Bankruptcy, insolvency, reorganizationor liquidation proceedings or other proceedings for relief under any bankruptcylaw or any law for the relief of debtors shall be instituted by or against theBorrower or any subsidiary of the Borrower;

 

**7.            **The Borrower shall fail to maintainthe listing of the Common Stock on the Nasdaq National Market (“**Nasdaq**”), the Nasdaq SmallCap Market (the “**Nasdaq SmallCap**”), the New York Stock Exchange (the “**NYSE**”), the American Stock Exchange (“**AMEX**”)or the OTC Electronic Bulletin Board (the “**OTC BB**”);

 

**8.            **The sale, conveyance or disposition ofall or substantially all of the assets of the Borrower, the effectuation by theBorrower of a transaction or series of related transactions in which more than50% of the voting power of the Borrower is disposed of (excluding issuances ofsecurities by the Borrower in connection with capital raising transactions) orthe consolidation, merger or other business combination of the Borrower with orinto any other individual, corporation, limited liability company, partnership,association, trust or other entity or organization (each, a “**Person**”) or Persons when the Borrower is not the survivor;

 

**9.            **The Borrower breaches any covenantcontained in Article III hereof and such breach continues uncured for aperiod of ten (10) days after written notice thereof to the Borrower fromany holder of Notes;

 

**10.         **The Borrower shall have incurred amonetary default in excess of $500,000 in any contract which is a “materialcontract” (as such term is defined in Item 601(b)(10) of Regulation S-K aspromulgated by the SEC) which default is not cured within two Trading Days, ora non-monetary default in any such contract which is not cured within fifteenTrading Days;

 

**11.         **Any material representation or warrantyof the Borrower made herein, in the Purchase Agreement, or in the RegistrationRights Agreement shall be materially false or misleading;

 

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**12.         **Any money judgment, writ or similar finalprocess shall be entered or filed against the Borrower or any of its propertyor other assets for more than $250,000, and shall remain unvacated, unbonded orunstayed  for a period of ninety (90)days; or

 

**13.         **An SEC stop trade order or the tradingsuspension of the Common Stock on the principal exchange or securities marketon which the Common Stock then trades shall be in effect for five (5) consecutiveTrading Days or five (5) Trading Days during a period of ten (10) consecutiveTrading Days, excluding in all cases a suspension of all trading on suchprincipal exchange or securities market on which the Common Stock trades;provided, that this shall only be a Mandatory Redemption Event to the extentthat the Borrower shall not have been able to cure such trading suspensionwithin thirty (30) days of the notice thereof; or

 

**14.         **Anydeclared default of the Borrower or any of its subsidiaries under any otherIndebtedness (as defined below) that gives the holder thereof the right toaccelerate such other Indebtedness shall have occurred, and such otherIndebtedness is in fact accelerated by the holder, or in the event that anyother Indebtedness has become due and payable upon maturity and has not beensatisfied then, upon the occurrence and during the continuation of anyMandatory Redemption Event specified in subparagraphs 1, 2, 3, 6, 7, 8, 9, 10,11, 12, 13 or 14 at the option of the Holder exercisable by the delivery ofwritten notice (the “**Mandatory RedemptionNotice**”) to the Borrower of such Mandatory Redemption Event(provided that the remedies afforded under this Article I.A shall only beavailable to Holders providing such notice), or upon the occurrence of anyMandatory Redemption Event specified in subparagraphs 4 or 5, the thenoutstanding Notes shall become immediately redeemable and the Borrower shallpurchase each holder’s outstanding Notes for an amount equal to the greater of (i) 120%multiplied by the sum of (a) the then outstanding Principal Amount of theNotes, plus (b) all accrued and unpaid interest thereon for the periodbeginning on the Issue Date and ending on the date of payment of the MandatoryRedemption Amount (the “**Mandatory Redemption Date**”),plus (c) Default Interest, if any, on the amounts referred to in clauses (a) and/or(b), plus (d) all Conversion Default Payments (as defined in Article II.Ebelow), Delivery Default Payments (as defined in Article II.D.3 below) andany other amounts owed to such holder pursuant to Section 2(i) of theRegistration Rights Agreement, and (ii) the “**parity value**”of the Notes to be redeemed, where parity value means the product of (x) thehighest number of shares of Common Stock issuable upon conversion of orotherwise pursuant to such Notes in accordance with the terms hereof (withoutgiving any effect to any limitations on conversions of Notes contained herein,and treating the Trading Day (as defined in Article II.B.1) immediatelypreceding the Mandatory Redemption Date as the “**ConversionDate**” (as defined in Article II.D.5) for purposes ofdetermining the lowest applicable Conversion Price, unless the MandatoryRedemption Event arises as a result of a breach in respect of a specificConversion Date in which case such Conversion Date shall be the ConversionDate), multiplied by (y) the highest Closing Price (as defined below) for theCommon Stock during the period beginning on the date of first occurrence of theMandatory Redemption Event and ending one day prior to the Mandatory RedemptionDate (the greater of such amounts set forth in clauses (i) and (ii) abovebeing referred to as the “**Mandatory RedemptionAmount**”).  The MandatoryRedemption Amount, together with all other ancillary amounts payable hereunder,shall immediately become due and payable, all without demand, presentment ornotice, all of which hereby are expressly waived, together with all costs,including, without limitation, reasonable legal fees and expenses of

 

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collection, and Holder shall beentitled to exercise all other rights and remedies available at law or inequity.

 

“**Indebtedness**,”when used with respect to the Borrower or any of its subsidiaries (each, a “**Borrower****Person**”), andwithout duplication means, to the extent that any of the following exceed$750,000 individually:

 

(a)           all indebtedness, obligations andother liabilities (contingent or otherwise) of such Person for borrowed money(including obligations of the Borrower or any of its subsidiaries in respect ofoverdrafts, foreign exchange contracts, currency exchange agreements, and anyloans or advances from banks, whether or not evidenced by notes or similarinstruments) or evidenced by bonds, debentures, notes or other instruments forthe payment of money, or incurred in connection with the acquisition of anyproperty, services or assets (whether or not the recourse of the lender is tothe whole of the assets of such Borrower Person or to only a portion thereof),other than any account payable or other accrued current liability or obligationto trade creditors incurred in the ordinary course of business in connectionwith the obtaining of materials or services;

 

(b)           all reimbursement obligations andother liabilities (contingent or otherwise) of such Borrower Person withrespect to letters of credit, bank guarantees, bankers’ acceptances, suretybonds, performance bonds or other guaranty of contractual performance;

 

(c)           all obligations and liabilities(contingent or otherwise) in respect of (a) leases of such Borrower Personrequired, in conformity with GAAP, to be accounted for as capitalized leaseobligations on the balance sheet of such Borrower Person and (b) any lease or related documents (including apurchase agreement) in connection with the lease of real property whichprovides that such Borrower Person is contractually obligated to purchase orcause a third party to purchase the leased property and thereby guarantee aminimum residual value of the leased property to the landlord and theobligations of such Borrower Person under such lease or related document topurchase or to cause a third party to purchase the leased property;

 

(d)           all obligations of such BorrowerPerson (contingent or otherwise) with respect to an interest rate or otherswap, cap or collar agreement or other similar instrument or agreement orforeign currency hedge, exchange, purchase or similar instrument or agreement;

 

(e)           all direct or indirect guaranties orsimilar agreements by such Borrower Person in respect of, and obligations orliabilities (contingent or otherwise) of such Borrower Person to purchase orotherwise acquire or otherwise assure a creditor against loss in respect of,indebtedness, obligations or liabilities of another Borrower Person of the kinddescribed in clauses (a) through (d) of this definition;

 

(f)            any indebtedness or otherobligations described in clauses (a) through (e) of this definitionsecured by any lien existing on property which is owned or held by such

 

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BorrowerPerson, regardless of whether the indebtedness or other obligation securedthereby shall have been assumed by such Borrower Person; and

 

(g)           any and alldeferrals, renewals, extensions and refunding of, or amendments, modificationsor supplements to, any indebtedness, obligation or liability of the kinddescribed in clauses (a) through (f) of this definition.

 

**B.            Failureto Pay Redemption Amounts**.  In the case of a Mandatory Redemption Event,if the Borrower fails to pay the Mandatory Redemption Amount within five (5) businessdays of written notice that such amount is due and payable, then (assumingthere are sufficient authorized shares) in addition to all other availableremedies, the Holder shall have the right at anytime, and from time to timeafter the failure to timely pay the Mandatory Redemption Amount, so long as theMandatory Redemption Event continues, to require the Borrower, upon writtennotice, to immediately issue (in accordance with and subject to the terms of Article IIbelow), in lieu of the portion of the Mandatory Redemption Amount with respectto which such election is made, the number of shares of Common Stock of theBorrower equal to such applicable redemption amount divided by any ConversionPrice (as defined below), as chosen in the sole discretion of Holder, in effectfrom the date of the Mandatory Redemption Event until the date Holder elects toexercise its rights pursuant to this Article I.B.

 

**II.  CONVERSION AT THE OPTION OFHOLDER**

 

**A.            OptionalConversion**

** **

**1.             Conversion Amount**.  Subject to the restrictions set forth herein,the Holder may, at its option at any time and from time to time prior to 5:00pm, Eastern Standard Time, on the Maturity Date, convert all or any portion ofthis Note into Common Stock as set forth below (an “**OptionalConversion**”).  This Note shallbe convertible into such number of fully paid and nonassessable shares ofCommon Stock as such Common Stock exists on the Issue Date, or any other sharesof capital stock or other securities of the Borrower into which such CommonStock is thereafter changed or reclassified, as is determined by dividing (a) theConversion Amount (as defined below) by (b) the Conversion Price (asdefined in Article II.B below); provided, however, that in no eventshall Holder be entitled to convert this Note in exercise of that dollar amountof Notes upon conversion of which the sum of (x) the number of shares of CommonStock beneficially owned by Holder and its affiliates (other than shares ofCommon Stock which may be deemed beneficially owned through the ownership ofthe unconverted portion of this Note, or the unexercised or unconverted portionof any other securities of the Borrower (including, without limitation, thewarrants issued by the Borrower pursuant to the Purchase Agreement (the “**Warrants**”)) subject to a limitation on conversion orexercise analogous to the limitations contained herein) and (y) the number ofshares of Common Stock issuable upon the conversion of the portion of this Notewith respect to which the determination of this proviso is being made, wouldresult in beneficial ownership by Holder and Holder’s affiliates of more than9.9% of the outstanding shares of Common Stock. For purposes of the proviso to the immediately preceding sentence, (i) beneficialownership shall be

 

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determined in accordance with Section 13(d) ofthe Securities Exchange Act of 1934, as amended, and Regulation 13D Gthereunder, except as otherwise provided in clause (x) of such proviso and (ii) suchproviso may not be amended without (a) the written consent of the Holderand the Borrower and (b) the approval of the holders of a majority ofBorrower’s Common Stock present, or represented by proxy, and voting at anymeeting called to vote on such proviso.  “ConversionAmount” means (i) the portion of the Principal Amount of this Note beingconverted, plus (ii) all accrued and unpaid interest thereon for theperiod beginning on the Issue Date and ending on the Conversion Date (asdefined in Article II.B.1), plus (iii) Default Interest, if any, onthe amounts referred to in the immediately preceding clauses (i) and/or(ii), plus (iv) any Conversion Default Payments (as defined in Article II.E)and Delivery Default Payments (as defined in Article II.D.3) payable withrespect thereto, together with any other amounts owed to Holder pursuant to Section 2(i) ofthe Registration Rights Agreement.

 

**B.            ConversionPrice**.

 

**1.             Calculation of Conversion Price**.  Subject to any adjustments provided forherein, the “**Conversion Price**” shall be $0.22per share.  The Conversion Price shall besubject to adjustment from time to time for stock splits, stock dividends,combinations, capital reorganizations and similar events relating to the CommonStock occurring after the Issue Date and as otherwise set forth herein.

 

**C.            Adjustmentsto Conversion Price**.  The Conversion Price shall be subject toadjustment from time to time as follows:

 

**1.             Adjustment to Conversion Price Due to Stock Split,Stock Dividend, Etc.** If, at any time when this Note is outstanding, the number of outstandingshares of Common Stock is increased or decreased by a stock split, stockdividend, combination, reclassification, rights offering below the TradingPrice (as defined below) to all holders of Common Stock or other similar event,which event shall have taken place during the reference period fordetermination of the Conversion Price for any Optional Conversion, then theConversion Price shall be calculated giving appropriate effect to the stocksplit, stock dividend, combination, reclassification or other similarevent.  In such event, the Borrower shallnotify the Transfer Agent of such change on or before the effective datethereof.  “**TradingPrice**,” which shall be measured as of the record date in respect ofthe rights offering, means (i) the average of the last reported saleprices for the shares of Common Stock on Nasdaq as reported by Bloomberg, asapplicable, for the five (5) Trading Days immediately preceding such date,or (ii) if Nasdaq is not the principal trading market for the shares ofCommon Stock, the average of the last reported sale prices on the principaltrading market for the Common Stock during the same period as reported byBloomberg, or (iii) if market value cannot be calculated as of such dateon any of the foregoing bases, the Trading Price shall be the fair market valueas reasonably determined in good faith by (x) the Board of Directors of theBorrower or (y) at the option of the holders of a majority of the thenoutstanding Principal Amount of the Notes, by an independent investment bank ofnationally recognized standing in the valuation of businesses similar to thebusiness of the Borrower.

 

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**2.             Adjustment Due to Merger, Consolidation, Etc.**  If, at any time when this Note is outstandingand prior to the conversion of all Notes, there shall be any merger,consolidation, exchange of shares, recapitalization, reorganization, or othersimilar event, as a result of which shares of Common Stock of the Borrowershall be changed into the same or a different number of shares of another classor classes of stock or securities of the Borrower or another entity, or in caseof any sale or conveyance of all or substantially all of the assets of theBorrower other than in connection with a plan of complete liquidation of theBorrower (each, a “**Change of ControlTransaction**”), then Holder shall thereafter have the right toreceive upon conversion of this Note upon the basis and upon the terms andconditions specified herein and in lieu of the shares of Common Stockimmediately theretofore issuable upon such conversion such stock, securities orassets which Holder would have been entitled to receive in such transaction hadthis Note been converted in full immediately prior to such transaction (withoutregard to any limitations on conversion or exercise contained herein), and inany such case appropriate provisions shall be made with respect to the rightsand interests of Holder to the end that the provisions hereof (including,without limitation, provisions for adjustment of the Conversion Price and ofthe number of shares of Common Stock issuable upon conversion of this Note)shall thereafter be applicable, as nearly as may be practicable in relation toany securities or assets thereafter deliverable upon the conversion of thisNote.  The Borrower shall not effect anytransaction described in this subparagraph 2 unless (i) it first gives, tothe extent practical, thirty (30) days’ prior written notice (but in any eventat least fifteen (15) business days prior written notice) of the record date ofthe special meeting of stockholders to approve, or if there is no such recorddate, the consummation of, such Change of Control Transaction (during whichtime Holder shall be entitled to convert this Note), which notice shall begiven concurrently with the first public announcement of such transaction, and (ii) theresulting successor or acquiring entity (if not the Borrower) and, if an entitydifferent from the successor or acquiring entity, the entity whose capitalstock or assets the holders of the Common Stock are entitled to receive as aresult of such Change of Control Transaction, assumes by written instrument theobligations of the Borrower under this Note (including under this subparagraph2).  The above provisions shall similarlyapply to successive consolidations, mergers, sales, transfers or share exchanges.

 

**3.             Other SecuritiesOfferings**.  (a) In casethe Borrower shall, (i) by dividend or otherwise, at any time distribute to allholders of its Common Stock cash (excluding any cash portions of distributionsreferred to elsewhere in this Article II.C.3.) in an aggregate amount that,combined together with (a) all other such all-cash distributions made withinthe preceding 12 months in respect to which no adjustment has been made and (b)any cash and the fair market of other consideration paid or payable in respectof any tender offers by the Borrower for Common Stock concluding within thepreceding 12 months in respect of which no adjustment has been made, exceeds10% of the Borrower’s market capitalization (defined as being the product ofthe current market price of the Common Stock times the number of shares ofCommon Stock then outstanding) on the record date for such distribution (asdetermined by the Board of Directors), and or (ii) purchase Common Stockpursuant to a tender offer made by the Borrower or any of its subsidiarieswhich involves an aggregate consideration that together with (a) any cash andthe fair market value of any other consideration paid or payable in any othertender offer by the Borrower or any of its subsidiaries of Common Stockexpiring within the 12 months preceding the expiration of such tender offer inrespect of which no adjustment

 

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has been made (as determined bythe Board of Directors) and (b) the aggregate amount of any such all-cashdistributions referred to in (i) above to all holders of Common Stock withinthe 12 months preceding the expiration of such tender offer in respect of whichno adjustments have been made, exceeds 10% of the Borrower’s marketcapitalization on the expiration of such tender offer, the Conversion Priceshall be reduced so that the same shall equal the price determined bymultiplying the Conversion Price in effect immediately prior to theeffectiveness of the Conversion Price reduction contemplated by this ArticleII.C.3. by a fraction of which the numerator shall be the current market priceper share (determined as provided in this Article II.C.3.) of the Common Stockon the date of such effectiveness less the amount of cash so distributedapplicable to one share of Common Stock and the denominator shall be suchcurrent market price per share of the Common Stock determined as aforesaid,such reduction to become effective immediately prior to the opening of businesson the day following the date fixed for the payment of such distribution.

 

(b)  In case at any time on or after the datefirst written above, the Borrower shall issue shares of its Common Stock orinstruments convertible into or exercisable for Common Stock (“Common StockEquivalents”) (collectively, the “Newly Issued Shares”), other than an issuancepro rata to all holders of its outstanding Common Stock or an issuance to thePurchasers, at a price (the “Base Share Price”) below the Conversion Price ineffect at the time of such issuance, then the Conversion Price shall be reducedto equal the Base Share Price.

 

In no instance shall an adjustment be madeunder this Article II.C.3. if it would cause the Conversion Price to beincreased.

 

Notwithstanding the foregoing, no adjustmentshall be made under this Article II.C.3. by reason of:

 

(1)           theissuance by the Borrower of shares of Common Stock pro rata to all holders ofthe Common Stock so long as (i) any adjustment to the Conversion Price that isrequired elsewhere in this Note is made and (ii) the Borrower shall have givennotice of such issuance thereof to the Holder;

 

(2)           theissuance by the Borrower of the Notes and the Warrants (as defined in thePurchase Agreement) pursuant to the Purchase Agreement or the issuance by theBorrower of shares of Common Stock upon conversion of the Notes in accordancewith the terms hereof and thereof or upon exercise of the Warrants inaccordance with the terms thereof, provided, that if notes substantiallysimilar to the Notes are issued by the Borrower within 60 days of the ClosingDate, with a conversion price lower than that of the Notes (the “New ConversionPrice”) then notwithstanding the adjustment provisions of this Article II.C.3.,the Conversion Price of the Notes shall be reduced to the New Conversion Price;

 

(3)           theissuance by the Borrower of shares of Common Stock upon the exercise orconversion of securities of the Borrower outstanding as of the date of thisAgreement; and

 

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(4)           theissuance by the Borrower of shares of Common Stock or options or other rightsto purchase Common Stock pursuant to any equity incentive plan in effect on thedate hereof.

 

For the purpose of any computation under thisArticle II.C.3. the “**current market price**”per share of Common Stock on any date after the Closing Date shall be deemed tobe the average of the daily closing prices for the five consecutive tradingdays immediately preceding the date in question. The closing price for each dayshall be the last sale price or, in case no such sale takes place on such day,the average of the closing bid and asked prices, in either case on the Nasdaq,or if the shares of Common Stock are not listed or admitted to trading on theNasdaq, then on the principal national securities market on which the sharesare listed or admitted to trading, or if they are not listed or admitted totrading on any national securities market, the closing bid and asked prices asfurnished by any member of the National Association of Securities Dealers, Inc.selected from time to time by the Borrower for that purpose.

 

**4.             Adjustment Due to Distribution**.  If, at any time when this Note isoutstanding, the Borrower shall declare or make any distribution of its assets(or rights to acquire its assets) to holders of Common Stock as a dividend,stock repurchase, by way of return of capital or otherwise (including anydividend or distribution to the Borrower’s shareholders in cash or shares (orrights to acquire shares) of capital stock of a subsidiary (i.e., a spin-off))(a “**Distribution**”), then Holder shall beentitled, upon any conversion of this Note after the date of record fordetermining shareholders entitled to such Distribution, to receive the amountof such assets which would have been payable to Holder with respect to theshares of Common Stock issuable upon such conversion had Holder been the holderof such shares of Common Stock on the record date for the determination ofshareholders entitled to such Distribution.

 

**5.             Purchase Rights**.  If, at any time when this Note isoutstanding, the Borrower issues any convertible securities or rights topurchase stock, warrants, securities or other property (the “**Purchase Rights**”) pro rata to the record holders of anyclass of Common Stock, then Holder will be entitled to acquire, upon the termsapplicable to such Purchase Rights, the aggregate Purchase Rights which Holdercould have acquired if Holder had held the number of shares of Common Stockacquirable upon complete conversion of this Note (without regard to anylimitations on conversion or exercise contained herein and based upon theConversion Price as would then be in effect) immediately before the date onwhich a record is taken for the grant, issuance or sale of such PurchaseRights, or, if no such record is taken, the date as of which the record holdersof Common Stock are to be determined for the grant, issue or sale of suchPurchase Rights.

 

**D.            Mechanicsof Conversion**. In order to convert this Note into shares of Common Stock, Holder shall:(1) submit a copy of the fully executed notice of conversion in the formattached hereto as Exhibit A (“**Notice of Conversion**”)to the Borrower by facsimile dispatched prior to Midnight, New York City time(the “**Conversion Notice Deadline**”), on thedate specified therein as the Conversion Date (as defined in Article II.D.5)(or by other means resulting in, or reasonably expected to result in, writtennotice to the Borrower on the date specified therein as the Conversion Date) tothe office of the Borrower or its designated Transfer Agent for the Notes,which notice shall specify the Principal Amount of this Note to be

 

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converted, the applicableConversion Price and a calculation of the number of shares of Common Stockissuable upon such conversion; and (2) subject to Article II.D.1below, surrender this Note along with a copy of the Notice of Conversion to theoffice of the Borrower as soon as practicable thereafter.  In the case of a dispute as to thecalculation of the Conversion Price, the Borrower shall promptly issue thatnumber of shares of Common Stock as is not disputed in accordance withsubparagraph (3) below.  TheBorrower shall submit the disputed calculations to its outside accountant viafacsimile within two (2) business days of receipt of the Notice ofConversion.  The accountant shall auditthe calculations and notify the Borrower and Holder of the results no laterthan four (4) Trading Days from the time it receives the disputedcalculations.  The accountant’scalculation shall be deemed conclusive absent manifest error.

 

**1.             Surrender of Note Upon Conversion**.  Notwithstanding anything to the contrary setforth herein, upon conversion of this Note in accordance with the terms hereof,Holder shall not be required to physically surrender this Note to the Borrowerunless the entire unpaid Principal Amount of this Note is so converted.  Holder and the Borrower shall maintainrecords showing the Principal Amount so converted and the dates of suchconversions or shall use such other method, reasonably satisfactory to Holderand the Borrower, so as not to require physical surrender of this Note uponeach such conversion.  In the event ofany dispute or discrepancy, such records of the Borrower shall be controllingand determinative in the absence of manifest error. Notwithstanding theforegoing, if any portion of this Note is converted as aforesaid, Holder maynot transfer this Note unless Holder first physically surrenders this Note tothe Borrower, whereupon the Borrower will forthwith issue and deliver upon theorder of Holder a new Note of like tenor, registered as Holder may request,representing in the aggregate the remaining unpaid Principal Amount of thisNote.  Holder and any assignee, byacceptance of this Note, acknowledge and agree that, by reason of theprovisions of this paragraph, following conversion of a portion of this Note,the unpaid and unconverted Principal Amount of this Note may be less than theamount stated on the face hereof.

 

**2.             Lost or Stolen Notes**.  Upon receipt by the Borrower of evidence ofthe loss, theft, destruction or mutilation of this Note, and (in the case ofloss, theft or destruction) of indemnity reasonably satisfactory to theBorrower, and upon surrender and cancellation of this Note, if mutilated, theBorrower shall execute and deliver a new Note of like tenor and date.

 

**3.             Delivery of Common Stock Upon Conversion**.  Upon the submission of a Notice ofConversion, the Borrower shall, within two (2) business days after theConversion Date (the “**Delivery Period**”),issue and deliver (or cause its Transfer Agent to so issue and deliver) inaccordance with the terms hereof and the Purchase Agreement to or upon theorder of Holder that number of shares of Common Stock for the portion of thisNote converted as shall be determined in accordance herewith.  In addition to any other remedies availableto Holder, including actual damages and/or equitable relief, the Borrower shallpay to Holder $2,000 per day in cash for each day beyond a two (2) daygrace period following the Delivery Period that the Borrower fails to deliverCommon Stock (a “**Delivery Default**”) issuable uponconversion of this Note pursuant to the Notice of Conversion until such time asthe Borrower has delivered all such Common Stock (the “**DeliveryDefault Payments**”).  SuchDelivery Default Payments shall be paid to Holder by the fifth (5th) day of themonth following the month in which they have accrued or, at the option ofHolder (by written notice to the Borrower by the first day of the

 

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month following the month inwhich they have accrued), shall be convertible into Common Stock in accordancewith the terms of this Article II.

 

In lieu ofdelivering physical certificates representing the Common Stock issuable uponconversion, provided the Borrower’s Transfer Agent is participating in theDepository Trust Borrower (“**DTC**”) FastAutomated Securities Transfer (“**FAST**”) program,upon written request of Holder and its compliance with the provisions containedin Article II.A and in this Article II.D, the Borrower shall use itsbest efforts to cause its Transfer Agent to electronically transmit the CommonStock issuable upon conversion to Holder by crediting the account of Holder’sPrime Broker with DTC through its Deposit Withdrawal Agent Commission (“**DWAC**”) system.  Thetime periods for delivery and penalties described in the immediately precedingparagraph shall apply to the electronic transmittals described herein.

 

**4.             No Fractional Shares**.  If any conversion of this Note would resultin a fractional share of Common Stock or the right to acquire a fractionalshare of Common Stock, such fractional share shall be disregarded and thenumber of shares of Common Stock issuable upon conversion of this Note shall bethe next higher number of shares.

 

**5.             Conversion Date**.  The “**Conversion Date**”shall be the date specified in the Notice of Conversion, provided that theNotice of Conversion is submitted by facsimile (or by other means resulting in,or reasonably expected to result in, written notice) to the Borrower or itsTransfer Agent before Midnight, New York City time, on the date so specified,otherwise the Conversion Date shall be the first business day after the date sospecified on which the Notice of Conversion is actually received by theBorrower or its Transfer Agent.  Theperson or persons entitled to receive the shares of Common Stock issuable uponconversion of this Note shall be treated for all purposes as the record holderor holders of such securities as of the Conversion Date and all rights withrespect to this Note (or portion thereof) surrendered shall forthwith terminateexcept the right to receive the shares of Common Stock or other securities orproperty issuable on such conversion (or exercise) and except that the holderspreferential rights as a Holder of this Note shall survive to the extent theBorrower fails to deliver such securities.

 

**E.             Reservationof Shares.** A number of shares of the authorized but unissued Common Stocksufficient to provide for the conversion in full of the Notes outstanding(based on Conversion Price in effect from time to time) shall at all times bereserved by the Borrower, free from preemptive rights, for such conversion orexercise.  As of the Issue Date,authorized and unissued shares of Common Stock equal to the number of shares ofCommon Stock issuable upon conversion of the Notes have been duly reserved forissuance upon conversion of the Notes (the “**ReservedAmount**”).  The Reserved Amountshall be increased from time to time in accordance with the Borrower’sobligations pursuant to Section 4(g) of the Purchase Agreement.  In addition, if the Borrower shall issue anysecurities or make any change in its capital structure which would change thenumber of shares of Common Stock into which the Notes shall be convertible, theBorrower shall at the same time also make proper provision so that thereafterthere shall be a sufficient number of shares of Common Stock authorized andreserved, free from preemptive rights, for conversion of the Notes.

 

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If at any timeHolder submits a Notice of Conversion, and the Borrower does not havesufficient authorized but unissued shares of Common Stock duly reserved andavailable for issuance to effect such conversion in accordance with theprovisions of this Article II (a “**Conversion Default**”),subject to Article V.I, the Borrower shall issue to Holder all of theshares of Common Stock which are available to effect such conversion andexercise, if applicable.  The portion ofthe Principal Amount of this Note included in the Notice of Conversion whichexceeds the amount which is then convertible (or exercisable) into availableshares of Common Stock (the “**Excess Amount**”)shall, notwithstanding anything to the contrary contained herein, not beconvertible (or exercisable) into Common Stock in accordance with the termshereof until (and at Holder’s option at any time after) the date additionalshares of Common Stock are authorized and duly reserved by the Borrower topermit such conversion (or exercise), at which time the Conversion Price inrespect thereof shall be the lesser of (i) the Conversion Price on theConversion Default Date (as defined below) and (ii) the Conversion Priceon the Conversion Date elected by Holder in respect thereof.  The Borrower shall use its best efforts toeffect an increase in the authorized number of shares of Common Stock as soonas possible following the earlier of (x) such time that Holder notifies theBorrower or that the Borrower otherwise becomes aware that there are or likelywill be insufficient authorized and unissued shares to allow full conversionhereof and (y) a Conversion Default.

** **

**F.             Noticeof Conversion Price Adjustments**.  Upon the occurrence of each adjustment orreadjustment of the Conversion Price pursuant to this Article II, theBorrower, at its expense, shall promptly compute such adjustment orreadjustment in accordance with the terms hereof and prepare and furnish toHolder a certificate setting forth such adjustment or readjustment and showingin detail the facts upon which such adjustment or readjustment is based.  The Borrower shall, upon the written requestat any time of Holder, furnish or cause to be furnished to Holder a likecertificate setting forth (i) such adjustment or readjustment, (ii) theConversion Price at the time in effect and (iii) the number of shares ofCommon Stock and the amount, if any, of other securities or property which atthe time would be received upon conversion of this Note.

 

**III.  CERTAIN COVENANTS**

 

**A.            Distributionson Capital Stock**. So long as the Borrower shall have any obligation under this Note, theBorrower shall not, without the Holder’s written consent, (a) pay, declareor set apart for such payment, any dividend or other distribution (whether incash, property or other securities) on shares of capital stock or (b) directlyor indirectly through any subsidiary make any other payment or distribution inrespect of its capital stock.

 

**B.            Restrictionon Stock Repurchases**.  So long as the Borrower shall have anyobligation under this Note, the Borrower shall not, without the Holder’swritten consent, redeem, repurchase or otherwise acquire (whether for cash orin exchange for property or other securities or otherwise) in any onetransaction or series of related transactions any shares of capital stock ofthe Borrower or any warrants, rights or options to purchase or acquire any suchshares, other than

 

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repurchase from employees upontermination of employment pursuant to a restricted stock purchase agreementwith such employee.

 

**C.            Borrowings**.So long as the Borrower shall have any obligation under this Note, the Borrowershall not, without the written consent of the holders of a majority of the thenoutstanding Principal Amount of the Notes, create, incur, assume or suffer toexist any liability for borrowed money senior or *pari passu*in rank to the Notes, except (a) borrowings in existence orcommitted on the date hereof or renewals or refundings thereof on same orbetter terms for no more than the original amount thereof, plus in the case offinancings secured by a pledge of accounts receivable, an increase by no morethan the same percent that the net sales of the Borrower for the fiscal quarterended next prior to the date of the renewal or refunding have increased ascompared to net sales of the Borrower for the quarter ended September 30,2004; provided the Borrower has informed Holder in writing prior to the date hereofor (b) indebtedness to trade creditors incurred in the ordinary course ofbusiness.

 

**D.            Saleof Assets.** So long as the Borrower shall have anyobligation under this Note, the Borrower shall not, without the written consentof the holders of a majority of the then outstanding Principal Amount of theNotes, sell, lease or otherwise dispose of any material amount of its assetsoutside the ordinary course of business. Any consent to the disposition of any assets may be conditioned on aspecified use of the proceeds of disposition.

 

**E.             Advancesand Loans**. So long as the Borrower shall have anyobligation under this Note, the Borrower shall not, without the written consentof the holders of a majority of the then outstanding Principal Amount of theNotes, lend money, give credit or make advances to any person, firm, jointventure or corporation, including, without limitation, officers, directors,employees, subsidiaries and affiliates of the Borrower, except loans, creditsor advances (a) in existence or committed on the date hereof and which theBorrower has informed Holder in writing prior to the date hereof, or (b) madein the ordinary course of business.

 

**F.             ContingentLiabilities**. So long as the Borrower shall have any obligation under this Note, theBorrower shall not, without the written consent of the holders of a majority ofthe then outstanding Principal Amount of the Notes, assume, guarantee, endorse,contingently agree to purchase or otherwise become liable upon the obligationof any person, firm, partnership, joint venture or corporation, except by theendorsement of negotiable instruments for deposit or collection and exceptassumptions, guarantees, endorsements and contingencies (a) in existenceor committed on the date hereof and which the Borrower has informed Holder inwriting prior to the date here of, or (b) similar transactions in theordinary course of business.

 

**G.            VariableRate Transactions.** The Borrower shall not, and shall not permit its subsidiaries to, effector enter into any agreement which affects a subsequent financing involving aVariable Rate Transaction.  A “**Variable Rate Transaction**” shall mean any transaction inwhich the Borrower issues or sells (i) any debt or equity securities thatare convertible into, exchangeable or exercisable for, or include the right toreceive additional shares of Common Stock either (A) at a conversion,exercise or exchange rate or other price that is based upon and/or varies withthe trading prices of or quotations for the shares of Common Stock at any timeafter the initial issuance of such debt or equity securities, or (B) witha conversion, exercise or

 

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exchange price that is subjectto being reset at some future date after the initial issuance of such debt orequity security or upon the occurrence of specified or contingent eventsdirectly or indirectly related to the business of the Borrower or the marketfor the Common Stock if in either case additional shares of Common Stock may inany circumstances be issuable based on a market price below the ConversionPrice.

 

**IV.  MATURITY**

 

The entirePrincipal Amount of the Notes then outstanding (together with any accrued andunpaid interest thereon, Default Interest, Conversion Default Payments, DeliveryDefault Payments and all other amounts due and payable by the Borrower pursuantto Section 2(i) of the Registration Rights Agreement) on the MaturityDate shall be paid by the Borrower to the Holder in cash.

 

**V.  MISCELLANEOUS**

 

**A.            Failureof Indulgence Not Waiver**.  No failure or delay on the part of Holder inthe exercise of any power, right or privilege hereunder shall operate as awaiver thereof, nor shall any single or partial exercise of any such power,right or privilege preclude other or further exercise thereof or of any otherright, power or privilege.

 

**B.            Notices.**  Any notices required or permitted to be givenunder the terms of this Note shall be sent by certified or registered mail(return receipt requested) or delivered personally or by courier (including arecognized overnight delivery service) or by facsimile, and shall be effectivefive days after being placed in the mail, if mailed, or upon receipt or refusalof receipt, if delivered personally or by courier or by facsimile, in each caseaddressed to a party. The addresses for such communications shall be:

 
| If to the  Borrower:                                                                                                       |
|----------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                       |
| DynTek, Inc.                                                                                                          |
| 19700  Fairchild Road, Suite 350                                                                                      |
| Irvine, CA  92612                                                                                                          |
| Attention:  Chief Financial Officer                                                                                        |
| Facsimile:                                                                                                                 |
|                                                                                                                       |
| With copy  to:                                                                                                             |
|                                                                                                                       |
| [                    ] |

 

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If to Holder, to the address set forth opposite Holder’s name on Exhibit 1to the Purchase Agreement or such other address as is communicated to theBorrower by notice by Holder in accordance with the terms hereof.

 

With copy to:

 

[                    ]

 

**C.            AmendmentProvision**. The Notes may be amended only by an instrument in writing signed by theBorrower and the holders of a majority of the then outstanding Principal Amountof the Notes.

 

**D.            Assignability**.  This Note shall be binding upon the Borrowerand its successors and assigns and shall inure to the benefit of Holder and itssuccessors and assigns. In the event Holder shall sell or otherwise transferany portion of this Note, each transferee shall be allocated a pro rata portionof such transferor’s Reserved Amount. Any portion of the Reserved Amount which remains allocated to any personor entity which does not hold any Notes shall be allocated to the remainingholders of Notes, pro rata based on the total Principal Amount of Notes thenheld by such holders.

 

**E.             Costof Collection**. If default is made in the payment of this Note, the Borrower shall payHolder costs of collection, including reasonable attorneys’ fees.

 

**F.             GoverningLaw**.  ThisNote shall be governed by and construed in accordance with the laws of theState of Delaware applicable to contracts made and to be performed in the Stateof Delaware (without regard to principles of conflict of laws).  The Borrower and Holder irrevocably consentto the exclusive jurisdiction of the United States federal courts and statecourts located in New York in any suit or proceeding based on or arising underthis Note, the agreements entered into in connection herewith or thetransactions contemplated hereby or thereby and irrevocably agree that allclaims in respect of such suit or proceeding may be determined in suchcourts.  The Borrower and Holderirrevocably waive the defense of an inconvenient forum to the maintenance ofsuch suit or proceeding.  The Borrowerand Holder further agree that service of process upon a party mailed by firstclass mail shall be deemed in every respect effective service of process uponthe party in any such suit or proceeding. Nothing herein shall affect Holder’s right to serve process in any othermanner permitted by law.  The Borrowerand Holder agree that a final non-appealable judgment in any such suit orproceeding shall be conclusive and may be enforced in other jurisdictions bysuit on such judgment or in any other lawful manner.

 

**G.            Denominations**.  At the request of Holder, upon surrender ofthis Note, the Borrower shall promptly issue new Notes in the aggregateoutstanding Principal Amount hereof, in the form hereof, in such denominationsof at least $25,000 as Holder shall request.

 

**H.            Paymentof Cash; Defaults**. Whenever the Borrower is required to make any cash payment to Holderunder this Note (as a Conversion Default Payment or otherwise but not includingpayments of principal and interest hereunder), such cash payment shall be madeto

 

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Holder within five Trading Daysafter delivery by Holder of a notice specifying that Holder elects to receivesuch payment in cash and the method (e.g., by check, wire transfer) in which suchpayment should be made and appropriate delivery instructions, including anynecessary wire transfer instructions.  Ifsuch payment is not delivered within such five-Trading Day period, Holder shallthereafter be entitled to interest on the unpaid amount at a per annum rateequal to the lower of 24% and the highest interest rate permitted by applicablelaw until such amount is paid in full to Holder.

 

**I.              ProRata Allocations**. The Reserved Amount (including any increases thereto) shall be allocatedby the Borrower pro rata among the holders of the Notes based on the totalPrincipal Amount of Notes originally issued to each holder of the Notes.  Each increase to the Reserved Amount shall beallocated pro rata among the holders of the Notes based on the total PrincipalAmount of Notes held by each holder at the time of the increase in the ReservedAmount.  In the event a holder shall sellor otherwise transfer any of such holder’s shares of the Notes, each transfereeshall be allocated a pro rata portion of such transferor’s ReservedAmount.  Any portion of the ReservedAmount which remains allocated to any person or entity which does not hold anythe Notes shall be allocated to the remaining holders of shares of the Notes,pro rata based on the total Principal Amount of Notes held by such holders.

 

**J.             Statusas Noteholder.** Upon submission of a Notice of Conversion by Holder, the PrincipalAmount of this Note and the interest thereon covered thereby (other than anyportion of this Note, if any, which cannot be converted because the conversionthereof would exceed such holder’s allocated portion of the Reserved Amount)shall be deemed converted into shares of Common Stock as of the Conversion Dateand Holder’s rights as a holder of this Note shall cease and terminate,excepting only the right to receive certificates for such shares of CommonStock and to any remedies provided herein or otherwise available at law or inequity to such holder because of a failure by the Corporation to comply withthe terms of this Note.  Notwithstandingthe foregoing, if Holder has not received certificates for all shares of CommonStock prior to the tenth business day after the expiration of the DeliveryPeriod with respect to a conversion for any reason, then (unless Holder otherwiseelects to retain its status as a holder of Common Stock by so notifying theCorporation) the portion of the Principal Amount and interest thereon subjectto such conversion shall be deemed outstanding under this Note and theCorporation shall, as soon as practicable, return this Note to Holder.

 

In all cases, Holder shall retain all of its rights and remedies(including, without limitation, (i) the right to receive ConversionDefault Payments pursuant to Article II.F to the extent required therebyfor such Conversion Default and any subsequent Conversion Default and (ii) theright to have the Conversion Price with respect to subsequent conversionsdetermined in accordance with Article II.F) for the Corporation’s failureto convert this Note.

 

**K.            RemediesCumulative**. The remedies provided in this Note shall be cumulative and in additionto all other remedies available under this Note, at law or in equity (includinga decree of specific performance and/or other injunctive relief), no remedycontained herein shall be deemed a waiver of compliance giving rise to suchremedy and nothing herein shall limit Holder’s right to pursue actual damagesfor any failure by the Borrower to comply with the terms of this Note.  The Borrower acknowledges that a breach by itof its obligations hereunder will

 

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cause irreparable harm toHolder and that the remedy at law for any such breach may be inadequate.  The Borrower therefore agrees, in the eventof any such breach or threatened breach, Holder shall be entitled, in additionto all other available remedies, to an injunction restraining any breach,without the necessity of showing economic loss and without any bond or othersecurity being required.

 

**L.            Waiverand Consent**.  Concurrently with the execution and deliveryof this Note, Borrower proposes to enter into a Note Purchase Agreementpursuant to which Borrower will issue Secured Promissory Notes, due December 31,2006, in the aggregate amount of $2.5 million (the “Bridge Financing”).  The Holder hereby waives any default byBorrower with respect to the Purchase Agreement, the Note and any relateddocuments, instruments and agreements that may occur as a result of the BridgeFinancing, and the Holder hereby consents to the Bridge Financing and thedocuments related thereto

 

[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]

 

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IN WITNESS WHEREOF, Borrower has caused this Note to be signed in itsname by its duly authorized officer as of the date first above written.

 
|                                                                                                           | DYNTEK,  INC.,          |
|----------------------------------------------------------------------------------------------------------------|-------------------------|
|                                                                                                           | a Delaware  corporation |
|                                                                                                           |                    |
|                                                                                                           |                    |
|                                                                                                           | By:                     |   |
|                                                                                                           |                    | Name: Robert  Webber |
|                                                                                                           |                    | Title:  President and Chief Financial Officer |
|                                                                                                           |
|                                                                                                           |
| ACCEPTED AND AGREED:                                                                                           |
|                                                                                                           |
| [                  ] |
|                                                                                                           |
|                                                                                                           |
| By:                                                                                                            |                    |   |
|                                                                                                           | Name:                   |
|                                                                                                           | Title:                  |
|                                                                                                                |                         |  |  |  |

 

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**EXHIBIT A**

 

**NOTICE OFCONVERSION**

 

(To be Executed by theRegistered Holder

in order to Convert the Notes)

 

Theundersigned hereby irrevocably elects to convert $                       PrincipalAmount of the Note (defined below) into shares of common stock, par value$.0001 per share (“**Common Stock**”),of DYNTEK, Inc., a Delaware corporation (the “**Borrower**”)according to the conditions of the convertible notes of the Borrower dated asof                        , 200   (the “**Notes**”),as of the date written below.  Ifsecurities are to be issued in the name of a person other than the undersigned,the undersigned will pay all transfer taxes payable with respect thereto and isdelivering herewith such certificates. No fee will be charged to the Holder for any conversion, except fortransfer taxes, if any.

 

Theundersigned also irrevocably elects to convert $                   of Conversion Default Payments, $                   of Delivery Default Payments and/or $                   of payments pursuant to Section 2(c) of the Registration RightsAgreement at the Applicable Conversion Price set forth below.

 

The Borrowershall electronically transmit the Common Stock issuable pursuant to this Noticeof Conversion to the account of the undersigned or its nominee with DTC throughits Deposit Withdrawal Agent Commission system (“**DWACTransfer**”).

 

Name of DTCPrime Broker:

AccountNumber:

 

o                                    Inlieu of receiving shares of Common Stock issuable pursuant to this Notice ofConversion by way of a DWAC Transfer, the undersigned hereby requests that theBorrower issue a certificate or certificates for the number of shares of CommonStock set forth below (which numbers are based on the Holder’s calculationattached hereto) in the name(s) specified immediately below or, if additionalspace is necessary, on an attachment hereto:

 

Name:

Address:

 

Theundersigned represents and warrants that all offers and sales by theundersigned of the securities issuable to the undersigned upon conversion ofthe Notes shall be made pursuant to registration of the securities under theSecurities Act of 1933, as amended (the “**Act**”), orpursuant to an exemption from registration under the Act.

 
| Date of  Conversion:                                                |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Market Price  Days:                                            |
| Applicable  Conversion Price:                                                                                                                  |
| Number of  Shares of Common Stock to be Issued                                                                                                                                                                                                                                        |
| Pursuant  to:  (i) Conversion of the  Notes:                            ;  or                                                   |
| (ii) Conversion  of Conversion Default Payments, Delivery Default Payments                                                                                                                                                                                                       |
| and/or  payments pursuant to Section 2(i) of the Registration Rights  Agreement:                                                                                   |
| Signature:                                                                                                                                                                                                                                                                            |   |   |
| Name:                                                                                                                                                                                                                                                                                 |   |   |
| Address:                                                                                                                                                                                                                                                                              |   |   |
|                                                                                                                                                                                                                                                                                  |   |   |
|                                                                                                                                                                                                                                                                                       |  |  |  |  |

 

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