Exhibit 10.3


 


THE
SECURITIES REPRESENTED BY THIS NOTE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS. ANY
TRANSFER OF SUCH SECURITIES WILL BE INVALID UNLESS A REGISTRATION STATEMENT
UNDER THE ACT AND AS REQUIRED BY BLUE SKY LAWS IS IN EFFECT AS TO SUCH TRANSFER
OR IN THE OPINION OF COUNSEL SATISFACTORY TO THE BORROWER SUCH REGISTRATION IS
UNNECESSARY IN ORDER FOR SUCH TRANSFER TO COMPLY WITH THE ACT AND BLUE SKY
LAWS.


 


DynTek, Inc.


 


Junior Secured Convertible Promissory Note


 


	
  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.


 


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“Interest Payment Date”
shall have the meaning ascribed to such term in the first paragraph of this
Note.


 


“Maturity Date”
shall have the meaning ascribed to such term in the first paragraph of this
Note.


 


“Newly Issued Shares”
shall have the meaning ascribed to such term in Section 4(f)(i) hereof.


 


“Note” shall have
the meaning ascribed to such term in the first paragraph of this instrument.


 


“Note Purchase
Agreement” shall have the meaning ascribed to such term in the second
paragraph of this Note.


 


“Security Agreement”
shall have the meaning ascribed to such term in the second paragraph of this
Note.


 


2.                                       Accounting
Terms. All accounting terms not specifically defined in this Note shall be
construed in accordance with United States generally accepted accounting
principles and, if applicable, consistent with those applied in the preparation
of the financial statements of the Borrower.


 


3.                                       Conversion.


 


(a)                                  Voluntary
Conversion. At any time until the Note has been paid in full, the Holder
has the right, at its option, to convert all or any part of the
outstanding principal amount (including any accrued but unpaid interest on such
principal amount) (the “Conversion Principal Amount”) of this Note into
shares of Common Stock (in accordance with the procedures described under Section 3(b) of
this Note) (the “Conversion Option”). The number of shares of Common
Stock into which the Conversion Principal Amount is convertible is equal to (i) the
Conversion Principal Amount divided by (ii) the Conversion Price (as
defined below) in effect at the time of conversion. The “Conversion Price”
shall initially be $0.02, subject to adjustment pursuant to Sections 3 and 4.


 


(b)                                 Conversion
Mechanics. The Holder shall exercise its right to convert by surrender of
this Note, duly endorsed, at the office of the Borrower, accompanied by written
notice of conversion. The Borrower shall forthwith issue and deliver to the
Holder certificates for the number of shares of Common Stock to which Holder is
entitled (bearing such legends as may be required by applicable state and
federal securities laws). If on any conversion of this Note a fraction of a
share results, then the Borrower will pay the Holder the cash value of that
fractional share (based upon the Fair Market Value). All Common Stock issued
upon the conversion of this Note shall be validly issued, fully paid and
non-assessable. Any conversion shall be deemed to have


 


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


 


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(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]


 


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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:

  	
  /s/ Casper Zublin, Jr.

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Name:

  	
  Casper Zublin, Jr.

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Title:

  	
  Chief Executive Officer

  	
   

  
							



 


10