EXHIBIT 10.1

 

NOTE PURCHASE AGREEMENT

 

between

 

DYNTEK, INC.

 

and

 

THE PURCHASERS NAMED IN SCHEDULE I

 

Dated as of March 8, 2006

 

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INDEX TO SCHEDULES

 

SCHEDULE I

 

Schedule of Purchasers

SCHEDULE II

 

Trade Creditors

SCHEDULE III

 

Note Holders

SCHEDULE IV

 

Disclosure Schedules

SCHEDULE V

 

Use of Proceeds

 

INDEX TO EXHIBITS

 

EXHIBIT A

 

Form of Senior Note

EXHIBIT B

 

Form of Settlement and Release Agreement

EXHIBIT C

 

Form of Conversion and Settlement Agreement

EXHIBIT D

 

Form of Warrant

EXHIBIT E

 

Form of Security and Pledge Agreement (Senior Notes)

EXHIBIT F

 

Form of Junior Note

EXHIBIT G

 

Form of Security and Pledge Agreement (Junior Notes)

 

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THIS NOTE PURCHASE AGREEMENT (the “Agreement”) is dated as of March 8, 2006,
between DynTek, Inc., a Delaware corporation (the “Company”), and the purchasers
named in the attached Schedule I (each individually a “Purchaser” and
collectively the “Purchasers”).

 

WHEREAS, the Company wishes to issue and sell to the Purchasers up to an
aggregate of $6,700,000 in principal amount of its senior secured promissory
notes; and

 

WHEREAS, the Company wishes to issue and sell to a Purchaser up to an aggregate
of $3,000,000 in principal amount of a junior secured promissory note; and

 

WHEREAS, the Purchasers, severally, wish to purchase the notes on the terms and
subject to the conditions set forth in this Agreement.

 

NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained in this Agreement, the parties agree as follows:

 

ARTICLE I

 

PURCHASE AND SALE OF NOTES AND TERMS OF NOTES

 

SECTION 1.01.                                   THE SENIOR NOTES. THE COMPANY
HAS AUTHORIZED THE ISSUANCE AND SALE TO THE PURCHASERS, IN THE RESPECTIVE
AMOUNTS SET FORTH IN THE SCHEDULE OF PURCHASERS ATTACHED HERETO IN SCHEDULE I,
OF THE COMPANY’S SENIOR SECURED PROMISSORY NOTES, DUE MARCH 1, 2010 (THE “SENIOR
NOTE MATURITY DATE”), IN THE ORIGINAL AGGREGATE PRINCIPAL AMOUNT OF UP TO
$6,700,000. THE SENIOR NOTES WILL BE SUBSTANTIALLY IN THE FORM SET FORTH IN
EXHIBIT A HERETO AND ARE HEREIN REFERRED TO INDIVIDUALLY AS A “SENIOR NOTE” AND
COLLECTIVELY AS THE “SENIOR NOTES,” WHICH TERMS WILL ALSO INCLUDE ANY NOTES
DELIVERED IN EXCHANGE OR REPLACEMENT THEREFOR.

 

SECTION 1.02.                                   THE JUNIOR NOTE. THE COMPANY HAS
AUTHORIZED THE ISSUANCE AND SALE TO THE PURCHASER, SET FORTH IN THE SCHEDULE OF
PURCHASERS ATTACHED HERETO IN SCHEDULE I, OF THE COMPANY’S JUNIOR SECURED
CONVERTIBLE PROMISSORY NOTE (THE “JUNIOR NOTE”, AND COLLECTIVELY WITH THE SENIOR
NOTES REFERRED TO AS THE “NOTES,” WHICH TERM WILL ALSO INCLUDE ANY NOTES
DELIVERED IN EXCHANGE OR REPLACEMENT THEREFOR), DUE MARCH 1, 2011 (THE “JUNIOR
NOTE MATURITY DATE”), IN THE ORIGINAL AGGREGATE PRINCIPAL AMOUNT OF UP TO
$3,000,000. THE JUNIOR NOTE WILL BE SUBSTANTIALLY IN THE FORM SET FORTH IN
EXHIBIT F HERETO.

 

SECTION 1.03.                                   PURCHASE AND SALE OF NOTES. THE
COMPANY AGREES TO ISSUE AND SELL TO THE PURCHASERS, AND, SUBJECT TO AND IN
RELIANCE UPON THE REPRESENTATIONS, WARRANTIES, TERMS AND CONDITIONS OF THIS
AGREEMENT, THE PURCHASERS, SEVERALLY AND NOT JOINTLY, AGREE TO PURCHASE, THE
NOTES SET FORTH OPPOSITE THEIR RESPECTIVE NAMES IN THE SCHEDULE OF PURCHASERS
ATTACHED AS SCHEDULE I FOR THE AGGREGATE PURCHASE PRICE SET FORTH THEREIN. THE
CONSIDERATION TO BE PAID FOR THE NOTES WILL CONSIST OF $9,700,000 CASH. THE
CLOSING OF SUCH PURCHASE AND SALE (THE “CLOSING”) WILL BE HELD AT THE OFFICE OF
PAUL, HASTINGS, JANOFSKY & WALKER LLP, 695 TOWN CENTER DRIVE, COSTA MESA, CA
92626, ON MARCH 8, 2006 (THE “CLOSING DATE”) AT 10:00 A.M., PACIFIC STANDARD
TIME, OR ON SUCH OTHER DATE AND AT SUCH TIME AS MAY BE MUTUALLY AGREED UPON. AT
THE CLOSING, THE COMPANY WILL ISSUE AND DELIVER TO EACH PURCHASER ONE SENIOR
NOTE OR ONE JUNIOR NOTE, AS THE CASE MAY BE, PAYABLE TO THE ORDER OF SUCH
PURCHASER, IN THE PRINCIPAL AMOUNT SET FORTH OPPOSITE SUCH PURCHASER’S NAME IN
THE SCHEDULE OF PURCHASERS ATTACHED AS SCHEDULE I AGAINST DELIVERY TO THE
COMPANY OF A CHECK PAYABLE TO THE ORDER OF THE COMPANY, IN THE AMOUNT SET FORTH
OPPOSITE THE NAME OF SUCH PURCHASER UNDER THE HEADING “AGGREGATE PURCHASE PRICE
FOR NOTES” ON SCHEDULE I, LESS THE PURCHASER’S REASONABLE ESTIMATED EXPENSES TO
BE PAID BY THE COMPANY PURSUANT TO SECTION 7.01, TRANSFERENCE OF SUCH SUM TO THE
ACCOUNT OF THE COMPANY BY WIRE TRANSFER, OR DELIVERY OR TRANSFERENCE OF SUCH SUM
TO THE COMPANY BY ANY COMBINATION OF SUCH METHODS OF PAYMENT.

 

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SECTION 1.04.                                   PAYMENTS AND ENDORSEMENTS.
PAYMENTS OF PRINCIPAL AND INTEREST ON THE NOTES WILL BE MADE DIRECTLY BY CHECK
DULY MAILED OR DELIVERED TO THE PURCHASERS AT THEIR ADDRESSES REFERRED TO IN THE
SCHEDULE OF PURCHASERS ATTACHED AS SCHEDULE I OR MADE TO THE ACCOUNT OF THE
PURCHASER BY WIRE TRANSFER REFERRED TO IN THE SCHEDULE OF PURCHASERS ATTACHED AS
SCHEDULE I OR INDICATED IN ANY NOTICE DELIVERED BY A PURCHASER TO THE COMPANY,
WITHOUT ANY PRESENTMENT OR NOTATION OF PAYMENT, EXCEPT THAT PRIOR TO ANY
TRANSFER OF ANY NOTE, THE HOLDER OF RECORD WILL ENDORSE ON SUCH NOTE A RECORD OF
THE DATE TO WHICH INTEREST HAS BEEN PAID AND ALL PAYMENTS MADE ON ACCOUNT OF
PRINCIPAL OF SUCH NOTE.

 

SECTION 1.05.                                   INTEREST RATE FOR SENIOR NOTE;
PAYMENT OF PRINCIPAL AND INTEREST FOR SENIOR NOTE. THE SENIOR NOTES WILL ACCRUE
INTEREST AT THE RATE OF 8% PER ANNUM IF PAID IN CASH OR 11% PER ANNUM IF PAID IN
KIND. THE COMPANY IN ITS SOLE DISCRETION MAY ELECT TO PAY IN CASH OR IN KIND
UNTIL MARCH 31, 2009, AFTER WHICH INTEREST WILL BE PAID IN CASH. INTEREST WILL
BE DUE AND PAYABLE QUARTERLY IN ARREARS ON THE LAST DAY OF EACH FISCAL QUARTER
(EACH, A “SENIOR NOTE INTEREST PAYMENT DATE”), WITH THE FIRST INTEREST PAYMENT
DUE JUNE 30, 2006. IF THE COMPANY CHOOSES TO MAKE INTEREST PAYMENTS IN KIND, THE
AMOUNT OF ACCRUED INTEREST TO BE SO PAID WILL BE ADDED TO THE PRINCIPAL AMOUNT
OF THE SENIOR NOTES ON THE APPLICABLE SENIOR NOTE INTEREST PAYMENT DATE.
PRINCIPAL WILL BE AMORTIZED OVER THREE YEARS AND PAYABLE IN EQUAL MONTHLY
INSTALLMENTS ON THE LAST DAY OF EACH MONTH BEGINNING ON MARCH 31, 2009. THE
SENIOR NOTES AND ALL ACCRUED BUT UNPAID INTEREST THEREON SHALL BE DUE AND
PAYABLE IN FULL AT THE SENIOR NOTE MATURITY DATE UNLESS EARLIER REDEEMED
PURSUANT TO THE TERMS AND CONDITIONS SET FORTH IN SECTION 1.06 HEREIN.

 

SECTION 1.06.                                   PREPAYMENT OF SENIOR NOTES. THE
SENIOR NOTES WILL BE PAYABLE BY THE COMPANY PRIOR TO THE SENIOR NOTE MATURITY
DATE AS FOLLOWS (ALL PREPAYMENTS MADE BY THE COMPANY TO THE SENIOR NOTE HOLDERS
UNDER THIS AGREEMENT SHALL BE MADE BY WIRE TRANSFER OF IMMEDIATELY AVAILABLE
FUNDS IN THE LAWFUL CURRENCY OF THE UNITED STATES WITHOUT SETOFF OR WITHHOLDING
OF ANY KIND):

 

(A)                                  VOLUNTARY PREPAYMENT BY THE COMPANY. AT ANY
TIME UNTIL THE SENIOR NOTES HAVE BEEN REPAID IN FULL, THE COMPANY MAY, AT ITS
SOLE OPTION, REDEEM THE ENTIRE OUTSTANDING PRINCIPAL AMOUNT OF THE SENIOR NOTES
(INCLUDING ANY AND ALL ACCRUED BUT UNPAID INTEREST ON SUCH PRINCIPAL AMOUNT)
THROUGH THE DATE OF REPAYMENT ON SUCH PRINCIPAL AMOUNT (SUCH ENTIRE OUTSTANDING
PRINCIPAL AMOUNT, PLUS ALL SUCH ACCRUED BUT UNPAID INTEREST, HEREINAFTER
REFERRED TO FOR PURPOSES OF THIS SECTION 1.06 AS THE “REDEMPTION AMOUNT”) BY
PAYING TO THE HOLDERS OF THE SENIOR NOTES 105% OF THE REDEMPTION AMOUNT, WITH
SUCH PAYMENTS TO BE APPORTIONED RATABLY AMONG THE PURCHASERS OR THEIR
TRANSFEREES ACCORDING TO THE UNPAID PRINCIPAL BALANCE AND ACCRUED BUT UNPAID
INTEREST THEREON TO WHICH SUCH PAYMENTS RELATE.

 

(B)                                  PREPAYMENT ON CHANGE OF CONTROL. AT ANY
TIME UNTIL THE SENIOR NOTES HAVE BEEN REPAID IN FULL, THE COMPANY WILL REDEEM
THE SENIOR NOTES IN THEIR ENTIRETY UPON THE OCCURRENCE OF A CHANGE OF CONTROL BY
PAYING TO THE HOLDERS OF THE SENIOR NOTES 105% OF THE REDEMPTION AMOUNT ON THE
CLOSING DATE OF THE CHANGE OF CONTROL. SUCH PAYMENTS WILL BE APPORTIONED RATABLY
AMONG THE SENIOR NOTE HOLDERS ACCORDING TO THE UNPAID PRINCIPAL BALANCE AND
ACCRUED BUT UNPAID INTEREST THEREON TO WHICH SUCH PAYMENTS RELATE. FOR PURPOSES
OF THIS SECTION 1.06(B), “CHANGE OF CONTROL” MEANS THE EVENT OF (I) A MERGER,
CONSOLIDATION, RECAPITALIZATION OR SHARE EXCHANGE IN WHICH THE HOLDERS OF THE
VOTING STOCK OF THE COMPANY IMMEDIATELY PRIOR TO SUCH MERGER, CONSOLIDATION,
RECAPITALIZATION OR SHARE EXCHANGE WILL NOT OWN 50% OR MORE OF THE VOTING STOCK
OF THE CONTINUING OR SURVIVING CORPORATION OR OTHER ENTITY, OR THE PARENT
COMPANY OF SUCH CORPORATION OR OTHER ENTITY, IMMEDIATELY AFTER SUCH MERGER,
CONSOLIDATION, RECAPITALIZATION OR SHARE EXCHANGE, (II) THE SALE, ASSIGNMENT,
CONVEYANCE, TRANSFER, LEASE OR OTHER DISPOSITION (OTHER THAN THE GRANT OF A
SECURITY INTEREST) OF ALL OR SUBSTANTIALLY ALL OF THE ASSETS OF COMPANY TO ANY
PERSON OR GROUP OF RELATED PERSONS, OR (III) ANY SALE OR OTHER DISPOSITION OF
THE VOTING STOCK OF THE COMPANY REPRESENTING 50% OR MORE OF THE TOTAL VOTING
POWER OF THE COMPANY’S OUTSTANDING CAPITAL STOCK IN A SINGLE TRANSACTION OR A
SERIES OF RELATED TRANSACTIONS TO ANY PERSON, OR GROUP OF RELATED PERSONS;
PROVIDED, HOWEVER THAT NONE OF THE FOLLOWING EVENTS SHALL BE DEEMED TO BE A
CHANGE OF CONTROL FOR

 

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PURPOSES OF THIS AGREEMENT: (A) THE COMPANY’S ISSUANCE OF SHARES OF ITS COMMON
STOCK, $0.0001 PAR VALUE (THE “COMMON STOCK”) TO ANY OF ITS EXISTING UNSECURED
TRADE CREDITORS SET FORTH ON SCHEDULE II WHICH OPT TO CONVERT TRADE DEBT (AS OF
THE DATE OF THIS AGREEMENT) UP TO THE AMOUNT SET FORTH ON SCHEDULE II INTO
COMMON STOCK AT A CONVERSION RATE OF $0.02 PER SHARE WITHIN THREE BUSINESS DAYS
OF THE DATE IMMEDIATELY FOLLOWING THE EFFECTIVE DATE OF THE REVERSE STOCK SPLIT
(AS DEFINED BELOW IN SECTION 1.15(G)), OR JUNE 30, 2006, WHICHEVER IS EARLIER,
PURSUANT TO A SETTLEMENT AND RELEASE AGREEMENT SUBSTANTIALLY IN THE FORM SET
FORTH AS EXHIBIT B; AND (B) THE COMPANY’S ISSUANCE OF COMMON STOCK WITHIN THE
EARLIER OF (I) THREE BUSINESS DAYS OF THE EFFECTIVE DATE OF THE REVERSE STOCK
SPLIT, OR (II) JUNE 30, 2006, PURSUANT TO A CONVERSION AND SETTLEMENT AGREEMENT,
SUBSTANTIALLY IN THE FORM OF EXHIBIT C HERETO (A “CONVERSION AND SETTLEMENT
AGREEMENT”), WITH EACH AND ALL OF THE HOLDERS (ALL OF SUCH HOLDERS ARE SET FORTH
ON SCHEDULE III) OF THE COMPANY’S:  (A) 9% SENIOR SUBORDINATED CONVERTIBLE NOTES
DATED AS OF OCTOBER 15, 2004 (THE “9% NOTES”), (B) AMENDED AND RESTATED 9%
SENIOR SUBORDINATED CONVERTIBLE NOTES DATED AS OF OCTOBER 26, 2005 (THE “AMENDED
9% NOTES”), (C) SECURED PROMISSORY NOTES DATED AS OF OCTOBER 26, 2005 (THE
“BRIDGE NOTES”), AND (D) SECURED PROMISSORY NOTES DATED AS OF SEPTEMBER 20, 2005
ISSUED TO THE FORMER SHAREHOLDERS OF INTEGRATION TECHNOLOGIES, INC. (THE
“ACQUISITION NOTES” AND TOGETHER WITH THE 9% NOTES, THE AMENDED 9% NOTES AND THE
BRIDGE NOTES, THE “OUTSTANDING NOTES”).

 

(C)                                  PREPAYMENT ON SALE OF ASSETS. AT ANY TIME
UNTIL THE SENIOR NOTES HAVE BEEN REPAID IN FULL, THE COMPANY WILL REDEEM ALL OR
A PORTION OF THE REDEMPTION AMOUNT IMMEDIATELY UPON THE OCCURRENCE OF A
SUBSTANTIAL ASSET SALE AS FOLLOWS:  UPON THE OCCURRENCE OF A SUBSTANTIAL ASSET
SALE, (I) 50% OF THE GROSS PROCEEDS OF SUCH SALE (THE “ASSET SALE PREPAYMENT
AMOUNT”) WILL BE PAID TO THE PURCHASERS OR SUBSEQUENT TRANSFEREES OF THE SENIOR
NOTES IN RESPECT OF THE REDEMPTION AMOUNT; AND (II) A PREPAYMENT PENALTY EQUAL
TO 2% OF THE ASSET SALE PREPAYMENT AMOUNT WILL BE PAID BY THE COMPANY TO THE
PURCHASERS OR SUBSEQUENT TRANSFEREES OF THE SENIOR NOTES. SUCH PAYMENTS WILL BE
APPORTIONED RATABLY AMONG THE SENIOR NOTE HOLDERS ACCORDING TO THE UNPAID
PRINCIPAL BALANCE AND ACCRUED BUT UNPAID INTEREST THEREON TO WHICH SUCH PAYMENTS
RELATE. FOR PURPOSES OF THIS SECTION 1.06(C), A “SUBSTANTIAL ASSET SALE” IS ANY
VOLUNTARY OR INVOLUNTARY SALE OR SERIES OF SALES OF THE COMPANY’S ASSETS
(INCLUDING CASUALTY LOSSES OR CONDEMNATIONS)  WHICH GENERATE(S) (I)  GROSS
PROCEEDS OF $100,000 OR MORE IN THE CASE OF A SINGLE-ASSET SALE, OR
(II) AGGREGATE GROSS PROCEEDS OF $100,000 OR MORE OVER ANY 12-MONTH PERIOD IN
THE CASE OF A SERIES OF ASSET SALES.

 

SECTION 1.07.                                   WARRANTS FOR SENIOR NOTES. AT
THE CLOSING, THE COMPANY WILL ISSUE TO THE PURCHASERS OF SENIOR NOTES PRO RATA,
ACCORDING TO EACH PURCHASER’S PROPORTION OF THE AGGREGATE PRINCIPAL AMOUNT OF
THE SENIOR NOTES, WARRANTS FOR THE PURCHASE OF AN AGGREGATE OF 19.9% OF THE
COMMON STOCK OF THE COMPANY, EXERCISABLE AT $0.001 PER SHARE, IN THE FORM SET
FORTH AS EXHIBIT D.

 

SECTION 1.08.                                   INTEREST RATE FOR JUNIOR NOTE;
PAYMENT OF PRINCIPAL AND INTEREST FOR JUNIOR NOTE. THE JUNIOR NOTE WILL ACCRUE
INTEREST AT THE RATE OF TEN PERCENT (10%) PER ANNUM, COMPOUNDING QUARTERLY. THE
SAID INTEREST SHALL BECOME DUE QUARTERLY IN ARREARS AND SHALL BE PAYABLE ON THE
LAST DAY OF EACH FISCAL QUARTER (EACH, AN “INTEREST PAYMENT DATE”) IN RESPECT OF
THE IMMEDIATELY PRECEDING COMPLETED FISCAL QUARTER. THE FIRST INTEREST PAYMENT
DATE WILL BE JUNE 30, 2006. AT THE COMPANY’S SOLE OPTION, ALL INTEREST PAYMENTS
DUE AND PAYABLE THROUGH JUNE 30, 2009 MAY BE PAID IN KIND AT THE RATE OF
FOURTEEN PERCENT (14%) PER ANNUM, COMPOUNDING QUARTERLY, IN WHICH CASE THE
ACCRUED INTEREST WILL BE ADDED TO THE PRINCIPAL AMOUNT OF THE JUNIOR NOTE ON THE
APPLICABLE INTEREST PAYMENT DATE, AND INTEREST WILL ACCRUE ON THE AGGREGATE
PRINCIPAL AMOUNT. ALL INTEREST PAYMENTS DUE AND PAYABLE AFTER JUNE 30, 2009 MUST
BE PAID IN CASH. THE JUNIOR NOTE SHALL BE DUE AND PAYABLE IN FULL AT THE JUNIOR
NOTE MATURITY DATE UNLESS EARLIER CONVERTED IN ACCORDANCE WITH SECTION 3 OF THE
JUNIOR NOTE.

 

SECTION 1.09.                                   REDEMPTION OF JUNIOR NOTE. UNTIL
MARCH 1, 2010, THE COMPANY MAY NOT PREPAY THE JUNIOR NOTE IN WHOLE OR IN
PART WITHOUT THE PRIOR WRITTEN CONSENT OF THE HOLDER THERETO, WHICH MAY BE GIVEN
OR WITHHELD IN SUCH HOLDER’S SOLE DISCRETION. AT ANYTIME FROM MARCH 1, 2010
UNTIL THE

 

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JUNIOR NOTE MATURITY DATE, THE COMPANY MAY PREPAY THIS JUNIOR NOTE IN WHOLE OR
IN PART AT ANY TIME WITHOUT PENALTY.

 

SECTION 1.10.                                   CONVERSION OF JUNIOR NOTE. ALL
OR ANY PART OF THE PRINCIPAL PLUS ACCRUED BUT UNPAID INTEREST ON THE JUNIOR NOTE
MAY BE CONVERTED AT ANY TIME INTO A NUMBER OF FULLY PAID AND NONASSESSABLE
SHARES OF COMMON STOCK OF THE COMPANY, AT THE SOLE OPTION OF THE HOLDER OF THE
JUNIOR NOTE, PURSUANT TO THE TERMS AND CONDITIONS OF CONVERSION SET FORTH IN THE
JUNIOR NOTE.

 

SECTION 1.11.                                   PAYMENT ON NON-BUSINESS DAYS.
WHENEVER ANY PAYMENT TO BE MADE WILL BE DUE ON A SATURDAY, SUNDAY OR A PUBLIC
HOLIDAY UNDER THE LAWS OF THE STATE OF CALIFORNIA, SUCH PAYMENT MAY BE MADE ON
THE NEXT SUCCEEDING BUSINESS DAY, AND SUCH EXTENSION OF TIME WILL IN SUCH CASE
BE INCLUDED IN THE COMPUTATION OF PAYMENT OF INTEREST DUE.

 

SECTION 1.12.                                   REGISTRATION OF NOTES. THE
COMPANY WILL MAINTAIN AT ITS PRINCIPAL OFFICE A REGISTER OF THE NOTES AND WILL
RECORD THEREIN THE NAMES AND ADDRESSES OF THE REGISTERED HOLDERS OF THE NOTES,
THE ADDRESS TO WHICH NOTICES ARE TO BE SENT AND THE ADDRESS TO WHICH PAYMENTS
ARE TO BE MADE AS DESIGNATED BY THE REGISTERED HOLDER IF OTHER THAN THE ADDRESS
OF THE HOLDER, AND THE PARTICULARS OF ALL TRANSFERS, EXCHANGES AND REPLACEMENTS
OF NOTES. NO TRANSFER OF A NOTE WILL BE VALID UNLESS MADE ON SUCH REGISTER FOR
THE REGISTERED HOLDER OR HIS EXECUTORS OR ADMINISTRATORS OR HIS OR THEIR DULY
APPOINTED ATTORNEY, UPON SURRENDER THEREFOR FOR EXCHANGE AS HEREINAFTER
PROVIDED, ACCOMPANIED BY AN INSTRUMENT IN WRITING, IN FORM AND EXECUTION
REASONABLY SATISFACTORY TO THE COMPANY. EACH NOTE ISSUED HEREUNDER, WHETHER
ORIGINALLY OR UPON TRANSFER, EXCHANGE OR REPLACEMENT OF A NOTE OR NOTES, WILL BE
REGISTERED ON THE DATE OF EXECUTION THEREOF BY THE COMPANY AND WILL BE DATED THE
DATE TO WHICH INTEREST HAS BEEN PAID ON SUCH NOTES OR NOTE. THE REGISTERED
HOLDER OF A NOTE WILL BE THAT PERSON IN WHOSE NAME THE NOTE HAS BEEN SO
REGISTERED BY THE COMPANY. A REGISTERED HOLDER WILL BE DEEMED THE OWNER OF A
NOTE FOR ALL PURPOSES OF THIS AGREEMENT AND, SUBJECT TO THE PROVISIONS HEREOF,
WILL BE ENTITLED TO THE PRINCIPAL AND INTEREST EVIDENCED BY SUCH NOTE FREE FROM
ALL EQUITIES OR RIGHTS OF SETOFF OR COUNTERCLAIM BETWEEN THE COMPANY AND THE
TRANSFEROR OF SUCH REGISTERED HOLDER OR ANY PREVIOUS REGISTERED HOLDER OF SUCH
NOTE.

 

SECTION 1.13.                                   TRANSFER AND EXCHANGE OF NOTES.
THE REGISTERED HOLDER OF ANY NOTE OR NOTES MAY, PRIOR TO MATURITY OR PREPAYMENT
THEREOF, SURRENDER SUCH NOTE OR NOTES AT THE PRINCIPAL OFFICE OF THE COMPANY FOR
TRANSFER OR EXCHANGE; PROVIDED, HOWEVER, THE REGISTERED HOLDER OF ANY NOTE OR
NOTES WILL NOT TRANSFER ANY SUCH NOTE (A) TO ANY PERSON OR ENTITY WHICH IS NOT
AN “ACCREDITED INVESTOR” WITHIN THE MEANING OF RULE 501 UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE “SECURITIES ACT”), (B) TO ANY PERSON OR ENTITY THAT
COULD RESULT IN THE LOSS OF THE EXEMPTION FROM REGISTRATION UNDER THE SECURITIES
ACT APPLICABLE TO THE ORIGINAL SALE OF THE NOTES, AS DETERMINED IN THE
REASONABLE DISCRETION OF THE COMPANY PURSUANT TO A WRITTEN OPINION OF THE
COMPANY’S COUNSEL, AND (C) SO LONG AS NO EVENT OF DEFAULT HAS OCCURRED, WITHOUT
THE CONSENT OF THE COMPANY, WHICH CONSENT WILL NOT BE UNREASONABLY WITHHELD.
WITHIN A REASONABLE TIME AFTER NOTICE TO THE COMPANY FROM A REGISTERED HOLDER OF
ITS INTENTION TO MAKE SUCH EXCHANGE AND WITHOUT EXPENSE (OTHER THAN TRANSFER
TAXES, IF ANY) TO SUCH REGISTERED HOLDER, SUBJECT TO THE COMPANY’S CONSENT, IF
SUCH CONSENT IS REQUIRED BY THIS SECTION 1.13, THE COMPANY WILL ISSUE IN
EXCHANGE THEREFOR ANOTHER NOTE OR NOTES, IN SUCH DENOMINATIONS AS REQUESTED BY
THE REGISTERED HOLDER, FOR THE SAME AGGREGATE PRINCIPAL AMOUNT AS THE UNPAID
PRINCIPAL AMOUNT OF THE NOTE OR NOTES SO SURRENDERED AND HAVING THE SAME
MATURITY AND RATE OF INTEREST, CONTAINING THE SAME PROVISIONS AND SUBJECT TO THE
SAME TERMS AND CONDITIONS AS THE NOTE OR NOTES SO SURRENDERED. EACH NEW NOTE
WILL BE MADE PAYABLE TO SUCH PERSON OR PERSONS, OR REGISTERED ASSIGNS, AS THE
REGISTERED HOLDER OF SUCH SURRENDERED NOTE OR NOTES MAY DESIGNATE, AND SUCH
TRANSFER OR EXCHANGE WILL BE MADE IN SUCH A MANNER THAT NO GAIN OR LOSS OF
PRINCIPAL OR INTEREST WILL RESULT THEREFROM.

 

SECTION 1.14.                                   REPLACEMENT OF NOTES. UPON
RECEIPT OF EVIDENCE SATISFACTORY TO THE COMPANY OF THE LOSS, THEFT, DESTRUCTION
OR MUTILATION OF ANY NOTE AND, IF REQUESTED IN THE CASE OF ANY SUCH

 

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LOSS, THEFT OR DESTRUCTION, UPON DELIVERY OF AN INDEMNITY BOND OR OTHER
AGREEMENT OR SECURITY REASONABLY SATISFACTORY TO THE COMPANY, OR, IN THE CASE OF
ANY SUCH MUTILATION, UPON SURRENDER AND CANCELLATION OF SUCH NOTE, THE COMPANY
WILL ISSUE A NEW NOTE, OF LIKE TENOR AND AMOUNT AND DATED THE DATE TO WHICH
INTEREST HAS BEEN PAID, IN LIEU OF SUCH LOST, STOLEN, DESTROYED OR MUTILATED
NOTE; PROVIDED, HOWEVER, IF ANY NOTE OF WHICH A PURCHASER WHOSE NAME IS SET
FORTH IN THE SCHEDULE OF PURCHASERS ATTACHED AS SCHEDULE I, ITS NOMINEE, OR ANY
OF ITS PARTNERS IS THE REGISTERED HOLDER IS LOST, STOLEN OR DESTROYED, THE
AFFIDAVIT OF THE PRESIDENT, TREASURER OR ANY ASSISTANT TREASURER OR ANY OTHER
AUTHORIZED REPRESENTATIVE OF THE REGISTERED HOLDER SETTING FORTH THE
CIRCUMSTANCES WITH RESPECT TO SUCH LOSS, THEFT OR DESTRUCTION WILL BE ACCEPTED
AS SATISFACTORY EVIDENCE THEREOF, AND NO INDEMNIFICATION BOND OR OTHER SECURITY
WILL BE REQUIRED AS A CONDITION TO THE EXECUTION AND DELIVERY BY THE COMPANY OF
A NEW NOTE IN REPLACEMENT OF SUCH LOST, STOLEN OR DESTROYED NOTE OTHER THAN THE
REGISTERED HOLDER’S WRITTEN AGREEMENT TO INDEMNIFY THE COMPANY.

 

SECTION 1.15.                                   EVENTS OF DEFAULT. IF ANY OF THE
FOLLOWING EVENTS (“EVENTS OF DEFAULT”) SHALL OCCUR AND BE CONTINUING:

 

(A)                                  THE COMPANY WILL FAIL TO PAY ANY
INSTALLMENT OF PRINCIPAL OF, OR INTEREST DUE ON, ANY OF THE NOTES WITHIN
FIVE (5) CALENDAR DAYS OF THE DATE SUCH INSTALLMENT IS DUE;

 

(B)                                  ANY MATERIAL REPRESENTATION OR WARRANTY
MADE BY THE COMPANY IN THIS AGREEMENT OR THE SECURITY AND PLEDGE AGREEMENTS (AS
HEREINAFTER DEFINED), OR BY THE COMPANY (OR ANY OFFICERS OF THE COMPANY) IN ANY
CERTIFICATE, INSTRUMENT OR WRITTEN STATEMENT CONTEMPLATED BY OR MADE OR
DELIVERED PURSUANT TO OR IN CONNECTION WITH THIS AGREEMENT OR THE SECURITY AND
PLEDGE AGREEMENTS WILL PROVE TO HAVE BEEN INCORRECT WHEN MADE IN ANY MATERIAL
RESPECT;

 

(C)                                  THE COMPANY WILL FAIL TO PERFORM OR OBSERVE
ANY OTHER MATERIAL TERM, COVENANT OR AGREEMENT CONTAINED IN THIS AGREEMENT, THE
SECURITY AND PLEDGE AGREEMENTS, THE NOTES OR ANY AGREEMENT EXECUTED AND
DELIVERED BY THE COMPANY IN CONNECTION WITH THIS AGREEMENT OR THE SECURITY AND
PLEDGE AGREEMENTS ON ITS PART TO BE PERFORMED OR OBSERVED AND ANY SUCH FAILURE
REMAINS UNREMEDIED FOR TEN (10) BUSINESS DAYS AFTER WRITTEN NOTICE THEREOF WILL
HAVE BEEN GIVEN TO THE COMPANY BY ANY REGISTERED HOLDER OF THE NOTES;

 

(D)                                  THE COMPANY WILL FAIL TO PAY ANY
INDEBTEDNESS IN EXCESS OF AN AGGREGATE OF $100,000 FOR BORROWED MONEY (OTHER
THAN AS EVIDENCED BY THE NOTES) OWING BY THE COMPANY, OR ANY INTEREST OR PREMIUM
THEREON, WHEN DUE (OR, IF PERMITTED BY THE TERMS OF THE RELEVANT DOCUMENT,
WITHIN ANY APPLICABLE GRACE PERIOD), WHETHER SUCH INDEBTEDNESS WILL BECOME DUE
BY SCHEDULED MATURITY, BY REQUIRED PREPAYMENT, BY ACCELERATION, BY DEMAND OR
OTHERWISE, OR WILL FAIL TO PERFORM ANY TERM, COVENANT OR AGREEMENT ON ITS
PART TO BE PERFORMED UNDER ANY AGREEMENT OR INSTRUMENT EVIDENCING OR SECURING OR
RELATING TO ANY INDEBTEDNESS IN EXCESS OF AN AGGREGATE OF $100,000 OWING BY THE
COMPANY WHEN REQUIRED TO BE PERFORMED (OR, IF PERMITTED BY THE TERMS OF THE
RELEVANT DOCUMENT, WITHIN ANY APPLICABLE GRACE PERIOD), IF THE EFFECT OF SUCH
FAILURE TO PAY OR PERFORM IS TO ACCELERATE, OR TO PERMIT THE HOLDER OR HOLDERS
OF SUCH INDEBTEDNESS, OR THE TRUSTEE OR TRUSTEES UNDER ANY SUCH AGREEMENT OR
INSTRUMENT TO ACCELERATE, THE MATURITY OF SUCH INDEBTEDNESS, UNLESS SUCH FAILURE
TO PAY OR PERFORM WILL BE WAIVED BY THE HOLDER OR HOLDERS OF SUCH INDEBTEDNESS
OR SUCH TRUSTEE OR TRUSTEES;

 

(E)                                  THE COMPANY WILL BE INVOLVED IN FINANCIAL
DIFFICULTIES AS EVIDENCED (I) BY ITS ADMITTING IN WRITING ITS INABILITY TO PAY
ITS DEBTS GENERALLY AS THEY BECOME DUE; (II) BY ITS COMMENCEMENT OF A VOLUNTARY
CASE UNDER TITLE 11 OF THE UNITED STATES CODE AS FROM TIME TO TIME IN EFFECT, OR
BY ITS AUTHORIZING, BY APPROPRIATE PROCEEDINGS OF ITS BOARD OF DIRECTORS OR
OTHER GOVERNING BODY, THE COMMENCEMENT OF SUCH A VOLUNTARY CASE WHICH IS NOT
DISMISSED WITHIN SIXTY (60) DAYS; (III) BY ITS FILING AN ANSWER OR OTHER
PLEADING ADMITTING OR FAILING TO DENY THE MATERIAL ALLEGATIONS OF A PETITION
FILED AGAINST IT COMMENCING AN INVOLUNTARY CASE UNDER SAID TITLE 11, OR SEEKING,
CONSENTING TO OR ACQUIESCING IN THE

 

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RELIEF THEREIN PROVIDED, OR BY ITS FAILING TO CONTROVERT TIMELY THE MATERIAL
ALLEGATIONS OF ANY SUCH PETITION; (IV) BY THE ENTRY OF AN ORDER FOR RELIEF IN
ANY INVOLUNTARY CASE COMMENCED UNDER SAID TITLE 11; (V) BY ITS SEEKING RELIEF AS
A DEBTOR UNDER ANY APPLICABLE LAW, OTHER THAN SAID TITLE 11, OF ANY JURISDICTION
RELATING TO THE LIQUIDATION OR REORGANIZATION OF DEBTORS OR TO THE MODIFICATION
OR ALTERATION OF THE RIGHTS OF CREDITORS, OR BY ITS CONSENTING TO OR ACQUIESCING
IN SUCH RELIEF; (VI) BY THE ENTRY OF AN ORDER BY A COURT OF COMPETENT
JURISDICTION (A) FINDING IT TO BE BANKRUPT OR INSOLVENT, (B) ORDERING OR
APPROVING ITS LIQUIDATION, REORGANIZATION OR ANY MODIFICATION OR ALTERATION OF
THE RIGHTS OF ITS CREDITORS, OR (C) ASSUMING CUSTODY OF, OR APPOINTING A
RECEIVER OR OTHER CUSTODIAN FOR, ALL OR A SUBSTANTIAL PART OF ITS PROPERTY; OR
(VII) BY ITS MAKING AN ASSIGNMENT FOR THE BENEFIT OF, OR ENTERING INTO A
COMPOSITION WITH, ITS CREDITORS, OR APPOINTING OR CONSENTING TO THE APPOINTMENT
OF A RECEIVER OR OTHER CUSTODIAN FOR ALL OR A SUBSTANTIAL PART OF ITS PROPERTY;

 

(F)                                    THE COMPANY SHALL FAIL TO PERFORM ANY OF
ITS OBLIGATIONS UNDER SECTION 5.21, SECTION 5.22, SECTION 5.23 OR ARTICLE VI OF
THIS AGREEMENT;

 

(G)                                 THE COMPANY SHALL FAIL TO EFFECT A
ONE-FOR-TEN REVERSE STOCK SPLIT OF ITS COMMON STOCK (THE “REVERSE STOCK SPLIT”)
WITHIN 90 DAYS FOLLOWING THE CLOSING DATE;

 

(H)                                 THE COMPANY SHALL FAIL TO REDUCE CHIEF
EXECUTIVE OFFICER CASPER ZUBLIN’S SALARY BY $100,000 RATABLY OVER THE 48 MONTHS
WITHIN 15 DAYS FOLLOWING THE CLOSING DATE, WITH SUCH REDUCTION TO BE SET FORTH
IN A WRITTEN AGREEMENT BETWEEN THE COMPANY AND MR. ZUBLIN IN FORM AND SUBSTANCE
REASONABLY SATISFACTORY TO THE PURCHASERS;

 

(I)                                    THE COMPANY SHALL FAIL TO COMPLETE THE
CONVERSION OF ALL OF THE OBLIGATIONS OUTSTANDING UNDER THE OUTSTANDING NOTES
INTO COMMON STOCK OF THE COMPANY AT A CONVERSION RATE OF $0.02 PER SHARE ON OR
BEFORE THE EARLIER OF (A) THREE BUSINESS DAYS FOLLOWING THE EFFECTIVE DATE OF
THE REVERSE STOCK SPLIT, OR (B) JUNE 30, 2006;

 

(J)                                    ANY JUDGMENT, WRIT, WARRANT OF ATTACHMENT
OR EXECUTION OR SIMILAR PROCESS WILL BE ISSUED OR LEVIED AGAINST A SUBSTANTIAL
PART OF THE PROPERTY OF THE COMPANY AND SUCH JUDGMENT, WRIT, OR SIMILAR PROCESS
WILL NOT BE RELEASED, VACATED OR FULLY BONDED WITHIN SIXTY (60) DAYS AFTER ITS
ISSUE OR LEVY; OR

 

(K)                                THE COMPANY SHALL FAIL TO EFFECT, AS SET
FORTH ON SCHEDULE C OF THE RESPECTIVE SECURITY AND PLEDGE AGREEMENTS, THE
TERMINATION WITHIN (I) TEN (10) CALENDAR DAYS OF THE CLOSING DATE OF EACH OF
THOSE CERTAIN FINANCING STATEMENTS ON FILE BY LAURUS MASTER FUND, LTD., C.W.
ZUBLIN, JR. TRUST, GLEN ACKERMAN, AND LISA ACKERMAN IN ANY JURISDICTION
PURPORTING TO EVIDENCE A SECURITY INTEREST IN ANY ASSETS OF THE COMPANY OR ITS
AFFILIATES AND (II) THIRTY (30) CALENDAR DAYS OF THE CLOSING DATE OF ANY AND ALL
OTHER FINANCING STATEMENTS ON FILE IN ANY JURISDICTION PURPORTING TO EVIDENCE A
SECURITY INTEREST IN ANY ASSETS OF THE COMPANY OR ITS AFFILIATES, OTHER THAN THE
FINANCING STATEMENTS EVIDENCING THE SECURITY INTERESTS OF THE PURCHASERS
PURSUANT TO THE SECURITY AND PLEDGE AGREEMENTS.

 

then, and in any such event, any holder of any Note may, by notice to the
Company, declare the entire unpaid principal amount of the Note, all interest
accrued and unpaid thereon and all other amounts payable under this Agreement to
be forthwith due and payable, whereupon the Note, all such accrued interest and
all such amounts will become and be forthwith due and payable (unless there will
have occurred an Event of Default under subsection 1.15(e) in which case all
such amounts will automatically become due and payable), without presentment,
demand, protest or further notice of any kind, all of which are hereby expressly
waived by the Company.

 

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ARTICLE II

 

REPRESENTATIONS AND WARRANTIES OF THE COMPANY

 

The Company represents and warrants to the Purchasers that, as of the Closing
and except as set forth in the Disclosure Schedule attached as Schedule IV
(which Disclosure Schedule makes explicit reference to the particular
representation or warranty as to which exception is taken, which in each case
will constitute the sole representation and warranty as to which such exception
will apply):

 

SECTION 2.01.                                   ORGANIZATION, QUALIFICATIONS AND
CORPORATE POWER.

 

(A)                                  THE COMPANY IS A CORPORATION DULY
INCORPORATED, VALIDLY EXISTING AND IN GOOD STANDING UNDER THE LAWS OF THE STATE
OF DELAWARE AND IS DULY LICENSED OR QUALIFIED TO TRANSACT BUSINESS AS A FOREIGN
CORPORATION AND IS IN GOOD STANDING IN EACH JURISDICTION IN WHICH THE NATURE OF
THE BUSINESS TRANSACTED BY IT OR THE CHARACTER OF THE PROPERTIES OWNED OR LEASED
BY IT REQUIRES SUCH LICENSING OR QUALIFICATION, EXCEPT WHERE THE FAILURE TO BE
SO LICENSED OR QUALIFIED DOES NOT HAVE A MATERIAL ADVERSE EFFECT ON THE
COMPANY’S BUSINESS OR FINANCIAL CONDITION. THE COMPANY HAS THE CORPORATE POWER
AND AUTHORITY TO OWN AND HOLD ITS PROPERTIES AND TO CARRY ON ITS BUSINESS AS NOW
CONDUCTED AND AS PROPOSED TO BE CONDUCTED, TO EXECUTE, DELIVER AND PERFORM THIS
AGREEMENT AND THE SECURITY AND PLEDGE AGREEMENTS, AND TO ISSUE, SELL AND DELIVER
THE NOTES AND THE WARRANTS.

 

(B)                                  THE COMPANY HAS NO SUBSIDIARIES, OTHER THAN
AS SET FORTH ON SCHEDULE IV. THE COMPANY DOES NOT (I) OWN OF RECORD OR
BENEFICIALLY, DIRECTLY OR INDIRECTLY, (A) ANY SHARES OF CAPITAL STOCK OR
SECURITIES CONVERTIBLE INTO CAPITAL STOCK OF ANY OTHER CORPORATION OR (B) ANY
PARTICIPATING INTEREST IN ANY PARTNERSHIP, JOINT VENTURE OR OTHER NON-CORPORATE
BUSINESS ENTERPRISE OR (II) CONTROL, DIRECTLY OR INDIRECTLY, ANY OTHER ENTITY,
OTHER THAN AS SET FORTH ON SCHEDULE IV.

 

SECTION 2.02.                                   AUTHORIZATION OF AGREEMENTS,
ETC.

 

(A)                                  THE EXECUTION AND DELIVERY BY THE COMPANY
OF THIS AGREEMENT AND THE SECURITY AND PLEDGE AGREEMENTS, THE PERFORMANCE BY THE
COMPANY OF ITS OBLIGATIONS HEREUNDER AND THEREUNDER, THE ISSUANCE, SALE AND
DELIVERY OF THE NOTES AND THE WARRANTS HAVE BEEN DULY AUTHORIZED BY ALL
REQUISITE CORPORATE ACTION AND WILL NOT (I) VIOLATE ANY PROVISION OF LAW, ANY
ORDER OF ANY COURT OR OTHER AGENCY OF GOVERNMENT, (II) VIOLATE THE CERTIFICATE
OF INCORPORATION OR THE BY-LAWS OF THE COMPANY, EACH AS AMENDED, (III) VIOLATE
ANY PROVISION OF ANY INDENTURE, AGREEMENT OR OTHER INSTRUMENT TO WHICH THE
COMPANY OR ANY OF ITS PROPERTIES OR ASSETS IS BOUND, (IV) CONFLICT WITH, RESULT
IN A BREACH OF OR CONSTITUTE (WITH DUE NOTICE OR LAPSE OF TIME OR BOTH) A
DEFAULT UNDER ANY SUCH INDENTURE, AGREEMENT OR OTHER INSTRUMENT, OR (V) RESULT
IN THE CREATION OR IMPOSITION OF ANY LIEN, CHARGE, RESTRICTION, CLAIM OR
ENCUMBRANCE OF ANY NATURE WHATSOEVER UPON ANY OF THE PROPERTIES OR ASSETS OF THE
COMPANY, EXCEPT IN THE CASE OF CLAUSES (I), (III), (IV) AND (V), AS WOULD NOT
HAVE A MATERIAL ADVERSE EFFECT ON THE COMPANY.

 

(B)                                  THE NOTES AND THE WARRANTS HAVE BEEN DULY
AUTHORIZED AND, WHEN ISSUED IN ACCORDANCE WITH THIS AGREEMENT, WILL BE FREE AND
CLEAR OF ALL LIENS, CHARGES, RESTRICTIONS, CLAIMS AND ENCUMBRANCES IMPOSED BY OR
THROUGH THE COMPANY. EXCEPT AS SET FORTH ON SCHEDULE IV, THE ISSUANCE, SALE AND
DELIVERY OF THE NOTES AND THE WARRANTS ARE NOT SUBJECT TO ANY PREEMPTIVE RIGHT
OF SHAREHOLDERS OF THE COMPANY OR TO ANY RIGHT OF FIRST REFUSAL OR OTHER RIGHT
IN FAVOR OF ANY PERSON.

 

SECTION 2.03.                                   VALIDITY. EACH OF THIS
AGREEMENT, THE SECURITY AND PLEDGE AGREEMENTS AND THE NOTES AND THE WARRANTS
HAVE BEEN DULY EXECUTED AND DELIVERED BY THE COMPANY AND CONSTITUTE THE LEGAL,
VALID AND BINDING OBLIGATIONS OF THE COMPANY, ENFORCEABLE IN ACCORDANCE WITH
THEIR TERMS.

 

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SECTION 2.04.                                   AUTHORIZED CAPITAL STOCK. THE
AUTHORIZED CAPITAL STOCK OF THE COMPANY CONSISTS OF 450,000,000 SHARES OF COMMON
STOCK, $.0001 PAR VALUE PER SHARE, AND 10,000,000 SHARES OF PREFERRED STOCK,
$0.0001 PAR VALUE PER SHARE (“PREFERRED STOCK”). AS OF THE DATE OF THIS
AGREEMENT, 81,164,636 SHARES OF COMMON STOCK AND NO SHARES OF PREFERRED STOCK
WERE VALIDLY ISSUED AND OUTSTANDING, FULLY PAID AND NONASSESSABLE. EXCEPT AS
DISCLOSED IN SEC REPORTS (AS DEFINED BELOW), THERE ARE NO OPTIONS, WARRANTS AND
CONVERTIBLE SECURITIES OF THE COMPANY, AND ANY OTHER RIGHTS TO ACQUIRE
SECURITIES OF THE COMPANY. ALL OUTSTANDING SECURITIES OF THE COMPANY ARE VALIDLY
ISSUED, FULLY PAID AND NONASSESSABLE. NO STOCKHOLDER OF THE COMPANY IS ENTITLED
TO ANY PREEMPTIVE RIGHTS WITH RESPECT TO THE PURCHASE OF OR SALE OF ANY
SECURITIES OF THE COMPANY.

 

SECTION 2.05.                                   SEC FILINGS, OTHER FILINGS AND
REGULATORY COMPLIANCE. SINCE JANUARY 1, 2002, THE COMPANY HAS TIMELY MADE ALL
FILINGS REQUIRED TO BE MADE BY IT UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED (THE “EXCHANGE ACT”). THE COMPANY HAS DELIVERED OR MADE ACCESSIBLE TO
THE PURCHASERS TRUE, ACCURATE AND COMPLETE COPIES OF (A) THE COMPANY’S ANNUAL
REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED JUNE 30, 2005, (B) THE COMPANY’S
QUARTERLY REPORTS ON FORM 10-Q FOR THE FISCAL QUARTERS ENDED SEPTEMBER 30, 2005
AND DECEMBER 31, 2005, (C) THE COMPANY’S DEFINITIVE PROXY STATEMENT DATED
NOVEMBER 17, 2005 RELATING TO ITS ANNUAL MEETING OF STOCKHOLDERS, AND (D) ALL
THE COMPANY’S CURRENT REPORTS ON FORM 8-K FILED SINCE JULY 1, 2005
(COLLECTIVELY, THE “SEC REPORTS”). THE SEC REPORTS WHEN FILED, COMPLIED IN ALL
MATERIAL RESPECTS WITH ALL APPLICABLE REQUIREMENTS OF THE EXCHANGE ACT AND THE
SARBANES-OXLEY ACT OF 2002, IF AND TO THE EXTENT APPLICABLE, AND THE RULES AND
REGULATIONS OF THE SECURITIES AND EXCHANGE COMMISSION (THE “SEC”) THEREUNDER
APPLICABLE TO THE SEC REPORTS. NONE OF THE SEC REPORTS, AT THE TIME OF FILING,
CONTAINED ANY UNTRUE STATEMENT OF A MATERIAL FACT OR OMITTED TO STATE A MATERIAL
FACT REQUIRED TO BE STATED THEREIN OR NECESSARY IN ORDER TO MAKE THE STATEMENTS
THEREIN NOT MISLEADING IN LIGHT OF THE CIRCUMSTANCES IN WHICH THEY WERE MADE.
THE COMPANY HAS TAKEN, OR WILL HAVE TAKEN PRIOR TO THE CLOSING, ALL NECESSARY
ACTIONS TO MAINTAIN ELIGIBILITY OF ITS COMMON STOCK FOR TRADING ON OTC BULLETIN
BOARD UNDER ALL CURRENTLY EFFECTIVE INCLUSION REQUIREMENTS. EACH BALANCE SHEET
INCLUDED IN THE SEC REPORTS (INCLUDING ANY RELATED NOTES AND SCHEDULES) FAIRLY
PRESENTS IN ALL MATERIAL RESPECTS THE CONSOLIDATED FINANCIAL POSITION OF THE
COMPANY AS OF ITS DATE, AND EACH OF THE OTHER FINANCIAL STATEMENTS INCLUDED IN
THE SEC REPORTS (INCLUDING ANY RELATED NOTES AND SCHEDULES) FAIRLY PRESENTS IN
ALL MATERIAL RESPECT THE CONSOLIDATED RESULTS OF OPERATIONS OF THE COMPANY FOR
THE PERIODS OR AS OF THE DATES THEREIN SET FORTH IN ACCORDANCE WITH GENERALLY
ACCEPTED ACCOUNTING PRINCIPLES (“GAAP”) CONSISTENTLY APPLIED DURING THE PERIODS
INDICATED OR AS A RESULT OF YEAR END ADJUSTMENTS AND EXCEPT AS MAY BE INDICATED
IN THE NOTES THERETO OR, IN THE CASE OF INTERIM CONSOLIDATED FINANCIAL
STATEMENTS, WHERE INFORMATION AND FOOTNOTES CONTAINED IN SUCH FINANCIAL
STATEMENTS ARE NOT REQUIRED TO BE IN COMPLIANCE WITH GAAP). SUCH FINANCIAL
STATEMENTS INCLUDED IN THE SEC REPORTS WERE, AT THE TIME THEY WERE FILED,
CONSISTENT WITH THE BOOKS AND RECORDS OF THE COMPANY IN ALL MATERIAL RESPECTS
AND COMPLIED AS TO FORM IN ALL MATERIAL RESPECTS WITH THEN APPLICABLE ACCOUNTING
REQUIREMENTS AND WITH THE RULES AND REGULATIONS OF THE SEC WITH RESPECT THERETO.
THE COMPANY KEEPS ACCOUNTING RECORDS IN WHICH ALL MATERIAL ASSETS AND
LIABILITIES, AND ALL MATERIAL TRANSACTIONS, INCLUDING OFF-BALANCE SHEET
TRANSACTIONS, OF THE COMPANY ARE RECORDED IN ACCORDANCE WITH GAAP.

 

SECTION 2.06.                                   GOVERNMENTAL APPROVALS. SUBJECT
TO THE ACCURACY OF THE REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS SET
FORTH IN ARTICLE III, NO REGISTRATION OR FILING WITH, OR CONSENT OR APPROVAL OF
OR OTHER ACTION BY, ANY FEDERAL, STATE OR OTHER GOVERNMENTAL AGENCY OR
INSTRUMENTALITY IS OR WILL BE NECESSARY FOR THE VALID EXECUTION, DELIVERY AND
PERFORMANCE BY THE COMPANY OF THIS AGREEMENT, THE ISSUANCE, SALE AND DELIVERY OF
THE NOTES AND THE WARRANTS, OTHER THAN FILINGS PURSUANT TO STATE SECURITIES LAWS
(ALL OF WHICH FILINGS HAVE BEEN MADE BY THE COMPANY, OTHER THAN THOSE WHICH ARE
REQUIRED OR PERMITTED TO BE MADE AFTER THE CLOSING AND WHICH WILL BE DULY MADE
ON A TIMELY BASIS) IN CONNECTION WITH THE SALE OF THE NOTES AND THE WARRANTS.

 

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SECTION 2.07.                                   OFFERING OF THE NOTES. EXCEPT
FOR THE FILING OF A REGISTRATION STATEMENT ON FORM S-1 WITH THE SEC ON
NOVEMBER 25, 2005 IN CONNECTION WITH A PROPOSED RIGHTS OFFERING, WHICH
REGISTRATION STATEMENT WAS WITHDRAWN AS OF FEBRUARY 3, 2006, NEITHER THE
COMPANY, NOR ANY OF ITS AFFILIATES, NOR ANY PERSON ACTING ON ITS OR THEIR
BEHALF, HAS DIRECTLY OR INDIRECTLY MADE ANY OFFERS OR SALES IN ANY SECURITY OR
SOLICITED ANY OFFERS TO BUY ANY SECURITY UNDER CIRCUMSTANCES THAT WOULD REQUIRE
REGISTRATION UNDER THE SECURITIES ACT OF THE ISSUANCE OF THE NOTES AND THE
WARRANTS TO THE PURCHASERS. BASED UPON THE POLICY POSITION OF THE SEC, AS
DESCRIBED IN THE SEC STAFF’S NO-ACTION LETTERS DATED JUNE 26, 1990 TO BLACK BOX
INCORPORATED AND FEBRUARY 28, 1992 TO SQUADRON, ELLENOFF, PLEASANT & LEHRER, AND
THE PURCHASERS’ REPRESENTATIONS IN ARTICLE III, THE ISSUANCE OF THE NOTES AND
THE WARRANTS TO THE PURCHASERS WILL NOT BE INTEGRATED WITH ANY OTHER ISSUANCE OF
THE COMPANY’S SECURITIES (PAST, CURRENT OR FUTURE) FOR PURPOSES OF THE
SECURITIES ACT.

 

SECTION 2.08.                                   MATERIAL CHANGES. EXCEPT AS SET
FORTH IN SCHEDULE IV ATTACHED HERETO, SINCE JUNE 30, 2005, THERE HAS NOT BEEN
(I) ANY DIRECT OR INDIRECT REDEMPTION, PURCHASE OR OTHER ACQUISITION BY THE
COMPANY OF ANY SHARES OF COMMON STOCK; (II) ANY DECLARATION, SETTING ASIDE OR
PAYMENT OF ANY DIVIDEND OR OTHER DISTRIBUTION BY THE COMPANY WITH RESPECT TO THE
COMMON STOCK; (III) ANY MATERIAL LIABILITIES (ABSOLUTE, ACCRUED OR CONTINGENT)
INCURRED OR ASSUMED BY THE COMPANY, OTHER THAN CURRENT LIABILITIES INCURRED IN
THE ORDINARY COURSE OF BUSINESS, LIABILITIES UNDER CONTRACTS ENTERED INTO IN THE
ORDINARY COURSE OF BUSINESS, PURCHASE PRICE PAYMENT OBLIGATIONS INCURRED IN
CONNECTION WITH THE ACQUISITION OF RED ROCK COMMUNICATIONS SOLUTIONS, INC. AND
INTEGRATION TECHNOLOGIES, INC. AND LIABILITIES NOT REQUIRED TO BE REFLECTED ON
THE COMPANY’S FINANCIAL STATEMENTS PURSUANT TO GAAP; OR (IV) ANY MORTGAGE,
PLEDGE, SECURITY INTEREST, ENCUMBRANCE, LIEN OR CHARGE OF ANY KIND (INCLUDING
ANY CONDITIONAL SALE OR OTHER TITLE RETENTION AGREEMENT, ANY LEASE IN THE NATURE
THEREOF, AND THE FILING OF OR AGREEMENT TO GIVE ANY FINANCING STATEMENT UNDER
THE UNIFORM COMMERCIAL CODE OR COMPARABLE LAW OF ANY JURISDICTION IN CONNECTION
WITH SUCH MORTGAGE, PLEDGE, SECURITY INTEREST, ENCUMBRANCE, LIEN OR CHARGE)
(EACH, A “LIEN”) OR ADVERSE CLAIM ON ANY OF THE COMPANY’S PROPERTIES OR ASSETS,
EXCEPT FOR LIENS FOR TAXES NOT YET DUE AND PAYABLE, INTEREST OF LESSORS UNDER
OPERATING CAPITAL LEASES, PURCHASE MONEY LIENS, AMOUNTS DEPOSITED FOR SECURITY
FOR SURETY BONDS, LIENS INCURRED IN CONNECTION WITH THE COMPANY’S CREDIT
FACILITY WITH NEW ENGLAND TECHNOLOGY FINANCE, LLC, LIENS INCURRED IN THE
ORDINARY COURSE OF BUSINESS OR LIENS THAT ARE NOT MATERIAL IN AMOUNT TO THE
COMPANY AND ITS SUBSIDIARIES.

 

SECTION 2.09.                                   LITIGATION. EXCEPT AS DISCLOSED
IN THE SCHEDULE IV ATTACHED HERETO, THERE IS NO ACTION, SUIT, PROCEEDING OR
INVESTIGATION PENDING OR, TO THE COMPANY’S KNOWLEDGE, CURRENTLY THREATENED
AGAINST THE COMPANY OR ANY OF ITS SUBSIDIARIES THAT QUESTIONS THE VALIDITY OF
THIS AGREEMENT OR THE RIGHT OF THE COMPANY TO ENTER INTO IT, OR TO CONSUMMATE
THE TRANSACTIONS CONTEMPLATED HEREBY, OR THAT COULD REASONABLY BE EXPECTED TO
RESULT, EITHER INDIVIDUALLY OR IN THE AGGREGATE, IN A MATERIAL ADVERSE EFFECT ON
THE COMPANY. THE FOREGOING INCLUDES, WITHOUT LIMITATION, ACTIONS PENDING OR, TO
THE COMPANY’S KNOWLEDGE, THREATENED INVOLVING THE PRIOR EMPLOYMENT OF ANY OF THE
COMPANY’S EMPLOYEES OR THEIR USE IN CONNECTION WITH THE COMPANY’S BUSINESS OF
ANY INFORMATION OR TECHNIQUES ALLEGEDLY PROPRIETARY TO ANY OF THEIR FORMER
EMPLOYERS. NEITHER THE COMPANY NOR ANY OF ITS SUBSIDIARIES IS A PARTY TO OR
SUBJECT TO THE PROVISIONS OF ANY ORDER, WRIT, INJUNCTION, JUDGMENT OR DECREE OF
ANY COURT OR GOVERNMENTAL AUTHORITY. EXCEPT AS DISCLOSED IN SCHEDULE IV ATTACHED
HERETO, THERE IS NO ACTION, SUIT, PROCEEDING OR INVESTIGATION BY THE COMPANY OR
ANY OF ITS SUBSIDIARIES CURRENTLY PENDING OR WHICH THE COMPANY OR ANY OF ITS
SUBSIDIARIES CURRENTLY INTENDS TO INITIATE, WHICH COULD REASONABLY BE EXPECTED
TO HAVE A MATERIAL ADVERSE EFFECT.

 

SECTION 2.10.                                   OWNERSHIP OF PROPERTY; LIENS.
THE COMPANY AND EACH OF ITS SUBSIDIARIES HAS GOOD AND MARKETABLE TITLE IN FEE
SIMPLE, OR A VALID LEASEHOLD INTEREST IN, ALL OF ITS REAL PROPERTY; AND GOOD
TITLE TO, OR A VALID LEASEHOLD INTEREST IN, ALL OF ITS OTHER PROPERTY, AND NONE
SUCH PROPERTY IS SUBJECT TO ANY LIEN EXCEPT AS SET FORTH ON SCHEDULE IV ATTACHED
HERETO.

 

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SECTION 2.11.                                   INTELLECTUAL PROPERTY RIGHTS. TO
THE BEST OF ITS KNOWLEDGE, THE COMPANY OWNS OR POSSESSES THE LICENSES OR RIGHTS
TO USE ALL PATENTS, PATENT APPLICATIONS, PATENT RIGHTS, INVENTIONS, KNOW-HOW,
TRADE SECRETS, TRADEMARKS, TRADEMARK APPLICATIONS, SERVICE MARKS, SERVICE NAMES,
TRADE NAMES AND COPYRIGHTS NECESSARY TO ENABLE IT TO CONDUCT ITS BUSINESS AS NOW
OPERATED (THE “INTELLECTUAL PROPERTY”). EXCEPT AS SET FORTH IN SCHEDULE IV
ATTACHED HERETO, THERE ARE NO MATERIAL OUTSTANDING OPTIONS, LICENSES OR
AGREEMENTS RELATING TO THE INTELLECTUAL PROPERTY, NOR IS THE COMPANY BOUND BY OR
A PARTY TO ANY MATERIAL OPTIONS, LICENSES OR AGREEMENTS RELATING TO THE PATENTS,
PATENT APPLICATIONS, PATENT RIGHTS, INVENTIONS, KNOW-HOW, TRADE SECRETS,
TRADEMARKS, TRADEMARK APPLICATIONS, SERVICE MARKS, SERVICE NAMES, TRADE NAMES OR
COPYRIGHTS OF ANY OTHER PERSON OR ENTITY. EXCEPT AS SET FORTH IN SCHEDULE IV
ATTACHED HERETO, THERE IS NO CLAIM OR ACTION OR PROCEEDING PENDING OR, TO THE
COMPANY’S KNOWLEDGE, THREATENED THAT CHALLENGES THE RIGHT OF THE COMPANY WITH
RESPECT TO ANY INTELLECTUAL PROPERTY. EXCEPT AS SET FORTH IN SCHEDULE IV
ATTACHED HERETO, TO THE KNOWLEDGE OF THE COMPANY, THE COMPANY’S INTELLECTUAL
PROPERTY DOES NOT INFRINGE ANY INTELLECTUAL PROPERTY RIGHTS OF ANY OTHER PERSON
WHICH, IF THE SUBJECT OF AN UNFAVORABLE DECISION, RULING OR FINDING WOULD HAVE A
MATERIAL ADVERSE EFFECT.

 

SECTION 2.12.                                   INSURANCE. THE COMPANY IS
INSURED BY INSURERS OF RECOGNIZED FINANCIAL RESPONSIBILITY AGAINST SUCH LOSSES
AND RISKS AND IN SUCH AMOUNTS AS MANAGEMENT OF THE COMPANY BELIEVES TO BE
PRUDENT AND CUSTOMARY IN THE BUSINESSES IN WHICH THE COMPANY IS ENGAGED.

 

SECTION 2.13.                                   BROKERS. THE COMPANY HAS NO
CONTRACT, ARRANGEMENT OR UNDERSTANDING WITH ANY BROKER, FINDER OR SIMILAR AGENT
WITH RESPECT TO THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT.

 

SECTION 2.14.                                   NON-OPERATIONAL SUBSIDIARIES.
NEITHER BUGSOLVER.COM, INC., TEKINSIGHT E-GOVERNMENT SERVICES, INC., NOR
TEKINSIGHT RESEARCH, INC. OPERATES ANY BUSINESS, NOR DOES ANY SUCH ENTITY OWN
ANY MATERIAL ASSETS.

 

SECTION 2.15.                                   FEDERAL RESERVE REGULATIONS. THE
COMPANY IS NOT ENGAGED IN THE BUSINESS OF EXTENDING CREDIT FOR THE PURPOSE OF
PURCHASING OR CARRYING MARGIN SECURITIES (WITHIN THE MEANING OF REGULATION G OF
THE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM), AND NO PART OF THE
PROCEEDS OF THE NOTES WILL BE USED TO PURCHASE OR CARRY ANY MARGIN SECURITY OR
TO EXTEND CREDIT TO OTHERS FOR THE PURPOSE OF PURCHASING OR CARRYING ANY MARGIN
SECURITY OR IN ANY OTHER MANNER WHICH WOULD INVOLVE A VIOLATION OF ANY OF THE
REGULATIONS OF THE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM.

 

SECTION 2.16.                                   OFFICE HEADQUARTERS. THE SOLE
LEASE AGREEMENT NOW CURRENTLY IN FULL FORCE AND EFFECT FOR THE COMPANY’S
PRINCIPAL PLACE OF BUSINESS IS THAT CERTAIN OFFICE LEASE AGREEMENT, MADE AND
ENTERED INTO AS OF THE 21ST DAY OF JULY, 2003, BY AND BETWEEN CA-FAIRCHILD
CORPORATE CENTER LIMITED PARTNERSHIP, A DELAWARE LIMITED PARTNERSHIP, AS
LANDLORD, AND INTEGRATION TECHNOLOGIES, INC., A CALIFORNIA CORPORATION, TENANT
(AS AMENDED, SUPPLEMENTED, OR OTHERWISE MODIFIED FROM TIME TO TIME) (THE “OFFICE
LEASE”).

 

SECTION 2.17.                                   REPRESENTATIONS COMPLETE. THE
REPRESENTATIONS AND WARRANTIES MADE BY THE COMPANY IN THIS AGREEMENT, THE
STATEMENTS MADE IN ANY CERTIFICATES FURNISHED BY THE COMPANY PURSUANT TO THIS
AGREEMENT, AND THE STATEMENTS MADE BY THE COMPANY IN ANY DOCUMENTS MAILED,
DELIVERED OR FURNISHED TO THE PURCHASERS IN CONNECTION WITH THIS AGREEMENT,
TAKEN AS A WHOLE, DO NOT CONTAIN AND WILL NOT CONTAIN, AS OF THEIR RESPECTIVE
DATES AND AS OF THE CLOSING DATE, ANY MISSTATEMENTS OF MATERIAL FACT OR OMIT TO
STATE ANY MATERIAL FACT NECESSARY IN ORDER TO MAKE THE STATEMENTS CONTAINED
HEREIN OR THEREIN, IN THE LIGHT OF THE CIRCUMSTANCES UNDER WHICH THEY WERE MADE,
NOT MISLEADING.

 

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ARTICLE III

 

REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS

 

Each Purchaser severally represents and warrants (except, with respect to the
first sentence of (f) below, as to which Lloyd I. Miller, III and Trust A-4 -
Lloyd I. Miller, make no representation or warranty) to the Company that:

 

(A)                                  IT IS A “LARGE INSTITUTIONAL ACCREDITED
INVESTOR” AS SUCH TERM IS USED IN THE SEC STAFF’S NO-ACTION LETTER DATED
FEBRUARY 28, 1992 TO SQUADRON, ELLENOFF, PLEASANT & LEHRER, OR, IF A PURCHASER
IS NOT AN INSTITUTION, IT BENEFICIALLY OWNS AND INVESTS ON A DISCRETIONARY BASIS
AT LEAST $100,000,000 IN SECURITIES OF ISSUERS THAT ARE NOT AFFILIATED WITH SUCH
PURCHASER, AND WAS NOT ORGANIZED FOR THE SPECIFIC PURPOSE OF ACQUIRING THE
NOTES;

 

(B)                                  IT HAS SUFFICIENT KNOWLEDGE AND EXPERIENCE
IN INVESTING IN COMPANIES SIMILAR TO THE COMPANY IN TERMS OF THE COMPANY’S STAGE
OF DEVELOPMENT SO AS TO BE ABLE TO EVALUATE THE RISKS AND MERITS OF ITS
INVESTMENT IN THE COMPANY AND IT IS ABLE FINANCIALLY TO BEAR THE RISKS THEREOF;

 

(C)                                  IT HAS HAD AN OPPORTUNITY TO DISCUSS THE
COMPANY’S BUSINESS, MANAGEMENT AND FINANCIAL AFFAIRS WITH THE COMPANY’S
MANAGEMENT;

 

(D)                                  THE NOTES BEING PURCHASED BY IT ARE BEING
ACQUIRED FOR ITS OWN ACCOUNT FOR THE PURPOSE OF INVESTMENT AND NOT WITH A VIEW
TO OR FOR SALE IN CONNECTION WITH ANY DISTRIBUTION THEREOF;

 

(E)                                  IT UNDERSTANDS THAT (I) THE NOTES HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT, BY REASON OF THEIR ISSUANCE IN A
TRANSACTION EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT
PURSUANT TO SECTION 4(2) THEREOF OR RULE 505 OR 506 PROMULGATED UNDER THE
SECURITIES ACT, (II) THE NOTES MUST BE HELD INDEFINITELY UNLESS A SUBSEQUENT
DISPOSITION THEREOF IS REGISTERED UNDER THE SECURITIES ACT OR IS EXEMPT FROM
SUCH REGISTRATION, (III) THE NOTES WILL BEAR A LEGEND TO SUCH EFFECT AND
(IV) THE COMPANY WILL MAKE A NOTATION ON ITS TRANSFER BOOKS TO SUCH EFFECT;

 

(F)                                    IN THE CASE OF SACC PARTNERS, L.P., ALL
LIMITED PARTNERSHIP ACTION ON THE PART OF SUCH PURCHASER AND ITS PARTNERS
NECESSARY FOR THE PERFORMANCE OF SUCH PURCHASER’S OBLIGATIONS UNDER THIS
AGREEMENT AND THE SECURITY AND PLEDGE AGREEMENTS, AND THE TRANSACTIONS
CONTEMPLATED HEREBY AND THEREBY, WILL BE TAKEN PRIOR TO THE CLOSING. THIS
AGREEMENT AND THE SECURITY AND PLEDGE AGREEMENTS ARE VALID, BINDING AND
ENFORCEABLE OBLIGATIONS OF PURCHASER, SUBJECT TO APPLICABLE BANKRUPTCY,
INSOLVENCY, REORGANIZATION OR SIMILAR LAWS RELATING TO OR AFFECTING THE
ENFORCEMENT OF CREDITOR’S RIGHTS AND TO THE AVAILABILITY OF THE REMEDY OF
SPECIFIC PERFORMANCE. THE PURCHASER HAS ALL REQUISITE LEGAL AND LIMITED
PARTNERSHIP POWER TO EXECUTE AND DELIVER THIS AGREEMENT AND THE SECURITY AND
PLEDGE AGREEMENTS;

 

(G)                                 IT UNDERSTANDS THAT (I) THE NOTES ARE BEING
OFFERED AND SOLD TO PURCHASER IN RELIANCE UPON SPECIFIC EXEMPTIONS FROM THE
REGISTRATION REQUIREMENTS OF UNITED STATES FEDERAL AND STATE SECURITIES LAWS,
AND (II) THAT THE COMPANY IS RELYING UPON THE TRUTH AND ACCURACY OF, AND
PURCHASER’S COMPLIANCE WITH, THE REPRESENTATIONS, WARRANTIES, AGREEMENTS,
ACKNOWLEDGMENTS AND UNDERSTANDINGS OF PURCHASER SET FORTH HEREIN IN ORDER TO
DETERMINE THE AVAILABILITY OF SUCH EXEMPTIONS AND THE ELIGIBILITY OF PURCHASER
TO ACQUIRE THE NOTES;

 

(H)                                 THE COMPANY OR ITS COUNSEL HAVE MADE
AVAILABLE ALL MATERIALS RELATING TO THE BUSINESS, FINANCES AND OPERATIONS OF THE
COMPANY AND MATERIALS RELATING TO THE OFFER AND SALE OF THE NOTES WHICH HAVE
BEEN SPECIFICALLY REQUESTED BY SUCH PURCHASER. EACH PURCHASER HAS BEEN AFFORDED
THE OPPORTUNITY TO ASK QUESTIONS OF THE COMPANY, WAS PERMITTED TO MEET WITH THE
COMPANY’S OFFICERS AND HAS

 

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RECEIVED WHAT SUCH PURCHASER BELIEVES TO BE COMPLETE AND SATISFACTORY ANSWERS TO
ANY SUCH INQUIRIES. NEITHER SUCH INQUIRIES NOR ANY OTHER DUE DILIGENCE
INVESTIGATION CONDUCTED BY THE PURCHASERS OR ANY OF THEIR RESPECTIVE
REPRESENTATIONS WILL MODIFY, AMEND OR AFFECT SUCH PURCHASER’S RIGHT TO RELY ON
THE COMPANY’S REPRESENTATIONS AND WARRANTIES CONTAINED HEREIN. EACH PURCHASER
UNDERSTANDS THAT SUCH PURCHASER’S INVESTMENT IN THE SECURITIES INVOLVES A HIGH
DEGREE OF RISK, INCLUDING WITHOUT LIMITATION THE RISKS AND UNCERTAINTIES
DISCLOSED IN THE  SEC DOCUMENTS. EACH PURCHASER ACKNOWLEDGES IT HAS REVIEWED THE
DISCLOSURES PRESENTED UNDER THE CAPTION “RISK FACTORS” IN THE COMPANY’S
FORM 10-QS AND FORM 10-KS;

 

(I)                                    IT UNDERSTANDS THAT NO UNITED STATES
FEDERAL OR STATE AGENCY OR ANY OTHER GOVERNMENT OR GOVERNMENTAL AGENCY HAS
PASSED UPON OR MADE ANY RECOMMENDATION OR ENDORSEMENT OF THE NOTES; AND

 

(J)                                    IT IS A RESIDENT OF THE JURISDICTION SET
FORTH UNDER PURCHASER’S NAME ON SCHEDULE I HERETO.

 

ARTICLE IV

 

CONDITIONS TO THE OBLIGATIONS OF THE PURCHASERS

 

The obligation of each Purchaser to purchase and pay for the Notes being
purchased by it on the Closing Date is, at its option, subject to the
satisfaction, on or before the Closing Date of the following conditions:

 

(A)                                  SECURITY AND PLEDGE AGREEMENTS. A SECURITY
AND PLEDGE AGREEMENT BY AND AMONG THE COMPANY, DYNTEK SERVICES, INC., AND THE
HOLDERS OF THE SENIOR NOTES, IN THE FORM ATTACHED AS EXHIBIT E (THE “SENIOR
SECURITY AND PLEDGE AGREEMENT”), AND ALL RELATED FINANCING STATEMENTS AND A
SECURITY AND PLEDGE AGREEMENT BY AND AMONG THE COMPANY, DYNTEK SERVICES, INC.
AND THE HOLDERS OF THE JUNIOR NOTE, IN THE FORM ATTACHED AS EXHIBIT G (THE
“JUNIOR SECURITY AND PLEDGE AGREEMENT”, AND COLLECTIVELY WITH THE SENIOR
SECURITY AND PLEDGE AGREEMENT, THE “SECURITY AND PLEDGE AGREEMENTS”) AND OTHER
SIMILAR INSTRUMENTS AND DOCUMENTS, WILL HAVE BEEN EXECUTED AND DELIVERED TO THE
PURCHASERS BY A DULY AUTHORIZED OFFICER OF THE COMPANY AND A DULY AUTHORIZED
OFFICER OF EACH OF THE SUBSIDIARIES OF THE COMPANY PARTY THERETO.

 

(B)                                  LEGAL OPINION. THE PURCHASERS WILL HAVE
RECEIVED AN OPINION OF THE COMPANY’S COUNSEL, DATED THE CLOSING DATE, WITH
RESPECT TO LEGAL MATTERS CUSTOMARY FOR TRANSACTIONS OF THIS TYPE, IN A
FORM REASONABLY ACCEPTABLE TO THE PURCHASERS.

 

(C)                                  REPRESENTATIONS AND WARRANTIES TO BE TRUE
AND CORRECT. THE REPRESENTATIONS AND WARRANTIES CONTAINED IN ARTICLE II WILL BE
TRUE, COMPLETE AND CORRECT ON AND AS OF THE CLOSING DATE WITH THE SAME EFFECT AS
THOUGH SUCH REPRESENTATIONS AND WARRANTIES HAD BEEN MADE ON AND AS OF SUCH DATE
(EXCEPT TO THE EXTENT THAT THE REPRESENTATION OR WARRANTY SPEAKS TO A SPECIFIC
DATE), AND THE PRESIDENT AND CHIEF FINANCIAL OFFICER OF THE COMPANY WILL HAVE
CERTIFIED TO SUCH EFFECT TO THE PURCHASERS IN WRITING.

 

(D)                                  PERFORMANCE. THE COMPANY WILL HAVE
PERFORMED AND COMPLIED IN ALL MATERIAL RESPECTS WITH ALL COVENANTS AND
AGREEMENTS CONTAINED HEREIN REQUIRED TO BE PERFORMED OR COMPLIED WITH BY IT
PRIOR TO OR AT THE CLOSING DATE AND THE PRESIDENT AND CHIEF FINANCIAL OFFICER OF
THE COMPANY WILL HAVE CERTIFIED TO THE PURCHASERS IN WRITING TO SUCH EFFECT AND
TO THE FURTHER EFFECT THAT ALL OF THE CONDITIONS SET FORTH IN THIS ARTICLE IV
HAVE BEEN SATISFIED.

 

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(E)                                  ALL PROCEEDINGS TO BE SATISFACTORY. ALL
CORPORATE AND OTHER PROCEEDINGS TO BE TAKEN BY THE COMPANY IN CONNECTION WITH
THE TRANSACTIONS CONTEMPLATED HEREBY AND ALL DOCUMENTS INCIDENT THERETO WILL BE
SATISFACTORY IN FORM AND SUBSTANCE TO THE PURCHASERS AND THEIR COUNSEL, AND THE
PURCHASERS AND THEIR COUNSEL WILL HAVE RECEIVED ALL SUCH COUNTERPART ORIGINALS
OR CERTIFIED OR OTHER COPIES OF SUCH DOCUMENTS AS THEY REASONABLY MAY REQUEST.

 

(F)                                    SUPPORTING DOCUMENTS. THE PURCHASERS AND
THEIR COUNSEL WILL HAVE RECEIVED COPIES OF THE FOLLOWING DOCUMENTS:

 

(I)                                     (A) THE CERTIFICATE OF INCORPORATION OF
THE COMPANY, AS AMENDED, CERTIFIED AS OF A RECENT DATE BY THE SECRETARY OF STATE
OF THE STATE OF DELAWARE, AND (B) A CERTIFICATE OF SAID SECRETARY DATED AS OF A
RECENT DATE AS TO THE DUE INCORPORATION AND GOOD STANDING OF THE COMPANY, THE
PAYMENT OF ALL EXCISE TAXES BY THE COMPANY AND LISTING ALL DOCUMENTS OF THE
COMPANY ON FILE WITH SAID SECRETARY;

 

(II)                                  A CERTIFICATE OF THE SECRETARY OR AN
ASSISTANT SECRETARY OF THE COMPANY DATED THE CLOSING AND CERTIFYING:  (A) THAT
ATTACHED THERETO IS A TRUE AND COMPLETE COPY OF THE BYLAWS OF THE COMPANY AS IN
EFFECT ON THE DATE OF SUCH CERTIFICATION; (B) THAT ATTACHED THERETO IS A TRUE
AND COMPLETE COPY OF ALL RESOLUTIONS ADOPTED BY THE BOARD OF DIRECTORS  OF THE
COMPANY AUTHORIZING THE EXECUTION, DELIVERY AND PERFORMANCE OF THIS AGREEMENT
AND THE SECURITY AND PLEDGE AGREEMENTS, THE ISSUANCE, SALE AND DELIVERY OF THE
NOTES AND THE WARRANTS, AND THAT ALL SUCH RESOLUTIONS ARE IN FULL FORCE AND
EFFECT AND ARE ALL THE RESOLUTIONS ADOPTED IN CONNECTION WITH THE TRANSACTIONS
CONTEMPLATED BY THIS AGREEMENT; (C) THAT THE CERTIFICATE OF INCORPORATION OF THE
COMPANY HAS NOT BEEN AMENDED SINCE THE DATE OF THE LAST AMENDMENT REFERRED TO IN
THE CERTIFICATE DELIVERED PURSUANT TO CLAUSE (I)(B) ABOVE; AND (D) TO THE
INCUMBENCY AND SPECIMEN SIGNATURE OF EACH OFFICER OF THE COMPANY EXECUTING ANY
OF THIS AGREEMENT, THE SECURITY AND PLEDGE AGREEMENTS, THE NOTES, THE WARRANTS
AND ANY CERTIFICATE OR INSTRUMENT FURNISHED PURSUANT HERETO, AND A CERTIFICATION
BY ANOTHER OFFICER OF THE COMPANY AS TO THE INCUMBENCY AND SIGNATURE OF THE
OFFICER SIGNING THE CERTIFICATE REFERRED TO IN THIS CLAUSE (II); AND

 

(III)                               SUCH ADDITIONAL SUPPORTING DOCUMENTS AND
OTHER INFORMATION WITH RESPECT TO THE OPERATIONS AND AFFAIRS OF THE COMPANY AS
THE PURCHASERS OR THEIR COUNSEL REASONABLY MAY REQUEST.

 

All such documents will be satisfactory in form and substance to the Purchasers
and their counsel.

 

(G)                                 PREEMPTIVE AND FIRST REFUSAL RIGHTS. ALL
STOCKHOLDERS OF THE COMPANY HAVING ANY PREEMPTIVE OR FIRST REFUSAL RIGHTS WITH
RESPECT TO THE ISSUANCE OF THE NOTES WILL HAVE IRREVOCABLY WAIVED THE SAME IN
WRITING OR ALL SUCH RIGHTS WILL HAVE EXPIRED.

 

(H)                                 FEES OF PURCHASERS’ COUNSEL. THE COMPANY
WILL HAVE PAID IN ACCORDANCE WITH SECTION 7.01 THE FEES AND DISBURSEMENTS OF
EACH PURCHASER’S COUNSEL INVOICED AT THE CLOSING; PROVIDED, HOWEVER, THAT THE
PURCHASERS MAY DEDUCT SUCH AMOUNTS FROM THE CONSIDERATION TO BE DELIVERED TO THE
COMPANY FOR THE PURCHASE OF THE NOTES PURSUANT TO SECTION 1.03.

 

(I)                                    TERMINATION BY EITHER PURCHASER. NEITHER
PURCHASER WILL BE OBLIGATED TO COMPLETE THE PURCHASE OF THE NOTES IF THE OTHER
PURCHASER ELECTS NOT TO COMPLETE THE TRANSACTION.

 

(J)                                    CONVERSION OF EXISTING DEBT. ON OR BEFORE
THE CLOSING DATE, THE COMPANY SHALL HAVE ENTERED INTO A BINDING, WRITTEN
CONVERSION AND SETTLEMENT AGREEMENT, SUBSTANTIALLY IN THE FORM OF EXHIBIT C WITH
EACH AND EVERY HOLDER OF THE 9% NOTES, THE AMENDED 9% NOTES, THE BRIDGE NOTES
AND THE ACQUISITION NOTES, RESPECTIVELY.

 

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(K)                                BOARD OF DIRECTORS. EFFECTIVE AS OF THE
CLOSING DATE, ROBERT WEBBER AND MARSHALL TOPLANSKY SHALL HAVE RESIGNED FROM THE
COMPANY’S BOARD OF DIRECTORS, AND ALAN HOWE SHALL HAVE BEEN APPOINTED TO THE
COMPANY’S BOARD OF DIRECTORS.

 

(L)                                    RENEGOTIATION OF TRADE DEBT. AT LEAST
$575,000 IN FACE AMOUNT OF THE COMPANY’S EXISTING UNSECURED TRADE DEBT SET FORTH
ON SCHEDULE II SHALL HAVE BEEN RENEGOTIATED PURSUANT TO THE TERMS OF A
SETTLEMENT AND RELEASE AGREEMENT SUBSTANTIALLY IN THE FORM OF EXHIBIT B, AND
SUCH SETTLEMENT AND RELEASE AGREEMENTS SHALL HAVE BEEN DULY ENTERED INTO BY THE
COMPANY WITH THOSE CERTAIN TRADE CREDITORS PURSUANT TO BINDING, WRITTEN
AGREEMENTS.

 

(M)                              EQUITY INVESTMENT. A PRIVATE PLACEMENT OF THE
COMPANY’S COMMON STOCK OF AT LEAST $1,000,000 AT A PRICE PER SHARE OF $0.02 BY
NETWORK 1 FINANCIAL SERVICES, INC. (THE “PRIVATE PLACEMENT”) SHALL BE SUBJECT TO
A BINDING, WRITTEN AGREEMENT WITH THE COMPANY WHICH SHALL CLOSE BEFORE THE
CLOSING OF THIS AGREEMENT.

 

(N)                                 WARRANT. THE COMPANY SHALL HAVE ISSUED TO
THE PURCHASERS OF SENIOR NOTES PRO RATA, ACCORDING TO EACH SUCH PURCHASER’S
PROPORTION OF THE AGGREGATE PRINCIPAL AMOUNT OF THE SENIOR NOTES, WARRANTS FOR
THE PURCHASE OF AN AGGREGATE OF 19.9% OF THE COMMON STOCK OF THE COMPANY,
EXERCISABLE AT $0.001 PER SHARE, IN THE FORM SET FORTH AS EXHIBIT D.

 

ARTICLE V

 

COVENANTS OF THE COMPANY

 

The Company agrees that, so long as any Notes are outstanding, except to the
extent compliance in any case or cases is waived in writing by the holders of
the entire aggregate unpaid principal amount of the Notes then outstanding:

 

SECTION 5.01.                                   FINANCIAL STATEMENTS, REPORTS,
ETC. THE COMPANY WILL FURNISH TO EACH PURCHASER:

 

(A)                                  WITHIN NINETY (90) DAYS AFTER THE END OF
EACH FISCAL YEAR OF THE COMPANY A CONSOLIDATED BALANCE SHEET OF THE COMPANY AND
ITS SUBSIDIARIES, IF ANY, AS OF THE END OF SUCH FISCAL YEAR AND THE RELATED
CONSOLIDATED STATEMENTS OF INCOME FOR THE FISCAL YEAR THEN ENDED, PREPARED IN
ACCORDANCE WITH GAAP AND CERTIFIED BY A FIRM OF INDEPENDENT PUBLIC ACCOUNTANTS
OF RECOGNIZED NATIONAL STANDING SELECTED BY THE BOARD OF DIRECTORS OF THE
COMPANY;

 

(B)                                  WITHIN FORTY FIVE (45) DAYS AFTER THE END
OF EACH FISCAL QUARTER IN EACH FISCAL YEAR A CONSOLIDATED BALANCE SHEET OF THE
COMPANY AND ITS SUBSIDIARIES, IF ANY, AND THE RELATED CONSOLIDATED STATEMENTS OF
INCOME UNAUDITED BUT PREPARED IN ACCORDANCE WITH GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES AND CERTIFIED BY THE CHIEF FINANCIAL OFFICER OF THE COMPANY, SUCH
CONSOLIDATED BALANCE SHEET TO BE AS OF THE END OF SUCH FISCAL QUARTER AND SUCH
CONSOLIDATED STATEMENTS OF INCOME TO BE FOR SUCH FISCAL QUARTER AND FOR THE
PERIOD FROM THE BEGINNING OF THE FISCAL YEAR TO THE END OF SUCH FISCAL QUARTER;

 

(C)                                  PROMPTLY AFTER THE COMMENCEMENT THEREOF,
NOTICE OF ALL ACTIONS, SUITS, CLAIMS, PROCEEDINGS, INVESTIGATIONS AND INQUIRIES
OF THE TYPE DESCRIBED IN SECTION 2.09 OF THIS AGREEMENT THAT COULD MATERIALLY
ADVERSELY AFFECT THE COMPANY OR ANY OF ITS SUBSIDIARIES, IF ANY;

 

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(D)                                  PROMPTLY UPON SENDING, MAKING AVAILABLE OR
FILING THE SAME, ALL PRESS RELEASES, REPORTS AND FINANCIAL STATEMENTS THAT THE
COMPANY SENDS OR MAKES AVAILABLE TO ITS STOCKHOLDERS OR DIRECTORS OR FILES WITH
THE SEC; AND

 

(E)                                  PROMPTLY, FROM TIME TO TIME, SUCH OTHER
INFORMATION REGARDING THE BUSINESS, PROSPECTS, FINANCIAL CONDITION, OPERATIONS,
PROPERTY OR AFFAIRS OF THE COMPANY AND ITS SUBSIDIARIES AS SUCH PURCHASER
REASONABLY MAY REQUEST.

 

Notwithstanding this Section 5.01, so long as the Company is required to make
filings pursuant to the Exchange Act and makes such filings in a timely manner,
the Company will be deemed to have furnished to the Purchasers the financial
statements and other reports required by this Section 5.01.

 

SECTION 5.02.                                   CORPORATE EXISTENCE; MAINTENANCE
OF BUSINESS. THE COMPANY WILL, AND WILL CAUSE EACH OF ITS SUBSIDIARIES TO,
PRESERVE AND MAINTAIN ITS EXISTENCE. THE COMPANY WILL, AND WILL CAUSE EACH OF
ITS SUBSIDIARIES TO, PRESERVE AND KEEP IN FORCE AND EFFECT ALL LICENSES,
PERMITS, FRANCHISES, APPROVALS, PATENTS, TRADEMARKS, TRADE NAMES, TRADE STYLES,
COPYRIGHTS, AND OTHER PROPRIETARY RIGHTS NECESSARY TO THE CONDUCT OF ITS
BUSINESS WHERE THE FAILURE TO DO SO COULD REASONABLY BE EXPECTED TO HAVE A
MATERIAL ADVERSE EFFECT.

 

SECTION 5.03.                                   PROPERTIES, INSURANCE. THE
COMPANY WILL MAINTAIN AS TO ITS PROPERTIES AND BUSINESS, WITH FINANCIALLY SOUND
AND REPUTABLE INSURERS, INSURANCE AGAINST SUCH CASUALTIES AND CONTINGENCIES AND
OF SUCH TYPES AND IN SUCH AMOUNTS AS IS CUSTOMARY FOR COMPANIES SIMILARLY
SITUATED, WHICH INSURANCE WILL BE DEEMED BY THE COMPANY TO BE SUFFICIENT.

 

SECTION 5.04.                                   USE OF PROCEEDS. THE COMPANY
WILL USE THE PROCEEDS FROM THE SALE OF THE SENIOR NOTES, LESS THE AMOUNTS
WITHHELD PURSUANT TO SECTION 7.01, SOLELY TO REPAY ALL OUTSTANDING OBLIGATIONS
OF THE COMPANY TO THE LAURUS MASTER FUND LTD,. AS SET FORTH ON SCHEDULE V. THE
COMPANY WILL USE THE PROCEEDS FROM THE SALE OF THE JUNIOR NOTE, LESS THE AMOUNTS
WITHHELD PURSUANT TO SECTION 7.01, SOLELY TO REPAY ANY REMAINING OUTSTANDING
OBLIGATIONS TO THE LAURUS MASTER FUND, LTD. AFTER THE PROCEEDS OF THE SENIOR
NOTES ARE DEPLETED, WITH ANY REMAINING PROCEEDS FROM THE JUNIOR NOTES TO BE USED
SOLELY FOR THE PURPOSES SET FORTH ON SCHEDULE V.

 

SECTION 5.05.                                   COMPLIANCE WITH LAWS. THE
COMPANY WILL COMPLY WITH ALL APPLICABLE LAWS, RULES, REGULATIONS AND ORDERS,
NONCOMPLIANCE WITH WHICH COULD MATERIALLY ADVERSELY AFFECT ITS BUSINESS OR
CONDITION, FINANCIAL OR OTHERWISE.

 

SECTION 5.06.                                   KEEPING OF RECORDS AND BOOKS OF
ACCOUNT. THE COMPANY WILL KEEP ADEQUATE RECORDS AND BOOKS OF ACCOUNT, IN WHICH
COMPLETE ENTRIES WILL BE MADE IN ACCORDANCE WITH GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES CONSISTENTLY APPLIED, REFLECTING ALL FINANCIAL TRANSACTIONS OF THE
COMPANY, AND IN WHICH, FOR EACH FISCAL YEAR, ALL PROPER RESERVES FOR
DEPRECIATION, DEPLETION, OBSOLESCENCE, AMORTIZATION, TAXES, BAD DEBTS AND OTHER
PURPOSES IN CONNECTION WITH ITS BUSINESS WILL BE MADE.

 

SECTION 5.07.                                   DIVIDENDS AND CERTAIN OTHER
RESTRICTED PAYMENTS. THE COMPANY WILL NOT, NOR WILL IT PERMIT ANY OF ITS
SUBSIDIARIES TO, (A) DECLARE OR PAY ANY DIVIDENDS ON OR MAKE ANY OTHER
DISTRIBUTIONS IN RESPECT OF ANY CLASS OR SERIES OF ITS CAPITAL STOCK OR OTHER
EQUITY INTERESTS OR (B) DIRECTLY OR INDIRECTLY PURCHASE, REDEEM, OR OTHERWISE
ACQUIRE OR RETIRE ANY OF ITS CAPITAL STOCK OR OTHER EQUITY INTERESTS OR ANY
WARRANTS, OPTIONS, OR SIMILAR INSTRUMENTS TO ACQUIRE THE SAME.

 

SECTION 5.08.                                   MATERIAL CONTRACTS. THE COMPANY
WILL NOT, NOR WILL IT PERMIT ANY OF ITS SUBSIDIARIES TO, ENTER INTO ANY
CONTRACT, AGREEMENT OR BUSINESS ARRANGEMENT WHICH REQUIRES ANNUAL EXPENDITURES
OF $2,500,000 OR MORE.

 

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SECTION 5.09.                                   CAPITAL EXPENDITURES. THE
COMPANY WILL NOT, NOR WILL IT PERMIT ANY OF ITS SUBSIDIARIES TO, INCUR ANY
CAPITAL EXPENDITURES OTHER THAN IN THE ORDINARY COURSE CONSISTENT WITH PAST
PRACTICE. FOR PURPOSES OF THIS AGREEMENT, “CAPITAL EXPENDITURES” MEANS, WITH
RESPECT TO ANY PERSON OR ENTITY FOR ANY PERIOD, THE AGGREGATE AMOUNT OF ALL
EXPENDITURES (WHETHER PAID IN CASH OR ACCRUED AS A LIABILITY) BY SUCH PERSON OR
ENTITY DURING THAT PERIOD FOR THE ACQUISITION OR LEASING (PURSUANT TO A CAPITAL
LEASE) OF FIXED OR CAPITAL ASSETS OR ADDITIONS TO PROPERTY, PLANT, OR EQUIPMENT
(INCLUDING REPLACEMENTS, CAPITALIZED REPAIRS, AND IMPROVEMENTS) WHICH SHOULD BE
CAPITALIZED ON THE BALANCE SHEET OF SUCH PERSON OR ENTITY IN ACCORDANCE WITH
GAAP.

 

SECTION 5.10.                                   MERGERS, CONSOLIDATIONS AND
ASSET SALES. THE COMPANY WILL NOT, NOR WILL IT PERMIT ANY OF ITS SUBSIDIARIES
TO, BE A PARTY TO ANY MERGER OR CONSOLIDATION, OR SELL, TRANSFER, LEASE OR
OTHERWISE DISPOSE OF ALL OR ANY SUBSTANTIAL PART OF ITS ASSETS; PROVIDED,
HOWEVER, THAT THE COMPANY SHALL HAVE THE SOLE DISCRETION TO DISCONTINUE ITS OR
ANY OF ITS SUBSIDIARIES’ BUSINESS, PROCESS OUTSOURCING, OR BPO, SERVICES SEGMENT
AT ANY TIME. THE COMPANY WILL NOT, NOR WILL IT PERMIT ANY OF ITS SUBSIDIARIES TO
SELL, TRANSFER, LEASE OR OTHERWISE MAKE ANY SUBSTANTIAL ASSET SALE (AS SUCH TERM
IS DEFINED IN SECTION 1.06) FOR CONSIDERATION OTHER THAN CASH WHILE THE NOTES OR
ANY PART THEREOF REMAIN OUTSTANDING.

 

SECTION 5.11.                                   ACQUISITIONS. THE COMPANY WILL
NOT, NOR WILL IT PERMIT ANY OF ITS SUBSIDIARIES TO, DIRECTLY OR INDIRECTLY,
ACQUIRE ALL OR ANY SUBSTANTIAL PART OF THE ASSETS OR BUSINESS OF ANY OTHER
ENTITY OR DIVISION THEREOF.

 

SECTION 5.12.                                   PREPAYMENT OF INDEBTEDNESS. THE
COMPANY WILL NOT, NOR WILL IT PERMIT ANY OF ITS SUBSIDIARIES, TO PREPAY ANY
INDEBTEDNESS FOR BORROWED MONEY; PROVIDED, HOWEVER, THAT THIS SECTION 5.12 WILL
NOT PROHIBIT THE COMPANY FROM REDEEMING THE NOTES PURSUANT TO THE TERMS OF THIS
AGREEMENT.

 

SECTION 5.13.                                   ISSUANCE OF SHARES. THE COMPANY
WILL NOT, NOR WILL IT PERMIT ANY OF ITS SUBSIDIARIES TO ISSUE, ASSIGN, SELL OR
TRANSFER ANY SHARES OF CAPITAL STOCK OR OTHER EQUITY INTERESTS OF THE COMPANY OR
SUCH SUBSIDIARY; PROVIDED, HOWEVER, THAT THE FOREGOING WILL NOT OPERATE TO
PREVENT (A) LIENS ON THE CAPITAL STOCK OR OTHER EQUITY INTERESTS OF SUBSIDIARIES
OF THE COMPANY PURSUANT TO THE AMENDED AND RESTATED SECURITY AND PLEDGE
AGREEMENTS; (B) THE ISSUANCE, SALE, AND TRANSFER TO ANY PERSON OF ANY SHARES OF
COMMON STOCK OF THE COMPANY PURSUANT TO (I) THE PRIVATE PLACEMENT OR WARRANTS
ISSUED IN CONNECTION THEREWITH OR THE ISSUANCE BY THE COMPANY OF SHARES OF
COMMON STOCK UPON THE EXERCISE OF SUCH WARRANTS, (II) EXECUTION AND CONSUMMATION
OF THE TERMS OF THE CONVERSION AND SETTLEMENT AGREEMENTS, OR (III) THE
SETTLEMENT AND RELEASE AGREEMENTS; (C) THE ISSUANCE OF THE JUNIOR NOTE TO THE
PURCHASER SET FORTH ON SCHEDULE I HERETO, OR THE ISSUANCE OF COMMON STOCK UPON
CONVERSION THEREOF; (D) THE ISSUANCE BY THE COMPANY TO THE PURCHASERS OF THE
WARRANTS IN THE FORM SET FORTH IN EXHIBIT D HERETO, OR THE ISSUANCE BY THE
COMPANY OF SHARES OF COMMON STOCK UPON THE EXERCISE OF SUCH WARRANTS; (E) THE
ISSUANCE OF OPTIONS OR RIGHTS TO PURCHASE COMMON STOCK UNDER THE COMPANY’S
EQUITY INCENTIVE PLANS, AS AMENDED, IN EFFECT AS OF THE DATE HEREOF; OR (F) THE
ISSUANCE OF SHARES UPON THE EXERCISE OR CONVERSION OF SECURITIES EXERCISABLE OR
CONVERTIBLE INTO SHARES OF THE COMPANY’S COMMON STOCK THAT ARE OUTSTANDING AS OF
THE DATE HEREOF OR OTHERWISE PERMITTED TO BE ISSUED UNDER THIS SECTION 5.13.

 

SECTION 5.14.                                   EXECUTIVE AND OFFICER
COMPENSATION. THE COMPANY WILL NOT, NOR WILL IT PERMIT ANY OF ITS SUBSIDIARIES
TO, GRANT ANY INCREASE IN THE COMPENSATION OF OFFICERS OR EXECUTIVE EMPLOYEES
(EXCLUDING ANY SUCH INCREASE REQUIRED UNDER A CURRENTLY EFFECTIVE EMPLOYMENT
AGREEMENT BY AND BETWEEN SUCH OFFICER OR EXECUTIVE EMPLOYEE AND THE COMPANY).

 

SECTION 5.15.                                   CHANGE IN THE NATURE OF
BUSINESS. THE COMPANY WILL NOT, NOR WILL IT PERMIT ANY OF ITS SUBSIDIARIES TO,
ENGAGE IN ANY BUSINESS OR ACTIVITY OTHER THAN THE GENERAL NATURE OF THE BUSINESS
ENGAGED IN BY IT AS OF THE CLOSING DATE OR DISCONTINUE ITS ENGAGEMENT IN ANY
BUSINESS OR ACTIVITY

 

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ENGAGED IN BY IT AS OF THE CLOSING DATE; PROVIDED, HOWEVER, THAT THE COMPANY
SHALL HAVE THE SOLE DISCRETION TO DISCONTINUE ITS OR ANY OF ITS SUBSIDIARIES’
BPO SERVICES SEGMENT AT ANY TIME.

 

SECTION 5.16.                                   RENEGOTIATION OF TRADE DEBT. THE
COMPANY WILL CONTINUE TO USE ITS REASONABLE BEST EFFORTS TO RENEGOTIATE THE
ENTIRE AMOUNT OF ITS TRADE DEBT SET FORTH ON SCHEDULE II.

 

SECTION 5.17.                                   REVERSE STOCK SPLIT. THE COMPANY
WILL USE ITS REASONABLE BEST EFFORTS TO EFFECT THE REVERSE STOCK SPLIT WITHIN 90
DAYS FOLLOWING THE CLOSING DATE.

 

SECTION 5.18.                                   VOTING RIGHTS FOR WARRANTS AND
JUNIOR NOTE. UNLESS ENFORCEMENT OF THIS COVENANT IS WAIVED IN WRITING BY WRITTEN
NOTICE TO THE COMPANY GIVEN BY ALL OF THE SENIOR NOTE HOLDERS NOT LATER THAN
THIRTY (30) CALENDAR DAYS PRIOR TO THE RECORD DATE OF THE COMPANY’S NEXT ANNUAL
MEETING OF STOCKHOLDERS, THE COMPANY, AT ITS NEXT ANNUAL MEETING OF STOCKHOLDERS
WILL USE REASONABLE BEST EFFORTS TO OBTAIN STOCKHOLDER APPROVAL OF AN AMENDMENT
TO THE COMPANY’S SECOND AMENDED AND RESTATED CERTIFICATE OF INCORPORATION TO
CONFER UPON THE HOLDER OF (I) THE WARRANTS THE POWER TO VOTE, IN RESPECT TO THE
CORPORATE AFFAIRS AND MANAGEMENT OF THE COMPANY, THAT NUMBER OF SHARES OF COMMON
STOCK INTO WHICH SUCH PURCHASER’S WARRANT MAY THEN BE EXERCISED IN ACCORDANCE
WITH SECTION 221 OF THE GENERAL CORPORATION LAW OF THE STATE OF DELAWARE AND
(II) THE JUNIOR NOTE THE POWER TO VOTE, IN RESPECT TO THE CORPORATE AFFAIRS AND
MANAGEMENT OF THE COMPANY, THAT NUMBER OF SHARES OF COMMON STOCK INTO WHICH SUCH
JUNIOR NOTE MAY THEN BE CONVERTED IN ACCORDANCE WITH SECTION 221 OF THE GENERAL
CORPORATION LAW OF THE STATE OF DELAWARE

 

SECTION 5.19.                                   COMPLIANCE WITH SECURITY AND
PLEDGE AGREEMENTS. THE COMPANY WILL COMPLY AT ALL TIMES WITH ALL OF THE TERMS
AND CONDITIONS OF THE SECURITY AND PLEDGE AGREEMENTS.

 

SECTION 5.20.                                   TERMINATION OF FINANCING
STATEMENTS. EITHER WITHIN TEN (10) CALENDAR DAYS AFTER THE CLOSING DATE OR
THIRTY (30) CALENDAR DAYS AFTER THE CLOSING DATE, AS MORE SPECIFICALLY SET FORTH
ON SCHEDULE C OF THE RESPECTIVE SECURITY AND PLEDGE AGREEMENTS, THE COMPANY WILL
TAKE ALL NECESSARY ACTIONS TO TERMINATE ALL FINANCING STATEMENTS IN ANY
JURISDICTION WHICH PURPORT TO EVIDENCE A SECURITY INTEREST IN ANY ASSET OF THE
COMPANY OR ITS AFFILIATES IN RESPECT OF ALL ENTITIES SET FORTH ON SCHEDULE C OF
THE RESPECTIVE SECURITY AND PLEDGE AGREEMENTS, INCLUDING, WITHOUT LIMITATION, IN
FAVOR OF THE LAURUS MASTER FUND, LTD. OR ANY AFFILIATE THEREOF; PROVIDED,
HOWEVER, THE COMPANY WILL NOT TERMINATE ANY FINANCING STATEMENT EVIDENCING A
SECURITY INTEREST OF ANY OF THE PURCHASERS PURSUANT TO THE SECURITY AND PLEDGE
AGREEMENTS.

 

SECTION 5.21.                                   DEPOSIT ACCOUNT. WITHIN (I) TEN
(10) BUSINESS DAYS AFTER THE CLOSING DATE, THE COMPANY SHALL TAKE ALL NECESSARY
ACTIONS TO EXECUTE, DELIVER AND ESTABLISH A CONTROL AGREEMENT BY AND FOR THE
BENEFIT OF THE PURCHASERS IN RESPECT OF THAT CERTAIN DEPOSIT ACCOUNT HELD BY THE
COMPANY AT LASALLE BANK MIDWEST N.A.(ACCOUNT NO. 6856286387 AND ABA
NO. 07200805) AND SUCH CONTROL AGREEMENT SHALL BE IN FORM AND SUBSTANCE
REASONABLY SATISFACTORY TO THE PURCHASERS AND ACCOMPANIED BY AN OPINION OF
COUNSEL TO THE COMPANY ADDRESSED TO THE PURCHASERS REGARDING THE CREATION AND
PERFECTION OF THE PURCHASERS’ RESPECTIVE SECURITY INTERESTS IN SUCH DEPOSIT
ACCOUNT AND SUCH OTHER MATTERS AS THE PURCHASERS MAY REASONABLY REQUEST AND
(II) FIFTEEN (15) BUSINESS DAYS AFTER THE CLOSING DATE, THE COMPANY SHALL USE
COMMERCIALLY REASONABLE BEST EFFORTS TO EXECUTE, DELIVER AND ESTABLISH A CONTROL
AGREEMENT BY AND FOR THE BENEFIT OF THE PURCHASERS IN RESPECT OF THAT CERTAIN
ESCROW ACCOUNT ESTABLISHED IN CONNECTION WITH AN ESCROW AGREEMENT, DATED AS OF
SEPTEMBER 22, 1997, BY AND AMONG, DYNTEK, INC. (F/K/A DATA SYSTEMS NETWORK
CORPORATION, A PREDECESSOR ENTITY TO DYNTEK, INC.), HOOPER HOLMES, INC. AND
JPMORGAN CHASE BANK, N.A. (F/K/A NBD BANK WHICH WAS A PREDECESSOR ENTITY TO
JPMORGAN CHASE BANK, N.A.) (AS AMENDED, SUPPLEMENTED OR MODIFIED FROM TIME TO
TIME) (THE “ESCROW ACCOUNT”) AND SUCH CONTROL AGREEMENT SHALL BE IN FORM AND
SUBSTANCE REASONABLY SATISFACTORY TO THE PURCHASERS AND ACCOMPANIED BY AN
OPINION OF COUNSEL TO THE COMPANY ADDRESSED TO THE PURCHASERS REGARDING THE
CREATION AND PERFECTION

 

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OF THE PURCHASERS’ RESPECTIVE SECURITY INTERESTS IN SUCH ESCROW ACCOUNT AND SUCH
OTHER MATTERS AS THE PURCHASERS MAY REASONABLY REQUEST.

 

SECTION 5.22.                                   MORTGAGE LEASEHOLD. WITHIN
THIRTY (30) BUSINESS DAYS AFTER THE CLOSING DATE, THE COMPANY SHALL USE ITS
REASONABLE BEST EFFORTS TO TAKE ALL ACTION NECESSARY TO EXECUTE, DELIVER AND
ESTABLISH A MORTGAGE OVER THE COMPANY’S LEASEHOLD INTEREST IN ITS OFFICE
HEADQUARTERS REFERRED TO IN SECTION 2.16 HEREOF FOR THE BENEFIT OF THE
PURCHASERS, WITH SUCH MORTGAGE TO BE IN FORM AND SUBSTANCE SATISFACTORY TO THE
PURCHASERS AND ACCOMPANIED BY AN OPINION OF COUNSEL TO THE COMPANY ADDRESSED TO
THE PURCHASERS REGARDING THE CREATION AND PERFECTION OF THE PURCHASERS’
RESPECTIVE SECURITY INTERESTS IN SUCH LEASEHOLD INTEREST AND SUCH OTHER MATTERS
AS THE PURCHASERS MAY REASONABLY REQUEST.

 

SECTION 5.23.                                   DELIVERY OF CERTIFICATES. WITHIN
FIVE (5) BUSINESS DAYS OF THE CLOSING DATE, THE COMPANY SHALL DELIVER TO THE
PURCHASERS THE CERTIFICATES FOR ALL SHARES OR UNITS OF DYNTEK SERVICES, INC.
EVIDENCED BY A CERTIFICATE DULY ENDORSED IN BLANK FOR TRANSFER OR ACCOMPANIED BY
AN APPROPRIATE ASSIGNMENT OR AN APPROPRIATE UNDATED STOCK POWER OR POWERS, IN
EVERY CASE SUFFICIENT TO TRANSFER TITLE THERETO.

 

ARTICLE VI

 

REGISTRATION

 

SECTION 6.01.                                   PIGGYBACK REGISTRATION. IF,
PRIOR TO JUNE 30, 2006, THE COMPANY PROPOSES TO REGISTER (INCLUDING FOR THIS
PURPOSE A REGISTRATION EFFECTED BY THE COMPANY FOR STOCKHOLDERS OTHER THAN THE
PURCHASERS) THE SALE OF ANY OF ITS SECURITIES UNDER THE SECURITIES ACT, THEN THE
COMPANY WILL PROMPTLY GIVE THE PURCHASERS WRITTEN NOTICE THEREOF AND WILL USE
ITS REASONABLE BEST EFFORTS TO INCLUDE IN SUCH REGISTRATION (A) ALL OR ANY
PART OF THE SHARES OF COMMON STOCK ISSUABLE BY THE COMPANY UPON THE EXERCISE OF
WARRANTS OR CONVERSION OF NOTES (INCLUDING, FOR THE AVOIDANCE OF DOUBT, THE
JUNIOR NOTE) ISSUED BY THE COMPANY TO SACC PARTNERS L.P., LLOYD I. MILLER, III
AND THE PURCHASERS HERETO (I) ON OCTOBER 26, 2005 AND (II) ON THE CLOSING DATE;
AND (B) ALL CONVERSION SHARES (AS SUCH TERM IS DEFINED IN THOSE CERTAIN
CONVERSION AND SETTLEMENT AGREEMENTS EXECUTED AS OF THE DATE HEREOF BY AND
BETWEEN (X) THE COMPANY AND SACC PARTNERS, L.P. AND (Y) THE COMPANY AND LLOYD I.
MILLER, III) (COLLECTIVELY, THE “REGISTRABLE SECURITIES”). THIS REQUIREMENT DOES
NOT APPLY TO COMPANY REGISTRATIONS ON FORM S-4 OR S-8 OR THEIR EQUIVALENTS
RELATING TO EQUITY SECURITIES TO BE ISSUED SOLELY IN CONNECTION WITH AN
ACQUISITION OF ANY ENTITY OR BUSINESS OR EQUITY SECURITIES ISSUABLE IN
CONNECTION WITH STOCK OPTION OR OTHER EMPLOYEE BENEFIT PLANS. EACH PURCHASER
MUST GIVE ITS REQUEST FOR REGISTRATION UNDER THIS PARAGRAPH TO THE COMPANY IN
WRITING WITHIN 10 DAYS AFTER RECEIPT FROM THE COMPANY OF NOTICE OF SUCH PENDING
REGISTRATION. IF THE REGISTRATION FOR WHICH THE COMPANY GIVES NOTICE IS A PUBLIC
OFFERING INVOLVING AN UNDERWRITING, THE COMPANY WILL SO ADVISE THE PURCHASERS AS
PART OF THE ABOVE-DESCRIBED WRITTEN NOTICE. IN THAT EVENT, IF THE MANAGING
UNDERWRITER(S) OF THE PUBLIC OFFERING IMPOSE A LIMITATION ON THE NUMBER OF
SHARES OF COMMON STOCK THAT MAY BE INCLUDED IN THE REGISTRATION STATEMENT
BECAUSE, IN SUCH UNDERWRITER(S)’ JUDGMENT, SUCH LIMITATION WOULD BE NECESSARY TO
EFFECT AN ORDERLY PUBLIC DISTRIBUTION, THEN THE COMPANY WILL BE OBLIGATED TO
INCLUDE ONLY SUCH LIMITED PORTION, IF ANY, OF THE REGISTRABLE SECURITIES WITH
RESPECT TO WHICH THE PURCHASERS HAVE REQUESTED INCLUSION HEREUNDER. ANY
EXCLUSION OF REGISTRABLE SECURITIES WILL BE MADE PRO RATA AMONG ALL HOLDERS OF
THE COMPANY’S SECURITIES SEEKING TO INCLUDE SHARES OF COMMON STOCK IN PROPORTION
TO THE NUMBER OF SHARES OF COMMON STOCK SOUGHT TO BE INCLUDED BY THOSE HOLDERS.
HOWEVER, THE COMPANY WILL NOT EXCLUDE ANY REGISTRABLE SECURITIES UNLESS THE
COMPANY HAS FIRST EXCLUDED ALL OUTSTANDING SECURITIES THE HOLDERS OF WHICH ARE
NOT ENTITLED BY RIGHT TO INCLUSION OF SUCH SECURITIES IN SUCH REGISTRATION
STATEMENT OR ARE NOT ENTITLED PRO RATA INCLUSION WITH THE REGISTRABLE
SECURITIES.

 

SECTION 6.02.                                   MANDATORY REGISTRATION. IF, AT
ANYTIME ON OR AFTER JUNE 30, 2006, THE RESALE OF ANY REGISTRABLE SECURITIES HAVE
NOT BEEN REGISTERED BY THE COMPANY PURSUANT TO SECTION 6.01

 

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HEREOF, THE PURCHASERS MAY DELIVER NOTICE TO THE COMPANY TO REQUIRE THAT THE
COMPANY REGISTER ALL REGISTRABLE SECURITIES ON A REGISTRATION STATEMENT ON
FORM S-1, OR OTHER FORM THEN AVAILABLE TO THE COMPANY UNDER APPLICABLE SEC
RULES AND REGULATIONS (THE “REGISTRATION STATEMENT”), COVERING THE RESALE OF ALL
OF THE REGISTRABLE SECURITIES. THE DATE ON WHICH THE COMPANY RECEIVES SUCH
NOTICE IS REFERRED TO HEREIN AS THE “DEMAND DATE.”  THE COMPANY SHALL USE
COMMERCIALLY REASONABLE BEST EFFORTS (I) TO CAUSE SUCH REGISTRATION STATEMENT TO
BE FILED UNDER THE SECURITIES ACT AS PROMPTLY AS PRACTICABLE AFTER RECEIPT OF
NOTICE OF SUCH DEMAND, BUT IN ANY EVENT NOT MORE THAN 30 DAYS FOLLOWING THE
DEMAND DATE AND (II) TO CAUSE SUCH REGISTRATION STATEMENT TO BE DECLARED
EFFECTIVE UNDER THE SECURITIES ACT AS PROMPTLY AS PRACTICABLE, BUT IN ANY EVENT
NO LATER THAN 90 DAYS FOLLOWING THE DEMAND DATE (THE “DEMAND EFFECTIVE DATE”).
HOWEVER, SO LONG AS THE COMPANY HAS FILED THE REGISTRATION STATEMENT WITHIN 30
DAYS AFTER THE DEMAND DATE, (A) IF THE SEC TAKES THE POSITION THAT REGISTRATION
OF THE RESALE OF THE REGISTRABLE SECURITIES BY THE PURCHASERS IS NOT AVAILABLE
UNDER APPLICABLE LAWS, RULES AND REGULATIONS AND THAT THE COMPANY MUST REGISTER
THE OFFERING OF THE REGISTRABLE SECURITIES AS A PRIMARY OFFERING BY THE COMPANY,
OR (B) IF THE REGISTRATION STATEMENT RECEIVES SEC REVIEW, THEN THE DEMAND
EFFECTIVE DATE WILL BE THE 120TH DAY AFTER THE DEMAND DATE. IN THE CASE THE SEC
TAKES THE POSITION THAT RESALE REGISTRATION IS NOT AVAILABLE, THE COMPANY WILL,
WITHIN 40 BUSINESS DAYS AFTER THE DATE THE COMPANY RECEIVES SUCH SEC RESPONSE,
FILE A REGISTRATION STATEMENT AS A PRIMARY OFFERING. THE COMPANY’S BEST EFFORTS
WILL INCLUDE, WITHOUT LIMITATION, PROMPTLY RESPONDING TO ALL COMMENTS RECEIVED
FROM THE STAFF OF THE SEC. IF THE COMPANY RECEIVES NOTIFICATION FROM THE SEC
THAT THE REGISTRATION STATEMENT WILL RECEIVE NO ACTION OR REVIEW FROM THE SEC,
THEN THE COMPANY WILL CAUSE THE REGISTRATION STATEMENT TO BECOME EFFECTIVE
WITHIN FIVE BUSINESS DAYS AFTER SUCH SEC NOTIFICATION. ONCE THE REGISTRATION
STATEMENT IS DECLARED EFFECTIVE BY THE SEC, THE COMPANY WILL CAUSE THE
REGISTRATION STATEMENT TO REMAIN EFFECTIVE THROUGHOUT THE REGISTRATION PERIOD,
EXCEPT AS PERMITTED UNDER THIS SECTION. “REGISTRATION PERIOD” MEANS THE PERIOD
BETWEEN THE DEMAND DATE AND THE EARLIER OF THE DATE ON (I) WHICH (X) ALL OF THE
REGISTRABLE SECURITIES HAVE BEEN SOLD BY THE PURCHASERS PURSUANT TO A
REGISTRATION STATEMENT AND (Y) ARE FREELY TRADABLE UNDER THE SECURITIES ACT, OR
(II) ALL THE REGISTRABLE SECURITIES MAY BE IMMEDIATELY SOLD BY THE PURCHASERS
WITHOUT REGISTRATION AND WITHOUT RESTRICTION AS TO THE NUMBER OF REGISTRABLE
SECURITIES TO BE SOLD, PURSUANT TO RULE 144 OR OTHERWISE. ON THE DATE OF EACH
MONTHLY ANNIVERSARY OF THE DATE ON WHICH ANY BREACH OF THIS SECTION 6.02 FIRST
OCCURS (INCLUDING FAILURE TO FILE A REGISTRATION STATEMENT OR TO CAUSE A
REGISTRATION STATEMENT TO BE DECLARED EFFECTIVE WITHIN THE TIME PERIODS SET
FORTH HEREIN) UNTIL THE APPLICABLE DEFAULT IS CURED (EACH, A “PAYMENT DATE”),
THE COMPANY SHALL ISSUE TO THE PURCHASERS AS DAMAGES ADDITIONAL SHARES OF THE
COMPANY’S COMMON STOCK EQUAL TO 2.0% OF THE AGGREGATE AMOUNT OF THE REGISTRABLE
SECURITIES, AND ALL SUCH SHARES SHALL BECOME REGISTRABLE SECURITIES; PROVIDED,
HOWEVER, THAT THE TOTAL NUMBER OF SHARES OF THE COMPANY’S COMMON STOCK PAYABLE
PURSUANT TO THIS SECTION 6.02 TO ANY PURCHASER SHALL NOT EXCEED THE NUMBER OF
SHARES, LESS ONE SHARE, WHICH, IF ISSUED, WOULD HAVE, AT THE TIME OF THE CLOSING
DATE OR PAYMENT DATE, REQUIRED STOCKHOLDER APPROVAL OF SUCH ISSUANCE PURSUANT TO
SECTION 4350(I)(1)(D) OF THE NASDAQ MARKETPLACE RULES IF THE COMPANY IS THEN
SUBJECT TO SUCH RULE. IN THE EVENT THE NUMBER OF SHARES OF THE COMPANY’S COMMON
STOCK ISSUABLE UNDER THIS SECTION 6.02 IS RESTRICTED BY THE LIMITATIONS OF THE
PREVIOUS SENTENCE, THE COMPANY MAY WAIVE SUCH LIMITATION OR, AT THE COMPANY’S
ELECTION, THE BALANCE OF THE DAMAGES PAYABLE BY THE COMPANY PURSUANT TO THIS
SECTION 6.02 MAY BE PAID IN CASH (VALUING THE SHARES NOT SO ISSUED AT THE
AVERAGE OF THE CLOSING PRICES OF THE COMPANY’S COMMON STOCK OVER THE TWENTY (20)
TRADING DAYS IMMEDIATELY PRECEDING THE ONE-MONTH ANNIVERSARY OF THE DEFAULT
WHICH REQUIRES THE ISSUANCE OF SHARES) ON THE APPLICABLE PAYMENT DATE IN
ACCORDANCE WITH PAYMENT INSTRUCTIONS PROVIDED BY EACH PURCHASER.

 

SECTION 6.03.                                   CONTINUED EFFECTIVENESS OF
REGISTRATION STATEMENT. SUBJECT TO THE LIMITATIONS SET FORTH IN SECTION 6.08,
THE COMPANY WILL KEEP THE REGISTRATION STATEMENT COVERING THE REGISTRABLE
SECURITIES EFFECTIVE UNDER RULE 415 AT ALL TIMES DURING THE REGISTRATION PERIOD.
IN THE EVENT THAT THE NUMBER OF SHARES AVAILABLE UNDER A REGISTRATION STATEMENT
FILED PURSUANT TO THIS AGREEMENT IS INSUFFICIENT TO COVER ALL OF THE REGISTRABLE
SECURITIES ISSUED, THE COMPANY WILL (IF PERMITTED) AMEND THE REGISTRATION
STATEMENT OR FILE A NEW REGISTRATION STATEMENT (ON THE SHORT FORM AVAILABLE
THEREFOR, IF

 

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APPLICABLE), OR BOTH, SO AS TO COVER ALL OF THE REGISTRABLE SECURITIES. THE
COMPANY WILL FILE SUCH AMENDMENT OR NEW REGISTRATION STATEMENT AS SOON AS
PRACTICABLE, BUT IN NO EVENT LATER THAN 30 BUSINESS DAYS AFTER THE NECESSITY
THEREFOR ARISES (BASED UPON THE MARKET PRICE OF THE COMMON STOCK AND OTHER
RELEVANT FACTORS ON WHICH THE COMPANY REASONABLY ELECTS TO RELY). THE COMPANY
WILL USE ITS BEST EFFORTS TO CAUSE SUCH AMENDMENT OR NEW REGISTRATION STATEMENT
TO BECOME EFFECTIVE AS SOON AS IS PRACTICABLE AFTER THE FILING THEREOF, BUT IN
NO EVENT LATER THAN 90 DAYS AFTER THE DATE ON WHICH THE COMPANY REASONABLY FIRST
DETERMINES THE NEED THEREFOR.

 

SECTION 6.04.                                   ACCURACY OF REGISTRATION
STATEMENT. ANY REGISTRATION STATEMENT (INCLUDING ANY AMENDMENTS OR SUPPLEMENTS
THERETO AND PROSPECTUSES CONTAINED THEREIN) FILED BY THE COMPANY COVERING
REGISTRABLE SECURITIES WILL NOT CONTAIN ANY UNTRUE STATEMENT OF A MATERIAL FACT
OR OMIT TO STATE A MATERIAL FACT REQUIRED TO BE STATED THEREIN, OR NECESSARY TO
MAKE THE STATEMENTS THEREIN, IN LIGHT OF THE CIRCUMSTANCES IN WHICH THEY WERE
MADE, NOT MISLEADING. THE COMPANY WILL PREPARE AND FILE WITH THE SEC SUCH
AMENDMENTS (INCLUDING POST-EFFECTIVE AMENDMENTS) AND SUPPLEMENTS TO THE
REGISTRATION STATEMENT AND THE PROSPECTUS USED IN CONNECTION WITH THE
REGISTRATION STATEMENT AS MAY BE NECESSARY TO PERMIT SALES PURSUANT TO THE
REGISTRATION STATEMENT AT ALL TIMES DURING THE REGISTRATION PERIOD, AND, DURING
SUCH PERIOD, WILL COMPLY WITH THE PROVISIONS OF THE SECURITIES ACT WITH RESPECT
TO THE DISPOSITION OF ALL REGISTRABLE SECURITIES OF THE COMPANY COVERED BY THE
REGISTRATION STATEMENT UNTIL THE TERMINATION OF THE REGISTRATION PERIOD, OR IF
EARLIER, UNTIL SUCH TIME AS ALL OF SUCH REGISTRABLE SECURITIES HAVE BEEN
DISPOSED OF IN ACCORDANCE WITH THE INTENDED METHODS OF DISPOSITION BY THE SELLER
OR SELLERS THEREOF AS SET FORTH IN THE REGISTRATION STATEMENT.

 

SECTION 6.05.                                   FURNISHING DOCUMENTATION. THE
COMPANY WILL FURNISH TO THE PURCHASERS, OR TO THEIR LEGAL COUNSEL, (A) PROMPTLY
AFTER SUCH DOCUMENT IS FILED WITH THE SEC, ONE COPY OF ANY REGISTRATION
STATEMENT FILED PURSUANT TO THIS AGREEMENT AND ANY AMENDMENTS THERETO, EACH
PRELIMINARY PROSPECTUS AND FINAL PROSPECTUS AND EACH AMENDMENT OR SUPPLEMENT
THERETO; AND (B) A NUMBER OF COPIES OF A PROSPECTUS, INCLUDING A PRELIMINARY
PROSPECTUS, AND ALL AMENDMENTS AND SUPPLEMENTS THERETO, AND SUCH OTHER DOCUMENTS
AS THE PURCHASERS MAY REASONABLY REQUEST IN ORDER TO FACILITATE THE DISPOSITION
OF THE REGISTRABLE SECURITIES OWNED BY THE PURCHASERS. THE COMPANY WILL PROMPTLY
NOTIFY BY FACSIMILE OR EMAIL THE PURCHASERS OF THE EFFECTIVENESS OF THE
REGISTRATION STATEMENT AND ANY POST-EFFECTIVE AMENDMENT.

 

SECTION 6.06.                                   ADDITIONAL OBLIGATIONS. THE
COMPANY WILL USE ITS BEST EFFORTS TO (A) REGISTER AND QUALIFY THE REGISTRABLE
SECURITIES COVERED BY A REGISTRATION STATEMENT UNDER SUCH OTHER SECURITIES OR
BLUE SKY LAWS OF SUCH JURISDICTIONS AS THE PURCHASERS REASONABLY REQUEST,
(B) PREPARE AND FILE IN THOSE JURISDICTIONS ANY AMENDMENTS (INCLUDING
POST-EFFECTIVE AMENDMENTS) AND SUPPLEMENTS TO SUCH REGISTRATIONS AND
QUALIFICATIONS AS MAY BE NECESSARY TO MAINTAIN THEIR EFFECTIVENESS DURING THE
REGISTRATION PERIOD, (C) TAKE ANY OTHER ACTIONS NECESSARY TO MAINTAIN SUCH
REGISTRATIONS AND QUALIFICATIONS IN EFFECT AT ALL TIMES DURING THE REGISTRATION
PERIOD, AND (D) TAKE ANY OTHER ACTIONS REASONABLY NECESSARY OR ADVISABLE TO
QUALIFY THE REGISTRABLE SECURITIES FOR SALE IN SUCH JURISDICTIONS.
NOTWITHSTANDING THE FOREGOING, THE COMPANY IS NOT REQUIRED, IN CONNECTION WITH
SUCH OBLIGATIONS, TO (I) QUALIFY TO DO BUSINESS IN ANY JURISDICTION WHERE IT
WOULD NOT OTHERWISE BE REQUIRED TO QUALIFY BUT FOR THIS SECTION 6.06,
(II) SUBJECT ITSELF TO GENERAL TAXATION IN ANY SUCH JURISDICTION, (III) FILE A
GENERAL CONSENT TO SERVICE OF PROCESS IN ANY SUCH JURISDICTION, (IV) PROVIDE ANY
UNDERTAKINGS THAT CAUSE MATERIAL EXPENSE OR MATERIAL BURDEN TO THE COMPANY, OR
(V) MAKE ANY CHANGE IN ITS CHARTER OR BYLAWS, WHICH IN EACH CASE THE BOARD OF
DIRECTORS OF THE COMPANY DETERMINES TO BE CONTRARY TO THE BEST INTERESTS OF THE
COMPANY AND ITS STOCKHOLDERS.

 

SECTION 6.07.                                   UNDERWRITTEN OFFERINGS. IF THE
PURCHASERS SELECT UNDERWRITERS REASONABLY ACCEPTABLE TO THE COMPANY FOR AN
UNDERWRITTEN OFFERING, THE COMPANY WILL ENTER INTO AND PERFORM ITS OBLIGATIONS
UNDER AN UNDERWRITING AGREEMENT IN USUAL AND CUSTOMARY FORM INCLUDING, WITHOUT

 

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LIMITATION, CUSTOMARY INDEMNIFICATION AND CONTRIBUTION OBLIGATIONS, WITH THE
MANAGING UNDERWRITER OF SUCH OFFERING.

 

SECTION 6.08.                                   SUSPENSION OF REGISTRATION.

 

(A)                                  THE COMPANY WILL NOTIFY (BY TELEPHONE AND
ALSO BY FACSIMILE AND REPUTABLE OVERNIGHT COURIER) THE PURCHASERS OF THE
HAPPENING OF ANY EVENT OF WHICH THE COMPANY HAS KNOWLEDGE AS A RESULT OF WHICH
THE PROSPECTUS INCLUDED IN THE REGISTRATION STATEMENT AS THEN IN EFFECT INCLUDES
AN UNTRUE STATEMENT OF A MATERIAL FACT OR OMITS TO STATE A MATERIAL FACT
REQUIRED TO BE STATED THEREIN OR NECESSARY TO MAKE THE STATEMENTS THEREIN, IN
LIGHT OF THE CIRCUMSTANCES UNDER WHICH THEY WERE MADE, NOT MISLEADING. THE
COMPANY WILL MAKE SUCH NOTIFICATION AS PROMPTLY AS PRACTICABLE (BUT IN NO EVENT
MORE THAN TWO BUSINESS DAYS) AFTER THE COMPANY BECOMES AWARE OF THE EVENT, WILL
PROMPTLY (BUT IN NO EVENT MORE THAN TEN BUSINESS DAYS) PREPARE AND FILE A
SUPPLEMENT OR AMENDMENT TO THE REGISTRATION STATEMENT TO CORRECT SUCH UNTRUE
STATEMENT OR OMISSION, AND WILL DELIVER A NUMBER OF COPIES OF SUCH SUPPLEMENT OR
AMENDMENT TO THE PURCHASERS AS THEY MAY REASONABLY REQUEST.

 

(B)                                  NOTWITHSTANDING THE OBLIGATIONS UNDER
SECTION 6.08(A), IF IN THE GOOD FAITH JUDGMENT OF THE COMPANY, FOLLOWING
CONSULTATION WITH LEGAL COUNSEL, IT WOULD BE DETRIMENTAL TO THE COMPANY AND ITS
STOCKHOLDERS FOR RESALES OF REGISTRABLE SECURITIES TO BE MADE PURSUANT TO THE
REGISTRATION STATEMENT DUE TO THE EXISTENCE OF A MATERIAL DEVELOPMENT OR
POTENTIAL MATERIAL DEVELOPMENT INVOLVING THE COMPANY WHICH THE COMPANY WOULD BE
OBLIGATED TO DISCLOSE IN THE REGISTRATION STATEMENT, BUT WHICH DISCLOSURE WOULD
BE PREMATURE OR OTHERWISE INADVISABLE AT SUCH TIME OR WOULD REASONABLY BE
EXPECTED TO HAVE A MATERIAL ADVERSE EFFECT UPON THE COMPANY AND ITS
STOCKHOLDERS, THE COMPANY WILL HAVE THE RIGHT TO SUSPEND THE USE OF THE
REGISTRATION STATEMENT FOR A PERIOD OF NOT MORE THAN FORTY-FIVE (45) DAYS;
PROVIDED, HOWEVER, THAT THE COMPANY MAY SO DEFER OR SUSPEND THE USE OF THE
REGISTRATION STATEMENT NO MORE THAN ONE TIME IN ANY TWELVE-MONTH PERIOD.

 

(C)                                  SUBJECT TO THE COMPANY’S RIGHTS UNDER THIS
ARTICLE VI, THE COMPANY WILL USE ITS REASONABLE BEST EFFORTS TO PREVENT THE
ISSUANCE OF ANY STOP ORDER OR OTHER SUSPENSION OF EFFECTIVENESS OF A
REGISTRATION STATEMENT AND, IF SUCH AN ORDER IS ISSUED, WILL USE ITS BEST
EFFORTS TO OBTAIN THE WITHDRAWAL OF SUCH ORDER AT THE EARLIEST POSSIBLE TIME AND
TO NOTIFY THE PURCHASERS OF THE ISSUANCE OF SUCH ORDER AND THE RESOLUTION
THEREOF.

 

(D)                                  NOTWITHSTANDING ANYTHING TO THE CONTRARY
CONTAINED IN THIS AGREEMENT, IF THE USE OF THE REGISTRATION STATEMENT IS
SUSPENDED BY THE COMPANY, THE COMPANY WILL PROMPTLY (BUT IN NO EVENT MORE THAN
TWO BUSINESS DAYS) GIVE NOTICE OF THE SUSPENSION TO THE PURCHASERS, AND WILL
PROMPTLY (BUT IN NO EVENT MORE THAN TWO BUSINESS DAYS) NOTIFY THE PURCHASERS AS
SOON AS THE USE OF THE REGISTRATION STATEMENT MAY BE RESUMED.

 

SECTION 6.09.                                   TRANSFER AGENT; REGISTRAR. THE
COMPANY WILL PROVIDE A TRANSFER AGENT AND REGISTRAR, WHICH MAY BE A SINGLE
ENTITY, FOR THE REGISTRABLE SECURITIES NOT LATER THAN THE EFFECTIVE DATE OF THE
REGISTRATION STATEMENT.

 

SECTION 6.10.                                   SHARE CERTIFICATES. THE COMPANY
WILL COOPERATE WITH THE PURCHASERS AND WITH THE MANAGING UNDERWRITER(S), IF ANY,
TO FACILITATE THE TIMELY PREPARATION AND DELIVERY OF CERTIFICATES (NOT BEARING
ANY RESTRICTIVE LEGENDS) REPRESENTING REGISTRABLE SECURITIES TO BE OFFERED
PURSUANT TO A REGISTRATION STATEMENT AND WILL ENABLE SUCH CERTIFICATES TO BE IN
SUCH DENOMINATIONS OR AMOUNTS AS THE CASE MAY BE, AND REGISTERED IN SUCH NAMES
AS THE PURCHASERS OR THE MANAGING UNDERWRITER(S), IF ANY, MAY REASONABLY
REQUEST.

 

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SECTION 6.11.                                   PLAN OF DISTRIBUTION. AT THE
REASONABLE REQUEST OF THE PURCHASERS, THE COMPANY WILL PROMPTLY PREPARE AND FILE
WITH THE SEC SUCH AMENDMENTS (INCLUDING POST-EFFECTIVE AMENDMENTS) AND
SUPPLEMENTS TO THE REGISTRATION STATEMENT, AND THE PROSPECTUS USED IN CONNECTION
WITH THE REGISTRATION STATEMENT, AS MAY BE NECESSARY IN ORDER TO CHANGE THE PLAN
OF DISTRIBUTION SET FORTH IN SUCH REGISTRATION STATEMENT.

 

SECTION 6.12.                                   SECURITIES LAWS COMPLIANCE. THE
COMPANY WILL COMPLY WITH ALL APPLICABLE LAWS RELATED TO ANY REGISTRATION
STATEMENT RELATING TO THE OFFER AND SALE OF REGISTRABLE SECURITIES AND WITH ALL
APPLICABLE RULES AND REGULATIONS OF GOVERNMENTAL AUTHORITIES IN CONNECTION
THEREWITH (INCLUDING, WITHOUT LIMITATION, THE SECURITIES ACT, THE EXCHANGE ACT
AND THE RULES AND REGULATIONS PROMULGATED BY THE SEC).

 

SECTION 6.13.                                   FURTHER ASSURANCES. THE COMPANY
WILL TAKE ALL OTHER REASONABLE ACTIONS AS THE PURCHASERS OR THE UNDERWRITERS, IF
ANY, MAY REASONABLY REQUEST TO EXPEDITE AND FACILITATE DISPOSITION BY SUCH
PURCHASER OF THE REGISTRABLE SECURITIES PURSUANT TO THE REGISTRATION STATEMENT.

 

SECTION 6.14.                                   EXPENSES. THE COMPANY WILL BEAR
ALL REASONABLE EXPENSES, OTHER THAN UNDERWRITING DISCOUNTS AND COMMISSIONS, AND
TRANSFER TAXES, IF ANY, INCURRED IN CONNECTION WITH REGISTRATIONS, FILINGS OR
QUALIFICATIONS PURSUANT TO ARTICLE VI OF THIS AGREEMENT, INCLUDING, WITHOUT
LIMITATION, ALL REGISTRATION, LISTING AND QUALIFICATIONS FEES, PRINTERS AND
ACCOUNTING FEES, THE FEES AND DISBURSEMENTS OF COUNSEL FOR THE COMPANY, AND THE
REASONABLE FEES AND DISBURSEMENTS OF THE PURCHASERS’ LEGAL COUNSEL.

 

SECTION 6.15.                                   INDEMNIFICATION. IN THE EVENT
THAT ANY REGISTRABLE SECURITIES ARE INCLUDED IN A REGISTRATION STATEMENT UNDER
THIS AGREEMENT:

 

(A)                                  TO THE EXTENT PERMITTED BY LAW, THE COMPANY
WILL INDEMNIFY, DEFEND AND HOLD HARMLESS EACH PURCHASER THAT HOLDS REGISTRABLE
SECURITIES, AND AGENTS, EMPLOYEES, ATTORNEYS, ACCOUNTANTS, UNDERWRITERS (AS
DEFINED IN THE SECURITIES ACT) FOR SUCH PURCHASERS AND ANY DIRECTORS OR OFFICERS
OF SUCH PURCHASERS OR SUCH UNDERWRITER AND ANY PERSON WHO CONTROLS THE
PURCHASERS OR SUCH UNDERWRITER WITHIN THE MEANING OF THE SECURITIES ACT OR THE
EXCHANGE ACT (EACH, A “PURCHASER INDEMNIFIED PERSON”) AGAINST ANY LOSSES,
CLAIMS, DAMAGES, EXPENSES OR LIABILITIES (COLLECTIVELY, AND TOGETHER WITH
ACTIONS, PROCEEDINGS OR INQUIRIES BY ANY REGULATORY OR SELF-REGULATORY
ORGANIZATION, WHETHER COMMENCED OR THREATENED IN RESPECT THEREOF, “CLAIMS”) TO
WHICH ANY OF THEM BECOME SUBJECT UNDER THE SECURITIES ACT, THE EXCHANGE ACT OR
OTHERWISE, INSOFAR AS SUCH CLAIMS ARISE OUT OF OR ARE BASED UPON ANY OF THE
FOLLOWING STATEMENTS, OMISSIONS OR VIOLATIONS IN A REGISTRATION STATEMENT FILED
PURSUANT TO THIS AGREEMENT, ANY POST-EFFECTIVE AMENDMENT THEREOF OR ANY
PROSPECTUS INCLUDED THEREIN:  (A) ANY UNTRUE STATEMENT OR ALLEGED UNTRUE
STATEMENT OF A MATERIAL FACT CONTAINED IN THE REGISTRATION STATEMENT OR ANY
POST-EFFECTIVE AMENDMENT THEREOF OR THE OMISSION OR ALLEGED OMISSION TO STATE
THEREIN A MATERIAL FACT REQUIRED TO BE STATED THEREIN OR NECESSARY TO MAKE THE
STATEMENTS THEREIN NOT MISLEADING, (B) ANY UNTRUE STATEMENT OR ALLEGED UNTRUE
STATEMENT OF A MATERIAL FACT CONTAINED IN THE PROSPECTUS OR ANY PRELIMINARY
PROSPECTUS (AS IT MAY BE AMENDED OR SUPPLEMENTED) OR THE OMISSION OR ALLEGED
OMISSION TO STATE THEREIN ANY MATERIAL FACT NECESSARY TO MAKE THE STATEMENTS
MADE THEREIN, IN LIGHT OF THE CIRCUMSTANCES UNDER WHICH THE STATEMENTS THEREIN
WERE MADE, NOT MISLEADING, OR (C) ANY VIOLATION OR ALLEGED VIOLATION BY THE
COMPANY OF THE SECURITIES ACT, THE EXCHANGE ACT OR ANY OTHER LAW, INCLUDING
WITHOUT LIMITATION ANY STATE SECURITIES LAW OR ANY RULE OR REGULATION THEREUNDER
(THE MATTERS IN THE FOREGOING CLAUSES (A) THROUGH (C) BEING, COLLECTIVELY,
“VIOLATIONS”). SUBJECT TO THE RESTRICTIONS SET FORTH HEREIN WITH RESPECT TO THE
NUMBER OF LEGAL COUNSEL, THE COMPANY WILL REIMBURSE THE PURCHASERS AND EACH SUCH
ATTORNEY, ACCOUNTANT, UNDERWRITER OR CONTROLLING PERSON AND EACH SUCH OTHER
PURCHASER INDEMNIFIED PERSON, PROMPTLY AS SUCH EXPENSES ARE INCURRED AND ARE DUE
AND PAYABLE, FOR ANY LEGAL FEES OR OTHER REASONABLE EXPENSES INCURRED BY THEM IN
CONNECTION WITH INVESTIGATING OR DEFENDING ANY CLAIM. NOTWITHSTANDING ANYTHING
TO THE CONTRARY CONTAINED HEREIN, THE

 

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INDEMNIFICATION CONTAINED IN THIS SECTION 6.15 (I) DOES NOT APPLY TO A CLAIM BY
A PURCHASER INDEMNIFIED PERSON ARISING OUT OF OR BASED UPON A VIOLATION THAT
OCCURS IN RELIANCE UPON AND IN CONFORMITY WITH INFORMATION FURNISHED IN WRITING
TO THE COMPANY BY SUCH PURCHASER INDEMNIFIED PERSON EXPRESSLY FOR USE IN THE
REGISTRATION STATEMENT OR ANY SUCH AMENDMENT THEREOF OR SUPPLEMENT THERETO, IF
SUCH PROSPECTUS OR SUPPLEMENT THERETO WAS TIMELY MADE AVAILABLE BY THE COMPANY;
AND (II) DOES NOT APPLY TO AMOUNTS PAID IN SETTLEMENT OF ANY CLAIM IF SUCH
SETTLEMENT IS MADE WITHOUT THE PRIOR WRITTEN CONSENT OF THE COMPANY, WHICH
CONSENT WILL NOT BE UNREASONABLY WITHHELD. THIS INDEMNITY OBLIGATION WILL REMAIN
IN FULL FORCE AND EFFECT REGARDLESS OF ANY INVESTIGATION MADE BY OR ON BEHALF OF
THE PURCHASER INDEMNIFIED PERSONS AND WILL SURVIVE THE TRANSFER OF THE
REGISTRABLE SECURITIES BY THE PURCHASERS.

 

(B)                                  IN CONNECTION WITH ANY REGISTRATION
STATEMENT IN WHICH A PURCHASER IS PARTICIPATING, EACH SUCH PURCHASER WILL
INDEMNIFY AND HOLD HARMLESS, THE COMPANY, EACH OF ITS DIRECTORS, EACH OF ITS
OFFICERS WHO SIGNS THE REGISTRATION STATEMENT, EACH PERSON, IF ANY, WHO CONTROLS
THE COMPANY WITHIN THE MEANING OF THE SECURITIES ACT OR THE EXCHANGE ACT, AND
ANY OTHER STOCKHOLDER SELLING SECURITIES PURSUANT TO THE REGISTRATION STATEMENT
OR ANY OF ITS DIRECTORS OR OFFICERS OR ANY PERSON WHO CONTROLS SUCH STOCKHOLDER
WITHIN THE MEANING OF THE SECURITIES ACT OR THE EXCHANGE ACT (EACH A “COMPANY
INDEMNIFIED PERSON”) AGAINST ANY CLAIM TO WHICH ANY OF THEM MAY BECOME SUBJECT
UNDER THE SECURITIES ACT, THE EXCHANGE ACT OR OTHERWISE, INSOFAR AS SUCH CLAIM
ARISES OUT OF OR IS BASED UPON ANY VIOLATION, IN EACH CASE TO THE EXTENT (AND
ONLY TO THE EXTENT) THAT SUCH VIOLATION OCCURS IN RELIANCE UPON AND IN
CONFORMITY WITH WRITTEN INFORMATION FURNISHED TO THE COMPANY BY SUCH PURCHASER
EXPRESSLY FOR USE IN SUCH REGISTRATION STATEMENT. SUCH PURCHASER WILL PROMPTLY
REIMBURSE EACH COMPANY INDEMNIFIED PERSON FOR ANY LEGAL OR OTHER EXPENSES
(PROMPTLY AS SUCH EXPENSES ARE INCURRED AND DUE AND PAYABLE) REASONABLY INCURRED
BY THEM IN CONNECTION WITH INVESTIGATING OR DEFENDING ANY SUCH CLAIM. HOWEVER,
THE INDEMNITY AGREEMENT CONTAINED IN THIS SECTION DOES NOT APPLY TO AMOUNTS PAID
IN SETTLEMENT OF ANY CLAIM IF SUCH SETTLEMENT IS EFFECTED WITHOUT THE PRIOR
WRITTEN CONSENT OF SUCH PURCHASER, WHICH CONSENT WILL NOT BE UNREASONABLY
WITHHELD, AND NO SUCH PURCHASER WILL BE LIABLE UNDER THIS AGREEMENT FOR THE
AMOUNT OF ANY CLAIM THAT EXCEEDS THE NET PROCEEDS ACTUALLY RECEIVED BY SUCH
PURCHASER AS A RESULT OF THE SALE OF REGISTRABLE SECURITIES PURSUANT TO SUCH
REGISTRATION STATEMENT. THIS INDEMNITY WILL REMAIN IN FULL FORCE AND EFFECT
REGARDLESS OF ANY INVESTIGATION MADE BY OR ON BEHALF OF A COMPANY INDEMNIFIED
PARTY AND WILL SURVIVE THE TRANSFER OF THE REGISTRABLE SECURITIES BY THE
PURCHASERS.

 

(C)                                  IF ANY PROCEEDING SHALL BE BROUGHT OR ANY
CLAIM ASSERTED AGAINST ANY PERSON ENTITLED TO INDEMNITY HEREUNDER (AN
“INDEMNIFIED PARTY”), SUCH INDEMNIFIED PARTY PROMPTLY SHALL NOTIFY THE PERSON
FROM WHOM INDEMNITY IS SOUGHT (THE “INDEMNIFYING PARTY”) IN WRITING, AND THE
INDEMNIFYING PARTY SHALL ASSUME THE DEFENSE THEREOF, INCLUDING THE EMPLOYMENT OF
COUNSEL REASONABLY SATISFACTORY TO THE INDEMNIFIED PARTY AND THE PAYMENT OF ALL
REASONABLE FEES AND EXPENSES INCURRED IN CONNECTION WITH DEFENSE THEREOF;
PROVIDED, HOWEVER, THAT THE FAILURE OF ANY INDEMNIFIED PARTY TO GIVE SUCH NOTICE
SHALL NOT RELIEVE THE INDEMNIFYING PARTY OF ITS OBLIGATIONS OR LIABILITIES
PURSUANT TO THIS AGREEMENT, EXCEPT (AND ONLY) TO THE EXTENT THAT SUCH FAILURE
SHALL HAVE PROXIMATELY AND MATERIALLY ADVERSELY PREJUDICED THE INDEMNIFYING
PARTY.

 

(D)                                  AN INDEMNIFIED PARTY SHALL HAVE THE RIGHT
TO EMPLOY SEPARATE COUNSEL IN ANY SUCH PROCEEDING AND TO PARTICIPATE IN THE
DEFENSE THEREOF, BUT THE FEES AND EXPENSES OF SUCH COUNSEL SHALL BE AT THE
EXPENSE OF SUCH INDEMNIFIED PARTY OR INDEMNIFIED PARTIES UNLESS: (I) THE
INDEMNIFYING PARTY HAS AGREED IN WRITING TO PAY SUCH FEES AND EXPENSES; (II) THE
INDEMNIFYING PARTY SHALL HAVE FAILED PROMPTLY TO ASSUME THE DEFENSE OF SUCH
PROCEEDING AND TO EMPLOY COUNSEL REASONABLY SATISFACTORY TO SUCH INDEMNIFIED
PARTY IN ANY SUCH PROCEEDING; OR (III) THE NAMED PARTIES TO ANY SUCH PROCEEDING
(INCLUDING ANY IMPLEADED PARTIES) INCLUDE BOTH SUCH INDEMNIFIED PARTY AND THE
INDEMNIFYING PARTY, AND SUCH INDEMNIFIED PARTY SHALL HAVE BEEN ADVISED BY
COUNSEL THAT A CONFLICT OF INTEREST IS LIKELY TO EXIST IF THE SAME COUNSEL WERE
TO REPRESENT SUCH INDEMNIFIED PARTY AND THE INDEMNIFYING PARTY (IN WHICH CASE,
IF SUCH INDEMNIFIED PARTY NOTIFIES THE INDEMNIFYING PARTY IN WRITING THAT IT
ELECTS TO EMPLOY SEPARATE COUNSEL AT THE EXPENSE OF THE

 

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INDEMNIFYING PARTY, THE INDEMNIFYING PARTY SHALL NOT HAVE THE RIGHT TO ASSUME
THE DEFENSE THEREOF AND SUCH COUNSEL SHALL BE AT THE REASONABLE EXPENSE OF THE
INDEMNIFYING PARTY; PROVIDED, HOWEVER, THAT IN NO EVENT SHALL THE INDEMNIFYING
PARTY BE RESPONSIBLE FOR THE FEES AND EXPENSES OF MORE THAN ONE SEPARATE
COUNSEL). THE INDEMNIFYING PARTY SHALL NOT BE LIABLE FOR ANY SETTLEMENT OF ANY
SUCH PROCEEDING EFFECTED WITHOUT ITS WRITTEN CONSENT, WHICH CONSENT SHALL NOT BE
UNREASONABLY WITHHELD. NO INDEMNIFYING PARTY SHALL, WITHOUT THE PRIOR WRITTEN
CONSENT OF THE INDEMNIFIED PARTY, EFFECT ANY SETTLEMENT OF ANY PENDING
PROCEEDING IN RESPECT OF WHICH ANY INDEMNIFIED PARTY IS A PARTY, UNLESS SUCH
SETTLEMENT INCLUDES AN UNCONDITIONAL RELEASE OF SUCH INDEMNIFIED PARTY FROM ALL
LIABILITY ON CLAIMS THAT ARE THE SUBJECT MATTER OF SUCH PROCEEDING.

 

(E)                                  SUBJECT TO THE FOREGOING, ALL REASONABLE
FEES AND EXPENSES OF THE INDEMNIFIED PARTY (INCLUDING FEES AND EXPENSES TO THE
EXTENT INCURRED IN CONNECTION WITH INVESTIGATING OR PREPARING TO DEFEND SUCH
PROCEEDING IN A MANNER NOT INCONSISTENT WITH THIS SECTION) SHALL BE PAID TO THE
INDEMNIFIED PARTY, AS INCURRED, WITHIN TEN (10) BUSINESS DAYS OF WRITTEN NOTICE
THEREOF TO THE INDEMNIFYING PARTY, WHICH NOTICE SHALL BE DELIVERED NO MORE
FREQUENTLY THAN ON A MONTHLY BASIS (REGARDLESS OF WHETHER IT IS ULTIMATELY
DETERMINED THAT AN INDEMNIFIED PARTY IS NOT ENTITLED TO INDEMNIFICATION
HEREUNDER; PROVIDED, THAT THE INDEMNIFYING PARTY MAY REQUIRE SUCH INDEMNIFIED
PARTY TO UNDERTAKE TO REIMBURSE ALL SUCH FEES AND EXPENSES TO THE EXTENT IT IS
FINALLY JUDICIALLY DETERMINED THAT SUCH INDEMNIFIED PARTY IS NOT ENTITLED TO
INDEMNIFICATION HEREUNDER).

 

SECTION 6.16.                                   Transfer. The rights of the
Purchasers hereunder, including the right to have the Company register
Registrable Securities pursuant to this Agreement, may be assigned by the
Purchasers to transferees or assignees of all or any portion of the Registrable
Securities, but only if (a) the Purchaser agrees in writing with the transferee
or assignee to assign such rights, and a copy of such agreement is furnished to
the Company within a reasonable time after such assignment, (b) the Company is,
within a reasonable time after such transfer or assignment, furnished with
written notice of the name and address of such transferee or assignee and the
securities with respect to which such registration rights are being transferred
or assigned, (c) after such transfer or assignment, the further disposition of
such securities by the transferee or assignee is restricted under the Securities
Act and applicable state securities laws, (d) at or before the time the Company
received the written notice contemplated by clause (b) of this sentence, the
transferee or assignee agrees in writing with the Company to be bound by all of
the provisions contained herein, (e) such transfer is made in accordance with
the applicable requirements of this Agreement, and (f) the transferee is an
“accredited investor” as that term is defined in Rule 501 of Regulation D.

 

ARTICLE VII

 

MISCELLANEOUS

 

SECTION 7.01.                                   EXPENSES. EACH PARTY HERETO WILL
PAY ITS OWN EXPENSES IN CONNECTION WITH THE TRANSACTIONS CONTEMPLATED HEREBY,
WHETHER OR NOT SUCH TRANSACTIONS WILL BE CONSUMMATED; PROVIDED, HOWEVER, THAT
THE COMPANY WILL PAY THE REASONABLE FEES AND DISBURSEMENTS OF EACH OF THE
PURCHASERS’ SPECIAL COUNSEL, PAUL, HASTINGS, JANOFSKY & WALKER LLP AND ANDREWS
KURTH LLP, IN CONNECTION WITH SUCH TRANSACTIONS AND WITH THE BRIDGE LOAN, UPON
DELIVERY OF A REASONABLY ITEMIZED INVOICE SETTING FORTH THE SERVICES PERFORMED
BY SUCH SPECIAL COUNSEL IN CONNECTION WITH SUCH TRANSACTIONS. THE PURCHASERS
MAY DEDUCT SUCH FEES FROM THE AMOUNT TO BE DELIVERED FOR THE PURCHASE OF THE
NOTES PURSUANT TO SECTION 1.03. THE COMPANY SHALL ALSO PROMPTLY PAY UPON DEMAND
THE FEES AND DISBURSEMENTS OF EACH PURCHASER’S COUNSEL INCURRED IN CONNECTION
WITH ANY AMENDMENTS, MODIFICATIONS, SUPPLEMENTS OR WAIVERS IN CONNECTION WITH
THIS AGREEMENT OR ANY ANCILLARY DOCUMENT RELATED THERETO UPON DELIVERY OF A
REASONABLY ITEMIZED INVOICE SETTING FORTH THE SERVICES PERFORMED BY SUCH SPECIAL
COUNSEL IN CONNECTION WITH SUCH TRANSACTIONS.

 

24

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SECTION 7.02.                                   SURVIVAL OF AGREEMENTS. ALL
COVENANTS, AGREEMENTS, REPRESENTATIONS AND WARRANTIES MADE IN THIS AGREEMENT,
THE SECURITY AND PLEDGE AGREEMENTS OR ANY CERTIFICATE OR INSTRUMENT DELIVERED TO
THE PURCHASERS PURSUANT TO OR IN CONNECTION WITH THIS AGREEMENT OR THE SECURITY
AND PLEDGE AGREEMENTS WILL SURVIVE THE EXECUTION AND DELIVERY OF THIS AGREEMENT
OR THE SECURITY AND PLEDGE AGREEMENTS, THE ISSUANCE, SALE AND DELIVERY OF THE
NOTES AND WARRANTS, AND WITH RESPECT TO THE NOTES, UNTIL THE REPAYMENT OF THE
NOTES IN FULL.

 

SECTION 7.03.                                   BROKERAGE. EACH PARTY HERETO
WILL INDEMNIFY AND HOLD HARMLESS THE OTHERS AGAINST AND IN RESPECT OF ANY CLAIM
FOR BROKERAGE OR OTHER COMMISSIONS RELATIVE TO THIS AGREEMENT OR TO THE
TRANSACTIONS CONTEMPLATED HEREBY, BASED IN ANY WAY ON AGREEMENTS, ARRANGEMENTS
OR UNDERSTANDINGS MADE OR CLAIMED TO HAVE BEEN MADE BY SUCH PARTY WITH ANY THIRD
PARTY.

 

SECTION 7.04.                                   PARTIES IN INTEREST. ALL
REPRESENTATIONS, COVENANTS AND AGREEMENTS CONTAINED IN THIS AGREEMENT BY OR ON
BEHALF OF ANY OF THE PARTIES HERETO WILL BIND AND INURE TO THE BENEFIT OF THE
RESPECTIVE SUCCESSORS AND ASSIGNS OF THE PARTIES HERETO WHETHER SO EXPRESSED OR
NOT. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, ALL REPRESENTATIONS,
COVENANTS AND AGREEMENTS BENEFITING THE PURCHASERS WILL INURE TO THE BENEFIT OF
ANY AND ALL SUBSEQUENT HOLDERS FROM TIME TO TIME OF NOTES AND WARRANTS.

 

SECTION 7.05.                                   NOTICES. ALL NOTICES, REQUESTS,
CONSENTS AND OTHER COMMUNICATIONS HEREUNDER WILL BE IN WRITING AND WILL BE
DELIVERED IN PERSON, MAILED BY CERTIFIED OR REGISTERED MAIL, RETURN RECEIPT
REQUESTED, OR SENT BY TELECOPIER OR RECOGNIZED OVERNIGHT COURIER SERVICE,
ADDRESSED AS FOLLOWS:

 

if to the Company:

 

19700 Fairchild Road, Suite 230

 

 

Irvine, California 92612

 

 

fax: (949) 955-0086

 

 

Attention: Chief Financial Officer

 

 

 

with a copy to:

 

Christopher Ivey, Esq.

 

 

Stradling Yocca Carlson & Rauth

 

 

660 Newport Center Drive, Suite 1600

 

 

Newport Beach, CA 92660

 

 

fax: (949) 725-4100

 

If to any Purchaser, at the address of such Purchaser set forth in Schedule I,
and

 

If to Lloyd I. Miller, III, with a copy to:

 

Paul N. Silverstein, Esq.

 

 

Andrews Kurth LLP

 

 

450 Lexington Avenue

 

 

New York, NY 10017

 

 

fax: (212) 850-2929

 

 

 

If to SACC Partners LP, with a copy to:

 

Peter J. Tennyson, Esq.

 

 

Paul, Hastings, Janofsky & Walker LLP

 

 

695 Town Center Drive, 17th Floor

 

 

Costa Mesa, CA 92626

 

 

fax: (714) 668-6337

 

SECTION 7.06.                                   GOVERNING LAW. THIS AGREEMENT
WILL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS OF THE
STATE OF CALIFORNIA WITHOUT REGARD FOR CONFLICTS OF LAWS OR CHOICE OF LAWS
PRINCIPLES.

 

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SECTION 7.07.                                   ENTIRE AGREEMENT. THIS
AGREEMENT, INCLUDING THE SCHEDULES AND EXHIBITS HERETO, ALONG WITH THE NOTES,
THE WARRANTS AND THE SECURITY AND PLEDGE AGREEMENTS, CONSTITUTES THE SOLE AND
ENTIRE AGREEMENT OF THE PARTIES WITH RESPECT TO THE SUBJECT MATTER HEREOF. ALL
SCHEDULES AND EXHIBITS HERETO ARE HEREBY INCORPORATED HEREIN BY REFERENCE. THERE
ARE NO OTHER AGREEMENTS OF THE PARTIES AND NO PARTY IS RELYING ON ANY
REPRESENTATIONS OF THE OTHER NOT EXPRESSLY SET FORTH HEREIN OR ANY ANCILLARY
DOCUMENT RELATED HERETO OR THERETO. ALL SCHEDULES AND EXHIBITS HEREBY ARE HEREBY
INCORPORATED HEREIN BY REFERENCE.

 

SECTION 7.08.                                   COUNTERPARTS. THIS AGREEMENT
MAY BE EXECUTED IN TWO OR MORE COUNTERPARTS, EACH OF WHICH WILL BE DEEMED AN
ORIGINAL, BUT ALL OF WHICH TOGETHER WILL CONSTITUTE ONE AND THE SAME INSTRUMENT.

 

SECTION 7.09.                                   AMENDMENTS. THIS AGREEMENT
MAY NOT BE AMENDED OR MODIFIED, AND NO PROVISIONS HEREOF MAY BE WAIVED, WITHOUT
THE WRITTEN CONSENT OF THE COMPANY AND THE HOLDERS OF AT LEAST 662/3% OF THE
OUTSTANDING PRINCIPAL AMOUNT OF THE NOTES.

 

SECTION 7.10.                                   SEVERABILITY. IF ANY PROVISION
OF THIS AGREEMENT WILL BE DECLARED VOID OR UNENFORCEABLE BY ANY JUDICIAL OR
ADMINISTRATIVE AUTHORITY, THE VALIDITY OF ANY OTHER PROVISION AND OF THE ENTIRE
AGREEMENT WILL NOT BE AFFECTED THEREBY.

 

SECTION 7.11.                                   TITLES AND SUBTITLES. THE TITLES
AND SUBTITLES USED IN THIS AGREEMENT ARE FOR CONVENIENCE ONLY AND ARE NOT TO BE
CONSIDERED IN CONSTRUING OR INTERPRETING ANY TERM OR PROVISION OF THIS
AGREEMENT.

 

SECTION 7.12.                                   NO PUBLICITY. EXCEPT AS
EXPRESSLY PROVIDED BELOW, NO PARTY WILL MAKE, ISSUE OR RELEASE ANY PUBLIC
ANNOUNCEMENT, PRESS RELEASE, STATEMENT OR ACKNOWLEDGMENT (COLLECTIVELY, “PUBLIC
ANNOUNCEMENT”) OF THE EXISTENCE OF, OR REVEAL PUBLICLY THE TERMS, CONDITIONS AND
STATUS OF, THE TRANSACTIONS CONTEMPLATED HEREBY, WITHOUT THE PRIOR WRITTEN
CONSENT OF THE OTHER PARTY AS TO THE CONTENT AND TIME OF RELEASE OF AND THE
MEDIA IN WHICH SUCH PUBLIC ANNOUNCEMENT IS TO BE MADE; PROVIDED, HOWEVER, THAT
IN THE CASE OF A PUBLIC ANNOUNCEMENT WHICH A PARTY IS REQUIRED BY LAW TO MAKE,
ISSUE OR RELEASE, THE MAKING, ISSUING OR RELEASING OF ANY SUCH PUBLIC
ANNOUNCEMENT, BY A PARTY SO REQUIRED TO DO SO WILL NOT CONSTITUTE A BREACH IF
SUCH PARTY HAS GIVEN, TO THE EXTENT REASONABLY POSSIBLE, NOT LESS THAN
TWO (2) BUSINESS DAYS PRIOR NOTICE TO THE OTHER PARTY, AND HAS ATTEMPTED, TO THE
EXTENT REASONABLY POSSIBLE, TO ALLOW THE OTHER PARTY TO REVIEW AND APPROVE SUCH
PUBLIC ANNOUNCEMENT; PROVIDED FURTHER, HOWEVER, THAT UPON THE COMPANY’S MAKING
OF PUBLIC ANNOUNCEMENT REGARDING THE EXISTENCE OF, OR THE TERMS, CONDITIONS AND
STATUS OF, THE TRANSACTIONS CONTEMPLATED HEREBY, WHETHER PURSUANT TO THE FILING
OF A FORM 8-K OR OTHERWISE, SUBJECT TO THE CONSENT OF THE COMPANY, WHICH CONSENT
MAY NOT BE UNREASONABLY WITHHELD, THE PURCHASERS MAY ADVERTISE THE CLOSING OF
THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT, AND MAKE APPROPRIATE
ANNOUNCEMENTS OF THE FINANCIAL ARRANGEMENTS ENTERED INTO AMONG THE PARTIES
HERETO, INCLUDING, WITHOUT LIMITATION, ANNOUNCEMENTS COMMONLY KNOWN AS
TOMBSTONES, IN SUCH TRADE PUBLICATIONS, BUSINESS JOURNALS, NEWSPAPERS OF GENERAL
CIRCULATION AND TO SUCH SELECTED PARTIES AS THE PURCHASERS WILL DEEM REASONABLY
APPROPRIATE.

 

SECTION 7.13.                                   USURY SAVINGS CLAUSE. THE
PARTIES INTEND TO COMPLY AT ALL TIMES WITH APPLICABLE USURY LAWS. IF AT ANY TIME
SUCH LAWS WOULD RENDER USURIOUS ANY AMOUNTS DUE UNDER THE NOTES UNDER APPLICABLE
LAW, THEN IT IS THE PARTIES’ EXPRESS INTENTION THAT THE COMPANY NOT BE REQUIRED
TO PAY INTEREST ON THE NOTES AT A RATE IN EXCESS OF THE MAXIMUM LAWFUL RATE,
THAT THE PROVISIONS OF THIS SECTION 7.13 WILL CONTROL OVER ALL OTHER PROVISIONS
OF THE NOTES WHICH MAY BE IN APPARENT CONFLICT HEREUNDER, THAT SUCH EXCESS
AMOUNT WILL BE IMMEDIATELY CREDITED TO THE PRINCIPAL BALANCE OF THE NOTES (OR,
IF THE NOTES HAVE BEEN FULLY PAID, REFUNDED BY THE PURCHASER TO THE COMPANY),
AND THE PROVISIONS THEREOF WILL IMMEDIATELY REFORMED AND THE AMOUNTS THEREAFTER
DECREASED, SO AS TO COMPLY WITH THE THEN APPLICABLE

 

26

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USURY LAW, BUT ALSO SO AS TO PERMIT THE RECOVERY OF THE FULLEST AMOUNT OTHERWISE
DUE UNDER THE NOTES. THE COMPANY HEREBY REPRESENTS AND WARRANTS THAT ITS ASSETS
ARE SUFFICIENT TO MEET THE REQUIREMENTS FOR EXEMPTION FROM THE USURY LAWS OF THE
STATE OF CALIFORNIA AS PROVIDED BY SECTION 25118 OF THE CALIFORNIA CORPORATIONS
CODE OR ANY SUCCESSOR STATUTE.

 

SECTION 7.14.                                   FURTHER ASSURANCES. THE COMPANY
AGREES TO (I) EXECUTE AND DELIVER, OR CAUSE TO BE EXECUTED AND DELIVERED, ALL
SUCH OTHER AND FURTHER AGREEMENTS, DOCUMENTS AND INSTRUMENTS AND (II) TAKE OR
CAUSE TO BE TAKEN ALL SUCH OTHER AND FURTHER ACTIONS AS ANY PURCHASER
MAY REASONABLY REQUEST TO EFFECTUATE THE INTENT AND PURPOSES, AND CARRY OUT THE
TERMS, OF THIS AGREEMENT.

 

[Signature page follows]

 

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IN WITNESS WHEREOF, the Company and the Purchasers have executed this Note
Purchase Agreement as of the day and year first above written.

 

 

DYNTEK, INC.

 

 

 

By:

/s/ Casper Zublin, Jr.

 

Name:

Casper Zublin, Jr.

 

Title:

Chief Executive Officer

 

PURCHASERS:

 

SACC PARTNERS, L.P.

 

By:

/s/ Bryant Riley

 

Name:

Bryant Riley

 

Title:

General Partner

 

 

LLOYD I. MILLER, III

 

By:

/s/ Lloyd I. Miller, III

 

Name: Lloyd I. Miller, III

 

 

 

TRUST A-4 - LLOYD I. MILLER

 

By:

PNC Bank, National Association,

 

Its: Trustee

 

By:

/s/ Lloyd I. Miller, III

 

Name: Lloyd I. Miller, III

Title: Investment Advisor to Trustee

 

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