**Exhibit 10.5**

 

**SECURITYAND PLEDGE AGREEMENT**

 

**SECURITY AND PLEDGE AGREEMENT**,dated as of October 26, 2005, among DynTek, Inc., a Delawarecorporation (the “Company), **DynTek Services, Inc.**,a Delaware corporation (the “Subsidiary” and, together with the Company, the “Debtors”),and those purchasers (the “Purchasers”) who are parties to that certainPurchase Agreement (as hereinafter defined).

 

**Recitals**

 

WHEREAS, the Company and the Purchasers areparties to a Note Purchase Agreement dated as of the date hereof (the “PurchaseAgreement”);

 

WHEREAS, it is a condition precedent to theagreement of the Purchasers to enter into the Purchase Agreement and to extendcredit to the Company thereunder that the Debtors execute and deliver thisSecurity Agreement as security for the payment and performance of allobligations of the Debtors to the Purchasers; and

 

WHEREAS, it is also a condition precedent tothe agreement of the Purchasers to enter into the Purchase Agreement and toextend credit to the Company thereunder that the Subsidiary guarantee all ofthe obligations of the Debtors under the Purchase Agreement and this Agreement:

 

**NOW, THEREFORE**, inconsideration of the premises contained herein and for other good and valuableconsideration, the receipt and sufficiency of which are hereby acknowledged,the parties hereto agree as follows:

 

**ARTICLE 1**

 

**GRANT OFSECURITY**

 

**Section 1.1.****                                Grantof Security**.  The Debtors herebygrant to the Purchasers a lien and continuing security interest (“SecurityInterest”) in and to, and a right of set-off against, all of the followingpersonal property and fixtures of the Debtors, whether now owned by or owingto, or hereafter acquired by or arising in favor of, such Debtor (includingunder any trade names, styles or derivations thereof), and whether owned orconsigned by or to, or leased from or to, such Debtor, and regardless of wherelocated (all of which being hereinafter collectively referred to as the “Collateral”):

 

(a)                                  allAccounts;

 

(b)                                 allChattel Paper;

 

(c)                                  allDocuments;

 

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(d)                                 allGeneral Intangibles (including Marks, Copyrights, Patents, payment intangibles,Proprietary Information and Trade Secrets);

 

(e)                                  allGoods (including Inventory, Equipment and Fixtures);

 

(f)                                    allInstruments;

 

(g)                                 allInvestment Property, including (i) all shares of the capital stock ormembership interests of each subsidiary owned or held by each Debtor, whethernow owned or hereafter formed or acquired (those shares and membershipinterests being listed and described on Schedule A attachedhereto), and all substitutions and additions to such shares (herein, the “PledgedSecurities”), (ii) all dividends, distributions, and sums distributable orpayable from, upon or in respect of the Pledged Securities, and (iii) allother rights and privileges incident to the Pledged Securities (all of theforegoing being hereinafter referred to collectively as the “Stock Collateral”);

 

(h)                                 allDeposit Accounts of such Debtor, including all blocked accounts, concentrationaccounts, disbursement accounts, and all other bank and all deposits therein;

 

(i)                                     allmoney, cash or cash equivalents of such Debtor;

 

(j)                                     allSupporting Obligations and Letter-of-Credit Rights of such Debtor;

 

(k)                                  thecommercial tort claims identified on Schedule B hereto; and

 

(l)                                     tothe extent not otherwise included, all Proceeds, tort claims, insurance claimsand other rights to payments not otherwise included in the foregoing andproducts of the foregoing and all accessions to, substitutions and replacementsfor, and rents and profits of, each of the foregoing;

 

*provided, however*,liens on the Purchased Assets (as that term is defined by the Asset PurchaseAgreement and Liability Assumption Agreement, dated as of August 8, 2005(the “NETF Agreement”), among the Debtors and New England Technology Finance,LLC, a Delaware limited liability company) shall not be granted if the grant ofa Lien in such Purchased Assets or in the manner contemplated by this Agreementis prohibited by the terms of the NETF Agreement, but only to the extent thatany such prohibition is not rendered ineffective pursuant to the UniformCommercial Code of the State of California or any other applicable law; *provide further, however*, that with respect to the PurchasedAssets described in the preceding clause that are excluded from the Collateralby virtue of the NETF Agreement shall be excluded from the Collateral only tothe extent and for so long as this Agreement constitutes a default or event ofdefault under the NETF Agreement and the NETF Agreement continues validly to prohibitthe creation of such security interest pursuant to this Agreement, and upon theexpiration of such prohibition, the Purchased Assets shall automatically beincluded in the Collateral, without further action on the part of any Debtor orPurchaser.

 

**Section 1.2.****                                Securityfor Obligations**.  This Agreementand the Security Interest shall secure the payment and performance of theObligations.

 

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**ARTICLE 2**

 

**GENERALREPRESENTATIONS, WARRANTIES AND COVENANTS**

 

Each Debtor represents, warrants andcovenants, which representations, warranties and covenants shall surviveexecution and delivery of this Agreement, as follows:

 

**Section 2.1.****                                NecessaryFilings**.  All financingstatements necessary or appropriate to perfect the security interest granted byeach Debtor to the Purchasers hereby in respect of the Collateral, which can beperfected by the filing of a financing statement, have been filed and theSecurity Interest granted to the Purchasers pursuant to this Agreement in andto such Collateral constitutes a perfected Security Interest therein (to theextent that the same can be perfected by filing) prior to the rights of allother persons or entities therein (other than any such rights pursuant to thePermitted Liens) and subject to no other Liens (other than Permitted Liens) andis entitled to all the rights, priorities and benefits afforded by the UniformCommercial Code of the State of California to perfected security interests.

 

**Section 2.2.****                                NoLiens**.  Each Debtor is, and as toCollateral acquired by it from time to time after the date hereof such Debtorwill be, the owner of all Collateral pledged by it hereunder free from anyLien, security interest, encumbrance or other right, title or interest of anyperson or entity (other than Permitted Liens), and each Debtor shall defend theCollateral against all claims and demands of all persons or entities at anytime claiming the same or any interest therein (other than in connection withPermitted Liens) adverse to the Purchasers.

 

**Section 2.3.****                                OtherFinancing Statements**.  To thebest knowledge of each Debtor, as of the date hereof, there is no financingstatement covering or purporting to cover any interest of any kind in theCollateral (other than financing statements filed in respect of PermittedLiens), and so long as any Purchaser Obligations or commitments with respectthereto are outstanding, no Debtor will execute or authorize to be filed in anypublic office any financing statement (or similar statement or instrument ofregistration under the law of any jurisdiction) or statements relating to theCollateral, except financing statements filed or to be filed in respect of andcovering the security interests granted hereby by such Debtor or in connectionwith Permitted Liens.

 

**Section 2.4.****                                ChiefExecutive Office; Records**.

 

(a)                                  As of the datehereof, the chief executive office of each Debtor is located at the addressindicated on Schedule C hereto for such Debtor.  No Debtor will move its chief executiveoffice except to such new location as such Debtor may establish in accordancewith the last sentence of this Section 2.4. A complete set of books ofaccount and records of each Debtor relating to the Accounts, Chattel Paper andDocuments are, and will continue to be, kept at such chief executive office, atone or more of the other record locations set forth on Schedule Chereto for such Debtor or at such new locations as such Debtor may establish inaccordance with the last sentence of this Section 2.4.

 

(b)                                 All Accounts, ChattelPaper and Documents of each Debtor are, and will continue to be, maintained at,and controlled and directed (including, without limitation, for

 

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general accounting purposes) from, the office locations described aboveor such new location established in accordance with the last sentence of this Section 2.4.  No Debtor shall establish new locations forsuch offices until (a) it shall have given to the Purchasers not less than30 days’ prior written notice of its intention to do so, clearly describingsuch new location and providing such other information in connection therewithas the Purchasers may reasonably request and (b) with respect to such newlocation, it shall have taken all action reasonably satisfactory to thePurchasers, to maintain the security interest of the Purchasers in the Collateralintended to be granted hereby at all times fully perfected and in full forceand effect.

 

**Section 2.5.****                                Locationof Inventory and Equipment**.  Asof the date hereof, all Inventory and Equipment held by each Debtor is locatedat one of the locations shown on Schedule D hereto.  Each Debtor agrees that all Inventory andEquipment now held or subsequently acquired by it shall be kept at (or shall bein transport to) any one of the locations shown on Schedule Dhereto, or such new location as such Debtor may establish in accordance withthe last sentence of this Section 2.5. Each Debtor may establish a new location for Inventory and Equipment ina jurisdiction in which such Debtor currently does business and with respect towhich the Purchasers have a first perfected security interest in such Inventoryand Equipment (subject to Permitted Liens). Each Debtor may establish a new location outside of a jurisdiction inwhich it currently does business and with respect to which the Purchasers havea first perfected security interest in such Inventory and Equipment only if (a) itshall have given to the Purchasers not less than 30 days’ prior written noticeof its intention so to do, clearly describing such new location and providingsuch other information in connection therewith as the Purchasers may reasonablyrequest and (b) with respect to such new location, it shall have taken allaction reasonably satisfactory to the Purchasers to maintain the securityinterest of the Purchasers in the Collateral intended to be granted hereby atall times fully perfected and in full force and effect.

 

**Section 2.6.****                                Recourse**.  This Agreement is made with full recourse toeach Debtor and pursuant to and upon all the warranties, representations,covenants and agreements on the part of each Debtor contained herein, in thePurchase Agreement and otherwise in writing in connection herewith ortherewith.

 

**Section 2.7.****                                TradeNames; Change of Name**.  EachDebtor’s legal name, jurisdiction of organization and organizational number (ifany) are correctly set forth under Column 1 on Schedule E of thisAgreement.  No Debtor has transactedbusiness at any time during the immediately preceding five year period, anddoes not currently transact business, under any other legal names or trade namesother than the prior legal names and trade names (if any) set forth on Schedule Eattached hereto.  No Debtor shall changeits jurisdiction of organization without the Purchasers’ prior writtenconsent.  No Debtor shall change itslegal name or transact business under any other trade name without first giving30 days’ prior written notice of its intent to do so to the Purchasers.  With respect to such new name or jurisdictionof organization, such Debtor shall have taken all action reasonably requestedby the Purchasers, to maintain the Security Interest at all times fullyperfected and in full force and effect.

 

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**ARTICLE 3**

 

**SPECIALPROVISIONS CONCERNINGACCOUNTS; INSTRUMENTS**

 

**Section 3.1.****                                AdditionalRepresentations and Warranties**. As of the time when each of its Accounts arises, each Debtor shall bedeemed to have represented and warranted that such Account, and all records,papers and documents relating thereto are what they purport to be in allmaterial respects, and that such Account will, to the best knowledge of eachDebtor, evidence true and valid obligations of the account debtor namedtherein.

 

**Section 3.2.****                                Maintenanceof Records**.  Each Debtor willkeep and maintain at its own cost and expense, records of its Accounts and eachDebtor will make the same available on such Debtor’s premises to the Purchasersfor inspection, at such Debtor’s own cost and expense, at any and allcommercially reasonable times upon commercially reasonable prior notice to suchDebtor.  Upon the occurrence and duringthe continuance of an Event of Default and at the commercially reasonablerequest of the Purchasers, each Debtor shall, at its own cost and expense,deliver all tangible evidence of its Accounts, including, without limitation,all documents evidencing the Accounts) and such books and records to thePurchasers or to its representatives (copies of which evidence and books andrecords may be retained by each Debtor). If the Purchasers so direct, upon the occurrence and during thecontinuance of an Event of Default, each Debtor shall legend, in form andmanner satisfactory to the Purchasers, the Accounts, as well as books, recordsand documents of such Debtor evidencing or pertaining to such Receivables andContracts with an appropriate reference to the fact that such Receivables andContracts have been assigned to the Purchasers and that the Purchasers have asecurity interest therein.

 

**Section 3.3.****                                Directionto Account Debtors; Contracting Parties; etc**.  Upon the occurrence and during thecontinuance of an Event of Default, and if the Purchasers so direct each Debtorif such Debtor does not have a Senior Lender, each Debtor agrees (a) tocause all payments on account of the Accounts to be made directly to the CashCollateral Account, (b) that the Purchasers may, at their option, directlynotify the obligors with respect to any Accounts to make payments with respectthereto as provided in preceding clause (a) and (c) that thePurchasers may enforce collection of any such Accounts and may adjust, settleor compromise the amount of payment thereof, in the same manner and to the sameextent as such Debtor.  Without notice toor assent by each Debtor, the Purchasers may apply any or all amounts then in,or thereafter deposited in, the Cash Collateral Account which application shallbe effected in the manner provided in Section 7.4 of this Agreement.  The reasonable costs and expenses (includingreasonable attorneys’ fees) of collection, whether incurred by such Debtor orthe Purchasers, shall be borne by such Debtor. The Purchasers shall deliver a copy of each notice referred to in thepreceding clause (b) to such Debtor; provided, that the failure by thePurchasers to so notify such Debtor shall not affect the effectiveness of suchnotice or the other rights of the Purchasers created by this Section 3.3.

 

**Section 3.4.****                                Modificationof Terms; etc**.  No Debtor shallrescind or cancel any indebtedness evidenced by any Account, or modify any termthereof or make any adjustment with respect thereto, or extend or renew thesame, or compromise or settle any material dispute,

 

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claim, suit or legal proceeding relating thereto, or sell any Account,or interest therein, without the prior written consent of the Purchasers,except in accordance with such Debtor’s commercially reasonable businesspractices.

 

**Section 3.5.****                                Collection**.Each Debtor shall endeavor in accordance with commercially reasonable businesspractices to cause to be collected from the account debtor named in each of itsAccounts, as and when due (including, without limitation, amounts which aredelinquent, such amounts to be collected in accordance with generally acceptedlawful collection procedures) any and all amounts owing under or on account ofsuch Accounts and apply forthwith upon receipt thereof all such amounts as areso collected to the outstanding balance of such Account.  The reasonable costs and expenses (including,without limitation, attorneys’ fees) of collection, if incurred by each Debtoror the Purchasers, shall be borne by such Debtor.

 

**Section 3.6.****                                Instruments**.  If a Debtor owns or acquires any Instrumentconstituting Collateral, at Purchasers’ request upon the occurrence and duringthe continuation of an Event of Default and if such Debtor does not have aSenior Lender, such Debtor will promptly deliver such Instrument to thePurchasers appropriately endorsed to the order of the Purchasers as furthersecurity hereunder.  At the Purchasers’request, such Debtor that owns or acquires any other Instrument constitutingCollateral will, within 5 business days, promptly deliver such Instrument tothe Purchasers appropriately endorsed to the order of the Purchasers as furthersecurity hereunder.

 

**ARTICLE 4**

 

**SPECIALPROVISIONS CONCERNING MARKS**

 

**Section 4.1.****                                AdditionalRepresentations and Warranties**. Each Debtor represents and warrants that, as of the date hereof, it isthe true and lawful owner of all right, title and interest to or otherwise hasthe right to use the registered Marks listed in Schedule F heretoand that, as of the date hereof said listed Marks constitute all the marks andapplications for marks registered in the United States Patent and TrademarkOffice that such Debtor presently owns or uses in connection with itsbusiness.  Each Debtor represents and warrantsthat it owns, is licensed to use or otherwise has the right to use all materialMarks that it uses.  Each Debtor furtherwarrants that it has no knowledge of any third party claim that any aspect ofsuch Debtor’s present or contemplated business operations infringes or willinfringe any trademark, service mark or trade name in any respect which couldreasonably be expected to have a material adverse effect on the business,operations, property, assets, liabilities or condition (financial or otherwise)of such Debtor.  Each Debtor representsand warrants that except as listed on Schedule F, as of the datehereof it is the beneficial and record owner of all trademark registrations andapplications listed in Schedule F hereto and that saidregistrations are valid and subsisting, and that no Debtor is aware of anythird-party claim that any of said registrations in respect of any materialMark is invalid or unenforceable.  EachDebtor hereby grants to the Purchasers an absolute power of attorney to sign,upon the occurrence and during the continuance of an Event of Default, anydocument which may be required by the United States Patent and Trademark Officein order to effect an absolute assignment of all right, title and interest ineach Mark, and record the same; provided that such power of attorney may beexercised only if such Debtor does not have a Senior Lender.

 

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**Section 4.2.****                                Infringements**.  Each Debtor agrees, promptly upon learningthereof, to notify the Purchasers in writing of the name and address of, and tofurnish such pertinent information that may be available with respect to, anyparty who such Debtor believes is infringing or diluting or otherwise violatingin any material respect any of such Debtor’s rights in and to any materialMark, or with respect to any party claiming that such Debtor’s use of anymaterial Mark violates in any material respect any property right of thatparty.  Each Debtor further agrees toprosecute any Person infringing any material Mark in accordance withcommercially reasonable business practices.

 

**Section 4.3.****                                Preservationof Marks**.  Each Debtor agrees touse its Marks as required in each of the applicable jurisdictions during thetime in which this Agreement is in effect, sufficiently to preserve such Marks(and any registrations thereto) as trademarks or service marks under the lawsof the United States and any other applicable law; provided, that, priorto any Default, no Debtor shall be obligated to preserve any Mark in the eventsuch Debtor determines, in its commercially reasonable business judgment, thatthe preservation of such Mark is no longer desirable in the conduct of itsbusiness.

 

**Section 4.4.****                                Maintenanceof Registration**.  Each Debtorshall, at its own expense, diligently process all documents required by theTrademark Act of 1946, 15 U.S.C. §§ 1051 etseq. to maintaintrademark registrations, including but not limited to affidavits of use andapplications for renewals of registration in the United States Patent andTrademark Office for all of its registered Marks pursuant to 15 U.S.C. §§ 1058(a),1059 and 1065, and shall pay all fees and disbursements in connection therewithand shall not abandon any such filing of affidavit of use or any suchapplication of renewal prior to the exhaustion of all administrative andjudicial remedies without prior written consent of the Purchasers; provided,that, prior to any Default, no Debtor shall be obligated to maintain any Markin the event that such Debtor determines, in its commercially reasonablebusiness judgment, that the maintenance of such Mark is no longer necessary ordesirable in the conduct of its business.

 

**Section 4.5.****                                FutureRegistered Marks**.  If any Markregistration issues hereafter to a Debtor as a result of any application now orhereafter pending before the United States Patent and Trademark Office, within60 days of receipt of such certificate, such Debtor shall deliver to thePurchasers a copy of such certificate, and an assignment for security in suchMark, to the Purchasers and at the expense of such Debtor, confirming theassignment for security in such Mark to the Purchasers hereunder, in such formas may be reasonably satisfactory to the Purchasers.

 

**Section 4.6.****                                Remedies**.  If an Event of Default shall occur and becontinuing, the Purchasers may take any or all of the following actions if suchDebtor does not have a Senior Lender:  (a) declarethe entire right, title and interest of such Debtor in and to each of theMarks, together with all trademark rights and rights of protection to the same,vested in the Purchasers for the benefit of the Purchasers, in which event therights, title and interest shall immediately vest, in the Purchasers for thebenefit of the Purchasers, and the Purchasers shall be entitled to exercise thepower of attorney referred to in Section 4.1 hereof to execute, cause tobe acknowledged and notarized and record said absolute assignment with theapplicable agency; (b) take and use or sell the Marks and the goodwill ofsuch Debtor’s business symbolized by the Marks and the right to carry on thebusiness and use the assets of such Debtor in connection with

 

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which the Marks have been used; and (c) direct such Debtor torefrain, in which event such Debtor shall refrain, from using the Marks in anymanner whatsoever, directly or indirectly, and, if requested by the Purchasers,change such Debtor’s corporate name to eliminate therefrom any use of any Markand execute such other and further documents that the Purchasers may request tofurther confirm this and to transfer ownership of the Marks and registrationsand any pending trademark application in the United States Patent and TrademarkOffice to the Purchasers.

 

**Section 4.7.****                                CollateralAssignment**.  This Agreement ismade for collateral security purposes only. This Agreement and Purchasers’ Security Interest in the Marks shallcontinue in full force and effect as long as any Obligations shall be owed tothe Purchasers (or any of said Purchasers). Upon payment in full of the Obligations and termination of the PurchaseAgreement, this Agreement shall terminate and Purchasers shall promptly executeand deliver to each Debtor, at such Debtor’s expense, all terminationstatements and other instruments as may be necessary or proper to terminatePurchasers’ security interest in the Marks, subject to any disposition thereofwhich may have been made by Purchasers pursuant to this Agreement or thePurchase Agreement.

 

**ARTICLE 5**

 

**SPECIALPROVISIONS CONCERNINGPATENTS, COPYRIGHTS AND TRADE SECRETS**

 

**Section 5.1.****                                AdditionalRepresentations and Warranties**. Each Debtor represents and warrants that, as of the date hereof, it isthe true and lawful owner of all rights in (a) all material Trade Secretsand Proprietary Information necessary to operate the business of such Debtor, (b) thePatents listed in Schedule G hereto for the Debtor and that saidPatents constitute all the patents and applications for patents that the Debtorowns on the date hereof and (c) the Copyrights listed in Schedule Hhereto and that said Copyrights constitute all registrations of copyrights andapplications for copyright registrations that such Debtor owns on the datehereof.  Each Debtor further warrantsthat it has no knowledge of any third party claim that any aspect of suchDebtor’s present or contemplated business operations infringes or will infringeany patent or any copyright or such Debtor has misappropriated any Trade Secretor Proprietary Information, in each case in any respect which could reasonablybe expected to have a material adverse effect on the business, operations,property, assets, liabilities or condition (financial or otherwise) of suchDebtor.  Each Debtor hereby grants to thePurchasers an absolute power of attorney to sign, upon the occurrence andduring the continuance of an Event of Default, any document which may berequired by the United States Patent and Trademark Office or the United StatesCopyright Office in order to effect an absolute assignment of all right, titleand interest in each Patent and Copyright, and to record the same; providedthat such power of attorney may be exercised only if Debtor does not have aSenior Lender.

 

**Section 5.2.****                                Infringements**.Each Debtor agrees, promptly upon learning thereof, to furnish the Purchasersin writing with all pertinent information available to such Debtor with respectto any infringement, contributing infringement or active inducement to infringein any material respect any material Patent or Copyright or to any claim thatthe practice of any material Patent or the use of any material Copyrightviolates in any material respect any property right of a third party, or withrespect to any misappropriation of any material Trade Secret Right or any

 

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claim that practice of any material Trade Secret Right violates in anymaterial respect any property right of a third party.  Each Debtor further agrees, to the extentconsistent with commercially reasonable business practices, to prosecute anyPerson infringing any Patent or Copyright or any Person misappropriating anyTrade Secret Right.

 

**Section 5.3.****                                Maintenanceof Patents**.  At its own expense,each Debtor shall make timely payment of all post-issuance fees requiredpursuant to 35 U.S.C. § 41 to maintain in force rights under each Patent,absent prior written consent of the Purchasers; provided, that no Debtorshall be obligated to maintain any Patent in the event such Debtor determines,in its commercially reasonable business judgment, that the maintenance of suchPatent is no longer necessary or desirable in the conduct of its business.

 

**Section 5.4.****                                Prosecutionof Patent Application**.  At itsown expense, each Debtor shall diligently prosecute all applications forPatents for such Debtor and shall not abandon any such application prior toexhaustion of all administrative and judicial remedies, absent written consentof the Purchasers; provided, that no Debtor shall be obligated toprosecute any application in the event such Debtor determines, in itscommercially reasonable business judgment, that the prosecuting of suchapplication is no longer necessary or desirable in the conduct of its business.

 

**Section 5.5.****                                OtherPatents and Copyrights**.  Within60 days of the acquisition or issuance of a Patent, registration of aCopyright, or acquisition of a registered copyright, each Debtor shall deliverto the Purchasers a copy of said Copyright or certificate or registration ofsaid Patents, as the case may be, with an assignment for security as to suchPatent or Copyright, as the case may be, to the Purchasers and at the expenseof such Debtor, confirming the assignment for security, in such form as may bereasonably satisfactory to the Purchasers.

 

**Section 5.6.****                                Remedies**.  If an Event of Default shall occur and becontinuing, the Purchasers may take any or all of the following actions if aDebtor does not have a Senior Lender:  (a) declarethe entire right, title, and interest of such Debtor in each of the Patents andCopyrights vested in the Purchasers for the benefit of the Purchasers, in whichevent such right, title, and interest shall immediately vest in the Purchasersfor the benefit of the Purchasers, in which case the Purchasers shall beentitled to exercise the power of attorney referred to in Section 5.1hereof to execute, cause to be acknowledged and notarized and to record saidabsolute assignment with the applicable agency; (b) take and practice orsell the Patents and Copyrights; and (c) direct such Debtor to refrain, inwhich event such Debtor shall refrain, from practicing the Patents and usingthe Copyrights directly or indirectly, and such Debtor shall execute such otherand further documents as the Purchasers may request further to confirm this andto transfer ownership of the Patents and Copyrights to the Purchasers for thebenefit of the Purchasers.

 

**ARTICLE 6**

 

**SPECIALPROVISIONS CONCERNING STOCK COLLATERAL**

 

**Section 6.1.****                                AdditionalRepresentations**.  Each Debtor hasthe right to vote the Pledged Securities and there are no restrictions upon thevoting rights associated with, or the

 

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transfer of, any of the Pledged Securities, except as provided byfederal and state laws applicable to the sale of securities generally and theterms of this Agreement.  The PledgedSecurities have been validly issued and, except as described on Schedule A,are fully paid and non assessable. Except as set forth on Schedule A, there are no outstandingcommitments or other obligations of the issuers of any of the PledgedSecurities to issue, and no options, warrants or other rights of any individualor entity to acquire, any share of any class or series of capital stock of suchissuers.  The Pledged Securities listedand described on Schedule A attached hereto constitute thepercentage of the issued and outstanding capital stock of each series and classof the issuers thereof as set forth thereon owned by the relevant Debtor.  Each Debtor agrees that in the event any suchissuer shall issue any additional capital stock of any series or class (whetheror not entitled to vote) to such Debtor or otherwise on account of itsownership interest therein, subject to the limitations set forth in Section 2(a) above,such Debtor will forthwith pledge hereunder, or cause to be pledged hereunder,all such additional shares of such capital stock.

 

**Section 6.2.****                                Deliveryof Certificates**.  Subject to therights of the Senior Lenders, the certificates for all shares or units of thePledged Securities evidenced by a certificate shall be delivered by therelevant Debtor to the Purchasers duly endorsed in blank for transfer oraccompanied by an appropriate assignment or assignments or an appropriateundated stock power or powers, in every case sufficient to transfer titlethereto.  Subject to the rights of theSenior Lenders, the Purchasers may, at any time after the occurrence of anEvent of Default, cause to be transferred into its name or into the name of itsnominee or nominees any and all of the Pledged Securities.  The Purchasers shall at all times have theright to exchange the certificates representing the Pledged Securities forcertificates of smaller or larger denominations.

 

**Section 6.3.****                                Remedies**.  Unless and until an Event of Defaulthereunder has occurred and is continuing and thereafter until notified by thePurchasers hereof:

 

(a)                                  EachDebtor shall be entitled to exercise all voting and/or consensual powerspertaining to the Collateral of such Debtor, or any part thereof, for allpurposes not inconsistent with the terms of this Agreement or any otherdocument evidencing or otherwise relating to any of the Obligations.

 

(b)                                 EachDebtor shall be entitled to receive and retain all dividends and distributionsin respect of the Collateral which are paid in cash of whatsoever nature;provided, however, that, if such Debtor does not have a Senior Lender, suchdividends and distributions representing stock or liquidating dividends or adistribution or return of capital upon or in respect of the Pledged Securitiesor any part thereof or resulting from a split up, revision or reclassificationof the Pledged Securities or any part thereof or received in addition to, insubstitution of or in exchange for the Pledged Securities or any part thereofas a result of a merger, consolidation or otherwise, shall be paid, deliveredor transferred, as appropriate, directly to the Purchasers immediately upon thereceipt thereof by such Debtor and may, in the case of cash, be applied by thePurchasers to the Obligations in such order and manner as the Agent shalldetermine and otherwise in accordance with the terms of the Credit Agreement,whether or not the same may then be due or otherwise adequately secured andshall, in the case of all other property, together with any cash received bythe Agent and not applied as aforesaid, be held by the Agent

 

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pursuant hereto as part of the Collateralpledged under and subject to the terms of this Agreement.

 

(c)                                  Inorder to permit each Debtor to exercise such voting and/or consensual powerswhich it is entitled to exercise under subsection (a) above and toreceive such distributions which such Debtor is entitled to receive and retainunder subsection (b) above, the Agent will, if necessary, upon thewritten request of such Debtor, from time to time execute and deliver to suchDebtor appropriate proxies and dividend orders.

 

**ARTICLE 7**

 

**PROVISIONSCONCERNING ALL COLLATERAL**

 

**Section 7.1.****                                Protectionof Purchasers’ Security**.  EachDebtor will at all times keep its Inventory and Equipment insured in favor ofthe Purchasers, at such Debtor’s own expense to the extent and in the mannerprovided in the Purchase Agreement; all policies or certificates with respectto such insurance (a) subject to the rights of the Senior Lender, shall beendorsed to the Purchasers’ commercially reasonable satisfaction for thebenefit of the Purchasers (including, without limitation, by naming thePurchasers as additional insured and loss payee) and (b) shall state thatsuch insurance policies shall not be canceled without 30 days’ prior writtennotice thereof by the insurer to the Purchasers; and certified copies of suchpolicies or certificates with respect thereto shall be deposited with thePurchasers.  If a Debtor shall fail toinsure its Inventory and Equipment in accordance with the preceding sentence,or if Debtor shall fail to so endorse and deposit all policies or certificateswith respect thereto, the Purchasers shall have the right (but shall be underno obligation), upon prior written notice to such Debtor, to procure suchinsurance and each Debtor agrees to promptly reimburse the Purchasers for allreasonable costs and expenses of procuring such insurance.  The Purchasers shall, at the time anyproceeds of such insurance are distributed to the Purchasers, apply such proceedsin accordance with Section 9.4 hereof. Each Debtor assumes all liability and responsibility in connection withthe Collateral acquired by it and the liability of such Debtor to pay theObligations shall in no way be affected or diminished by reason of the factthat such Collateral may be lost, destroyed, stolen, damaged or for any reasonwhatsoever unavailable to such Debtor.

 

**Section 7.2.****                                FurtherActions**.  Each Debtor will, atits own expense, make, execute, endorse, acknowledge, file and/or deliver tothe Purchasers from time to time such lists, descriptions and designations ofits Collateral, warehouse receipts, receipts in the nature of warehousereceipts, bills of lading, documents of title, vouchers, invoices, schedules,confirmatory assignments, conveyances, transfer endorsements, powers ofattorney, certificates, reports and other assurances or instruments and takesuch further steps relating to the Collateral and other property or rightscovered by the security interest hereby granted, which the Purchasers deemreasonably appropriate or advisable to perfect, preserve or protect itssecurity interest in the Collateral.

 

**Section 7.3.****                                FinancingStatements; Etc**.  Each Debtoragrees to execute and deliver to the Purchasers such further agreements,assignments, instruments, and documents, and to do all such other things, asthe Purchasers may reasonably deem necessary or appropriate to assure thePurchasers its lien and Security Interest hereunder, including, withoutlimitation, (i) such

 

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financing statements or other instruments and documents as the Agentmay from time to time reasonably require to comply with the Uniform CommercialCode and any other applicable law, (ii) such agreements with respect to patents,trademarks, copyrights, and similar intellectual property rights as thePurchasers may from time to time reasonably require to comply with the filingrequirements of the United States Patent and Trademark Office and the UnitedStates Copyright Office, and (iii) such control agreements with respect toDeposit Accounts, Investment Property, Letter of Credit Rights, and electronicChattel Paper, and to cause the relevant depository institutions, financialintermediaries, and issuers to execute and deliver such control agreements, asthe Purchasers may from time to time reasonably require.  Each Debtor hereby agrees that a carbon,photographic or other reproduction of this Agreement or any such financingstatement is sufficient for filing as a financing statement by the Purchaserswithout notice thereof to such Debtor wherever the Purchasers in their solediscretion desire to file the same.  EachDebtor hereby authorizes the Purchasers to file any and all financingstatements covering the Collateral or any part thereof as the Purchasers mayrequire, including financing statements describing the Collateral as “allassets” or “all personal property” or words of like meaning.  In the event for any reason the law of anyjurisdiction other than California becomes or is applicable to the Collateralor any part thereof, or to any of the Obligations, each Debtor agrees toexecute and deliver all such agreements, assignments, instruments, anddocuments and to do all such other things as the Purchasers reasonably deemnecessary or appropriate to preserve, protect, and enforce the securityinterest of the Purchasers under the law of such other jurisdiction.

 

**ARTICLE 8**

 

**GUARANTEE**

 

**Section 8.1.****                                TheGuarantee**.  To induce thePurchasers to enter into the Purchase Agreement and in consideration ofbenefits expected to accrue to the Company by reason of the Purchase Agreementand for other good and valuable consideration, receipt of which is herebyacknowledged, the Subsidiary hereby unconditionally and irrevocably guaranteesjointly and severally to the Purchasers, the due and punctual payment of allpresent and future Obligations, in each case as and when the same shall becomedue and payable, whether at stated maturity, by acceleration, or otherwise,according to the terms hereof and thereof (including interest which, but forthe filing of a petition in bankruptcy, would otherwise accrue on any suchindebtedness, obligation, or liability). In case of failure by the Company or other obligor punctually to pay anyObligations guaranteed hereby, the Subsidiary hereby unconditionally agrees tomake such payment or to cause such payment to be made punctually as and whenthe same shall become due and payable, whether at stated maturity, byacceleration, or otherwise, and as if such payment were made by the Company orsuch obligor.

 

**Section 8.2.****                                GuaranteeUnconditional**.  The obligationsof the Subsidiary under this Article 8 shall be unconditional and absoluteand, without limiting the generality of the foregoing, shall not be released,discharged, or otherwise affected by:

 

(a)                                  anyextension, renewal, settlement, compromise, waiver, or release in respect ofany obligation of the Company or other obligor or of any other guarantor underthis Agreement or the Purchase Agreement or by operation of law or otherwise;

 

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(b)                                 anymodification or amendment of or supplement to this Agreement or the PurchaseAgreement;

 

(c)                                  anychange in the corporate existence, structure, or ownership of, or anyinsolvency, bankruptcy, reorganization, or other similar proceeding affecting,the Company or other obligor, any other guarantor, or any of their respectiveassets, or any resulting release or discharge of any obligation of the Companyor other obligor or of any other guarantor contained in this Agreement or thePurchase Agreement;

 

(d)                                 theexistence of any claim, set off, or other rights which the Company or otherobligor or any other guarantor may have at any time against the Purchasers orany other person or entity, whether or not arising in connection herewith;

 

(e)                                  anyfailure to assert, or any assertion of, any claim or demand or any exercise of,or failure to exercise, any rights or remedies against the Company or otherobligor, any other guarantor, or any other person or entity or property;

 

(f)                                    anyapplication of any sums by whomsoever paid or howsoever realized to anyobligation of the Company or other obligor, regardless of what obligations ofthe Company or other obligor remain unpaid;

 

(g)                                 anyinvalidity or unenforceability relating to or against the Company or otherobligor or any other guarantor for any reason of this Agreement or of thePurchase Agreement or any provision of applicable law or regulation purportingto prohibit the payment by the Company or other obligor or any other guarantorof the principal of or interest on the Notes or Obligations or any other amountpayable under the Purchase Agreement; or

 

(h)                                 anyother act or omission to act or delay of any kind by the Purchasers, or anyother person or entity or any other circumstance whatsoever that might, but forthe provisions of this paragraph, constitute a legal or equitable discharge ofthe obligations of the Subsidiary under this Article 8.

 

**Section 8.3.****                                DischargeOnly upon Payment in Full; Reinstatement in Certain Circumstances**.  The Subsidiary’s obligations under this Article 8shall remain in full force and effect until the Purchase Agreement isterminated and the principal of and interest on the Notes and all other amountspayable by the Company under the Purchase Agreement and this Security Agreementshall have been paid in full.  If at anytime any payment of the principal of or interest on the Notes or any Obligationor any other amount payable by the Company or other obligor or the Subsidiaryunder the Purchase Agreement or this Agreement is rescinded or must beotherwise restored or returned upon the insolvency, bankruptcy, orreorganization of the Company or other obligor or of any guarantor, orotherwise, the Subsidiary’s obligations under this Article 8 with respectto such payment shall be reinstated at such time as though such payment hadbecome due but had not been made at such time.

 

**Section 8.4.****                                Subrogation**.  The Subsidiary agrees it will not exerciseany rights which it may acquire by way of subrogation by any payment madehereunder, or otherwise, until all the Obligations shall have been paid in fullsubsequent to the termination of all the Purchase

 

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Agreement.  If any amount shallbe paid to the Subsidiary on account of such subrogation rights at any timeprior to the later of (x) the payment in full of the Obligations and all otheramounts payable by the Company hereunder and the Purchase Agreement and (y) thetermination of the Purchase Agreement, such amount shall be held in trust forthe benefit of the Purchasers and shall forthwith be paid to the Purchasers orbe credited and applied upon the Obligations.

 

**Section 8.5.****                                Waivers**.  The Subsidiary irrevocably waives acceptancehereof, presentment, demand, protest, and any notice not provided for herein,as well as any requirement that at any time any action be taken by thePurchasers, or any other person or entity against the Company or other obligor,another guarantor, or any other person or entity.

 

**Section 8.6.****                                Limiton Recovery**.  Notwithstanding anyother provision hereof, the right of recovery against the Subsidiary under thisArticle 8 shall not exceed $1.00 less than the lowest amount which wouldrender such Subsidiary’s obligations under this Article 8 void or voidableunder applicable law, including, without limitation, fraudulent conveyance law.

 

**Section 8.7.****                                Stayof Acceleration**.  If accelerationof the time for payment of any amount payable by the Company or other obligorunder this Agreement or the Purchase Agreement, is stayed upon the insolvency,bankruptcy or reorganization of the Company or such obligor, all such amountsotherwise subject to acceleration under the terms of this Agreement or thePurchase Agreement, shall nonetheless be payable by the Subsidiary hereunderforthwith on demand by the Purchasers.

 

**Section 8.8.****                                Benefitto Subsidiary**.  The Company andthe Subsidiary are engaged in related businesses and integrated to such anextent that the financial strength and flexibility of the Company has a directimpact on the success of the Subsidiary. The Subsidiary will derive substantial direct and indirect benefit fromthe extensions of credit hereunder.

 

**Section 8.9.****                                SubsidiaryCovenants**.  The Subsidiary shalltake such action as the Company is required by the Purchase Agreement or thisAgreement to cause the Subsidiary to take, and shall refrain from taking suchaction as the Company is required by the Purchase Agreement or this Agreementto prohibit the Subsidiary from taking.

 

**ARTICLE 9**

 

**REMEDIESUPON OCCURRENCE OF EVENT OF DEFAULT**

 

**Section 9.1.****                                Remedies;Obtaining the Collateral Upon Default**. Each Debtor agrees that, if an Event of Default shall have occurred andbe continuing, then and in every such case, the Purchasers, in addition to anyrights now or hereafter existing under applicable law, shall have all rights asa secured creditor under the UCC in all relevant jurisdictions subject to thesubordination thereof pursuant to Section 11.10 hereof, and may:

 

(a)                                  personally,or by agents or attorneys, immediately take possession of the Collateral or anypart thereof, from the Debtors or any other Person who then has possession ofany part thereof with or without notice or process of law, and for that purposemay enter upon such Debtor’s premises where any of the Collateral is located

 

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and remove the same and use in connectionwith such removal any and all services, supplies, aids and other facilities ofsuch Debtor;

 

(b)                                 instructthe obligor or obligors on any agreement, instrument or other obligation(including, without limitation, the Accounts) constituting the Collateral tomake any payment required by the terms of such agreement, instrument or otherobligation directly to the Purchasers;

 

(c)                                  withdrawall monies, securities and instruments in the Cash Collateral Account and/or inany other cash collateral account for application to the Obligations inaccordance with Section 9.4 hereof;

 

(d)                                 sell,assign or otherwise liquidate any or all of the Collateral or any part thereofin accordance with Section 9.2 hereof, or direct such Debtor to sell,assign or otherwise liquidate any or all of the Collateral or any part thereof,and, in each case, take possession of the proceeds of any such sale orliquidation;

 

(e)                                  takepossession of the Collateral or any part thereof, by directing the Debtors in writingto deliver the same to the Purchasers at any place or places reasonablydesignated by the Purchasers, in which event such Debtor shall at its ownexpense:

 

(i)                                     forthwithcause the same to be moved to the place or places so designated by the Purchasersand there delivered to the Purchasers;

 

(ii)                                  storeand keep any Collateral sodelivered to the Purchasers at such place or places pending further action bythe Purchasers as provided in Section 9.2 hereof; and

 

(iii)                               whilethe Collateral shall be so stored and kept, provide such guards and maintenanceservices as shall be necessary to protect the same and to preserve and maintainthem in good condition; and

 

(f)                                    licenseor sublicense, whether on an exclusive or nonexclusive basis, any Marks,Patents or Copyrights included in the Collateral for such term and on suchconditions and in such manner as the Purchasers shall in their commerciallyreasonable judgment determine;

 

it being understood that each Debtor’s obligation so to deliver theCollateral is of the essence of this Agreement and that, accordingly, uponapplication to a court of equity having jurisdiction, the Purchasers shall beentitled to a decree requiring specific performance by each Debtor of saidobligation.  The Purchasers agree thatthis Agreement may be enforced only by the unanimous action of the Purchasersand that no individual Purchaser shall have any right individually to seek toenforce this Agreement or to realize upon the security to be granted hereby, itbeing understood and agreed that such rights and remedies may be exercised bythe Purchasers for the benefit of the Purchasers upon the terms of thisAgreement.

 

**Section 9.2.****                                Remedies:Disposition of the Collateral**. Any Collateral repossessed by the Purchasers under or pursuant to Section 9.1hereof and any other Collateral whether or not so

 

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repossessed by the Purchasers, may be sold, assigned, leased orotherwise disposed of under one or more contracts or as an entirety, andwithout the necessity of gathering at the place of sale the property to besold, and in general in such manner, at such time or times, at such place orplaces and on such terms as the Purchasers may, in compliance with anymandatory requirements of applicable law, determine to be commerciallyreasonable.  Any of the Collateral may besold, leased or otherwise disposed of, in the condition in which the sameexisted when taken by the Purchasers or after any overhaul or repair at theexpense of each Debtor which the Purchasers shall determine to be commerciallyreasonable.  Any such disposition whichshall be a private sale or other private proceedings permitted by suchrequirements shall be made upon not less than 10 days’ written notice to eachDebtor specifying the time at which such disposition is to be made and theintended sale price or other consideration therefor, and shall be subject, forthe 10 days after the giving of such notice, to the right of each Debtor or anynominee of each Debtor to acquire the Collateral involved at a price or forsuch other consideration at least equal to the intended sale price or otherconsideration so specified, but in no event in an amount greater than theObligations then outstanding and provision for any contingent Obligationsreasonably acceptable to the Purchasers. Any such disposition which shall be a public sale permitted by suchrequirements shall be made upon not less than 10 days’ written notice to eachDebtor specifying the time and place of such sale and, in the absence ofapplicable requirements of law, shall be by public auction (which may, at thePurchasers’ option, be subject to reserve), after publication of notice of suchauction not less than 10 days prior thereto in two newspapers in generalcirculation in Los Angeles, California. To the extent permitted by any such requirement of law, the Purchasersmay bid for and become the purchaser of the Collateral or any item thereof,offered for sale in accordance with this Section without accountability tothe Debtors.  If, under mandatoryrequirements of applicable law, the Purchasers shall be required to makedisposition of the Collateral within a period of time which does not permit thegiving of notice to the Debtors as hereinabove specified, the Purchasers needgive the Debtors only such notice of disposition as shall be reasonablypracticable in view of such mandatory requirements of applicable law.

 

**Section 9.3.****                                Waiverof Claims**.  Except as otherwiseprovided in this Agreement or prohibited by applicable law, (a) THEDEBTORS HEREBY WAIVE, TO THE EXTENT PERMITTED BY APPLICABLE LAW, NOTICE ANDJUDICIAL HEARING IN CONNECTION WITH THE PURCHASERS’ TAKING POSSESSION OR THEPURCHASERS’ DISPOSITION OF ANY OF THE COLLATERAL, INCLUDING, WITHOUTLIMITATION, ANY AND ALL PRIOR NOTICE AND HEARING FOR ANY PREJUDGMENT REMEDY ORREMEDIES AND ANY SUCH RIGHT WHICH SUCH DEBTOR WOULD OTHERWISE HAVE UNDER THECONSTITUTION OR ANY STATUTE OF THE UNITED STATES OR OF ANY STATE, (b) theDebtors hereby further waive, to the extent permitted by law:

 

(i)                                     alldamages occasioned by such taking of possession except any damages which aredetermined by a final, non-appealable court order to have been caused by thePurchasers’ gross negligence or willful misconduct; and

 

(ii)                                  allother requirements as to the time, place and terms of sale or otherrequirements with respect to the enforcement of the Purchasers’ rightshereunder; and

 

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(iii)                               allrights of redemption, appraisement, valuation, stay, extension or moratoriumnow or hereafter in force under any applicable law in order to prevent or delaythe enforcement of this Agreement or the absolute sale of the Collateral or anyportion thereof, and each Debtor, for itself and all who may claim under it,insofar as it or they now or hereafter lawfully may, hereby waives the benefitof all such laws.

 

Any sale of, or the grant of options to purchase, or any otherrealization upon, any Collateral shall operate to divest all right, title,interest, claim and demand, either at law or in equity, of the Debtors thereinand thereto, and shall be a perpetual bar both at law and in equity against theDebtors and against any and all persons or entities claiming or attempting toclaim the Collateral so sold, optioned or realized upon, or any part thereof,from, through and under the Debtors.

 

**Section 9.4.****                                Applicationof Proceeds**.

 

(a)                                  Allmonies collected by the Purchasers upon any sale or other disposition of theCollateral, together with all other moneys received by the Purchasershereunder, shall be applied to the payment of the Obligations.

 

(b)                                 Itis understood and agreed that each Debtor shall remain liable to the extent ofany deficiency between the amount of the proceeds of the Collateral hereunderand the aggregate amount of the Obligations.

 

**Section 9.5.****                                RemediesCumulative**.  Each and everyright, power and remedy hereby specifically given to the Purchasers shall be inaddition to every other right, power and remedy specifically given under thisAgreement, the Purchase Agreement or now or hereafter existing at law, inequity or by statute and each and every right, power and remedy whetherspecifically herein given or otherwise existing may be exercised from time totime or simultaneously and as often and in such order as may be deemedexpedient by the Purchasers.  All suchrights, powers and remedies shall be cumulative and the exercise or thebeginning of the exercise of one shall not be deemed a waiver of the right toexercise any other or others.  No delayor omission of the Purchasers in the exercise of any such right, power orremedy and no renewal or extension of any of the Obligations shall impair anysuch right, power or remedy or shall be construed to be a waiver of any Defaultor Event of Default or an acquiescence therein. No notice to or demand on the Debtors in any case shall entitle it toany other or further notice or demand in similar or other circumstances orconstitute a waiver of any of the rights of the Purchasers to any other orfurther action in any circumstances without notice or demand.  In the event that the Purchasers shall bringany suit to enforce any of its rights hereunder and shall be entitled tojudgment, then in such suit the Purchasers may recover reasonable expenses,including reasonable attorneys’ fees, and the amounts thereof shall be includedin such judgment.

 

**Section 9.6.****                                Discontinuanceof Proceedings**.  In case thePurchasers shall have instituted any proceeding to enforce any right, power orremedy under this Agreement by foreclosure, sale, entry or otherwise, and suchproceeding shall have been discontinued or abandoned for any reason or shallhave been determined adversely to the Purchasers, then and in every such casethe Debtors, the Purchasers and each holder of any of the Obligations shall berestored to their former positions and rights hereunder with respect to theCollateral subject to

 

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the Security Interest created under this Agreement, and all rights,remedies and powers of the Purchasers shall continue as if no such proceedinghad been instituted.

 

**ARTICLE 10**

 

**DEFINITIONS**

 

Capitalized terms used in this Agreementwithout definition having the respective meanings ascribed to such terms in thePurchase Agreement. All other terms contained in this Security Agreement,unless the context indicates otherwise, have the meanings provided for by theUniform Commercial Code as in effect in the State of California to the extentthe same are used or defined therein.  Inaddition, the following terms shall have the meanings herein specified.  Such definitions shall be equally applicableto the singular and plural forms of the terms defined.

 

“Agreement” shall mean this SecurityAgreement as the same may be modified, supplemented or amended from time totime in accordance with its terms.

 

“Cash Collateral Account” shall mean anon-interest bearing cash collateral account maintained with, and in the soledominion and control of, the Purchasers for the benefit of the Purchasers.

 

“Copyrights” shall mean any United Statescopyright owned (or subject to the rights of ownership) by each Debtor,including any registrations of any copyright, in the United States CopyrightOffice, as well as any application for a copyright registration now orhereafter made with the United States Copyright Office by such Debtor.

 

“Default” shall mean any event which, withnotice or lapse of time, or both, would constitute an Event of Default.

 

“Event of Default” shall mean any Event ofDefault under, and as defined in, the Purchase Agreement and shall in anyevent, without limitation, include any payment default on any of theObligations after the expiration of any applicable grace period.

 

“Marks” shall mean any United Statestrademarks, service marks and trade names now owned, subject to a right ofownership or hereafter acquired by each Debtor, including any registration of,or application for, any trademarks and service marks in the United StatesPatent and Trademark Office, and any trade dress including logos and/or designsused by either of the Debtors in the United States.

 

“Obligations” shall mean (a) the fulland prompt payment when due (whether at the stated maturity, by acceleration orotherwise) of all obligations and liabilities of the Debtors now existing orhereafter incurred under, arising out of or in connection with the PurchaseAgreement as such relates to the Notes or any of the Notes issued thereunderand the due performance and compliance by the Debtors with the terms of thePurchase Agreement as such relates to the Notes and each such Note; (b) anyand all sums advanced by the Purchasers in accordance with the terms of thisAgreement or the Purchase Agreement in order to preserve the Collateral orpreserve their security interest in the Collateral; (c) in the event ofany proceeding for the

 

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collection or enforcement of any obligations or liabilities referred toin clause (a), after an Event of Default shall have occurred and be continuing,the reasonable expenses of re-taking, holding, preparing for sale or lease,selling or otherwise disposing of or realizing on the Collateral, or of anyexercise by the Purchasers of their rights hereunder, together with reasonableattorneys’ fees and court costs; (d) all amounts paid by any Indemnitee asto which such Indemnitee has the right to reimbursement under this Agreement;and (e) all other Purchaser Obligations.

 

“Patents” shall mean any United States patentowned, subject to a right of ownership by or hereafter acquired by the Debtorsand any divisions, continuations, reissues, reexaminations, extensions orrenewals thereof, as well as any application for a United States patent now orhereafter made by either of the Debtors or subject to a right of ownership insuch Debtor.

 

“Permitted Liens” shall mean any Liens setforth on Schedule I hereto.

 

“Proceeds” shall have the meaning provided inthe Uniform Commercial Code as in effect in the State of California on the datehereof or under other relevant law and, in any event, shall include, but not belimited to, (a) any and all proceeds of any insurance, indemnity, warrantyor guaranty payable to the Purchasers or the Debtors from time to time withrespect to any of the Collateral, (b) any and all payments (in any formwhatsoever) made or due and payable to the Debtors from time to time inconnection with any requisition, confiscation, condemnation, seizure orforfeiture of all or any part of the Collateral by any governmental authority(or any person acting under color of governmental authority) and (c) anyand all other amounts from time to time paid or payable under or in connectionwith any of the Collateral.

 

“Proprietary Information” means allinformation and know-how worldwide, including, without limitation, technicaldata, manufacturing data, research and development data, manufacturing data,research and development data, data relating to compositions, processes andformulations, manufacturing and production know-how and experience, managementknow-how, training programs, manufacturing, engineering and other drawings,specifications, performance criteria, operating instructions, maintenancemanuals, technology, technical information, software, engineering and computerdata and databases, design and engineering specifications, catalogs,promotional literature and financial, business and marketing plans, inventionsand invention disclosures.

 

“Senior Lender” shall have the meaningprovided in Section 11.10 of this Agreement.

 

“Termination Date” shall have the meaningprovided in Section 11.8 of this Agreement.

 

“Trade Secrets” means any secretly heldexisting engineering and other data, information, production procedures andother know-how relating to the design, manufacture, assembly, installation,use, operation, marketing, sale and servicing of any products or business ofthe Debtors worldwide whether written or not written.

 

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**ARTICLE 11**

 

**MISCELLANEOUS**

 

**Section 11.1.****                         Notices**.  Except as otherwise specified herein, allnotices, requests, demands or other communications to or upon the respectiveparties hereto shall be deemed to have been duly given or made when personallydelivered to the party to which such notice, request, demand or othercommunication is required or permitted to be given or made under thisAgreement, addressed as follows:

 

(a)                                  ifto the Debtors:

 

DynTek, Inc.

19700 Fairchild Road, Suite 2301

Irvine, California 92612

Attention: Chief Financial Officer

 

with a copy to,

 

[                     ]

 

(b)                                 ifto any Purchaser, at such address as such Purchaser shall have specified in thePurchase Agreement, with a copy to:

 

[                     ]

 

or at such other address as shall have been furnished in writing by anyperson or entity described above to the party required to give noticehereunder.

 

**Section 11.2.****                         Waiver;Amendment**.  None of the terms andconditions of this Agreement may be changed, waived, modified or varied in anymanner whatsoever unless in writing duly signed by each Debtor and the holdersof at least a majority of the outstanding principal amount of the Notes.

 

**Section 11.3.****                         ObligationsAbsolute**.  The obligations of theDebtors hereunder shall remain in full force and effect without regard to, andshall not be impaired by, (a) any bankruptcy, insolvency, reorganization,arrangement, readjustment, composition, liquidation or the like of the Debtorsexcept as required by applicable law; (b) any exercise or non-exercise ofany right, remedy, power or privilege under or in respect of this Agreement,the Purchase Agreement, the Notes issued thereunder or any waiver of any right,remedy, power or privilege under any other agreement; or (c) any amendmentto or modification of this Agreement, the Purchase Agreement, the Notes issuedthereunder or any security for any of the Obligations, other than amendments ormodifications of this Agreement.

 

**Section 11.4.****                         Successorsand Assigns**.  This Agreementshall be binding upon the Debtors and their successors and assigns and shallinure to the benefit of the Purchasers and their respective successors andassigns.  All agreements, statements,representations and warranties made by the Debtors herein or in any certificateor other instrument delivered by the Debtors or

 

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on its behalf under this Agreement shall be considered to have beenrelied upon by the Purchasers and shall survive the execution and delivery ofthis Agreement, the Purchase Agreement or the Notes issued thereunderregardless of any investigation made by the Purchasers or on their behalf.

 

**Section 11.5.****                         HeadingsDescriptive**.  The headings of theseveral sections of this Agreement are inserted for convenience only and shallnot in any way affect the meaning or construction of any provision of thisAgreement.

 

**Section 11.6.****                         GoverningLaw**.  THIS AGREEMENT AND THERIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE CONSTRUED INACCORDANCE WITH AND BE GOVERNED BY THE LAW OF THE STATE OF CALIFORNIA WITHOUTREGARD FOR CONFLICTS OF LAWS OF CHOICE OF LAWS PRINCIPLES.

 

**Section 11.7.****                         Debtor’sDuties**.  It is expressly agreed,anything herein contained to the contrary notwithstanding, that the Debtorsshall remain liable to perform all of the obligations, if any, assumed by itwith respect to the Collateral and the Purchasers shall not have anyobligations or liabilities with respect to any Collateral by reason of orarising out of this Agreement, nor shall the Purchasers be required orobligated in any manner to perform or fulfill any of the obligations of theDebtors under or with respect to any Collateral.

 

**Section 11.8.****                         Termination;Release**.  After the TerminationDate, this Agreement shall terminate (provided that all indemnities set forthin the Purchase Agreement shall survive such termination) and the Purchasers,at the request and expense of the Debtors, will promptly execute and deliver tothe Debtors a proper instrument or instruments (including Uniform CommercialCode termination statements on form UCC-3) acknowledging the satisfaction andtermination of this Agreement, and will duly assign, transfer and deliver tothe Debtors (without recourse and without any representation or warranty) suchof the Collateral as may be in the possession of the Purchasers and has nottheretofore been sold or otherwise applied or released pursuant to thisAgreement.  As used in this Agreement, “TerminationDate” shall mean the date upon which all Obligations then due and payable havebeen paid in full in cash, all commitments with respect thereto have terminatedand no Note is outstanding.

 

**Section 11.9.****                         Counterparts**.  This Agreement may be executed in any numberof counterparts and by the different parties hereto on separate counterparts,each of which when so executed and delivered shall be an original, but all ofwhich shall together constitute one and the same instrument.  A set of counterparts executed by all theparties hereto shall be lodged with the Debtors and the Purchasers.

 

**Section 11.10.****                  Subordination**.  The Security Interest granted pursuant tothis Agreement and Purchasers’ rights and remedies under this Agreement aresubordinate to the rights and remedies of Laurus Master Fund, Ltd. and NewEngland Technology Finance, LLC and any replacement lender therefore whichprovides working capital financing for Debtor (the “Senior Lenders”) and thepayment in full of any amounts owing to the Senior Lenders.

 

**[Remainderof page left intentionally blank.]**

 

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**IN WITNESS WHEREOF**,the parties hereto have caused this Agreement to be executed and delivered bytheir duly authorized officers as of the date first above written.

 
|                                                                                                                                                       | **DEBTORS:**              |
|------------------------------------------------------------------------------------------------------------------------------------------------------------|---------------------------|
|                                                                                                                                                       | **DYNTEK,  INC.**         |
|                                                                                                                                                       |                      |
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|                                                                                                                                                       | By:                       |   |   |
|                                                                                                                                                       | Name:                     |   |   |
|                                                                                                                                                       | Title:                    |   |   |
|                                                                                                                                                       |                      |
|                                                                                                                                                       | **DYNTEK SERVICES, INC.** |
|                                                                                                                                                       |                      |
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|                                                                                                                                                       | By:                       |   |   |
|                                                                                                                                                       | Name:                     |   |   |
|                                                                                                                                                       | Title:                    |   |   |
|                                                                                                                                                       |                      |
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| **PURCHASERS:**                                                                                                                                            | ** **                |
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| **[**                        **]** | ** **                |
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| By:                                                                                                                                                        |                      |   |
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