**Exhibit10.5**

 

**SECURITYAND PLEDGE AGREEMENT**

 

This **SECURITY ANDPLEDGE AGREEMENT**dated as of March 8, 2006, by and by and among **DynTek, Inc.**, a Delaware corporation (the “Company), **DynTek Services, Inc**., a Delaware corporation (the “Subsidiary” and, together withthe Company, the “Debtors”), and **Trust A-4 - Lloyd I.Miller,**a purchaser under that certain Purchase Agreement (ashereinafter defined) (the “Purchaser”). Certain defined terms are set forth inArticle 10 hereof.

 

**Recitals**

 

WHEREAS, the Company andcertain purchasers, including the Purchaser, are parties to a Note PurchaseAgreement dated as of the date hereof (the “Purchase Agreement”); and

 

WHEREAS, it is acondition to the Purchaser’s obligation to enter into the Purchase Agreementand to extend credit to the Company thereunder that the Debtors execute anddeliver this Security and Pledge Agreement as security for the payment andperformance of all obligations of the Debtors to the Purchaser and to guaranteeall of the obligations of the Debtors under the Purchase Agreement and thisAgreement.

 

**NOW,THEREFORE**, in consideration of the premises contained hereinand for other good and valuable consideration, the receipt and sufficiency ofwhich are hereby acknowledged, the parties hereto agree as follows:

 

**ARTICLE1.**

 

**GRANT OFSECURITY**

 

**Section1.1****                                   Grantof Security**. The Debtors hereby grant to the Purchaser a lien andcontinuing security interest (“Security Interest”) in and to, and a right ofset-off against, all of the following personal property and fixtures of theDebtors, whether now owned by or owing to, or hereafter acquired by or arisingin favor of, such Debtor (including under any trade names, styles orderivations thereof), and whether owned or consigned by or to, or leased fromor to, such Debtor, and regardless of where located (all of which beinghereinafter collectively referred to as the “Collateral”):

 

(a)                                  allAccounts;

 

### (b)                                 all Chattel Paper;

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### (c)                                  all documents;

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### (d)                                 all General Intangibles (including Marks,Copyrights, Patents, payment intangibles, Proprietary Information and TradeSecrets);

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### (e)                                  all Goods (including Inventory, Equipment andFixtures);

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### (f)                                    all Instruments;

 

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### (g)                                 all Investment Property, including (i) allshares of the capital stock or membership interests of each subsidiary owned orheld by each Debtor, whether now owned or hereafter formed or acquired (thoseshares and membership interests being listed and described on Schedule Aattached hereto), and all substitutions and additions to such shares (herein,the “Pledged Securities”), (ii) all dividends, distributions, and sumsdistributable or payable from, upon or in respect of the Pledged Securities,and (iii) all other rights and privileges incident to the PledgedSecurities (all of the foregoing being hereinafter referred to collectively asthe “Stock Collateral”);

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### (h)                                 all Deposit Accounts of such Debtor, including allblocked accounts, concentration accounts, disbursement accounts, and all otherbank  accounts and all deposits therein;

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### (i)                                     all money, cash or cash equivalents of suchDebtor;

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### (j)                                     all Supporting Obligations and Letter-of-CreditRights of such Debtor;

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### (k)                                  the commercial tort claims identified on ScheduleB hereto; and

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### (l)                                     to the extent not otherwise included, allProceeds, tort claims, insurance claims and other rights to payments nototherwise included in the foregoing and products of the foregoing and all othertangible and intangible personal property whatsoever of any Debtor includingall cash, products, offspring, rents, revenues, issues, profits, royalties, income,benefits, accessions, additions, substitutions and replacements of and to anyand all of the foregoing, including all Proceeds of and to any of the propertyof any of the Debtors described in the preceding paragraphs of this Section 1.1(including, without limitation, any loss proceeds or other Proceeds ofinsurance thereon (whether or not any Note Purchaser is loss payee thereof),and any indemnity, warranty or guarantee, payable by any reason of loss ordamage to or otherwise with respect to any of the foregoing, and all causes ofaction, claims and warranties now or hereafter held by any Debtor in respect ofany of the items listed above);

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*provided, however,*that a Security Interest in the Purchased Assets (as that term is defined bythe Asset Purchase Agreement andLiability Assumption Agreementand the Asset Purchase Agreement, each dated as of August 8, 2005(the “NETF Agreements”), among the Debtors and New England Technology Finance,LLC, a Delaware limited liability company) is not granted under this Agreementif the grant of a Lien in such Purchased Assets or in the manner contemplatedby this Agreement is prohibited by the terms of the NETF Agreements, but onlyto the extent that any such prohibition is not rendered ineffective pursuant tothe Uniform Commercial Code of the State of California or any other applicablelaw; *provided further, however,* that withrespect to the Purchased Assets described in the preceding clause that areexcluded from the Collateral by virtue of the NETF Agreements, such PurchasedAssets shall be excluded from the Collateral only to the extent and for so longas this Agreement conflicts with the NETF Agreements and the NETF Agreementscontinues validly to prohibit the creation of such security interest pursuantto this Agreement, and upon the expiration of such prohibition, the PurchasedAssets shall automatically be included in the Collateral, without furtheraction on

 

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the part of any Debtor orPurchaser; *provided further, however*, that theSecurity Interest granted hereunder in and to, and the right of set-offagainst, the Collateral shall be junior and subordinated to any securityinterest granted to SACC Partners, L.P. and Lloyd I. Miller, III (collectivelythe “Senior Purchasers”) under that certain Security and Pledge Agreement,dated as of the date hereof (the “Senior Security Agreement”), issued pursuantto the Note Purchase Agreement.

 

**Section1.2****                                   Securityfor Obligations**. This Agreement and the Security Interest shall securethe payment and performance of the Obligations.

 

**ARTICLE 2**

 

**GENERALREPRESENTATIONS, WARRANTIES AND COVENANTS**

 

Each Debtor represents,warrants and covenants, which representations, warranties and covenants shallsurvive execution and delivery of this Agreement, as follows:

 

**Section2.1****                                   NecessaryFilings**. All financing statements necessary or appropriate to perfectthe security interest granted by each Debtor to the Purchaser hereby in respectof the Collateral, which can be perfected by the filing of a financingstatement, have been filed and the Security Interest granted to the Purchaserpursuant to this Agreement in and to such Collateral constitutes a perfected SecurityInterest therein (to the extent that the same can be perfected by filing) priorto the rights of all other persons or entities therein (other than any suchrights pursuant to the Permitted Liens) and subject to no other Liens (otherthan Permitted Liens) and is entitled to all the rights, priorities andbenefits afforded by the Uniform Commercial Code of the State of California toperfected security interests.

 

**Section2.2****                                   NoLiens**. Each Debtor is, and as to Collateral acquired by it from time totime after the date hereof such Debtor will be, the owner of all Collateralpledged by it hereunder free from any Lien, security interest, encumbrance orother right, title or interest of any person or entity (other than PermittedLiens), and each Debtor shall defend the Collateral against all claims anddemands of all persons or entities at any time claiming the same or anyinterest therein (other than in connection with Permitted Liens) adverse to thePurchaser.

 

**Section 2.3****                                   OtherFinancing Statements**. To the best knowledge of each Debtor, as of thedate hereof, there is no financing statement covering or purporting to coverany interest of any kind in the Collateral (other than (i) the financingstatements filed in respect of Permitted Liens and (ii) the financingstatements identified in Schedule C hereof for which terminationstatements will be filed pursuant to the deadlines set forth in the PurchaseAgreement), and so long as any Purchaser Obligations or commitments withrespect thereto are outstanding, no Debtor will execute or authorize to befiled in any public office any financing statement (or similar statement orinstrument of registration under the law of any jurisdiction) or statementsrelating to the Collateral, except financing statements filed or to be filed inrespect of and covering the security interests granted hereby by such Debtor orin connection with Permitted Liens.

 

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**Section2.4****                                   ChiefExecutive Office; Records**.

 

(a)                                  Asof the date hereof, the chief executive office of each Debtor is located at theaddress indicated on Schedule D hereto for such Debtor. No Debtor willmove its chief executive office except to such new location as such Debtor mayestablish in accordance with the last sentence of this Section 2.4. A completeset of books of account and records of each Debtor relating to the Accounts,Chattel Paper and Documents are, and will continue to be, kept at such chiefexecutive office, at one or more of the other record locations set forth on ScheduleD hereto for such Debtor or at such new locations as such Debtor mayestablish in accordance with the last sentence of this Section 2.4.

 

(b)                                 AllAccounts, Chattel Paper and Documents of each Debtor are, and will continue tobe, maintained at, and controlled and directed (including, without limitation,for general accounting purposes) from, the office locations described above orsuch new location established in accordance with the last sentence of thisSection 2.4. No Debtor shall establish new locations for such offices until (a)it shall have given to the Purchaser not less than 30 days’ prior writtennotice of its intention to do so, clearly describing such new location andproviding such other information in connection therewith as the Purchaser mayreasonably request and (b) with respect to such new location, it shall havetaken all action reasonably satisfactory to the Purchaser, to maintain thesecurity interest of the Purchaser in the Collateral intended to be grantedhereby at all times fully perfected and in full force and effect.

 

**Section2.5****                                   Locationof Inventory and Equipment**. As of the date hereof, all Inventory andEquipment held by each Debtor is located at one of the locations shown onSchedule E hereto. Each Debtor agrees that all Inventory and Equipment now heldor subsequently acquired by it shall be kept at (or shall be in transport to)any one of the locations shown on Schedule E hereto, or such new location assuch Debtor may establish in accordance with the last sentence of this Section2.5. Each Debtor may establish a new location for Inventory and Equipment in ajurisdiction in which such Debtor currently does business and with respect towhich the Purchaser have a first perfected security interest in such Inventoryand Equipment (subject to Permitted Liens). Each Debtor may establish a newlocation outside of a jurisdiction in which it currently does business and withrespect to which the Purchaser have a first perfected security interest in suchInventory and Equipment only if (a) it shall have given to the Purchaser notless than 30 days’ prior written notice of its intention so to do, clearlydescribing such new location and providing such other information in connectiontherewith as the Purchaser may reasonably request and (b) with respect to suchnew location, it shall have taken all action reasonably satisfactory to thePurchaser to maintain the security interest of the Purchaser in the Collateralintended to be granted hereby at all times fully perfected and in full forceand effect.

 

**Section2.6****                                   Recourse**.This Agreement is made with full recourse to each Debtor and pursuant to andupon all the warranties, representations, covenants and agreements on the partof each Debtor contained herein, in the Purchase Agreement and otherwise inwriting in connection herewith or therewith.

 

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**Section2.7****                                   TradeNames; Change of Name**. Each Debtor’s legal name, jurisdiction oforganization and organizational number (if any) are correctly set forth underColumn 1 on Schedule F of this Agreement. No Debtor has transacted business atany time during the immediately preceding five year period, and does notcurrently transact business, under any other legal names or trade names other thanthe prior legal names and trade names (if any) set forth on Schedule F attachedhereto. No Debtor shall change its jurisdiction of organization without thePurchaser’s prior written consent. No Debtor shall change its legal name ortransact business under any other trade name without first giving 30 days’prior written notice of its intent to do so to the Purchaser. With respect tosuch new name or jurisdiction of organization, such Debtor shall have taken allaction reasonably requested by the Purchaser, to maintain the Security Interestat all times fully perfected and in full force and effect.

 

**ARTICLE 3**

 

**SPECIALPROVISIONS CONCERNING**

**ACCOUNTS;INSTRUMENTS**

 

**Section3.1****                                   AdditionalRepresentations and Warranties**. As of the time when each of itsAccounts arises, each Debtor shall be deemed to have represented and warrantedthat such Account, and all records, papers and documents relating thereto arewhat they purport to be in all material respects, and that such Account will,to the best knowledge of each Debtor, evidence true and valid obligations ofthe account debtor named therein.

 

**Section3.2****                                   Maintenanceof Records**. Each Debtor will keep and maintain at its own cost andexpense, records of its Accounts and each Debtor will make the same availableon such Debtor’s premises to the Purchaser for inspection, at such Debtor’s owncost and expense, at any and all commercially reasonable times uponcommercially reasonable prior notice to such Debtor. Upon the occurrence andduring the continuance of an Event of Default and at the commerciallyreasonable request of the Purchaser, each Debtor shall, at its own cost andexpense, deliver all tangible evidence of its Accounts, including, withoutlimitation, all documents evidencing the Accounts) and such books and recordsto the Purchaser or to its representatives (copies of which evidence and booksand records may be retained by each Debtor). If the Purchaser so directs, uponthe occurrence and during the continuance of an Event of Default, each Debtorshall legend, in form and manner satisfactory to the Purchaser, the Accounts,as well as books, records and documents of such Debtor evidencing or pertainingto such Receivables and Contracts with an appropriate reference to the factthat such Receivables and Contracts have been assigned to the Purchaser andthat the Purchaser has a security interest therein.

 

**Section3.3****                                   Directionto Account Debtors; Contracting Parties; Etc.**Upon the occurrence andduring the continuance of an Event of Default, and if the Purchaser so directseach Debtor if such Debtor does not have a Senior Lender, each Debtor agrees(a) to cause all payments on account of the Accounts, Deposit Accounts orGeneral Intangibles to be made directly to the Cash Collateral Account, (b)that the Purchaser may, at its option, directly notify the obligors withrespect to any Accounts, Deposit Accounts or General Intangibles to makepayments with respect thereto as provided in preceding clause (a) and (c) thatthe Purchaser may enforce collection of any such Accounts, Deposit Accounts orGeneral Intangibles and may

 

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adjust, settle or compromise the amount of payment thereof, in the samemanner and to the same extent as such Debtor. Without notice to or assent byeach Debtor, the Purchaser may apply any or all amounts then in, or thereafterdeposited in, the Cash Collateral Account which application shall be effectedin the manner provided in Section 7.4 of this Agreement. The reasonable costsand expenses (including reasonable attorneys’ fees) of collection, whetherincurred by such Debtor or the Purchaser, shall be borne by such Debtor. ThePurchaser shall deliver a copy of each notice referred to in the precedingclause (b) to such Debtor; provided, that the failure by the Purchaser to sonotify such Debtor shall not affect the effectiveness of such notice or theother rights of the Purchaser created by this Section 3.3.

 

**Section3.4****                                   Modificationof Terms; etc**. No Debtor shall rescind or cancel any indebtednessevidenced by any Account, or modify any term thereof or make any adjustmentwith respect thereto, or extend or renew the same, or compromise or settle anymaterial dispute, claim, suit or legal proceeding relating thereto, or sell anyAccount, or interest therein, without the prior written consent of thePurchaser, except in accordance with such Debtor’s commercially reasonablebusiness practices.

 

**Section3.5****                                   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 costsand expenses (including, without limitation, attorneys’ fees) of collection, ifincurred by each Debtor or the Purchaser, shall be borne by such Debtor.

 

**Section3.6****                                   Instruments**.If a Debtor owns or acquires any Instrument constituting Collateral, atPurchaser’s request upon the occurrence and during the continuation of an Eventof Default and if such Debtor does not have a Senior Lender, such Debtor willpromptly deliver such Instrument to the Purchaser appropriately endorsed to theorder of the Purchaser as further security hereunder. At the Purchaser’srequest, such Debtor that owns or acquires any other Instrument constitutingCollateral will, within 5 business days, promptly deliver such Instrument tothe Purchaser appropriately endorsed to the order of the Purchaser as furthersecurity hereunder.

 

**ARTICLE 4**

 

**SPECIALPROVISIONS CONCERNING MARKS**

 

**Section4.1****                                   AdditionalRepresentations and Warranties**. Each Debtor represents and warrantsthat, as of the date hereof, it is the true and lawful owner of all right,title and interest to or otherwise has the right to use the registered Markslisted in Schedule F hereto and that, as of the date hereof said listedMarks constitute all the marks and applications for marks registered in theUnited States Patent and Trademark Office that such Debtor presently owns oruses in connection with its business. Each Debtor represents and warrants thatit owns, is licensed to use or otherwise has the right to use all materialMarks that it uses. Each Debtor

 

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further warrants that it has no knowledge of any third party claim thatany aspect of such Debtor’s present or contemplated business operationsinfringes or will infringe any trademark, service mark or trade name in anyrespect which could reasonably be expected to have a material adverse effect onthe business, operations, property, assets, liabilities or condition (financialor otherwise) of such Debtor. Each Debtor represents and warrants that exceptas listed on Schedule F, as of the date hereof it is the beneficial andrecord owner of all trademark registrations and applications listed in ScheduleF hereto and that said registrations are valid and subsisting, and that noDebtor is aware of any third-party claim that any of said registrations inrespect of any material Mark is invalid or unenforceable. Each Debtor herebygrants to the Purchaser an absolute power of attorney to sign, upon theoccurrence and during the continuance of an Event of Default, any documentwhich may be required by the United States Patent and Trademark Office in orderto effect an absolute assignment of all right, title and interest in each Mark,and record the same; provided that such power of attorney may be exercised onlyif such Debtor does not have a Senior Lender.

 

**Section4.2****                                   Infringements**.Each Debtor agrees, promptly upon learning thereof, to notify the Purchaser inwriting of the name and address of, and to furnish such pertinent informationthat may be available with respect to, any party who such Debtor believes isinfringing or diluting or otherwise violating in any material respect any ofsuch Debtor’s rights in and to any material Mark, or with respect to any partyclaiming that such Debtor’s use of any material Mark violates in any materialrespect any property right of that party. Each Debtor further agrees toprosecute any Person infringing any material Mark in accordance withcommercially reasonable business practices.

 

**Section4.3****                                   Preservationof Marks**. Each Debtor agrees to use its Marks as required in each ofthe applicable jurisdictions during the time in which this Agreement is ineffect, sufficiently to preserve such Marks (and any registrations thereto) astrademarks or service marks under the laws of the United States and any otherapplicable law; provided, that, prior to any Default, no Debtor shall beobligated to preserve any Mark in the event such Debtor determines, in itscommercially reasonable business judgment, that the preservation of such Markis no longer desirable in the conduct of its business.

 

**Section4.4****                                   Maintenanceof Registration**. Each Debtor shall, at its own expense, diligentlyprocess all documents required by the Trademark Act of 1946, 15 U.S.C. §§ 1051 etseq. to maintain trademark registrations, including but not limited toaffidavits of use and applications for renewals of registration in the UnitedStates Patent and Trademark Office for all of its registered Marks pursuant to15 U.S.C. §§ 1058(a), 1059 and 1065, and shall pay all fees and disbursementsin connection therewith and shall not abandon any such filing of affidavit ofuse or any such application of renewal prior to the exhaustion of alladministrative and judicial remedies without prior written consent of thePurchaser; provided, that, prior to any Default, no Debtor shall beobligated to maintain any Mark in the event that such Debtor determines, in itscommercially reasonable business judgment, that the maintenance of such Mark isno longer necessary or desirable in the conduct of its business.

 

**Section4.5****                                   FutureRegistered Marks**. If any Mark registration issues hereafter to a Debtoras a result of any application now or hereafter pending before the UnitedStates Patent

 

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and Trademark Office, within 60 days of receipt of such certificate,such Debtor shall deliver to the Purchaser a copy of such certificate, and anassignment for security in such Mark, to the Purchaser and at the expense ofsuch Debtor, confirming the assignment for security in such Mark to thePurchaser hereunder, in such form as may be reasonably satisfactory to thePurchaser.

 

**Section4.6****                                   Remedies**.If an Event of Default shall occur and be continuing, the Purchaser may takeany or all of the following actions if such Debtor does not have a SeniorLender:  (a) declare the entire right,title and interest of such Debtor in and to each of the Marks, together withall trademark rights and rights of protection to the same, vested in thePurchaser for the benefit of the Purchaser, in which event the rights, titleand interest shall immediately vest, in the Purchaser for the benefit of thePurchaser, and the Purchaser shall be entitled to exercise the power ofattorney referred to in Section 4.1 hereof to execute, cause to be acknowledgedand notarized and record said absolute assignment with the applicable agency;(b) take and use or sell the Marks and the goodwill of such Debtor’s businesssymbolized by the Marks and the right to carry on the business and use theassets of such Debtor in connection with which the Marks have been used; and(c) direct such Debtor to refrain, in which event such Debtor shall refrain,from using the Marks in any manner whatsoever, directly or indirectly, and, ifrequested by the Purchaser, change such Debtor’s corporate name to eliminatetherefrom any use of any Mark and execute such other and further documents thatthe Purchaser may request to further confirm this and to transfer ownership ofthe Marks and registrations and any pending trademark application in the UnitedStates Patent and Trademark Office to the Purchaser.

 

**Section4.7****                                   CollateralAssignment**. This Agreement is made for collateral security purposesonly. This Agreement and Purchaser’s Security Interest in the Marks shallcontinue in full force and effect as long as any Obligations shall be owed tothe Purchaser (or any of said Purchaser). Upon payment in full of theObligations and termination of the Purchase Agreement, this Agreement shallterminate and Purchaser shall promptly execute and deliver to each Debtor, atsuch Debtor’s expense, all termination statements and other instruments as maybe necessary or proper to terminate Purchaser’s security interest in the Marks,subject to any disposition thereof which may have been made by Purchaserpursuant to this Agreement or the Purchase Agreement.

 

**ARTICLE 5**

 

**SPECIALPROVISIONS CONCERNING**

**PATENTS,COPYRIGHTS AND TRADE SECRETS**

 

**Section5.1****                                   AdditionalRepresentations and Warranties**. Each Debtor represents and warrantsthat, as of the date hereof, it is the true and lawful owner of all rights in(a) all material Trade Secrets and Proprietary Information necessary to operatethe business of such Debtor, (b) the Patents listed in Schedule H heretofor the Debtor and that said Patents constitute all the patents andapplications for patents that the Debtor owns on the date hereof and (c) theCopyrights listed in Schedule I hereto and that said Copyrightsconstitute all registrations of copyrights and applications for copyrightregistrations that such Debtor owns on the date hereof. Each Debtor furtherwarrants that it has no knowledge of any third party claim that any aspect of

 

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such Debtor’s present or contemplated business operations infringes orwill infringe any patent or any copyright or such Debtor has misappropriatedany Trade Secret or Proprietary Information, in each case in any respect whichcould reasonably 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 hereby grants to the Purchaser an absolute power ofattorney to sign, upon the occurrence and during the continuance of an Event ofDefault, any document which may be required by the United States Patent andTrademark Office or the United States Copyright Office in order to effect anabsolute assignment of all right, title and interest in each Patent andCopyright, and to record the same; provided that such power of attorney may beexercised only if such Debtor does not have a Senior Lender.

 

**Section5.2****                                   Infringements**.Each Debtor agrees, promptly upon learning thereof, to furnish the Purchaser inwriting with all pertinent information available to such Debtor with respect toany infringement, contributing infringement or active inducement to infringe inany material respect any material Patent or Copyright or to any claim that thepractice of any material Patent or the use of any material Copyright violatesin any material respect any property right of a third party, or with respect toany misappropriation of any material Trade Secret Right or any claim thatpractice of any material Trade Secret Right violates in any material respectany 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 paymentof all post-issuance fees required pursuant to 35 U.S.C. § 41 to maintain inforce rights under each Patent, absent prior written consent of the Purchaser; provided,that no Debtor shall be obligated to maintain any Patent in the event suchDebtor determines, in its commercially reasonable business judgment, that themaintenance of such Patent is no longer necessary or desirable in the conductof its business.

 

**Section5.4****                                   Prosecutionof Patent Application**. At its own expense, each Debtor shall diligentlyprosecute all applications for Patents for such Debtor and shall not abandonany such application prior to exhaustion of all administrative and judicialremedies, absent written consent of the Purchaser; provided, that noDebtor shall be obligated to prosecute any application in the event such Debtordetermines, in its commercially reasonable business judgment, that theprosecuting of such application is no longer necessary or desirable in theconduct of its business.

 

**Section5.5****                                   OtherPatents and Copyrights**. Within 60 days of the acquisition or issuanceof a Patent, registration of a Copyright, or acquisition of a registeredcopyright, each Debtor shall deliver to the Purchaser a copy of said Copyrightor certificate or registration of said Patents, as the case may be, with anassignment for security as to such Patent or Copyright, as the case may be, tothe Purchaser and at the expense of such Debtor, confirming the assignment forsecurity, in such form as may be reasonably satisfactory to the Purchaser.

 

**Section5.6****                                   Remedies**.If an Event of Default shall occur and be continuing, the Purchaser may takeany or all of the following actions if a Debtor does not have a SeniorLender:  (a) declare the entire right,title, and interest of such Debtor in each of the Patents and Copyrights

 

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vested in the Purchaser for the benefit of the Purchaser, in whichevent such right, title, and interest shall immediately vest in the Purchaserfor the benefit of the Purchaser, in which case the Purchaser shall be entitledto exercise the power of attorney referred to in Section 5.1 hereof to execute,cause to be acknowledged and notarized and to record said absolute assignmentwith the applicable agency; (b) take and practice or sell the Patents andCopyrights; and (c) direct such Debtor to refrain, in which event such Debtorshall refrain, from practicing the Patents and using the Copyrights directly orindirectly, and such Debtor shall execute such other and further documents asthe Purchaser may request further to confirm this and to transfer ownership ofthe Patents and Copyrights to the Purchaser for the benefit of the Purchaser.

 

**ARTICLE 6**

 

**SPECIAL PROVISIONS CONCERNING STOCK COLLATERAL**

 

**Section6.1****                                   AdditionalRepresentations**. Each Debtor has the right to vote the PledgedSecurities and there are no restrictions upon the voting rights associatedwith, or the 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 Pledged Securities 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 listed and described on Schedule Aattached hereto constitute the percentage of the issued and outstanding capitalstock of each series and class of the issuers thereof as set forth thereonowned 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 inSection 2(a) above, such Debtor will forthwith pledge hereunder, or causeto be pledged hereunder, all such additional shares of such capital stock.

 

**Section6.2****                                   Deliveryof Certificates**. Subject to the rights of a Senior Lender, thecertificates for all shares or units of the Pledged Securities evidenced by acertificate shall be delivered by the relevant Debtor to the Purchaser dulyendorsed in blank for transfer or accompanied by an appropriate assignment orassignments or an appropriate undated stock power or powers, in every case sufficientto transfer title thereto. Subject to the rights of a Senior Lender, thePurchaser may, at any time after the occurrence of an Event of Default, causeto be transferred into its name or into the name of its nominee or nominees anyand all of the Pledged Securities. The Purchaser 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 Default hereunder has occurred and is continuingand thereafter until notified by the Purchaser 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

 

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not inconsistent with theterms of this Agreement or any other document evidencing or otherwise relatingto 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 Purchaser immediately upon thereceipt thereof by such Debtor and may, in the case of cash, be applied by thePurchaser 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 pursuant hereto aspart of the Collateral pledged under and subject to the terms of thisAgreement.

 

(c)                                  Inorder to permit each Debtor to exercise such voting and/or consensual powerswhich it is entitled to exercise under subsection (a) above and to receivesuch distributions which such Debtor is entitled to receive and retain undersubsection (b) above, the Agent will, if necessary, upon the writtenrequest of such Debtor, from time to time execute and deliver to such Debtorappropriate proxies and dividend orders.

 

**ARTICLE 7**

 

**PROVISIONSCONCERNING ALL COLLATERAL**

 

**Section7.1****                                   Protectionof Purchaser’s Security**. Each Debtor will at all times keep itsInventory and Equipment insured in favor of the Purchaser, at such Debtor’s ownexpense to the extent and in the manner provided in the Purchase Agreement; allpolicies or certificates with respect to such insurance (a) subject to therights of the Senior Lender, shall be endorsed to the Purchaser’s commerciallyreasonable satisfaction for the benefit of the Purchaser (including, withoutlimitation, by naming the Purchaser as additional insured and loss payee) and(b) shall state that such insurance policies shall not be canceled without 30days’ prior written notice thereof by the insurer to the Purchaser; andcertified copies of such policies or certificates with respect thereto shall bedeposited with the Purchaser. If a Debtor shall fail to insure its Inventoryand Equipment in accordance with the preceding sentence, or if Debtor shallfail to so endorse and deposit all policies or certificates with respectthereto, the Purchaser shall have the right (but shall be under no obligation),upon prior written notice to such Debtor, to procure such insurance and eachDebtor agrees to promptly reimburse the Purchaser for all reasonable costs andexpenses of procuring such insurance. The Purchaser shall, at the time anyproceeds of such insurance are distributed to the Purchaser, apply suchproceeds in accordance with Section 9.4

 

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hereof. Each Debtor assumes all liability and responsibility inconnection with the Collateral acquired by it and the liability of such Debtorto pay the Obligations shall in no way be affected or diminished by reason ofthe fact that such Collateral may be lost, destroyed, stolen, damaged or forany reason whatsoever unavailable to such Debtor.

 

**Section7.2****                                   FurtherActions**. Each Debtor will, at its own expense, make, execute, endorse,acknowledge, file and/or deliver to the Purchaser from time to time such lists,descriptions and designations of its Collateral, warehouse receipts, receiptsin the nature of warehouse receipts, bills of lading, documents of title,vouchers, invoices, schedules, confirmatory assignments, conveyances, transferendorsements, powers of attorney, certificates, reports and other assurances orinstruments and take such further steps relating to the Collateral and otherproperty or rights covered by the security interest hereby granted, which thePurchaser deem reasonably appropriate or advisable to perfect, preserve orprotect its security interest in the Collateral.

 

**Section7.3****                                   FinancingStatements; Etc.**Each Debtor agrees to execute and deliver to thePurchaser such further agreements, assignments, instruments, and documents, andto do all such other things, as the Purchaser may reasonably deem necessary orappropriate to assure the Purchaser its lien and Security Interest hereunder,including, without limitation, (i) such financing statements or otherinstruments and documents as the Agent may from time to time reasonably requireto comply with the Uniform Commercial Code and any other applicable law, (ii)such agreements with respect to patents, trademarks, copyrights, and similarintellectual property rights as the Purchaser may from time to time reasonablyrequire to comply with the filing requirements of the United States Patent and TrademarkOffice and the United States Copyright Office, and (iii) such controlagreements with respect to Deposit Accounts, Investment Property, Letter ofCredit Rights, and electronic Chattel Paper, and to cause the relevantdepository institutions, financial intermediaries, and issuers to execute anddeliver such control agreements, as the Purchaser may from time to timereasonably require. Each Debtor hereby agrees that a carbon, photographic orother reproduction of this Agreement or any such financing statement issufficient for filing as a financing statement by the Purchaser without noticethereof to such Debtor wherever the Purchaser in their sole discretion desireto file the same. Each Debtor hereby authorizes the Purchaser to file any andall financing statements covering the Collateral or any part thereof as thePurchaser may require, including financing statements describing the Collateralas “all assets” or “all personal property” or words of like meaning. In theevent for any reason the law of any jurisdiction other than California becomesor is applicable to the Collateral or any part thereof, or to any of theObligations, each Debtor agrees to execute and deliver all such agreements,assignments, instruments, and documents and to do all such other things as thePurchaser reasonably deems necessary or appropriate to preserve, protect, andenforce the security interest of the Purchaser under the law of such otherjurisdiction.

 

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**ARTICLE 8**

 

**GUARANTEE**

 

**Section 8.1****                                  ****The Guarantee**. To induce the Purchaser to enter intothe Purchase Agreement  and inconsideration of benefits expected to accrue to the Company by reason of thePurchase Agreement and for other good and valuable consideration, receipt of whichis hereby acknowledged, the Subsidiary hereby unconditionally and irrevocablyguarantees jointly and severally to the Purchaser, the due and punctual paymentof all present and future Obligations, in each case as and when the same shallbecome due and payable, whether at stated maturity, by acceleration, orotherwise, according to the terms hereof and thereof (including interest which,but for the filing of a petition in bankruptcy, would otherwise accrue on anysuch indebtedness, obligation, or liability). In case of failure by the Companyor other obligor punctually to pay any Obligations guaranteed hereby, theSubsidiary hereby unconditionally agrees to make such payment or to cause suchpayment to be made punctually as and when the same shall become due andpayable, whether at stated maturity, by acceleration, or otherwise, and as ifsuch payment were made by the Company or such obligor.

 

**Section 8.2.****                               ****Guarantee Unconditional****.**Theobligations of the Subsidiary under this Article 8 shall be unconditionaland absolute and, without limiting the generality of the foregoing, shall notbe 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;

 

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

 

(c)                                  any changein the corporate existence, structure, or ownership of, or any insolvency,bankruptcy, reorganization, or other similar proceeding affecting, the Companyor other obligor, any other guarantor, or any of their respective assets, orany resulting release or discharge of any obligation of the Company or otherobligor or of any other guarantor contained in this Agreement or the PurchaseAgreement;

 

(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 Purchaser orany other person or entity, whether or not arising in connection herewith;

 

(e)                                  any failureto assert, or any assertion of, any claim or demand or any exercise of, orfailure 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;

 

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(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 Junior Notes or Obligations or any otheramount payable under the Purchase Agreement; or

 

(h)                                 any otheract or omission to act or delay of any kind by the Purchaser, or any otherperson or entity or any other circumstance whatsoever that might, but for theprovisions of this paragraph, constitute a legal or equitable discharge of theobligations of the Subsidiary under this Article 8.

 

**Section 8.3.****                               ****Discharge Only upon Payment in Full; Reinstatement in CertainCircumstances**. The Subsidiary’s obligations under thisArticle 8 shall remain in full force and effect until the Purchase Agreement isterminated and the principal of and interest on the Junior Notes and all otheramounts payable by the Company under the Purchase Agreement and this SecurityAgreement shall have been paid in full. If at any time any payment of theprincipal of or interest on the Junior Notes or any Obligation or any otheramount payable by the Company or other obligor or the Subsidiary under thePurchase Agreement or this Agreement is rescinded or must be otherwise restoredor returned upon the insolvency, bankruptcy, or reorganization of the Companyor other obligor or of any guarantor, or otherwise, the Subsidiary’sobligations under this Article 8 with respect to such payment shall bereinstated at such time as though such payment had become due but had not beenmade at such time.

 

**Section 8.4****                                  ****Subrogation**. The Subsidiary agrees it will notexercise any rights which it may acquire by way of subrogation by any paymentmade hereunder, or otherwise, until all the Obligations shall have been paid infull subsequent to the termination of all the Purchase Agreement. If any amountshall be paid to the Subsidiary on account of such subrogation rights at anytime prior to the later of (x) the payment in full of the Obligations andall other amounts payable by the Company hereunder and the Purchase Agreementand (y) the termination of the Purchase Agreement, such amount shall beheld in trust for the benefit of the Purchaser and shall forthwith be paid tothe Purchaser or be credited and applied upon the Obligations.

 

**Section 8.5****                                  ****Waivers****.**TheSubsidiary irrevocably waives acceptance hereof, presentment, demand, protest,and any notice not provided for herein, together with the rights, protectionsand defenses accorded by Sections 2787 through 2855 of the CaliforniaCivil Code which provide protections for and limitations on the obligations ofa guarantor such as, but not limited to, limitations that provide (i) incertain circumstances, that a notice be given to the guarantor of any defaultby the debtor or obligor which may result in liability to the guarantor,(ii) that the obligations of a guarantor cannot be greater in amount ormore burdensome than that of the obligor; (iii) that the guarantor willhave the same defenses to liability as the obligor, other than defenses arisingfrom the personal disability of the obligor; (iv) that a guarantor will beexonerated from liability, by any act of the creditor taken without theguarantor’s consent, which alters the original obligations of the obligor orimpairs or suspends any remedies or rights of the creditor against the obligoror security for the guaranteed obligation; (v) that the creditor’sacceptance of anything in partial satisfaction of the guaranteed obligationalso reduces the

 

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obligation of theguarantor to the same extent; and (vi) that a guarantor may require thecreditor to proceed against the obligor or security held by the creditor or topursue other remedies within the power of the creditor which cannot be pursuedby the guarantor before proceeding against the guarantor, as well as anyrequirement that at any time any action be taken by the Purchaser, or any otherperson or entity against the Company or other obligor, another guarantor, orany other person or entity.

 

**Section 8.6****                                  ****Limit on Recovery****.**Notwithstandingany other provision hereof, the right of recovery against the Subsidiary underthis Article 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****                                  ****Stay of Acceleration****.**Ifacceleration of the time for payment of any amount payable by the Company orother obligor under this Agreement or the Purchase Agreement, is stayed uponthe insolvency, bankruptcy or reorganization of the Company or such obligor,all such amounts otherwise subject to acceleration under the terms of thisAgreement or the Purchase Agreement, shall nonetheless be payable by theSubsidiary hereunder forthwith on demand by the Purchaser.

 

**Section 8.8****                                  ****Benefit to Subsidiary****.**The Companyand the 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 substantialdirect and indirect benefit from the extensions of credit hereunder.

 

**Section8.9****                                   SubsidiaryCovenants.**The Subsidiary shall take such action as the Company isrequired by the Purchase Agreement or this Agreement to cause the Subsidiary totake, and shall refrain from taking such action as the Company is required bythe Purchase Agreement or this Agreement to prohibit the Subsidiary fromtaking.

 

**ARTICLE 9**

 

**REMEDIESUPON OCCURRENCE OF EVENT OF DEFAULT**

 

**Section9.1****                                   Remedies;Obtaining the Collateral Upon Default**. Each Debtor agrees that, if anEvent of Default shall have occurred and be continuing, then and in every suchcase, the Purchaser, in addition to any rights now or hereafter existing underapplicable law, shall have all rights as a secured creditor under the UCC inall relevant jurisdictions subject to the subordination thereof pursuant toSection 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 locatedand remove the same and use in connection with such removal any and allservices, supplies, aids and other facilities of such Debtor;

 

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(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 Purchaser;

 

(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 orotherwise liquidate any or all of the Collateral or any part thereof, and, ineach case, take possession of the proceeds of any such sale or liquidation;

 

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

 

(i)                                     forthwithcause the same to be moved to the place or places so designated by thePurchaser and there delivered to the Purchaser;

 

(ii)                                  storeand keep any Collateral so delivered to the Purchaser at such place or placespending further action by the Purchaser 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 Purchaser shall in its commerciallyreasonable judgment determine;

 

it being understood thateach Debtor’s obligation so to deliver the Collateral is of the essence of thisAgreement and that, accordingly, upon application to a court of equity havingjurisdiction, the Purchaser shall be entitled to a decree requiring specificperformance by each Debtor of said obligation. The Purchaser agree that thisAgreement may be enforced by a holder of the majority in outstanding principalamount of Junior Notes, it being understood and agreed that such rights andremedies may be exercised by the Purchaser for the benefit of the Purchaserupon the terms of this Agreement.

 

**Section9.2****                                   Remedies:Disposition of the Collateral**. Any Collateral repossessed by thePurchaser under or pursuant to Section 9.1 hereof and any other Collateralwhether or not so repossessed by the Purchaser, may be sold, assigned, leasedor otherwise 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

 

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and on such terms as the Purchaser may, in compliance with anymandatory requirements of applicable law, determine to be commercially reasonable.Any of the Collateral may be sold, leased or otherwise disposed of, in thecondition in which the same existed when taken by the Purchaser or after anyoverhaul or repair at the expense of each Debtor which the Purchaser shalldetermine to be commercially reasonable. Any such disposition which shall be aprivate sale or other private proceedings permitted by such requirements shallbe made upon not less than 10 days’ written notice to each Debtor specifyingthe time at which such disposition is to be made and the intended sale price orother consideration therefor, and shall be subject, for the 10 days after thegiving of such notice, to the right of each Debtor or any nominee of eachDebtor to acquire the Collateral involved at a price or for such otherconsideration at least equal to the intended sale price or other considerationso specified, but in no event in an amount greater than the Obligations thenoutstanding and provision for any contingent Obligations reasonably acceptableto the Purchaser. Any such disposition which shall be a public sale permittedby such requirements shall be made upon not less than 10 days’ written noticeto each Debtor specifying the time and place of such sale and, in the absenceof applicable requirements of law, shall be by public auction (which may, atthe Purchaser’s option, be subject to reserve), after publication of notice ofsuch auction not less than 10 days prior thereto in two newspapers in generalcirculation in Los Angeles, California. To the extent permitted by any suchrequirement of law, the Purchaser may bid for and become the purchaser of theCollateral or any item thereof, offered for sale in accordance with thisSection without accountability to the Debtors. If, under mandatory requirementsof applicable law, the Purchaser shall be required to make disposition of theCollateral within a period of time which does not permit the giving of noticeto the Debtors as hereinabove specified, the Purchaser need give the Debtorsonly such notice of disposition as shall be reasonably practicable in view ofsuch mandatory requirements of applicable law.

 

**Section9.3****                                   Waiverof Claims**. Except as otherwise provided in this Agreement or prohibitedby applicable law, (a) THE DEBTORS HEREBY WAIVE, TO THE EXTENT PERMITTED BYAPPLICABLE LAW, NOTICE AND JUDICIAL HEARING IN CONNECTION WITH THE PURCHASER’STAKING POSSESSION OR THE PURCHASER’S DISPOSITION OF ANY OF THE COLLATERAL,INCLUDING, WITHOUT LIMITATION, ANY AND ALL PRIOR NOTICE AND HEARING FOR ANYPREJUDGMENT REMEDY OR REMEDIES AND ANY SUCH RIGHT WHICH SUCH DEBTOR WOULDOTHERWISE HAVE UNDER THE CONSTITUTION OR ANY STATUTE OF THE UNITED STATES OR OFANY STATE, (b) the Debtors hereby further waive, to the extent permitted bylaw:

 

(i)                                     all damagesoccasioned by such taking of possession except any damages which are determinedby a final, non-appealable court order to have been caused by the Purchaser’sgross 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 Purchaser’s rightshereunder; and

 

(iii)                               allrights of redemption, appraisement, valuation, stay, extension or moratoriumnow or hereafter in force under any applicable law in order to prevent

 

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or delay the enforcementof this Agreement or the absolute sale of the Collateral or any portionthereof, and each Debtor, for itself and all who may claim under it, insofar asit or they now or hereafter lawfully may, hereby waives the benefit of all suchlaws.

 

Any sale of, or the grantof options to purchase, or any other realization upon, any Collateral shalloperate to divest all right, title, interest, claim and demand, either at lawor in equity, of the Debtors therein and thereto, and shall be a perpetual barboth at law and in equity against the Debtors and against any and all personsor entities claiming or attempting to claim the Collateral so sold, optioned orrealized upon, or any part thereof, from, through and under the Debtors.

 

**Section9.4****                                   Applicationof Proceeds**.

 

(a)                                  All moniescollected by the Purchaser upon any sale or other disposition of theCollateral, together with all other moneys received by the Purchaser hereunder,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.

 

**Section9.5****                                   RemediesCumulative**. Each and every right, power and remedy hereby specificallygiven to the Purchaser shall be in addition to every other right, power andremedy specifically given under this Agreement, the Purchase Agreement or nowor hereafter existing at law, in equity or by statute and each and every right,power and remedy whether specifically herein given or otherwise existing may beexercised from time to time or simultaneously and as often and in such order asmay be deemed expedient by the Purchaser. All such rights, powers and remediesshall be cumulative and the exercise or the beginning of the exercise of oneshall not be deemed a waiver of the right to exercise any other or others. Nodelay or omission of the Purchaser 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 theDebtors in any case shall entitle it to any other or further notice or demandin similar or other circumstances or constitute a waiver of any of the rightsof the Purchaser to any other or further action in any circumstances withoutnotice or demand. In the event that the Purchaser shall bring any suit toenforce any of its rights hereunder and shall be entitled to judgment, then insuch suit the Purchaser may recover reasonable expenses, including reasonableattorneys’ fees, and the amounts thereof shall be included in such judgment.

 

**Section9.6****                                   Discontinuanceof Proceedings**. In case the Purchaser shall have instituted anyproceeding to enforce any right, power or remedy under this Agreement byforeclosure, sale, entry or otherwise, and such proceeding shall have beendiscontinued or abandoned for any reason or shall have been determinedadversely to the Purchaser, then and in every such case the Debtors, thePurchaser and each holder of any of the Obligations shall be restored to theirformer positions and rights hereunder with respect to the Collateral subject tothe

 

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

 

**Section9.7****                                   Attorney-in-Fact.**Without limiting any rights orpowers granted by this Agreement to the Purchaser while no Event ofDefault has occurred and is continuing, upon the occurrence and during thecontinuance of any Event of Default the Purchaser is hereby appointed theattorney-in-fact of the Debtors for the purpose of carrying out theprovisions of this Agreement and taking any action and executing anyinstruments which may be reasonably required to accomplish the purposes hereof,which appointment as attorney-in-fact is irrevocable and coupled with aninterest. Without limiting the generality of the foregoing, the Purchasershall have the right and power to receive, endorse and collect all checks madepayable to the order of the Debtors representing any dividend, payment orother distribution in respect of the Collateral or any part thereof and to givefull discharge for the same.

 

**ARTICLE10**

 

**DEFINITIONS**

 

Capitalized terms used inthis Agreement without definition have the respective meanings ascribed to suchterms in the Purchase Agreement. All other capitalized terms contained in thisSecurity Agreement, unless the context indicates otherwise, have the meaningsprovided for by the Uniform Commercial Code as in effect in the State ofCalifornia to the extent the same are used or defined therein. In addition, thefollowing terms shall have the meanings herein specified. Such definitionsshall be equally applicable to the singular and plural forms of the termsdefined.

 

“Agreement” shall meanthis Security Agreement as the same may be modified, supplemented or amendedfrom time to time in accordance with its terms.

 

“Cash Collateral Account”shall mean a non-interest bearing cash collateral account maintained with, andin the sole dominion and control of, the Purchaser for the benefit of thePurchaser.

 

“Copyrights” shall meanany United States copyright owned (or subject to the rights of ownership) byeach Debtor, including any registrations of any copyright, in the United StatesCopyright Office, as well as any application for a copyright registration nowor hereafter made with the United States Copyright Office by such Debtor.

 

“Default” shall mean anyevent which, with notice or lapse of time, or both, would constitute an Eventof Default.

 

“Event of Default” shallmean any Event of Default under, and as defined in, the Purchase Agreement andshall in any event, without limitation, include any payment default on any ofthe Obligations after the expiration of any applicable grace period.

 

“Junior Note” shall havethe meaning set forth in the Note Purchase Agreement.

 

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“Marks” shall mean anyUnited States trademarks, service marks and trade names now owned, subject to aright of ownership or hereafter acquired by each Debtor, including anyregistration of, or application for, any trademarks and service marks in theUnited States Patent and Trademark Office, and any trade dress including logosand/or designs used by either of the Debtors in the United States.

 

“Notes” shall meancollectively the Junior Notes and the Senior Notes.

 

“Obligations” shall mean(a) the full and prompt payment when due (whether at the stated maturity, byacceleration or otherwise) of all obligations and liabilities of the Debtorsnow existing or hereafter incurred under, arising out of or in connection withthe Purchase Agreement as such relates to the Junior Note or any of the JuniorNotes issued thereunder and the due performance and compliance by the Debtorswith the terms of the Purchase Agreement as such relates to the Junior Notesand each such Junior Note; (b) any and all sums advanced by the Purchaser inaccordance with the terms of this Agreement or the Purchase Agreement in orderto preserve the Collateral or preserve their security interest in theCollateral; (c) in the event of any proceeding for the collection orenforcement of any obligations or liabilities referred to in clause (a), afteran Event of Default shall have occurred and be continuing, the reasonableexpenses of re-taking, holding, preparing for sale or lease, selling orotherwise disposing of or realizing on the Collateral, or of any exercise bythe Purchaser of its rights hereunder, together with reasonable attorneys’ feesand court costs; (d) all amounts paid by any Indemnitee as to which suchIndemnitee has the right to reimbursement under this Agreement; and (e) allother Purchaser Obligations.

 

“Patents” shall mean anyUnited States patent owned, subject to a right of ownership by or hereafteracquired by the Debtors and any divisions, continuations, reissues,reexaminations, extensions or renewals thereof, as well as any application fora United States patent now or hereafter made by either of the Debtors orsubject to a right of ownership in such Debtor.

 

“Permitted Liens” shallmean any Liens set forth on Schedule I hereto.

 

“Proceeds” shall have themeaning provided in the Uniform Commercial Code as in effect in the State ofCalifornia on the date hereof or under other relevant law and, in any event,shall include, but not be limited to, (a) any and all proceeds of anyinsurance, indemnity, warranty or guaranty payable to the Purchaser or theDebtors from time to time with respect to any of the Collateral, (b) any andall payments (in any form whatsoever) made or due and payable to the Debtorsfrom time to time in connection with any requisition, confiscation,condemnation, seizure or forfeiture of all or any part of the Collateral by anygovernmental authority (or any person acting under color of governmentalauthority) and (c) any and all other amounts from time to time paid or payableunder or in connection with any of the Collateral.

 

“Proprietary Information”means all information and know-how worldwide, including, without limitation,technical data, manufacturing data, research and development data,manufacturing data, research and development data, data relating tocompositions, processes and formulations, manufacturing and production know-howand experience, management know-how, training programs, manufacturing,engineering and other drawings, specifications, performance

 

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criteria, operating instructions, maintenance manuals, technology,technical information, software, engineering and computer data and databases,design and engineering specifications, catalogs, promotional literature andfinancial, business and marketing plans, inventions and invention disclosures.

 

“Senior Lender” shallhave the meaning provided in Section 11.10 of this Agreement.

 

“Senior Notes” shall havethe meaning set forth in the Note Purchase Agreement.

 

“Termination Date” shallhave the meaning provided in Section 11.8 of this Agreement.

 

“Trade Secrets” means anysecretly held existing engineering and other data, information, productionprocedures and other know-how relating to the design, manufacture, assembly,installation, use, operation, marketing, sale and servicing of any products orbusiness of the Debtors worldwide whether written or not written.

 

**ARTICLE11**

 

**MISCELLANEOUS**

 

**Section11.1****                            Notices**.Except as otherwise specified herein, all notices, requests, demands or othercommunications to or upon the respective parties hereto shall be deemed to havebeen duly given or made when personally delivered to the party to which suchnotice, request, demand or other communication is required or permitted to begiven or made under this Agreement, addressed as follows:

 
| (a)    |   | if to the Debtors:                                                                                                      |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                    |
|   |   | DynTek, Inc.                                                                                                            |
|   |   | 19700 Fairchild Road,  Suite 230                                                                                        |
|   |   | Irvine, California  92612                                                                                               |
|   |   | Attention: Chief  Financial Officer                                                                                     |
|   |   |                                                                                                                    |
|   |   | with a copy to,                                                                                                         |
|   |   |                                                                                                                    |
|   |   | Stradling Yocca Carlson  & Rauth                                                                                    |
|   |   | 660 Newport Center  Drive, Suite 1600                                                                                   |
|   |   | Newport Beach,  California 92660                                                                                        |
|   |   | Attention: Christopher  D. Ivey, Esq.                                                                                   |
|   |   |                                                                                                                    |
| (b)    |   | if to any Purchaser, at  such address as the Purchaser shall have specified in the Purchase Agreement,  with a copy to: |
|   |   |                                                                                                                    |
|   |   | Paul N. Silverstein,  Esq.                                                                                              |
|   |   | Andrews Kurth LLP                                                                                                       |
|   |   | 450 Lexington Avenue                                                                                                    |

 

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|   |   | New York, NY 10017        |
|--------|--------|---------------------------|
|   |   | Fax:  (212) 850-2929 |
|   |   | Tel: (212) 850-2800       |

 

or at such other addressas shall have been furnished in writing by any person or entity described aboveto the party required to give notice hereunder.

 

**Section11.2****                            Waiver;Amendment**. None of the terms and conditions of this Agreement may bechanged, waived, modified or varied in any manner whatsoever unless in writingduly signed by each Debtor and the holders of at least a majority of theoutstanding principal amount of the Junior Notes.

 

**Section11.3****                            ObligationsAbsolute**. The obligations of the Debtors hereunder shall remain in fullforce and effect without regard to, and shall not be impaired by, (a) anybankruptcy, insolvency, reorganization, arrangement, readjustment, composition,liquidation or the like of the Debtors except as required by applicable law;(b) any exercise or non-exercise of any right, remedy, power or privilege underor in respect of this Agreement, the Purchase Agreement, the Notes issuedthereunder or any waiver of any right, remedy, power or privilege under anyother agreement; or (c) any amendment to or modification of this Agreement, thePurchase Agreement, the Notes issued thereunder or any security for any of theObligations, other than amendments or modifications of this Agreement.

 

**Section11.4****                            Successorsand Assigns**. This Agreement shall be binding upon the Debtors and theirsuccessors and assigns and shall inure to the benefit of the Purchaser and itsrespective successors and assigns. All agreements, statements, representationsand warranties made by the Debtors herein or in any certificate or otherinstrument delivered by the Debtors or on its behalf under this Agreement shallbe considered to have been relied upon by the Purchaser and shall survive theexecution and delivery of this Agreement, the Purchase Agreement or the Notesissued thereunder regardless of any investigation made by the Purchaser or onits behalf.

 

**Section11.5****                            HeadingsDescriptive**. The headings of the several sections of this Agreement areinserted for convenience only and shall not in any way affect the meaning orconstruction of any provision of this Agreement.

 

**Section11.6****                            GoverningLaw**. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIESHEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY THE LAW OFTHE STATE OF CALIFORNIA WITHOUT REGARD FOR CONFLICTS OF LAWS OF CHOICE OF LAWSPRINCIPLES.

 

**Section11.7****                            Debtors’Duties**. It is expressly agreed, anything herein contained to thecontrary notwithstanding, that the Debtors shall remain liable to perform allof the obligations, if any, assumed by it with respect to the Collateral andthe Purchaser shall not have any obligations or liabilities with respect to anyCollateral by reason of or arising out of this Agreement, nor shall thePurchaser be required or obligated in any manner to perform or fulfill any ofthe obligations of the Debtors under or with respect to any Collateral.

 

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**Section11.8****                            Termination;Release**. After the Termination Date, this Agreement shall terminate(provided that all indemnities set forth in the Purchase Agreement shallsurvive such termination) and the Purchaser, at the request and expense of theDebtors, will promptly execute and deliver to the Debtors a proper instrumentor instruments (including Uniform Commercial Code termination statements onform UCC-3) acknowledging the satisfaction and termination of this Agreement,and will duly assign, transfer and deliver to the Debtors (without recourse andwithout any representation or warranty) such of the Collateral as may be in thepossession of the Purchaser and has not theretofore been sold or otherwiseapplied or released pursuant to this Agreement. 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 Junior Note is outstanding.

 

**Section11.9****                            Counterparts**.This Agreement may be executed in any number of counterparts and by thedifferent parties hereto on separate counterparts, each of which when soexecuted and delivered shall be an original, but all of which shall togetherconstitute one and the same instrument. A set of counterparts executed by all theparties hereto shall be lodged with the Debtors and the Purchaser.

 

**Section11.10****                     ****Subordination******. The SecurityInterest granted pursuant to this Agreement and Purchaser’s rights and remediesunder this Agreement are subordinate to the rights and remedies of and thesecurity interest granted to the Senior Purchasers under the Senior SecurityAgreement (each, a “Senior Lender”).  Upon the disposition and applicationof the Collateral under (and as defined in) the Senior Security Agreement thesubordination of the liens and security interests set forth in this Agreementshall terminate and the Obligations described herein and all rights andremedies of the Purchasers’ described herein shall rank **pari passu**in all respects with those set forth in the Senior Security Agreement.

 

**[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.** |
|   |         | ** ** |
|   |         |   |
|   |         | By: | /s/  Casper Zublin, Jr. |   |
|   |         | Name: | Casper  Zublin, Jr. |   |
|   |         | Title: | Chief  Executive Officer |   |
|   |         |   |
|   |         | **DYNTEK SERVICES, INC.** |
|   |         |   |
|   |         |   |
|   |         | By: | /s/  Robert I. Webber |   |
|   |         | Name: | Robert  I. Webber |   |
|   |         | Title: | Chief  Financial Officer |   |
|        |              |  |  |  |  |  |  |  |

 
| **PURCHASER:**                        |                     |   |
|---------------------------------------|--------------------------|--------|
|                                  |                     |   |
| **TRUST A-4 - LLOYD I. MILLER**       |                     |   |
|                                  |                     |   |
| By:  PNC Bank, National Association,  |                     |   |
| as  Trustee                           |                     |   |
|                                  |                     |   |
|                                  |                     |   |
| By:                                   | /s/ Lloyd I. Miller, III |   |   |   |
| Name:  Lloyd I. Miller, III           |                     |   |
| Title:  Investment Advisor to Trustee |                     |   |
|                                  |                     |   |
| Address:                              | 4550  Gordon Drive       |   |   |
|                                  | Naples,  FL 34102-7914   |   |   |
|                                  | Fax:  (239) 263-8860     |   |   |
|                                       |                          |        |  |  |  |

 

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