Exhibit 10.5


 


SECURITY
AND PLEDGE AGREEMENT


 


SECURITY AND PLEDGE AGREEMENT,
dated as of October 26, 2005, among DynTek, Inc., a Delaware
corporation (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 certain
Purchase Agreement (as hereinafter defined).


 


Recitals


 


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


 


WHEREAS, it is a condition precedent to the
agreement of the Purchasers to enter into the Purchase Agreement and to extend
credit to the Company thereunder that the Debtors execute and deliver this
Security Agreement as security for the payment and performance of all
obligations of the Debtors to the Purchasers; and


 


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


 


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


 


ARTICLE 1


 


GRANT OF
SECURITY


 


Section 1.1.                                Grant
of Security.  The Debtors hereby
grant to the Purchasers a lien and continuing security interest (“Security
Interest”) in and to, and a right of set-off against, all of the following
personal property and fixtures of the Debtors, whether now owned by or owing
to, or hereafter acquired by or arising in favor of, such Debtor (including
under any trade names, styles or derivations thereof), and whether owned or
consigned by or to, or leased from or to, such Debtor, and regardless of where
located (all of which being hereinafter collectively referred to as the “Collateral”):


 


(a)                                  all
Accounts;


 


(b)                                 all
Chattel Paper;


 


(c)                                  all
Documents;


 





















 


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


 


(e)                                  all
Goods (including Inventory, Equipment and Fixtures);


 


(f)                                    all
Instruments;


 


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


 


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


 


(i)                                     all
money, cash or cash equivalents of such Debtor;


 


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


 


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


 


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


 


provided, however,
liens on the Purchased Assets (as that term is defined by the Asset Purchase
Agreement 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 of
a Lien in such Purchased Assets or in the manner contemplated by this Agreement
is prohibited by the terms of the NETF Agreement, but only to the extent that
any such prohibition is not rendered ineffective pursuant to the Uniform
Commercial Code of the State of California or any other applicable law; provide further, however, that with respect to the Purchased
Assets described in the preceding clause that are excluded from the Collateral
by virtue of the NETF Agreement shall be excluded from the Collateral only to
the extent and for so long as this Agreement constitutes a default or event of
default under the NETF Agreement and the NETF Agreement continues validly to prohibit
the creation of such security interest pursuant to this Agreement, and upon the
expiration of such prohibition, the Purchased Assets shall automatically be
included in the Collateral, without further action on the part of any Debtor or
Purchaser.


 


Section 1.2.                                Security
for Obligations.  This Agreement
and the Security Interest shall secure the payment and performance of the
Obligations.


 





















 


ARTICLE 2


 


GENERAL
REPRESENTATIONS, WARRANTIES AND COVENANTS


 


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


 


Section 2.1.                                Necessary
Filings.  All financing
statements necessary or appropriate to perfect the security interest granted by
each Debtor to the Purchasers hereby in respect of the Collateral, which can be
perfected by the filing of a financing statement, have been filed and the
Security Interest granted to the Purchasers pursuant to this Agreement in and
to such Collateral constitutes a perfected Security Interest therein (to the
extent that the same can be perfected by filing) prior to the rights of all
other persons or entities therein (other than any such rights pursuant to the
Permitted Liens) and subject to no other Liens (other than Permitted Liens) and
is entitled to all the rights, priorities and benefits afforded by the Uniform
Commercial Code of the State of California to perfected security interests.


 


Section 2.2.                                No
Liens.  Each Debtor is, and as to
Collateral acquired by it from time to time after the date hereof such Debtor
will be, the owner of all Collateral pledged by it hereunder free from any
Lien, security interest, encumbrance or other right, title or interest of any
person or entity (other than Permitted Liens), and each Debtor shall defend the
Collateral against all claims and demands of all persons or entities at any
time claiming the same or any interest therein (other than in connection with
Permitted Liens) adverse to the Purchasers.


 


Section 2.3.                                Other
Financing Statements.  To the
best knowledge of each Debtor, as of the date hereof, there is no financing
statement covering or purporting to cover any interest of any kind in the
Collateral (other than financing statements filed in respect of Permitted
Liens), and so long as any Purchaser Obligations or commitments with respect
thereto are outstanding, no Debtor will execute or authorize to be filed in any
public office any financing statement (or similar statement or instrument of
registration under the law of any jurisdiction) or statements relating to the
Collateral, except financing statements filed or to be filed in respect of and
covering the security interests granted hereby by such Debtor or in connection
with Permitted Liens.


 


Section 2.4.                                Chief
Executive Office; Records.


 


(a)                                  As of the date
hereof, the chief executive office of each Debtor is located at the address
indicated on Schedule C hereto for such Debtor.  No Debtor will move its chief executive
office except to such new location as such Debtor may establish in accordance
with the last sentence of this Section 2.4. A complete set 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 chief executive office, at
one or more of the other record locations set forth on Schedule C
hereto for such Debtor or at such new locations as such Debtor may establish in
accordance with the last sentence of this Section 2.4.


 


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


 





















 


general accounting purposes) from, the office locations described above
or such new location established in accordance with the last sentence of this Section 2.4.  No Debtor shall establish new locations for
such offices until (a) it shall have given to the Purchasers not less than
30 days’ prior written notice of its intention to do so, clearly describing
such new location and providing such other information in connection therewith
as the Purchasers may reasonably request and (b) with respect to such new
location, it shall have taken all action reasonably satisfactory to the
Purchasers, to maintain the security interest of the Purchasers in the Collateral
intended to be granted hereby at all times fully perfected and in full force
and effect.


 


Section 2.5.                                Location
of Inventory and Equipment.  As
of the date hereof, all Inventory and Equipment held by each Debtor is located
at one of the locations shown on Schedule D hereto.  Each Debtor agrees that all Inventory and
Equipment now held or subsequently acquired by it shall be kept at (or shall be
in transport to) any one of the locations shown on Schedule D
hereto, or such new location as such Debtor may establish in accordance with
the last sentence of this Section 2.5. 
Each Debtor may establish a new location for Inventory and Equipment in
a jurisdiction in which such Debtor currently does business and with respect to
which the Purchasers have a first perfected security interest in such Inventory
and Equipment (subject to Permitted Liens). 
Each Debtor may establish a new location outside of a jurisdiction in
which it currently does business and with respect to which the Purchasers have
a first perfected security interest in such Inventory and Equipment only if (a) it
shall have given to the Purchasers not less than 30 days’ prior written notice
of its intention so to do, clearly describing such new location and providing
such other information in connection therewith as the Purchasers may reasonably
request and (b) with respect to such new location, it shall have taken all
action reasonably satisfactory to the Purchasers to maintain the security
interest of the Purchasers in the Collateral intended to be granted hereby at
all times fully perfected and in full force and effect.


 


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


 


Section 2.7.                                Trade
Names; Change of Name.  Each
Debtor’s legal name, jurisdiction of organization and organizational number (if
any) are correctly set forth under Column 1 on Schedule E of this
Agreement.  No Debtor has transacted
business at any time during the immediately preceding five year period, and
does not currently transact business, under any other legal names or trade names
other than the prior legal names and trade names (if any) set forth on Schedule E
attached hereto.  No Debtor shall change
its jurisdiction of organization without the Purchasers’ prior written
consent.  No Debtor shall change its
legal name or transact business under any other trade name without first giving
30 days’ prior written notice of its intent to do so to the Purchasers.  With respect to such new name or jurisdiction
of organization, such Debtor shall have taken all action reasonably requested
by the Purchasers, to maintain the Security Interest at all times fully
perfected and in full force and effect.


 





















 


ARTICLE 3


 


SPECIAL
PROVISIONS CONCERNING

ACCOUNTS; INSTRUMENTS


 


Section 3.1.                                Additional
Representations and Warranties. 
As of the time when each of its Accounts arises, each Debtor shall be
deemed to have represented and warranted that such Account, and all records,
papers and documents relating thereto are what 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 of the account debtor named
therein.


 


Section 3.2.                                Maintenance
of Records.  Each Debtor will
keep and maintain at its own cost and expense, records of its Accounts and each
Debtor will make the same available on such Debtor’s premises to the Purchasers
for inspection, at such Debtor’s own cost and expense, at any and all
commercially reasonable times upon commercially reasonable prior notice to such
Debtor.  Upon the occurrence and during
the continuance of an Event of Default and at the commercially reasonable
request 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 the
Purchasers or to its representatives (copies of which evidence and books and
records may be retained by each Debtor). 
If the Purchasers so direct, upon the occurrence and during the
continuance of an Event of Default, each Debtor shall legend, in form and
manner satisfactory to the Purchasers, the Accounts, as well as books, records
and documents of such Debtor evidencing or pertaining to such Receivables and
Contracts with an appropriate reference to the fact that such Receivables and
Contracts have been assigned to the Purchasers and that the Purchasers have a
security interest therein.


 


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


 


Section 3.4.                                Modification
of Terms; etc.  No Debtor shall
rescind or cancel any indebtedness evidenced by any Account, or modify any term
thereof or make any adjustment with respect thereto, or extend or renew the
same, or compromise or settle any material dispute,


 





















 


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 business
practices.


 


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


 


Section 3.6.                                Instruments.  If a Debtor owns or acquires any Instrument
constituting Collateral, at Purchasers’ request upon the occurrence and during
the continuation of an Event of Default and if such Debtor does not have a
Senior Lender, such Debtor will promptly deliver such Instrument to the
Purchasers appropriately endorsed to the order of the Purchasers as further
security hereunder.  At the Purchasers’
request, such Debtor that owns or acquires any other Instrument constituting
Collateral will, within 5 business days, promptly deliver such Instrument to
the Purchasers appropriately endorsed to the order of the Purchasers as further
security hereunder.


 


ARTICLE 4


 


SPECIAL
PROVISIONS CONCERNING MARKS


 


Section 4.1.                                Additional
Representations and Warranties. 
Each Debtor represents and warrants that, 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 Marks listed in Schedule F hereto
and that, as of the date hereof said listed Marks constitute all the marks and
applications for marks registered in the United States Patent and Trademark
Office that such Debtor presently owns or uses in connection with its
business.  Each Debtor represents and warrants
that it owns, is licensed to use or otherwise has the right to use all material
Marks that it uses.  Each Debtor further
warrants that it has no knowledge of any third party claim that any aspect of
such Debtor’s present or contemplated business operations infringes or will
infringe any trademark, service mark or trade name in any respect which could
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 represents
and warrants that except as listed on Schedule F, as of the date
hereof it is the beneficial and record owner of all trademark registrations and
applications listed in Schedule F hereto and that said
registrations are valid and subsisting, and that no Debtor is aware of any
third-party claim that any of said registrations in respect of any material
Mark is invalid or unenforceable.  Each
Debtor hereby grants to the Purchasers an absolute power of attorney to sign,
upon the occurrence and during the continuance of an Event of Default, any
document which may be required by the United States Patent and Trademark Office
in order to 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 only if such Debtor does not have a Senior Lender.


 





















 


Section 4.2.                                Infringements.  Each Debtor agrees, promptly upon learning
thereof, to notify the Purchasers in writing of the name and address of, and to
furnish such pertinent information that may be available with respect to, any
party who such Debtor believes is infringing or diluting or otherwise violating
in any material respect any of such Debtor’s rights in and to any material
Mark, or with respect to any party claiming that such Debtor’s use of any
material Mark violates in any material respect any property right of that
party.  Each Debtor further agrees to
prosecute any Person infringing any material Mark in accordance with
commercially reasonable business practices.


 


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


 


Section 4.4.                                Maintenance
of Registration.  Each Debtor
shall, at its own expense, diligently process all documents required by the
Trademark Act of 1946, 15 U.S.C. §§ 1051 et  seq. to maintain
trademark registrations, including but not limited to affidavits of use and
applications for renewals of registration in the United States Patent and
Trademark 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 therewith
and shall not abandon any such filing of affidavit of use or any such
application of renewal prior to the exhaustion of all administrative and
judicial remedies without prior written consent of the Purchasers; provided,
that, prior to any Default, no Debtor shall be obligated to maintain any Mark
in the event that such Debtor determines, in its commercially reasonable
business judgment, that the maintenance of such Mark is no longer necessary or
desirable in the conduct of its business.


 


Section 4.5.                                Future
Registered Marks.  If any Mark
registration issues hereafter to a Debtor as a result of any application now or
hereafter pending before the United States Patent and Trademark Office, within
60 days of receipt of such certificate, such Debtor shall deliver to the
Purchasers a copy of such certificate, and an assignment for security in such
Mark, to the Purchasers and at the expense of such Debtor, confirming the
assignment for security in such Mark to the Purchasers hereunder, in such form
as may be reasonably satisfactory to the Purchasers.


 


Section 4.6.                                Remedies.  If an Event of Default shall occur and be
continuing, the Purchasers may take any or all of the following actions if such
Debtor does not have a Senior Lender:  (a) declare
the entire right, title and interest of such Debtor in and to each of the
Marks, 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 the
rights, title and interest shall immediately vest, in the Purchasers for the
benefit of the Purchasers, and the Purchasers shall be entitled to exercise the
power of attorney referred to in Section 4.1 hereof to execute, cause to
be acknowledged and 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 business symbolized by the Marks and the right to carry on the
business and use the assets 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, if requested by the Purchasers,
change such Debtor’s corporate name to eliminate therefrom any use of any Mark
and execute such other and further documents that the Purchasers may request to
further confirm this and to transfer ownership of the Marks and registrations
and any pending trademark application in the United States Patent and Trademark
Office to the Purchasers.


 


Section 4.7.                                Collateral
Assignment.  This Agreement is
made for collateral security purposes only. 
This Agreement and Purchasers’ Security Interest in the Marks shall
continue in full force and effect as long as any Obligations shall be owed to
the Purchasers (or any of said Purchasers). 
Upon payment in full of the Obligations and termination of the Purchase
Agreement, this Agreement shall terminate and Purchasers shall promptly execute
and deliver to each Debtor, at such Debtor’s expense, all termination
statements and other instruments as may be necessary or proper to terminate
Purchasers’ security interest in the Marks, subject to any disposition thereof
which may have been made by Purchasers pursuant to this Agreement or the
Purchase Agreement.


 


ARTICLE 5


 


SPECIAL
PROVISIONS CONCERNING

PATENTS, COPYRIGHTS AND TRADE SECRETS


 


Section 5.1.                                Additional
Representations and Warranties. 
Each Debtor represents and warrants that, 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 operate the business of such Debtor, (b) the
Patents listed in Schedule G hereto for the Debtor and that said
Patents constitute all the patents and applications for patents that the Debtor
owns on the date hereof and (c) the Copyrights listed in Schedule H
hereto and that said Copyrights constitute all registrations of copyrights and
applications for copyright registrations that such Debtor owns on the date
hereof.  Each Debtor further warrants
that it has no knowledge of any third party claim that any aspect of such
Debtor’s present or contemplated business operations infringes or will infringe
any patent or any copyright or such Debtor has misappropriated any Trade Secret
or Proprietary Information, in each case in any respect which could 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
Purchasers an absolute power of attorney to sign, upon the occurrence and
during the continuance of an Event of Default, any document which may be
required by the United States Patent and Trademark Office or the United States
Copyright Office in order to effect an absolute assignment of all right, title
and interest in each Patent and Copyright, and to record the same; provided
that such power of attorney may be exercised only if Debtor does not have a
Senior Lender.


 


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


 





















 


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


 


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


 


Section 5.4.                                Prosecution
of Patent Application.  At its
own expense, each Debtor shall diligently prosecute all applications for
Patents for such Debtor and shall not abandon any such application prior to
exhaustion of all administrative and judicial remedies, absent written consent
of the Purchasers; provided, that no Debtor shall be obligated to
prosecute any application in the event such Debtor determines, in its
commercially reasonable business judgment, that the prosecuting of such
application is no longer necessary or desirable in the conduct of its business.


 


Section 5.5.                                Other
Patents and Copyrights.  Within
60 days of the acquisition or issuance of a Patent, registration of a
Copyright, or acquisition of a registered copyright, each Debtor shall deliver
to the Purchasers a copy of said Copyright or certificate or registration of
said Patents, as the case may be, with an assignment for security as to such
Patent or Copyright, as the case may be, to the Purchasers and at the expense
of such Debtor, confirming the assignment for security, in such form as may be
reasonably satisfactory to the Purchasers.


 


Section 5.6.                                Remedies.  If an Event of Default shall occur and be
continuing, the Purchasers may take any or all of the following actions if a
Debtor does not have a Senior Lender:  (a) declare
the entire right, title, and interest of such Debtor in each of the Patents and
Copyrights vested in the Purchasers for the benefit of the Purchasers, in which
event such right, title, and interest shall immediately vest in the Purchasers
for the benefit of the Purchasers, in which case the Purchasers shall be
entitled to 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 assignment with the applicable agency; (b) take and practice or
sell the Patents and Copyrights; and (c) direct such Debtor to refrain, in
which event such Debtor shall refrain, from practicing the Patents and using
the Copyrights directly or indirectly, and such Debtor shall execute such other
and further documents as the Purchasers may request further to confirm this and
to transfer ownership of the Patents and Copyrights to the Purchasers for the
benefit of the Purchasers.


 


ARTICLE 6


 


SPECIAL
PROVISIONS CONCERNING STOCK COLLATERAL


 


Section 6.1.                                Additional
Representations.  Each Debtor has
the right to vote the Pledged Securities and there are no restrictions upon the
voting rights associated with, or the


 





















 


transfer of, any of the Pledged Securities, except as provided by
federal and state laws applicable to the sale of securities generally and the
terms 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 outstanding
commitments or other obligations of the issuers of any of the Pledged
Securities to issue, and no options, warrants or other rights of any individual
or entity to acquire, any share of any class or series of capital stock of such
issuers.  The Pledged Securities listed
and described on Schedule A attached hereto constitute the
percentage of the issued and outstanding capital stock of each series and class
of the issuers thereof as set forth thereon owned by the relevant Debtor.  Each Debtor agrees that in the event any such
issuer shall issue any additional capital stock of any series or class (whether
or not entitled to vote) to such Debtor or otherwise on account of its
ownership 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.                                Delivery
of Certificates.  Subject to the
rights of the Senior Lenders, the certificates for all shares or units of the
Pledged Securities evidenced by a certificate shall be delivered by the
relevant Debtor to the Purchasers duly endorsed in blank for transfer or
accompanied by an appropriate assignment or assignments or an appropriate
undated stock power or powers, in every case sufficient to transfer title
thereto.  Subject to the rights of the
Senior Lenders, the Purchasers may, at any time after the occurrence of an
Event of Default, cause to be transferred into its name or into the name of its
nominee or nominees any and all of the Pledged Securities.  The Purchasers shall at all times have the
right to exchange the certificates representing the Pledged Securities for
certificates of smaller or larger denominations.


 


Section 6.3.                                Remedies.  Unless and until an Event of Default
hereunder has occurred and is continuing and thereafter until notified by the
Purchasers hereof:


 


(a)                                  Each
Debtor shall be entitled to exercise all voting and/or consensual powers
pertaining to the Collateral of such Debtor, or any part thereof, for all
purposes not inconsistent with the terms of this Agreement or any other
document evidencing or otherwise relating to any of the Obligations.


 


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


 





















 


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


 


(c)                                  In
order to permit each Debtor to exercise such voting and/or consensual powers
which it is entitled to exercise under subsection (a) above and to
receive such distributions which such Debtor is entitled to receive and retain
under subsection (b) above, the Agent will, if necessary, upon the
written request of such Debtor, from time to time execute and deliver to such
Debtor appropriate proxies and dividend orders.


 


ARTICLE 7


 


PROVISIONS
CONCERNING ALL COLLATERAL


 


Section 7.1.                                Protection
of Purchasers’ Security.  Each
Debtor will at all times keep its Inventory and Equipment insured in favor of
the Purchasers, at such Debtor’s own expense to the extent and in the manner
provided in the Purchase Agreement; all policies or certificates with respect
to such insurance (a) subject to the rights of the Senior Lender, shall be
endorsed to the Purchasers’ commercially reasonable satisfaction for the
benefit of the Purchasers (including, without limitation, by naming the
Purchasers as additional insured and loss payee) and (b) shall state that
such insurance policies shall not be canceled without 30 days’ prior written
notice thereof by the insurer to the Purchasers; and certified copies of such
policies or certificates with respect thereto shall be deposited with the
Purchasers.  If a Debtor shall fail to
insure its Inventory and Equipment in accordance with the preceding sentence,
or if Debtor shall fail to so endorse and deposit all policies or certificates
with respect thereto, the Purchasers shall have the right (but shall be under
no obligation), upon prior written notice to such Debtor, to procure such
insurance and each Debtor agrees to promptly reimburse the Purchasers for all
reasonable costs and expenses of procuring such insurance.  The Purchasers shall, at the time any
proceeds of such insurance are distributed to the Purchasers, apply such proceeds
in accordance with Section 9.4 hereof. 
Each Debtor assumes all liability and responsibility in connection with
the Collateral acquired by it and the liability of such Debtor to pay the
Obligations shall in no way be affected or diminished by reason of the fact
that such Collateral may be lost, destroyed, stolen, damaged or for any reason
whatsoever unavailable to such Debtor.


 


Section 7.2.                                Further
Actions.  Each Debtor will, at
its own expense, make, execute, endorse, acknowledge, file and/or deliver to
the Purchasers from time to time such lists, descriptions and designations of
its Collateral, warehouse receipts, receipts in the nature of warehouse
receipts, bills of lading, documents of title, vouchers, invoices, schedules,
confirmatory assignments, conveyances, transfer endorsements, powers of
attorney, certificates, reports and other assurances or instruments and take
such further steps relating to the Collateral and other property or rights
covered by the security interest hereby granted, which the Purchasers deem
reasonably appropriate or advisable to perfect, preserve or protect its
security interest in the Collateral.


 


Section 7.3.                                Financing
Statements; Etc.  Each Debtor
agrees to execute and deliver to the Purchasers such further agreements,
assignments, instruments, and documents, and to do all such other things, as
the Purchasers may reasonably deem necessary or appropriate to assure the
Purchasers its lien and Security Interest hereunder, including, without
limitation, (i) such


 





















 


financing statements or other instruments and documents as the Agent
may from time to time reasonably require to comply with the Uniform Commercial
Code and any other applicable law, (ii) such agreements with respect to patents,
trademarks, copyrights, and similar intellectual property rights as the
Purchasers may from time to time reasonably require to comply with the filing
requirements of the United States Patent and Trademark Office and the United
States Copyright Office, and (iii) such control agreements with respect to
Deposit Accounts, Investment Property, Letter of Credit Rights, and electronic
Chattel Paper, and to cause the relevant depository institutions, financial
intermediaries, and issuers to execute and deliver such control agreements, as
the 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 financing
statement is sufficient for filing as a financing statement by the Purchasers
without notice thereof to such Debtor wherever the Purchasers in their sole
discretion desire to file the same.  Each
Debtor hereby authorizes the Purchasers to file any and all financing
statements covering the Collateral or any part thereof as the Purchasers may
require, including financing statements describing the Collateral as “all
assets” or “all personal property” or words of like meaning.  In the event for any reason the law of any
jurisdiction other than California becomes or is applicable to the Collateral
or any part thereof, or to any of the Obligations, each Debtor agrees to
execute and deliver all such agreements, assignments, instruments, and
documents and to do all such other things as the Purchasers reasonably deem
necessary or appropriate to preserve, protect, and enforce the security
interest of the Purchasers under the law of such other jurisdiction.


 


ARTICLE 8


 


GUARANTEE


 


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


 


Section 8.2.                                Guarantee
Unconditional.  The obligations
of the Subsidiary under this Article 8 shall be unconditional and absolute
and, without limiting the generality of the foregoing, shall not be released,
discharged, or otherwise affected by:


 


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


 





















 


(b)                                 any
modification or amendment of or supplement to this Agreement or the Purchase
Agreement;


 


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


 


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


 


(e)                                  any
failure 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 other
obligor, any other guarantor, or any other person or entity or property;


 


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


 


(g)                                 any
invalidity or unenforceability relating to or against the Company or other
obligor or any other guarantor for any reason of this Agreement or of the
Purchase Agreement or any provision of applicable law or regulation purporting
to prohibit the payment by the Company or other obligor or any other guarantor
of the principal of or interest on the Notes or Obligations or any other amount
payable under the Purchase Agreement; or


 


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


 


Section 8.3.                                Discharge
Only upon Payment in Full; Reinstatement in Certain Circumstances.  The Subsidiary’s obligations under this Article 8
shall remain in full force and effect until the Purchase Agreement is
terminated and the principal of and interest on the Notes and all other amounts
payable by the Company under the Purchase Agreement and this Security Agreement
shall have been paid in full.  If at any
time any payment of the principal of or interest on the Notes or any Obligation
or any other amount payable by the Company or other obligor or the Subsidiary
under the Purchase Agreement or this Agreement is rescinded or must be
otherwise restored or returned upon the insolvency, bankruptcy, or
reorganization of the Company or other obligor or of any guarantor, or
otherwise, the Subsidiary’s obligations under this Article 8 with respect
to such payment shall be reinstated at such time as though such payment had
become due but had not been made at such time.


 


Section 8.4.                                Subrogation.  The Subsidiary agrees it will not exercise
any rights which it may acquire by way of subrogation by any payment made
hereunder, or otherwise, until all the Obligations shall have been paid in full
subsequent to the termination of all the Purchase


 





















 


Agreement.  If any amount shall
be paid to the Subsidiary on account of such subrogation rights at any time
prior to the later of (x) the payment in full of the Obligations and all other
amounts payable by the Company hereunder and the Purchase Agreement and (y) the
termination of the Purchase Agreement, such amount shall be held in trust for
the benefit of the Purchasers and shall forthwith be paid to the Purchasers or
be credited and applied upon the Obligations.


 


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


 


Section 8.6.                                Limit
on Recovery.  Notwithstanding any
other provision hereof, the right of recovery against the Subsidiary under this
Article 8 shall not exceed $1.00 less than the lowest amount which would
render such Subsidiary’s obligations under this Article 8 void or voidable
under applicable law, including, without limitation, fraudulent conveyance law.


 


Section 8.7.                                Stay
of Acceleration.  If acceleration
of the time for payment of any amount payable by the Company or other obligor
under this Agreement or the Purchase Agreement, is stayed upon the insolvency,
bankruptcy or reorganization of the Company or such obligor, all such amounts
otherwise subject to acceleration under the terms of this Agreement or the
Purchase Agreement, shall nonetheless be payable by the Subsidiary hereunder
forthwith on demand by the Purchasers.


 


Section 8.8.                                Benefit
to Subsidiary.  The Company and
the Subsidiary are engaged in related businesses and integrated to such an
extent that the financial strength and flexibility of the Company has a direct
impact on the success of the Subsidiary. 
The Subsidiary will derive substantial direct and indirect benefit from
the extensions of credit hereunder.


 


Section 8.9.                                Subsidiary
Covenants.  The Subsidiary shall
take such action as the Company is required by the Purchase Agreement or this
Agreement to cause the Subsidiary to take, and shall refrain from taking such
action as the Company is required by the Purchase Agreement or this Agreement
to prohibit the Subsidiary from taking.


 


ARTICLE 9


 


REMEDIES
UPON 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 and
be continuing, then and in every such case, the Purchasers, in addition to any
rights now or hereafter existing under applicable law, shall have all rights as
a secured creditor under the UCC in all relevant jurisdictions subject to the
subordination thereof pursuant to Section 11.10 hereof, and may:


 


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


 





















 


and remove the same and use in connection
with such removal any and all services, supplies, aids and other facilities of
such Debtor;


 


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


 


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


 


(d)                                 sell,
assign or otherwise liquidate any or all of the Collateral or any part thereof
in 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 or
liquidation;


 


(e)                                  take
possession of the Collateral or any part thereof, by directing the Debtors in writing
to deliver the same to the Purchasers at any place or places reasonably
designated by the Purchasers, in which event such Debtor shall at its own
expense:


 


(i)                                     forthwith
cause the same to be moved to the place or places so designated by the Purchasers
and there delivered to the Purchasers;


 


(ii)                                  store
and keep any Collateral so
delivered to the Purchasers at such place or places pending further action by
the Purchasers as provided in Section 9.2 hereof; and


 


(iii)                               while
the Collateral shall be so stored and kept, provide such guards and maintenance
services as shall be necessary to protect the same and to preserve and maintain
them in good condition; and


 


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


 


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


 


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


 





















 


repossessed by the Purchasers, may be sold, assigned, leased or
otherwise disposed of under one or more contracts or as an entirety, and
without the necessity of gathering at the place of sale the property to be
sold, and in general in such manner, at such time or times, at such place or
places and on such terms as the Purchasers may, in compliance with any
mandatory requirements of applicable law, determine to be commercially
reasonable.  Any of the Collateral may be
sold, leased or otherwise disposed of, in the condition in which the same
existed when taken by the Purchasers or after any overhaul or repair at the
expense of each Debtor which the Purchasers shall determine to be commercially
reasonable.  Any such disposition which
shall be a private sale or other private proceedings permitted by such
requirements shall be made upon not less than 10 days’ written notice to each
Debtor specifying the time at which such disposition is to be made and the
intended sale price or other consideration therefor, and shall be subject, for
the 10 days after the giving of such notice, to the right of each Debtor or any
nominee of each Debtor to acquire the Collateral involved at a price or for
such other consideration at least equal to the intended sale price or other
consideration so specified, but in no event in an amount greater than the
Obligations then outstanding and provision for any contingent Obligations
reasonably acceptable to the Purchasers. 
Any such disposition which shall be a public sale permitted by such
requirements shall be made upon not less than 10 days’ written notice to each
Debtor specifying the time and place of such sale and, in the absence of
applicable requirements of law, shall be by public auction (which may, at the
Purchasers’ option, be subject to reserve), after publication of notice of such
auction not less than 10 days prior thereto in two newspapers in general
circulation in Los Angeles, California. 
To the extent permitted by any such requirement of law, the Purchasers
may bid for and become the purchaser of the Collateral or any item thereof,
offered for sale in accordance with this Section without accountability to
the Debtors.  If, under mandatory
requirements of applicable law, the Purchasers shall be required to make
disposition of the Collateral within a period of time which does not permit the
giving of notice to the Debtors as hereinabove specified, the Purchasers need
give the Debtors only such notice of disposition as shall be reasonably
practicable in view of such mandatory requirements of applicable law.


 


Section 9.3.                                Waiver
of Claims.  Except as otherwise
provided in this Agreement or prohibited by applicable law, (a) THE
DEBTORS HEREBY WAIVE, TO THE EXTENT PERMITTED BY APPLICABLE LAW, NOTICE AND
JUDICIAL HEARING IN CONNECTION WITH THE PURCHASERS’ TAKING POSSESSION OR THE
PURCHASERS’ DISPOSITION OF ANY OF THE COLLATERAL, INCLUDING, WITHOUT
LIMITATION, ANY AND ALL PRIOR NOTICE AND HEARING FOR ANY PREJUDGMENT REMEDY OR
REMEDIES AND ANY SUCH RIGHT WHICH SUCH DEBTOR WOULD OTHERWISE HAVE UNDER THE
CONSTITUTION OR ANY STATUTE OF THE UNITED STATES OR OF ANY STATE, (b) the
Debtors hereby further waive, to the extent permitted by law:


 


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


 


(ii)                                  all
other requirements as to the time, place and terms of sale or other
requirements with respect to the enforcement of the Purchasers’ rights
hereunder; and


 





















 


(iii)                               all
rights of redemption, appraisement, valuation, stay, extension or moratorium
now or hereafter in force under any applicable law in order to prevent or delay
the enforcement of this Agreement or the absolute sale of the Collateral or any
portion 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 benefit
of all such laws.


 


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


 


Section 9.4.                                Application
of Proceeds.


 


(a)                                  All
monies collected by the Purchasers upon any sale or other disposition of the
Collateral, together with all other moneys received by the Purchasers
hereunder, shall be applied to the payment of the Obligations.


 


(b)                                 It
is understood and agreed that each Debtor shall remain liable to the extent of
any deficiency between the amount of the proceeds of the Collateral hereunder
and the aggregate amount of the Obligations.


 


Section 9.5.                                Remedies
Cumulative.  Each and every
right, power and remedy hereby specifically given to the Purchasers shall be in
addition to every other right, power and remedy specifically given under this
Agreement, the Purchase Agreement or now or 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 be exercised from time to
time or simultaneously and as often and in such order as may be deemed
expedient by the Purchasers.  All such
rights, powers and remedies shall be cumulative and the exercise or the
beginning of the exercise of one shall not be deemed a waiver of the right to
exercise any other or others.  No delay
or omission of the Purchasers in the exercise of any such right, power or
remedy and no renewal or extension of any of the Obligations shall impair any
such right, power or remedy or shall be construed to be a waiver of any Default
or Event of Default or an acquiescence therein. 
No notice to or demand on the Debtors in any case shall entitle it to
any other or further notice or demand in similar or other circumstances or
constitute a waiver of any of the rights of the Purchasers to any other or
further action in any circumstances without notice or demand.  In the event that the Purchasers shall bring
any suit to enforce any of its rights hereunder and shall be entitled to
judgment, then in such suit the Purchasers may recover reasonable expenses,
including reasonable attorneys’ fees, and the amounts thereof shall be included
in such judgment.


 


Section 9.6.                                Discontinuance
of Proceedings.  In case the
Purchasers shall have instituted any proceeding to enforce any right, power or
remedy under this Agreement by foreclosure, sale, entry or otherwise, and such
proceeding shall have been discontinued or abandoned for any reason or shall
have been determined adversely to the Purchasers, then and in every such case
the Debtors, the Purchasers and each holder of any of the Obligations shall be
restored to their former positions and rights hereunder with respect to the
Collateral subject to


 





















 


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


 


ARTICLE 10


 


DEFINITIONS


 


Capitalized terms used in this Agreement
without definition having the respective meanings ascribed to such terms in the
Purchase Agreement. All other terms contained in this Security Agreement,
unless the context indicates otherwise, have the meanings provided for by the
Uniform Commercial Code as in effect in the State of California to the extent
the same are used or defined therein.  In
addition, the following terms shall have the meanings herein specified.  Such definitions shall be equally applicable
to the singular and plural forms of the terms defined.


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 





















 


collection or enforcement of any obligations or liabilities referred to
in 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 any
exercise by the Purchasers of their rights hereunder, together with reasonable
attorneys’ fees and court costs; (d) all amounts paid by any Indemnitee as
to which such Indemnitee has the right to reimbursement under this Agreement;
and (e) all other Purchaser Obligations.


 


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


 


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


 


“Proceeds” shall have the meaning provided in
the Uniform Commercial Code as in effect in the State of California 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 any insurance, indemnity, warranty
or guaranty payable to the Purchasers or the Debtors from time to time with
respect to any of the Collateral, (b) any and all payments (in any form
whatsoever) made or due and payable to the Debtors from time to time in
connection with any requisition, confiscation, condemnation, seizure or
forfeiture of all or any part of the Collateral by any governmental authority
(or any person acting under color of governmental authority) and (c) any
and all other amounts from time to time paid or payable under 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 to compositions, processes and
formulations, manufacturing and production know-how and experience, management
know-how, training programs, manufacturing, engineering and other drawings,
specifications, performance criteria, operating instructions, maintenance
manuals, technology, technical information, software, engineering and computer
data and databases, design and engineering specifications, catalogs,
promotional literature and financial, business and marketing plans, inventions
and invention disclosures.


 


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


 


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


 


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


 





















 


ARTICLE 11


 


MISCELLANEOUS


 


Section 11.1.                         Notices.  Except as otherwise specified herein, all
notices, requests, demands or other communications to or upon the respective
parties hereto shall be deemed to have been duly given or made when personally
delivered to the party to which such notice, request, demand or other
communication is required or permitted to be given or made under this
Agreement, addressed as follows:


 


(a)                                  if
to the Debtors:


 


DynTek, Inc.


19700 Fairchild Road, Suite 2301


Irvine, California 92612


Attention: Chief Financial Officer


 


with a copy to,


 


[                     ]


 


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


 


[                     ]


 


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


 


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


 


Section 11.3.                         Obligations
Absolute.  The obligations of the
Debtors hereunder shall remain in full force and effect without regard to, and
shall not be impaired by, (a) any bankruptcy, 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 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 amendment
to or modification of this Agreement, the Purchase Agreement, the Notes issued
thereunder or any security for any of the Obligations, other than amendments or
modifications of this Agreement.


 


Section 11.4.                         Successors
and Assigns.  This Agreement
shall be binding upon the Debtors and their successors and assigns and shall
inure to the benefit of the Purchasers and their respective successors and
assigns.  All agreements, statements,
representations and warranties made by the Debtors herein or in any certificate
or other instrument delivered by the Debtors or


 





















 


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


 


Section 11.5.                         Headings
Descriptive.  The headings of the
several sections of this Agreement are inserted for convenience only and shall
not in any way affect the meaning or construction of any provision of this
Agreement.


 


Section 11.6.                         Governing
Law.  THIS AGREEMENT AND THE
RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE CONSTRUED IN
ACCORDANCE WITH AND BE GOVERNED BY THE LAW OF THE STATE OF CALIFORNIA WITHOUT
REGARD FOR CONFLICTS OF LAWS OF CHOICE OF LAWS PRINCIPLES.


 


Section 11.7.                         Debtor’s
Duties.  It is expressly agreed,
anything herein contained to the contrary notwithstanding, that the Debtors
shall remain liable to perform all of the obligations, if any, assumed by it
with respect to the Collateral and the Purchasers shall not have any
obligations or liabilities with respect to any Collateral by reason of or
arising out of this Agreement, nor shall the Purchasers be required or
obligated in any manner to perform or fulfill any of the obligations of the
Debtors under or with respect to any Collateral.


 


Section 11.8.                         Termination;
Release.  After the Termination
Date, this Agreement shall terminate (provided that all indemnities set forth
in the Purchase Agreement shall survive such termination) and the Purchasers,
at the request and expense of the Debtors, will promptly execute and deliver to
the Debtors a proper instrument or instruments (including Uniform Commercial
Code termination statements on form UCC-3) acknowledging the satisfaction and
termination of this Agreement, and will duly assign, transfer and deliver to
the Debtors (without recourse and without any representation or warranty) such
of the Collateral as may be in the possession of the Purchasers and has not
theretofore been sold or otherwise applied or released pursuant to this
Agreement.  As used in this Agreement, “Termination
Date” shall mean the date upon which all Obligations then due and payable have
been paid in full in cash, all commitments with respect thereto have terminated
and no Note is outstanding.


 


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


 


Section 11.10.                  Subordination.  The Security Interest granted pursuant to
this Agreement and Purchasers’ rights and remedies under this Agreement are
subordinate to the rights and remedies of Laurus Master Fund, Ltd. and New
England Technology Finance, LLC and any replacement lender therefore which
provides working capital financing for Debtor (the “Senior Lenders”) and the
payment in full of any amounts owing to the Senior Lenders.


 


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


 


	
   

  	
  DEBTORS:

  
	
   

  	
  DYNTEK,
  INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  DYNTEK SERVICES, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  PURCHASERS:

  	
   

  
	
   

  	
   

  
	
  [                        ]

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  
	
  Name:

  	
   

  	
   

  
	
  Title:

  	
   

  	
   

  
	
   

  
	
   

  
	
  By:

  	
   

  	
   

  
	
  Name:
  [                        ]