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Exhibit 10.1  

 
 

ASPEON, INC.    
    
    SECURED CONVERTIBLE PROMISSORY NOTE PURCHASE AGREEMENT    
  

        THIS SECURED CONVERTIBLE PROMISSORY NOTE PURCHASE AGREEMENT (the "Agreement") is effective as of September 12, 2002, by and between Aspeon, Inc., a
Delaware corporation (the "Company") and each investor listed on Schedule A attached hereto (each, an "Investor" and collectively, the
"Investors"). 

 
 

RECITALS

	A.
	The
Company is currently in need of funds to help finance its operations.

	B.
	The
Investors are willing to advance funds to the Company in exchange for the issuance to them of certain secured convertible promissory notes evidencing the Company's obligation to
repay the Investors' loans of the advanced funds. 

NOW
THEREFORE, the parties hereby agree as follows: 

1.    Notes.

        1.1    The Notes.    Subject to the terms and conditions of this Agreement and the Security Agreement in the form
attached to this Agreement as Exhibit A (the "Security Agreement"), the Company agrees to sell to each Investor, and each Investor severally
agrees to purchase from the Company, a Secured Convertible Promissory Note in the form attached to this Agreement as Exhibit B (individually a
"Note" and collectively the "Notes") in the principal amount set forth opposite such Investor's name on Schedule A hereto. Each Note shall be
convertible into shares of the Company's common stock ("Common Stock") pursuant to terms of the Note and shall be secured by the assets of the Company as described in such Note and the Security
Agreement. The aggregate amount of the Notes shall not exceed $500,000. 

        1.2    Closings.    The purchase and sale of the Notes (each a "Closing") will take place at the offices of the
Company at 16832 Redhill Ave., Irvine, CA 92606, at such time as the parties shall mutually agree. The Company may sell additional Notes until November 30, 2002 to such persons as the board of
directors of the Company may determine. Any such sale shall be upon the same terms and conditions as those contained herein, and such persons or entities shall become parties to this Agreement and
shall have the rights and obligations of an Investor hereunder. 

        1.3    Delivery.    At or shortly following the Closing, the Company will deliver to each Investor a Note, the
original principal amount of which shall be in the amount indicated next to each Investor's name on Schedule A attached hereto. 

2.    Representations and Warranties of the Company.    The Company hereby
represents and warrants to each Investor as follows: 

        2.1    Organization, Standing and Power.    The Company is a corporation duly incorporated, validly existing and in
good standing under the laws of the State of Delaware and has all requisite corporate power and authority to own, lease and operate its properties and to carry on its business as contemplated to be
conducted. The Company is duly qualified to transact business and is in good standing in each jurisdiction in which the failure to so qualify would have a material adverse effect on its business or
properties. 

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        2.2    Authority and Enforceability.    The Company has all requisite corporate power and authority to execute and
deliver this Agreement, the Security Agreement and the Notes and to perform fully its obligations hereunder and thereunder. The execution and delivery of this Agreement, the Security Agreement and the
Notes and the consummation of the transactions contemplated hereby and thereby have been duly authorized by all necessary corporate action on the part of the Company. This Agreement, the Security
Agreement and the Notes have been duly executed and delivered by the Company, and, assuming this Agreement, the Security Agreement, and the Notes constitute valid and binding agreements of the other
parties hereto, this Agreement, the Security Agreement, and the Notes constitute legal, valid and binding obligations of the Company, enforceable against the Company in accordance with their terms,
subject to applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect relating to creditors' rights and remedies generally and subject, as to
enforceability, to general principles of equity, regardless of whether enforceability is considered in a proceeding at law or in equity. 

        2.3    Valid Issuance of Common Stock.    The Common Stock, when issued, sold and delivered in accordance with the
terms of the Notes for the consideration expressed therein, will be duly and validly issued, fully paid, and nonassessable, and based in part upon the representations of the Investors, will be issued
in compliance with all applicable federal and state securities laws. The Company covenants to authorize (and if necessary create), maintain and reserve, a sufficient number of shares of Common Stock
necessary upon conversion of the Notes. 

        2.4    Consents.    No governmental orders, permissions, consents, approvals or authorizations are required to be
obtained and no registrations or declarations are required to be filed in connection with the execution and delivery of this Agreement, the Security Agreement and the Notes and the issuance of the
Common Stock, except such as has been duly and validly obtained or filed, or with respect to any filings that must be made after the Closing, as will be filed in a timely manner. 

        2.5    Subsidiaries.    Except as listed below, the Company does not presently own, have any investment in, or
control, directly or indirectly, any Subsidiaries, associations or other business entities. The Company is not a participant in any joint venture or partnership. 

	•
	CCI
Group, Inc.

	•
	Posnet
Computers, Inc.

	•
	Aspeon
Systems International Pte Ltd

	•
	Aspeon
Systems Australia Pty Limited

	•
	Dynamic
Technologies, Inc.

	•
	Restaurant
Consulting Services, Inc.

	•
	SB
Holdings, Inc.

	•
	Aspeon
Solutions, Inc. 

        2.6    Litigation.    Except as listed in Exhibit C there is no action, suit, proceeding or investigation
pending or to the Company's knowledge currently threatened against the Company which might result in a material adverse change to the Company, nor is the Company aware that there is any basis for the
foregoing. The foregoing includes, without limitation, actions pending or threatened (or any basis therefor known to the Company) involving the prior employment of any of the Company's employees,
their use in connection with the Company's business of any information or techniques allegedly proprietary to any of their former employers, or their obligations under any agreements with prior
employers. The Company is not a party or subject to the provisions of any order, writ, injunction, judgment or decree of any court or government agency or instrumentality. There is no action, suit, 

2

 

proceeding or investigation by the Company currently pending or which the Company intends to initiate. 

        2.7    Full Disclosure.    The Company has fully provided the Investors with all the information in possession of the
Company which the Investors have requested for deciding whether to enter into this Agreement, the Security Agreement and the Notes and all information which the Company believe is reasonably necessary
to enable the Investors to make such decision. The representations and warranties of the Company contained in this Agreement, the Security Agreement, the Notes, certificates and other documents made
or delivered in connection herewith, taken as a whole do not contain any untrue statement of a material fact or omit any material fact necessary to make the statements contained therein or herein in
view of the circumstances under which they were made not misleading. 

3.    Representations and Warranties of Each Investor.    Each Investor hereby
represents and warrants severally, and not jointly, that: 

        3.1    Authorization.    Each Investor has full power and authority to enter into this Agreement, the Security
Agreement and the Note (collectively, the "Bridge Agreements"), and that the Bridge Agreements
constitute valid and legally binding obligations of such Investor, enforceable in accordance with their respective terms. 

        3.2    Purchase Entirely for Own Account.    The Notes and the Common Stock issuable upon conversion of the Notes
(collectively, the "Securities") will be acquired for investment for Investor's own account, not as a nominee or agent, and not with a view to the resale or distribution of any part thereof, and the
Investor has no present intention of selling, granting any participation in, or otherwise distributing the same. The Investor does not have any contract, undertaking, agreement or arrangement with any
person to sell, transfer or grant participation in any of the Securities to such person or to any third person. The Investor has full power and authority to enter into this Agreement. 

        3.3    Disclosure of Information.    The Investor believes it has received all of the information it considers
necessary or appropriate for deciding whether to purchase the Note. The Investor has had an opportunity to ask questions and receive answers from the Company regarding the terms and conditions of the
offering and sale of the Note. 

        3.4    Investment Experience and Financial Risk.    The Investor is an investor in securities of companies in the
development stage and acknowledges that it is able to fend for itself and bear the economic risks of its investment, including the complete loss thereof, and has such knowledge and experience in
financial or business matters that it is capable of evaluating the merits and risks of the investment in the Note. The Investor has not been organized for the purpose of acquiring the Securities. 

        3.5    Accredited Investor.    The Investor is an "accredited investor" within the meaning of the Securities and
Exchange Rule 501 of Regulation D, as presently in effect. 

        3.6    Restricted Securities.    The Investor understands that the Securities it is purchasing are characterized as
"restricted securities" under the federal securities laws inasmuch as they are being acquired from the Company in a transaction not involving a public offering and that, under such laws and applicable
regulations, such securities may be resold without registration under the Securities Act of 1933, as amended (the "Securities Act"), only in certain limited circumstances. In this connection, the
Investor is familiar with Rule 144, as presently in effect, and understands the resale limitations imposed thereby and by the Securities Act. 

        3.7    Further Limitations on Disposition.    Without in any way limiting the representations set forth above, the
Investor further agrees not to make any disposition of all or any portion of the Securities (other than the valid exercise or conversion thereof in accordance with their respective terms) unless and
until: 

3

 

        (a)  There
is then in effect a Registration Statement under the Securities Act covering such proposed disposition, and such disposition is made in accordance with such
Registration Statement; or 

        (b)  (i)  The
Investor shall have notified the Company of the proposed disposition and shall have furnished the Company with a detailed statement of the
circumstances surrounding the proposed disposition, and (ii) if requested by the Company, the Investor shall have furnished the Company with an opinion of counsel, reasonably satisfactory to
the Company, that such disposition will not require registration of such shares under the Securities Act or registration or qualification under any applicable state securities laws. 

        (c)  Notwithstanding
the foregoing, no investment representation letter or opinion of counsel shall be required for any transfer of any Securities (i) in compliance
with Rule 144 or Rule 144A of the Securities Act, (ii) by gift, will or intestate succession by such holder to his or her spouse or lineal descendants or ancestors or any trust
for any of the foregoing or (iii) to a partner or member of an Investor that is a partnership or Limited Liability Company; provided, that in each of the foregoing cases, the transferee agrees
in writing, in a form acceptable to the Company, to be subject to the terms of this Agreement. In addition, if the holder of any Securities delivers to the Company an unqualified opinion of counsel
that no subsequent transfer of such Securities shall require registration under the Securities Act, the Company shall, upon such contemplated transfer, promptly deliver new documents/certificates for
such Securities that do not bear the legend set forth in Section 3.8(a) hereof. 

        3.8    Legends.    It is understood that the certificates evidencing the Securities may bear one or all of the
following legends: 

        (a)  "THESE
SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE
OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THE SECURITIES UNDER SUCH ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED." 

        (b)  Any
legend required by the laws of the State of California or any other applicable state, including any legend required by the California Department of Corporations. 

        4.    Pari Passu with All Notes.    Each Note shall rank equally without preference or priority of any kind with each
of the Notes issued by the Company to the Investors hereunder. All payments on account of principal and interest with respect to the Notes shall be applied ratably and proportionately on each such
Note on the basis of the original principal amount of outstanding indebtedness represented by such Note. 

5.    Conditions to Closing.

        5.1    Conditions of Each Investor's Obligations at Closing.    The obligations of each Investor at the Closing are
subject to the fulfillment, on or prior to the date of the Closing, of each of the following conditions, any of which may be waived in whole or in part by Investors, the waiver of which shall not be
effective against any Investor who does not consent in writing thereto: 

        (a)  The
representations and warranties made by the Company in Section 2 shall be true and correct when made, and shall be true and correct on the date of Closing with
the same force and effect as if they had been made on and as of the same date; 

        (b)  The
Company shall have performed and complied with all agreements, obligations and conditions contained in this Agreement that are required to be performed or complied
with by it on or prior to the date of Closing; 

4

 

        (c)  Except
for the notices required or permitted to be filed after the date of Closing pursuant to applicable federal and state securities laws, the Company shall have
obtained all governmental approvals required in connection with the lawful sale and issuance of the Notes; and 

        (d)  At
the Closing, the sale and issuance by the Company, and the purchase by each Investor, of the Note shall be legally permitted by all laws and regulations to which such
Investor and/or the Company are subject. 

        5.2    Conditions to Obligations of the Company.    The Company's obligation to issue and sell the Notes at the
Closing is subject to the fulfillment, to the Company's satisfaction, on or prior to the date of the Closing, of the following conditions, any of which may be waived in whole or in part by the
Company: 

        (a)  The
representations and warranties made by the Investors in Section 3 shall be true and correct when made, and shall be true and correct on the date of Closing
with the same force and effect as if they had been made on and as of the same date; 

        (b)  Except
for any notices required or permitted to be filed after the date of Closing pursuant to applicable federal or state securities laws, the Company shall have
obtained all governmental approvals required in connection with the lawful sale and issuance of the Securities; and 

        (c)  At
the Closing, the sale and issuance by the Company, and the purchase by each Investor, of his/her/its Note shall be legally permitted by all laws and regulations to
which such Investor and/or the Company are subject. 

6.    Covenants of the Company.

        6.1    Sale of Assets.    Without the approval of the Investors holding a majority of the aggregate principal amount
of the then outstanding Notes, the Company shall not sell or dispose any of its assets, other than in the ordinary course of business. 

        6.2    Board of Directors.    Promptly after the Closing, the Board of Directors of the Company shall consist of the
following persons: Jay Kear, Richard Stack, and Horace Hertz. 

        6.3    Registration of Common Stock.    In the event that the Company files a registration statement for any shares of
its capital stock, the Company shall include the shares of Common Stock covered under this Agreement in the registration statement. 

7.    Indemnity.    Each party (an "Indemnifying Party") agrees to defend, indemnify
and hold harmless the other party, its shareholders, directors, officers, employees, agents, attorneys, parent companies, subsidiaries and affiliates (each, an "Indemnified Party"), harmless from and
against any and all claims, liabilities, judgments, penalties, taxes, costs and expenses (including reasonable attorney fees and costs) arising out of or related to the Indemnifying Party's breach of
this Agreement or any of its representations, warranties, covenants or undertakings hereunder. The Indemnified Party shall promptly notify the Indemnifying Party of any action commenced on such a
claim and the Indemnifying Party shall assume the defense thereof. The Indemnified Party shall have the right at all times, in its sole discretion, to retain or assume control of the defense of any
such claim. The Indemnifying Party shall not settle any claim unless it has received consent in writing from the Indemnified Party, which consent shall not be unreasonably withheld. Notwithstanding
the foregoing, each party shall only indemnify and hold harmless the other party to the extent that a claim is based on the action or omission of the Indemnifying Party. 

5

 

8.    Miscellaneous.

        8.1    Waivers and Amendments.    Any provision of this Agreement may be amended, waived or modified (either generally
or in a particular instance, either retroactively or prospectively, and either for a specified period of time or indefinitely), upon the written consent of the Company and of the Investors holding a
majority of the aggregate principal amount of the then outstanding Notes. 

        8.2    Governing Law.    This Agreement and the Notes shall be governed by and construed in accordance with California
law, without regard to the conflict of laws provisions thereof. 

        8.3    Survival.    The representations, warranties, covenants and agreements made herein shall survive any
investigation made by any Investor and the Closing of the transactions contemplated hereby, including the provisions of Section 7. 

        8.4    Successors and Assigns.    Except as otherwise expressly provided herein, the provisions hereof shall inure to
the benefit of, and be binding upon, the successors, assigns, heirs, executors and administrators of the parties hereto. 

        8.5    Entire Agreement.    This Agreement (including the exhibits attached hereto) constitutes the full and entire
understanding and agreement between the parties with regard to the subjects hereof and thereof. 

        8.6    Notices, etc.    All notices and other communications required or permitted hereunder shall be in writing and
shall be either mailed by United States first-class mail, postage prepaid, or delivered personally by hand or nationally recognized courier or sent via facsimile, addressed (a) if to an
Investor, as indicated on the signature page hereto, or at such other address as such holder or permitted assignee shall have furnished to the Company in writing, or (b) if to the Company, at
the address set forth on the signature page hereto, or at such other address as the Company shall have furnished to each Investor in writing. All such notices and other written communications shall be
effective (i) if mailed, three (3) business days after mailing, (ii) if delivered, upon delivery, (iii) if sent by nationally recognized overnight delivery courier, one
(1) business day after deposit with such courier and (iv) if sent by facsimile, upon confirmation of receipt printed/obtained from the transmitting machine. 

        8.7    Severability of this Agreement.    If any provision of this Agreement shall be judicially determined to be
invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. 

        8.8    Counterparts.    This Agreement may be executed in any number of counterparts, each of which shall be an
original, but all of which together shall be deemed to constitute one instrument. 

        8.9    Expenses.    Each party shall pay its own respective expenses, regardless of whether the transaction is
consummated. 

        8.10    Facsimile Signatures.    This Agreement may be executed and delivered by facsimile and, upon such delivery,
the facsimile will be deemed to have the same effect as if the original signature had been delivered to the other party. 

        8.11    Further Assurances.    The parties agree to execute such further instruments and to take such further action
as may be reasonably necessary to carry out the purposes and intent of this Agreement. 

        8.12    Attorneys' Fees.    In the event that any dispute among the parties to this Agreement should result in
litigation, the prevailing party in such dispute shall be entitled to recover from the losing party all fees, costs and expenses of enforcing any right of such prevailing party under or with respect
to this Agreement, including without limitation, such reasonable fees and expenses of attorneys, which shall include, without limitation, all fees, costs and expenses of appeals, as well as costs of
collection. 

6

 

        IN
WITNESS WHEREOF, the parties have caused this Secured Convertible Promissory Note Purchase Agreement to be duly executed and delivered by their proper and duly authorized officers as
of the date and year first written above. 

COMPANY:  

	ASPEON, INC.	 	 
	

By:	
 	

/s/  DONALD W. RUTHERFORD      
	
 	

 
	 	 	Donald W. Rutherford
 Chief Financial Officer	 	 

INVESTORS:  

[Investor]

	

By:	
 	

/s/  RICHARD STACK      
 Richard Stack	
 	

 
	

By:	
 	

/s/  KEN KADLEC      
 Ken Kadlec	
 	

 
	

By:	
 	

/s/  HORACE HERTZ      
 Horace Hertz	
 	

 

[Investors'
signatures to follow.] 

7

 
 

SCHEDULE A
  LIST OF INVESTORS    
  

	Name
 
	 	Amount

	FIRST CLOSING:	 	 	 
	

Richard Stack	
 	
$	

125,000
	

Kenneth Kadlec	
 	
$	

50,000
	

Horace Hertz	
 	
$	

75,000
	
Total:	
 	
$	

250,000.00
	
SECOND CLOSING:	
 	
 	

 
	
Total:	
 	
$	

250,000.00

 
 

EXHIBIT A    
  

 
  SECURITY AGREEMENT    
  

 
 

EXHIBIT B
  
    SECURED CONVERTIBLE PROMISSORY NOTE    
  

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ASPEON, INC. SECURED CONVERTIBLE PROMISSORY NOTE PURCHASE AGREEMENT

RECITALS

SCHEDULE A LIST OF INVESTORS

EXHIBIT A

SECURITY AGREEMENT

EXHIBIT B SECURED CONVERTIBLE PROMISSORY NOTEQuickLinks
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Exhibit 10.2  

 
 

SECURITY AGREEMENT    
  

        This SECURITY AGREEMENT, dated as of September 12, 2002 (the "Security Agreement"), is executed by Aspeon, Inc., a Delaware corporation ("Debtor"),
in favor of the investors listed on Schedule A (each a "Secured Party" and collectively, the "Secured Parties") to that certain Secured Convertible Note Purchase Agreement dated as of the date
hereof (the "Purchase Agreement"). 

 
 

RECITALS

        A.    Debtor
has executed Secured Convertible Promissory Notes (each a "Note" and collectively, the "Notes") in favor of the Secured Parties. 

        B.    In
order to induce each Secured Party to extend the credit evidenced by the Notes, Debtor has agreed to enter into this Security Agreement and to grant Collateral Agent
the security interest in the Collateral described below. 

 
 

AGREEMENT

        NOW,
THEREFORE, in consideration of the above recitals and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, Debtor hereby agrees with
Collateral Agent and the Secured Parties as follows: 

        1.    Definitions and Interpretation.    When used in the Security Agreement, the following terms shall have the
following respective meanings: 

        "Collateral"
shall have the meaning given to that term in Section 2 hereof. 

        "Lien"
means any lien (statutory or other), mortgage, pledge, hypothecation, assignment, deposit arrangement, security interest, charge, claim or other encumbrance of any kind (including
any conditional sale or other title retention agreement, any lease in the nature thereof, and any agreement to give any security interest) and any agreement to give or refrain from giving a lien,
mortgage, pledge, hypothecation, assignment, deposit arrangement, security interest, charge, claim or other encumbrance of any kind. 

        "Obligations"
shall mean and include all loans, advances, debts, liabilities and obligations, howsoever arising, owed by Debtor to the Secured Parties of every kind and description
(whether or not evidenced by any note or instrument and whether or not for the payment of money), now existing or hereafter arising under or pursuant to the terms of the Notes and the Transaction
Documents, including, all interest, fees, charges, expenses, attorneys' fees and costs and accountants' fees and costs chargeable to and payable by Debtor hereunder and thereunder, in each case,
whether direct or indirect, absolute or contingent, due or to become due, and whether or not arising after the commencement of a proceeding under Title 11 of the United States Code (11 U.S.C.
Section 101 et seq.), as amended from time to time (including post-petition interest) and whether or not allowed or allowable as a
claim in any such proceeding. 

        "Transaction
Documents" shall mean this Security Agreement, the Purchase Agreement, the Notes and all other documents, instruments and agreements executed and delivered in connection
herewith or therewith or in respect of the closing of the transactions contemplated hereby or thereby. 

        "UCC"
shall mean the Uniform Commercial Code as in effect in the State of California from time to time. 

1

 

        Unless
otherwise defined herein, all terms defined in the UCC shall have the respective meanings given to those terms in the UCC. 

        2.    Grant of Security Interest.    As security for the Obligations, Debtor hereby grants to the Secured Parties a
security interest in and Lien on all right, title and interest of Debtor in and to the property described in Exhibit A attached hereto
(collectively and severally, the "Collateral"). Notwithstanding the foregoing, the security interest and Lien granted herein shall not extend to, and the term "Collateral" shall not include, any
property, rights or licenses to the extent the granting of a security interest and Lien therein (i) would be contrary to applicable law or (ii) is prohibited by or would constitute a
default under any agreement or document governing such property, rights or licenses (but only to the extent such prohibition is enforceable under applicable law), including any fixed assets that
secure leased equipment under any lease or rental agreements. 

        3.    Representations and Warranties.    Debtor represents and warrants to the Secured Parties that (a) Debtor
is the owner of the Collateral (or, in the case of after-acquired Collateral, at the time Debtor acquires rights in the Collateral, will be the owner thereof); and (b) the Secured Parties have
(or in the case of after-acquired Collateral, at the time Debtor acquires rights therein, will have) a first priority perfected security interest in and Lien on the Collateral. Debtor further
represents and warrants that the Debtor's rights in the Collateral constitute all requisite rights for the Debtor's business as now being conducted and as proposed to be conducted. 

        4.    Covenants Relating to Collateral.    Debtor hereby agrees (a) to perform all acts that may be necessary
to maintain, preserve, protect and perfect the Collateral, the security interest and Lien granted to the Secured Parties therein; (b) without written notice to the Secured Parties, not to
change Debtor's name or place of business (or, if Debtor has more than one place of business, its chief executive office); and (c) to comply with all material requirements of law relating to
the production, possession, operation, maintenance and control of the Collateral. 

        5.    Debtor Remains Liable.    Anything herein to the contrary notwithstanding, (i) Debtor shall remain liable
under any contracts, agreements and other documents included in the Collateral, to the extent set forth therein, to perform all of its duties and obligations thereunder to the same extent as if the
Security Agreement had not been executed, (ii) the exercise by any Secured Party of any of the rights hereunder shall not release Debtor from any of its duties or obligations under such
contracts, agreements and other documents included in the Collateral and (iii) no Secured Party shall have any obligation or liability under any contracts, agreements and other documents
included in the Collateral by reason of the Security Agreement, not shall any Secured Party be obligated to perform any of the obligations or duties of Debtor thereunder or to take any action to
collect to enforce any such contract, agreement or other document included in the Collateral hereunder. 

        6.    Continuing Security Interest.    Debtor agrees that the Security Agreement shall create a continuing security
interest and Lien in the Collateral which shall remain in effect until indefeasible payment and performance in full of all of the Obligations. 

        7.    Separate Obligations and Liens.    Debtor acknowledges and agrees that (i) the Obligations represent
separate and distinct indebtedness, obligations and liabilities of Debtor to each of the Secured Parties,
which Debtor is separately obligated to each Secured Party to pay and perform, in each case regardless of whether or not any indebtedness, obligation or liability to any other Secured Party or any
other person or entity, or any agreement, instrument or guaranty that evidences any such other indebtedness, liability or obligation, or any provision thereof, shall for any reason be or become void,
voidable, unenforceable or discharged, whether by payment, performance, avoidance or otherwise; (ii) the Lien that secures each of the Secured Parties' respective Obligations (A) is
separate and distinct from any and all other Liens on the Collateral, (B) is enforceable without regard to whether or not any other Lien shall be or become void, voidable or unenforceable or
the indebtedness, obligations 

2

 

or liabilities secured by any such other Lien shall be discharged, whether by payment, performance, avoidance or otherwise, and (C) shall not merge with or be impaired by any other Lien. 

        8.    Default and Remedies.    Debtor shall be deemed in default under the Security Agreement upon the occurrence and
during the continuance of an Event of Default (as defined in the Notes). Upon the occurrence and during the continuance of any such Event of Default, the Secured Parties shall have the rights of a
secured creditor under the UCC and all rights granted by the Security Agreement and by law. In the event the Secured Parties exercise their rights to remedies hereof, the proceeds from disposition of
the Collateral shall be allocated among the Secured Parties pro rata in accordance with their respective unpaid principal amounts. 

        9.    Collateral Agent.    At any time or times, in order to comply with any legal requirement in any jurisdiction or
in order to effectuate any provision of the Security Agreement as determined in the discretion of the holders holding a majority of the aggregate principal amount of the then outstanding Notes (the
"Majority Note Holders"), the Majority Note Holders may, without the consent of or notice to Debtor, appoint any Secured Party, or any bank or trust company or any other person or entity to act as
collateral agent (the "Collateral Agent"), either jointly with any Secured Party or separately, on behalf of the Secured Parties with such power and authority as may be necessary for the effectual
operation of the provisions hereof and specified in the instrument of appointment. Debtor acknowledges that (i) the rights and responsibilities of the Collateral Agent under this Agreement or
arising out of this Agreement shall, as between the Collateral Agent and the Secured Parties, be governed by the matters as among the Secured Parties and the Collateral Agent to which Debtor shall not
be a third party or other beneficiary; and (ii) as between the Collateral Agent and Debtor, the Collateral Agent shall be conclusively presumed to be acting as agent for itself and the Secured
Parties with full and valid authority so to act or refrain from acting. Debtor shall irrevocably appoint Collateral Agent as its attorney-in-fact and agrees that Collateral
Agent may perform (but Collateral Agent shall not be obligated to and shall incur no liability to Debtor or any third party for failure so to do) any act which Debtor is obligated by this Security
Agreement to perform, and to exercise such rights and powers as Debtor might exercise with respect to the Collateral. 

        10.    Miscellaneous.    

        (a)    Notices.    All notices and other communications required or permitted hereunder shall be in writing and shall
be either mailed by United States first-class mail, postage prepaid, or delivered personally by hand or nationally recognized courier or sent via facsimile, addressed to the address of each respective
party set forth on the signature pages hereto, or at such other address as each party shall have furnished to the Company in writing. All such notices and other written communications shall be
effective (i) if mailed, three (3) business days after mailing, (ii) if delivered, upon delivery, (iii) if sent by nationally recognized overnight delivery courier, one
(1) business day after deposit with such courier and (iv) if sent by facsimile, upon confirmation of receipt printed/obtained from the transmitting machine. 

        (b)    Nonwaiver.    No failure or delay on any Secured Party's part in exercising any right hereunder shall operate
as a waiver thereof or of any other right nor shall any single or partial exercise of any such right preclude any other further exercise thereof or of any other right. 

        (c)    Amendments and Waivers.    The Security Agreement may not be amended or modified, nor may any of its terms be
waived, except by written instruments signed by Debtor and the Majority Note Holders. Each waiver or consent under any provision hereof shall be effective only in the specific instances for the
purpose for which given. 

        (d)    Assignments.    The Security Agreement shall be binding upon and inure to the benefit of Debtor and each
Secured Party and their respective successors and assigns; provided, however, that 

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Debtor may not sell, assign or delegate rights and obligations hereunder without the prior written consent of the Majority Note Holders. 

        (e)    Severability.    If any provision of the Security Agreement shall be judicially determined to be invalid,
illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. 

        (f)    Counterparts.    The Security Agreement may be executed in any number of counterparts, each of which shall be
an original, but all of which together shall be deemed to constitute one instrument. 

        (g)    Entire Agreement.    The Security Agreement and each of the other Transaction Documents, taken together,
constitute and contain the entire agreement of Debtor and each Secured Party and supersede any and all prior agreements, negotiations, correspondence, understandings and communications among the
parties, whether written or oral, respecting the subject matter hereof. 

        (h)    Governing Law.    This Security Agreement shall be governed by and construed in accordance with the laws of the
State of California without reference to conflicts of law rules (except to the extent governed by the UCC). 

        (i)    Attorneys' Fees.    In the event that any dispute among the parties to this Security Agreement should result in
litigation, the prevailing party in such dispute shall be entitled to recover from the losing party all fees, costs and expenses of enforcing any right of such prevailing party under or with respect
to this Security Agreement, including without limitation, such reasonable fees and expenses of attorneys, which shall include, without limitation, all fees, costs and expenses of appeals, as well as
costs of collection. 

        IN
WITNESS WHEREOF, Debtor and each Secured Party have caused this Security Agreement to be executed as of the day and year first above written. 

ASPEON, INC.

	By:	 	/s/  DONALD W. RUTHERFORD      
	 	 

	Print Name:	 	Donald W. Rutherford	 	 
	Title:	 	Chief Financial Officer	 	 
	Address:	 	16832 Redhill Ave.

Irvine, CA 92606	 	 
	Facsimile:	 	(949) 440-8087	 	 

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EXHIBIT A
  
    COLLATERAL    
  

        All right, title and interest of Debtor, including its domestic and foreign subsidiaries ("Subsidiaries"), now owned or hereafter acquired in and to all personal
property of Debtor and Subsidiaries, whether presently existing or hereafter created, written, produced or acquired, including, but not limited to the following (collectively, the "Collateral"): 

	(a)
	All
equipment and fixtures (including, without limitation, furniture, vehicles and other machinery and office equipment), together with all additions and accessions thereto and
replacements therefor;

	(b)
	All
inventory, together with all additions and accessions thereto, replacements therefor, products thereof and documents therefor;

	(c)
	All
accounts, chattel paper, contract rights and rights to the payment of money;

	(d)
	All
documents, books, records, files and data of the Debtor and Subsidiaries, related to the business of the Debtor or the Subsidiaries, including, without limitation, the Debtor's
business plan and the like;

	(e)
	All
general intangibles, including, without limitation, (i) customer and supplier lists and contracts, books and records, insurance policies, tax refunds, contracts for the
purchase of real or personal property; (ii) all patents, copyrights, trademarks, trade names, service marks and other intellectual property rights, (iii) all licenses to use,
applications for, and other rights to, such patents, copyrights, trademarks, trade names and service marks, and (iv) all goodwill of Debtor and Subsidiaries;

	(f)
	All
deposit accounts, money, instruments and documents; and

	(g)
	All
proceeds of the foregoing (including, without limitation, whatever is receivable or received when Collateral or proceeds is sold, collected, exchanged, returned, substituted or
otherwise disposed of, whether such disposition is voluntary or involuntary, including rights to payment and return premiums and insurance proceeds under insurance with respect to any Collateral, and
all rights to payment with respect to any cause of action affecting or relating to the Collateral). 

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SECURITY AGREEMENT

RECITALS

AGREEMENT

EXHIBIT A COLLATERAL

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