Document:

Exhibit
10.5

 

SECURITY
AND PLEDGE AGREEMENT

 

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

 

Recitals

 

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

 

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

 

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(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  accounts 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 other
tangible and intangible personal property whatsoever of any Debtor including
all cash, products, offspring, rents, revenues, issues, profits, royalties, income,
benefits, accessions, additions, substitutions and replacements of and to any
and all of the foregoing, including all Proceeds of and to any of the property
of any of the Debtors described in the preceding paragraphs of this Section 1.1
(including, without limitation, any loss proceeds or other Proceeds of
insurance thereon (whether or not any Note Purchaser is loss payee thereof),
and any indemnity, warranty or guarantee, payable by any reason of loss or
damage to or otherwise with respect to any of the foregoing, and all causes of
action, claims and warranties now or hereafter held by any Debtor in respect of
any of the items listed above);

 

provided, however,
that a Security Interest in the Purchased Assets (as that term is defined by
the Asset Purchase Agreement and
Liability Assumption Agreement
and the Asset Purchase Agreement, each dated as of August 8, 2005
(the “NETF Agreements”), among the Debtors and New England Technology Finance,
LLC, a Delaware limited liability company) is not granted under this Agreement
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 Agreements, 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; provided 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 Agreements, such Purchased
Assets shall be excluded from the Collateral only to the extent and for so long
as this Agreement conflicts with the NETF Agreements and the NETF Agreements
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

 

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the part of any Debtor or
Purchaser; provided further, however, that the
Security Interest granted hereunder in and to, and the right of set-off
against, the Collateral shall be junior and subordinated to any security
interest granted to SACC Partners, L.P. and Lloyd I. Miller, III (collectively
the “Senior Purchasers”) under that certain Security and Pledge Agreement,
dated as of the date hereof (the “Senior Security Agreement”), issued pursuant
to the Note Purchase Agreement.

 

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 Purchaser 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 Purchaser
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
Purchaser.

 

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 (i) the financing
statements filed in respect of Permitted Liens and (ii) the financing
statements identified in Schedule C hereof for which termination
statements will be filed pursuant to the deadlines set forth in the Purchase
Agreement), 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.

 

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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 D 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
D 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 Purchaser 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 Purchaser may
reasonably request and (b) with respect to such new location, it shall have
taken all action reasonably satisfactory to the Purchaser, to maintain the
security interest of the Purchaser 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 E 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 E 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 Purchaser 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 Purchaser have a first perfected security interest in such
Inventory and Equipment only if (a) it shall have given to the Purchaser 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 Purchaser may reasonably request and (b) with respect to such
new location, it shall have taken all action reasonably satisfactory to the
Purchaser to maintain the security interest of the Purchaser 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.

 

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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 F 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 F attached
hereto. No Debtor shall change its jurisdiction of organization without the
Purchaser’s 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 Purchaser. With respect to
such new name or jurisdiction of organization, such Debtor shall have taken all
action reasonably requested by the Purchaser, 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 Purchaser 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 Purchaser, 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 Purchaser or to its representatives (copies of which evidence and books
and records may be retained by each Debtor). If the Purchaser so directs, upon
the occurrence and during the continuance of an Event of Default, each Debtor
shall legend, in form and manner satisfactory to the Purchaser, 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 Purchaser and
that the Purchaser has 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 Purchaser so directs
each Debtor if such Debtor does not have a Senior Lender, each Debtor agrees
(a) to cause all payments on account of the Accounts, Deposit Accounts or
General Intangibles to be made directly to the Cash Collateral Account, (b)
that the Purchaser may, at its option, directly notify the obligors with
respect to any Accounts, Deposit Accounts or General Intangibles to make
payments with respect thereto as provided in preceding clause (a) and (c) that
the Purchaser may enforce collection of any such Accounts, Deposit Accounts or
General Intangibles and may

 

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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 Purchaser 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 Purchaser, shall be borne by such Debtor. The
Purchaser shall deliver a copy of each notice referred to in the preceding
clause (b) to such Debtor; provided, that the failure by the Purchaser to so
notify such Debtor shall not affect the effectiveness of such notice or the
other rights of the Purchaser 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
Purchaser, 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 Purchaser, shall be borne by such Debtor.

 

Section
3.6                                   Instruments.
If a Debtor owns or acquires any Instrument constituting Collateral, at
Purchaser’s 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 Purchaser appropriately endorsed to the
order of the Purchaser as further security hereunder. At the Purchaser’s
request, such Debtor that owns or acquires any other Instrument constituting
Collateral will, within 5 business days, promptly deliver such Instrument to
the Purchaser appropriately endorsed to the order of the Purchaser 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

 

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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 Purchaser 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 Purchaser 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
Purchaser; 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

 

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

 

Section
4.6                                   Remedies.
If an Event of Default shall occur and be continuing, the Purchaser 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
Purchaser for the benefit of the Purchaser, in which event the rights, title
and interest shall immediately vest, in the Purchaser for the benefit of the
Purchaser, and the Purchaser 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 Purchaser, change such Debtor’s corporate name to eliminate
therefrom any use of any Mark and execute such other and further documents that
the Purchaser 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 Purchaser.

 

Section
4.7                                   Collateral
Assignment. This Agreement is made for collateral security purposes
only. This Agreement and Purchaser’s Security Interest in the Marks shall
continue in full force and effect as long as any Obligations shall be owed to
the Purchaser (or any of said Purchaser). Upon payment in full of the
Obligations and termination of the Purchase Agreement, this Agreement shall
terminate and Purchaser 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 Purchaser’s security interest in the Marks,
subject to any disposition thereof which may have been made by Purchaser
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 H 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 I 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

 

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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 Purchaser 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 such Debtor does not have a Senior Lender.

 

Section
5.2                                   Infringements.
Each Debtor agrees, promptly upon learning thereof, to furnish the Purchaser 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 Purchaser; 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 Purchaser; 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 Purchaser 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 Purchaser and at the expense of such Debtor, confirming the assignment for
security, in such form as may be reasonably satisfactory to the Purchaser.

 

Section
5.6                                   Remedies.
If an Event of Default shall occur and be continuing, the Purchaser 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

 

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vested in the Purchaser for the benefit of the Purchaser, in which
event such right, title, and interest shall immediately vest in the Purchaser
for the benefit of the Purchaser, in which case the Purchaser 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 Purchaser may request further to confirm this and to transfer ownership of
the Patents and Copyrights to the Purchaser for the benefit of the Purchaser.

 

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 a Senior Lender, the
certificates for all shares or units of the Pledged Securities evidenced by a
certificate shall be delivered by the relevant Debtor to the Purchaser 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 a Senior Lender, the
Purchaser 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 Purchaser 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 Purchaser 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

 

J-10

 

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 Purchaser immediately upon the
receipt thereof by such Debtor and may, in the case of cash, be applied by the
Purchaser 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 Purchaser’s Security. Each Debtor will at all times keep its
Inventory and Equipment insured in favor of the Purchaser, 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 Purchaser’s commercially
reasonable satisfaction for the benefit of the Purchaser (including, without
limitation, by naming the Purchaser 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 Purchaser; and
certified copies of such policies or certificates with respect thereto shall be
deposited with the Purchaser. 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 Purchaser 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 Purchaser for all reasonable costs and
expenses of procuring such insurance. The Purchaser shall, at the time any
proceeds of such insurance are distributed to the Purchaser, apply such
proceeds in accordance with Section 9.4

 

J-11

 

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 Purchaser 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
Purchaser 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
Purchaser such further agreements, assignments, instruments, and documents, and
to do all such other things, as the Purchaser may reasonably deem necessary or
appropriate to assure the Purchaser 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 Purchaser 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 Purchaser 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 Purchaser without notice
thereof to such Debtor wherever the Purchaser in their sole discretion desire
to file the same. Each Debtor hereby authorizes the Purchaser to file any and
all financing statements covering the Collateral or any part thereof as the
Purchaser 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
Purchaser reasonably deems necessary or appropriate to preserve, protect, and
enforce the security interest of the Purchaser under the law of such other
jurisdiction.

 

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ARTICLE 8

 

GUARANTEE

 

Section 8.1                                   The Guarantee. To induce the Purchaser 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 Purchaser, 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 Purchaser 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;

 

J-13

 

(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 Junior 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 Purchaser, 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 Junior 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 Junior 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 Purchaser and shall forthwith be paid to
the Purchaser 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, together with the rights, protections
and defenses accorded by Sections 2787 through 2855 of the California
Civil Code which provide protections for and limitations on the obligations of
a guarantor such as, but not limited to, limitations that provide (i) in
certain circumstances, that a notice be given to the guarantor of any default
by the debtor or obligor which may result in liability to the guarantor,
(ii) that the obligations of a guarantor cannot be greater in amount or
more burdensome than that of the obligor; (iii) that the guarantor will
have the same defenses to liability as the obligor, other than defenses arising
from the personal disability of the obligor; (iv) that a guarantor will be
exonerated from liability, by any act of the creditor taken without the
guarantor’s consent, which alters the original obligations of the obligor or
impairs or suspends any remedies or rights of the creditor against the obligor
or security for the guaranteed obligation; (v) that the creditor’s
acceptance of anything in partial satisfaction of the guaranteed obligation
also reduces the

 

J-14

 

obligation of the
guarantor to the same extent; and (vi) that a guarantor may require the
creditor to proceed against the obligor or security held by the creditor or to
pursue other remedies within the power of the creditor which cannot be pursued
by the guarantor before proceeding against the guarantor, as well as any
requirement that at any time any action be taken by the Purchaser, 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 Purchaser.

 

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 Purchaser, 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;

 

J-15

 

(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 Purchaser;

 

(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 Purchaser at any place or places reasonably
designated by the Purchaser, 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
Purchaser and there delivered to the Purchaser;

 

(ii)                                  store
and keep any Collateral so delivered to the Purchaser at such place or places
pending further action by the Purchaser 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 Purchaser shall in its 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 Purchaser shall be entitled to a decree requiring specific
performance by each Debtor of said obligation. The Purchaser agree that this
Agreement may be enforced by a holder of the majority in outstanding principal
amount of Junior Notes, it being understood and agreed that such rights and
remedies may be exercised by the Purchaser for the benefit of the Purchaser
upon the terms of this Agreement.

 

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

 

J-16

 

and on such terms as the Purchaser 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 Purchaser or after any
overhaul or repair at the expense of each Debtor which the Purchaser 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 Purchaser. 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 Purchaser’s 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 Purchaser 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 Purchaser 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 Purchaser 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 PURCHASER’S
TAKING POSSESSION OR THE PURCHASER’S 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 Purchaser’s
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 Purchaser’s 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

 

J-17

 

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 Purchaser upon any sale or other disposition of the
Collateral, together with all other moneys received by the Purchaser 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 Purchaser 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 Purchaser. 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 Purchaser 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 Purchaser to any other or further action in any circumstances without
notice or demand. In the event that the Purchaser shall bring any suit to
enforce any of its rights hereunder and shall be entitled to judgment, then in
such suit the Purchaser 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 Purchaser 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 Purchaser, then and in every such case the Debtors, the
Purchaser 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

 

J-18

 

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

 

Section
9.7                                   Attorney-in-Fact.
Without limiting any rights or
powers granted by this Agreement to the Purchaser while no Event of
Default has occurred and is continuing, upon the occurrence and during the
continuance of any Event of Default the Purchaser is hereby appointed the
attorney-in-fact of the Debtors for the purpose of carrying out the
provisions of this Agreement and taking any action and executing any
instruments which may be reasonably required to accomplish the purposes hereof,
which appointment as attorney-in-fact is irrevocable and coupled with an
interest. Without limiting the generality of the foregoing, the Purchaser
shall have the right and power to receive, endorse and collect all checks made
payable to the order of the Debtors representing any dividend, payment or
other distribution in respect of the Collateral or any part thereof and to give
full discharge for the same.

 

ARTICLE
10

 

DEFINITIONS

 

Capitalized terms used in
this Agreement without definition have the respective meanings ascribed to such
terms in the Purchase Agreement. All other capitalized 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 Purchaser for the benefit of the
Purchaser.

 

“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.

 

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

 

J-19

 

“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.

 

“Notes” shall mean
collectively the Junior Notes and the Senior Notes.

 

“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 Junior Note or any of the Junior
Notes issued thereunder and the due performance and compliance by the Debtors
with the terms of the Purchase Agreement as such relates to the Junior Notes
and each such Junior Note; (b) any and all sums advanced by the Purchaser 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 Purchaser of its 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 Purchaser 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

 

J-20

 

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.

 

“Senior Notes” shall have
the meaning set forth in the Note Purchase 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 230

  
	
   

  	
   

  	
  Irvine, California
  92612

  
	
   

  	
   

  	
  Attention: Chief
  Financial Officer

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  with a copy to,

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Stradling Yocca Carlson
  & Rauth

  
	
   

  	
   

  	
  660 Newport Center
  Drive, Suite 1600

  
	
   

  	
   

  	
  Newport Beach,
  California 92660

  
	
   

  	
   

  	
  Attention: Christopher
  D. Ivey, Esq.

  
	
   

  	
   

  	
   

  
	
  (b)

  	
   

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

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Paul N. Silverstein,
  Esq.

  
	
   

  	
   

  	
  Andrews Kurth LLP

  
	
   

  	
   

  	
  450 Lexington Avenue

  

 

J-21

 

	
   

  	
   

  	
  New York, NY 10017

  
	
   

  	
   

  	
  Fax:
  (212) 850-2929

  
	
   

  	
   

  	
  Tel: (212) 850-2800

  

 

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 Junior 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 Purchaser and its
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 Purchaser 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 Purchaser or on
its 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                            Debtors’
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 Purchaser shall not have any obligations or liabilities with respect to any
Collateral by reason of or arising out of this Agreement, nor shall the
Purchaser 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.

 

J-22

 

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 Purchaser, 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 Purchaser 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 Junior 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 Purchaser.

 

Section
11.10                     Subordination. The Security
Interest granted pursuant to this Agreement and Purchaser’s rights and remedies
under this Agreement are subordinate to the rights and remedies of and the
security interest granted to the Senior Purchasers under the Senior Security
Agreement (each, a “Senior Lender”).  Upon the disposition and application
of the Collateral under (and as defined in) the Senior Security Agreement the
subordination of the liens and security interests set forth in this Agreement
shall terminate and the Obligations described herein and all rights and
remedies of the Purchasers’ described herein shall rank pari passu
in all respects with those set forth in the Senior Security Agreement.

 

[Remainder
of page left intentionally blank.]

 

J-23

 

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:

  	
  /s/
  Casper Zublin, Jr.

  	
   

  
	
   

  	
   

  	
  Name:

  	
  Casper
  Zublin, Jr.

  	
   

  
	
   

  	
   

  	
  Title:

  	
  Chief
  Executive Officer

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  DYNTEK SERVICES, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/
  Robert I. Webber

  	
   

  
	
   

  	
   

  	
  Name:

  	
  Robert
  I. Webber

  	
   

  
	
   

  	
   

  	
  Title:

  	
  Chief
  Financial Officer

  	
   

  
									

 

	
  PURCHASER:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  TRUST A-4 - LLOYD I. MILLER

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:
  PNC Bank, National Association,

  	
   

  	
   

  
	
  as
  Trustee

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
  /s/ Lloyd I. Miller, III

  	
   

  	
   

  	
   

  
	
  Name:
  Lloyd I. Miller, III

  	
   

  	
   

  
	
  Title:
  Investment Advisor to Trustee

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Address:

  	
  4550
  Gordon Drive

  	
   

  	
   

  
	
   

  	
  Naples,
  FL 34102-7914

  	
   

  	
   

  
	
   

  	
  Fax:
  (239) 263-8860

  	
   

  	
   

  
						

 

J-24EXHIBIT 10.6

 

THE SECURITIES REPRESENTED BY THIS
CERTIFICATE HAVE  NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933  OR ANY STATE SECURITIES LAWS AND MAY NOT BE SOLD,
EXCHANGED, HYPOTHECATED OR TRANSFERRED IN ANY MANNER EXCEPT PURSUANT TO A
REGISTRATION OR AN EXEMPTION FROM SUCH REGISTRATION.

 

PURCHASE WARRANT

 

Issued to:

 

 

Exercisable to Purchase

 

____% of the Shares of Common Stock of the
Company

Outstanding as of the Exercise

 

 

of

 

 

DYNTEK,
INC.

 

 

Void after December __, 2016

 

 

This is to certify that,
in exchange for the Warrantholder’s commitment to purchase one or more of the
Company’s Senior Secured Promissory Notes, due March __, 2010, in the
original aggregate principal amount of $_________, and for other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, and subject to the terms and conditions set forth below, the
Warrantholder is entitled to purchase, and the Company promises and agrees to
sell and issue to the Warrantholder, at any time on or after March __,
2006 (the “Effective Date”), pursuant to Section 2 hereof, up to that
number of shares of Common Stock of the Company equal to ____% of the shares of
capital stock of the Company outstanding at the time of exercise, calculated on
a fully diluted basis.

 

This Warrant certificate
is issued subject to the following terms and conditions:

 

1.             Definitions
of Certain Terms.  Except as may be
otherwise clearly required by the context, the following terms have the
following meanings:

 

(a)           “Adjustment
Threshold” will be $0.001 per share subject to adjustment from time to time
pursuant to Section 3(c) of this Agreement.

 

(b)           “Common
Stock” means the common stock, $0.0001 par value, of the Company.

 

(c)           “Company”
means DynTek, Inc., a Delaware corporation.

 

(d)           “Effective
Date” has the meaning set forth in the preamble to this Agreement.

 

(e)           “Exercise
Period” means the period of time commencing on the Effective Date and
ending at 5 p.m. Pacific Time on December __, 2016.

 

(f)            “Exercise
Price” means the price at which the Warrantholder may purchase one Share
upon exercise of Warrants as determined from time to time pursuant to the
provisions hereof.  The Exercise Price will
be $0.001 per Share.

 

(g)           “Note
Purchase Agreement” means that certain Note Purchase Agreement, dated as of
the Effective Date, by and among, the Company, the initial Warrantholder, SACC
Partners, L.P. and Trust A-4 - Lloyd I. Miller.

 

(h)           “Securities
Act” means the Securities Act of 1933, as amended.

 

(i)            “Securities
Exchange Act” means the Securities Exchange Act of 1934, as amended.

 

(j)            “Share”
or “Shares” refers to one or more shares of Common Stock issuable on
exercise of the Warrant.

 

2

 

(k)           “Warrant”
means the warrant evidenced by this certificate or any certificate obtained
upon transfer or partial exercise of the Warrant evidenced by any such
certificate.

 

(l)            “Warrants”
means all warrants issued pursuant to the Note Purchase Agreement by and among
the Warrantholders and the Company.

 

(m)          “Warrantholder”
means a record holder of the Warrant or Shares. 
The initial Warrantholder is set forth on the cover page of this
Warrant.

 

2.             Exercise
of Warrants.  All or any part of the
Warrant may be exercised during the Exercise Period by surrendering the
Warrant, together with appropriate instructions, duly executed by the
Warrantholder or by its duly authorized attorney, and delivery of payment in
full by the Warrantholder, in lawful money of the United States, of the
Exercise Price payable with respect to the Shares being purchased at the office
of the Company, 19700 Fairchild Road, Suite 230, Irvine, California 92612,
Attention: Chief Financial Officer, or at such other office or agency as the
Company may designate.  The date on which
such instructions and the Exercise Price are received by the Company shall be
the date of exercise.  Upon receipt of
notice of exercise and the Exercise Price, the Company shall immediately
instruct its transfer agent to prepare certificates for the Shares to be received
by the Warrantholder and shall use commercially reasonable efforts to cause
such certificates to be prepared and delivered to the Warrantholder in
accordance with the Warrantholder’s instructions within three business days
after the date of exercise.  If the
Warrantholder shall provide the Company with an opinion of counsel to the
effect that the legend set forth on the face of this Warrant is not required,
such certificates shall not bear a legend with respect to the Securities Act.

 

If
fewer than all the Shares purchasable under the Warrant are purchased, the
Company will, upon such partial exercise, execute and deliver to the
Warrantholder a new Warrant certificate (dated the date hereof), in form and
tenor similar to this Warrant certificate, evidencing that portion of the
Warrant not exercised.  The Shares to be
obtained on exercise of the Warrant will be deemed to have been issued, and any
person exercising the Warrants will be deemed to have become a holder of record
of those Shares, as of the date of the payment of the Exercise Price.

 

3.             Adjustments
in Certain Events.  The number,
class, and price of the Shares for which this Warrant is exercisable are
subject to adjustment from time to time upon the happening of certain events as
follows:

 

(a)           Notwithstanding
the fact that the Company may divide its Common Stock into a greater number of
shares, pay a dividend on its Common Stock or combine its Common Stock into a
smaller number of shares, in no event shall the Exercise Price be increased as
a result of such action with respect to the Common Stock of the Company.

 

(b)           In
case of any change in the Common Stock through merger, consolidation,
reclassification, reorganization, partial or complete liquidation, purchase of
substantially all the assets of the Company, or other change in the capital
structure of the Company, then, as a condition of such change, lawful and
adequate provision will be made

 

3

 

so that the holder
of this Warrant will have the right thereafter to receive upon the exercise of
the Warrant the kind and amount of shares of stock or other securities or
property to which he would have been entitled if, immediately prior to such
event, he had held the number of Shares obtainable upon the exercise of the
Warrant.  In any such case, appropriate
adjustment will be made in the application of the provisions set forth herein
with respect to the rights and interest thereafter of the Warrantholder, to the
end that the provisions set forth herein will thereafter be applicable, as
nearly as reasonably may be, in relation to any shares of stock or other
property thereafter deliverable upon the exercise of the Warrant.  The Company will not permit any change in its
capital structure to occur unless the issuer of the shares of stock or other
securities to be received by the holder of this Warrant, if not the Company,
agrees to be bound by and comply with the provisions of this Warrant.

 

(c)           Subsequent
to the effective date, if the Company shall sell or issue shares of Common
Stock (other than Excluded Stock, as defined hereinafter for a consideration
per share less than the Adjustment Threshold, then, upon such sale or issuance,
the Exercise Price shall be adjusted so that the Exercise Price shall equal the
price determined by dividing the aggregate amount of consideration, if any,
received, or to be received, by the Company upon such issuance or sale by the
number of shares sold, issued or issuable. 
Upon any adjustment of the Exercise Price pursuant to this Section 3(c),
the adjusted Exercise Price shall be the Adjustment Threshold with respect to
future issuances by the Company after any such adjustment.

 

(i)            For purposes of this Section 3(c),
the consideration received by the Company for the issue of any shares of Common
Stock shall be computed as follows:

 

(A)          insofar as it consists of cash, at
the aggregate amount of cash received by the Company before deducting any
reasonable discounts, commissions or other expenses allowed, paid or incurred
by the Company for any underwriting or otherwise in connection with such
issuance;

 

(B)           insofar as it consists of property
other than cash, at the fair market value thereof at the time of such issue, as
determined in good faith by the Company’s Board of Directors; and

 

(C)           in the event that it consists of
consideration covering both cash and property, aggregate value of all such
consideration so received, computed as provided in clauses (A) and (B) above,
as reasonably determined in good faith by the Company’s independent auditors.

 

(ii)           For purposes of this Section 3(c),
“Excluded Stock” shall mean (A) all shares issuable upon the exercise or
conversion of currently outstanding warrants, options, other rights to purchase
Common Stock and convertible securities outstanding as of the Effective Date, (B) all
shares issued or issuable pursuant to any incentive plan or arrangement
approved by the Board of Directors for the benefit of the Company’s employees,
officers, directors or consultants or others with important business
relationships with the Company; provided that the number
of shares issued or issuable to officers and directors of the Company who are
reporting persons under

 

4

 

Section 16
of the Securities Exchange Act under this subsection and after the
Effective Date shall not exceed the number of shares equal to five percent (5%)
of the fully diluted outstanding shares of Common Stock of the Company,
calculated using the treasury stock method immediately prior to the issuance of
such shares of Common Stock, in the aggregate, subject to adjustment for
subdivisions and combinations and net of any repurchases of such shares or
cancellations or expirations of rights to purchase.

 

(iii)          In the event of any change in the Exercise
Price as a result of the issuance of such rights, warrants or options or such
convertible securities, the Exercise Price shall be recomputed to reflect such
change, but no further adjustment shall be made for the actual issuance of
Common Stock or any payment of such consideration upon the exercise of any such
rights, warrants or options or the conversion of such securities.

 

(iv)          Upon the expiration of any such
rights, warrants or options or the termination of any such rights or
convertible securities, the Exercise Price, to the extent in any way affected
by or computed using such rights, warrants or options or convertible
securities, shall be recomputed to reflect the issuance of only the number of
shares of Common Stock actually issued upon the exercise of such rights,
warrants or options or upon the conversion of such securities.

 

(d)           For
purposes of this Section 3, the sale or issuance by the Company of rights,
warrants or options to purchase Common Stock or securities convertible into
Common Stock shall be deemed to be the sale or issuance of shares of Common
Stock (in which event the subsequent exercise thereof shall not be deemed to be
a separate sale or issuance for purposes of this Section 3), and the
consideration therefor shall consist of the consideration received by the
Company upon issuance of such rights, warrants, options or convertible
securities plus any consideration to be received upon the exercise or
conversion thereof.

 

(e)           When
any adjustment is required to be made in the number of Shares or other
securities or property purchasable upon exercise of the Warrant, the Company
will promptly determine the new number of such Shares or other securities or
property purchasable upon exercise of the Warrant and (i) prepare and
retain on file a statement describing in reasonable detail the method used in
arriving at the new number of such Shares or other securities or property
purchasable upon exercise of the Warrant and (ii) cause a copy of such
statement to be mailed to the Warrantholder within thirty (30) days after the
date of the event giving rise to the adjustment.

 

(f)            No
fractional shares of Common Stock or other securities will be issued in
connection with the exercise of the Warrant, but the Company will pay, in lieu
of fractional shares, a cash payment therefor on the basis of the mean between
the bid and asked prices of the Common Stock in the over-the-counter market or
the closing price on a national securities exchange or Nasdaq on the day
immediately prior to exercise.

 

(g)           If
securities of the Company or securities of any subsidiary of the Company are
distributed pro rata to holders of Common Stock, such number of such 

 

5

 

securities will be
distributed to the Warrantholder or his assignee upon exercise of this Warrant
as the Warrantholder or assignee would have been entitled to if the portion of
the Warrant evidenced by this Warrant certificate had been exercised prior to
the record date for such distribution. 
The provisions with respect to adjustment of the Common Stock provided
in this Section 3 will also apply to the securities to which the
Warrantholder or his assignee is entitled under this subsection 3(g).

 

(h)           In
the event (i) the Company establishes a record date to determine the
holders of any class of securities who are entitled to receive any dividend or
other distribution or (ii) there occurs any change in the Common Stock
through merger, consolidation, reclassification, reorganization, partial or
complete liquidation, purchase of substantially all of the assets of the
Company or other change in the capital structure of the Company, the Company
shall give to the holder hereof a notice specifying (a) the date of such
record date for the purpose of such dividend or distribution and a description
of such dividend or distribution, (b) the date on which any such merger,
consolidation, reclassification, reorganization, sale, liquidation or other
change in the capital structure of the Company is expected to become effective,
and (c) the time, if any, that is to be fixed, as to when the holders of
record of Common Stock (or other securities) shall be entitled to exchange
their shares of Common Stock (or other securities) for securities or other
property deliverable upon such merger, consolidation, reclassification,
reorganization, sale, liquidation or other change in the capital structure of
the Company.  Such written notice shall
be given to the holder of this Warrant at least ten (10) days prior to the
date specified in such notice on which any such action is to be taken.

 

4.             Registration.  Warrantholder shall have the registration
rights as set forth in the Note Purchase Agreement pursuant to Article VI,
which is hereby incorporated by reference.

 

5.             Reservation
of Shares.  The Company agrees that
the number of shares of Common Stock or other securities sufficient to provide
for the exercise of the Warrant upon the basis set forth above will at all
times during the term of the Warrant be reserved for exercise.  If at any time the Company does not have a
sufficient number of shares of Common Stock or other securities authorized to
provide for the exercise of the Warrant, the Company shall take such actions as
may be reasonably necessary to increase the number of authorized shares of Common
Stock or other securities to provide for exercise of the Warrant.

 

6.             Validity
of Shares.  All Shares or other
securities delivered upon the exercise of the Warrant will be duly and validly
issued in accordance with their terms, and, in the case of capital stock, will,
when issued and delivered in accordance with their terms against payment
therefor as provided in the Warrant, be fully paid and nonassessable, and the
Company will pay all documentary and transfer taxes, if any, in respect of the
original issuance thereof upon exercise of the Warrant.

 

7.             Transfer.
This Warrant may be freely sold, transferred, assigned or hypothecated by the
Warrantholder.  The Warrant may be
divided or combined, upon request to the Company by the Warrantholder, into a certificate
or certificates evidencing the same aggregate number of Warrants.

 

6

 

8.             Voting
Rights.  Pursuant to the terms of Section 5.18
of the Note Purchase Agreement, the Company will use its reasonable best
efforts to obtain stockholder approval of an amendment to its Certificate of
Incorporation pursuant to Section 221 of the Delaware General Corporation
Law to provide that the Warrentholders may vote the Shares issuable upon
exercise of the Warrants prior to such exercise and issuance as though the
Warrants had been exercised and the Shares issued.

 

9.             No
Rights as a Stockholder.  Except as
otherwise provided herein, the Warrantholder will not, by virtue of ownership
of the Warrant, be entitled to any rights of a stockholder of the Company but
will, upon written request to the Company, be entitled to receive such
quarterly or annual reports as the Company distributes to its stockholders.

 

10.           No
Dividend.  Except to the extent
compliance is waived in writing by the Warrantholder, for as long as all or any
portion of this warrant shall remain outstanding, the Company will not, nor
will it permit any of its subsidiaries to declare or pay any dividends on or
make any other distributions in respect of any class or series of its capital
stock or other equity interest.

 

11.           Notice.  Any notices required or permitted to be given
under the terms of this Warrant must be sent by certified or registered mail
(return receipt requested) or delivered personally or by courier (including a
recognized overnight delivery service) or by facsimile and will be effective
five (5) days after being placed in the mail, if mailed by regular U.S.
mail, or upon receipt, if delivered personally, by courier (including a
recognized overnight delivery service) or by facsimile, in each case addressed
to a party.  The addresses for such
communications are:

 

If
to the Company:

 

Chief Financial Officer

DynTek, Inc.

19700 Fairchild Road, Suite 230

Irvine, California 92612

Fax:     (949) 955-0086

 

If
to a Warrantholder:  to the address set
forth immediately below the Warrantholder’s name on the signature pages hereto.

 

Each party will provide written notice to the other parties of any
change in its address.

 

12.           Governing
Law; Jurisdiction; Jury Trial Waiver. 
This Warrant will be governed by and interpreted in accordance with the
laws of the State of Delaware without regard to the principles of conflict of
laws.  The parties hereto hereby submit
to the exclusive jurisdiction of the United States federal and state courts
located in the County of New Castle, State of Delaware with respect to any
dispute arising under this Warrant. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY
RIGHT THAT IT MAY HAVE TO, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE
ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION HEREWITH.

 

7

 

13.           Entire
Agreement.  This Warrant, the
exhibits and schedules hereto, and the documents referred to herein, constitute
the entire agreement and understanding of the parties hereto with respect to
the subject matter hereof, and supersede all prior and contemporaneous
agreements and understandings, whether oral or written, between the parties
hereto with respect to the subject matter hereof.

 

14.           Waiver;
Consent.  This Warrant may not be
changed, amended, terminated, augmented, rescinded or discharged (other than by
performance), in whole or in part, except by a writing executed by the parties
hereto, and no waiver of any of the provisions or conditions of this Warrant or
any of the rights of a party hereto shall be effective or binding unless such
waiver shall be in writing and signed by the party claimed to have consented
thereto.  Any amendment or waiver signed
by Warrantholders holding Warrants to purchase a majority of all of the Shares
issuable upon exercise of the Warrants then outstanding shall be binding upon
all Warrantholders.

 

15.           No
Impairment.  The Company will not, by
amendment of its Certificate of Incorporation, or through
reorganization, consolidation, merger, dissolution, issue or sale of
securities, sale of assets or any other voluntary action, avoid or seek
to avoid the observance or performance of any of the terms of this Warrant, but
will at all times in good faith assist in the carrying out of all such terms
and in the taking of all such action as may be necessary or appropriate in
order to protect the rights of the Warrantholder of this Warrant against dilution or other impairment.

 

16.           Remedies.  The Company stipulates that the remedies at
law of the Warrantholder of this Warrant in the event of any default or
threatened default by the Company in the performance of or compliance with any
of the terms of this Warrant are not adequate and may be enforced by a decree
for the specific performance of any agreement contained herein or by an
injunction against a violation of any of the terms hereof or otherwise.

 

17.           Severability.  If one or more provisions of this Warrant are
held to be unenforceable under applicable law, such provision shall be excluded
from this Warrant and the balance of the Warrant shall be interpreted as if
such provision were so excluded and the balance shall be enforceable in
accordance with its terms.

 

[SIGNATURES
ON FOLLOWING PAGE]

 

8

 

[SIGNATURE
PAGE TO PURCHASE WARRANT]

 

IN
WITNESS WHEREOF, the parties hereto have executed this Warrant effective as of
the date set forth below.

 

Dated
as of March __, 2006

 

	
  DYNTEK, INC.

  
	
   

  
	
   

  
	
  By:

  	
   

  	
   

  
	
  Its:

  	
   

  	
   

  
	
   

  
	
   

  
	
  Agreed and Accepted as of March __, 2006

  
	
   

  
	
  [WARRANTHOLDER]

  
	
   

  
	
   

  
	
  By:

  	
   

  	
   

  
	
  Its:

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00104-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00104-of-00352.parquet"}]]