Document:

Exhibit 10.3

 

THE
SECURITIES REPRESENTED BY THIS NOTE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS. ANY
TRANSFER OF SUCH SECURITIES WILL BE INVALID UNLESS A REGISTRATION STATEMENT
UNDER THE ACT AND AS REQUIRED BY BLUE SKY LAWS IS IN EFFECT AS TO SUCH TRANSFER
OR IN THE OPINION OF COUNSEL SATISFACTORY TO THE BORROWER SUCH REGISTRATION IS
UNNECESSARY IN ORDER FOR SUCH TRANSFER TO COMPLY WITH THE ACT AND BLUE SKY
LAWS.

 

DynTek, Inc.

 

Junior Secured Convertible Promissory Note

 

	
  Note No.         

  	
   

  
	
  $3,000,000.00

  	
  March 8, 2006

  

 

FOR VALUE RECEIVED,
subject to the terms and conditions of this Junior Secured Convertible
Promissory Note (the “Note”), DynTek, Inc., a Delaware corporation
with its principal offices located at 19700 Fairchild Road, Suite 230,
Irvine, California (the “Borrower”), hereby promises to pay to the order
of Trust A-4 - Lloyd I. Miller, located at 4550 Gordon Drive, Naples, Florida
34102 (the “Holder”), the principal sum of Three Million Dollars
($3,000,000.00), in lawful money of the United States and in immediately
available funds on March 1, 2011 or, if such day is not a regular business
day, on the next business day thereafter, with all accrued but unpaid interest
(as provided below) to such date (the “Maturity Date”). Subject to the
terms and conditions of this Note (including without limitation Section 7(f)),
the Borrower also promises to pay to the Holder interest accrued on the
outstanding unpaid principal amount hereof until such principal amount is paid
(or converted as provided herein) at the rate of ten percent (10%) per annum,
compounding quarterly, from the date hereof. The said interest shall become due
quarterly in arrears and shall be payable on the last day of each fiscal
quarter (each, an “Interest Payment Date”) in respect of the immediately
preceding completed fiscal quarter. The first Interest Payment Date will be June 30,
2006. At the Borrower’s sole option, all interest payments due and payable
before June 30, 2009 may be paid in kind at the rate of fourteen
percent (14%) per annum, compounding quarterly, in which case the accrued
interest will be added to the principal amount of the Note on the applicable
Interest Payment Date, and interest will accrue on the aggregate principal
amount. All interest payments due and payable on and after June 30, 2009
must be paid in cash.

 

This Note is being issued
pursuant to that certain Note Purchase Agreement dated as of the date hereof,
by and between the Borrower and the purchasers thereto, including the Holder
hereto, (the “Note Purchase Agreement”), and shall be entitled to the
benefits thereof. This Note is secured by a security interest in all of the
assets of Borrower as described more fully in that certain Security and Pledge
Agreement

 

 

(the “Security
Agreement”) executed by Borrower and the holders thereto and dated as of
the date hereof.

 

Until March 1, 2010,
the Borrower may not prepay the Note in whole or in part without the
prior written consent of the Holder, which may be given or withheld in
Holder’s sole discretion. At anytime after March 1, 2010 until the
Maturity Date, the Borrower may prepay this Note in whole or in part at
any time without penalty.

 

1.                                       Definitions.
Unless the context otherwise requires, the following terms shall have the
following respective meanings:

 

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

 

“Blue Sky Laws”
means applicable state securities laws.

 

“Base Share Price”
shall have the meaning ascribed to such term in Section 4(f)(i) hereof.

 

“Board” shall mean
the Borrower’s Board of Directors.

 

“Borrower” shall
have the meaning ascribed to such term in the first paragraph of this Note.

 

“Common Stock”
shall mean shares of the Borrower’s Common Stock, par value $0.0001 per share.

 

“Conversion Date”
shall be the date upon which the Holder exercises its right to convert the
outstanding amounts under this Note into shares of Borrower’s Common Stock in
accordance with Section 3(a) of this Note, or the date such amounts
are automatically converted in accordance with the terms hereof.

 

“Conversion Option”
shall have the meaning ascribed to such term in Section 3(a) hereof.

 

“Conversion Price”
shall have the meaning ascribed to such term in Section 3(a) of this
Note.

 

“Event of Default”
shall have the meaning ascribed to such term in Section 5(a) of this
Note.

 

“Fair Market Value”
shall mean the fair market value of a share of the Common Stock as mutually
determined in good faith by the Holder and the Board.

 

“Holder” shall
have the meaning ascribed to such term in the first paragraph of this Note.

 

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“Interest Payment Date”
shall have the meaning ascribed to such term in the first paragraph of this
Note.

 

“Maturity Date”
shall have the meaning ascribed to such term in the first paragraph of this
Note.

 

“Newly Issued Shares”
shall have the meaning ascribed to such term in Section 4(f)(i) hereof.

 

“Note” shall have
the meaning ascribed to such term in the first paragraph of this instrument.

 

“Note Purchase
Agreement” shall have the meaning ascribed to such term in the second
paragraph of this Note.

 

“Security Agreement”
shall have the meaning ascribed to such term in the second paragraph of this
Note.

 

2.                                       Accounting
Terms. All accounting terms not specifically defined in this Note shall be
construed in accordance with United States generally accepted accounting
principles and, if applicable, consistent with those applied in the preparation
of the financial statements of the Borrower.

 

3.                                       Conversion.

 

(a)                                  Voluntary
Conversion. At any time until the Note has been paid in full, the Holder
has the right, at its option, to convert all or any part of the
outstanding principal amount (including any accrued but unpaid interest on such
principal amount) (the “Conversion Principal Amount”) of this Note into
shares of Common Stock (in accordance with the procedures described under Section 3(b) of
this Note) (the “Conversion Option”). The number of shares of Common
Stock into which the Conversion Principal Amount is convertible is equal to (i) the
Conversion Principal Amount divided by (ii) the Conversion Price (as
defined below) in effect at the time of conversion. The “Conversion Price”
shall initially be $0.02, subject to adjustment pursuant to Sections 3 and 4.

 

(b)                                 Conversion
Mechanics. The Holder shall exercise its right to convert by surrender of
this Note, duly endorsed, at the office of the Borrower, accompanied by written
notice of conversion. The Borrower shall forthwith issue and deliver to the
Holder certificates for the number of shares of Common Stock to which Holder is
entitled (bearing such legends as may be required by applicable state and
federal securities laws). If on any conversion of this Note a fraction of a
share results, then the Borrower will pay the Holder the cash value of that
fractional share (based upon the Fair Market Value). All Common Stock issued
upon the conversion of this Note shall be validly issued, fully paid and
non-assessable. Any conversion shall be deemed to have

 

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occurred
as of the Conversion Date, and the Holder shall be treated for all purposes as
the record holder of such Common Stock as of that date. Upon conversion of this
Note into Common Stock, Holder shall surrender this Note, duly endorsed, at the
principal offices of Borrower. Borrower will, as soon as practicable
thereafter, issue and deliver to Holder a certificate for the number of shares
of Common Stock to which Holder is entitled upon such conversion, plus a check
payable to Holder for any cash amounts payable for fractional shares and
accrued but unpaid interest. If the Holder converts less than all of the
indebtedness evidenced by this Note upon such conversion, then the Borrower
shall also issue a convertible promissory note of like tenor for the amount of
indebtedness not so converted.

 

(c)                                  Conversion
Covenants. Subject to the terms herein, the Borrower covenants that it will
at all times promptly do any and all lawful things necessary (i) to effect
the conversion of this Note, or any part thereof, as provided in this Note
and, including, without limitation, by proper corporate action taking all steps
necessary to have available at all times during which this Note remains
outstanding all Common Stock issuable upon the conversion of this Note and (ii) to
ensure that the shares of Common Stock issuable upon conversion of this Note
are registered under the Act and are freely transferable in the hands of the
Holder, subject to the terms and conditions of the registration provisions
contained in the Note Purchase Agreement.

 

4.                                       Dilution.
The number of shares of Common Stock issuable under Section 3(a) of
this Note shall be subject to adjustment from time to time upon the happening
of certain events as follows:

 

(a)                                  Adjustment
for Stock Splits and Combinations. If the Borrower at any time or from time
to time after the date of this Note effects a subdivision of shares of its
Common Stock, the number of shares of Common Stock issuable to Holder
immediately before that subdivision shall be proportionately increased, and
conversely, if the Borrower at any time or from time to time after the date of
this Note combines shares of Common Stock into a smaller number of shares, the
number of shares of Common Stock issuable to Holder immediately before the
combination shall be proportionately decreased. In either case, the Conversion
Price will be proportionately adjusted as well. Any adjustment under this
clause (a) shall become effective at the close of business on the date the
subdivision or combination becomes effective.

 

(b)                                 Adjustment
for Certain Dividends and Distributions. If the Borrower at any time or
from time to time after the date of this Note makes, or fixes a record date for
the determination of holders of shares of Common Stock entitled to receive a
dividend or other distribution payable in additional shares of Common Stock,
then and in each such event, the number of shares of Common Stock issuable to
Holder shall be increased as of the time of such issuance, or, in the event
such record date is fixed, as of the close of business on such record date, by
multiplying the maximum number of shares of Common Stock issuable to Holder by
a fraction (i) the numerator of

 

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which
shall be the total number of shares of Common Stock issued and outstanding
immediately prior to the time of such issuance or the close of business on such
record date plus the number of shares of Common Stock issuable in
payment of such dividend or distribution plus the number of shares of Common
Stock issuable upon the conversion or exercise of the Borrower’s outstanding
convertible securities, warrants and options, and (ii) the denominator of
which is the total number of shares of Common Stock issued and outstanding
immediately prior to the time of such issuance or the close of business on such
record date, plus the number of shares of Common Stock issuable upon the
conversion or exercise of the Borrower’s outstanding convertible securities,
warrants and options.

 

(c)                                  Adjustments
for Other Dividends and Distributions. In the event the Borrower at any
time or from time to time after the date of this Note makes, or fixes a record
date for the determination of holders of shares of Common Stock entitled to
receive a dividend or other distribution payable in securities of the Borrower
other than the shares of Common Stock, then and in each such event, provision
shall be made so that the Holder, upon conversion of this Note, shall receive
upon conversion thereof, in addition to the number of shares of Common Stock
receivable thereupon, the amount of securities of the Borrower which the Holder
would have received had Holder been a holder of Common Stock on the date of
such event and had thereafter, during the period from the date of such event to
and including the Conversion Date, retained such securities receivable as
aforesaid during such period, subject to all other adjustments called for
during such period under this Section 4 with respect to the rights of the
Holder.

 

(d)                                 Adjustment
for Reorganization, Consolidation, Merger. In the event of any
reorganization of the Borrower (or any other corporation, the stock or other
securities of which are at the time receivable upon the conversion of this
Note) after the date hereof, or if, after such date, the Borrower (or any such
other corporation) shall consolidate with or merge into another corporation or
convey all or substantially all its assets to another corporation, and to the
extent any such transaction does not result in the automatic conversion of this
Note in accordance with the terms hereof, then and in each such case Holder,
upon the conversion hereof as provided herein, at any time after the
consummation of such reorganization, consolidation, merger or conveyance, shall
be entitled to receive, in lieu of the stock receivable upon the conversion of
this Note prior to such consummation, the stock or other securities or property
to which such Holder would have been entitled upon such consummation if such Holder
had converted this Note immediately prior thereto. In the event of such a
reorganization, consolidation or merger, the corporation whose stock or other
securities or property to which Holder would be entitled shall execute and
deliver to Holder no later than the closing of such transaction an instrument
or other writing, reasonably satisfactory to Holder, acknowledging its
obligation to issue such stock or other securities or other property upon the
conversion of this Note.

 

5

 

(e)                                  Adjustment
for Reclassification, Exchange and Substitution. In the event that at any
time or from time to time after the date of this Note, the shares of Common
Stock are changed into the same or a different number of shares of any class of
stock, whether by recapitalization, reclassification or otherwise (other than a
subdivision or combination of shares or stock dividend or a reorganization,
merger, consolidation or sale of assets, provided for elsewhere in this Section 4),
then and in any such event the kind and amount of stock and other securities
and property receivable upon such recapitalization, reclassification or other
change shall be used for calculation of the number of shares of Common Stock
issuable to the Holder, all subject to further adjustment as provided in this
Note.

 

(f)                                    Sale
of Shares Below Conversion Price.

 

(i)                                     In
case at any time on or after the date first written above, the Borrower shall
issue or sell shares of its Common Stock or instruments convertible into or
exercisable for Common Stock (collectively, the “Newly Issued Shares”),
at a price below the Conversion Price in effect at the time of such issuance
(the “Base Share Price”), then the Conversion Price shall be reduced to
equal the Base Share Price. In each such case, the Conversion Price shall be
reduced as of the opening of business on the date immediately following such
issue or sale of Newly Issued Shares. In no instance shall an adjustment be
made under this Section 4(f)(i) if it would cause the Conversion
Price to be increased.

 

(ii)                                  Notwithstanding
the foregoing, no adjustment shall be made under this Section 4(f) by
reason of:

 

(1)                                  the
issuance, sale, and transfer to any person of any shares of Common Stock of the
Company in connection with (i) the Private Placement (as defined in the
Note Purchase Agreement), (ii) execution and consummation of the terms of
the Conversion and Settlement Agreements (as defined in the Note Purchase
Agreement), or (iii) settlement of unsecured trade debt pursuant to those
certain Settlement and Release Agreements (as defined in the Note Purchase
Agreement) dated as of the date hereof;

 

(2)                                  the
issuance by the Borrower of the Warrants (as defined in that certain Note
Purchase Agreement dated as of the date hereof, by and between the Borrower and
the purchasers named therein (the “Note Purchase Agreement”)) or the
issuance by the Borrower of shares of Common Stock upon the exercise of the
Warrants in accordance with the terms of the Note Purchase Agreement;

 

(3)                                  the
issuance by the Borrower of shares of Common Stock upon the exercise or
conversion of securities of the Borrower outstanding as of the date of this
Agreement; and

 

6

 

(4)                                  the
issuance by the Borrower of shares of Common Stock or options or other rights
to purchase Common Stock pursuant to any equity incentive plan in effect on the
date hereof.

 

(g)                                 Certificate
as to Adjustment. In each case of an adjustment of the Conversion Price or
the number of shares of Common Stock issuable upon conversion of the Notes,
upon the request of the Holder, the Borrower shall compute such adjustment in
accordance with the provisions of this Note and prepare a letter or certificate
setting forth such adjustment, and showing in detail the facts upon which such
adjustment is based. Notwithstanding the delivery of such letter or
certificate, Holder shall have the right to dispute the calculation of such
adjustment by written notice to Borrower setting forth Holder’s alternative
calculation of such adjustment.

 

5.                                       Events
of Default.

 

(a)                                  Events
Constituting An Event of Default. Any of the events set forth in Section 1.15
of the Note Purchase Agreement, which section is incorporated herein by
reference, shall constitute an “Event of Default” under this Note.

 

(b)                                 Consequences
of an Event of Default. Upon the occurrence of an Event of Default or at
any time thereafter, the registered holder of the Note may, by notice to the
Borrower, declare the entire unpaid principal amount of the Note, all interest
accrued and unpaid thereon and all other amounts payable under this Note to be
forthwith due and payable, whereupon the Note, all such accrued interest and
all such amounts will become and be forthwith due and payable (unless there
will have occurred an Event of Default under subsection 1.15(e) of
the Note Purchase Agreement,  in which
case all such amounts will automatically become due and payable) without offset
or counterclaim of any kind and without presentment, demand, protest or further
notice of any kind, and without regard to the running of the statute of
limitations, all of which are by this Note expressly waived by the Borrower.

 

6.                                       Registration.
Pursuant to the terms and conditions of the Note Purchase Agreement, the Common
Stock to be issued to the Holder upon conversion will be registered with the
Securities and Exchange Commission under a registration statement on Form S-1
or any other form then available
to the Company under applicable SEC rules and regulations and will
not be subject to any restrictions on transfer.

 

7.                                       General
Matters.

 

(a)                                  Applicable
Law. This Note shall be governed by the internal laws (and not the law of
conflicts) of the State of California.

 

(b)                                 Fees
and Expenses. In the event that any suit or action is instituted to enforce
any provision under this  Note, the
prevailing party in such dispute shall be entitled to recover from the losing
party all fees, costs and expenses of enforcing

 

7

 

any
right of such prevailing party under or with respect to this Agreement,
including without limitation, such reasonable fees and expenses of attorneys
and accountants, which shall include, without limitation, all fees, costs and
expenses of appeals. Notwithstanding the foregoing, the Borrower agrees to pay
and hold Holder harmless against liability for the payment of the reasonable
fees and expenses of Holder (including, without limitation, attorneys’ fees and
expenses and out of pocket expenses of Holder and its representatives,
including, without limitation, fees and expenses for travel, background
investigations and outside consultants) arising in connection with any
refinancing or restructuring of the credit arrangements provided under this
Note in the nature of a “work-out” or pursuant to any insolvency or bankruptcy
proceedings.

 

(c)                                  Amendment
or Waiver. Any term of this Note may be amended, and the observance of
any term of this Note may be waived (either generally or in a particular
instance and either retroactively or prospectively) only by the written consent
of the Holder.

 

(d)                                 Headings.
The headings in this Note are for purposes of convenience of reference only,
and shall not be deemed to constitute a part of this Note.

 

(e)                                  Notices.
All notices, requests, consents and other communications required or permitted
hereunder shall be in writing (including telecopy or similar writing) and shall
be sent to the address of the party set forth in the Note Purchase Agreement. Any
notice, request, consent or other communication hereunder shall be deemed to
have been given and received on the day on which it is delivered (by any means
including personal delivery, overnight air courier, United States mail) or
telecopied (or, if such day is not a business day or if the notice, request, consent
or communication is not telecopied during business hours of the intended
recipient, at the place of receipt, on the next following business day). Any of
the parties hereto may, by notice given hereunder, designate any further or
different address and/or number to which subsequent notices or other
communications shall be sent. Unless and until such written notice is received,
the addresses and numbers as provided herein shall be deemed to continue in
effect for all purposes hereunder.

 

(f)                                    Usury
Limitation. In no event shall the amount paid or agreed to be paid to the
Holder for the use or forbearance of money to be advanced hereunder exceed the
highest lawful rate permissible under the then applicable usury laws. If it is
hereafter determined by a court of competent jurisdiction that the interest
payable hereunder is in excess of the amount which the Holder may legally
collect under the then applicable usury laws, such amount which would be
excessive interest shall be applied to the payment of the unpaid principal
balance due hereunder and not to the payment of interest or, if all principal
shall previously have been paid, promptly repaid by the Holder to the Borrower.

 

(g)                                 Severability.
Every provision of this Note is intended to be severable. If any term or
provision hereof is declared by a court of competent jurisdiction

 

8

 

to be
illegal or invalid, such illegal or invalid term or provision shall not affect
the balance of the terms and provisions hereof, which terms and provisions
shall remain binding and enforceable.

 

[Remainder of Page Intentionally Left Blank]

 

9

 

IN WITNESS WHEREOF, the
Borrower has caused this Note to be executed as of the day and year first above
written.

 

	
   

  	
  DYNTEK, INC., a
  Delaware corporation

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Casper Zublin, Jr.

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Name:

  	
  Casper Zublin, Jr.

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Title:

  	
  Chief Executive Officer

  	
   

  
							

 

10EXHIBIT 10.4

 

SECURITY AND PLEDGE AGREEMENT

 

SECURITY AND
PLEDGE AGREEMENT, dated as of March 8, 2006,
among DynTek, Inc., a Delaware
corporation (the “Company), DynTek Services, Inc.,
a Delaware corporation (the “Subsidiary”
and, together with the Company, the “Debtors”), and SACC
Partners, L.P. and Lloyd I. Miller, III
(the “Purchasers”) who are parties to that certain Purchase Agreement (as
hereinafter defined). Certain defined terms are set forth in Article 10
hereof.

 

Recitals

 

WHEREAS,
the Company, the Purchasers and Trust A-4 – Lloyd I. Miller are
parties to a Note Purchase Agreement dated as of the date hereof (the “Purchase
Agreement”); and

 

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

 

(a)                                  all
Accounts;

 

(b)                                 all Chattel Paper;

 

(c)                                  all documents;

 

J-1

 

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

 

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

 

(f)                                    all Instruments;

 

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

 

(h)                                 all Deposit Accounts of such Debtor, including all
blocked accounts, concentration accounts, disbursement accounts, and all other
bank  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 accessions to,
substitutions and replacements for, and rents and profits of, each 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

 

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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 the part of any
Debtor or Purchaser.

 

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

 

ARTICLE 2

 

GENERAL REPRESENTATIONS, WARRANTIES AND COVENANTS

 

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

 

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

 

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

 

Section 2.3                                   Other
Financing Statements. To the best knowledge of each Debtor, as of the
date hereof, there is no financing statement covering or purporting to cover
any interest of any kind in the Collateral (other than (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

 

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covering the security
interests granted hereby by such Debtor or in connection with Permitted Liens.

 

Section 2.4                                   Chief
Executive Office; Records.

 

(a)                                  As
of the date hereof, the chief executive office of each Debtor is located at the
address indicated on Schedule 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 Purchasers not less than 30 days’ prior written notice
of its intention to do so, clearly describing such new location and providing
such other information in connection therewith as the Purchasers may reasonably
request and (b) with respect to such new location, it shall have taken all
action reasonably satisfactory to the Purchasers, to maintain the security
interest of the Purchasers in the Collateral intended to be granted hereby at
all times fully perfected and in full force and effect.

 

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

 

Section 2.6                                   Recourse.
This Agreement is made with full recourse to each Debtor and pursuant to and
upon all the warranties, representations, covenants and agreements on the part of

 

J-4

 

each Debtor contained
herein, in the Purchase Agreement and otherwise in writing in connection
herewith or therewith.

 

Section 2.7                                   Trade
Names; Change of Name. Each Debtor’s legal name, jurisdiction of
organization and organizational number (if any) are correctly set forth under
Column 1 on Schedule 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 Purchasers’ prior written consent. No
Debtor shall change its legal name or transact business under any other trade
name without first giving 30 days’ prior written notice of its intent to
do so to the Purchasers. With respect to such new name or jurisdiction of
organization, such Debtor shall have taken all action reasonably requested by the
Purchasers, to maintain the Security Interest at all times fully perfected and
in full force and effect.

 

ARTICLE 3

 

SPECIAL PROVISIONS CONCERNING

ACCOUNTS; INSTRUMENTS

 

Section 3.1                                   Additional
Representations and Warranties. As of the time when each of its Accounts
arises, each Debtor shall be deemed to have represented and warranted that such
Account, and all records, papers and documents relating thereto are what they
purport to be in all material respects, and that such Account will, to the best
knowledge of each Debtor, evidence true and valid obligations of the account
debtor named therein.

 

Section 3.2                                   Maintenance
of Records. Each Debtor will keep and maintain at its own cost and
expense, records of its Accounts and each Debtor will make the same available
on such Debtor’s premises to the Purchasers for inspection, at such Debtor’s
own cost and expense, at any and all commercially reasonable times upon commercially
reasonable prior notice to such Debtor. Upon the occurrence and during the
continuance of an Event of Default and at the commercially reasonable request
of the Purchasers, each Debtor shall, at its own cost and expense, deliver all
tangible evidence of its Accounts, including, without limitation, all documents
evidencing the Accounts) and such books and records to the Purchasers or to its
representatives (copies of which evidence and books and records may be
retained by each Debtor). If the Purchasers so direct, upon the occurrence and
during the continuance of an Event of Default, each Debtor shall legend, in form and
manner satisfactory to the Purchasers, the Accounts, as well as books, records
and documents of such Debtor evidencing or pertaining to such Receivables and
Contracts with an appropriate reference to the fact that such Receivables and
Contracts have been assigned to the Purchasers and that the Purchasers have a
security interest therein.

 

Section 3.3                                   Direction
to Account Debtors; Contracting Parties; Etc. Upon the occurrence and
during the continuance of an Event of Default, and if the Purchasers so direct
each Debtor, 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

 

J-5

 

Purchasers may, at their
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 Purchasers may enforce
collection of any such Accounts, Deposit Accounts or General Intangibles and may adjust,
settle or compromise the amount of payment thereof, in the same manner and to
the same extent as such Debtor. Without notice to or assent by each Debtor, the
Purchasers may apply any or all amounts then in, or thereafter deposited
in, the Cash Collateral Account which application shall be effected in the
manner provided in Section 7.4 of this Agreement. The reasonable costs and
expenses (including reasonable attorneys’ fees) of collection, whether incurred
by such Debtor or the Purchasers, shall be borne by such Debtor. The Purchasers
shall deliver a copy of each notice referred to in the preceding clause (b) to
such Debtor; provided, that the failure by the Purchasers to so notify such
Debtor shall not affect the effectiveness of such notice or the other rights of
the Purchasers created by this Section 3.3.

 

Section 3.4                                   Modification
of Terms; etc. No Debtor shall rescind or cancel any indebtedness
evidenced by any Account, or modify any term thereof or make any adjustment
with respect thereto, or extend or renew the same, or compromise or settle any
material dispute, claim, suit or legal proceeding relating thereto, or sell any
Account, or interest therein, without the prior written consent of the
Purchasers, except in accordance with such Debtor’s commercially reasonable
business practices.

 

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

 

Section 3.6                                   Instruments.
If a Debtor owns or acquires any Instrument constituting Collateral, at
Purchasers’ request upon the occurrence and during the continuation of an Event
of Default, such Debtor will promptly deliver such Instrument to the Purchasers
appropriately endorsed to the order of the Purchasers as further security
hereunder. At the Purchasers’ request, such Debtor that owns or acquires any
other Instrument constituting Collateral will, within 5 business days, promptly
deliver such Instrument to the Purchasers appropriately endorsed to the order
of the Purchasers as further security hereunder.

 

ARTICLE 4

 

SPECIAL PROVISIONS CONCERNING MARKS

 

Section 4.1                                   Additional
Representations and Warranties. Each Debtor represents and warrants
that, as of the date hereof, it is the true and lawful owner of all right,
title and interest to or otherwise has the right to use the registered Marks
listed in Schedule F hereto and that, as of the date hereof said
listed Marks constitute all the marks and applications for marks

 

J-6

 

registered in the United
States Patent and Trademark Office that such Debtor presently owns or uses in
connection with its business. Each Debtor represents and warrants that it owns,
is licensed to use or otherwise has the right to use all material Marks that it
uses. Each Debtor further warrants that it has no knowledge of any third party
claim that any aspect of such Debtor’s present or contemplated business
operations infringes or will infringe any trademark, service mark or trade name
in any respect which could reasonably be expected to have a material adverse
effect on the business, operations, property, assets, liabilities or condition
(financial or otherwise) of such Debtor. Each Debtor represents and warrants
that except as listed on Schedule F, as of the date hereof it is
the beneficial and record owner of all trademark registrations and applications
listed in Schedule F hereto and that said registrations are valid
and subsisting, and that no Debtor is aware of any third-party claim that any
of said registrations in respect of any material Mark is invalid or
unenforceable. Each Debtor hereby grants to the Purchasers an absolute power of
attorney to sign, upon the occurrence and during the continuance of an Event of
Default, any document which may be required by the United States Patent
and Trademark Office in order to effect an absolute assignment of all right,
title and interest in each Mark, and record the same.

 

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

 

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

 

Section 4.4                                   Maintenance
of Registration. Each Debtor shall, at its own expense, diligently
process all documents required by the Trademark Act of 1946, 15 U.S.C. §§ 1051
et  seq. to maintain trademark registrations, including but not
limited to affidavits of use and applications for renewals of registration in
the United States Patent and Trademark Office for all of its registered Marks
pursuant to 15 U.S.C. §§ 1058(a), 1059 and 1065, and shall pay all fees
and disbursements in connection therewith and shall not abandon any such filing
of affidavit of use or any such application of renewal prior to the exhaustion
of all administrative and judicial remedies without prior written consent of
the Purchasers; provided, that, prior to any Default, no Debtor shall be
obligated to maintain any Mark in the event that such Debtor determines, in its
commercially reasonable business judgment, that the maintenance of such Mark is
no longer necessary or desirable in the conduct of its business.

 

J-7

 

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

 

Section 4.6                                   Remedies.
If an Event of Default shall occur and be continuing, the Purchasers may take
any or all of the following actions:  (a) declare
the entire right, title and interest of such Debtor in and to each of the
Marks, together with all trademark rights and rights of protection to the same,
vested in the Purchasers for the benefit of the Purchasers, in which event the
rights, title and interest shall immediately vest, in the Purchasers for the
benefit of the Purchasers, and the Purchasers shall be entitled to exercise the
power of attorney referred to in Section 4.1 hereof to execute, cause to
be acknowledged and notarized and record said absolute assignment with the
applicable agency; (b) take and use or sell the Marks and the goodwill of
such Debtor’s business symbolized by the Marks and the right to carry on the business
and use the assets of such Debtor in connection with which the Marks have been
used; and (c) direct such Debtor to refrain, in which event such Debtor
shall refrain, from using the Marks in any manner whatsoever, directly or
indirectly, and, if requested by the Purchasers, change such Debtor’s corporate
name to eliminate therefrom any use of any Mark and execute such other and
further documents that the Purchasers may request to further confirm this
and to transfer ownership of the Marks and registrations and any pending
trademark application in the United States Patent and Trademark Office to the
Purchasers.

 

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

 

ARTICLE 5

 

SPECIAL PROVISIONS CONCERNING

PATENTS, COPYRIGHTS AND TRADE SECRETS

 

Section 5.1                                   Additional
Representations and Warranties. Each Debtor represents and warrants
that, as of the date hereof, it is the true and lawful owner of all rights in (a) all
material Trade Secrets and Proprietary Information necessary to operate the
business of such Debtor, (b) the Patents listed in Schedule 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

 

J-8

 

copyrights and
applications for copyright registrations that such Debtor owns on the date
hereof. Each Debtor further warrants that it has no knowledge of any third party
claim that any aspect of such Debtor’s present or contemplated business
operations infringes or will infringe any patent or any copyright or such
Debtor has misappropriated any Trade Secret or Proprietary Information, in each
case in any respect which could reasonably be expected to have a material
adverse effect on the business, operations, property, assets, liabilities or
condition (financial or otherwise) of such Debtor. Each Debtor hereby grants to
the Purchasers an absolute power of attorney to sign, upon the occurrence and
during the continuance of an Event of Default, any document which may be
required by the United States Patent and Trademark Office or the United States
Copyright Office in order to effect an absolute assignment of all right, title
and interest in each Patent and Copyright, and to record the same.

 

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

 

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

 

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

 

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

 

J-9

 

Section 5.6                                   Remedies.
If an Event of Default shall occur and be continuing, the Purchasers may take
any or all of the following actions:  (a) declare
the entire right, title, and interest of such Debtor in each of the Patents and
Copyrights vested in the Purchasers for the benefit of the Purchasers, in which
event such right, title, and interest shall immediately vest in the Purchasers
for the benefit of the Purchasers, in which case the Purchasers shall be
entitled to exercise the power of attorney referred to in Section 5.1
hereof to execute, cause to be acknowledged and notarized and to record said
absolute assignment with the applicable agency; (b) take and practice or
sell the Patents and Copyrights; and (c) direct such Debtor to refrain, in
which event such Debtor shall refrain, from practicing the Patents and using
the Copyrights directly or indirectly, and such Debtor shall execute such other
and further documents as the Purchasers may request further to confirm
this and to transfer ownership of the Patents and Copyrights to the Purchasers
for the benefit of the Purchasers.

 

ARTICLE 6

 

SPECIAL PROVISIONS CONCERNING
STOCK COLLATERAL

 

Section 6.1                                   Additional
Representations. Each Debtor has the right to vote the Pledged
Securities and there are no restrictions upon the voting rights associated
with, or the transfer of, any of the Pledged Securities, except as provided by
federal and state laws applicable to the sale of securities generally and the
terms of this Agreement. The Pledged Securities have been validly issued and,
except as described on Schedule A, are fully paid and non-assessable.
Except as set forth on Schedule A, there are no outstanding
commitments or other obligations of the issuers of any of the Pledged
Securities to issue, and no options, warrants or other rights of any individual
or entity to acquire, any share of any class or series of capital
stock of such issuers. The Pledged Securities listed and described on Schedule A
attached hereto constitute the percentage of the issued and outstanding capital
stock of each series and class of the issuers thereof as set forth
thereon owned by the relevant Debtor. Each Debtor agrees that in the event any
such issuer shall issue any additional capital stock of any series or class (whether
or not entitled to vote) to such Debtor or otherwise on account of its
ownership interest therein, subject to the limitations set forth in Section 2(a) above,
such Debtor will forthwith pledge hereunder, or cause to be pledged hereunder,
all such additional shares of such capital stock.

 

Section 6.2                                   Delivery
of Certificates. The certificates for all shares or units of the
Pledged Securities evidenced by a certificate shall be delivered by the
relevant Debtor to the Purchasers duly endorsed in blank for transfer or
accompanied by an appropriate assignment or assignments or an appropriate
undated stock power or powers, in every case sufficient to transfer title
thereto. The Purchasers may, at any time after the occurrence of an Event of
Default, cause to be transferred into its name or into the name of its nominee
or nominees any and all of the Pledged Securities. The Purchasers shall at all
times have the right to exchange the certificates representing the Pledged
Securities for certificates of smaller or larger denominations.

 

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

 

J-10

 

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

 

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

 

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

 

ARTICLE 7

 

PROVISIONS CONCERNING ALL COLLATERAL

 

Section 7.1                                   Protection
of Purchasers’ Security. Each Debtor will at all times keep its
Inventory and Equipment insured in favor of the Purchasers, at such Debtor’s
own expense to the extent and in the manner provided in the Purchase Agreement;
all policies or certificates with respect to such insurance (a) shall be
endorsed to the Purchasers’ commercially reasonable satisfaction for the
benefit of the Purchasers (including, without limitation, by naming the
Purchasers as additional insured and loss payee) and (b) shall state that
such insurance policies shall not be canceled without 30 days’ prior written notice
thereof by the insurer to the Purchasers; and certified copies of such policies
or certificates with respect thereto shall be deposited with the Purchasers. If
a Debtor shall fail to insure its Inventory and Equipment in accordance with
the preceding sentence, or if Debtor shall fail to so endorse and deposit all
policies or certificates with respect thereto, the Purchasers shall have the
right (but shall be under no obligation), upon prior written notice to such
Debtor, to procure such insurance and each Debtor agrees to promptly reimburse
the Purchasers for all reasonable costs and expenses of procuring such
insurance. The Purchasers shall, at the time any proceeds of such insurance are

 

J-11

 

distributed to the
Purchasers, apply such proceeds in accordance with Section 9.4 hereof. Each
Debtor assumes all liability and responsibility in connection with the
Collateral acquired by it and the liability of such Debtor to pay the
Obligations shall in no way be affected or diminished by reason of the fact
that such Collateral may be lost, destroyed, stolen, damaged or for any
reason whatsoever unavailable to such Debtor.

 

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

 

Section 7.3                                   Financing
Statements; Etc. Each Debtor agrees to execute and deliver to the Purchasers
such further agreements, assignments, instruments, and documents, and to do all
such other things, as the Purchasers may reasonably deem necessary or
appropriate to assure the Purchasers its lien and Security Interest hereunder,
including, without limitation, (i) such financing statements or other
instruments and documents as the Agent may from time to time reasonably
require to comply with the Uniform Commercial Code and any other
applicable law, (ii) such agreements with respect to patents, trademarks,
copyrights, and similar intellectual property rights as the Purchasers may from
time to time reasonably require to comply with the filing requirements of the
United States Patent and Trademark Office and the United States Copyright
Office, and (iii) such control agreements with respect to Deposit
Accounts, Investment Property, Letter-of-Credit Rights, and electronic Chattel
Paper, and to cause the relevant depository institutions, financial
intermediaries, and issuers to execute and deliver such control agreements, as
the Purchasers may from time to time reasonably require. Each Debtor
hereby agrees that a carbon, photographic or other reproduction of this
Agreement or any such financing statement is sufficient for filing as a
financing statement by the Purchasers without notice thereof to such Debtor
wherever the Purchasers in their sole discretion desire to file the same. Each
Debtor hereby authorizes the Purchasers to file any and all financing
statements covering the Collateral or any part thereof as the Purchasers may require,
including financing statements describing the Collateral as “all assets” or “all
personal property” or words of like meaning. In the event for any reason the
law of any jurisdiction other than California becomes or is applicable to the
Collateral or any part thereof, or to any of the Obligations, each Debtor
agrees to execute and deliver all such agreements, assignments, instruments,
and documents and to do all such other things as the Purchasers reasonably deem
necessary or appropriate to preserve, protect, and enforce the security
interest of the Purchasers under the law of such other jurisdiction.

 

J-12

 

ARTICLE 8

 

GUARANTEE

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

J-13

 

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

 

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

 

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

 

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

 

Section 8.4                                   Subrogation. The Subsidiary agrees it will not
exercise any rights which it may acquire by way of subrogation by any
payment made hereunder, or otherwise, until all the Obligations shall have been
paid in full subsequent to the termination of all the Purchase Agreement. If
any amount shall be paid to the Subsidiary on account of such subrogation
rights at any time prior to the later of (x) the payment in full of the
Obligations and all other amounts payable by the Company hereunder and the Purchase
Agreement and (y) the termination of the Purchase Agreement, such amount
shall be held in trust for the benefit of the Purchasers and shall forthwith be
paid to the Purchasers or be credited and applied upon the Obligations.

 

Section 8.5                                   Waivers. The
Subsidiary irrevocably waives acceptance hereof, presentment, demand, protest,
and any notice not provided for herein, 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

 

J-14

 

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
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 Purchasers, or any
other person or entity against the Company or other obligor, another guarantor,
or any other person or entity.

 

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

 

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

 

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

 

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

 

ARTICLE 9

 

REMEDIES UPON OCCURRENCE OF EVENT OF DEFAULT

 

Section 9.1                                   Remedies;
Obtaining the Collateral Upon Default. Each Debtor agrees that, if an
Event of Default shall have occurred and be continuing, then and in every such
case, the Purchasers, in addition to any rights now or hereafter existing under
applicable law, shall have all rights as a secured creditor under the UCC in
all relevant jurisdictions 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

 

J-15

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

it being understood that each
Debtor’s obligation so to deliver the Collateral is of the essence of this
Agreement and that, accordingly, upon application to a court of equity having
jurisdiction, the Purchasers shall be entitled to a decree requiring specific
performance by each Debtor of said obligation. The Purchasers agree that this
Agreement may be enforced by holders of the majority in outstanding
principal amount of Senior Notes, it being understood and agreed that such
rights and remedies may be exercised by the Purchasers for the benefit of
the Purchasers upon the terms of this Agreement.

 

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

 

J-16

 

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

 

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

 

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

 

J-17

 

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

 

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

 

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

 

Section 9.4                                   Application
of Proceeds.

 

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

 

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

 

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

 

J-18

 

Section 9.6                                   Discontinuance
of Proceedings. In case the Purchasers shall have instituted any
proceeding to enforce any right, power or remedy under this Agreement by
foreclosure, sale, entry or otherwise, and such proceeding shall have been
discontinued or abandoned for any reason or shall have been determined
adversely to the Purchasers, then and in every such case the Debtors, the
Purchasers and each holder of any of the Obligations shall be restored to their
former positions and rights hereunder with respect to the Collateral subject to
the Security Interest created under this Agreement, and all rights, remedies
and powers of the Purchasers shall continue as if no such proceeding had been
instituted.

 

Section 9.7                                   Attorney-in-Fact.
Without limiting any rights or powers granted by this Agreement to the
Purchasers, while no Event of Default has occurred and is continuing, upon the
occurrence and during the continuance of any Event of Default the Purchasers
are 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
Purchasers 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 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 Purchasers for
the benefit of the Purchasers.

 

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

 

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

 

J-19

 

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

 

“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 Senior Notes or
any of the Senior Notes issued thereunder and the due performance and
compliance by the Debtors with the terms of the Purchase Agreement as such
relates to the Senior Notes and each such Senior Note; (b) any and all
sums advanced by the Purchasers in accordance with the terms of this Agreement
or the Purchase Agreement in order to preserve the Collateral or preserve their
security interest in the Collateral; (c) in the event of any proceeding
for the collection or enforcement of any obligations or liabilities referred to
in clause (a), after an Event of Default shall have occurred and be continuing,
the reasonable expenses of re-taking, holding, preparing for sale or lease, selling
or otherwise disposing of or realizing on the Collateral, or of any exercise by
the Purchasers of their rights hereunder, together with reasonable attorneys’
fees and court costs; (d) all amounts paid by any Indemnitee as to which
such Indemnitee has the right to reimbursement under this Agreement; and (e) all
other Purchaser Obligations.

 

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

 

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

 

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

 

J-20

 

“Proprietary
Information” means all information and know-how worldwide, including, without
limitation, technical data, manufacturing data, research and development data,
manufacturing data, research and development data, data relating to
compositions, processes and formulations, manufacturing and production know-how
and experience, management know-how, training programs, manufacturing,
engineering and other drawings, specifications, performance criteria, operating
instructions, maintenance manuals, technology, technical information, software,
engineering and computer data and databases, design and engineering specifications,
catalogs, promotional literature and financial, business and marketing plans,
inventions and invention disclosures.

 

“Senior Notes”
shall have the meaning set forth in the 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:

 

J-21

 

	
  (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 such Purchaser shall have specified in the
  Purchase Agreement, with a copy to:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Paul, Hastings,
  Janofsky & Walker, LLP

  
	
   

  	
   

  	
  695 Town Center
  Drive

  
	
   

  	
   

  	
  Costa Mesa, CA
  92626

  
	
   

  	
   

  	
  Attention: Peter
  J. Tennyson, Esq.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  as well as:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Andrews Kurth LLP

  
	
   

  	
   

  	
  450 Lexington Ave., 15th Floor

  
	
   

  	
   

  	
  New York, New York 10017

  
	
   

  	
   

  	
  Attention: Paul N. Silverstein, Esq.

  

 

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 Senior 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.

 

J-22

 

Section 11.4                            Successors
and Assigns. This Agreement shall be binding upon the Debtors and their
successors and assigns and shall inure to the benefit of the Purchasers and
their respective successors and assigns. All agreements, statements,
representations and warranties made by the Debtors herein or in any certificate
or other instrument delivered by the Debtors or on its behalf under this
Agreement shall be considered to have been relied upon by the Purchasers and
shall survive the execution and delivery of this Agreement, the Purchase
Agreement or the Notes issued thereunder regardless of any investigation made
by the Purchasers or on their behalf.

 

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

 

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

 

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

 

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

 

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

 

[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

  	
   

  
										

 

 

	
  PURCHASERS:

  	
   

  	
   

  	
   

  
	
   

  	
   

  
	
  SACC
  PARTNERS, L.P.

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
  /s/ Bryant Riley

  	
   

  
	
  Name:

  	
  Bryant Riley

  	
   

  
	
  Title:

  	
  General Partner

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  LLOYD
  I. MILLER, III

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
  /s/ Lloyd I.
  Miller, III

  	
   

  
	
  Name: Lloyd I.
  Miller, III

  	
   

  
								

 

J-24

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"}]]