EXECUTION COPY
SECURITY AGREEMENT
SECURITY AGREEMENT, dated as of April 23, 2004, made by
aaiPharma Inc., a Delaware corporation (the "Parent"), and each of the other
Persons listed on the signature pages hereof or that become a party hereto
pursuant to the Indenture referred to below (together with the Parent, each a
"Grantor," and collectively the "Grantors"), in favor of Wachovia Bank, National
Association, in its capacity as collateral agent hereunder for the Secured
Parties (as defined herein) (in such capacity, together with any successor
collateral agent, the "Collateral Agent").
W I T N E S S E T H:
WHEREAS, the Parent has issued $175,000,000 in aggregate
principal amount of its 11% Senior Subordinated Notes due 2010 (collectively,
the "Notes") pursuant to the terms of an Indenture, dated as of March 28, 2002
(as amended, restated, supplemented or otherwise modified from time to time,
including pursuant to the Supplemental Indenture referred to below, the
"Indenture"), among the Parent, the guarantors named therein, and Wachovia Bank,
National Association (formerly, First Union National Bank), as Trustee (in such
capacity, the "Trustee");
WHEREAS, the Parent and its subsidiaries identified as
borrowers therein, the financial institutions from time to time party thereto
(each a "Lender" and collectively, the "Lenders"), Silver Point Finance, LLC, as
collateral agent for the Senior Agents (as defined below) and the Lenders (in
such capacity, the "Senior Collateral Agent"), and Bank of America, N.A., as
administrative agent for the Lenders (in such capacity, the "Administrative
Agent" and together with the Senior Collateral Agent, each a "Senior Agent" and
collectively, the "Senior Agents") are parties to a Financing Agreement, dated
as of April 23, 2004 (such agreement, as amended, restated, supplemented or
otherwise modified from time to time, including any replacement agreement
therefor, being hereinafter referred to as the "Financing Agreement");
WHEREAS, pursuant to a Security Agreement, dated as of April
23, 2004, made by the Grantors in favor of the Senior Collateral Agent (such
agreement, as amended, restated, supplemented or otherwise modified from time to
time, including any replacement agreement therefor, being hereinafter referred
to as the "Senior Security Agreement"), the Grantors have granted to the Senior
Collateral Agent a first-priority lien upon and security interest in the
Collateral (as defined below);
WHEREAS, the Parent, the other Grantors, as guarantors, and
the Trustee have entered into a First Supplemental Indenture, dated as of April
20, 2004 (the "Supplemental Indenture"), pursuant to which the Parent and the
other Grantors have agreed to grant to the Collateral Agent a second-priority
Lien upon and security interest in the Collateral;
WHEREAS, it is a condition precedent to the Lenders extending
any credit to the Parent and the other borrowers pursuant to the Financing
Agreement that the Parent and each Grantor shall have entered into the
Supplemental Indenture, and pursuant to the terms of the Supplemental Indenture,
the Parent and the other Grantors are required to execute and deliver to the
Collateral Agent a security agreement providing for the grant to the Collateral
Agent for the
benefit of the Secured Parties of a security interest in all personal property
of such Grantor in which such Grantor has granted a first-priority security
interest to the Senior Collateral Agent;
WHEREAS, the Parent, the Senior Collateral Agent and the
Collateral Agent have entered into an Intercreditor Agreement, dated as of the
date hereof (such agreement, as amended, restated, supplemented or otherwise
modified from time to time, including any replacement agreement therefor, being
hereinafter referred to as the "Intercreditor Agreement"), pursuant to which the
Lien and security interests granted pursuant to this Agreement with respect to
the Collateral are and shall be subordinated in all respects to the lien and
security interests granted pursuant to the Senior Security Agreement;
WHEREAS, the Grantors are mutually dependent on each other in
the conduct of their respective businesses as an integrated operation, with the
credit needed from time to time by each Grantor often being provided through
financing obtained by the other Grantors and the ability to obtain such
financing being dependent on the successful operations of all of the Grantors as
a whole; and
WHEREAS, each Grantor has determined that the execution,
delivery and performance of this Agreement directly benefit, and are in the best
interest of, such Grantor.
NOW, THEREFORE, in consideration of the premises and the
agreements herein and in order to comply with the requirements of the
Supplemental Indenture, the Grantors hereby jointly and severally agree with the
Collateral Agent, for the benefit of the Secured Parties, as follows:
SECTION 1. Definitions.
(a) Reference is hereby made to the Indenture for a statement
of the terms thereof. All terms used in this Agreement and the recitals hereto
which are defined in the Indenture or in Article 9 of the Uniform Commercial
Code as in effect from time to time in the State of New York (the "Code") and
which are not otherwise defined herein shall have the same meanings herein as
set forth therein; provided that terms used herein which are defined in the Code
as in effect in the State of New York on the date hereof shall continue to have
the same meaning notwithstanding any replacement or amendment of such statute.
(b) The following terms shall have the respective meanings
provided for in the Code: "Accounts", "Cash Proceeds", "Chattel Paper",
"Commercial Tort Claim", "Commodity Account", "Commodity Contracts", "Deposit
Account", "Documents", "Equipment", "Fixtures", "General Intangibles", "Goods",
"Instruments", "Inventory", "Investment Property", "Letter-of-Credit Rights",
"Noncash Proceeds", "Payment Intangibles", "Proceeds", "Promissory Notes",
"Record", "Security Account", "Software", and "Supporting Obligations".
(c) As used in this Agreement, the following terms shall have
the respective meanings indicated below, such meanings to be applicable equally
to both the singular and plural forms of such terms:
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"Copyright Licenses" means all licenses, contracts or other
agreements, whether written or oral, naming any Grantor as licensee or licensor
and providing for the grant of any right to use or sell any works covered by any
copyright (including, without limitation, all Copyright Licenses for registered
copyrights set forth in Schedule II hereto).
"Copyrights" means all domestic and foreign copyrights,
whether registered or unregistered, including, without limitation, all copyright
rights throughout the universe (whether now or hereafter arising) in any and all
media (whether now or hereafter developed), in and to all original works of
authorship fixed in any tangible medium of expression, acquired or used by any
Grantor (including, without limitation, all registered copyrights described in
Schedule II hereto), all applications, registrations and recordings thereof
(including, without limitation, applications, registrations and recordings in
the United States Copyright Office or in any similar office or agency of the
United States or any other country or any political subdivision thereof), and
all reissues, divisions, continuations, continuations in part and extensions or
renewals thereof.
"Default Rate" means a rate of interest per annum equal to the
rate of interest borne by the Notes from time to time plus 2%.
"Discharge of Senior Lender Claims" shall have the meaning
given to such term in the Intercreditor Agreement.
"First-Lien Termination Date" means, subject to Section 5.6 of
the Intercreditor Agreement, the date on which the Discharge of Senior Lender
Claims occurs.
"Indenture Documents" means the Indenture, the Notes, the
Subsidiary Guarantees, this Agreement and the other Security Documents, in each
case as amended, restated, supplemented or otherwise modified from time to time.
"Intellectual Property" means the Copyrights, Trademarks and
Patents.
"Licenses" means the Copyright Licenses, the Trademark
Licenses and the Patent Licenses, in each case that are material to the business
of the Grantors taken as a whole.
"Loan Document" shall have the meaning given to such term in
the Financing Agreement.
"Material Adverse Effect" means a material adverse effect on
any of (i) the operations, business, assets, properties, condition (financial or
otherwise) or prospects of the Grantors taken as a whole, (ii) the ability of
any Grantor to perform any of its material obligations under any Indenture
Document to which it is a party, (iii) the legality, validity or enforceability
of this Agreement or any other Indenture Document, (iv) the material rights and
remedies of the Collateral Agent under any Indenture Document, or (v) the
validity, perfection or priority of a Lien in favor of the Collateral Agent for
the benefit of Secured Parties on any of the Collateral with an aggregate value
in excess of $500,000.
"Patent Licenses" means all licenses, contracts or other
agreements, whether written or oral, naming any Grantor as licensee or licensor
and providing for the grant of any
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right to manufacture, use or sell any invention covered by any Patent
(including, without limitation, the Patent Licenses set forth in Schedule II
hereto).
"Patents" means all domestic and foreign letters patent,
design patents, utility patents, industrial designs, inventions, trade secrets,
ideas, concepts, methods, techniques, processes, proprietary information,
technology, know-how, formulae, rights of publicity and other general
intangibles of like nature, now existing or hereafter acquired (including,
without limitation, all domestic letters patent, design patents, utility patents
and industrial designs registered with the United States Patent and Trademark
Office described in Schedule II hereto), all applications, registrations and
recordings thereof (including, without limitation, applications, registrations
and recordings in the United States Patent and Trademark Office, or in any
similar office or agency of the United States or any other country or any
political subdivision thereof), and all reissues, divisions, continuations,
continuations in part and extensions or renewals thereof.
"Permitted Fundamental Change" means (A) the merger or
consolidation of any Grantor into or with, or the conveyance, sale or transfer
of all of a Grantor's business, property or assets to, another Grantor, (B) the
merger or consolidation of any direct or indirect wholly-owned Subsidiary of any
Grantor into, or the conveyance, sale or transfer of all of the business,
property or assets of such Subsidiary to, such Grantor or another direct or
indirect wholly-owned Subsidiary of such Grantor, and (C) liquidation of the
assets of a Grantor or its direct or indirect Subsidiary provided such assets
are contributed to a Grantor or another direct or indirect wholly-owned
Subsidiary of a Grantor, in each case so long as the Collateral Agent's rights
in any Collateral, including, without limitation, the existence, perfection and
priority of any Lien thereon, are not adversely affected by such merger or
consolidation.
"Secured Parties" means the Trustee, the Collateral Agent and
the Holders.
"Trademark Licenses" means all licenses, contracts or other
agreements, whether written or oral, naming any Grantor as licensor or licensee
and providing for the grant of any right concerning any Trademark, together with
any goodwill connected with and symbolized by any such trademark licenses,
contracts or agreements and the right to prepare for sale or lease and sell or
lease any and all Inventory now or hereafter owned by any Grantor and now or
hereafter covered by such licenses (including, without limitation, the Trademark
Licenses described in Schedule II hereto).
"Trademarks" means all domestic and foreign trademarks,
service marks, collective marks, certification marks, trade names, business
names, d/b/a's, Internet domain names, trade styles, designs, logos and other
source or business identifiers and all general intangibles of like nature, now
or hereafter owned, adopted, acquired or used by any Grantor (including, without
limitation, all registered domestic trademarks, trade names, d/b/a's, and
Internet domain names described in Schedule II hereto), all applications,
registrations and recordings thereof (including, without limitation,
applications, registrations and recordings in the United States Patent and
Trademark Office or in any similar office or agency of the United States, any
state thereof or any other country or any political subdivision thereof), and
all reissues, extensions or renewals thereof, together with all goodwill of the
business symbolized
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by such marks and all customer lists, formulae and other Records of any Grantor
relating to the distribution of products and services in connection with which
any of such marks are used.
SECTION 2. Grant of Security Interest. As collateral security
for all of the Obligations (as defined in Section 3 hereof), each Grantor hereby
pledges and assigns to the Collateral Agent, and grants to the Collateral Agent,
for the benefit of the Secured Parties, a continuing security interest in, all
personal property of such Grantor, wherever located and whether now or hereafter
existing and whether now owned or hereafter acquired, of every kind and
description, tangible or intangible (the "Collateral"), including, without
limitation, the following:
(a) all Accounts;
(b) all Chattel Paper (whether tangible or electronic);
(c) the Commercial Tort Claims specified on Schedule VI
hereto;
(d) all Deposit Accounts, all cash, and all other property
from time to time deposited therein and the monies and property in the
possession or under the control of any Senior Agent or the Collateral Agent or
any affiliate, representative, agent or correspondent of any Senior Agent or the
Collateral Agent;
(e) all Documents;
(f) all Equipment;
(g) all Fixtures;
(h) all General Intangibles (including, without limitation,
all Payment Intangibles);
(i) all Goods;
(j) all Instruments (including, without limitation, Promissory
Notes);
(k) all Inventory;
(l) all Investment Property;
(m) all Copyrights, Patents and Trademarks, and all Licenses;
(n) all Letter-of-Credit Rights;
(o) all Supporting Obligations;
(p) all other tangible and intangible personal property of
such Grantor (whether or not subject to the Code), including, without
limitation, all bank and other accounts and all cash and all investments
therein, all proceeds, products, offspring, accessions, rents, profits, income,
benefits, substitutions and replacements of and to any of the property of such
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Grantor described in the preceding clauses of this Section 2 (including, without
limitation, any proceeds of insurance thereon and all causes of action, claims
and warranties now or hereafter held by such Grantor in respect of any of the
items listed above), and all books, correspondence, files and other Records,
including, without limitation, all tapes, disks, cards, Software, data and
computer programs in the possession of or under the control of such Grantor or
any other Person from time to time acting for such Grantor that at any time
evidence or contain information relating to any of the property described in the
preceding clauses of this Section 2 or are otherwise necessary or helpful in the
collection or realization thereof; and
(q) all Proceeds, including all Cash Proceeds and Noncash
Proceeds, and products of any and all of the foregoing Collateral;
in each case howsoever such Grantor's interest therein may arise or appear
(whether by ownership, security interest, claim or otherwise). Notwithstanding
anything to the contrary set forth above, the types or items of Collateral
described above shall not include any rights or interests in any contract,
permit, license, or license agreement covering real or personal property, if
under the terms of such contract, permit, license, or license agreement, or
applicable law with respect thereto, the valid grant of a security interest or
Lien therein to the Collateral Agent is prohibited and such prohibition has not
been or is not waived or the consent of the other party to such contract,
permit, license, or license agreement has not been or is not otherwise obtained
or under applicable law such prohibition cannot be waived; provided, that, the
foregoing exclusion shall in no way be construed (i) to apply if any such
prohibition is unenforceable under Sections 9-406, 9-407 or 9-408 of the UCC or
other applicable law or (ii) so as to limit, impair or otherwise affect the
Collateral Agent's unconditional continuing security interests in and Liens upon
any rights or interests of a Grantor in or to monies due or to become due under
any such contract, permit, license, or license agreement; provided further that
immediately upon the ineffectiveness, lapse or termination of any such
prohibition on the grant of a security interest or Lien, the Collateral shall
include, and such Grantor shall be deemed to have granted a security interest
in, all such right, title and interests as if such prohibition had never been in
effect.
SECTION 3. Security for Obligations. The security interest
created hereby in the Collateral constitutes continuing collateral security for
all of the following obligations whether now existing or hereafter incurred (the
"Obligations"):
(a) the punctual payment by each Grantor, as and when due and
payable (whether by stated maturity, by acceleration or otherwise), of all
amounts from time to time owing by it in respect of the principal of, and
interest and premium (if any) on, the Notes;
(b) in the case of a Guarantor, all amounts from time to time
owing by such Grantor under its Subsidiary Guarantee, including all obligations
guaranteed by such Grantor;
(c) all other Indebtedness, obligations and liabilities of any
Grantor under any of the Indenture Documents; and
(d) the due performance and observance by each Grantor of all
of its other obligations from time to time existing in respect of the Indenture
Documents.
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SECTION 4. Representations and Warranties. Each Grantor
jointly and severally represents and warrants as follows:
(a) Schedule I hereto sets forth as of the Effective Date (i)
the exact legal name of each Grantor and (ii) the organizational identification
number of each Grantor or states that no such organizational identification
number exists.
(b) Each Grantor (i) is a corporation, limited liability
company or limited partnership duly organized, validly existing and in good
standing under the laws of the state or jurisdiction of its organization as set
forth on Schedule I hereto other than to the extent that the failure to be in
good standing in such state or jurisdiction could not reasonably be expected to
have a Material Adverse Effect, (ii) has all requisite power and authority to
conduct its business as now conducted and as presently contemplated and to
execute, deliver and perform this Agreement and each other Indenture Document to
be executed and delivered by it pursuant hereto and to consummate the
transactions contemplated hereby and thereby, and (iii) is duly qualified to do
business and is in good standing in each jurisdiction in which the character of
the properties owned or leased by it or in which the transaction of its business
makes such qualification necessary, other than in such jurisdictions where the
failure to be so qualified and in good standing could not reasonably be expected
to have a Material Adverse Effect.
(c) The execution, delivery and performance by each Grantor of
this Agreement and each other Indenture Document to which such Grantor is or
will be a party (i) have been duly authorized by all necessary action, (ii) do
not and will not contravene its charter or by-laws, its limited liability
company or operating agreement or its certificate of partnership or partnership
agreement, as applicable, or any applicable law, the Financing Agreement or any
material term of any Material Contract, (iii) do not and will not result in or
require the creation of any Lien (other than pursuant to any Loan Document or
Indenture Document) upon or with respect to any of its properties and (iv) do
not and will not result in any default, noncompliance, suspension, revocation,
impairment, forfeiture or nonrenewal of any permit, license, authorization or
approval applicable to it or its operations or any of its properties.
(d) This Agreement is, and each other Indenture Document to
which any Grantor is or will be a party, when executed and delivered, will be, a
legal, valid and binding obligation of such Grantor, enforceable against such
Grantor in accordance with its terms, except as enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws affecting creditors' rights generally.
(e) There is no pending or, to the best knowledge of any
Grantor, threatened action, suit, proceeding or claim affecting any Grantor or
its properties, before any Governmental Authority or any arbitrator, or any
order, judgment or award by any Governmental Authority or arbitrator, that could
reasonably be expected to adversely affect the grant by any Grantor, or the
perfection, of the security interest purported to be created hereby in the
Collateral, or the exercise by the Collateral Agent of any of its rights or
remedies hereunder.
(f) All Federal, state and local tax returns and other reports
required by applicable law to be filed by any Grantor have been filed, or
extensions have been obtained, and all taxes, assessments and other governmental
charges imposed upon any Grantor or any
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property of such Grantor (including, without limitation, all federal income and
social security taxes on employees' wages and all sales taxes) and which have
become due and payable on or prior to the date hereof have been paid, except to
the extent contested in good faith by proper proceedings which stay the
imposition of any penalty, fine or Lien resulting from the non-payment thereof
and with respect to which adequate reserves have been set aside for the payment
thereof in accordance with GAAP
(g) All Equipment, Fixtures, Goods and Inventory (except for
Equipment, Goods and Inventory in transit now existing are, and all Equipment,
Fixtures, Goods and Inventory hereafter existing will be, located and/or based
at the addresses specified therefor in Schedule III hereto (as amended,
supplemented or otherwise modified from time to time in accordance with Section
5(b) hereof) or at any other locations at which any Grantor has Collateral with
a fair market value of less than $50,000, individually for any location, and
$500,000 in the aggregate for all such locations. Each Grantor's chief place of
business and chief executive office, the place where such Grantor keeps its
Records concerning Accounts and all originals of all Chattel Paper are located
at the addresses specified therefor in Schedule III hereto. None of the Accounts
is evidencing by Promissory Notes or other Instruments except for Promissory
Notes evidencing aggregate Indebtedness of not more than $250,000. Set forth in
Schedule IV hereto is a complete and accurate list, as of the date of this
Agreement, of each Deposit Account, Securities Account and Commodities Account
of each Grantor, together with the name and address of each institution at which
each such Account is maintained, the account number for each such Account and a
description of the purpose of each such Account. Set forth in Schedule II hereto
is a complete and correct list of each trade name used by each Grantor.
(h) Each License described in Schedule II hereto sets forth
the entire agreement and understanding of the parties thereto relating to the
subject matter thereof, and there are no other material agreements, arrangements
or understandings, written or oral, relating to the matters covered thereby or
the rights of any Grantor or any of its Affiliates in respect thereof. Each such
License now existing is, and each other License will be, the legal, valid and
binding obligation of the Grantor party thereto and, to the best knowledge of
such Grantor, the other parties thereto, enforceable against such parties in
accordance with its terms, except as would not materially adversely effect the
business of the Grantors taken as a whole. No default by any Grantor, or, to the
best knowledge of each Grantor, any other party thereto has occurred under any
material term of any such License, nor does any defense, offset, deduction or
counterclaim exist thereunder in favor of any such party, except as would not
materially adversely effect the business of the Grantors taken as a whole.
(i) The Grantors own and control, or otherwise possess
adequate rights to use, the Trademarks, Patents and Copyrights, which are the
only trademarks, patents, copyrights, inventions, trade secrets, proprietary
information and technology, know-how, formulae, and rights of publicity
necessary to conduct their business in substantially the same manner as
conducted as of the date hereof. Schedule II hereto sets forth a true and
complete list of all Licenses and registered United States Intellectual Property
owned or used by each Grantor as of the date hereof. Except as set forth on
Schedule II, all such Intellectual Property set forth on Schedule II is
subsisting and in full force and effect, has not been adjudged invalid or
unenforceable, is valid and enforceable and has not been abandoned in whole or
in part (except to the extent that any such Intellectual Property is determined
by the Grantors in their reasonable
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business judgment to no longer be material and useful to the conduct of the
business of the Grantors taken as a whole). Except as set forth on Schedule II,
no such Intellectual Property set forth on Schedule II is the subject of any
licensing or franchising agreement. Except as set forth on Schedule II, no
Grantor has any knowledge of any conflict with the rights of others to any
Intellectual Property material to the business of the Grantors, taken as a
whole, and, to the best knowledge of each Grantor, no Grantor is now infringing
or in conflict with any such rights of others in any material respect and no
other Person is now infringing or in conflict in any material respect with any
such properties, assets and rights owned or used by any Grantor. Except as set
forth in Schedule II, no Grantor has received any written notice that it is
violating or has violated the trademarks, patents, copyrights, inventions, trade
secrets, proprietary information and technology, know-how, formulae, rights of
publicity or other intellectual property rights of any third party.
(j) Except as otherwise permitted by the Indenture and for
sales or licenses of Collateral in the ordinary course of business and transfers
or other conveyances to other Grantors and their Subsidiaries pursuant to a
Permitted Fundamental Change or otherwise, the Grantors are and will be at all
times the sole and exclusive owners of, or otherwise have and will have adequate
rights in, the Collateral free and clear of any Lien except for (i) Liens
created by or permitted under the Loan Documents, (ii) the Lien created by this
Agreement and (ii) the Permitted Liens. No effective financing statement or
other instrument similar in effect covering all or any part of the Collateral is
on file in any recording or filing office except (A) such as may have been filed
in favor of the Senior Collateral Agent, (B) such as may have been filed in
favor of the Collateral Agent relating to this Agreement or with respect to
other Liens permitted under the Loan Documents, and (C) such as may have been
filed to perfect or protect any Permitted Lien.
(k) The exercise by the Collateral Agent of any of its rights
and remedies hereunder in accordance with the Intercreditor Agreement will not
contravene any law, the Financing Agreement or any material term of any Material
Contract and will not result in, or require the creation of, any Lien upon or
with respect to any of its properties.
(l) No authorization or approval or other action by, and no
notice to or filing with, any Governmental Authority or other regulatory body,
or any other Person, is required for (i) the grant by any Grantor, or the
perfection, of the security interest purported to be created hereby in the
Collateral or (ii) the exercise by the Collateral Agent of any of its rights and
remedies hereunder, except (A) for the filing under the Uniform Commercial Code
as in effect in the applicable jurisdiction of the financing statements
described in Schedule V hereto, all of which financing statements have been duly
filed and are in full force and effect, (B) with respect to the perfection of
the security interest created hereby in the registered United States
Intellectual Property or for which registration is pending, for the recording of
the appropriate Assignment for Security, substantially in the form of Exhibit A
hereto in the United States Patent and Trademark Office or the United States
Copyright Office, as applicable, (C) with respect to the perfection of the
security interest created hereby in foreign Intellectual Property and Licenses,
any actions necessary to perfect a security interest in such foreign
Intellectual Property and Licenses which actions are not required hereunder, (D)
with respect to the perfection of the security interest created hereby in motor
vehicles for which the title to such motor vehicles is governed by a certificate
of title or ownership (collectively, the "Motor Vehicles"), for the submission
of an
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appropriate application requesting that the Lien of the Collateral Agent be
noted on the certificate of title or ownership, completed and authenticated by
the applicable Grantor, together with the certificate of title, with respect to
each Motor Vehicle, to the appropriate state agency, (E) with respect to any
action that may be necessary to obtain control in Collateral described in
Sections 5(i) and 5(k) hereof, the taking of such action (F) actions required
under applicable securities laws, and (G) the taking possession of all
Documents, Chattel Paper, Instruments and cash constituting Collateral.
(m) This Agreement creates in favor of the Collateral Agent
for the benefit of the Secured Parties a legal, valid and enforceable security
interest in the Collateral, as security for the Obligations. The Collateral
Agent or its bailee having possession of all Instruments, Documents, Chattel
Paper and cash constituting Collateral and obtaining control of all Collateral
described in Sections 5(i) and 5(k) hereof from time to time, the recording of
the appropriate Assignment for Security executed pursuant hereto in the United
States Patent and Trademark Office and the United States Copyright Office, as
applicable with respect to the registered United States Intellectual Property
set forth on Schedule II hereto, the submission of an appropriate application
requesting that the Lien of the Collateral Agent be noted on the certificate of
title or ownership, completed and authenticated by the applicable Grantor,
together with the certificate of title or ownership, with respect to such Motor
Vehicles, to the applicable state agency, and the filing of the financing
statements described in Schedule V hereto and, with respect to the registered
United States Intellectual Property hereafter existing and not covered by an
appropriate Assignment for Security, the recording in the United States Patent
and Trademark Office or the United States Copyright Office, as applicable, of
appropriate instruments of assignment, result in the perfection of such security
interests in the Collateral located in the United States. Such security
interests are, or in the case of Collateral in which any Grantor obtains rights
after the date hereof, will be, perfected, second priority security interests,
subject only to the Liens in favor of the Senior Collateral Agent pursuant to
the Loan Documents, any other Liens permitted by the Loan Documents, and the
other Permitted Liens and the taking of actions described in this Section 4(m).
(n) As of the date hereof, no Grantor holds any Commercial
Tort Claims or is aware of any such pending claims, except for such claims
described in Schedule VI.
(o) The partnership interests or membership interests of each
Grantor in each of its Subsidiaries that is a partnership or a limited liability
company are not (i) dealt in or traded on securities exchanges or in securities
markets, (ii) securities for purposes of Article 8 of any relevant Uniform
Commercial Code, (iii) investment company securities within the meaning of
Section 8-103 of any relevant Uniform Commercial Code and (iv) evidenced by a
certificate. Such partnership interests or membership interests constitute
General Intangibles.
SECTION 5. Covenants as to the Collateral. Subject to the
Intercreditor Agreement, so long as any of the Obligations shall remain
outstanding:
(a) Further Assurances. Each Grantor will at its expense, at
any time and from time to time, promptly execute and deliver all further
instruments and documents and take all further action consistent with such
Grantor's obligations hereunder and under the Indenture and the other Indenture
Documents that may be reasonably necessary or desirable in order to
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(i) enable the Collateral Agent to perfect and protect the security interest
purported to be created hereby; (ii) enable the Collateral Agent to exercise and
enforce its rights and remedies hereunder in respect of the Collateral; or (iii)
otherwise effect the purposes of this Agreement, including, without limitation:
(A) marking conspicuously all Chattel Paper, Licenses and Records pertaining to
the Collateral with a legend indicating that such Chattel Paper, License or
Collateral is subject to the security interest created hereby, (B) if any
Account shall be evidenced by Promissory Notes or other Instruments or Chattel
Paper, delivering and pledging to the Collateral Agent or its bailee hereunder
such Promissory Notes, Instruments or Chattel Paper, duly endorsed and
accompanied by executed instruments of transfer or assignment, all in form and
substance reasonably satisfactory to such agent, (C) executing and filing (to
the extent, if any, that such Grantor's signature is required thereon) or
authenticating the filing of, such financing or continuation statements, or
amendments thereto, as may be necessary or desirable in order to perfect and
preserve the security interest purported to be created hereby, (D) furnishing to
the Collateral Agent from time to time statements and schedules further
identifying and describing the Collateral and such other reports in connection
with the Collateral, all in reasonable detail, (E) if any Collateral with a book
value in excess of $250,000 shall be in the possession of a third party,
notifying such Person of the Collateral Agent's security interest created hereby
and using commercially reasonable efforts to obtain a written acknowledgment
from such Person that such Person holds possession of the Collateral, subject to
the Intercreditor Agreement, for the benefit of the Collateral Agent, (F) if at
any time after the date hereof, any Grantor acquires or holds any Commercial
Tort Claim, promptly notifying the Collateral Agent in a writing signed by such
Grantor setting forth a brief description of such Commercial Tort Claim and
granting to the Collateral Agent a security interest therein and in the proceeds
thereof, which writing shall incorporate the provisions hereof, (G) if requested
by the Collateral Agent after the occurrence and during the continuance of an
Event of Default, causing the Collateral Agent to be listed as the lienholder,
for the benefit of the Secured Parties, on each certificate of title or
ownership with respect to each Motor Vehicle or other item of Equipment subject
to a certificate of title or ownership (other than a Motor Vehicle or item of
Equipment that is subject to a purchase money security interest or other
Permitted Lien) and within five (5) Business Days of such request deliver
evidence of the same to the Collateral Agent and (H) taking all commercially
reasonable actions required by any earlier versions of the Uniform Commercial
Code or by other law, as applicable, in any relevant Uniform Commercial Code
jurisdiction.
(b) Location of Equipment and Inventory. Each Grantor will
keep the Equipment and Inventory (other than Equipment and Inventory sold in
accordance with this Agreement or Equipment and Inventory in transit) at one or
more of the locations specified therefor in Section 4(g) hereof (or at any other
locations at which any Grantor has Collateral with a fair market value of less
than $50,000 individually for any one location, and $500,000 in the aggregate
for all locations) or, upon not less than ten (10) days' prior written notice to
the Collateral Agent accompanied by a new Schedule III hereto indicating each
new location of the Equipment and Inventory, at such other locations in the
continental United States, as the Grantors may elect, provided that (i) all
commercially reasonable action has been taken to grant to the Collateral Agent a
perfected, second priority security interest in such Equipment and Inventory
(subject only to Liens in favor of the Senior Collateral Agent under the Loan
Documents and other liens permitted thereby and the Permitted Liens), and (ii)
the Collateral Agent's rights in such Equipment and Inventory, including,
without limitation, the existence,
11
perfection and priority of the security interest created hereby in such
Equipment and Inventory, are not adversely affected thereby.
(c) Condition of Equipment. Each Grantor will maintain or
cause the Equipment which is necessary or used in the proper conduct of its
business to be maintained and preserved in good condition, repair and working
order, ordinary wear and tear excepted.
(d) Taxes, Etc. Each Grantor jointly and severally agrees to
pay promptly when due all property and other taxes, assessments and governmental
charges or levies imposed upon, and all claims (including claims for labor,
materials and supplies) against, the Equipment and Inventory, except to the
extent otherwise provided in the Indenture and the Financing Agreement.
(e) Insurance. Each Grantor shall maintain insurance with
responsible and reputable insurance companies or associations (including without
limitation, comprehensive general liability, hazard, rent, and business
interruption insurance) with respect to its properties (including all real
properties leased or owned by it) and business, in such amounts and covering
such risks as is required by any Governmental Authority having jurisdiction with
respect thereto or as is carried generally in accordance with sound business
practice by companies in similar businesses similarly situated. All policies
covering the Collateral are to be made payable to the Collateral Agent for the
benefit of the Secured Parties, as its interests may appear.
(f) Provisions Concerning the Accounts.
(i) No Grantor shall, except as otherwise permitted
by the Indenture, change (A) its name, identity or organizational structure, (B)
its jurisdiction of incorporation as set forth in Section 4(b) hereof, or (C)
its chief executive office as set forth on Schedule III hereto, provided, that a
Grantor may change its name, jurisdiction of organization, organizational
identification number or FEIN in connection with any merger or consolidation of
a Grantor into another Grantor or a merger or consolidation of a Grantor with a
Subsidiary of a Grantor or other Permitted Fundamental Change; provided it
provides the Collateral Agent with at least 20 days prior written notice of such
change. Notwithstanding the foregoing, a Grantor may also change its name upon
at least 30 days prior written notice by the Parent to the Collateral Agent of
such change and so long as, at the time of such written notification, such
Person provides any financing statements or fixture filings necessary to perfect
and continue the Collateral Agent's Liens hereunder. Each Grantor shall (x)
promptly notify the Collateral Agent upon obtaining an organizational
identification number, if on the date hereof such Grantor did not have such
identification number, and (y) keep adequate records concerning the Accounts and
Chattel Paper and permit representatives of the Collateral Agent pursuant to the
terms of the Indenture to inspect and make abstracts from such Records and
Chattel Paper, upon the reasonable request of the Collateral Agent during normal
business hours upon reasonable prior written notice to the Grantors.
(ii) Each Grantor will, except as otherwise provided
in this subsection (f), continue to collect, at its own expense, all amounts due
or to become due under the Accounts. In connection with such collections, each
Grantor may (and, upon the occurrence and during the continuance of an Event of
Default and after the First-Lien Termination Date, at
12
the Collateral Agent's direction, will) take such action as such Grantor may
deem necessary or advisable to enforce collection or performance of the
Accounts; provided, however, that in accordance with, and to the extent
consistent with, the terms of the Intercreditor Agreement, the Collateral Agent
shall have the right at any time, upon the occurrence and during the continuance
of an Event of Default, to notify the Account Debtors or obligors under any
Accounts of the assignment of such Accounts to the Collateral Agent and to
direct such Account Debtors or obligors to make payment of all amounts due or to
become due to such Grantor thereunder directly to the Collateral Agent or its
designated agent and, upon such notification and at the expense of such Grantor
and to the extent permitted by law, to enforce collection of any such Accounts
and to adjust, settle or compromise the amount or payment thereof, in the same
manner and to the same extent as such Grantor might have done. After receipt by
any Grantor of a notice from the Collateral Agent that the Collateral Agent has
notified, intends to notify, or has enforced or intends to enforce a Grantor's
rights against the Account Debtors or obligors under any Accounts as referred to
in the proviso to the immediately preceding sentence, (A) all amounts and
proceeds (including Instruments) received by such Grantor in respect of the
Accounts shall be received in trust for the benefit of the Collateral Agent
hereunder, shall be segregated from other funds of such Grantor and shall be
forthwith paid over to the Collateral Agent or its designated agent in the same
form as so received (with any necessary endorsement) to be held as cash
collateral and applied as specified in Section 7(b) hereof (subject to the terms
of the Intercreditor Agreement), and (B) such Grantor will not adjust, settle or
compromise the amount or payment of any Account or release wholly or partly any
Account Debtor or obligor thereof or allow any credit or discount thereon. In
addition, upon the occurrence and during the continuance of an Event of Default,
and in accordance with, and to the extent consistent with, the terms of the
Intercreditor Agreement, the Collateral Agent may direct any or all of the banks
and financial institutions with which any Grantor either maintains a Deposit
Account or a lockbox or deposits the proceeds of any Accounts to send
immediately to the Collateral Agent or its designated agent by wire transfer (to
such account as the Collateral Agent shall specify, or in such other manner as
the Collateral Agent shall direct) all or a portion of such securities, cash,
investments and other items held by such institution. Any such securities, cash,
investments and other items so received by the Collateral Agent or its
designated agent shall be held as additional Collateral for the Obligations or
distributed in accordance with Section 7 hereof (subject to the Intercreditor
Agreement).
(iii) In the event that following any Discharge of
Senior Lender Claims, the Discharge of Senior Lender Claims is deemed not to
have occurred pursuant to the Intercreditor Agreement, the Collateral Agent
shall comply with its obligations under Section 5.6 of the Intercreditor
Agreement.
(iv) [Intentionally omitted.]
(v) [Intentionally omitted.]
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(g) Other Liens. Each Grantor jointly and severally agrees not
to create or suffer to exist any Lien upon or with respect to any of the
Collateral, other than Permitted Liens, unless all Obligations are secured on a
prior basis to the obligations so secured until such time as such obligations
are no longer secured by a Lien.
(h) Intellectual Property.
(i) If applicable, each Grantor has duly executed and
delivered the applicable Assignment for Security in the form attached hereto as
Exhibit A. Each Grantor (either itself or through licensees) will, and will
cause each licensee thereof to, take all action necessary to maintain all of the
Intellectual Property useful in the conduct of the business of the Grantors,
taken as a whole in full force and effect, including, without limitation, using
the proper statutory notices and markings and using the Trademarks on each
applicable trademark class of goods in order to so maintain the Trademarks in
full force, free from any claim of abandonment for non-use, and no Grantor will
do any act or knowingly omit to do any act whereby any such Intellectual
Property may become invalidated; provided, however, that so long as no Event of
Default has occurred and is continuing, no Grantor shall have an obligation to
use or to maintain any Intellectual Property (A) that relates solely to any
product or work, that has been, or is in the process of being, discontinued,
abandoned or terminated, (B) that is being replaced with Intellectual Property
substantially similar to the Intellectual Property that may be abandoned or
otherwise become invalid, so long as the failure to use or maintain such
Intellectual Property does not materially adversely affect the validity of such
replacement Intellectual Property and so long as such replacement Intellectual
Property is subject to the Lien created by this Agreement, (C) that is
substantially the same as another Intellectual Property that is in full force,
so long the failure to use or maintain such Intellectual Property does not
materially adversely affect the validity of such replacement Intellectual
Property and so long as such other Intellectual Property is subject to the Lien
and security interest created by this Agreement, or (D) that such Grantor
determines in good faith is not material and useful to the conduct of the
business of the Grantors, taken as a whole. Each Grantor will cause to be taken
all necessary steps in any proceeding before the United States Patent and
Trademark Office and the United States Copyright Office or any similar office or
agency in any other country or political subdivision thereof to maintain each
registration of the registered United States Intellectual Property (other than
the Intellectual Property described in the proviso to the immediately preceding
sentence), including, without limitation, filing of renewals, affidavits of use,
affidavits of incontestability and opposition, interference and cancellation
proceedings and payment of maintenance fees, filing fees, taxes or other
governmental fees. If any Intellectual Property is infringed, misappropriated,
diluted or otherwise violated in any material respect by a third party, the
Grantors shall (x) upon obtaining knowledge of such infringement,
misappropriation, dilution or other violation, promptly notify the Collateral
Agent and (y) to the extent the Grantors shall deem appropriate under the
circumstances, promptly xxx for infringement, misappropriation, dilution or
other violation, seek injunctive relief where appropriate and recover any and
all damages for such infringement, misappropriation, dilution or other
violation, or take such other actions as the Grantors shall deem appropriate
under the circumstances to protect such Intellectual Property. Notwithstanding
anything herein to the contrary, upon the occurrence and during the continuance
of an Event of Default, no Grantor may abandon or otherwise permit any
Intellectual Property to become invalid without the prior written consent of the
Collateral Agent, subject to the Intercreditor Agreement, and if any
Intellectual Property is infringed, misappropriated, diluted or otherwise
14
violated in any material respect by a third party, the Grantors will take such
action as the Collateral Agent shall determine under the circumstances to
protect such Intellectual Property, subject to the Intercreditor Agreement.
(ii) If any Grantor shall, either itself or through
any agent, employee, licensee or designee, file an application for the
registration of any Trademark or Copyright or the issuance of any Patent with
the United States Patent and Trademark Office or the United States Copyright
Office, as applicable, or in any similar office or agency of the United States
or any country or any political subdivision thereof, it shall provide a copy of
such application to the Collateral Agent within five (5) Business Days of such
filing. Each Grantor shall execute, authenticate and deliver any and all
assignments, agreements, instruments, documents and papers as may reasonably be
required to evidence the Collateral Agent's security interest hereunder in such
Intellectual Property and the General Intangibles of such Grantor relating
thereto or represented thereby.
(i) Deposit, Commodities and Securities Accounts. Within 30
days of the date hereof, each Grantor shall cause each bank and other financial
institution referred to in Schedule IV hereto to execute and deliver to the
Collateral Agent or its bailee a control agreement, duly executed by such
Grantor and such bank or financial institution, or enter into other arrangements
in form and substance reasonably satisfactory to the Collateral Agent, pursuant
to which such institution shall irrevocably agree, inter alia, that, subject to
the terms of the Intercreditor Agreement (i) it will comply at any time with the
instructions originated by the Collateral Agent to such bank or financial
institution directing the disposition of cash, Commodity Contracts, securities,
Investment Property and other items from time to time credited to such account,
without further consent of such Grantor, which instructions the Collateral Agent
will not give to such bank or other financial institution in the absence of a
continuing Event of Default, (ii) all cash, Commodity Contracts, securities,
Investment Property and other items of such Grantor deposited with such
institution shall be subject to a perfected, second priority security interest
in favor of the Collateral Agent, (iii) any right of set off, banker's Lien or
other similar Lien, security interest or encumbrance shall be fully waived as
against the Collateral Agent, other than rights of set off for the payment of
its service fees and other charges directly related to the administration of
such accounts or for returned checks or other items of payment to the extent
provided in such arrangements and (iv) upon receipt of written notice from the
Collateral Agent during the continuance of an Event of Default, such bank or
financial institution shall immediately send to the Collateral Agent by wire
transfer (to such account as the Collateral Agent shall specify, or in such
other manner as the Collateral Agent shall direct) all such cash, the value of
any Commodity Contracts, securities, Investment Property and other items held by
it. Without the prior written consent of the Collateral Agent, no Grantor shall
make or maintain any Deposit Account, Commodity Account or Securities Account
except for the accounts set forth in Schedule IV hereto. The provisions of this
paragraph 5(i) shall not apply to (i) Deposit Accounts for which the Senior
Collateral Agent is the depositary, (ii) fiduciary accounts of the Grantors, and
(iii) Deposit Accounts exclusively used for payroll, payroll taxes and other
employee wage and benefit payments to or for the benefit of a Grantor's salaried
employees.
15
(j) Motor Vehicles.
(i) After the First-Lien Expiration Date, if
requested by the Collateral Agent after the occurrence and during the
continuance of an Event of Default, each Grantor shall deliver to the Collateral
Agent originals of the certificates of title or ownership for all Motor Vehicles
owned by it with the Collateral Agent listed as lienholder, for the benefit of
the Secured Parties; provided that the Collateral Agent shall not be required to
be listed as the lienholder if a Motor Vehicle is subject to a purchase money
security interest permitted by the Indenture.
(ii) Each Grantor hereby appoints the Collateral
Agent as its attorney-in-fact, effective upon the occurrence and during the
continuance of an Event of Default and terminating upon the termination of this
Agreement, for the purpose of (A) executing on behalf of such Grantor title or
ownership applications for filing with appropriate state agencies to enable
Motor Vehicles now owned or hereafter acquired by such Grantor to be retitled
and the Collateral Agent listed as lienholder thereof, (B) filing such
applications with such state agencies, and (C) executing such other documents
and instruments on behalf of, and taking such other action in the name of, such
Grantor as may be necessary or advisable to accomplish the purposes hereof
(including, without limitation, for the purpose of creating in favor of the
Collateral Agent a perfected Lien on the Motor Vehicles and exercising the
rights and remedies of the Collateral Agent hereunder); provided, that the
Collateral Agent shall not be responsible for, or obligated to take, any of the
foregoing actions authorized by the Grantors. This appointment as
attorney-in-fact is coupled with an interest and is irrevocable until the
indefeasible payment in full of all of the Obligations and the termination of
the Indenture Documents.
(iii) Any certificates of title or ownership
delivered pursuant to the terms hereof shall be accompanied by odometer
statements for each Motor Vehicle covered thereby to the extent available.
(k) Control. Each Grantor hereby agrees to take any or all
action that may be necessary or advisable that is consistent with the terms of
this Agreement, the other Indenture Documents and the Intercreditor Agreement in
order for the Collateral Agent to obtain control in accordance with Sections
9-104, 9-105, 9-106, and 9-107 of the Code with respect to the following
Collateral: (i) Deposit Accounts, (ii) Electronic Chattel Paper, (iii)
Investment Property and (iv) Letter-of-Credit Rights.
(l) [Intentionally Omitted.]
(m) Partnership and Limited Liability Company Interest. No
Grantor that is a partnership or a limited liability company shall, nor shall
any Grantor with any Subsidiary that is a partnership or a limited liability
company, permit such partnership interests or membership interests to (i) be
dealt in or traded on securities exchanges or in securities markets, (ii) become
a security for purposes of Article 8 of any relevant Uniform Commercial Code,
(iii) become an investment company security within the meaning of Section 8-103
of any relevant Uniform Commercial Code or (iv) be evidenced by a certificate.
Each Grantor agrees that such partnership interests or membership interests
shall constitute General Intangibles.
16
SECTION 6. Additional Provisions Concerning the Collateral.
(a) In accordance with, and to the extent consistent with, the
terms of the Intercreditor Agreement, each Grantor hereby (i) authorizes the
Collateral Agent to file, one or more financing or continuation statements, and
amendments thereto, relating to the Collateral (including, without limitation,
any such financing statements that indicate the Collateral as "all assets" or
words of similar import) and (ii) ratifies such authorization to the extent that
the Collateral Agent has filed any such financing or continuation statements, or
amendments thereto, prior to the date hereof; provided, that the Collateral
Agent shall not be responsible for, or obligated to take, any of the foregoing
actions authorized by the Grantors. A photocopy or other reproduction of this
Agreement or any financing statement covering the Collateral or any part thereof
shall be sufficient as a financing statement where permitted by law.
(b) Each Grantor hereby irrevocably appoints the Collateral
Agent as its attorney-in-fact and proxy, with full authority in the place and
stead of such Grantor and in the name of such Grantor or otherwise, from time to
time after the occurrence and during the continuance of an Event of Default, to
take any action and to execute any instrument which may be necessary or
desirable to accomplish the purposes of this Agreement (subject to the rights of
a Grantor under this Agreement), including, without limitation, (i)
[intentionally omitted.] (ii) to ask, demand, collect, xxx for, recover,
compound, receive and give acquittance and receipts for moneys due and to become
due under or in respect of any Collateral, (iii) to receive, endorse, and
collect any drafts or other instruments, documents and chattel paper in
connection with clause (i) or (ii) above, (iv) to file any claims or take any
action or institute any proceedings which may be necessary or desirable for the
collection of any Collateral or otherwise to enforce the rights of the
Collateral Agent with respect to any Collateral, and (v) to execute assignments,
licenses and other documents to enforce the rights of the Collateral Agent with
respect to any Collateral. This power is coupled with an interest and is
irrevocable until all of the Obligations are paid in full or defeased pursuant
to the Indenture.
(c) For the purpose of enabling the Collateral Agent to
exercise rights and remedies hereunder, at such time as the Collateral Agent
shall be lawfully (and under the terms of the Intercreditor Agreement) entitled
to exercise such rights and remedies, and for no other purpose, each Grantor
hereby grants to the Collateral Agent, to the extent assignable, an irrevocable,
non-exclusive license (exercisable without payment of royalty or other
compensation to any Grantor) to use, assign, license or sublicense any
Intellectual Property now owned or hereafter acquired by any Grantor, wherever
the same may be located, including in such license reasonable access to all
media in which any of the licensed items may be recorded or stored and to all
computer programs used for the compilation or printout thereof. Notwithstanding
anything contained herein to the contrary, so long as no Event of Default shall
have occurred and be continuing, each Grantor may exploit, use, enjoy, protect,
license, sublicense, assign, sell, dispose of or take other actions with respect
to the Intellectual Property in the ordinary course of its business. In
furtherance of the foregoing, unless an Event of Default shall have occurred and
be continuing, the Collateral Agent shall from time to time, upon the request
and at the expense of a Grantor, execute and deliver any instruments,
certificates or other documents, in the form so requested, which such Grantor
shall have certified are appropriate (in such Grantor's judgment) to allow it to
take any action permitted above (including relinquishment of the license
provided pursuant to this clause (c) as to any Intellectual Property).
17
Further, upon the indefeasible payment in full of all of the Obligations, and
the termination of the Indenture Documents, the Collateral Agent (subject to
Section 10(e) hereof) shall release and reassign to the Grantors all of the
Collateral Agent's right, title and interest in and to the Intellectual
Property, and the Licenses, all without recourse, representation or warranty
whatsoever and at the Grantor's request and sole expense. The exercise of rights
and remedies hereunder by the Collateral Agent shall not terminate the rights of
the holders of any licenses or sublicenses theretofore granted by any Grantor in
accordance with the second sentence of this clause (c). Each Grantor hereby
releases the Collateral Agent from any claims, causes of action and demands at
any time arising out of or with respect to any actions taken or omitted to be
taken by the Collateral Agent under the powers of attorney granted herein other
than actions taken or omitted to be taken through the Collateral Agent's gross
negligence or willful misconduct, as determined by a final determination of a
court of competent jurisdiction.
(d) In accordance with, and to the extent consistent with, the
terms of the Intercreditor Agreement, if any Grantor fails to perform any
agreement contained herein as and when required, the Collateral Agent may itself
perform, or cause performance of, such agreement or obligation, in the name of
such Grantor or the Collateral Agent, and the expenses of the Collateral Agent
incurred in connection therewith shall be jointly and severally payable by the
Grantors pursuant to Section 8 hereof and shall be secured by the Collateral;
provided, that the Collateral Agent shall not be responsible for the performance
of, or obligated to perform, any such agreements or obligations; provided, that
the Collateral Agent shall not be responsible for the performance of, or
obligated to perform, any such agreements or obligations.
(e) The powers conferred on the Collateral Agent hereunder are
solely to protect its interest in the Collateral and shall not impose any duty
upon it to exercise any such powers. Except for the safe custody of any
Collateral in its possession in such a manner as it would afford its own
property of a similar nature and the accounting for moneys actually received by
it hereunder, the Collateral Agent shall have no duty as to any Collateral or as
to the taking of any necessary steps to preserve rights against prior parties or
any other rights pertaining to any Collateral.
(f) Anything herein to the contrary notwithstanding (i) each
Grantor shall remain liable under the Licenses and otherwise with respect to any
of the Collateral to the extent set forth therein to perform all of its
obligations thereunder to the same extent as if this Agreement had not been
executed, (ii) the exercise by the Collateral Agent of any of its rights
hereunder shall not release any Grantor from any of its obligations under the
Licenses or otherwise in respect of the Collateral, and (iii) the Collateral
Agent shall not have any obligation or liability by reason of this Agreement
under the Licenses or with respect to any of the other Collateral, nor shall the
Collateral Agent be obligated to perform any of the obligations or duties of any
Grantor thereunder or to take any action to collect or enforce any claim for
payment assigned hereunder.
(g) Anything herein to the contrary notwithstanding, the
Collateral Agent agrees that it will not exercise any rights under any power of
attorney provided for in this Agreement unless it does so in accordance with,
and to the extent consistent with, the terms of the Intercreditor Agreement.
18
SECTION 7. Remedies Upon Default. If any Event of Default
shall have occurred and be continuing, subject to the Intercreditor Agreement:
(a) The Collateral Agent may exercise in respect of the
Collateral, in addition to any other rights and remedies provided for herein or
otherwise available to it, all of the rights and remedies of a secured party
upon default under the Code (whether or not the Code applies to the affected
Collateral), and also may (i) take absolute control of the Collateral,
including, without limitation, transfer into the Collateral Agent's name or into
the name of its nominee or nominees (to the extent the Collateral Agent has not
theretofore done so) and thereafter receive, for the benefit of the Secured
Parties, all payments made thereon, give all consents, waivers and ratifications
in respect thereof and otherwise act with respect thereto as though it were the
outright owner thereof, (ii) require each Grantor to, and each Grantor hereby
agrees that it will at its expense and upon request of the Collateral Agent
forthwith, assemble all or part of the Collateral as directed by the Collateral
Agent and make it available to the Collateral Agent at a place or places to be
designated by the Collateral Agent that is reasonably convenient to both
parties, and the Collateral Agent may enter into and occupy any premises owned
or leased by any Grantor where the Collateral or any part thereof is located or
assembled for a reasonable period in order to effectuate the Collateral Agent's
rights and remedies hereunder or under law, without obligation to any Grantor in
respect of such occupation, and (iii) without notice except as specified below
and without any obligation to prepare or process the Collateral for sale, (A)
sell the Collateral or any part thereof in one or more parcels at public or
private sale, at any of the Collateral Agent's offices or elsewhere, for cash,
on credit or for future delivery, and at such price or prices and upon such
other terms as may be commercially reasonable and/or (B) lease, license or
dispose of the Collateral or any part thereof upon such terms as may be
commercially reasonable. Each Grantor agrees that, to the extent notice of sale
or any other disposition of the Collateral shall be required by law, at least
five (5) days' prior notice to a Grantor of the time and place of any public
sale or the time after which any private sale or other disposition of the
Collateral is to be made shall constitute reasonable notification. The
Collateral Agent shall not be obligated to make any sale or other disposition of
Collateral regardless of notice of sale having been given. The Collateral Agent
may adjourn any public or private sale from time to time by announcement at the
time and place fixed therefor, and such sale may, without further notice, be
made at the time and place to which it was so adjourned. Each Grantor hereby
waives any claims against the Collateral Agent arising by reason of the fact
that the price at which the Collateral may have been sold at a private sale was
less than the price which might have been obtained at a public sale or was less
than the aggregate amount of the Obligations, even if the Collateral Agent
accepts the first offer received and does not offer the Collateral to more than
one offeree, and waives all rights that such Grantor may have to require that
all or any part of the Collateral be marshalled upon any sale (public or
private) thereof. Each Grantor hereby acknowledges that (i) any such sale of the
Collateral by the Collateral Agent shall be made without warranty, (ii) the
Collateral Agent may specifically disclaim any warranties of title, possession,
quiet enjoyment or the like, and (iii) such actions set forth in clauses (i) and
(ii) above shall not adversely effect the commercial reasonableness of any such
sale of the Collateral. In addition to the foregoing, and in accordance with,
and to the extent consistent with, the terms of the Intercreditor Agreement, (i)
upon notice to any Grantor from the Collateral Agent, each Grantor shall cease
any use of the Intellectual Property or any trademark, patent or copyright
similar thereto for any purpose described in such notice; (ii) the Collateral
Agent may, at any time and from time to time, upon five (5) days' prior notice
to any Grantor, license,
19
whether general, special or otherwise, and whether on an exclusive or
non-exclusive basis, any of the Intellectual Property, throughout the universe
for such term or terms, on such conditions, and in such manner, as the
Collateral Agent shall determine; and (iii) the Collateral Agent may, at any
time, pursuant to the authority granted in Section 6 hereof (such authority
being effective upon the occurrence and during the continuance of an Event of
Default), execute and deliver on behalf of a Grantor, one or more instruments of
assignment of the Intellectual Property (or any application or registration
thereof), in form suitable for filing, recording or registration in any country.
(b) Subject to the terms of the Intercreditor Agreement, any
cash held by the Collateral Agent as Collateral and all Cash Proceeds received
by the Collateral Agent in respect of any sale of or collection from, or other
realization upon, all or any part of the Collateral shall be held by the
Collateral Agent as collateral for, and promptly applied (after payment of any
amounts payable to the Collateral Agent pursuant to Section 8 hereof) in whole
or in part against, all or any part of the Obligations consistent with the
provisions of the Indenture. The Collateral Agent shall have the right to cause
to be established and maintained, at its principal office or such other location
or locations as it may establish from time to time in its discretion, one or
more accounts (collectively, "Collateral Accounts") for the collection of cash
proceeds of the Collateral. Such proceeds, when deposited, shall continue to
constitute Collateral for the Obligations and shall not constitute payment
thereof until applied as herein provided. The Collateral Agent shall have sole
dominion and control over all funds deposited in any Collateral Account, and
such funds may be withdrawn therefrom only by the Collateral Agent. Any surplus
of such cash or Cash Proceeds held by the Collateral Agent and remaining after
payment in full of the Obligations shall be paid over to the Grantors or to such
Person as may be lawfully entitled to receive such surplus (as ordered by a
court of law).
(c) In the event that the proceeds of any such sale,
collection or realization are insufficient to pay all Obligations, the Grantors
shall be jointly and severally liable for the deficiency, together with interest
thereon at the Default Rate, together with the costs of collection and the
reasonable fees, costs, expenses and other client charges of any attorneys
employed by the Collateral Agent to collect such deficiency.
(d) Each Grantor hereby acknowledges that if the Collateral
Agent complies with any applicable state or federal law requirements in
connection with a disposition of the Collateral, such compliance will not
adversely affect the commercial reasonableness of any sale or other disposition
of the Collateral.
(e) The Collateral Agent shall not be required to marshal any
present or future collateral security (including, but not limited to, this
Agreement and the Collateral) for, or other assurances of payment of, the
Obligations or any of them or to resort to such collateral security or other
assurances of payment in any particular order, and all of the Collateral Agent's
rights hereunder and in respect of such collateral security and other assurances
of payment shall be cumulative and in addition to all other rights, however
existing or arising. To the extent that any Grantor lawfully may, such Grantor
hereby agrees that it will not invoke any law relating to the marshalling of
collateral which might cause delay in or impede the enforcement of the
Collateral Agent's rights under this Agreement or under any other instrument
creating or evidencing any of the Obligations or under which any of the
Obligations is outstanding or by which any of the
20
Obligations is secured or payment thereof is otherwise assured, and, to the
extent that it lawfully may, each Grantor hereby irrevocably waives the benefits
of all such laws.
SECTION 8. Collateral Agent. The provisions regarding the
Collateral Agent's rights, benefits, liabilities and duties as Collateral Agent
under the Indenture Documents set forth in the Pledge and Security Agreement,
dated as of the date hereof, among the Parent, certain guarantor subsidiaries of
the Parent and the Collateral Agent, as amended modified or supplemented (the
"Pledge Agreement"), shall govern this Agreement as if set forth herein in their
entirety.
SECTION 9. Notices, Etc. All notices and other communications
provided for hereunder shall be given in the manner provided in, and subject to
the provisions of the Pledge Agreement.
SECTION 10. Security Interest Absolute. All rights of the
Collateral Agent, all Liens and all obligations of each of the Grantors
hereunder shall be absolute and unconditional irrespective of (a) any lack of
validity or enforceability of the Indenture or any other Indenture Document, (b)
any change in the time, manner or place of payment of, or in any other term in
respect of, all or any of the Obligations, or any other amendment or waiver of
or consent to any departure from the Indenture or any other Indenture Document,
(c) any exchange or release of, or non-perfection of any Lien on any Collateral,
or any release or amendment or waiver of or consent to departure from any
guaranty, for all or any of the Obligations, or (d) any other circumstance that
might otherwise constitute a defense available to, or a discharge of, any of the
Grantors in respect of the Obligations. All authorizations and agencies
contained herein with respect to any of the Collateral are irrevocable and
powers coupled with an interest.
SECTION 11. Miscellaneous.
(a) Notwithstanding anything herein to the contrary, the Lien
and security interest granted to the Collateral Agent pursuant to this Agreement
and the exercise of any right or remedy by the Collateral Agent hereunder are
subject to the provisions of the Intercreditor Agreement. In the event of any
conflict between the terms of the Intercreditor Agreement and this Agreement,
the terms of the Intercreditor Agreement shall govern; provided that, as between
the Parent and the other Grantors, on the one hand, and the Collateral Agent, on
the other, the rights, benefits, liabilities and duties of the Collateral Agent
shall be governed by the Security Documents.
(b) No amendment of any provision of this Agreement (including
any Schedule attached hereto) shall be effective unless it is effected in
accordance with the terms of the Indenture and the Intercreditor Agreement, and
no waiver of any provision of this Agreement, and no consent to any departure by
any Grantor therefrom, shall be effective unless it is effected in accordance
with the terms of the Indenture and the Intercreditor Agreement, and then such
waiver or consent shall be effective only in the specific instance and for the
specific purpose for which given.
(c) No failure on the part of the Collateral Agent to
exercise, and no delay in exercising, any right hereunder or under any other
Indenture Document shall operate as a waiver
21
thereof; nor shall any single or partial exercise of any such right preclude any
other or further exercise thereof or the exercise of any other right. The rights
and remedies of the Collateral Agent provided herein and in the other Indenture
Documents are cumulative and are in addition to, and not exclusive of, any
rights or remedies provided by law. The rights of the Collateral Agent under any
Indenture Document against any party thereto are not conditional or contingent
on any attempt by such Person to exercise any of its rights under any other
Indenture Document against such party or against any other Person, including but
not limited to, any Grantor.
(d) Any provision of this Agreement which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining portions hereof or thereof or affecting the validity or enforceability
of such provision in any other jurisdiction.
(e) This Agreement shall create a continuing security interest
in the Collateral and shall (i) remain in full force and effect until the
indefeasible payment in full of all of the Obligations and (ii) be binding on
each Grantor and all other Persons who become bound as debtor to this Agreement
in accordance with Section 9-203(d) of the Code and shall inure, together with
all rights and remedies of the Collateral Agent hereunder, to the benefit of the
Collateral Agent and its permitted successors, transferees and assigns. Without
limiting the generality of clause (ii) of the immediately preceding sentence,
the Collateral Agent may assign or otherwise transfer its rights and obligations
under this Agreement and any other Indenture Document in accordance with the
provisions of the Indenture and the Security Documents, to any other Person and
such other Person shall thereupon become vested with all of the benefits in
respect thereof granted to the Collateral Agent herein or otherwise. Upon any
such permitted assignment or transfer, all references in this Agreement to the
Collateral Agent shall mean the assignee of the Collateral Agent. None of the
rights or obligations of any Grantor hereunder may be assigned or otherwise
transferred without the prior written consent of the Collateral Agent or
otherwise in accordance with the terms of the Indenture, and any such assignment
or transfer shall be null and void.
(f) Upon the satisfaction in full of the Obligations and the
termination of the Indenture Documents, but subject to the Intercreditor
Agreement, (i) this Agreement and the security interests and licenses created
hereby shall terminate and all rights to the Collateral shall revert to the
Grantors and (ii) the Collateral Agent will, upon the Grantors' request and at
the Grantors' expense, without any representation, warranty or recourse
whatsoever, (A) return to the Grantors such of the Collateral as shall not have
been sold or otherwise disposed of or applied pursuant to the terms hereof and
(B) execute and deliver to the Grantors such documents as the Grantors shall
reasonably request to evidence such termination.
(g) THIS AGREEMENT SHALL BE GOVERNED BY, CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, EXCEPT AS
REQUIRED BY MANDATORY PROVISIONS OF LAW AND EXCEPT TO THE EXTENT THAT THE
VALIDITY AND PERFECTION OR THE PERFECTION AND THE EFFECT OF PERFECTION OR
NON-PERFECTION OF THE SECURITY INTEREST CREATED HEREBY, OR REMEDIES HEREUNDER,
IN RESPECT OF ANY PARTICULAR COLLATERAL ARE GOVERNED BY THE LAW OF A
JURISDICTION OTHER THAN THE STATE OF NEW YORK; PROVIDED
22
THAT THE STANDARD OF CARE APPLICABLE TO THE ACTIONS OF THE COLLATERAL AGENT
SHALL BE DETERMINED BY THE INTERNAL LAWS OF THE STATE OF NEW YORK.
(h) ANY LEGAL ACTION, SUIT OR PROCEEDING WITH RESPECT TO THIS
AGREEMENT OR ANY DOCUMENT RELATED THERETO MAY BE BROUGHT IN XXX XXXXXX XX XXX
XXXXX XX XXX XXXX IN THE COUNTY OF NEW YORK OR THE UNITED STATES OF AMERICA FOR
THE SOUTHERN DISTRICT OF NEW YORK, AND APPELLATE COURTS THEREOF, AND, BY
EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH GRANTOR HEREBY ACCEPTS FOR ITSELF
AND IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE JURISDICTION
OF THE AFORESAID COURTS. EACH GRANTOR HEREBY EXPRESSLY AND IRREVOCABLY WAIVES,
TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION, INCLUDING, WITHOUT
LIMITATION, ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF
FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY
SUCH ACTION, SUIT OR PROCEEDING IN SUCH RESPECTIVE JURISDICTIONS AND CONSENTS TO
THE GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED APPROPRIATE BY THE
COURT.
(i) EACH OF THE GRANTORS (AND BY ITS ACCEPTANCE OF THE
BENEFITS OF THIS AGREEMENT, THE COLLATERAL AGENT) WAIVES ANY RIGHT IT MAY HAVE
TO TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED ON, ARISING OUT OF, UNDER OR
IN CONNECTION WITH THIS AGREEMENT OR ANY OTHER INDENTURE DOCUMENT, OR ANY COURSE
OF CONDUCT, COURSE OF DEALING, VERBAL OR WRITTEN STATEMENT OR OTHER ACTION OF
THE PARTIES HERETO.
(j) Each Grantor irrevocably consents to the service of
process of any of the aforesaid courts in any such action, suit or proceeding by
the mailing of copies thereof by registered or certified mail (or any
substantially similar form of mail), postage prepaid, to such Grantor at its
address provided herein, such service to become effective ten (10) days after
such mailing.
(k) Nothing contained herein shall affect the right of the
Collateral Agent to serve process in any other manner permitted by law or
commence legal proceedings or otherwise proceed against any Grantor or any
property of any Grantor in any other jurisdiction.
(l) Each Grantor irrevocably and unconditionally waives any
right it may have to claim or recover in any legal action, suit or proceeding
referred to in this Section any special, exemplary, punitive or consequential
damages.
(m) Section headings herein are included for convenience of
reference only and shall not constitute a part of this Agreement for any other
purpose.
23
(n) This Agreement may be executed in any number of
counterparts and by different parties hereto in separate counterparts, each of
which shall be deemed to be an original, but all of which taken together
constitute one in the same Agreement. Delivery of an executed counterpart of
this Agreement by facsimile shall be equally effective as delivery of an
original executed counterpart.
(o) All of the obligations of the Grantors hereunder are joint
and several. The Collateral Agent may enforce the provisions hereof against any
of the Grantors and shall not be required to proceed against all Grantors
jointly or seek payment from the Grantors ratably. In addition, the Collateral
Agent may select the Collateral of any one or more of the Grantors for sale or
application to the Obligations, without regard to the ownership of such
Collateral, and shall not be required to make such selection ratably from the
Collateral owned by all of the Grantors. The release or discharge of any Grantor
by the Collateral Agent shall not release or discharge any other Grantor from
the obligations of such Person hereunder.
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IN WITNESS WHEREOF, each Grantor and the Collateral Agent has
caused this Agreement to be executed and delivered by its officer thereunto duly
authorized, as of the date first above written.
GRANTORS:
AAIPHARMA INC.
By: /s/ Xxxxxxx X.Xxxxx, Jr.
----------------------------------------
Xxxxxxx X. Xxxxx, Jr.
Executive Vice President and Chief
Financial Officer
APPLIED ANALYTICAL INDUSTRIES LEARNING
CENTER, INC.
By: /s/ Xxxxxxx X. Xxxxxxx
----------------------------------------
Xxxxxxx X. Xxxxxxx
Vice President
AAI TECHNOLOGIES, INC.
By: /s/ Xxxxxxx X. Xxxxx, Jr.
----------------------------------------
Xxxxxxx X. Xxxxx, Jr.
Vice President
AAI PROPERTIES, INC.
By: /s/ Xxxxxxx X. Xxxxx, Jr.
----------------------------------------
Xxxxxxx X. Xxxxx, Jr.
Vice President
AAI JAPAN, INC.
By: /s/ Xxxxxxx X. Xxxxx, Jr.
----------------------------------------
Xxxxxxx X. Xxxxx, Jr.
Vice President
KANSAS CITY ANALYTICAL SERVICES, INC.
By: /s/ Xxxxxxx X. Xxxxx, Jr.
----------------------------------------
Xxxxxxx X. Xxxxx, Jr.
Vice President
AAI DEVELOPMENT SERVICES, INC.
a Massachusetts corporation
By: /s/ Xxxxxxx X. Xxxxx, Jr.
----------------------------------------
Xxxxxxx X. Xxxxx, Jr.
Vice President
AAIPHARMA LLC
By: /s/ Xxxxxxx X. Xxxxx, Jr.
----------------------------------------
Xxxxxxx X. Xxxxx, Jr.
Vice President
AAI DEVELOPMENT SERVICES, INC.
a Delaware corporation
By: /s/ Xxxxxxx X. Xxxxx, Jr.
----------------------------------------
Xxxxxxx X. Xxxxx, Jr.
Vice President
COLLATERAL AGENT:
WACHOVIA BANK, NATIONAL ASSOCIATION
By: /s/ Xxxx X. Xxxxxxxxx
----------------------------------------
Xxxx X. Xxxxxxxxx
Vice President
