SECURITY AGREEMENT
Exhibit 10.2
EXECUTION COPY
SECURITY AGREEMENT (this “Agreement”), dated as of January 15, 2009, by and among (a)
each of the Persons listed on Schedule I hereto (each such Person, individually, a
“Borrower” and, collectively, the “Borrowers”), (b) each of the Persons listed on
Schedule II hereto (each such Person, individually, a “Guarantor” and,
collectively, the “Guarantors”) (the Borrowers and the Guarantors are hereinafter referred
to, individually, as a “Grantor” and, collectively with any other Person now or hereafter
party hereto, as the “Grantors”), and (c) XXXXX FARGO RETAIL FINANCE, LLC, a Delaware
limited liability company, as collateral agent (in such capacity, the “Collateral Agent”)
for its own benefit and the benefit of the other Credit Parties (as defined in the Credit Agreement
referred to below), in consideration of the mutual covenants contained herein and benefits to be
derived herefrom.
WITNESSETH:
WHEREAS, reference is made to that certain Credit Agreement, dated as of January 15, 2009 (as
amended, modified, supplemented or restated and in effect from time to time, the “Credit
Agreement”), by and among (i) the Grantors, (ii) the Lenders from time to time party thereto
(individually, a “Lender” and, collectively, the “Lenders”), and (iii) Xxxxx Fargo
Retail Finance, LLC, as Administrative Agent, Collateral Agent and Swing Line Lender, pursuant to
which the Lenders have agreed to make Loans to the Borrowers upon the terms and subject to the
conditions specified in the Credit Agreement;
WHEREAS, reference is also made to that certain Guaranty, dated as of January 15, 2009 (as
amended, modified, supplemented or restated and in effect from time to time, the
“Guaranty”), executed by the Guarantors in favor of the Administrative Agent, the
Collateral Agent and the other Credit Parties, pursuant to which each Guarantor guarantees the
payment and performance of the Guaranteed Obligations (as defined in the Guaranty); and
WHEREAS, the obligations of the Lenders to make Loans are conditioned upon, among other
things, the execution and delivery by the Grantors of an agreement in the form hereof to secure the
Secured Obligations (as defined herein).
NOW, THEREFORE, in consideration of the mutual conditions and agreements set forth in this
Agreement, and for good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Grantors and the Collateral Agent, on its own behalf and on behalf of the other
Credit Parties (and each of their respective successors or assigns), hereby agree as follows:
ARTICLE 1
Definitions
SECTION 1.01 Generally. All references herein to the UCC shall mean the Uniform
Commercial Code as in effect from time to time in the State of New York; provided,
however, that if a term is defined in Article 9 of the UCC differently than in another
Article thereof, the term shall have the meaning set forth in Article 9; provided
further that, if by reason of mandatory provisions of law, perfection, or the effect of
perfection or non-perfection, of the Security Interest in any Collateral or the availability of any
remedy hereunder is governed by the Uniform Commercial Code as in effect in a jurisdiction other
than New York, “UCC” means the Uniform Commercial Code as in effect in such other jurisdiction for
purposes of the provisions hereof relating to such perfection or effect of perfection or
non-perfection or availability of such remedy, as the case may be.
SECTION 1.02 Definition of Certain Terms Used Herein. Unless the context otherwise
requires, all capitalized terms used but not defined herein shall have the meanings set forth in
the Credit Agreement. In addition, as used herein, the following terms shall have the following
meanings:
“Accessions” shall have the meaning given that term in the UCC.
“Account Debtor” shall have the meaning given that term in the UCC.
“Blue Sky Laws” shall have the meaning assigned to such term in Section 6.01(c) of
this Agreement.
“Borrower” and “Borrowers” shall have the meaning assigned to such terms in
the preamble of this Agreement.
“Chattel Paper” shall have the meaning given that term in the UCC.
“Collateral” shall mean all personal property of each Grantor, including, without
limitation, all: (a) Accounts, (b) Chattel Paper, (c) Commercial Tort Claims (including, but not
limited to, those Commercial Tort Claims listed on Schedule 3.07 hereto), (d) Deposit
Accounts, (e) Documents, (f) Equipment, (g) Fixtures, (h) General Intangibles (including Payment
Intangibles), (i) Goods, (j) Instruments, (k) Inventory, (l) Investment Property, (m)
Letter-of-Credit Rights, (n) Software, (o) Supporting Obligations, (p) money, policies and
certificates of insurance, deposits, cash, cash equivalents, or other property, (q) all books,
records, and information relating to any of the foregoing ((a) through (p)) and/or to the operation
of any Grantor’s business, and all rights of access to such books, records, and information, and
all property in which such books, records, and information are stored, recorded and maintained, (r)
all insurance proceeds, refunds, and premium rebates, including, without limitation, proceeds of
fire and credit insurance, whether any of such proceeds, refunds, and premium rebates arise out of
any of the foregoing ((a) through (q)) or otherwise, (s) all Liens, guaranties, rights, remedies,
and privileges pertaining to any of the foregoing ((a) through (r)), including the right of
stoppage in transit, and (t) any of the foregoing, whether now owned or now due, or in which any
Grantor has an interest, or hereafter acquired, arising, or to become due, or in which any Grantor
obtains an interest, and all products, Proceeds, substitutions, and Accessions of or to any of the
foregoing; provided, however, that the Collateral shall not include, and the
Security Interest shall not attach to, any Excluded Assets.
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“Collateral Agent” shall have the meaning assigned to such term in the preamble of
this Agreement.
“Collateral Agent’s Rights and Remedies” shall have the meaning assigned to such term
in Section 8.08(a).
“Commercial Tort Claim” shall have the meaning given that term in the UCC.
“Commodity Account” shall have the meaning given that term in the UCC.
“Commodity Intermediary” shall have the meaning given that term in the UCC.
“Control” shall have the meaning given that term in the UCC.
“Credit Agreement” shall have the meaning assigned to such term in the preliminary
statement of this Agreement.
“Deposit Account” shall have the meaning given that term in the UCC and shall also
include all demand, time, savings, passbook, or similar accounts maintained with a bank or other
financial institution.
“Documents” shall have the meaning given that term in the UCC.
“Electronic Chattel Paper” shall have the meaning given that term in the UCC.
“Equipment” shall mean “equipment”, as defined in the UCC, and shall also mean all
furniture, store fixtures, motor vehicles, rolling stock, machinery, office equipment, plant
equipment, tools, dies, molds, and other goods, property, and assets which are used and/or were
purchased for use in the operation or furtherance of a Grantor’s business, and any and all
Accessions or additions thereto, and substitutions therefor.
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“Excluded Assets” shall mean (a) rights or property acquired under a lease, contract,
property rights agreement, permit or license, the grant of a security interest in which shall
constitute or result in (i) the abandonment, invalidation or unenforceability of any right, title
or interest of any Grantor therein or (ii) a breach or termination pursuant to the terms of, or a
default under, any such lease, contract, property rights agreement, permit or license or a
violation of Law (other than to the extent that any restriction on such assignment would be
rendered ineffective pursuant to Sections 9-406, 9-407, 9-408 or 9-409 of the UCC (or any successor
provision or provisions) of any relevant jurisdiction or any other applicable Law or
principles of equity), provided that the Proceeds therefrom shall not constitute
“Excluded Assets” to the extent that the assignment of such Proceeds is not prohibited, (b) any
insurance or condemnation proceeds covering any Real Estate leased by any Grantor, or any fixtures
attached or appurtenant thereto, to the extent that the same are required by the terms of the
applicable lease to be maintained for the benefit of, and paid over to, the landlord of such Real
Estate, (c) any Excluded Equity Interests, (d) property that is subject to a purchase money lien or
capital lease that is permitted under the Credit Agreement, provided that the agreement pursuant to
which such Lien or capital lease is created requires the consent of any Person other than a Grantor
as a condition to the creation of any other Lien on such property, to the extent that, and solely
during the period in which, such consent has not been obtained, (e) United States “intent to use”
Trademark applications to the extent that, and solely during the period in which, a statement of
use has not been filed, (f) payroll and withholding tax accounts, and (g) Equity Interests of
Parent that are placed into an equity incentive plan of Parent, which is permitted under the Credit
Agreement.
“Excluded Equity Interests” means (a) any Equity Interest or group of Equity Interests
issued by any CFC representing more than 65% of the total voting power of all outstanding “stock
entitled to vote” within the meaning of Treasury Regulations sections 1.956-2(c)(2), (b) any Equity
Interest issued by a Subsidiary of a CFC, and (c) any Equity Interest issued by Industrial Center
Management Association, LLC, a New Jersey limited liability company.
“Financial Asset” shall have the meaning given that term in the UCC.
“Financing Statement” shall have the meaning given that term in the UCC.
“Fixtures” shall have the meaning given that term in the UCC.
“General Intangibles” shall have the meaning given that term in the UCC, and shall
also include, without limitation, all: Payment Intangibles; rights to payment for credit extended;
deposits; amounts due to any Grantor; credit memoranda in favor of any Grantor; warranty claims;
tax refunds and abatements; insurance refunds and premium rebates; all means and vehicles of
investment or hedging, including, without limitation, options, warrants, and futures contracts;
records; customer lists; telephone numbers; goodwill; causes of action; judgments; rights to
collect payments under any settlement or other agreement; literary rights; rights to performance;
royalties; license and/or franchise fees; rights of admission; licenses; franchises; license
agreements, including all rights of any Grantor to enforce same; permits, certificates of
convenience and necessity, and similar rights granted by any governmental authority; developmental
ideas and concepts; proprietary processes; blueprints, drawings, designs, diagrams, plans, reports,
and charts; catalogs; technical data; tapes, disks, semi-conductors chips and printouts; IP
Collateral (as defined in the Intellectual Property Security Agreement); proposals; cost estimates,
and reproductions on paper, or otherwise, of any and all concepts or ideas, and any matter related
to, or connected with, the design, development, manufacture, sale, marketing, leasing, or use of
any or all property produced, sold, or leased, by or credit extended or services performed, by any
Grantor, whether intended for an individual customer or the general business of any Grantor, or
used or useful in connection with research by any Grantor.
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“Goods” shall have the meaning given that term in the UCC.
“Grantor” and “Grantors” shall have the meaning assigned to such terms in the
preamble of this Agreement.
“Guarantor” and “Guarantors” shall have the meaning assigned to such terms in
the preamble of this Agreement.
“Guaranty” shall have the meaning assigned to such term in the preliminary statement
of this Agreement.
“Indemnitee” shall have the meaning assigned to such term in Section 8.06(b) of this
Agreement.
“Instruments” shall have the meaning given that term in the UCC.
“Inventory” shall have the meaning given that term in the UCC, and shall also include,
without limitation, all: (a) Goods which (i) are leased by a Person as lessor, (ii) are held by a
Person for sale or lease or to be furnished under a contract of service, (iii) are furnished by a
Person under a contract of service, or (iv) consist of raw materials, work in process, or materials
used or consumed in a business; (b) Goods of said description in transit; (c) Goods of said
description which are returned, repossessed or rejected; and (d) packaging, advertising, and
shipping materials related to any of the foregoing.
“Investment Property” shall have the meaning given that term in the UCC.
“Joinder Agreement” shall mean an agreement substantially in the form of Exhibit
A hereto.
“Lender” and “Lenders” shall have the meaning assigned to such terms in the
preliminary statement of this Agreement.
“Letter-of-Credit Right” shall have the meaning given that term in the UCC and shall
also mean any right to payment or performance under a letter of credit, whether or not the
beneficiary has demanded, or is at the time entitled to demand, payment or performance.
“Letters of Credit” shall have the meaning given that term in the UCC.
“Payment Intangible” shall have the meaning given that term in the UCC and shall also
mean any General Intangible under which the Account Debtor’s primary obligation is a monetary
obligation.
“Proceeds” shall have the meaning given that term in the UCC.
“Secured Obligations” shall mean, collectively, the Obligations (as defined in the
Credit Agreement) and the Guaranteed Obligations (as defined in the Guaranty).
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“Securities Act” shall have the meaning assigned to such term in Section 6.01(c) of
this Agreement.
“Securities Account” shall have the meaning given that term in the UCC.
“Securities Intermediary” shall have the meaning given that term in the UCC.
“Security” shall have the meaning given that term in the UCC.
“Security Entitlement” shall have the meaning given that term in the UCC.
“Security Interest” shall have the meaning assigned to such term in Section 2.01 of
this Agreement.
“Software” shall have the meaning given that term in the UCC.
“Supporting Obligation” shall have the meaning given that term in the UCC and shall
also refer to a Letter-of-Credit Right or secondary obligation that supports the payment or
performance of an Account, Chattel Paper, a Document, a General Intangible, an Instrument, or
Investment Property.
SECTION 1.03 Rules of Interpretation. The rules of interpretation specified in
Sections 1.02 through 1.05 of the Credit Agreement shall be applicable to this Agreement.
ARTICLE 2
Security Interest
SECTION 2.01 Security Interest. As security for the payment or performance, as the
case may be, in full of the Secured Obligations, each Grantor hereby grants to the Collateral
Agent, its successors and permitted assigns, for its own benefit and the benefit of the other
Credit Parties, a security interest in all of such Grantor’s right, title and interest in, to and
under the Collateral (the “Security Interest”). Without limiting the foregoing, each
Grantor hereby designates the Collateral Agent as such Grantor’s true and lawful attorney,
exercisable by the Collateral Agent whether or not an Event of Default exists, with full power of
substitution, at the Collateral Agent’s option, to file one or more Financing Statements,
continuation statements, or to sign other documents for the purpose of perfecting, confirming or
continuing the Security Interest granted by each Grantor, without the signature of any Grantor
(each Grantor hereby appointing the Collateral Agent as such Person’s attorney to sign such
Person’s name to any such instrument or document, whether or not an Event of Default exists), and
naming any Grantor or the Grantors, as debtors, and the Collateral Agent, as secured party. Any
such financing statement may indicate the Collateral as “all assets of the Grantor”, “all personal
property of the debtor” or words of similar effect, regardless of whether any particular asset
comprised in the Collateral falls within the scope of Article 9 of the UCC.
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SECTION 2.02 No Assumption of Liability. The Security Interest is granted as security
only and shall not subject the Collateral Agent or any other Credit Party to, or in any way alter
or modify, any obligation or liability of any Grantor with respect to or arising out of the
Collateral.
ARTICLE 3
Representations and Warranties
Each Grantor represents and warrants to the Collateral Agent and the other Credit Parties
that:
SECTION 3.01 Title and Authority. Each Grantor has good and valid rights in, and
title to, the Collateral with respect to which it has purported to grant a Security Interest
hereunder and has full power and authority to grant to the Collateral Agent the Security Interest
in such Collateral pursuant hereto and to execute, deliver and perform its obligations in
accordance with the terms of this Agreement, without the consent or approval of any other Person,
other than any consent or approval which has been obtained.
SECTION 3.02 Filings. Upon the filing of UCC Financing Statements or other
appropriate filings, recordings or registrations naming each Grantor as “debtor” and the Collateral
Agent as “secured party” and containing a description of the Collateral in each governmental,
municipal or other office as is necessary to publish notice of and protect the validity of and to
establish a legal, valid and perfected security interest in favor of the Collateral Agent (for its
own benefit and the benefit of the other Credit Parties) in respect of all Collateral in which the
Security Interest may be perfected by filing, recording or registration in the United States (or
any political subdivision thereof) and its territories and possessions, the Security Interest
granted to the Collateral Agent (for its own benefit and the benefit of the other Credit Parties)
hereunder shall constitute a legal, valid and perfected security interest in the Collateral, and no
further or subsequent filing, refiling, recording, rerecording, registration or re-registration is
necessary in any such jurisdiction, except as provided under applicable Law with respect to the
filing of continuation statements or analogous filings or as a result of any change in a Grantor’s
name or jurisdiction of incorporation or formation or under any other circumstances under which,
pursuant to the UCC or other applicable recording or registration system, filings, registrations or
recordings previously made have become misleading or ineffective in whole or in part.
SECTION 3.03 Validity and Priority of Security Interest. The Security Interest
constitutes (a) a legal and valid security interest in all of the Collateral securing the payment
and performance of the Secured Obligations, and (b) subject to the making of the filings described
in Section 3.02 above, a perfected security interest in all of the Collateral (to the extent
perfection in the Collateral can be accomplished by such filing) and (c) subject to the obtaining
of Control, a perfected security interest in all of the Collateral (to the extent perfection in the
Collateral can be accomplished by Control). The Security Interest is and shall be prior to any
other Lien on any of the Collateral, subject only to Permitted Encumbrances having priority by operation of
applicable Law.
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SECTION 3.04 Absence of Other Liens. The Collateral is owned by the Grantors free and
clear of any Lien, except for (i) Permitted Encumbrances or (ii) Liens for which termination
statements or releases (or payoff letters providing for the delivery or filing of termination
statements or releases) have been delivered to the Collateral Agent. Except, in each case, for
Permitted Encumbrances, no Grantor has (a) filed or consented to the filing of (i) any Financing
Statement or analogous document under the UCC or any other applicable Law covering any Collateral,
(ii) any assignment in which any Grantor assigns any Collateral or any security agreement or
similar instrument covering any Collateral with the United States Patent and Trademark Office or
the United States Copyright Office or (iii) any assignment in which any Grantor assigns any
Collateral or any security agreement or similar instrument covering any Collateral with any foreign
governmental, municipal or other office, or (b) entered into any agreement in which any Grantor
grants Control over any Collateral, which Financing Statement, control agreement or analogous
document, assignment, security agreement or similar instrument is still in effect.
SECTION 3.05 Bailees, Warehousemen, Etc. Except as set forth on Schedule 3.05
hereto and except for Inventory in transit to a location of such Grantor, no Inventory of any
Grantor is in the care or custody of any third party or stored or entrusted with a bailee or other
third party, and none shall hereafter be placed under such care, custody, storage or entrustment
unless a Collateral Access Agreement is delivered to the Collateral Agent by such third party or
bailee.
SECTION 3.06 Consignments. As of the Closing Date, except as set forth on
Schedule 3.06 hereto, no Grantor has possession of any property on consignment. After the
Closing Date, no Grantor shall have possession of any property on consignment without the prior
written consent of the Collateral Agent (which consent shall not be unreasonably withheld, but
which shall be subject to such conditions as the Collateral Agent may reasonably require).
SECTION 3.07 Commercial Tort Claims. As of the Closing Date, none of the Collateral
consists of a Commercial Tort Claim, except as set forth on Schedule 3.07 hereto.
SECTION 3.08 Instruments and Chattel Paper. As of the Closing Date, no amounts
payable under or in connection with any of the Collateral are evidenced by any Instrument or
Chattel Paper, other than such Instruments and Chattel Paper listed in Schedule 3.08
hereto. Each Instrument and each item of Chattel Paper listed in Schedule 3.08 hereto has
been properly endorsed, assigned and delivered to the Collateral Agent, accompanied by instruments
of transfer or assignment duly executed in blank.
SECTION 3.09 Securities Accounts and Commodity Accounts. As of the Closing Date, no
Grantor has any Securities Accounts or Commodity Accounts other than those listed in Schedule
3.09 hereto.
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SECTION 3.10 Electronic Chattel Paper and Transferable Records. As of the Closing
Date, no amount under or in connection with any of the Collateral is evidenced by any Electronic
Chattel Paper or any “transferable record” (as that term is defined in Section 201 of the Federal
Electronic Signatures in Global and National Commerce Act, or in Section 16 of the Uniform
Electronic Transactions Act, as in effect in any relevant jurisdiction), other than such Electronic
Chattel Paper and transferable records listed in Schedule 3.10 hereto.
SECTION 3.11 Intellectual Property. This Agreement is effective to create a valid and
continuing Lien on and, upon filing of the Intellectual Property Security Agreement with the United
States Copyright Office or the United States Patent and Trademark Office, as applicable, perfected
Liens in favor of the Collateral Agent on each Grantor’s Patents, Trademarks and Copyrights (as
such terms are defined in the Intellectual Property Security Agreement) and such perfected Liens
are enforceable as such as against any and all creditors of, and purchasers from, any Grantor.
Upon filing of the Intellectual Property Security Agreement with the United States Copyright Office
or the United States Patent and Trademark Office, as applicable, and the filing of appropriate
Financing Statements, all action necessary or desirable to perfect the Collateral Agent’s Lien on
each Grantor’s Patents, Trademarks or Copyrights shall have been duly taken.
ARTICLE 4
Covenants
SECTION 4.01 Change of Name; Location of Collateral; Records; Place of Business.
(a) Each Grantor will furnish to the Collateral Agent at least thirty (30) days prior
written notice (or such shorter period as may be agreed to in writing by the Collateral
Agent in its sole discretion) of any change in: (i) any Grantor’s name or in any trade name
used to identify it in the conduct of its business or in the ownership of its properties;
(ii) the location of any Grantor’s chief executive office, its principal place of business,
any office in which it maintains books or records relating to Collateral owned by it or any
office or facility at which Collateral owned by it is located (including the establishment
of any such new office or facility, but excluding the establishment of any such new Stores);
(iii) any Grantor’s organizational structure or jurisdiction of incorporation or formation;
or (iv) any Grantor’s Federal Taxpayer Identification Number or organizational
identification number, if any, assigned to it by its state of organization. Each Grantor
agrees not to effect or permit any change referred to in the preceding sentence unless all
filings, publications and registrations have been made under the UCC or other applicable Law
that are required in order for the Collateral Agent to continue at all times following such
change to have a valid, legal and perfected first priority security interest in all the
Collateral (subject only to Permitted Encumbrances having priority by operation of
applicable Law) for its own benefit and the benefit of the other Credit Parties.
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(b) Each Grantor agrees (i) to maintain, at its own cost and expense, records with
respect to the Collateral owned by it which are complete and accurate in all material
respects and which are consistent with its current practices, but in any event to include
accounting records which are complete in all material respects indicating all payments and
proceeds received with respect to any part of the Collateral, and (ii) at such time or times
as the Collateral Agent may reasonably request, promptly to prepare and deliver to the
Collateral Agent a duly certified schedule or schedules in form and detail reasonably
satisfactory to the Collateral Agent showing the identity, amount and location of any and
all Collateral.
SECTION 4.02 Protection of Security. Each Grantor shall, at its own cost and expense,
take any and all actions reasonably necessary to defend title to the Collateral against all Persons
(other than holders of Permitted Encumbrances having priority by operation of applicable Law) and
to defend the Security Interest of the Collateral Agent in the Collateral and the priority thereof
against any Lien (other than Permitted Encumbrances having priority by operation of applicable
Law).
SECTION 4.03 Further Assurances. Each Grantor agrees, at its own expense, to execute,
acknowledge, promptly deliver and cause to be duly filed all such further documents, Financing
Statements, agreements and instruments and take all such further actions as the Collateral Agent
may from time to time reasonably request to better assure, preserve, protect and perfect the
Security Interest and the rights and remedies created hereby or the validity or priority of such
Security Interest, including the payment of any fees and taxes required in connection with the
execution and delivery of this Agreement, the granting of the Security Interest and the filing of
any Financing Statements or other documents in connection herewith or therewith. Without limiting
the foregoing, each Grantor agrees, at its own expense, to execute, acknowledge, deliver and cause
to be duly filed all such further documents, Financing Statements, agreements and instruments and
take all such further actions as the Collateral Agent may from time to time reasonably request to
perfect the Collateral Agent’s Security Interest in all Accounts, Inventory, Deposit Accounts,
Investment Property, and the Proceeds therefrom (including causing the Collateral Agent to have
Control of any such Collateral to the extent required under the Credit Agreement and to the extent
perfection in such Collateral can be accomplished by Control).
SECTION 4.04 Inspection and Verification. Each Grantor shall, and shall cause each of
its Subsidiaries to, permit representatives and independent contractors of the Collateral Agent to
visit its properties and inspect the Collateral and all records related thereto (and to make
extracts and copies from such records), to discuss its affairs, finances and accounts with its
directors, officers and Registered Public Accounting Firm, and to conduct appraisals, commercial
finance examinations and other evaluations, all in accordance with, and subject to the terms and
conditions of, Section 6.10 of the Credit Agreement. The Collateral Agent and such Persons as the
Collateral Agent may reasonably designate shall have the right to verify the validity, amount,
quality, quantity, value, condition and status of, or any other matter relating to, the Collateral,
including, in the case of Accounts or Collateral in the possession of any third Person, by contacting Account Debtors or the third Person possessing such Collateral for the
purpose of making such a verification. The Collateral Agent shall have the right, subject to the
confidentiality provisions of Section 10.07 of the Credit Agreement, to share any information it
gains from such inspection or verification with any Credit Party. The Grantors shall pay the fees
and expenses of the Collateral Agent or such other Persons with respect to such inspections and
verifications to the extent required by the terms of Section 6.10 of the Credit Agreement.
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SECTION 4.05 Taxes; Encumbrances. At its option, the Collateral Agent may discharge
past due taxes, assessments, charges, fees, Liens, security interests or other encumbrances at any
time levied or placed on the Collateral (other than Permitted Encumbrances), and may take any other
action which the Collateral Agent may reasonably deem necessary or desirable to repair, maintain or
preserve any of the Collateral to the extent any Grantor fails to do so as required by the Credit
Agreement or this Agreement, and each Grantor jointly and severally agrees to reimburse the
Collateral Agent on demand for any payment made or any expense incurred by the Collateral Agent
pursuant to the foregoing authorization; provided, however, that the Collateral
Agent shall not have any obligation to undertake any of the foregoing and shall have no liability
on account of any action so undertaken except where a court of competent jurisdiction determines by
final and nonappealable judgment that the Collateral Agent’s actions constitute gross negligence or
willful misconduct; provided further that the making of any such payments or the
taking of any such action by the Collateral Agent shall not be deemed to constitute a waiver of any
Default or Event of Default arising from any Grantor’s failure to have made such payments or taken
such action. Nothing in this Section 4.05 shall be interpreted as excusing any Grantor from the
performance of any covenants or other promises of any Grantor with respect to taxes, assessments,
charges, fees, Liens, security interests or other encumbrances and maintenance as set forth herein
or in the other Loan Documents.
SECTION 4.06 Assignment of Security Interest. If at any time any Grantor shall take a
security interest in any property of an Account Debtor or any other Person to secure payment and
performance of an Account, such Grantor shall promptly assign such security interest to the
Collateral Agent. Such assignment need not be filed of public record unless necessary to continue
the perfected status of the security interest against creditors of, and transferees from, the
Account Debtor or other Person granting the security interest.
SECTION 4.07 Continuing Obligations of the Grantors. Each Grantor shall remain liable
to observe and perform all the conditions and obligations to be observed and performed by it under
each contract, agreement or instrument relating to the Collateral, all in accordance with the terms
and conditions thereof, and each Grantor jointly and severally agrees to indemnify and hold
harmless the Collateral Agent and the other Credit Parties from and against any and all liability
for such performance.
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SECTION 4.08 Use and Disposition of Collateral. None of the Grantors shall make or
permit to be made a collateral assignment, pledge or hypothecation of the Collateral or shall grant
any other Lien in respect of the Collateral or shall grant Control of any Collateral to any Person, in each case except for Permitted Encumbrances. Except for Permitted
Dispositions, none of the Grantors shall make or permit to be made any transfer of the Collateral.
Each Grantor shall remain at all times in possession of the Collateral owned by it, except with
respect to the following: (a) Inventory placed under the care, custody, storage or entrustment of a
bailee or other third party, provided that, such bailee or other third party shall
have delivered to the Collateral Agent a Collateral Access Agreement on terms reasonably
satisfactory to the Collateral Agent; (b) sales of Inventory in the ordinary course of business;
(c) movement of Inventory from one location of such Grantor to another location of such Grantor and
Inventory in transit to a location of such Grantor; (d) disposal of Equipment which is obsolete,
worn out, or damaged beyond repair, or no longer used or useful; (e) Equipment which is out for
repair; and (f) other Permitted Dispositions.
SECTION 4.09 Limitation on Modification of Accounts. None of the Grantors will,
without the Collateral Agent’s prior written consent, grant any extension of the time of payment of
any of the Accounts, compromise, compound or settle the same for less than the full amount thereof,
release, wholly or partly, any Person liable for the payment thereof or allow any credit or
discount whatsoever thereon, except, in each case, for extensions, releases, credits, discounts,
compromises or settlements granted or made in the ordinary course of business or consistent with
its current practices.
SECTION 4.10 Insurance.
(a) Each Grantor shall (i) maintain or shall cause to be maintained such insurance as
is required pursuant to Section 6.07 of the Credit Agreement; (ii) maintain such other
insurance as may be required by applicable Law; and (ii) furnish to the Collateral Agent,
upon written request, full information as to the insurance carried.
(b) Each Grantor hereby irrevocably makes, constitutes and appoints the Collateral
Agent (and all officers, employees or agents designated by the Collateral Agent) as such
Grantor’s true and lawful agent (and attorney-in-fact), for the purpose of making, settling
and adjusting claims in respect of Collateral under policies of insurance, endorsing the
name of such Grantor on any check, draft, instrument or other item of payment for the
proceeds of such policies of insurance and for making all determinations and decisions with
respect thereto, in each case during the existence of a Cash Dominion Event. In the event
that any Grantor at any time or times shall fail to obtain or maintain any of the policies
of insurance required hereby or to pay any premium in whole or in part relating thereto, the
Collateral Agent may, without waiving or releasing any obligation or liability of the
Grantors hereunder or any Default or Event of Default, in its sole discretion, obtain and
maintain such policies of insurance and pay such premium and take any other actions with
respect thereto as the Collateral Agent deems advisable. All sums disbursed by the
Collateral Agent in connection with this Section 4.10, including reasonable attorneys’ fees,
court costs, expenses and other charges relating thereto, shall be payable, upon demand, by
the Grantors to the Collateral Agent and shall be additional Secured Obligations secured
hereby.
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SECTION 4.11 Commercial Tort Claims. If any Grantor shall at any time hold or acquire
a Commercial Tort Claim, such Grantor shall promptly notify the Collateral Agent in writing of the
details thereof, and such Grantor shall take such actions as the Collateral Agent shall reasonably
request in order to grant to the Collateral Agent, for the ratable benefit of the Credit Parties, a
perfected security interest therein and in the Proceeds thereof.
SECTION 4.12 Legend. Upon the occurrence and during the continuance of an Event of
Default, and at the request of the Collateral Agent, each Grantor shall legend, in form and manner
reasonably satisfactory to the Collateral Agent, its Accounts and its books, records and documents
evidencing or pertaining thereto with an appropriate reference to the fact that such Accounts have
been assigned to the Collateral Agent, for its own benefit and the benefit of the other Credit
Parties, and that the Collateral Agent has a security interest therein.
SECTION 4.13 Other Actions. In order to further ensure the attachment, perfection and
priority of, and the ability of the Collateral Agent to enforce, the Collateral Agent’s Security
Interest in the Collateral, each Grantor covenants and agrees, in each case at such Grantor’s own
expense, to take the following actions with respect to the following Collateral:
(a) If any amount then payable under or in connection with any of the Collateral shall
become evidenced by any Instrument or Chattel Paper (other than checks received in the
ordinary course of business, which shall be dealt with in accordance with the terms of the
Credit Agreement, including Section 6.13 thereof), other than such Instruments and Chattel
Paper listed in Schedule 3.08 hereto, the Grantor acquiring such Instrument or
Chattel Paper shall promptly endorse, assign and deliver the same to the Collateral Agent,
accompanied by such instruments of transfer or assignment duly executed in blank as the
Collateral Agent may from time to time specify.
(b) No Grantor shall hereafter establish and maintain any Securities Account or
Commodity Account with any Securities Intermediary or Commodity Intermediary unless (i) such
Securities Intermediary or Commodity Intermediary shall be reasonably acceptable to the
Collateral Agent, and (ii) such Securities Intermediary or Commodity Intermediary, as the
case may be, and such Grantor shall have duly executed and delivered a control agreement
with respect to such Securities Account or Commodity Account, as the case may be. Each
Grantor shall accept any cash and Investment Property in trust for the benefit of the
Collateral Agent and within one (1) Business Day of actual receipt thereof, deposit any and
all cash and Investment Property received by it into a Deposit Account or Securities Account
subject to the Collateral Agent’s Control. The provisions of this Section 4.13(b) shall not
apply to any Financial Assets credited to a Securities Account for which the Collateral
Agent is the Securities Intermediary. No Grantor shall grant Control over any Investment
Property to any Person other than the Collateral Agent.
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(c) As between the Collateral Agent and the Grantors, the Grantors shall bear the
investment risk with respect to the Investment Property and Pledged Securities (as
defined in the Pledge Agreement), and the risk of loss of, damage to, or the
destruction of, the Investment Property and Pledged Securities (except where a court of
competent jurisdiction determines by final and nonappealable judgment that such loss, damage
or destruction has resulted from the gross negligence or willful misconduct of the
Collateral Agent), whether in the possession of, or maintained as a Security Entitlement or
deposit by, or subject to the Control of, the Collateral Agent, a Securities Intermediary, a
Commodity Intermediary, any Grantor or any other Person.
(d) If any amount payable under or in connection with any of the Collateral shall
become evidenced by any Electronic Chattel Paper or any transferable record, other than such
Electronic Chattel Paper and transferable records listed in Schedule 3.10 hereto,
the Grantor acquiring such Electronic Chattel Paper or transferable record shall promptly
notify the Collateral Agent thereof and shall take such action as the Collateral Agent may
reasonably request to vest in the Collateral Agent Control of such Electronic Chattel Paper
under Section 9-105 of the UCC or control under Section 201 of the Federal Electronic
Signatures in Global and National Commerce Act or, as the case may be, Section 16 of the
Uniform Electronic Transactions Act, as in effect in such jurisdiction, of such transferable
record.
(e) If any Grantor is at any time a beneficiary under a Letter of Credit now or
hereafter issued, such Grantor shall promptly notify the Collateral Agent thereof and such
Grantor shall, at the request of the Collateral Agent, pursuant to an agreement in form and
substance reasonably satisfactory to the Collateral Agent, either (i) arrange for the issuer
and any confirmer of such Letter of Credit to consent to an assignment to the Collateral
Agent of the proceeds of any drawing under the Letter of Credit and to cause the proceeds of
any drawing under such Letter of Credit to be paid directly to the Collateral Agent after
the occurrence and during the continuance of any Cash Dominion Event, or (ii) arrange for
the Collateral Agent to become the transferee beneficiary of such Letter of Credit, with the
Collateral Agent agreeing, in each case, that the proceeds of any drawing under the Letter
of Credit are to be paid directly to the Collateral Agent after the occurrence and during
the continuance of any Cash Dominion Event and applied as provided in the Credit Agreement.
SECTION 4.14 Joinder of Additional Grantors. Upon the formation or acquisition of any new
direct or indirect Subsidiary (other than any CFC or a Subsidiary that is held directly or
indirectly by a CFC) by any Grantor, then such Grantor shall, at such Grantor’s expense, cause such
Subsidiary to execute and deliver to the Collateral Agent a Joinder Agreement substantially in the
form of Exhibit A hereto and to comply with the requirements of Section 6.12 of the Credit
Agreement, within the time periods specified therein, and, upon such execution and delivery, such
Subsidiary shall constitute a “Grantor” for all purposes hereunder with the same force and effect
as if originally named as a Grantor herein. The execution and delivery of such Joinder Agreement
shall not require the consent of any Grantor hereunder. The rights and obligations of each Grantor hereunder shall remain in full force
and effect notwithstanding the addition of any new Grantor as a party to this Agreement.
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ARTICLE 5
Collections; Power of Attorney
SECTION 5.01 Collections.
(a) Each Grantor shall at all times comply with the cash management provisions of
Section 6.13 of the Credit Agreement, including, without limitation, after the occurrence
and during the continuance of a Cash Dominion Event, causing the ACH or wire transfer no
less frequently than daily (and whether or not there are then any outstanding Secured
Obligations) of all cash receipts and collections into the Concentration Account or a
Blocked Account, as provided for in the Credit Agreement.
(b) Without the prior written consent of the Collateral Agent, no Grantor shall modify
or amend the instructions pursuant to any of the Credit Card Notifications or the Blocked
Account Agreements. So long as no Event of Default has occurred and is continuing, each
Grantor shall, and the Collateral Agent hereby authorizes each Grantor to, enforce and
collect all amounts owing on the Inventory and Accounts; provided, however,
that such authorization may, at the direction of the Collateral Agent, be terminated upon
the occurrence and during the continuance of any Event of Default.
SECTION 5.02 Power of Attorney. Each Grantor irrevocably makes, constitutes and
appoints the Collateral Agent (and all officers, employees or agents designated by the Collateral
Agent) as such Grantor’s true and lawful agent and attorney-in-fact, and in such capacity the
Collateral Agent shall have the right, with power of substitution for each Grantor and in each
Grantor’s name or otherwise, for the use and benefit of the Collateral Agent and the other Credit
Parties, (a) at any time, whether or not a Default or Event of Default has occurred, to take
actions required to be taken by the Grantors under Section 2.01 of this Agreement, (b) upon the
occurrence and during the continuance of a Cash Dominion Event or as otherwise permitted under the
Credit Agreement, (i) to take actions required to be taken by the Grantors under Section 5.01(a) of
this Agreement; and (ii) to receive, endorse, assign and/or deliver any and all notes, acceptances,
checks, drafts, money orders or other evidences of payment relating to the Collateral or any part
thereof, and (c) upon the occurrence and during the continuance of an Event of Default or as
otherwise permitted under the Credit Agreement, (i) to demand, collect, receive payment of, give
receipt for and give discharges and releases of all or any of the Collateral; (ii) to sign the name
of any Grantor on any invoices, schedules of Collateral, freight or express receipts, or bills of
lading storage receipts, warehouse receipts or other documents of title relating to any of the
Collateral; (iii) to sign the name of any Grantor on any notice to such Grantor’s Account Debtors;
(iv) to sign the name of any Grantor on any proof of claim in bankruptcy against Account Debtors,
and on notices of lien, claims of mechanic’s liens, or assignments or releases of mechanic’s liens
securing the Accounts; (v) to sign change of address forms to change the address to
which each Grantor’s mail is to be sent to such address as the Collateral Agent shall designate; (vi) to receive and open each Grantor’s mail, remove any
Proceeds of Collateral therefrom and turn over the balance of such mail either to the Lead Borrower
or to any trustee in bankruptcy or receiver of a Grantor, or other legal representative of a
Grantor whom the Collateral
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Agent reasonably determines to be the appropriate person to whom to so
turn over such mail; (vii) to commence and prosecute any and all suits, actions or proceedings at
law or in equity in any court of competent jurisdiction to collect or otherwise realize on all or
any of the Collateral or to enforce any rights in respect of any Collateral; (viii) to settle,
compromise, compound, adjust or defend any actions, suits or proceedings relating to all or any of
the Collateral; (ix) to take all such action as may be reasonably necessary to obtain the payment
of any letter of credit and/or banker’s acceptance of which any Grantor is a beneficiary; (x) to
repair, manufacture, assemble, complete, package, deliver, alter or supply goods, if any, necessary
to fulfill in whole or in part the purchase order of any customer of any Grantor; (xi) to use,
license or transfer any or all General Intangibles of any Grantor, subject to those restrictions to
which such Grantor is subject under applicable Law and by contract; (xii) to cause all Documents
(including, without limitation, freight or express receipts, or bills of lading storage receipts,
warehouse receipts or other documents of title) to name the Collateral Agent as consignee and to
obtain control over the Documents; and (xiii) to use, sell, assign, transfer, pledge, make any
agreement with respect to or otherwise deal with all or any of the Collateral, and to do all other
acts and things reasonably necessary to carry out the purposes of this Agreement, as fully and
completely as though the Collateral Agent was the absolute owner of the Collateral for all
purposes; provided, however, that nothing herein contained shall be construed as
requiring or obligating the Collateral Agent or any other Credit Party to make any commitment or to
make any inquiry as to the nature or sufficiency of any payment received by the Collateral Agent or
any other Credit Party, or to present or file any claim or notice. It is understood and agreed
that the appointment of the Collateral Agent as the agent and attorney-in-fact of each Grantor for
the purposes set forth above is coupled with an interest and is irrevocable.
SECTION 5.03 No Obligation to Act. The Collateral Agent shall not be obligated to do
any of the acts or to exercise any of the powers authorized by Section 5.02, but if the Collateral
Agent elects to do any such act or to exercise any of such powers, it shall not be accountable for
more than it actually receives as a result of such exercise of power, and shall not be responsible
to any Grantor for any act or omission to act, except where a court of competent jurisdiction
determines by final and nonappealable judgment that the subject act or omission to act has resulted
from the gross negligence or willful misconduct of the Collateral Agent. The provisions of Section
5.02 shall in no event relieve any Grantor of any of its obligations hereunder or under any other
Loan Document with respect to the Collateral or any part thereof or impose any obligation on the
Collateral Agent or any other Credit Party to proceed in any particular manner with respect to the
Collateral or any part thereof, or in any way limit the exercise by the Collateral Agent or any
other Credit Party of any other or further right which it may have on the date of this Agreement or
hereafter, whether hereunder, under any other Loan Document, by applicable Law or otherwise.
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ARTICLE 6
Remedies
SECTION 6.01 Remedies upon Default. Upon the occurrence and during the continuance of
an Event of Default, it is agreed that the Collateral Agent shall have in any jurisdiction in which
enforcement hereof is sought, in addition to all other rights and remedies, the rights and remedies
of a secured party under the UCC or other applicable Law. The rights and remedies of the
Collateral Agent shall include, without limitation, the right to take any or all of the following
actions at the same or different times:
(a) With respect to any Collateral consisting of Accounts, General Intangibles
(including Payment Intangibles), Letter-of-Credit Rights, Instruments, Chattel Paper,
Documents, and Investment Property, the Collateral Agent may collect the Collateral with or
without the taking of possession of any of the Collateral.
(b) With respect to any Collateral consisting of Accounts, the Collateral Agent may:
(i) demand, collect and receive any amounts relating thereto, as the Collateral Agent may
determine; (ii) commence and prosecute any actions in any court for the purposes of
collecting any such Accounts and enforcing any other rights in respect thereof; (iii)
defend, settle or compromise any action brought and, in connection therewith, give such
discharges or releases as the Collateral Agent may reasonably deem appropriate; (iv) without
limiting the Collateral Agent’s rights set forth in Section 5.02 hereof, receive, open and
dispose of mail addressed to any Grantor and endorse checks, notes, drafts, acceptances,
money orders, bills of lading, warehouse receipts or other instruments or documents
evidencing payment, shipment or storage of the goods giving rise to such Accounts or
securing or relating to such Accounts, on behalf of and in the name of such Grantor; and (v)
sell, assign, transfer, make any agreement in respect of, or otherwise deal with or exercise
rights in respect of, any such Accounts or the goods or services which have given rise
thereto, as fully and completely as though the Collateral Agent was the absolute owner
thereof for all purposes.
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(c) With respect to any Collateral consisting of Investment Property, the Collateral
Agent may: (i) exercise all rights of any Grantor with respect thereto, including without
limitation, the right to exercise all voting and corporate rights at any meeting of the
shareholders of the Issuer of any Investment Property and to exercise any and all rights of
conversion, exchange, subscription or any other rights, privileges or options pertaining to
any Investment Property as if the Collateral Agent was the absolute owner thereof, including
the right to exchange, at its discretion, any and all of any Investment Property upon the
merger, consolidation, reorganization, recapitalization or other readjustment of the Issuer
thereof, all without liability except to account for property actually received as provided
in Section 5.03 hereof; (ii) transfer such Collateral at any time to itself, or to its
nominee, and receive the income thereon and hold the same as Collateral hereunder or apply
it to the Secured Obligations; and (iii) demand, xxx for, collect or make any compromise or
settlement it deems
desirable. The Grantors recognize that (a) the Collateral Agent may be unable to effect a public sale of all or
a part of the Investment Property by reason of certain prohibitions contained in the
Securities Act of 1933, 15 X.X.X. §00 (as amended and in effect, the “Securities
Act”) or the Securities laws of various states (the “Blue Sky Laws”), but may be
compelled to resort to one or more private sales to a restricted group of purchasers who
will be obliged to agree, among other things, to acquire the Investment Property for their
own account, for investment and not with a view to the distribution or resale thereof, (b)
that private sales so made may be at prices and upon other terms less favorable to the
seller than if the Investment Property were sold at public sales, (c) that neither the
Collateral Agent nor any other Credit Party has any obligation to delay sale of any of the
Investment Property for the period of time necessary to permit the Investment Property to be
registered for public sale under the Securities Act or the Blue Sky Laws, and (d) that
private sales made under the foregoing circumstances shall be deemed to have been made in a
commercially reasonable manner. Notwithstanding anything herein to the contrary, no Grantor
shall be required to register, or cause the registration of, any Investment Property under
the Securities Act or any Blue Sky Laws.
(d) With respect to any Collateral consisting of Inventory, Goods, and Equipment, the
Collateral Agent may conduct one or more going out of business sales, in the Collateral
Agent’s own right or by one or more agents and contractors. Such sale(s) may be conducted
upon any premises owned, leased, or occupied by any Grantor. The Collateral Agent and any
such agent or contractor, in conjunction with any such sale, may augment the Inventory with
other goods (all of which other goods shall remain the sole property of the Collateral Agent
or such agent or contractor). Any amounts realized from the sale of such goods which
constitute augmentations to the Inventory (net of an allocable share of the costs and
expenses incurred in their disposition) shall be the sole property of the Collateral Agent
or such agent or contractor and neither any Grantor nor any Person claiming under or in
right of any Grantor shall have any interest therein. Each purchaser at any such going out
of business sale shall hold the property sold absolutely, free from any claim or right on
the part of any Grantor.
(e) With or without legal process and with or without prior notice or demand for
performance, the Collateral Agent may enter upon, occupy, and use any premises owned or
occupied by each Grantor, and may exclude the Grantors from such premises or portion thereof
as may have been so entered upon, occupied, or used by the Collateral Agent. The Collateral
Agent shall not be required to remove any of the Collateral from any such premises upon the
Collateral Agent’s taking possession thereof, and may render any Collateral unusable to the
Grantors. In no event shall the Collateral Agent be liable to any Grantor for use or
occupancy by the Collateral Agent of any premises pursuant to this Section 6.01, nor for any
charge (such as wages for the Grantors’ employees and utilities) incurred in connection with
the Collateral Agent’s exercise of the Collateral Agent’s Rights and Remedies (as defined
herein) hereunder, other than for direct or actual damages resulting from the gross
negligence or willful misconduct of the
Collateral Agent as determined by a final and nonappealable judgment of a court of
competent jurisdiction.
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(f) The Collateral Agent may require any Grantor to assemble the Collateral and make it
available to the Collateral Agent at such Grantor’s sole risk and expense at a place or
places which are reasonably convenient to both the Collateral Agent and such Grantor.
(g) The Collateral Agent may require any Grantor to name the Collateral Agent as
consignee on any Documents and to furnish the Collateral Agent with control over any such
Documents.
(h) Each Grantor agrees that the Collateral Agent shall have the right, subject to
applicable Law, to sell or otherwise dispose of all or any part of the Collateral, at public
or private sale, for cash, upon credit or for future delivery as the Collateral Agent shall
deem appropriate. Each purchaser at any such sale shall hold the property sold absolutely,
free from any claim or right on the part of any Grantor.
(i) Unless the Collateral is perishable or threatens to decline speedily in value, or
is of a type customarily sold on a recognized market (in which event the Collateral Agent
shall provide the Grantors such advance notice as may be practicable under the
circumstances), the Collateral Agent shall give the Grantors at least ten (10) days’ prior
written notice, by authenticated record, of the date, time and place of any proposed public
sale, and of the date after which any private sale or other disposition of the Collateral
may be made. Each Grantor agrees that such written notice shall satisfy all requirements
for notice to such Grantor which are imposed under the UCC or other applicable Law with
respect to the exercise of the Collateral Agent’s Rights and Remedies upon default. The
Collateral Agent shall not be obligated to make any sale or other disposition of any
Collateral if it shall determine not to do so, regardless of the fact that notice of sale or
other disposition of such Collateral shall have been given. The Collateral Agent may,
without notice or publication, adjourn any public or private sale or cause the same to be
adjourned from time to time by announcement at the time and place fixed for sale, and such
sale may, without further notice, be made at the time and place to which the same was so
adjourned.
(j) Any public sale shall be held at such time or times within ordinary business hours
and at such place or places as the Collateral Agent may fix and state in the notice of such
sale. At any sale or other disposition, the Collateral, or portion thereof, to be sold may
be sold in one lot as an entirety or in separate parcels, as the Collateral Agent may (in
its sole and absolute discretion) determine. If any of the Collateral is sold, leased, or
otherwise disposed of by the Collateral Agent on credit, the Secured Obligations shall not
be deemed to have been reduced as a result thereof unless and until payment in full is
received thereon by the Collateral Agent. In the event that the purchaser fails to pay for
the Collateral, the Collateral Agent may resell the Collateral
and apply the proceeds from such resale in accordance with the terms of Section 6.02 of
this Agreement.
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(k) At any public (or, to the extent permitted by applicable Law, private) sale made
pursuant to this Section 6.01, the Collateral Agent or any other Credit Party may bid for or
purchase, free (to the extent permitted by applicable Law) from any right of redemption,
stay, valuation or appraisal on the part of any Grantor, the Collateral or any part thereof
offered for sale and may make payment on account thereof by using any claim then due and
payable to the Collateral Agent or such other Credit Party from any Grantor on account of
the Secured Obligations as a credit against the purchase price, and the Collateral Agent or
such other Credit Party may, upon compliance with the terms of sale, hold, retain and
dispose of such property without further accountability to any Grantor therefor.
(l) For purposes hereof, a written agreement to purchase the Collateral or any portion
thereof shall be treated as a sale thereof. The Collateral Agent shall be free to carry out
such sale pursuant to such agreement and no Grantor shall be entitled to the return of the
Collateral or any portion thereof subject thereto, notwithstanding the fact that after the
Collateral Agent shall have entered into such an agreement all Events of Default shall have
been remedied and the Secured Obligations indefeasibly paid in full.
(m) As an alternative to exercising the power of sale herein conferred upon it, the
Collateral Agent may proceed by a suit or suits at law or in equity to foreclose upon the
Collateral and to sell the Collateral or any portion thereof pursuant to a judgment or
decree of a court or courts having competent jurisdiction or pursuant to a proceeding by a
court-appointed receiver.
(n) To the extent permitted by applicable Law, each Grantor hereby waives all rights of
redemption, stay, valuation and appraisal which such Grantor now has or may at any time in
the future have under any rule of law or statute now existing or hereafter enacted.
SECTION 6.02 Application of Proceeds. After the occurrence and during the continuance
of an Event of Default and acceleration of the Secured Obligations, the Collateral Agent shall
apply the proceeds of any collection or sale of the Collateral, as well as any Collateral
consisting of cash, or any Collateral granted under any other of the Collateral Documents, in
accordance with Section 8.03 of the Credit Agreement.
The Collateral Agent shall have absolute discretion as to the time of application of any such
proceeds, moneys or balances in accordance with this Agreement. Upon any sale or other disposition
of the Collateral by the Collateral Agent (including pursuant to a power of sale granted by statute
or under a judicial proceeding), the receipt of the purchase money by the Collateral Agent or by
the officer making the sale or other disposition shall be a sufficient discharge to the purchaser
or purchasers of the Collateral so sold or otherwise disposed of and such purchaser or purchasers
shall not be obligated to see to the application of any part of the purchase money paid over to the Collateral Agent or such officer or be answerable in any way
for the misapplication thereof.
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ARTICLE 7
Perfection of Security Interest
SECTION 7.01 Perfection by Filing. This Agreement constitutes an authenticated
record, and each Grantor hereby authorizes the Collateral Agent, pursuant to the provisions of
Section 2.01 and Section 5.02, to file one or more Financing Statements or continuation statements,
and amendments thereto, relative to all or any part of the Collateral, in such filing offices as
the Collateral Agent shall reasonably deem appropriate, and the Grantors shall pay the Collateral
Agent’s reasonable costs and expenses incurred in connection therewith.
SECTION 7.02 Other Perfection, Etc. Each Grantor shall at any time and from time to
time take such steps as the Collateral Agent may reasonably request for the Collateral Agent (a) to
obtain an acknowledgment, in form and substance reasonably satisfactory to the Collateral Agent, of
any bailee having possession of any of the Collateral that the bailee holds such Collateral for the
Collateral Agent, (b) to obtain Control of any Investment Property, Deposit Accounts (subject, in
the case of Deposit Accounts, to Section 6.13 of the Credit Agreement), Letter-of-Credit Rights or
Electronic Chattel Paper, with any agreements establishing Control to be in form and substance
reasonably satisfactory to the Collateral Agent, and (c) otherwise to insure the continued
perfection of the Collateral Agent’s security interest in any of the Collateral with the priority
described in Section 3.03 and of the preservation of its rights therein.
SECTION 7.03 Savings Clause. Nothing contained in this Article 7 shall be construed
to narrow the scope of the Collateral Agent’s Security Interest in any of the Collateral or the
perfection or priority thereof or to impair or otherwise limit any of the Collateral Agent’s Rights
and Remedies hereunder except (and then only to the extent) as mandated by the UCC.
ARTICLE 8
Miscellaneous
SECTION
8.01 Notices. All communications and notices hereunder shall (except as
otherwise expressly permitted herein) be in writing and given as provided in Section 10.02 of the
Credit Agreement.
SECTION 8.02 Grant of Non-Exclusive License. Without limiting the provisions of
Section 6.01 hereof or any other rights of the Collateral Agent as the holder of a Lien on any IP
Collateral (as defined in the Intellectual Property Security Agreement), each Grantor hereby grants
to the Collateral Agent, and the representatives and independent contractors of the Collateral
Agent, a royalty free, non-exclusive, irrevocable license, to use, apply, and affix any
trademark, trade name, logo, or the like in which any Grantor now or hereafter has rights,
subject to such restrictions to which such Grantor is subject under applicable Law or contract,
such license to be effective upon the Collateral Agent’s exercise of the Collateral Agent’s Rights
and Remedies hereunder including, without limitation, in connection with any completion of the
manufacture of Inventory or any sale or other disposition of Inventory. The license granted in
this Section 8.02 shall remain in full force and effect throughout the term of this Agreement,
notwithstanding the release of any Grantor hereunder.
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SECTION 8.03 Security Interest Absolute. All rights of the Collateral Agent
hereunder, the Security Interest and all obligations of each Grantor hereunder shall be absolute
and unconditional irrespective of (a) any lack of validity or enforceability of the Credit
Agreement, any other Loan Document, any agreement with respect to any of the Secured Obligations or
any other agreement or instrument relating to any of the foregoing, (b) any change in the time,
manner or place of payment of, or in any other term of, all or any of the Secured Obligations, or
any other amendment or waiver of or any consent to any departure from the Credit Agreement, any
other Loan Document, or any other agreement or instrument, (c) any exchange, release or
non-perfection of any Lien on other collateral, or any release or amendment or waiver of or consent
under or departure from the Guaranty or any other guarantee, securing or guaranteeing all or any of
the Secured Obligations, or (d) any other circumstance that might otherwise constitute a defense
available to, or a discharge of, any Grantor in respect of the Secured Obligations or this
Agreement.
SECTION 8.04 Survival of Agreement. All covenants, agreements, representations and
warranties made by each Grantor herein and in any other Loan Document and in the certificates or
other instruments prepared or delivered in connection with or pursuant to this Agreement or any
other Loan Document shall be considered to have been relied upon by the Collateral Agent and the
other Credit Parties and shall survive the execution and delivery of this Agreement and the other
Loan Documents and the making of any Loans and the issuance of any Letters of Credit, regardless of
any investigation made by any such other party or on its behalf and notwithstanding that the
Collateral Agent, the L/C Issuer or any Lender may have had notice or knowledge of any Default or
incorrect representation or warranty at the time any credit is extended under the Credit Agreement,
and shall continue in full force and effect unless terminated in accordance with Section 8.14
hereof.
SECTION 8.05 Binding Effect; Several Agreement; Assignments. Whenever in this
Agreement any of the parties hereto is referred to, such reference shall be deemed to include the
successors and permitted assigns of such party, and all covenants, promises and agreements by or on
behalf of each Grantor that are contained in this Agreement shall bind and inure to the benefit of
each Grantor and its respective successors and permitted assigns. This Agreement shall be binding
upon each Grantor and the Collateral Agent and their respective successors and permitted assigns,
and shall inure to the benefit of each Grantor, the Collateral Agent and the other Credit Parties
and their respective successors and permitted assigns, except that no Grantor shall have the right
to assign or transfer its rights or obligations hereunder or any interest herein or in the
Collateral (and any such attempted assignment or transfer shall be void) except as
expressly permitted by this Agreement or the Credit Agreement. This Agreement shall be
construed as a separate agreement with respect to each Grantor and may be amended, modified,
supplemented, waived or released with respect to any Grantor without the approval of any other
Grantor and without affecting the obligations of any other Grantor hereunder.
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SECTION 8.06 Collateral Agent’s Fees and Expenses; Indemnification.
(a) Without limiting or duplicating any of their obligations under the Credit
Agreement, the Guaranty or the other Loan Documents, the Grantors jointly and severally
agree to pay all reasonable out-of-pocket expenses incurred by the Collateral Agent,
including the reasonable fees, charges and disbursements of any counsel and any outside
consultants for the Collateral Agent, in connection with (i) the administration of this
Agreement, (ii) the custody or preservation of, or the sale of, collection from or other
realization upon any of the Collateral, (iii) the exercise, enforcement or protection of any
of the Collateral Agent’s Rights and Remedies hereunder or (iv) the failure of any Grantor
to perform or observe any of the provisions hereof.
(b) Without limiting or duplicating any of their indemnification obligations under the
Credit Agreement, the Guaranty or the other Loan Documents, the Grantors shall jointly and
severally indemnify the Collateral Agent (or any sub-agent thereof), each other Credit Party
and each Related Party of any of the foregoing Persons (each such Person being called an
“Indemnitee”) against, and hold each Indemnitee harmless from, any and all losses,
claims, damages, liabilities, settlement payments, costs and related expenses (including the
fees, charges and disbursements of any counsel for any Indemnitee) incurred by any
Indemnitee or asserted against any Indemnitee by any third party or by any Grantor arising
out of, in connection with, or as a result of, (i) the execution or delivery of this
Agreement, the Credit Agreement, the Guaranty, any other Loan Document or any other
agreement or instrument contemplated hereby or thereby, the performance by the parties
hereto of their respective obligations hereunder or thereunder, or the consummation of the
transactions contemplated hereby or thereby, or, in the case of the Collateral Agent (and
any sub-agent thereof) and its Related Parties only, the administration of this Agreement,
the Credit Agreement and the other Loan Documents, or (ii) any actual or prospective claim,
litigation, investigation or proceeding relating to any of the foregoing, whether based on
contract, tort or any other theory, whether brought by a third party or by any Grantor, or
any of the Grantors’ directors, shareholders or creditors, and regardless of whether any
Indemnitee is a party thereto, in all cases, whether or not caused by or arising, in whole
or in part, out of the comparative, contributory or sole negligence of the Indemnitee;
provided that such indemnity shall not, as to any Indemnitee, be available
to the extent that such losses, claims, damages, liabilities or related expenses (x) are
determined by a court of competent jurisdiction by final and nonappealable judgment to have
resulted from the gross negligence or willful misconduct of such Indemnitee or (y) result
from a claim brought by any Grantor against an Indemnitee for breach in bad faith of such
Indemnitee’s obligations hereunder or under any other Loan Document, if such Grantor has
obtained a final and nonappealable
judgment in its favor on such claim as determined by a court of competent jurisdiction.
In connection with any indemnified claim hereunder, the Indemnitee shall be entitled to
select its own counsel and the Grantors shall promptly pay the reasonable fees and expenses
of such counsel.
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(c) To the fullest extent permitted by applicable Law, no Grantor shall assert, and
each Grantor hereby waives, any claim against any Indemnitee, on any theory of liability,
for special, indirect, consequential or punitive damages (as opposed to direct or actual
damages) arising out of, in connection with, or as a result of, this Agreement, the Credit
Agreement, any other Loan Document or any agreement or instrument contemplated hereby, or
the transactions contemplated hereby or thereby. No Indemnitee shall be liable for any
damages arising from the use by unintended recipients of any information or other materials
distributed to such unintended recipients by such Indemnitee through telecommunications,
electronic or other information transmission systems in connection with this Agreement, the
Credit Agreement or the other Loan Documents or the transactions contemplated hereby or
thereby other than for direct or actual damages resulting from the gross negligence or
willful misconduct of such Indemnitee as determined by a final and nonappealable judgment of
a court of competent jurisdiction.
(d) Any such amounts payable as provided hereunder shall be additional Secured
Obligations secured hereby and by the other Security Documents. All amounts due under this
Section 8.06 shall be payable not later than ten (10) Business Days after demand therefor.
(e) The agreements in this Section 8.06 shall survive the resignation of the Collateral
Agent, the termination of the Aggregate Commitments and the repayment, satisfaction or
discharge of all the other Secured Obligations.
SECTION 8.07 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
SECTION 8.08 Waivers; Amendment.
(a) The rights, remedies, powers, privileges, and discretions of the Collateral Agent
hereunder (herein, the “Collateral Agent’s Rights and Remedies”) shall be cumulative
and not exclusive of any rights or remedies which it would otherwise have. No delay or
omission by the Collateral Agent in exercising or enforcing any of the Collateral Agent’s
Rights and Remedies shall operate as, or constitute, a waiver thereof. No waiver by the
Collateral Agent of any Event of Default or of any default under any other agreement shall
operate as a waiver of any other Event of Default or of any other default hereunder or under
any other agreement. No single or partial exercise of any of the Collateral Agent’s Rights
or Remedies, and no express or implied agreement or transaction of whatever nature entered
into between the Collateral Agent and any
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Person,
at any time, shall preclude the other or further exercise of the Collateral Agent’s
Rights and Remedies. No waiver by the Collateral Agent of any of the Collateral Agent’s
Rights and Remedies on any one occasion shall be deemed a waiver on any subsequent occasion,
nor shall it be deemed a continuing waiver. The Collateral Agent’s Rights and Remedies may
be exercised at such time or times and in such order of preference as the Collateral Agent
may determine. The Collateral Agent’s Rights and Remedies may be exercised without resort or
regard to any other source of satisfaction of the Secured Obligations. No waiver of any
provisions of this Agreement or any other Loan Document or consent to any departure by any
Grantor therefrom shall in any event be effective unless the same shall be permitted by
paragraph 0 below, and then such waiver or consent shall be effective only in the specific
instance and for the purpose for which given. No notice to or demand on any Grantor in any
case shall entitle such Grantor or any other Grantor to any other or further notice or
demand in similar or other circumstances.
(b) Neither this Agreement nor any provision hereof may be waived, amended or modified
except pursuant to a written agreement entered into between the Collateral Agent and the
Grantor or Grantors with respect to whom such waiver, amendment or modification is to apply,
subject to any consent required in accordance with Section 10.01 of the Credit Agreement.
SECTION 8.09 WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES, TO
THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY
LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER
LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY (WHETHER BASED ON CONTRACT, TORT
OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF
ANY OTHER PERSON HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PERSON WOULD NOT, IN THE
EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, AND (B) ACKNOWLEDGES THAT IT AND THE
OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS
BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS
SECTION 8.09.
SECTION 8.10 Severability. Any provision of this Agreement held to be invalid,
illegal or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the
extent of such invalidity, illegality or unenforceability without affecting the validity, legality
and enforceability of the remaining provisions hereof; and the invalidity of a particular provision
in a particular jurisdiction shall not invalidate such provision in any other jurisdiction.
SECTION 8.11 Counterparts. This Agreement may be executed in counterparts (and by
different parties hereto on different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract. Delivery of
an executed counterpart of a signature page of this Agreement by telecopy or e-mail shall be
effective as delivery of a manually executed counterpart of this Agreement.
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SECTION 8.12 Headings. Article and Section headings used herein are for convenience
of reference only, are not part of this Agreement and shall not affect the construction of, or be
taken into consideration in interpreting, this Agreement.
SECTION 8.13 Jurisdiction; Waiver of Venue; Consent to Service of Process.
(a) EACH PARTY HERETO IRREVOCABLY AND UNCONDITIONALLY SUBMITS, FOR ITSELF AND ITS
PROPERTY, TO THE NONEXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK SITTING IN
NEW YORK COUNTY AND OF THE UNITED STATES DISTRICT COURT OF THE SOUTHERN DISTRICT OF NEW
YORK, AND ANY APPELLATE COURT FROM ANY THEREOF, IN ANY ACTION OR PROCEEDING ARISING OUT OF
OR RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR FOR RECOGNITION OR ENFORCEMENT
OF ANY JUDGMENT, AND EACH OF THE PARTIES HERETO IRREVOCABLY AND UNCONDITIONALLY AGREES THAT
ALL CLAIMS IN RESPECT OF ANY SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN SUCH
NEW YORK STATE COURT OR, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, IN SUCH FEDERAL
COURT. EACH OF THE PARTIES HERETO AGREES THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR
PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE
JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW. NOTHING IN THIS AGREEMENT OR IN ANY OTHER
LOAN DOCUMENT SHALL AFFECT ANY RIGHT THAT THE COLLATERAL AGENT, ANY LENDER OR THE L/C ISSUER
MAY OTHERWISE HAVE TO BRING ANY ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER
LOAN DOCUMENT AGAINST ANY OF THE GRANTORS OR ITS PROPERTIES IN THE COURTS OF ANY
JURISDICTION.
(b) EACH PARTY HERETO IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO THE FULLEST EXTENT
PERMITTED BY APPLICABLE LAW, ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE LAYING
OF VENUE OF ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY
OTHER LOAN DOCUMENT IN ANY COURT REFERRED TO IN PARAGRAPH (A) OF THIS SECTION. EACH OF THE
PARTIES HERETO HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW,
THE DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH ACTION OR PROCEEDING IN ANY
SUCH COURT.
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(c) EACH PARTY HERETO IRREVOCABLY CONSENTS TO SERVICE OF PROCESS IN THE MANNER PROVIDED
FOR NOTICES IN 0. NOTHING IN THIS AGREEMENT WILL AFFECT THE RIGHT OF ANY PARTY
HERETO TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY APPLICABLE LAW.
SECTION 8.14 Termination; Release of Collateral.
(a) Any Lien upon any Collateral will be released automatically if the Collateral
constitutes property being sold, transferred or disposed of in a Permitted Disposition upon
receipt by the Collateral Agent of the Net Proceeds thereof to the extent required by the
Credit Agreement (and if not so required, upon receipt thereof by the applicable Grantor).
Upon at least two (2) Business Days prior written request by the Grantors, the Collateral
Agent shall execute such documents as may be necessary to evidence the release of the Liens
upon any Collateral described in this Section 8.14; provided, however, that
(i) the Collateral Agent shall not be required to execute any such document on terms which,
in its reasonable opinion, would, under applicable Law, expose the Collateral Agent to
liability or create any obligation or entail any adverse consequence other than the release
of such Liens without recourse or warranty, and (ii) such release shall not in any manner
discharge, affect or impair the Secured Obligations or any Liens (other than those
expressly being released) upon (or obligations of any Grantor in respect of) all interests
retained by any Grantor, including, without limitation, the Proceeds of any sale, all of
which shall continue to constitute part of the Collateral.
(b) Except for those provisions which expressly survive the termination thereof, this
Agreement and the Security Interest granted herein shall terminate when (i) the Aggregate
Commitments have expired or been terminated, (ii) all of the Secured Obligations (other than
contingent indemnification obligations for which no claim has been asserted and any Other
Liabilities which are not by their terms then due and payable provided that the
Agents shall have received such indemnities and collateral security as they shall have
required in accordance with the terms of Section 10.11 of the Credit Agreement) have
been indefeasibly paid in full in cash, (iii) all L/C Obligations have been reduced to zero
(or fully Cash Collateralized or supported by another letter of credit in a manner
reasonably satisfactory to the L/C Issuer and the Administrative Agent), and (iv) the
Administrative Agent has no further obligation to endeavor to cause the L/C Issuer to issue
Letters of Credit under the Credit Agreement, at which time the Collateral Agent shall
execute and deliver to the Grantors, at the Grantors’ expense, all UCC termination
statements, releases and similar documents that the Grantors shall reasonably request to
evidence such termination; provided, however, that the Credit Agreement,
this Agreement, and the Security Interest granted herein shall be reinstated if at any time
payment, or any part thereof, of any Secured Obligation is rescinded or must otherwise be
restored by any Credit Party upon the bankruptcy or reorganization of any Grantor. Any
execution and delivery of termination statements, releases or other documents pursuant to
this Section 8.14 shall be without recourse to, or warranty by, the Collateral Agent or
any other Credit Party.
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SECTION 8.15 Conflict. In the event of a conflict between this Agreement and the
Pledge Agreement, the terms of the Pledge Agreement shall control with respect to the Pledged
Collateral (as defined in the Pledge Agreement) and the terms of this Agreement shall control with
respect to all other Collateral. In the event of a conflict between this Agreement and the
Intellectual Property Security Agreement, the terms of the Intellectual Property Security Agreement
shall control with respect to the IP Collateral (as defined in the Intellectual Property Security
Agreement) and the terms of this Agreement shall control with respect to all other Collateral.
[SIGNATURE PAGES FOLLOW]
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IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the day and
year first above written.
| GRANTORS: | Borrower: X.X. XXXXX INCORPORATED |
|||
| By: | /s/ Xxxxxx X. Xxxxxxxx | |||
| Name: | Xxxxxx X. Xxxxxxxx | |||
| Title: | Vice President | |||
| Guarantors: X.X. XXXXX ARTS & CRAFTS, INC. |
||||
| By: | /s/ Xxxxxx X. Xxxxxxxx | |||
| Name: | Xxxxxx X. Xxxxxxxx | |||
| Title: | Vice President | |||
| MOORESTOWN FINANCE, INC. |
||||
| By: | /s/ Xxxxxx X. Xxxxxxxx | |||
| Name: | Xxxxxx X. Xxxxxxxx | |||
| Title: | Vice President | |||
| XXXXXXXXX ASSETS, INC. |
||||
| By: | /s/ Xxxxxx X. Xxxxxxxx | |||
| Name: | Xxxxxx X. Xxxxxxxx | |||
| Title: | Vice President | |||
Signature Page to Security Agreement
| COLLATERAL AGENT: | XXXXX FARGO RETAIL FINANCE, LLC |
|||
| By: | /s/ Xxxx Xxxxxx | |||
| Name: | Xxxx Xxxxxx | |||
| Title: | Vice President | |||
Signature Page to Security Agreement
