Exhibit 10.4

 

PLEDGE AND SECURITY AGREEMENT

 

THIS PLEDGE AND SECURITY AGREEMENT (as it may be amended or modified from time
to time, this “Security Agreement”) is entered into as of August [  ], 2012 by
and among A123 SYSTEMS, INC., a Delaware corporation (the “Borrower”), the
Subsidiaries of the Borrower listed on the signature pages hereto (together with
the Borrower, the “Initial Grantors,” and together with any additional
Subsidiaries, whether now existing or hereafter formed or acquired which become
parties to this Security Agreement from time to time, in accordance with the
terms of the Loan Agreement (as defined below), by executing a Supplement hereto
in substantially the form of Annex I, the “Grantors”), and WANXIANG AMERICA
CORPORATION, in its capacity as collateral agent (the “Agent”) for the Secured
Parties.

 

PRELIMINARY STATEMENT

 

The Borrower and the Lender are entering into a Loan Agreement dated as of
August 15, 2012 (as it may be amended, restated, supplemented or otherwise
modified from time to time, the “Loan Agreement”).  The Borrower and Wanxiang
Clean Energy USA Corp. (the “Purchaser”) are entering into a Securities Purchase
Agreement dated August 15, 2012 (as it may be amended, restated, supplemented or
otherwise modified from time to time, the “Securities Purchase Agreement”). 
Each Grantor is entering into this Security Agreement in order to (i) induce the
Lender to enter into, and extend credit to the Borrower under, the Loan
Agreement, (ii) induce the Purchaser to purchase the Senior Secured Convertible
Notes under the Securities Purchase Agreement and (iii) secure the Secured
Obligations.

 

ACCORDINGLY, the Grantors and the Agent, hereby agree as follows:

 

ARTICLE I

DEFINITIONS

 

1.1.          Terms Defined in Loan Agreement.  All capitalized terms used
herein and not otherwise defined shall have the meanings assigned to such terms
in the Loan Agreement.

 

1.2.          Terms Defined in UCC.  Terms defined in the UCC which are not
otherwise defined in this Security Agreement are used herein as defined in the
UCC.

 

1.3.          Definitions of Certain Terms Used Herein.  As used in this
Security Agreement, in addition to the terms defined in the first paragraph
hereof and in the Preliminary Statement, the following terms shall have the
following meanings:

 

“Accounts” shall have the meaning set forth in Article 9 of the UCC.

 

“Account Debtor” means any Person obligated on an Account.

 

“Article” means a numbered article of this Security Agreement, unless another
document is specifically referenced.

 

“Assigned Contracts” means, collectively, all of the Grantors’ rights and
remedies under, and all moneys and claims for money due or to become due to the
Grantor under those contracts set forth on Exhibit J hereto, and any other
material contracts, and any and all amendments, supplements, extensions, and
renewals thereof including all rights and claims of the Grantors now or
hereafter existing: (a) under any insurance, indemnities, warranties, and
guarantees provided for or arising out of or in connection with any of the
foregoing agreements; (b) for any damages arising out of or for breach or
default under or in connection with any of the

 

--------------------------------------------------------------------------------

 

foregoing contracts; (c) to all other amounts from time to time paid or payable
under or in connection with any of the foregoing agreements; or (d) to exercise
or enforce any and all covenants, remedies, powers and privileges thereunder.

 

“Chattel Paper” shall have the meaning set forth in Article 9 of the UCC.

 

“Choose Michigan Collateral” means all “Collateral,” as such term is defined in
that certain Loan Agreement, effective as of August 26, 2009, by and among the
Michigan Strategic Fund, a public body corporate and politic within the
Department of Treasury of the State of Michigan, and the Borrower, as such
agreement may be amended, restated, supplemented or otherwise modified from time
to time.

 

“Closing Date” means the date of the Loan Agreement.

 

“Collateral” shall have the meaning set forth in Article II.

 

“Collateral Access Agreement” means any landlord waiver or other agreement, in
form and substance reasonably satisfactory to the Agent, between the Agent, a
Grantor and any third party (including any bailee, consignee, customs broker, or
other similar Person) in possession of any Collateral or any landlord of any
real property where any Collateral is located, as such landlord waiver or other
agreement may be amended, restated, or otherwise modified from time to time.

 

“Collateral Deposit Account” shall have the meaning set forth in Section 7.1(a).

 

“Collection Account” shall have the meaning set forth in Section 7.1(b).

 

“Commercial Tort Claims” means commercial tort claims, as defined in the UCC of
any Grantor, including each commercial tort claim specifically described in
Exhibit K.

 

“Control” shall have the meaning set forth in Article 8 of the UCC or, if
applicable, in Section 9-104, 9-105, 9-106 or 9-107 of Article 9 of the UCC.

 

“Copyrights” means, with respect to any Person, all of such Person’s right,
title, and interest in and to the following:  (a) all copyrights, rights and
interests in copyrights, works protectable by copyright, copyright
registrations, and copyright applications; (b) all renewals of any of the
foregoing; (c) all income, royalties, damages, and payments now or hereafter due
and/or payable under any of the foregoing, including, without limitation,
damages or payments for past or future infringements for any of the foregoing;
(d) the right to sue for past, present, and future infringements of any of the
foregoing; and (e) all rights corresponding to any of the foregoing throughout
the world.

 

“Default” means any event or condition which constitutes an Event of Default or
which upon notice, lapse of time or both would, unless cured or waived, become
an Event of Default.

 

“Deposit Account Control Agreement” means an agreement, in form and substance
reasonably satisfactory to the Agent, among any Loan Party, a banking
institution holding such Loan Party’s funds, and the Agent with respect to
collection and control of all deposits and balances held in a deposit account
maintained by such Loan Party with such banking institution.

 

“Deposit Accounts” shall have the meaning set forth in Article 9 of the UCC.

 

“Documents” shall have the meaning set forth in Article 9 of the UCC.

 

“Equipment” shall have the meaning set forth in Article 9 of the UCC.

 

2

--------------------------------------------------------------------------------

 

“Equity Interests” means shares of capital stock, partnership interests,
membership interests in a limited liability company, beneficial interests in a
trust or other equity ownership interest in any Person, and any warrants,
options or other rights entitling the holder thereof to purchase or acquire any
of the foregoing.

 

“Excluded Deposit Account” means (i) each Deposit Account the balance of which
consists exclusively of (A) withheld income taxes and federal, state or local
employment taxes in such amounts as are required in the reasonable judgment of
the Borrower to be paid to the Internal Revenue Service or state or local
government agencies with respect to employees of any of the Loan Parties or
(B) amounts required to be paid over to an employee benefit plan pursuant to DOL
Reg. Sec. 2510.3-102 on behalf of or for the benefit of employees of one or more
Loan Parties, (ii) all segregated deposit accounts constituting (and the balance
of which consists solely of funds set aside in connection with) taxes accounts,
payroll accounts, trust or similar accounts to the extent a grant of a security
interest would be unlawful or in violation of any Plan or employee benefit
agreement and (iii) other non-concentration accounts containing less than
$25,000 individually and in the aggregate for all such other non-concentration
accounts.

 

“Excluded Property” means, collectively, (i) the MA-CEC Collateral, (ii) the
Choose Michigan Collateral, (iii) any permit or license or any contractual
obligation entered into by any Grantor, (iv) fixed or capital assets owned by
any Grantor that are subject to a purchase money Lien or a capital lease,
provided, however, that items (i)-(iv) shall only be excluded if the underlying
collateral, permit, license or contractual obligation (including any documents
providing for such capital lease) (A) prohibits or requires the consent of any
Person other than the Borrower and its Affiliates as a condition to the creation
by such Grantor of a Lien on any right, title or interest in such collateral,
permit, license, equipment or contractual obligation or any Equity Interests
related thereto or (B) to the extent that any applicable law prohibits the
creation of a Lien thereon, but only, with respect to the prohibition in (A) and
(B), to the extent, and for as long as, such prohibition is not terminated or
rendered unenforceable or otherwise deemed ineffective by the UCC or any other
applicable law, and (v) any “intent to use” Trademark applications for which a
statement of use has not been filed (but only until such statement is filed);
provided, however, “Excluded Property” shall not include any proceeds, products,
substitutions or replacements of Excluded Property (unless such proceeds,
products, substitutions or replacements would otherwise constitute Excluded
Property).

 

“Event of Default” means an event described in Section 5.1.

 

“Exhibit” refers to a specific exhibit to this Security Agreement, unless
another document is specifically referenced.

 

“Fixtures” shall have the meaning set forth in Article 9 of the UCC.

 

“General Intangibles” shall have the meaning set forth in Article 9 of the UCC
and, in any event, includes payment intangibles, contract rights, rights to
payment, rights arising under common law, statutes, or regulations, choses or
things in action, goodwill (including the goodwill associated with any
Trademark), Patents, Trademarks, Copyrights, URLs and domain names, other
industrial or Intellectual Property or rights therein or applications therefor,
whether under license or otherwise, programs, programming materials, blueprints,
drawings, purchase orders, customer lists, monies due or recoverable from
pension funds, route lists, rights to payment and other rights under any royalty
or licensing agreements, including Licenses, infringement claims, computer
programs, information contained on computer disks or tapes, software,
literature, reports, catalogs, pension plan refunds, pension plan refund claims,
insurance premium rebates, tax refunds, and tax refund claims, interests in a
partnership or limited liability company which do not constitute a security
under Article 8 of the UCC, and any other personal property other than
Commercial Tort Claims, money, Accounts, Chattel Paper, Deposit Accounts,
Goods, Investment Property, negotiable Collateral, and oil, gas, or other
minerals before extraction.

 

3

--------------------------------------------------------------------------------

 

“Goods” shall have the meaning set forth in Article 9 of the UCC.

 

“Instruments” shall have the meaning set forth in Article 9 of the UCC.

 

“Intellectual Property” means all Patents, Trademarks, Copyrights and any other
intellectual property.

 

“Inventory” shall have the meaning set forth in Article 9 of the UCC.

 

“Investment Property” shall have the meaning set forth in Article 9 of the UCC.

 

“Letter-of-Credit Rights” shall have the meaning set forth in Article 9 of the
UCC.

 

“Licenses” means, with respect to any Person, all of such Person’s right, title,
and interest in and to (a) any and all licensing agreements or similar
arrangements in and to its Patents, Copyrights, or Trademarks, (b) all income,
royalties, damages, claims, and payments now or hereafter due or payable under
and with respect to such licensing arrangements, including, without limitation,
damages and payments for past and future breaches thereof, and (c) all rights to
sue for past, present, and future breaches in connection with such licensing
arrangements.

 

“Lock Boxes” shall have the meaning set forth in Section 7.1(a).

 

“Lock Box Agreements” shall have the meaning set forth in Section 7.1(a).

 

“MA-CEC Collateral” shall mean all “Senior Collateral,” as such term is defined
in that certain Loan and Security Agreement, dated as of October 8, 2010, by and
among the Massachusetts Clean Energy Technology Center and the Borrower, as such
defined term is in effect on the date hereof without giving effect to any
subsequent amendment or other modification thereto.

 

“Patents” means, with respect to any Person, all of such Person’s right, title,
and interest in and to:  (a) any and all patents and patent applications;
(b) all inventions and improvements described and claimed therein; (c) all
reissues, divisions, continuations, renewals, extensions, and
continuations-in-part thereof; (d) all licenses of the foregoing whether as
licensee or licensor; (e) all income, royalties, damages, claims, and payments
now or hereafter due or payable under and with respect thereto, including,
without limitation, damages and payments for past and future infringements
thereof; (f) all rights to sue for past, present, and future infringements
thereof; and (g) all rights corresponding to any of the foregoing throughout the
world.

 

“Pledged Collateral” means all Instruments, Securities and other Investment
Property of the Grantors, whether or not physically delivered to the Agent
pursuant to this Security Agreement.

 

“Receivables” means the Accounts, Chattel Paper, Documents, Investment
Property, Instruments and any other rights or claims to receive money which are
General Intangibles or which are otherwise included as Collateral.

 

“Section” means a numbered section of this Security Agreement, unless another
document is specifically referenced.

 

“Secured Parties” means, collectively, (i) the holders of the “Obligations”
under the Loan Agreement and (ii) the holders of the NPA Obligations under the
Securities Purchase Agreement.

 

“Securities Account” shall have the meaning set forth in Article 8 of the UCC.

 

4

--------------------------------------------------------------------------------

 

“Securities Account Control Agreement” means an agreement, in form and substance
reasonably satisfactory to the Agent, among any Loan Party, a securities
intermediary or other financial institution holding such Loan Party’s
Securities, and the Agent with respect to collection and control of all
Securities held in a Securities Account maintained by such Loan Party with such
securities intermediary or financial institution.

 

“Security” shall have the meaning set forth in Article 8 of the UCC.

 

“Stock Rights” means all dividends, instruments or other distributions and any
other right or property which the Grantors shall receive or shall become
entitled to receive for any reason whatsoever with respect to, in substitution
for or in exchange for any Equity Interest constituting Collateral, any right to
receive an Equity Interest and any right to receive earnings, in which the
Grantors now have or hereafter acquire any right, issued by an issuer of such
Equity Interest.

 

“Supporting Obligations” shall have the meaning set forth in Article 9 of the
UCC.

 

“Trademarks” means, with respect to any Person, all of such Person’s right,
title, and interest in and to the following:  (a) all trademarks (including
service marks), trade names, trade dress, and trade styles and the registrations
and applications for registration thereof and the goodwill of the business
symbolized by the foregoing; (b) all licenses of the foregoing, whether as
licensee or licensor; (c) all renewals of the foregoing; (d) all income,
royalties, damages, and payments now or hereafter due or payable with respect
thereto, including, without limitation, damages, claims, and payments for past
and future infringements thereof; (e) all rights to sue for past, present, and
future infringements of the foregoing, including the right to settle suits
involving claims and demands for royalties owing; and (f) all rights
corresponding to any of the foregoing throughout the world.

 

“UCC” means the Uniform Commercial Code, as in effect from time to time, of the
State of New York or of any other state the laws of which are required as a
result thereof to be applied in connection with the attachment, perfection or
priority of, or remedies with respect to, Agent’s Lien on any Collateral.

 

The foregoing definitions shall be equally applicable to both the singular and
plural forms of the defined terms.

 

ARTICLE II

GRANT OF SECURITY INTEREST

 

Each Grantor hereby pledges, assigns and grants to the Agent, a security
interest in all of its right, title and interest in, to and under all of the
following personal property and other assets, whether now owned by or owing to,
or hereafter acquired by or arising in favor of such Grantor (including under
any trade name or derivations thereof), and whether owned or consigned by or to,
or leased from or to, such Grantor, and regardless of where located (all of
which will be collectively referred to as the “Collateral”):

 

(i)

all Accounts;

 

 

(ii)

all Chattel Paper;

 

 

(iii)

all Copyrights, Patents and Trademarks;

 

 

(iv)

all Documents;

 

 

(v)

all Equipment;

 

 

(vi)

all Fixtures;

 

 

(vii)

all General Intangibles;

 

 

(viii)

all Goods;

 

5

--------------------------------------------------------------------------------

 

(ix)

all Instruments;

 

 

(x)

all Inventory;

 

 

(xi)

all Investment Property;

 

 

(xii)

all cash or cash equivalents;

 

 

(xiii)

all letters of credit, Letter-of-Credit Rights and Supporting Obligations;

 

 

(xiv)

all Deposit Accounts with any bank or other financial institution;

 

 

(xv)

all Securities Accounts with any securities intermediary or other financial
institution;

 

 

(xvi)

all Commercial Tort Claims;

 

 

(xvii)

all Assigned Contracts;

 

 

(xviii)

all other personal property, interests in property and other assets of any type
or kind; and

 

 

(xix)

all accessions to, substitutions for and replacements, proceeds (including Stock
Rights), insurance proceeds and products of the foregoing, together with all
books and records, customer lists, credit files, computer files, programs,
printouts and other computer materials and records related thereto and any
General Intangibles at any time evidencing or relating to any of the foregoing;

 

to secure the prompt and complete payment and performance of the Secured
Obligations.  Notwithstanding the foregoing, the Collateral shall exclude all
Excluded Property and, for the avoidance of doubt, the grant of a security
interest herein shall not be deemed to be an assignment of intellectual property
rights owned by the Grantors.

 

ARTICLE III

REPRESENTATIONS AND WARRANTIES

 

Each Grantor represents and warrants to the Agent that on the date hereof and
on, and as of, each date on which a Loan is made under the Loan Agreement:

 

3.1.                              Title, Authorization, Perfection and Priority,
Type and Jurisdiction of Organization, Organizational and Identification
Numbers.  (a) Such Grantor has good and valid rights in or the power to transfer
the Collateral and title to the Collateral with respect to which it has
purported to grant a security interest hereunder, free and clear of all Liens
except for Liens permitted under Section 4.1(e), and has full corporate, limited
liability company, limited partnership, partnership, as applicable, power and
authority to grant to the Agent the security interest in the Collateral pursuant
hereto.  The execution and delivery by such Grantor of this Security Agreement
have been duly authorized by proper corporate, limited liability company,
limited partnership or partnership, as applicable, proceedings, and this
Security Agreement constitutes a legal, valid and binding obligation of such
Grantor and creates a security interest which is enforceable against such
Grantor in all Collateral it now owns or hereafter acquires, except as
enforceability may be limited by (i) bankruptcy, insolvency, fraudulent
conveyance, reorganization or similar laws relating to or affecting the
enforcement of creditors’ rights generally, (ii) general equitable principles
(whether considered in a proceeding in equity or at law), and (iii) requirements
of reasonableness, good faith and fair dealing.  When financing statements in
the form attached hereto as Exhibit L have been filed in the appropriate offices
against such Grantor in the locations listed on Exhibit H, the Agent will have a
fully perfected first priority security interest in that Collateral in which a
security interest may be perfected by filing of a financing statement under the
UCC, subject only to Liens permitted under Section 4.1(e).

 

6

--------------------------------------------------------------------------------

 

(b) The type of entity of such Grantor, its state of organization, the
organizational number issued to it by its state of organization and its federal
employer identification number are set forth on Exhibit A.

 

3.2.                              Conflicting Laws and Contracts.  Neither the
execution and delivery by such Grantor of this Security Agreement, the creation
and perfection of the security interest in the Collateral granted hereunder, nor
compliance with the terms and provisions hereof will violate (i) any law, rule,
regulation, order, writ, judgment, injunction, decree or award binding on such
Grantor, or (ii) such Grantor’s charter, articles or certificate of
incorporation, partnership agreement or by-laws (or similar constitutive
documents), or (iii) the provisions of any indenture, instrument or agreement to
which such Grantor is a party or is subject, or by which it, or its property may
be bound or affected, or conflict with or constitute a default thereunder, or
result in or require the creation or imposition of any Lien in, of or on the
property of such Grantor pursuant to the terms of any such indenture, instrument
or agreement (other than any Lien of the Agent).

 

3.3.                              Principal Location.  Such Grantor’s mailing
address, which shall be its address for notices and other communications
provided for herein and the location of its place of business (if it has only
one) or its chief executive office (if it has more than one place of business),
are disclosed in Exhibit A; such Grantor has no other places of business except
those set forth in Exhibit A.

 

3.4.                              Collateral Locations.  All of such Grantor’s
locations where Collateral having an aggregate value in excess of $100,000 is
located are listed on Exhibit A.  All of said locations are owned by such
Grantor except for locations (i) which are leased by the Grantor as lessee and
designated in Part VII(b) of Exhibit A and (ii) at which Inventory is held in a
public warehouse or is otherwise held by a bailee or on consignment as
designated in Part VII(c) of Exhibit A.

 

3.5.                              Deposit Accounts.  All of such Grantor’s
Deposit Accounts are listed on Exhibit B.

 

3.6.                              Exact Names, Etc..  Such Grantor’s name in
which it has executed this Security Agreement is the exact name as it appears in
such Grantor’s organizational documents, as amended, as filed with such
Grantor’s jurisdiction of organization.  Such Grantor has not, during the past
five years, been known by or used any other corporate or fictitious name,
changed its jurisdiction of incorporation or formation, as applicable, or been a
party to any merger or consolidation, or been a party to any acquisition.

 

3.7.                              Letter-of-Credit Rights and Chattel Paper. 
Exhibit C lists all Letter-of-Credit Rights and Chattel Paper of such Grantor. 
All action by such Grantor necessary or desirable to protect and perfect the
Agent’s Lien on each item listed on Exhibit C (including the delivery of all
originals and the placement of a legend on all Chattel Paper as required
hereunder) has been duly taken. The Agent will have a fully perfected first
priority security interest in the Collateral listed on Exhibit C, subject only
to Liens permitted under Section 4.1(e).

 

3.8.                              Accounts and Chattel Paper.  The names of the
obligors, amounts owing, due dates and other information with respect to its
Accounts and Chattel Paper are and will be correctly stated in all records of
such Grantor relating thereto and in all invoices.  As of the time when each
Account or each item of Chattel Paper arises, such Grantor shall be deemed to
have represented and warranted that such Account or Chattel Paper, as the case
may be, and all records relating thereto, are genuine and in all respects what
they purport to be.

 

3.9.                              Securities Accounts.  All of such Grantor’s
Securities Accounts are listed on Exhibit G.

 

3.10.                        Intellectual Property. Such Grantor does not have
any interest in, or title to, any Patent, Trademark or Copyright except as set
forth in Exhibit D.  This Security Agreement is effective to create a valid and
continuing Lien and, upon filing of the Confirmatory Grant of Security Interest
in Copyrights with the United States Patent and Trademark Office, the
Confirmatory Grant of Security Interest in Trademarks with the United States
Copyright Office and filing of the Confirmatory Grant of Security Interest in
Patents with the

 

7

--------------------------------------------------------------------------------

 

United States Patent and Trademark Office and filing of appropriate financing
statements in the offices listed on Exhibit H, fully perfected first priority
security interests in favor of the Agent on such Grantor’s Patents, Trademarks
and Copyrights, such perfected security interests are enforceable as such as
against any and all creditors of and purchasers from such Grantor; and all
action necessary or desirable to protect and perfect the Agent’s Lien on such
Grantor’s Patents, Trademarks or Copyrights shall have been duly taken.

 

3.11.                        Filing Requirements.  None of its Equipment
(excluding the Excluded Property) is covered by any certificate of title, except
for the vehicles described in Part I of Exhibit E.  None of the Collateral owned
by it is of a type for which security interests or liens may be perfected by
filing under any federal statute except for (a) the vehicles described in
Part II of Exhibit E and (b) Patents, Trademarks and Copyrights held by such
Grantor and described in Exhibit D.  The legal description, county and street
address of each property on which any Fixtures are located is set forth in
Exhibit F together with the name and address of the record owner of each such
property.

 

3.12.                        No Financing Statements, Security Agreements.  No
financing statement or security agreement describing all or any portion of the
Collateral which has not lapsed or been terminated naming such Grantor as debtor
has been filed or is of record in any jurisdiction except for financing
statements or security agreements (a) naming the Agent as the secured party and
(b) in respect to other Permitted Encumbrances.

 

3.13.                        Pledged Collateral.

 

(a)                                  Exhibit G sets forth a complete and
accurate list of all Pledged Collateral owned by such Grantor.  Such Grantor is
the direct, sole beneficial owner and sole holder of record of the Pledged
Collateral listed on Exhibit G as being owned by it, free and clear of any
Liens, except for the security interest granted to the Agent hereunder and
Permitted Encumbrances.  Such Grantor further represents and warrants that
(i) all Pledged Collateral owned by it constituting an Equity Interest has been
(to the extent such concepts are relevant with respect to such Pledged
Collateral) duly authorized, validly issued, are fully paid and non-assessable,
(ii) with respect to any certificates delivered to the Agent representing an
Equity Interest, either such certificates are Securities as defined in Article 8
of the UCC as a result of actions by the issuer or otherwise, or, if such
certificates are not Securities, such Grantor has so informed the Agent so that
the Agent may take steps to perfect its security interest therein as a General
Intangible, (iii) all such Pledged Collateral held by a securities intermediary
is covered by a control agreement among such Grantor, the securities
intermediary and the Agent pursuant to which the Agent has Control and (iv) all
Pledged Collateral which represents Indebtedness owed to such Grantor has been
duly authorized, authenticated or issued and delivered by the issuer of such
Indebtedness, is the legal, valid and binding obligation of such issuer and such
issuer is not in default thereunder.

 

(b)                                 In addition, (i) none of the Pledged
Collateral owned by it has been issued or transferred in violation of the
securities registration, securities disclosure or similar laws of any
jurisdiction to which such issuance or transfer may be subject, (ii) no options,
warrants, calls or commitments of any character whatsoever (A) exist relating to
such Pledged Collateral or (B) obligate the issuer of any Equity Interest
included in the Pledged Collateral to issue additional Equity Interests, and
(iii) no consent, approval, authorization, or other action by, and no giving of
notice, filing with, any governmental authority or any other Person is required
for the pledge by such Grantor of such Pledged Collateral pursuant to this
Security Agreement or for the execution, delivery and performance of this
Security Agreement by such Grantor, or for the exercise by the Agent of the
voting or other rights provided for in this Security Agreement or for the
remedies in respect of the Pledged Collateral pursuant to this Security
Agreement, except as may be required in connection with such disposition by laws
affecting the offering and sale of securities generally.

 

(c)                                  Except as set forth in Exhibit G, such
Grantor owns 100% of the issued and outstanding Equity Interests which
constitute Pledged Collateral owned by it and none of the Pledged Collateral
which

 

8

--------------------------------------------------------------------------------

 

represents Indebtedness owed to such Grantor is subordinated in right of payment
to other Indebtedness or subject to the terms of an indenture.

 

ARTICLE IV

COVENANTS

 

From the date of this Security Agreement and thereafter until this Security
Agreement is terminated, each of the Initial Grantors agrees, and from and after
the effective date of any Security Agreement Supplement applicable to any
Grantor (and after giving effect to supplements to each of the Exhibits hereto
with respect to such subsequent Grantor as attached to such Security Agreement
Supplement) and thereafter until this Security Agreement is terminated each such
subsequent Grantor agrees:

 

4.1.                              General.

 

(a)                                  Collateral Records.  Such Grantor will
maintain complete and accurate books and records with respect to the Collateral
owned by it, and furnish to the Agent, such reports relating to such Collateral
as the Agent shall from time to time request.

 

(b)                                 Authorization to File Financing Statements;
Ratification.  Such Grantor hereby authorizes the Agent to file, and if
requested will deliver to the Agent, all financing statements and other
documents and take such other actions as may from time to time be requested by
the Agent in order to maintain a first perfected security interest in and, if
applicable, Control of, the Collateral owned by such Grantor.  Any financing
statement filed by the Agent may be filed in any filing office in any UCC
jurisdiction and may (i) indicate such Grantor’s Collateral (1) as all assets of
the Grantor 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
or such jurisdiction, or (2) by any other description which reasonably
approximates the description contained in this Security Agreement, and
(ii) contain any other information required by part 5 of Article 9 of the UCC
for the sufficiency or filing office acceptance of any financing statement or
amendment, including (A) whether such Grantor is an organization, the type of
organization and any organization identification number issued to such Grantor,
and (B) in the case of a financing statement filed as a fixture filing or
indicating such Grantor’s Collateral as as-extracted collateral or timber to be
cut, a sufficient description of real property to which the Collateral relates. 
Such Grantor also agrees to furnish any such information described in the
foregoing sentence to the Agent promptly upon request.

 

(c)                                  Further Assurances.  Such Grantor will, if
so requested by the Agent, furnish to the Agent, as often as the Agent requests,
statements and schedules further identifying and describing the Collateral and
such other reports and information in connection with its Collateral as the
Agent may reasonably request, all in such detail as the Agent may specify.  Such
Grantor also agrees to take any and all actions necessary to defend title to the
Collateral against all persons and to defend the security interest of the Agent
in its Collateral and the priority thereof against any Lien not expressly
permitted hereunder.

 

(d)                                 Disposition of Collateral.  Such Grantor
will not sell, lease or otherwise dispose of the Collateral except for
dispositions specifically permitted pursuant to Section 6.05 of the Loan
Agreement.

 

(e)                                  Liens.  Such Grantor will not create,
incur, or suffer to exist any Lien on the Collateral owned by it except (i) the
security interest created by this Security Agreement, and (ii) Liens permitted
under the Loan Agreement.

 

(f)                                    Other Financing Statements.  Such Grantor
will not authorize the filing of any financing statement naming it as debtor
covering all or any portion of the Collateral owned by it, except for financing
statements (i) naming the Agent as the secured party, and (ii) in respect of
Liens permitted under the Loan

 

9

--------------------------------------------------------------------------------

 

Agreement.  Such Grantor acknowledges that it is not authorized to file any
financing statement or amendment or termination statement with respect to any
financing statement covering all or any portion of the Collateral without the
prior written consent of the Agent, subject to such Grantor’s rights under
Section 9-509(d)(2) of the UCC.

 

(g)                                 Locations. Such Grantor will not
(i) maintain any Collateral with an aggregate value in excess of $100,000 owned
by it at any location other than those locations listed on Exhibit A,
(ii) otherwise change, or add to, such locations without the Agent’s prior
written consent as required by the Loan Agreement (and if the Agent gives such
consent, such Grantor will concurrently therewith obtain a Collateral Access
Agreement for each such location to the extent required by the Loan Agreement),
or (iii) change its principal place of business or chief executive office from
the location identified on Exhibit A, other than as permitted by the Loan
Agreement.

 

(h)                                 Compliance with Terms.  Such Grantor will
perform and comply with all material obligations in respect of the Collateral
owned by it and all agreements to which it is a party or by which it is bound
relating to such Collateral.

 

4.2.                              Receivables.

 

(a)                                  Certain Agreements on Receivables.  Such
Grantor will not make or agree to make any discount, credit, rebate or other
reduction in the original amount owing on a Receivable or accept in satisfaction
of a Receivable less than the original amount thereof, except that, prior to the
occurrence of an Event of Default, such Grantor may reduce the amount of
Accounts arising from the sale of Inventory in accordance with its present
policies and in the ordinary course of business.

 

(b)                                 Collection of Receivables.  Except as
otherwise provided in this Security Agreement, such Grantor will collect and
enforce, at such Grantor’s sole expense, all amounts due or hereafter due to
such Grantor under the Receivables owned by it.

 

(c)                                  Delivery of Invoices.  Such Grantor will
deliver to the Agent immediately upon its request after the occurrence and
during the continuation of an Event of Default duplicate invoices with respect
to each Account owned by it bearing such language of assignment as the Agent
shall specify.

 

(d)                                 Disclosure of Counterclaims on Receivables. 
If (i) any discount, credit or agreement to make a rebate or to otherwise reduce
the amount owing on a Receivable owned by such Grantor, in each case in an
amount not less than $25,000, exists or (ii) if, to the knowledge of such
Grantor, any dispute, setoff, claim, counterclaim or defense exists or has been
asserted or threatened with respect to any such Receivable, such Grantor will
promptly disclose such fact to the Agent in writing.

 

(e)                                  Electronic Chattel Paper.  Such Grantor
shall take all steps necessary to grant the Agent Control of all electronic
chattel paper with an individual value in excess of $25,000 in accordance with
the UCC and all “transferable records” as defined in each of the Uniform
Electronic Transactions Act and the Electronic Signatures in Global and National
Commerce Act.

 

4.3.                              Inventory and Equipment.

 

(a)                                  Maintenance of Goods.  Such Grantor will do
all things necessary to maintain, preserve, protect and keep its Inventory and
the Equipment in good repair and working and saleable condition, except for
damaged or defective goods arising in the ordinary course of such Grantor’s
business and except for ordinary wear and tear in respect of the Equipment.

 

(d)                                 Equipment.  Such Grantor shall promptly
inform the Agent of any additions to or

 

10

--------------------------------------------------------------------------------

 

deletions from its Equipment which individually exceed $1,000,000.  Such Grantor
shall not permit any Equipment to become a fixture with respect to real property
or to become an accession with respect to other personal property with respect
to which real or personal property the Agent does not have a Lien.  Such Grantor
will not, without the Agent’s prior written consent, alter or remove any
identifying symbol or number on any of such Grantor’s Equipment constituting
Collateral.

 

4.4.                              Delivery of Instruments, Securities, Chattel
Paper and Documents. Such Grantor will (a) deliver to the Agent immediately upon
execution of this Security Agreement the originals of all Chattel Paper,
Securities (to the extent certificated) and Instruments constituting Collateral
owned by it (if any then exist), in each case having an individual value in
excess of $25,000, (b) hold in trust for the Agent upon receipt and immediately
thereafter deliver to the Agent any such Chattel Paper, Securities and
Instruments constituting Collateral, (c) upon the Agent’s request, deliver to
the Agent (and thereafter hold in trust for the Agent upon receipt and
immediately deliver to the Agent) any Document evidencing or constituting
Collateral and (d) promptly upon the Agent’s request, deliver to the Agent a
duly executed amendment to this Security Agreement, in the form of Exhibit I
hereto (the “Amendment”), pursuant to which such Grantor will pledge such
additional Collateral.  Such Grantor hereby authorizes the Agent to attach each
Amendment to this Security Agreement and agrees that all additional Collateral
owned by it set forth in such Amendments shall be considered to be part of the
Collateral.

 

4.5.                              Uncertificated Pledged Collateral. Such
Grantor will, upon the Agent’s reasonable request from time to time to, cause
the appropriate issuers (and, if held with a securities intermediary, such
securities intermediary) of uncertificated securities or other types of Pledged
Collateral owned by it not represented by certificates to mark their books and
records with the numbers and face amounts of all such uncertificated securities
or other types of Pledged Collateral not represented by certificates and all
rollovers and replacements therefor to reflect the Lien of the Agent granted
pursuant to this Security Agreement.  With respect to any Pledged Collateral
owned by it, such Grantor will take any actions necessary to cause (a) the
issuers of uncertificated securities which are Pledged Collateral and (b) any
securities intermediary which is the holder of any Pledged Collateral, to cause
the Agent to have and retain Control over such Pledged Collateral.  Without
limiting the foregoing, such Grantor will, with respect to Pledged Collateral
held with a securities intermediary, cause such securities intermediary to enter
into a Securities Account Control Agreement.

 

4.6.                              Pledged Collateral.

 

(a)                                  Changes in Capital Structure of Issuers.
Such Grantor will not (i) permit or suffer any issuer of an Equity Interest
constituting Pledged Collateral owned by it to dissolve, merge, liquidate,
retire any of its Equity Interests or other Instruments or Securities evidencing
ownership, reduce its capital, sell or encumber all or substantially all of its
assets (except for Permitted Encumbrances and sales of assets permitted pursuant
to Section 4.1(d)) or merge or consolidate with any other entity, or (ii) vote
any such Pledged Collateral in favor of any of the foregoing, in each case
except as permitted under the Loan Agreement.

 

(b)                                 Issuance of Additional Securities.  Such
Grantor will not permit or suffer the issuer of an Equity Interest constituting
Pledged Collateral owned by it to issue additional Equity Interests, any right
to receive the same or any right to receive earnings, except to such Grantor.

 

(c)                                  Registration of Pledged Collateral.  Such
Grantor will permit any registerable Pledged Collateral to be registered in the
name of the Agent or its nominee at any time at the option of the Agent.

 

(d)                                 Exercise of Rights in Pledged Collateral.

 

(i)                                     Without in any way limiting the
foregoing and subject to clause (ii) below, such Grantor shall have the right to
exercise all voting rights or other rights relating to the Pledged Collateral
owned by it for all purposes not inconsistent with this Security Agreement, the
Loan Agreement or any

 

11

--------------------------------------------------------------------------------

 

other Loan Document; provided however, that no vote or other right shall be
exercised or action taken which would have the effect of impairing the rights of
the Agent in respect of the Pledged Collateral.

 

(ii)                                  Such Grantor will permit the Agent or its
nominee at any time after the occurrence of an Event of Default, without notice,
to exercise all voting rights or other rights relating to the Pledged Collateral
owned by it, including, without limitation, exchange, subscription or any other
rights, privileges, or options pertaining to any Equity Interest or Investment
Property constituting such Pledged Collateral as if it were the absolute owner
thereof.

 

(iii)                               Such Grantor shall be entitled to collect
and receive for its own use all cash dividends and interest paid in respect of
the Pledged Collateral owned by it to the extent not in violation of the Loan
Agreement other than any of the following distributions and payments
(collectively referred to as the “Excluded Payments”): (A) dividends and
interest paid or payable other than in cash in respect of such Pledged
Collateral, and instruments and other property received, receivable or otherwise
distributed in respect of, or in exchange for, any Pledged Collateral; 
(B) dividends and other distributions paid or payable in cash in respect of such
Pledged Collateral in connection with a partial or total liquidation or
dissolution or in connection with a reduction of capital, capital surplus or
paid-in capital of an issuer; and (C) cash paid, payable or otherwise
distributed, in respect of principal of, or in redemption of, or in exchange
for, such Pledged Collateral; provided however, that until actually paid, all
rights to such distributions shall remain subject to the Lien created by this
Security Agreement; and

 

(iv)                              All Excluded Payments and all other
distributions in respect of any Pledged Collateral owned by such Grantor,
whenever paid or made, shall be delivered to the Agent to hold as Pledged
Collateral and shall, if received by such Grantor, be received in trust for the
benefit of the Agent, be segregated from the other property or funds of such
Grantor, and be forthwith delivered to the Agent as Pledged Collateral in the
same form as so received (with any necessary endorsement); provided however,
that all Excluded Payments and other distributions in respect of any Pledge
Collateral in cash shall be deposited into a Deposit Account subject to a
Deposit Account Control Agreement.

 

4.7.                              Intellectual Property.

 

(a)                                  Such Grantor will use its commercially
reasonable efforts to secure all consents and approvals necessary or appropriate
for the assignment to or benefit of the Agent of any License held by such
Grantor that is material to the operations of its business and to enforce the
security interests granted hereunder; provided that at the request of the Agent,
such Grantor will use its commercially reasonable efforts to secure consents and
approvals necessary or appropriate for the assignment to or benefit of the Agent
for each and every License held by such Grantor.

 

(b)                                 Such Grantor shall notify the Agent promptly
if it knows or could reasonably by expected to know that any application or
registration relating to any Patent, Trademark or Copyright (now or hereafter
existing) may become abandoned or dedicated, or of any adverse determination or
development (including the institution of, or any such determination or
development in, any proceeding in the United States Patent and Trademark Office,
the United States Copyright Office or any court) regarding such Grantor’s
ownership of any Patent, Trademark or Copyright, its right to register the same,
or to keep and maintain the same.

 

(c)                                  In no event shall such Grantor, either
directly or through any agent, employee, licensee or designee, file an
application for the registration of any Patent, Trademark or Copyright with the
United States Patent and Trademark Office, the United States Copyright Office or
any similar office or agency without giving the Agent prior written notice
thereof, and, upon request of the Agent, such Grantor shall execute and deliver
any and all security agreements as the Agent may request to evidence the Agent’s
first priority security interest

 

12

--------------------------------------------------------------------------------

 

on such Patent, Trademark or Copyright, and the General Intangibles of such
Grantor relating thereto or represented thereby.

 

(d)                                 Such Grantor shall take all actions
necessary or requested by the Agent to maintain and pursue each application, to
obtain the relevant registration and to maintain the registration of each of its
Patents, Trademarks and Copyrights (now or hereafter existing), including the
filing of applications for renewal, affidavits of use, affidavits of
noncontestability and opposition and interference and cancellation proceedings,
unless such Patent, Trademark or Copyright is not material to the conduct of
such Grantor’s business.

 

(e)                                  Such Grantor shall, unless it shall
reasonably determine that such Patent, Trademark or Copyright is in no way
material to the conduct of its business or operations, promptly sue for
infringement, misappropriation or dilution and to recover any and all damages
for such infringement, misappropriation or dilution, and shall take such other
actions as the Agent shall deem appropriate under the circumstances to protect
such Patent, Trademark or Copyright.  In the event that such Grantor institutes
suit because any of its Patents, Trademarks or Copyrights constituting
Collateral is infringed upon, or misappropriated or diluted by a third party,
such Grantor shall comply with Section 4.8.

 

4.8                                 Commercial Tort Claims.  Such Grantor shall
promptly, and in any event within two Business Days after the same is acquired
by it, notify the Agent of any commercial tort claim (as defined in the UCC)
with a value in excess of $100,000 acquired by it and, unless the Agent
otherwise consents, such Grantor shall enter into an amendment to this Security
Agreement, in the form of Exhibit I hereto, granting to Agent a first priority
security interest in such commercial tort claim.

 

4.9.                              Letter-of-Credit Rights.  If such Grantor is
or becomes the beneficiary of a letter of credit with a face amount in excess of
$100,000, it shall promptly, and in any event within two Business Days after
becoming a beneficiary, notify the Agent thereof and cause the issuer and/or
confirmation bank to (i) consent to the assignment of any Letter-of-Credit
Rights to the Agent and (ii) agree to direct all payments thereunder to a
Deposit Account at the Agent or subject to a Deposit Account Control Agreement
for application to the Secured Obligations, in accordance with Section 2.10 of
the Loan Agreement, all in form and substance reasonably satisfactory to the
Agent.

 

4.10.                        Federal, State or Municipal Claims.  Such Grantor
will promptly notify the Agent of any Collateral which constitutes a claim in
excess of $100,000 against the United States government or any state or local
government or any instrumentality or agency thereof, the assignment of which
claim is restricted by federal, state or municipal law.

 

4.11.                        No Interference.  Without prejudice to any rights
or remedies available to it at law or in equity, such Grantor agrees that it
will not interfere with any right, power and remedy of the Agent provided for in
this Security Agreement or now or hereafter existing at law or in equity or by
statute or otherwise, or the exercise or beginning of the exercise by the Agent
of any one or more of such rights, powers or remedies.

 

4.12.                        Insurance.  (a)                    In the event any
Collateral is located in any area that has been designated by the Federal
Emergency Management Agency as a “Special Flood Hazard Area”, such Grantor shall
purchase and maintain flood insurance on such Collateral (including any personal
property which is located on any real property leased by such Loan Party within
a “Special Flood Hazard Area”).  The amount of flood insurance required by this
Section shall at a minimum comply with applicable law, including the Flood
Disaster Protection Act of 1973, as amended.

 

(b)                                 All insurance policies required hereunder or
under Section 5.09 of the Loan Agreement shall name the Agent as an additional
insured or as loss payee, as applicable, and shall contain loss payable clauses
or mortgagee clauses, through endorsements in form and substance satisfactory to
the Agent, which provide that: (i) all proceeds thereunder with respect to any
Collateral shall be payable to the Agent; (ii) no such

 

13

--------------------------------------------------------------------------------

 

insurance shall be affected by any act or neglect of the insured or owner of the
property described in such policy; and (iii) such policy and loss payable or
mortgagee clauses may be canceled, amended, or terminated only upon at least
thirty days prior written notice given to the Agent.

 

(c)                                  All premiums on any such insurance shall be
paid when due by such Grantor, and copies of the policies delivered to the
Agent.  If such Grantor fails to obtain any insurance as required by this
Section, the Agent may obtain such insurance at the Borrower’s expense.  By
purchasing such insurance, the Agent shall not be deemed to have waived any
Default arising from the Grantor’s failure to maintain such insurance or pay any
premiums therefor.

 

4.13.                        Collateral Access Agreements.  Such Grantor shall
use commercially reasonable efforts to obtain a Collateral Access Agreement,
from the lessor of each leased property, mortgagee of owned property or bailee
or consignee with respect to any warehouse, processor or converter facility or
other location where Collateral with an aggregate value in excess of $100,000 is
stored or located, which agreement or letter shall provide access rights,
contain a waiver or subordination of all Liens or claims that the landlord,
mortgagee, bailee or consignee may assert against the Collateral at that
location, and shall otherwise be reasonably satisfactory in form and substance
to the Agent.  Such Grantor shall timely and fully pay and perform its
obligations under all leases and other agreements with respect to each leased
location or third party warehouse where any Collateral is or may be located.

 

4.14.                        Deposit Account Control Agreements.  Such Grantor
will provide to the Agent promptly upon the Agent’s request, a Deposit Account
Control Agreement duly executed on behalf of each financial institution holding
a deposit account (other than any Excluded Deposit Account) of such Grantor as
set forth in this Security Agreement.

 

4.15.                        Change of Name or Location; Change of Fiscal Year. 
Such Grantor shall not (a) change its name as it appears in official filings in
the state of its incorporation or organization, (b) change its chief executive
office, principal place of business, mailing address, corporate offices or
warehouses or locations at which Collateral is held or stored, or the location
of its records concerning the Collateral as set forth in this Security
Agreement, (c) change the type of entity that it is, (d) change its organization
identification number, if any, issued by its state of incorporation or other
organization, or (e) change its state of incorporation or organization, in each
case, unless the Agent shall have received at least thirty days prior written
notice of such change and the Agent shall have acknowledged in writing that
either (1) such change will not adversely affect the validity, perfection or
priority of the Agent’s security interest in the Collateral, or (2) any
reasonable action requested by the Agent in connection therewith has been
completed or taken (including any action to continue the perfection of any Liens
in favor of the Agent in any Collateral), provided that, any new location shall
be in the continental U.S.  Such Grantor shall not change its fiscal year which
currently ends on December 31.

 

4.16                           Assigned Contracts. Such Grantor will use its
best efforts to secure all consents and approvals necessary or appropriate for
the assignment to or for the benefit of the Agent of any Assigned Contract held
by such Grantor having an aggregate contract value in excess of $100,000 and to
enforce the security interests granted hereunder.  Such Grantor shall fully
perform all of its obligations under each of its Assigned Contracts, and shall
enforce all of its rights and remedies thereunder, in each case, as it deems
appropriate in its business judgment; provided however, that such Grantor shall
not take any action or fail to take any action with respect to its Assigned
Contracts which would cause the termination of an Assigned Contract.  Without
limiting the generality of the foregoing, such Grantor shall take all action
necessary or appropriate to permit, and shall not take any action which would
have any materially adverse effect upon, the full enforcement of all
indemnification rights under its Assigned Contracts. Such Grantor shall notify
the Agent in writing, promptly after such Grantor becomes aware thereof, of any
event or fact which could give rise to a material claim by it for
indemnification under any of its Assigned Contracts, and shall diligently pursue
such right and report to the Agent on all further developments with respect
thereto.  Such Grantor shall deposit into a Deposit Account at

 

14

--------------------------------------------------------------------------------

 

the Agent or subject to a Deposit Account Control Agreement for application to
the Secured Obligations, in accordance with Section 2.10 of the Loan Agreement,
all amounts received by such Grantor as indemnification or otherwise pursuant to
its Assigned Contracts.  If such Grantor shall fail after the Agent’s demand to
pursue diligently any right under its Assigned Contracts, or if an Event of
Default then exists, the Agent may directly enforce such right in its own or
such Grantor’s name and may enter into such settlements or other agreements with
respect thereto as the Agent shall determine.  In any suit, proceeding or action
brought by the Agent under any Assigned Contract for any sum owing thereunder or
to enforce any provision thereof, such Grantor shall indemnify and hold the
Agent harmless from and against all expense, loss or damage suffered by reason
of any defense, setoff, counterclaims, recoupment, or reduction of liability
whatsoever of the obligor thereunder arising out of a breach by such Grantor of
any obligation thereunder or arising out of any other agreement, indebtedness or
liability at any time owing from such Grantor to or in favor of such obligor or
its successors.  All such obligations of such Grantor shall be and remain
enforceable only against such Grantor and shall not be enforceable against the
Agent.  Notwithstanding any provision hereof to the contrary, such Grantor shall
at all times remain liable to observe and perform all of its duties and
obligations under its Assigned Contracts, and the Agent’s exercise of any of
their respective rights with respect to the Collateral shall not release such
Grantor from any of such duties and obligations.  The Agent shall not be
obligated to perform or fulfill any of such Grantor’s duties or obligations
under its Assigned Contracts or to make any payment thereunder, or to make any
inquiry as to the nature or sufficiency of any payment or property received by
it thereunder or the sufficiency of performance by any party thereunder, or to
present or file any claim, or to take any action to collect or enforce any
performance, any payment of any amounts, or any delivery of any property.

 

ARTICLE V

EVENTS OF DEFAULT AND REMEDIES

 

5.1.                              Events of Default.  The occurrence of any one
or more of the following events shall constitute an Event of Default hereunder:

 

(a)                                  Any representation or warranty made by or
on behalf of any Grantor under or in connection with this Security Agreement
shall be materially false as of the date on which made.

 

(b)                                 Any Grantor shall fail to observe or perform
any of the terms or provisions of Article IV or Article VII.

 

(c)                                  Any Grantor shall fail to observe or
perform any of the terms or provisions of this Security Agreement (other than a
breach which constitutes an Event of Default under any other Section of this
Article V) and such failure shall continue unremedied for a period of ten days
after the earlier of knowledge of such breach or notice thereof from the Agent.

 

(d)                                 The occurrence of any “Event of Default”
under, and as defined in, the Loan Agreement.

 

(e)                                  Any Equity Interest which is included
within the Collateral shall at any time constitute a Security or the issuer of
any such Equity Interest shall take any action to have such interests treated as
a Security unless, promptly after the date thereof (i) all certificates or other
documents constituting such Security have been delivered to the Agent and such
Security is properly defined as such under Article 8 of the UCC of the
applicable jurisdiction, whether as a result of actions by the issuer thereof or
otherwise, or (ii) the Agent has entered into a control agreement with the
issuer of such Security or with a securities intermediary relating to such
Security and such Security is defined as such under Article 8 of the UCC of the
applicable jurisdiction, whether as a result of actions by the issuer thereof or
otherwise.

 

15

--------------------------------------------------------------------------------

 

 

5.2.          Remedies.

 

(a)           Upon the occurrence of an Event of Default, the Agent may exercise
any or all of the following rights and remedies:

 

(i)            those rights and remedies provided in this Security Agreement,
the Loan Agreement, or any other Loan Document; provided that, this Section
5.2(a) shall not be understood to limit any rights or remedies available to the
Agent prior to an Event of Default;

 

(ii)           those rights and remedies available to a secured party under the
UCC (whether or not the UCC applies to the affected Collateral) or under any
other applicable law (including, without limitation, any law governing the
exercise of a bank’s right of setoff or bankers’ lien) when a debtor is in
default under a security agreement;

 

(iii)          give notice of sole control or any other instruction under any
Deposit Account Control Agreement or and other control agreement with any
securities intermediary and take any action therein with respect to such
Collateral;

 

(iv)          without notice (except as specifically provided in Section 8.1 or
elsewhere herein), demand or advertisement of any kind to any Grantor or any
other Person, enter the premises of the Grantor where any Collateral is located
(through self-help and without judicial process) to collect, receive, assemble,
process, appropriate, sell, lease, assign, grant an option or options to
purchase or otherwise dispose of, deliver, or realize upon, the Collateral or
any part thereof in one or more parcels at public or private sale or sales
(which sales may be adjourned or continued from time to time with or without
notice and may take place at any Grantor’s premises or elsewhere), for cash, on
credit or for future delivery without assumption of any credit risk, and upon
such other terms as the Agent may deem commercially reasonable; and

 

(v)           concurrently with written notice to the applicable Grantor,
transfer and register in its name or in the name of its nominee the whole or any
part of the Pledged Collateral, to exchange certificates or instruments
representing or evidencing Pledged Collateral for certificates or instruments of
smaller or larger denominations, exercise the voting and all other rights as a
holder with respect thereto, to collect and receive all cash dividends,
interest, principal and other distributions made thereon and to otherwise act
with respect to the Pledged Collateral as though the Agent was the outright
owner thereof.

 

(b)           The Agent may comply with any applicable state or federal law
requirements in connection with a disposition of the Collateral and compliance
will not be considered to adversely affect the commercial reasonableness of any
sale of the Collateral.

 

(c)           The Agent shall have the right upon any such public sale or sales
and, to the extent permitted by law, upon any such private sale or sales, to
purchase for the benefit of the Agent, the whole or any part of the Collateral
so sold, free of any right of equity redemption, which equity redemption the
Grantor hereby expressly releases.

 

(d)           Until the Agent is able to effect a sale, lease, or other
disposition of Collateral, the Agent shall have the right to hold or use
Collateral, or any part thereof, to the extent that it deems appropriate for the
purpose of preserving Collateral or its value or for any other purpose deemed
appropriate by the Agent. The Agent may, if it so elects, seek the appointment
of a receiver or keeper to take possession of Collateral and to enforce any of
the Agent’s remedies, with respect to such appointment without prior notice or
hearing as to such appointment.

 

16

--------------------------------------------------------------------------------

 

(e)           Notwithstanding the foregoing, the Agent shall not be required to
(i) make any demand upon, or pursue or exhaust any of its rights or remedies
against, any Grantor, any other obligor, guarantor, pledgor or any other Person
with respect to the payment of the Secured Obligations or to pursue or exhaust
any of its rights or remedies with respect to any Collateral therefor or any
direct or indirect guarantee thereof, (ii) proceed against the Collateral prior
to proceeding against any guarantee of the Secured Obligations, (iii) exhaust
its remedies against any Grantor or the Collateral prior to proceeding against
another Grantor, (iv) allocate the Secured Obligations in any manner between the
Grantors, or (v) effect a public sale of any Collateral.

 

(f)            The Agent may proceed against any or all Collateral and any one
or more Grantors in such order, and for application to such of the obligations,
as the Agent in its sole discretion may elect, in each case without regard to
any rights of contribution which may exist as among the Grantors.  The rights of
the Agent as against any Grantor hereunder shall not be released, diminished,
impaired, reduced, dependent upon or affected by, any one or more of the
following of (A) any defect in, or invalidity, illegality or unenforceability of
the Secured Obligations or the Loan Documents in respect of any other Grantor,
or any default or failure to perform on the part of any Grantor, (B) any claim,
defense or offset which such Grantor may have as against any other Grantor or
the Agent, (C) the bankruptcy, dissolution, liquidation, winding up or
termination of any other Grantor, (D) any release of Collateral pledged by any
other Grantor hereunder by the Agent; or (E) any other circumstance which might
otherwise constitute a defense available to or discharge of a guarantor, surety
or pledgor of any type, all of which defenses are hereby waived.

 

(g)           Each Grantor recognizes that the Agent may be unable to effect a
public sale of any or all the Pledged Collateral and may be compelled to resort
to one or more private sales thereof in accordance with clause (a) above.  Each
Grantor also acknowledges that any private sale may result in prices and other
terms less favorable to the seller than if such sale were a public sale and,
notwithstanding such circumstances, agrees that any such private sale shall not
be deemed to have been made in a commercially unreasonable manner solely by
virtue of such sale being private.  The Agent shall be under no obligation to
delay a sale of any of the Pledged Collateral for the period of time necessary
to permit the Grantor or the issuer of the Pledged Collateral to register such
securities for public sale under the Securities Act of 1933, as amended, or
under applicable state securities laws, even if the Grantor and the issuer would
agree to do so.

 

5.3.          Grantor’s Obligations Upon Default.  Upon the request of the Agent
after the occurrence of a Default, each Grantor will:

 

(a)           assemble and make available to the Agent the Collateral and all
books and records relating thereto at any place or places specified by the
Agent, whether at a Grantor’s premises or elsewhere;

 

(b)           permit the Agent, by the Agent’s representatives and agents, to
enter, occupy and use any premises where all or any part of the Collateral, or
the books and records relating thereto, or both, are located, to take possession
of all or any part of the Collateral or the books and records relating thereto,
or both, to remove all or any part of the Collateral or the books and records
relating thereto, or both, and to conduct sales of the Collateral, without any
obligation to pay the Grantor for such use and occupancy;

 

(c)           prepare and file, or cause an issuer of Pledged Collateral to
prepare and file, with the Securities and Exchange Commission or any other
applicable government agency, registration statements, a prospectus and such
other documentation in connection with the Pledged Collateral as the Agent may
request, all in form and substance satisfactory to the Agent, and furnish to the
Agent, or cause an issuer of Pledged Collateral to furnish to the Agent, any
information regarding the Pledged Collateral in such detail as the Agent may
specify;

 

(d)           take, or cause an issuer of Pledged Collateral to take, any and
all actions necessary to register or qualify the Pledged Collateral to enable
the Agent to consummate a public sale or other disposition of the Pledged
Collateral; and

 

17

--------------------------------------------------------------------------------

 

(e)           at its own expense, cause the independent certified public
accountants then engaged by each Grantor to prepare and deliver to the Agent, at
any time, and from time to time, promptly upon the Agent’s request, the
following reports with respect to the applicable Grantor: (i) a reconciliation
of all Accounts; (ii) an aging of all Accounts; (iii) trial balances; and (iv) a
test verification of such Accounts.

 

5.4.          Grant of Intellectual Property License.  For the purpose of
enabling the Agent to exercise the rights and remedies under this Article V at
such time as the Agent shall be lawfully entitled to exercise such rights and
remedies, each Grantor hereby (a) grants to the Agent an irrevocable,
nonexclusive license (exercisable without payment of royalty or other
compensation to any Grantor) to use, license or sublicense any intellectual
property rights now owned or hereafter acquired by such Grantor, and wherever
the same may be located, and including in such license access to all media in
which any of the licensed items may be recorded or stored and to all computer
software and programs used for the compilation or printout thereof and (b)
irrevocably agrees that the Agent may sell any of such Grantor’s Inventory
directly to any person, including without limitation persons who have previously
purchased the Grantor’s Inventory from such Grantor and in connection with any
such sale or other enforcement of the Agent’s rights under this Security
Agreement, may sell Inventory which bears any Trademark owned by or licensed to
such Grantor and any Inventory that is covered by any Copyright owned by or
licensed to such Grantor and the Agent may finish any work in process and affix
any Trademark owned by or licensed to such Grantor and sell such Inventory as
provided herein.

 

ARTICLE VI

ACCOUNT VERIFICATION; ATTORNEY IN FACT; PROXY

 

6.1.          Account Verification.  The Agent may, at any time after the
occurrence of an Event of Default, in the Agent’s own name, in the name of a
nominee of the Agent, or in the name of any Grantor communicate (by mail,
telephone, facsimile or otherwise) with the Account Debtors of such Grantor,
parties to contracts with any such Grantor and obligors in respect of
Instruments of any such Grantor to verify with such Persons, to the Agent’s
satisfaction, the existence, amount, terms of, and any other matter relating to,
Accounts, Instruments, Chattel Paper, payment intangibles and/or other
Receivables.

 

6.2.          Authorization for Agent to Take Certain Action.

 

(a)           Each Grantor irrevocably authorizes the Agent at any time and from
time to time in the sole discretion of the Agent and appoints the Agent as its
attorney in fact (i) to execute on behalf of such Grantor as debtor and to file
financing statements necessary or desirable in the Agent’s sole discretion to
perfect and to maintain the perfection and priority of the Agent’s security
interest in the Collateral, (ii) to endorse and collect any cash proceeds of the
Collateral, (iii) to file a carbon, photographic or other reproduction of this
Security Agreement or any financing statement with respect to the Collateral as
a financing statement and to file any other financing statement or amendment of
a financing statement (which does not add new collateral or add a debtor) in
such offices as the Agent in its sole discretion deems necessary or desirable to
perfect and to maintain the perfection and priority of the Agent’s security
interest in the Collateral, (iv) to contact and enter into one or more
agreements with the issuers of uncertificated securities which are Pledged
Collateral or with securities intermediaries holding Pledged Collateral as may
be necessary or advisable to give the Agent Control over such Pledged
Collateral, (v) to apply the proceeds of any Collateral received by the Agent to
the Secured Obligations as provided in Section 7.3, (vi) to discharge past due
taxes, assessments, charges, fees or Liens on the Collateral (except for such
Liens that are Permitted Encumbrances), (vii) to contact Account Debtors for any
reason, (viii) to demand payment or enforce payment of the Receivables in the
name of the Agent or the Grantor and to endorse any and all checks, drafts, and
other instruments for the payment of money relating to the Receivables, (ix) to
sign such Grantor’s name on any invoice or bill of lading relating to the
Receivables, drafts against any Account Debtor of the Grantor, assignments and
verifications of Receivables, (x) to exercise all of such Grantor’s rights and
remedies with respect to the collection of the Receivables and any other
Collateral, (xi) to settle, adjust, compromise, extend or renew the Receivables,
(xii) to settle, adjust or compromise any

 

18

--------------------------------------------------------------------------------

 

legal proceedings brought to collect Receivables, (xiii) to prepare, file and
sign such Grantor’s name on a proof of claim in bankruptcy or similar document
against any Account Debtor of such Grantor, (xiv) to prepare, file and sign such
Grantor’s name on any notice of Lien, assignment or satisfaction of Lien or
similar document in connection with the Receivables, (xv) to change the address
for delivery of mail addressed to such Grantor to such address as the Agent may
designate and to receive, open and dispose of all mail addressed to such
Grantor, and (xvi) to do all other acts and things necessary to carry out this
Security Agreement; and such Grantor agrees to reimburse the Agent on demand for
any payment made or any expense incurred by the Agent in connection with any of
the foregoing; provided that, this authorization shall not relieve such Grantor
of any of its obligations under this Security Agreement or under the Loan
Agreement.

 

(b)           All acts of said attorney or designee are hereby ratified and
approved. The powers conferred on the Agent, under this Section 6.2 are solely
to protect the Agent’s interests in the Collateral and shall not impose any duty
upon the Agent to exercise any such powers.

 

6.3.          Proxy. EACH GRANTOR HEREBY IRREVOCABLY CONSTITUTES AND APPOINTS
THE AGENT AS ITS PROXY AND ATTORNEY-IN-FACT (AS SET FORTH IN SECTION 6.2 ABOVE)
WITH RESPECT TO ITS PLEDGED COLLATERAL, INCLUDING THE RIGHT TO VOTE ANY OF THE
PLEDGED COLLATERAL, WITH FULL POWER OF SUBSTITUTION TO DO SO. IN ADDITION TO THE
RIGHT TO VOTE ANY OF THE PLEDGED COLLATERAL, THE APPOINTMENT OF THE AGENT AS
PROXY AND ATTORNEY-IN-FACT SHALL INCLUDE THE RIGHT TO EXERCISE ALL OTHER RIGHTS,
POWERS, PRIVILEGES AND REMEDIES TO WHICH A HOLDER OF ANY OF THE PLEDGED
COLLATERAL WOULD BE ENTITLED (INCLUDING GIVING OR WITHHOLDING WRITTEN CONSENTS
OF SHAREHOLDERS, CALLING SPECIAL MEETINGS OF SHAREHOLDERS AND VOTING AT SUCH
MEETINGS). SUCH PROXY SHALL BE EFFECTIVE, AUTOMATICALLY AND WITHOUT THE
NECESSITY OF ANY ACTION (INCLUDING ANY TRANSFER OF ANY OF THE PLEDGED COLLATERAL
ON THE RECORD BOOKS OF THE ISSUER THEREOF) BY ANY PERSON (INCLUDING THE ISSUER
OF THE PLEDGED COLLATERAL OR ANY OFFICER OR AGENT THEREOF), UPON THE OCCURRENCE
OF A DEFAULT.

 

6.4.          Nature of Appointment; Limitation of Duty.  THE APPOINTMENT OF THE
AGENT AS PROXY AND ATTORNEY-IN-FACT IN THIS ARTICLE VI IS COUPLED WITH AN
INTEREST AND SHALL BE IRREVOCABLE UNTIL THE DATE ON WHICH THIS SECURITY
AGREEMENT IS TERMINATED IN ACCORDANCE WITH SECTION 8.14. NOTWITHSTANDING
ANYTHING CONTAINED HEREIN, NEITHER THE AGENT NOR ANY OF ITS AFFILIATES, NOR ANY
OF ITS OR ITS AFFILIATES’ RESPECTIVE OFFICERS, DIRECTORS, EMPLOYEES, AGENTS OR
REPRESENTATIVES SHALL HAVE ANY DUTY TO EXERCISE ANY RIGHT OR POWER GRANTED
HEREUNDER OR OTHERWISE OR TO PRESERVE THE SAME AND SHALL NOT BE LIABLE FOR ANY
FAILURE TO DO SO OR FOR ANY DELAY IN DOING SO, EXCEPT IN RESPECT OF DAMAGES
ATTRIBUTABLE SOLELY TO ITS OWN GROSS NEGLIGENCE OR WILLFUL MISCONDUCT AS FINALLY
DETERMINED BY A COURT OF COMPETENT JURISDICTION; PROVIDED THAT, IN NO EVENT
SHALL THEY BE LIABLE FOR ANY PUNITIVE, EXEMPLARY, INDIRECT OR CONSEQUENTIAL
DAMAGES.

 

ARTICLE VII

COLLECTION AND APPLICATION OF COLLATERAL PROCEEDS; DEPOSIT ACCOUNTS

 

7.1.          Collection of Receivables.

 

(a)           Upon the request of the Agent, each Grantor shall (i) execute and
deliver to the Agent Deposit Account Control Agreements for each Deposit Account
maintained by such Grantor into which all cash, checks or other similar payments
relating to or constituting payments made in respect of Receivables will be
deposited (each, a “Collateral Deposit Account”), which Collateral Deposit
Accounts are identified as such on

 

19

--------------------------------------------------------------------------------

 

Exhibit B, and (ii) upon the occurrence of an Event of Default, establish lock
box service (the “Lock Boxes”) with the bank(s) set forth in Exhibit B, which
Lock Boxes shall be subject to irrevocable lockbox agreements in the form
provided by or otherwise reasonably acceptable to the Agent and shall be
accompanied by an acknowledgment by the bank where the Lock Box is located of
the Lien of the Agent granted hereunder and of irrevocable instructions to wire
all amounts collected therein to the Collection Account upon receipt of an
instruction from the Agent, which instruction may only be delivered after the
occurrence of an Event of Default (each, a “Lock Box Agreement”).

 

(b)           Upon the request of the Agent, after the occurrence of an Event of
Default, each Grantor shall direct all of its Account Debtors to forward
payments directly to Lock Boxes subject to Lock Box Agreements.  The Agent shall
have sole access to the Lock Boxes at all times and each Grantor shall take all
actions necessary to grant the Agent such sole access.  At no time shall any
Grantor remove any item from a Lock Box or a Collateral Deposit Account without
the Agent’s prior written consent.  If any Grantor should refuse or neglect to
notify any Account Debtor to forward payments directly to a Lock Box subject to
a Lock Box Agreement after the occurrence of an Event of Default and receipt of
notice from the Agent, the Agent shall, notwithstanding the language set forth
in Section 6.2(b) be entitled to make such notification directly to such Account
Debtor. If notwithstanding the foregoing instructions, any Grantor receives any
proceeds of any Receivables, such Grantor shall receive such payments as the
Agent’s trustee, and shall immediately deposit all cash, checks or other similar
payments related to or constituting payments made in respect of Receivables
received by it to a Collateral Deposit Account.  All funds deposited into any
Lock Box subject to a Lock Box Agreement or a Collateral Deposit Account will be
swept on a daily basis into a collection account maintained by the Agent (the
“Collection Account”). The Agent shall hold and apply funds received into the
Collection Account as provided by the terms of Section 7.3.

 

7.2.          Covenant Regarding New Deposit Accounts; Lock Boxes.  Before
opening or replacing any Collateral Deposit Account or other Deposit Account
(other than an Excluded Deposit Account), or establishing a new Lock Box, each
Grantor shall (a) obtain the Agent’s consent in writing to the opening of such
Collateral Deposit Account or other Deposit Account or establishing of such Lock
Box, and (b) cause each bank or financial institution in which it seeks to open
(i) a Collateral Deposit Account or other Deposit Account (other than an
Excluded Deposit Account), to enter into a Deposit Account Control Agreement
with the Agent in order to give the Agent Control of such Collateral Deposit
Account or other Deposit Account, or (ii) a Lock Box, to enter into a Lock Box
Agreement with the Agent in order to give the Agent Control of the Lock Box.

 

7.3.          Application of Proceeds; Deficiency.  All amounts deposited in the
Collection Account shall be deemed received by the Agent in accordance with
Section 2.10 of the Loan Agreement and shall, after having been credited to the
Collection Account, be applied (and allocated) by Agent in accordance with
Section 2.10 of the Loan Agreement.  Any such proceeds of the Collateral shall
be applied in the order set forth in Section 2.10 of the Loan Agreement unless a
court of competent jurisdiction shall otherwise direct.  The balance, if any,
after all of the Secured Obligations have been satisfied, shall be deposited by
the Agent into an account designated by the Borrower. The Grantors shall remain
liable for any deficiency if the proceeds of any sale or disposition of the
Collateral are insufficient to pay all Secured Obligations, including any
attorneys’ fees and other expenses incurred by the Agent or any Agent to collect
such deficiency.

 

7.4.          Securities Accounts Control Agreements.    Upon the request of the
Agent, each Grantor shall execute and deliver to the Agent Securities Account
Control Agreements for each Securities Account maintained by such Grantor. 
Before opening or replacing any Securities Account, each Grantor shall (a)
obtain the Agent’s consent in writing to the opening of such Securities Account,
and (b) cause each securities intermediary or financial institution with which
it seeks to open such Securities Account, to enter into a Securities Account
Control Agreement with the Agent in order to give the Agent Control of such
Securities Account.

 

20

--------------------------------------------------------------------------------

 

ARTICLE VIII

GENERAL PROVISIONS

 

8.1.          Waivers.  Each Grantor hereby waives notice of the time and place
of any public sale or the time after which any private sale or other disposition
of all or any part of the Collateral may be made.  To the extent such notice may
not be waived under applicable law, any notice made shall be deemed reasonable
if sent to the Grantors, addressed as set forth in Article IX, at least ten days
prior to (i) the date of any such public sale or (ii) the time after which any
such private sale or other disposition may be made.  To the maximum extent
permitted by applicable law, each Grantor waives all claims, damages, and
demands against the Agent arising out of the repossession, retention or sale of
the Collateral, except such as arise solely out of the gross negligence or
willful misconduct of the Agent as finally determined by a court of competent
jurisdiction. To the extent it may lawfully do so, each Grantor absolutely and
irrevocably waives and relinquishes the benefit and advantage of, and covenants
not to assert against the Agent, any valuation, stay, appraisal, extension,
moratorium, redemption or similar laws and any and all rights or defenses it may
have as a surety now or hereafter existing which, but for this provision, might
be applicable to the sale of any Collateral made under the judgment, order or
decree of any court, or privately under the power of sale conferred by this
Security Agreement, or otherwise.  Except as otherwise specifically provided
herein, each Grantor hereby waives presentment, demand, protest or any notice
(to the maximum extent permitted by applicable law) of any kind in connection
with this Security Agreement or any Collateral.

 

8.2.          Limitation on the Agent’s Duty with Respect to the Collateral. 
The Agent shall have no obligation to clean-up or otherwise prepare the
Collateral for sale. The Agent shall use reasonable care with respect to the
Collateral in its possession or under its control.  The Agent shall not have any
other duty as to any Collateral in its possession or control or in the
possession or control of any agent or nominee of the Agent, or any income
thereon or as to the preservation of rights against prior parties or any other
rights pertaining thereto. To the extent that applicable law imposes duties on
the Agent to exercise remedies in a commercially reasonable manner, each Grantor
acknowledges and agrees that it is commercially reasonable for the Agent (i) to
fail to incur expenses deemed significant by the Agent to prepare Collateral for
disposition or otherwise to transform raw material or work in process into
finished goods or other finished products for disposition, (ii) to fail to
obtain third party consents for access to Collateral to be disposed of, or to
obtain or, if not required by other law, to fail to obtain governmental or third
party consents for the collection or disposition of Collateral to be collected
or disposed of, (iii) to fail to exercise collection remedies against Account
Debtors or other Persons obligated on Collateral or to remove Liens on or any
adverse claims against Collateral, (iv) to exercise collection remedies against
Account Debtors and other Persons obligated on Collateral directly or through
the use of collection agencies and other collection specialists, (v) to
advertise dispositions of Collateral through publications or media of general
circulation, whether or not the Collateral is of a specialized nature, (vi) to
contact other Persons, whether or not in the same business as such Grantor, for
expressions of interest in acquiring all or any portion of the Collateral, (vii)
to hire one or more professional auctioneers to assist in the disposition of
Collateral, whether or not the Collateral is of a specialized nature, (viii) to
dispose of Collateral by utilizing internet sites that provide for the auction
of assets of the types included in the Collateral or that have the reasonable
capacity of doing so, or that match buyers and sellers of assets, (ix) to
dispose of assets in wholesale rather than retail markets, (x) to disclaim
disposition warranties, such as title, possession or quiet enjoyment, (xi) to
purchase insurance or credit enhancements to insure the Agent against risks of
loss, collection or disposition of Collateral or to provide to the Agent a
guaranteed return from the collection or disposition of Collateral, or (xii) to
the extent deemed appropriate by the Agent, to obtain the services of other
brokers, investment bankers, consultants and other professionals to assist the
Agent in the collection or disposition of any of the Collateral.  Each Grantor
acknowledges that the purpose of this Section 8.2 is to provide non-exhaustive
indications of what actions or omissions by the Agent would be commercially
reasonable in the Agent’s exercise of remedies against the Collateral and that
other actions or omissions by the Agent shall not be deemed commercially
unreasonable solely on account of not being indicated in this Section 8.2. 
Without limitation upon the foregoing, nothing contained in this Section 8.2
shall be construed to grant any rights to the Grantor or to

 

21

--------------------------------------------------------------------------------

 

impose any duties on the Agent that would not have been granted or imposed by
this Security Agreement or by applicable law in the absence of this Section 8.2.

 

8.3.          Compromises and Collection of Collateral.  The Grantors and the
Agent recognize that setoffs, counterclaims, defenses and other claims may be
asserted by obligors with respect to certain of the Receivables, that certain of
the Receivables may be or become uncollectible in whole or in part and that the
expense and probability of success in litigating a disputed Receivable may
exceed the amount that reasonably may be expected to be recovered with respect
to a Receivable.  In view of the foregoing, the Grantor agrees that the Agent
may at any time and from time to time, if an Event of Default has occurred and
is continuing, compromise with the obligor on any Receivable, accept in full
payment of any Receivable such amount as the Agent in its sole discretion shall
determine or abandon any Receivable, and any such action by the Agent shall be
commercially reasonable so long as the Agent acts in good faith based on
information known to it at the time it takes any such action.

 

8.4.          Secured Party Performance of Debtor Obligations.  Without having
any obligation to do so, the Agent may perform or pay any obligation which the
Grantor has agreed to perform or pay in this Security Agreement and the Grantors
shall reimburse the Agent for any amounts paid by the Agent pursuant to this
Section 8.4.  The Grantors’ obligation to reimburse the Agent pursuant to the
preceding sentence shall be a Secured Obligation payable on demand.

 

8.5.          Specific Performance of Certain Covenants.  Each Grantor
acknowledges and agrees that a breach of any of the covenants contained in
Sections 4.1(d), 4.1(e), 4.4, 4.5, 4.6, 4.7, 4.8, 4.9, 4.10, 4.12, 4.13, 4.14,
4.15, 4.16, 5.3, or 8.7 or in Article VII will cause irreparable injury to the
Agent, that the Agent has no adequate remedy at law in respect of such breaches
and therefore agrees, without limiting the right of the Agent to seek and obtain
specific performance of other obligations of the Grantors contained in this
Security Agreement, that the covenants of the Grantors contained in the Sections
referred to in this Section 8.5 shall be specifically enforceable against the
Grantors.

 

8.6.          Dispositions Not Authorized.  No Grantor is authorized to sell or
otherwise dispose of the Collateral except as set forth in Section 4.1(d) and
notwithstanding any course of dealing between any Grantor and the Agent or other
conduct of the Agent, no authorization to sell or otherwise dispose of the
Collateral (except as set forth in Section 4.1(d)) shall be binding upon the
Agent unless such authorization is in writing signed by the Agent.

 

8.7.          No Waiver; Amendments; Cumulative Remedies. No delay or omission
of the Agent to exercise any right or remedy granted under this Security
Agreement shall impair such right or remedy or be construed to be a waiver of
any Default or an acquiescence therein, and any single or partial exercise of
any such right or remedy shall not preclude any other or further exercise
thereof or the exercise of any other right or remedy. No waiver, amendment or
other variation of the terms, conditions or provisions of this Security
Agreement whatsoever shall be valid unless in writing signed by the Agent and
then only to the extent in such writing specifically set forth.  All rights and
remedies contained in this Security Agreement or by law afforded shall be
cumulative and all shall be available to the Agent until the Secured Obligations
have been paid in full.

 

8.8.          Limitation by Law; Severability of Provisions.  All rights,
remedies and powers provided in this Security Agreement may be exercised only to
the extent that the exercise thereof does not violate any applicable provision
of law, and all the provisions of this Security Agreement are intended to be
subject to all applicable mandatory provisions of law that may be controlling
and to be limited to the extent necessary so that they shall not render this
Security Agreement invalid, unenforceable or not entitled to be recorded or
registered, in whole or in part.  Any provision in this Security Agreement that
is held to be inoperative, unenforceable, or invalid in any jurisdiction shall,
as to that jurisdiction, be inoperative, unenforceable, or invalid without
affecting the

 

22

--------------------------------------------------------------------------------

 

remaining provisions in that jurisdiction or the operation, enforceability, or
validity of that provision in any other jurisdiction, and to this end the
provisions of this Security Agreement are declared to be severable.

 

8.9.          Reinstatement.  This Security Agreement shall remain in full force
and effect and continue to be effective should any petition be filed by or
against any Grantor for liquidation or reorganization, should the Grantor become
insolvent or make an assignment for the benefit of any creditor or creditors or
should a receiver or trustee be appointed for all or any significant part of any
Grantor’s assets, and shall continue to be effective or be reinstated, as the
case may be, if at any time payment and performance of the Secured Obligations,
or any part thereof, is, pursuant to applicable law, rescinded or reduced in
amount, or must otherwise be restored or returned by any obligee of the Secured
Obligations, whether as a “voidable preference,” “fraudulent conveyance,” or
otherwise (including pursuant to any settlement entered into by the Agent in its
discretion), all as though such payment or performance had not been made.  In
the event that any payment, or any part thereof, is rescinded, reduced, restored
or returned, the Secured Obligations shall be reinstated and deemed reduced only
by such amount paid and not so rescinded, reduced, restored or returned.

 

8.10.        Benefit of Agreement.  The terms and provisions of this Security
Agreement shall be binding upon and inure to the benefit of the Grantors, the
Agent and their respective successors and assigns (including all persons who
become bound as a debtor to this Security Agreement), except that no Grantor
shall have the right to assign its rights or delegate its obligations under this
Security Agreement or any interest herein, without the prior written consent of
the Agent.  No sales of participations, assignments, transfers, or other
dispositions of any agreement governing the Secured Obligations or any portion
thereof or interest therein shall in any manner impair the Lien granted to the
Agent hereunder.

 

8.11.        Survival of Representations.  All representations and warranties of
the Grantors contained in this Security Agreement shall survive the execution
and delivery of this Security Agreement.

 

8.12.        Taxes and Expenses.  Any taxes (including income taxes) payable or
ruled payable to any taxing authority in respect of this Security Agreement
shall be paid by the Grantors, together with interest and penalties, if any. 
The Grantors shall reimburse the Agent for any and all out-of-pocket expenses
and internal charges (including reasonable attorneys’, auditors’ and
accountants’ fees and reasonable time charges of attorneys, paralegals, auditors
and accountants who may be employees of the Agent) paid or incurred by the Agent
in connection with the preparation, execution, delivery, administration,
collection and enforcement of this Security Agreement and in the audit,
analysis, administration, collection, preservation or sale of the Collateral
(including the expenses and charges associated with any periodic or special
audit of the Collateral).  Any and all costs and expenses incurred by the
Grantors in the performance of actions required pursuant to the terms hereof
shall be borne solely by the Grantors.

 

8.13.        Headings.  The title of and section headings in this Security
Agreement are for convenience of reference only, and shall not govern the
interpretation of any of the terms and provisions of this Security Agreement.

 

8.14.        Termination.  This Security Agreement shall continue in effect
(notwithstanding the fact that from time to time there may be no Secured
Obligations outstanding) until (i) the Loan Agreement has terminated pursuant to
its express terms and (ii) all of the Secured Obligations (including, without
limitation, all payments due or to become due under Section 2.06 of the Loan
Agreement but excluding any inchoate indemnity obligations under Section 8.03 of
the Loan Agreement) have been indefeasibly paid and performed in full (or with
respect to any outstanding Reimbursement Obligations, a cash deposit or at the
discretion of the Agent, a back up standby Letter of Credit satisfactory to the
Agent has been delivered to the Agent as required by the Loan Agreement) and no
commitments of the Agent which would give rise to any Secured Obligations (other
than inchoate indemnity obligations under Section 8.03 of the Loan Agreement)
are outstanding.

 

23

--------------------------------------------------------------------------------

 

8.15.        Entire Agreement.  This Security Agreement embodies the entire
agreement and understanding between the Grantor and the Agent relating to the
Collateral and supersedes all prior agreements and understandings between the
Grantors and the Agent relating to the Collateral.

 

8.16.        CHOICE OF LAW.  THIS SECURITY AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS (AND NOT THE LAW OF CONFLICTS)
OF THE STATE OF NEW YORK, BUT GIVING EFFECT TO FEDERAL LAWS APPLICABLE TO
NATIONAL BANKS.

 

8.17.        CONSENT TO JURISDICTION.  EACH GRANTOR HEREBY IRREVOCABLY SUBMITS
TO THE NON-EXCLUSIVE JURISDICTION OF ANY U.S. FEDERAL OR NEW YORK STATE COURT
SITTING IN NEW YORK, NEW YORK IN ANY ACTION OR PROCEEDING ARISING OUT OF OR
RELATING TO THIS SECURITY AGREEMENT OR ANY OTHER LOAN DOCUMENT AND EACH GRANTOR
HEREBY IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF SUCH ACTION OR
PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH COURT AND IRREVOCABLY WAIVES
ANY OBJECTION IT MAY NOW OR HEREAFTER HAVE AS TO THE VENUE OF ANY SUCH SUIT,
ACTION OR PROCEEDING BROUGHT IN SUCH A COURT OR THAT SUCH COURT IS AN
INCONVENIENT FORUM.  NOTHING HEREIN SHALL LIMIT THE RIGHT OF THE AGENT TO BRING
PROCEEDINGS AGAINST ANY GRANTOR IN THE COURTS OF ANY OTHER JURISDICTION.  ANY
JUDICIAL PROCEEDING BY ANY GRANTOR AGAINST THE AGENT OR ANY AFFILIATE OF THE
AGENT INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER IN ANY WAY ARISING OUT OF,
RELATED TO, OR CONNECTED WITH THIS SECURITY AGREEMENT OR ANY OTHER LOAN DOCUMENT
SHALL BE BROUGHT ONLY IN A COURT IN NEW YORK, NEW YORK.

 

8.18.        WAIVER OF JURY TRIAL. EACH GRANTOR AND THE AGENT HEREBY WAIVE TRIAL
BY JURY IN ANY JUDICIAL PROCEEDING INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER
(WHETHER SOUNDING IN TORT, CONTRACT OR OTHERWISE) IN ANY WAY ARISING OUT OF,
RELATED TO, OR CONNECTED WITH THIS SECURITY AGREEMENT OR ANY OTHER LOAN DOCUMENT
OR THE RELATIONSHIP ESTABLISHED THEREUNDER.

 

8.19.        Indemnity.  Each Grantor hereby agrees to indemnify the Agent, and
its successors, assigns, agents and employees, from and against any and all
liabilities, damages, penalties, suits, costs, and expenses of any kind and
nature (including, without limitation, all expenses of litigation or preparation
therefor whether or not the Agent is a party thereto) imposed on, incurred by or
asserted against the Agent, or its successors, assigns, agents and employees, in
any way relating to or arising out of this Security Agreement, or the
manufacture, purchase, acceptance, rejection, ownership, delivery, lease,
possession, use, operation, condition, sale, return or other disposition of any
Collateral (including, without limitation, latent and other defects, whether or
not discoverable by the Agent or any Grantor, and any claim for Patent,
Trademark or Copyright infringement).

 

8.20.        Counterparts.  This Security Agreement may be executed in any
number of counterparts, all of which taken together shall constitute one
agreement, and any of the parties hereto may execute this Security Agreement by
signing any such counterpart.  Delivery of an executed counterpart of a
signature page of this Security Agreement by facsimile or other electronic
transmission shall be effective as delivery of a manually executed counterpart
of this Security Agreement.

 

8.21.        Lien Absolute.  All rights of the Agent hereunder, and all
obligations of the Grantors hereunder, shall be absolute and unconditional
irrespective of:

 

(a)           any lack of validity or enforceability of the Credit Agreement,
any other Loan Document or any other agreement or instrument governing or
evidencing any Secured Obligations;

 

24

--------------------------------------------------------------------------------

 

(b)           any change in the time, manner or place of payment of, or in any
other term of, all or any part 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
governing or evidencing any Secured Obligations;

 

(c)           any exchange, release or non-perfection of any Collateral, or any
release or amendment or waiver of or consent to departure from any guaranty, for
all or any of the Secured Obligations;

 

(d)           the insolvency of any Person; or

 

(e)           any other circumstance which might otherwise constitute a defense
available to, or a discharge of, the Grantors.

 

8.22.        Release.  Each Grantor consents and agrees that the Agent may at
any time, or from time to time, in its discretion:

 

(a)           renew, extend or change the time of payment, and/or the manner,
place or terms of payment of all or any part of the Secured Obligations; and

 

(b)           exchange, release and/or surrender all or any of the Collateral
(including the Pledged Collateral), or any part thereof, by whomsoever
deposited, which is now or may hereafter be held by the Agent in connection with
all or any of the Secured Obligations; all in such manner and upon such terms as
the Agent may deem proper, and without notice to or further assent from the
Grantor, it being hereby agreed that each Grantor shall be and remain bound upon
this Security Agreement, irrespective of the value or condition of any of the
Collateral, and notwithstanding any such change, exchange, settlement,
compromise, surrender, release, renewal or extension, and notwithstanding also
that the Secured Obligations may, at any time, exceed the aggregate principal
amount thereof set forth in the Credit Agreement, or any other agreement
governing any Secured Obligations.

 

ARTICLE IX

NOTICES

 

9.1.          Sending Notices.  Any notice required or permitted to be given
under this Security Agreement shall be sent in accordance with Section 8.01 of
the Loan Agreement; provided that notices to a Grantor shall be sent to such
Grantor at its mailing address set forth in Exhibit A hereto.

 

9.2.          Change in Address for Notices.  Each of the Grantors and the Agent
may change the address for service of notice upon it by a notice in writing to
the other parties.

 

(Signature pages follow)

 

25

--------------------------------------------------------------------------------

 

 

IN WITNESS WHEREOF, the Grantors and the Agent have executed this Security
Agreement as of the date first above written.

 

 

GRANTORS:

 

 

 

 

 

A123 SYSTEMS, INC.

 

 

 

 

By:

 

 

Name:

 

Title:

 

 

 

A123 SECURITIES CORPORATION

 

By:

 

 

Name:

 

Title:

 

 

 

 

 

A123 KOREA CO., LTD

 

 

 

 

By:

 

 

Name:

 

Title:

 

 

 

A123 SYSTEMS (CHINA) MATERIALS CO., LTD.

 

 

 

 

By:

 

 

Name:

 

Title:

 

 

 

A123 SYSTEMS ZHENJIANG CO., LTD.

 

 

 

 

By:

 

 

Name:

 

Title:

 

 

 

 

 

A123 SYSTEMS GMBH

 

 

 

 

By:

 

 

Name:

 

Title:

 

 

 

A123 SYSTEMS HONG KONG LTD.

 

 

 

 

By:

 

 

Name:

 

Title:

 

Signature Page to

Pledge and Security Agreement

 

--------------------------------------------------------------------------------

 

Acknowledged and Agreed to:

 

WANXIANG AMERICA CORPORATION, as Agent

 

By:

Name:

Title:

 

Signature Page to

Pledge and Security Agreement

 

--------------------------------------------------------------------------------

 

EXHIBIT A

(See Sections 3.2, 3.3, 3.4, 3.9 and 9.1 of Security Agreement)

 

NOTICE ADDRESS FOR ALL GRANTORS

 

 

 

ATTN:

 

 

Facsimile:

 

 

INFORMATION AND COLLATERAL LOCATIONS [Insert name of applicable Grantor]

 

I.              Name of Grantor:

 

II.            State of Incorporation or Organization:

 

III.           Type of Entity:

 

IV.           Organizational Number assigned by State of Incorporation or
Organization:

 

V.            Federal Identification Number:

 

VI.                                 Place of Business (if it has only one) or
Chief Executive Office (if more than one place of business) and Mailing Address:

 

 

 

Attention:

 

VII.          Locations of Collateral:

 

(a)           Properties Owned by the Grantor:

 

 

(b)           Properties Leased by the Grantor (Include Landlord’s Name):

 

 

(c)                                  Public Warehouses or other Locations
pursuant to Bailment or Consignment Arrangements (include name of Warehouse
Operator or other Bailee or Consignee):

 

--------------------------------------------------------------------------------

 

INFORMATION AND COLLATERAL LOCATIONS [Insert name of applicable Grantor]

 

I.              Name of Grantor:

 

II.            State of Incorporation or Organization:

 

III.           Type of Entity:

 

IV.           Organizational Number assigned by State of Incorporation or
Organization:

 

V.            Federal Identification Number:

 

VI.                                 Place of Business (if it has only one) or
Chief Executive Office (if more than one place of business) and Mailing Address:

 

 

 

Attention:

 

VII.          Locations of Collateral:

 

(a)           Properties Owned by the Grantor:

 

 

(b)           Properties Leased by the Grantor (Include Landlord’s Name):

 

 

(c)                                  Public Warehouses or other Locations
pursuant to Bailment or Consignment Arrangements (include name of Warehouse
Operator or other Bailee or Consignee):

 

[NOTE:  ADD ADDITIONAL INFORMATION PAGE FOR EACH GRANTOR]

 

Signature Page to

Pledge and Security Agreement

 

--------------------------------------------------------------------------------

 

EXHIBIT B

(See Sections 3.5 and 7.1 of Security Agreement)

 

DEPOSIT ACCOUNTS

 

Name of Grantor

 

Name of
Institution

 

Account Number

 

Check here if
Deposit Account is
a Collateral
Deposit Account

 

Description of
Deposit Account if
not a Collateral
Deposit Account

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LOCK BOXES

 

Name of Grantor

 

Name of Institution

 

Lock Box Number

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

--------------------------------------------------------------------------------

 

EXHIBIT C

(See Section 3.7 of Security Agreement)

 

LETTER OF CREDIT RIGHTS

 

CHATTEL PAPER

 

--------------------------------------------------------------------------------

 

 

EXHIBIT D

(See Section 3.10 and 3.11 of Security Agreement)

 

INTELLECTUAL PROPERTY RIGHTS

 

PATENTS

 

Name of Grantor

 

Patent Description

 

Patent Number

 

Issue Date

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

PATENT APPLICATIONS

 

Name of Grantor

 

Patent Application

 

Application Filing Date

 

Application Serial Number

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TRADEMARKS

 

Name of Grantor

 

Trademark

 

Registration Date

 

Registration Number

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TRADEMARK APPLICATIONS

 

Name of Grantor

 

Trademark Application

 

Application Filing Date

 

Application Serial Number

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

COPYRIGHTS

 

Name of Grantor

 

Copyright

 

Registration Date

 

Registration Number

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

COPYRIGHT APPLICATIONS

 

Name of Grantor

 

Copyright Application

 

Application Filing Date

 

Application Serial Number

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

INTELLECTUAL PROPERTY LICENSES

 

Name of Grantor

 

Name of Agreement

 

Date of Agreement

 

Parties to Agreement

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

--------------------------------------------------------------------------------

 

EXHIBIT E

(See Section 3.11 of Security Agreement)

 

TITLE DOCUMENTS

 

I.              Vehicles subject to certificates of title:

 

Name of Grantor

 

Description

 

Title Number

 

State Where Issued

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

II.            Aircraft/engines/parts, ships, railcars and other vehicles
governed by federal statute:

 

Name of Grantor

 

Description

 

Registration Number

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

--------------------------------------------------------------------------------

 

EXHIBIT F

(See Section 3.11 of Security Agreement)

 

FIXTURES

 

I.              Legal description, county and street address of property on
which Fixtures are located (by Grantor):

 

II.            Name and Address of Record Owner:

 

--------------------------------------------------------------------------------

 

EXHIBIT G

(See Section 3.13 of Security Agreement and Definition of “Pledged Collateral”)

 

LIST OF PLEDGED COLLATERAL, SECURITIES AND OTHER INVESTMENT PROPERTY

 

STOCKS

 

Name of
Grantor

 

Issuer

 

Certificate
Number(s)

 

Number of
Shares

 

Class of Stock

 

Percentage of
Outstanding
Shares

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BONDS

 

Name of
Grantor

 

Issuer

 

Number

 

Face Amount

 

Coupon Rate

 

Maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

GOVERNMENT SECURITIES

 

Name of
Grantor

 

Issuer

 

Number

 

Type

 

Face 
Amount

 

Coupon
Rate

 

Maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OTHER SECURITIES OR OTHER INVESTMENT PROPERTY
(CERTIFICATED AND UNCERTIFICATED)

 

Name of Grantor

 

Issuer

 

Description of Collateral

 

Percentage Ownership
Interest

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

SECURITIES ACCOUNTS

 

Name of Grantor

 

Name of Securities
Intermediary

 

Account Number

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

[Add description of custody accounts or arrangements with securities
intermediary, if applicable]

 

--------------------------------------------------------------------------------

 

EXHIBIT H

(See Section 3.1 of Security Agreement)

 

OFFICES IN WHICH FINANCING STATEMENTS HAVE BEEN FILED

 

--------------------------------------------------------------------------------

 

EXHIBIT I

(See Section 4.4 and 4.8 of Security Agreement)

 

AMENDMENT

 

This Amendment, dated                                     ,             is
delivered pursuant to Section 4.4 of the Security Agreement referred to below. 
All defined terms herein shall have the meanings ascribed thereto or
incorporated by reference in the Security Agreement.  The undersigned hereby
certifies that the representations and warranties in Article III of the Security
Agreement are and continue to be true and correct.  The undersigned further
agrees that this Amendment may be attached to that certain Pledge and Security
Agreement, dated                         , between the undersigned, as the
Grantors, and Wanxiang America Corporation, as the Agent, ([as amended or
modified from time to time prior to the date hereof,] the “Security Agreement”)
and that the Collateral listed on Schedule I to this Amendment shall be and
become a part of the Collateral referred to in said Security Agreement and shall
secure all Secured Obligations referred to in the Security Agreement.

 

 

 

 

 

 

 

 

 

By:

 

 

Name:

 

 

Title:

 

 

--------------------------------------------------------------------------------

 

SCHEDULE I TO AMENDMENT

 

STOCKS

 

Name of
Grantor

 

Issuer

 

Certificate
Number(s)

 

Number of
Shares

 

Class of Stock

 

Percentage of
Outstanding
Shares

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BONDS

 

Name of
Grantor

 

Issuer

 

Number

 

Face Amount

 

Coupon Rate

 

Maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

GOVERNMENT SECURITIES

 

Name of
Grantor

 

Issuer

 

Number

 

Type

 

Face
Amount

 

Coupon
Rate

 

Maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OTHER SECURITIES OR OTHER INVESTMENT PROPERTY

(CERTIFICATED AND UNCERTIFICATED)

 

Name of Grantor

 

Issuer

 

Description of Collateral

 

Percentage Ownership
Interest

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

[Add description of custody accounts or arrangements with securities
intermediary, if applicable]

 

COMMERCIAL TORT CLAIMS

 

Name of Grantor

 

Description of Claim

 

Parties

 

Case Number; Name of
Court where Case was Filed

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

--------------------------------------------------------------------------------

 

[EXHIBIT J

(See “Assigned Contracts” Definition)

 

ASSIGNED CONTRACTS]

 

--------------------------------------------------------------------------------

 

EXHIBIT K

 

COMMERCIAL TORT CLAIMS

 

--------------------------------------------------------------------------------

 

EXHIBIT L

 

FORM OF FINANCING STATEMENT

 

--------------------------------------------------------------------------------

 

ANNEX I

 

To

 

PLEDGE AND SECURITY AGREEMENT

 

Reference is hereby made to the Pledge and Security Agreement (as amended,
restated, supplemented or otherwise modified from time to time, the
“Agreement”), dated as of August 16, 2012, made by each of A123 SYSTEMS, INC., a
Delaware corporation (the “Borrower”) and the other Subsidiaries of the Borrower
listed on the signature pages thereto (together with the Borrower, the “Initial
Grantors”, and together with any additional Subsidiaries, including the
undersigned, which become parties thereto by executing a Supplement in
substantially the form hereof, the “Grantors”), in favor of the Agent. 
Capitalized terms used herein and not defined herein shall have the meanings
given to them in the Agreement.

 

By its execution below, the undersigned, [NAME OF NEW GRANTOR], a
[                        ] [corporation/limited liability company/limited
partnership] (the “New Grantor”) agrees to become, and does hereby become, a
Grantor under the Agreement and agrees to be bound by the Agreement as if
originally a party thereto.  The New Grantor hereby collaterally assigns and
pledges to the Agent, and grants to the Agent, a security interest in all of the
New Grantor’s right, title and interest in and to the Collateral, whether now
owned or hereafter acquired, to secure the prompt and complete payment and
performance of the Secured Obligations.  For the avoidance of doubt, the grant
of a security interest herein shall not be deemed to be an assignment of
intellectual property rights owned by the New Grantor.

 

By its execution below, the undersigned represents and warrants as to itself
that all of the representations and warranties contained in the Agreement are
true and correct in all respects as of the date hereof.  The New Grantor
represents and warrants that the supplements to the Exhibits to the Agreement
attached hereto are true and correct in all respects and that such supplements
set forth all information required to be scheduled under the Agreement with
respect to the New Grantor.  The New Grantor shall take all steps necessary and
required under the Agreement to perfect, in favor of the Agent, a first-priority
security interest in and lien against the New Grantor’s Collateral.

 

THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF
THE STATE OF NEW YORK.

 

IN WITNESS WHEREOF, the New Grantor has executed and delivered this Security
Agreement Supplement as of this                             day of
                           , 20        .

 

 

[NAME OF NEW GRANTOR]

 

 

 

 

 

 

By:

 

 

Title:

 

 

--------------------------------------------------------------------------------