EXHIBIT 10.2
EXECUTION COPY
 
AMENDED AND RESTATED
SECURITY AND PLEDGE AGREEMENT
Dated as of September 26, 2007
among
LUMINENT MORTGAGE CAPITAL, INC.,
and
THE SUBSIDIARIES OF THE BORROWER PARTIES HERETO,
as Grantors
and
ARCO CAPITAL CORPORATION LTD.,
as Secured Party
 

 

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TABLE OF CONTENTS

                      Page
 
           
SECTION 1.
  DEFINITIONS     1  
1.01.
  Definition of Terms Used Herein Generally     1  
1.02.
  Definition of Certain Terms Used Herein     1  
1.03.
  Rules of Interpretation     5  
SECTION 2.
  GRANT OF SECURITY INTERESTS     5  
SECTION 3.
  AUTHORIZATION TO FILE FINANCING STATEMENTS     6  
SECTION 4.
  RELATION TO OTHER SECURITY DOCUMENTS     6  
SECTION 5.
  REPRESENTATIONS AND WARRANTIES     6  
5.01.
  Grantors’ Legal Status     6  
5.02.
  Grantors’ Legal Name     6  
5.03.
  Grantors’ Locations     6  
5.04.
  Title to Collateral     7  
5.05.
  Nature of Collateral     7  
5.06.
  Compliance with Laws     7  
5.07.
  Pledged Securities     7  
5.08.
  Validity of Security Interest     8  
5.09.
  Perfection Certificate     9  
5.10.
  Advice of Counsel     9  
5.11.
  Required Consents     9  
SECTION 6.
  COVENANTS     9  
6.01.
  Grantors’ Legal Status     9  
6.02.
  Grantors’ Name     9  
6.03.
  Grantors’ Organizational Number     10  
6.04.
  Locations     10  
6.05.
  Title to Collateral     10  
6.06.
  Promissory Notes and Tangible Chattel Paper     10  
6.07.
  Deposit Accounts     10  
6.08.
  Investment Property     11  
6.09.
  Collateral in the Possession of a Bailee     12  
6.10.
  Electronic Chattel Paper and Transferable Records     13  
6.11.
  Letter-of-Credit Rights     13  
6.12.
  Commercial Tort Claims     13  

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TABLE OF CONTENTS
(continued)

                      Page
 
           
6.13.
  Intellectual Property     13  
6.14.
  Limitation on Modification of Accounts, Chattel Paper, Instruments and Payment
Intangibles     15  
6.15.
  Dispositions of Collateral     15  
6.16.
  Insurance     15  
6.17.
  Periodic Certification     16  
6.18.
  Other Actions as to any and all Collateral     16  
6.19.
  Taxes     17  
SECTION 7.
  INSPECTION AND VERIFICATION     17  
SECTION 8.
  COLLATERAL PROTECTION EXPENSES; PRESERVATION OF COLLATERAL     17  
8.01.
  Expenses Incurred by Administrative Agent     17  
8.02.
  Administrative Agent’s Obligations and Duties     17  
8.03.
  Use of Collateral     18  
SECTION 9.
  SECURITIES AND DEPOSITS     18  
SECTION 10.
  NOTIFICATION TO ACCOUNT DEBTORS AND OTHER PERSONS OBLIGATED ON COLLATERAL    
18  
SECTION 11.
  POWER OF ATTORNEY     18  
11.01.
  Appointment and Powers of Administrative Agent     18  
11.02.
  Ratification by Grantors     19  
11.03.
  No Duty on Administrative Agent     19  
SECTION 12.
  REMEDIES     19  
12.01.
  Remedies upon Default     19  
12.02.
  Grant of License to Use Intellectual Property     20  
12.03.
  Disposition of Pledged Securities     20  
SECTION 13.
  STANDARDS FOR EXERCISING REMEDIES     21  
SECTION 14.
  SURETYSHIP WAIVERS BY EACH GRANTOR     22  
SECTION 15.
  MARSHALLING     22  
SECTION 16.
  PROCEEDS OF DISPOSITIONS; EXPENSES     22  
SECTION 17.
  OVERDUE AMOUNTS     23  
SECTION 18.
  REINSTATEMENT     23  
SECTION 19.
  LIMITATIONS     23  
SECTION 20.
  MISCELLANEOUS     23  

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TABLE OF CONTENTS
(continued)

                      Page
 
           
20.01.
  Notices     23  
20.02.
  GOVERNING LAW; CONSENT TO JURISDICTION     23  
20.03.
  WAIVER OF JURY TRIAL, ETC     24  
20.04.
  Counterparts     24  
20.05.
  Headings     24  
20.06.
  Successors and Assigns     24  
20.07.
  No Strict Construction     25  
20.08.
  Severability     25  
20.09.
  Survival of Agreement     25  
20.10.
  Administrative Agent’s Fees and Expenses; Indemnification     25  
20.11.
  Binding Effect; Several Agreement     26  
20.12.
  Waivers; Amendment     26  
20.13.
  Termination     26  
20.14.
  Joint and Several Liability     26  

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TABLE OF CONTENTS
(continued)
SCHEDULES

         
Schedule I
  —   Subsidiary Guarantors in Existence on the Closing Date

EXHIBITS

         
Exhibit A
  —   Form of Perfection Certificate

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     AMENDED AND RESTATED SECURITY AND PLEDGE AGREEMENT, dated as of
September 26, 2007 (as this agreement may be amended, amended and restated,
supplemented or otherwise modified, renewed or replaced from time to time, the
“Security Agreement”), among (i) LUMINENT MORTGAGE CAPITAL, INC., a Maryland
corporation, as the Borrower; (ii) each Subsidiary of the Borrower listed on
Schedule I hereto (such Subsidiaries listed on such Schedule I and such
Subsidiaries of the Borrower as may hereafter become parties hereto by executing
an instrument of assumption and joinder, shall be referred to herein
collectively, as the “Subsidiary Guarantors” and individually, as a “Subsidiary
Guarantor”; the Subsidiary Guarantors and the Borrower are referred to herein
collectively, as the “Grantors”); and (iv) Arco Capital Corporation Ltd., a
corporation organized under the laws of the Cayman Islands (the “Lender”), as
Secured Party.
INTRODUCTORY STATEMENT
     All capitalized terms used herein and not otherwise defined above or in
this Introductory Statement, are as defined in Section 1 or as defined elsewhere
herein.
     The Borrower has entered into a Credit Agreement, dated as of August 21,
2007, as amended by the Amendment to Credit Agreement, dated as of September 12,
2007, the Second Amendment to Credit Agreement, dated as of September 20, 2007
and the Third Amendment to Credit Agreement, dated as of September 21, 2007 (as
such agreement may be amended, supplemented, restated or otherwise modified and
in effect from time to time, the “Existing Credit Agreement”) with the Lender,
pursuant to which, among other things, the Lender made loans or otherwise
extended credit to the Borrower upon the terms and subject to the conditions
specified in the Existing Credit Agreement.
     The Borrower has entered into an Amended and Restated Credit Agreement,
dated as of September 26, 2007 (as such agreement may be amended, supplemented,
restated or otherwise modified and in effect from time to time, the “Credit
Agreement”) with the Lender, pursuant to which, among other things, the Borrower
has requested, and the Lender has agreed, to amend and restate the Existing
Credit Agreement upon the terms and subject to the conditions specified in the
Credit Agreement.
     The Subsidiary Guarantors have entered into an Amended and Restated
Subsidiary Guaranty Agreement, dated as of the date hereof (as such agreement
may be amended, supplemented, restated or otherwise modified and in effect from
time to time, the “Guaranty”), in favor of the Lender, pursuant to which, among
other things, the Subsidiary Guarantors guaranteed all obligations of the
Borrower pursuant to the Credit Agreement.
     It is a condition precedent to the effectiveness of the Credit Agreement
that the Grantors shall have executed and delivered to the Lender this Security
Agreement pursuant to, and upon the terms and subject to the conditions
specified in, the Credit Agreement.
     Accordingly, the parties hereto agree as follows:
     SECTION 1. DEFINITIONS.
          1.01. Definition of Terms Used Herein Generally. All capitalized terms
used but not defined herein shall have the meanings set forth in the Credit
Agreement. All terms defined in the NYUCC and not otherwise defined herein shall
have the respective meanings accorded to them therein; provided, however, that
if a term is defined in Article 9 of the NYUCC differently than in another
Article of the NYUCC, the term has the meaning specified in Article 9 of the
NYUCC.

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          1.02. Definition of Certain Terms Used Herein. As used herein, the
following terms shall have the following meanings:
     “Capital Stock” means any and all shares, interests, participation or other
equivalents (however designated) of capital stock of a corporation, any and all
equivalent ownership interests in a Person (other than a corporation) and any
and all warrants, rights or options to purchase any of the foregoing.
     “Code” means the Internal Revenue Code of 1986, as amended from time to
time.
     “Collateral” shall have the meaning assigned to such term in Section 2(a).
     “Copyright License” means (a) any written agreement, now or hereafter in
effect, granting any right to any third party under any Copyright now or
hereafter owned by any Grantor or that any Grantor otherwise has the right to
license, or (b) any written agreement, now or hereafter in effect, granting any
right to a Grantor under any Copyright now or hereafter owned by any third
party, and (c) all rights of any Grantor under any such agreement referred to in
clause (a) or clause (b) above.
     “Copyright Office” means the United States Copyright Office or any
successor thereto.
     “Copyrights” means all of the following, whether now owned or hereafter
acquired by any Grantor: (a) all copyrights under the laws of the United States
or any other country (whether or not the underlying works of authorship have
been published), all registrations and recordings thereof, all copyrightable
works of authorship (whether or not published), and all applications for
copyright registrations under the laws of the United States or any other country
including registrations, recordings and applications in the United States
Copyright Office or in any similar office or agency of the United States, any
State thereof or any other country or any political subdivision thereof, (b) all
renewals and extensions of any of the foregoing, (c) all claims for, and rights
to sue for, past, present or future infringements of any of the foregoing, and
(d) all income, royalties, damages, now or hereafter due or payable with respect
to any of the foregoing, including damages and payments for past or future
infringements thereof.
     “Copyright Security Agreement Supplement” means a supplement to this
Security Agreement, executed by each Grantor that now or hereafter owns a
Copyright, in favor of the Secured Party, acceptable to the Secured Party.
     “Credit Agreement” shall have the meaning assigned to such term in the
Introductory Statement of this Security Agreement.
     “Extraordinary Payments” shall have the meaning assigned to such term in
Section 6.08(d)(ii).
     “Foreign Subsidiary” means any Person that is organized under the laws of
any jurisdiction outside of the United States.
     “Foreign Subsidiary Voting Stock” means the voting Capital Stock of any
Foreign Subsidiary.
     “Indemnitee” shall have the meaning assigned to that term in
Section 20.10(b).
     “Intellectual Property” means all intellectual and similar property of
every kind and nature whether now owned or hereafter acquired by any Grantor,
including inventions, designs, Patents, Patent Licenses, Trademarks, Trademark
Licenses, Copyrights, Copyright Licenses, domain names, domain name
registrations, trade secrets, confidential or proprietary technical and business
information, know-

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how, show-how or other data or information, software and databases and all
embodiments or fixations thereof and related documentation, registrations and
franchises, licenses for any of the foregoing and all license rights, and all
additions, improvements and accessions to, and books and records describing or
used in connection with, any of the foregoing.
     “NYUCC” means the Uniform Commercial Code as in effect in the State of New
York from time to time.
     “Obligations” means all loans, advances, liabilities, obligations,
covenants, duties, and indebtedness owing by each Grantor to the Secured Party
under the Credit Agreement or under any other agreement or instrument with the
Secured Party. The term includes interest accruing during the pendency of any
bankruptcy, insolvency, receivership or other similar proceeding, regardless of
whether allowed or allowable in such proceeding.
     “Patent License” means (a) any written agreement, now or hereafter in
effect, granting to any third party any right to make, use or sell any invention
on which a Patent, now or hereafter owned by any Grantor or that any Grantor
otherwise has the right to license, is in existence, or (b) any written
agreement, now or hereafter in effect, granting any right to a Grantor to make,
use or sell any invention on which a Patent, now or hereafter owned by any third
party, is in existence, and (c) all rights of any Grantor under any such
agreement referred to in clause (a) or clause (b) above.
     “Patents” means all of the following, whether now owned or hereafter
acquired by any Grantor: (a) all letters patent of the United States or any
other country, all registrations and recordings thereof, and all applications
for letters patent of the United States or any other country, including
registrations, recordings and pending applications in the PTO or in any similar
office or agency of the United States, any State or Territory thereof, or any
other country, (b) all rights to sue for, past, present or future infringement
thereof and (c) all reissues, continuations, divisions, continuations-in-part,
renewals or extensions thereof, together with inventions disclosed or claimed
therein, and the right to make, use and/or sell the inventions disclosed or
claimed therein.
     “Patent Security Agreement Supplement” means a supplement to this Security
Agreement, executed by each Grantor that now or hereafter owns a Patent, in
favor of the Secured Party, in the form acceptable to the Secured Party.
     “Perfection Certificate” means a certificate substantially in the form of
Exhibit A, completed and supplemented with the schedules and attachments
contemplated thereby, and duly executed by the Grantors certifying as to the
contents thereof.
     “Perfection Supplement” shall have the meaning assigned to such term in
Section 6.17.
     “Permitted Encumbrances” means Liens permitted under Section 8.02 of the
Credit Agreement.
     “Pledged Notes” means all promissory notes issued to, or held by, any
Grantor.
     “Pledged Securities” means collectively, the Pledged Notes and the Pledged
Stock.
     “Pledged Stock” means, with respect to each Grantor, (a) all right, title
and interest of such Grantor as a holder (whether now or in the future) in
(i) shares or other Capital Stock held by such Grantor in any corporations or
other entities, and (ii) all shares of stock, certificates, instruments or other
documents evidencing or representing the foregoing interests described in clause
(i) and (b) all right, title and interest of such Grantor in and to all present
and future payments, proceeds, dividends, distributions,

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instruments, compensation, property, assets, interests and rights in connection
with, or related to, the collateral listed in clause (a) above, and all monies
due or to become due and payable to such Grantor in connection with, or related
to, such collateral or otherwise paid, issued or distributed from time to time
in respect of or in exchange therefor, and any certificate, instrument or other
document evidencing or representing the same (including all proceeds of
dissolution or liquidation); provided, in no event shall more than 66% of the
total outstanding Foreign Subsidiary Voting Stock be required to be pledged
hereunder pursuant to Section 2.
     “PTO” means the United States Patent and Trademark Office or any successor
thereto.
     “Securities Act” shall have the meaning assigned to such term in Section
12.03(d).
     “Security Documents” means (i) the Security Agreement, (ii) any Perfection
Certificate, and (iii) each other security agreement, pledge agreement,
mortgage, deed of trust, assignment agreement and other agreement or instrument
being executed and delivered by a Grantor to the Secured Party concurrently
herewith, or from time to time hereafter executed and delivered by a Grantor to
the Secured Party, pursuant to which a Lien has been granted or purported to be
granted by any of the Grantors in favor of the Secured Party on any of its
assets to secure any of the Obligations or its Guaranty of any of the
Obligations (as applicable) or pursuant to which any such Lien is perfected.
     “Security Interest” means the security interest granted pursuant to
Section 2, as well as all other security interests created or assigned as
additional security for the Obligations pursuant to the provisions of any
Security Document.
     “Subsidiary” means, as to any Person, a corporation, partnership, limited
liability company or other entity of which shares of stock or other ownership
interests having ordinary voting power (other than stock or such other ownership
interests having such power only by reason of the happening of a contingency) to
elect a majority of the board of directors or other managers of such
corporation, partnership or other entity are at the time owned, or the
management of which is otherwise controlled, directly or indirectly through one
or more intermediaries, or both, by such Person. Unless otherwise qualified, all
references to a “Subsidiary” or to “Subsidiaries” in this Security Agreement
shall refer to a Subsidiary or Subsidiaries of the Borrower.
     “Trademark License” means (a) any written agreement, now or hereafter in
effect, granting to any third party any right to use any Trademark now or
hereafter owned by any Grantor or that any Grantor otherwise has the right to
license, or (b) any written agreement, now or hereafter in effect, granting to a
Grantor any right to use any Trademark now or hereafter owned by any third
party, and (c) all rights of any Grantor under any such agreement referred to in
clause (a) or clause (b) above.
     “Trademarks” means all of the following whether now owned or hereafter
adopted or acquired by any Grantor: (a) all state (including common law),
federal and foreign trademarks, service marks, trade names, corporate names,
company names, business names, fictitious business names, trade styles, trade
dress, logos, other source or business identifiers, designs and general
intangibles of like nature, all registrations and recordings thereof or similar
property rights, and all registration and recording applications filed in
connection therewith (but excluding any application to register any trademark,
service mark or other mark prior to the filing under Applicable Law of a
verified statement of use (or the equivalent) for such trademark, service mark
or other mark to the extent the creation of a security interest therein or the
grant of a mortgage thereon would void or invalidate such trademark, service
mark or other mark), including registrations, recordings and registration
applications in the PTO, any State of the United States or any similar offices
in any other country or any political subdivision thereof, and all reissues,
extensions or renewals thereof, (b) all rights to sue for, past, present or
future infringements or

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unconsented use thereof of any of the foregoing, (c) all goodwill of any
business associated therewith or symbolized thereby and (d) all other assets,
rights and interests that uniquely reflect or embody such goodwill.
     “Trademark Security Agreement Supplement” means a supplement to this
Security Agreement, executed by each Grantor that now or hereafter owns a
Trademark, in favor of the Secured Party, in the form acceptable to the Secured
Party.
     “UCC” means the Uniform Commercial Code as in effect in any jurisdiction
(except as otherwise contemplated in Section 6.18).
          1.03. Rules of Interpretation. The rules of interpretation specified
in Section 1.02 of the Credit Agreement shall be applicable to this Security
Agreement; provided, however, that references to “Sections,” “Exhibits” and
“Schedules” shall be to Sections, Exhibits and Schedules, respectively, of this
Security Agreement unless otherwise specifically provided. All references to
statutes and related regulations shall include (unless otherwise specifically
provided herein) any amendments of same and any successor statutes and
regulations.
     SECTION 2. GRANT OF SECURITY INTERESTS.
               (a) To secure the payment or performance, as the case may be, in
full of the Obligations, each Grantor hereby grants to the Secured Party, and
its successors and assigns, a security interest in, and Lien on, and pledges and
assigns to the Secured Party, and its successors and assigns, the following
properties, assets and rights of each Grantor, wherever located and whether now
owned or hereafter acquired or arising, and all proceeds and products thereof
(all of such properties, assets, rights and proceeds being hereinafter
collectively referred to as the “Collateral”): all personal and fixture property
of every kind and nature including all goods (including inventory, equipment,
fixtures and any accessions thereto), instruments (including promissory notes),
documents, accounts (including health-care-insurance receivables), chattel paper
(whether tangible or electronic), deposit accounts, letter-of-credit rights
(whether or not the letter of credit is evidenced by a writing), money,
commercial tort claims, securities and all other investment property (including
the Pledged Securities), supporting obligations, any other contract rights or
rights to the payment of money, insurance claims and proceeds, and all general
intangibles (including all Intellectual Property, insurance policies and payment
intangibles); provided, however, that in no event shall more than 66% of the
total outstanding Foreign Subsidiary Voting Stock be required to be pledged
hereunder to the extent that the pledge of such Foreign Subsidiary Voting Stock
above such amount would result in a repatriation of a material amount of foreign
earnings under the Code (including “deemed dividend” provisions of Section 956
of the Code); provided, further, that the definition of “Collateral” shall not
include any property or assets to the extent that the Grantors are prohibited
from granting a security interest in, pledge of, or charge, mortgage or lien
upon, or having a financing statement filed with respect to, any such property
or assets as of the date hereof by reason of (x) an existing and enforceable
negative pledge provision as of the date hereof to the extent such provision
does not violate the terms of any Related Document or (y) applicable law or
regulation to which such Grantors are subject, except (in the case of either of
the foregoing clauses (x) and (y)) to the extent such prohibition is ineffective
under Sections 9-406, 9-407, 9-408 or 9-409 of the NYUCC. The Secured Party
acknowledges that the attachment of its Security Interest in any commercial tort
claim of any Grantor as original collateral is subject to each Grantors’
compliance with Section 6.12.
               (b) The Secured Party represents and warrants to the Grantors
that it is a “qualified purchaser” as defined in Section 2(a)(51) of the
Investment Company Act of 1940, as amended.

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               (c) It is the intention of the Grantors that the description of
the Collateral set forth above be construed to include the broadest possible
range of assets.
     SECTION 3. AUTHORIZATION TO FILE FINANCING STATEMENTS. Each Grantor hereby
irrevocably authorizes the Secured Party at any time and from time to time to
file in any jurisdiction in which the UCC has been adopted any initial financing
statements and amendments thereto that (a) indicate the Collateral (i) as all
assets of such 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 NYUCC or such other jurisdiction, or (ii) as being of an equal or lesser
scope or with greater detail, and (b) contain any other information required by
part 5 of Article 9 of the NYUCC, or such other jurisdiction for the sufficiency
or filing office acceptance of any initial financing statement or amendment,
including (i) whether each Grantor is an organization, the type of organization
and any organizational identification number issued to such Grantor and, (ii) in
the case of a financing statement filed as a fixture filing or indicating
Collateral as timber to be cut or as-extracted collateral, a sufficient
description of real property to which such Collateral relates. Each Grantor
agrees to furnish any such information to the Secured Party promptly, but no
later than five (5) days unless otherwise consented to by the Secured Party,
upon request. Each Grantor also ratifies its authorization for the Secured Party
to have filed in any UCC jurisdiction any like initial financing statements or
amendments thereto if filed prior to the date hereof.
     SECTION 4. RELATION TO OTHER SECURITY DOCUMENTS. The provisions of this
Security Agreement supplement the provisions of any real estate mortgage or deed
of trust granted by any Grantor to the Secured Party and securing the payment
and performance of any of the Obligations. Nothing contained in any such real
estate mortgage or deed of trust shall derogate from any of the rights or
remedies of the Secured Party hereunder. In addition to the provisions of this
Security Agreement being so read and construed with any such mortgage or deed of
trust, the provisions of this Security Agreement shall be read and construed
with the other Security Documents referred to below in the manner so indicated
and any other Security Documents, as the case may be.
     SECTION 5. REPRESENTATIONS AND WARRANTIES. The Grantors jointly and
severally represent and warrant to the Secured Party as follows:
          5.01. Grantors’ Legal Status. (a) Each Grantor is a registered
organization of the type, and is organized in the jurisdiction, as set forth on
the Perfection Certificate or the most recent Perfection Supplement, as
applicable, or as otherwise notified to the Secured Party pursuant to
Section 6.01; and (b) the Perfection Certificate or the most recent Perfection
Supplement, as applicable, or a written notification delivered to the Secured
Party pursuant to Section 6.03, sets forth each Grantor’s organizational
identification number or states that such Grantor has none.
          5.02. Grantors’ Legal Name. Each Grantor’s exact legal name is that
set forth on the Perfection Certificate and on the signature page hereof or the
most recent Perfection Supplement, as applicable, and from and after an
amendment or modification thereto, on a written notification delivered to the
Secured Party pursuant to Section 6.02.
          5.03. Grantors’ Locations. The Perfection Certificate or the most
recent Perfection Supplement, as applicable, or a written notification delivered
to the Secured Party pursuant to Section 6.04, sets forth each Grantor’s place
of business (if such Grantor has just one place of business) or its chief
executive office (if it has more than one place of business), as well as, its
mailing address if different from its place of business or chief executive
office (as applicable). Each Grantor’s place of business or (if it has more than
one place of business) its chief executive office is located in a jurisdiction
that has adopted the UCC or whose laws generally require that information
concerning the existence of nonpossessory security interests be made generally
available in a filing, recording or registration system

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as a condition or result of the security interest obtaining priority over the
rights of a lien creditor with respect to the collateral.
          5.04. Title to Collateral. Each Grantor is the owner of or has other
rights in, and has the power to transfer its right, title and interest in and
to, the Collateral being pledged by it, free from any right or claim of any
Person or any Lien, except (other than in the case of investment property) for
Permitted Encumbrances. No Grantor has filed or consented to the filing of
(a) any financing statement or analogous document under the UCC or any other
applicable laws covering any Collateral, (b) any assignment in which any Grantor
assigns any Collateral or any security agreement or similar instrument covering
any Collateral with the PTO or the Copyright Office or (c) any assignment in
which any Grantor assigns any Collateral or any security agreement or similar
instrument covering any Collateral with any foreign governmental, municipal or
other office, in each of the foregoing cases which financing statement or
analogous document, assignment, security agreement or similar instrument is
still in effect, except, in each case, for Permitted Encumbrances.
          5.05. Nature of Collateral. None of the Collateral constitutes, or is
the proceeds of, “farm products” as defined in Section 9-102(a)(34) of the
NYUCC. None of the Collateral has been purchased for, or will be used by any
Grantor primarily for personal, family or household purposes. Except as set
forth on the Perfection Certificate or the most recent Perfection Supplement, as
applicable, or otherwise notified to the Secured Party pursuant to Sections 6.12
or 6.13, respectively:
               (a) none of the account debtors or other Persons obligated on any
of the Collateral is a governmental authority subject to the Federal Assignment
of Claims Act (or similar Federal, state or local statute or rule) in respect of
such Collateral;
               (b) the Grantors hold no commercial tort claims;
               (c) the Grantors hold no interest in, title to or power to
transfer, any Patents, Trademarks or Copyrights; and
               (d) the Grantors hold no interest in, title to or power to
transfer any Intellectual Property that is eligible for registration in the PTO
or the Copyright Office.
          5.06. Compliance with Laws. Each Grantor has at all times operated its
business in compliance with all applicable provisions of the Federal Fair Labor
Standards Act, as amended, and with all applicable provisions of Federal, state
and local statutes and ordinances dealing with the control, shipment, storage or
disposal of hazardous materials or substances.
          5.07. Pledged Securities.
               (a) Set forth on Schedule II is a true, correct and complete list
and description of all of the Pledged Securities;
               (b) As of the date hereof, the Pledged Stock set forth on Part B
of Schedule II constitutes all of the respective Capital Stock of each Grantor
in Subsidiaries owned directly by such Grantor (except if such Subsidiary is a
Foreign Subsidiary and the pledge of such Foreign Subsidiary Voting Stock
greater than 66% is not required to be pledged pursuant to Section 2, then such
Pledged Stock constitutes 66% of the respective Capital Stock of such Grantor in
such Foreign Subsidiary);

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               (c) As of the date hereof, the Pledged Stock set forth on Part C
of Schedule II constitutes all of the respective Capital Stock of each Grantor
in any corporation or other entity other than the Pledged Stock evidencing
Capital Stock in Subsidiaries;
               (d) All of the Pledged Stock has been duly authorized, validly
issued and is fully paid and non-assessable and is not subject to any options to
purchase or similar rights of any Person, and none of the Pledged Stock
constitutes “margin stock” as defined in Regulation U;
               (e) To each of the Grantor’s knowledge, each of the Pledged Notes
constitutes the legal, valid and binding obligation of the obligor with respect
thereto, enforceable in accordance with its terms, subject to the effects of
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and
other similar laws relating to or affecting creditors’ rights generally, general
equitable principles (whether considered in a proceeding in equity or at law)
and an implied covenant of good faith and fair dealing; and
               (f) Such Grantor is, and at the time of delivery of the Pledged
Securities to the Secured Party, will be, the sole holder of record and the sole
beneficial owner of such Pledged Securities pledged by such Grantor (including
the Pledged Securities acquired by such Grantor after the Closing Date) free and
clear of any Lien thereon or affecting the title thereto (except for the Lien
created by this Security Agreement).
          5.08. Validity of Security Interest.
               (a) (i) The Security Interest constitutes a legal and valid
security interest in all of the Collateral securing the payment and performance
of the Obligations and (ii) the filing of financing statements describing the
Collateral in the offices located in the jurisdictions listed on the Perfection
Certificate or the most recent Perfection Supplement, as applicable, the
recording in the PTO of the Trademark Security Agreement Supplement and the
Patent Security Agreement Supplement and in the Copyright Office of the
Copyright Security Agreement Supplement, as applicable, the taking of all
applicable actions in respect of perfection contemplated by Sections 6.06, 6.07,
6.08, 6.09, 6.10, 6.11 and 6.12 in respect of Collateral (in which a security
interest cannot be perfected by the filing of a financing statement or such
recordings in the PTO or the Copyright Office), the Security Interest will be
perfected in all Collateral in which a security interest can be perfected by the
Secured Party filing a financing statement, filing with the PTO or the Copyright
Office, as applicable, taking possession or obtaining control under the UCC.
               (b) When the UCC financing statements (including fixture filings,
as applicable) or other appropriate filings, recordings or registrations
containing a description of the Collateral have been filed in each governmental,
municipal or other office specified on the Perfection Certificate or the most
recent Perfection Supplement, as applicable, which are all the filings,
recordings and registrations (other than filings required to be made in the PTO
and the Copyright Office in order to perfect the Security Interest in Collateral
consisting of United States Patents, Trademarks and Copyrights) that are
necessary to publish notice of and protect the validity of and to establish a
legal, valid and perfected security interest in favor of the Secured Party in
respect of all Collateral in which the Security Interest may be perfected by
filing, recording or registration in the United States (or any political
subdivision thereof) and its territories and possessions will have been made, no
further or subsequent filing, refiling, recording, rerecording, registration or
reregistration is necessary in any such jurisdiction, except as provided under
applicable law with respect to the filing of continuation statements.
               (c) A fully executed Patent Security Agreement Supplement,
Trademark Security Agreement Supplement and a Copyright Security Agreement
Supplement in the forms attached

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hereto and containing a specific description of all Collateral consisting of
United States Patents and United States registered Trademarks (and Trademarks
for which United States registration applications are pending) and United States
registered Copyrights have been delivered by each Grantor with respect to such
Grantor’s Intellectual Property to the Secured Party for recording by the PTO
and the Copyright Office, as necessary, pursuant to 35 U.S.C. § 261, 15 U.S.C. §
1060 or 17 U.S.C. § 205 and the regulations thereunder, as applicable, and
otherwise as may be required pursuant to the laws of any other necessary
jurisdiction. When such supplements and the UCC financing statements referred to
in Section 5.08(a), as applicable, have been filed, all the filings, recordings
and registrations necessary to protect the validity of and to establish a legal,
valid and perfected security interest in favor of the Secured Party in respect
of all Collateral consisting of Patents, Trademarks and Copyrights in which a
security interest may be perfected by filing, recording or registration in the
United States (or any political subdivision thereof) and its territories and
possessions, or in any other necessary jurisdiction, will have been made, and no
further or subsequent filing, refiling, recording, rerecording, registration or
reregistration is necessary (other than such actions as are necessary to perfect
the Security Interest with respect to any Collateral consisting of Patents,
Trademarks and Copyrights of such Grantor (or registration or application for
registration thereof) acquired or developed after the date hereof).
               (d) The Security Interest is and shall be prior to any other Lien
on any of the Collateral other than (except in the case of investment property)
Permitted Encumbrances, which by their terms, the time of their incurrence or
otherwise pursuant to applicable law are prior to the Security Interest.
          5.09. Perfection Certificate. All information set forth on the
Perfection Certificate is, and all information set forth on each Perfection
Supplement shall be accurate and complete in all material respects, or as
otherwise notified to the Secured Party in accordance with the terms of Sections
6.01, 6.02, 6.03, 6.04, 6.12 or 6.13.
          5.10. Advice of Counsel. Each Grantor has discussed this Security
Agreement and, specifically, the provisions of Sections 20.02 and 20.03, with
its counsel.
          5.11. Required Consents. Except for consents, authorizations,
approvals, notices and filings obtained, made or waived, or as may be required
in connection with any disposition of any portion of the Pledged Securities by
laws affecting the offering and sale of securities generally, no consent of any
Person (including partners, shareholders or creditors of the Grantors or of any
Subsidiary of the Grantors) and no license, permit, approval or authorization
of, exemption by, notice or report to, or registration, filing or declaration
with, any governmental instrumentality is required in connection with (i) the
execution, delivery, performance, validity or enforceability of this Security
Agreement; (ii) the perfection or maintenance of the Security Interest created
hereby (including the first priority nature of such Security Interest); or
(iii) the exercise by the Secured Party of the rights provided for in this
Security Agreement.
     SECTION 6. COVENANTS. Each Grantor covenants and agrees with the Secured
Party, in each case at each Grantor’s own cost and expense as follows:
          6.01. Grantors’ Legal Status. Without providing at least thirty
(30) days’ prior written notice to the Secured Party, such Grantor shall not
change its type of organization, jurisdiction of organization or other legal
structure.
          6.02. Grantors’ Name. Without providing at least thirty (30) days’
prior written notice to the Secured Party, such Grantor shall not change its
name.

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          6.03. Grantors’ Organizational Number. Without providing at least
thirty (30) days’ prior written notice to the Secured Party, such Grantor shall
not change its organizational identification number if it has one, and if such
Grantor does not have an organizational identification number and later obtains
one, such Grantor shall forthwith notify the Secured Party of such
organizational identification number.
          6.04. Locations. Without providing at least thirty (30) days’ prior
written notice to the Secured Party, such Grantor shall not (a) change its place
of business (if it has just one place of business) or its chief executive office
(if it has more than one place of business) or its mailing address if different
from its place of business or chief executive office (as applicable); or
(b) except to the extent delivered to the Secured Party pursuant to
Sections 6.06, 6.07, 6.08 or 6.10 or otherwise permitted pursuant to
Section 6.15 remove any of its property or assets constituting Collateral from
the locations listed on the Perfection Certificate or the most recent Perfection
Supplement, as applicable.
          6.05. Title to Collateral. (a) Except for the Security Interest herein
granted and other Permitted Encumbrances, each Grantor shall be the owner of or
have other rights in, and the power to transfer its right, title and interest in
and to, the Collateral free from any right or claim of any other Person or any
Lien, and each Grantor, at its sole cost and expense, shall defend the same
against all claims and demands of all Persons at any time claiming the same or
any interests therein adverse to the Secured Party; and (b) no Grantor shall
pledge, mortgage or create, or suffer to exist any right of any Person in or
claim by any Person to the Collateral, or any Lien on the Collateral in favor of
any Person, other than the Secured Party, except for Permitted Encumbrances.
          6.06. Promissory Notes and Tangible Chattel Paper. If any Grantor
shall at any time hold or acquire any promissory notes or tangible chattel
paper, such Grantor shall forthwith endorse, assign and deliver the same to the
Secured Party, accompanied by such instruments of transfer or assignment undated
and duly executed in blank as the Secured Party may from time to time specify.
          6.07. Deposit Accounts. For each deposit account that each Grantor at
any time opens or maintains, each Grantor shall, at the Secured Party’s request
and option, either (a) cause the depositary bank to enter into a written
agreement or other authenticated record with the Secured Party, in form and
substance satisfactory to the Secured Party, pursuant to which such depositary
bank shall agree, among other things, to comply at any time with instructions
from the Secured Party, to such depositary bank directing the disposition of
funds from time to time credited to such deposit account, without further
consent of any Grantor, or (b) arrange for the Secured Party, to become the
customer of the depositary bank with respect to the deposit account, with each
Grantor being permitted, only with the consent of the Secured Party, to exercise
rights to withdraw funds from such deposit account. The Secured Party agrees
with each Grantor that the Secured Party shall not give any such instructions or
withhold any withdrawal rights from any Grantor, unless an Event of Default has
occurred and is continuing, or, after giving effect to any withdrawal not
otherwise permitted by the Credit Agreement, would occur. The foregoing
provisions of this Section 6.07 shall not apply to (i) deposit accounts for
which the Secured Party is the depositary bank and is in automatic control;
(ii) deposit accounts specially and exclusively used for payroll, payroll taxes
and other employee wage and benefit payments to or for the benefit of any
Grantor’s salaried employees and (iii) deposit accounts specially and
exclusively used for petty cash, or other similar use, having an account balance
which does not exceed at any time $25,000 in the aggregate. With respect to any
deposit accounts, rights arising under deposit accounts or proceeds thereof in
the possession or within the control of the Secured Party, each Grantor waives
any restriction or obligation imposed on the Secured Party by
Sections 9-207(c)(1), 9-207(c)(2) and 9-208 of the NYUCC.

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          6.08. Investment Property.
               (a) If any Grantor shall at any time hold or acquire any
certificated securities, such Grantor shall forthwith endorse, assign and
deliver the same to the Secured Party, accompanied by such instruments of
transfer or assignment undated and duly executed in blank as the Secured Party
may from time to time specify. If any securities now owned or hereafter acquired
by any Grantor are uncertificated and are issued to such Grantor or its nominee
directly by the issuer thereof, such Grantor shall immediately notify the
Secured Party thereof and, at the Secured Party’s request and option, either
(A) cause the issuer to enter into a written agreement or other authenticated
record with the Secured Party, in form and substance satisfactory to the Secured
Party, pursuant to which such issuer shall agree, among other things, to comply
with instructions from the Secured Party as to such securities, without further
consent of such Grantor or such nominee, or (B) arrange for the Secured Party to
become the registered owner of the securities.
               (b) If any securities, whether certificated or uncertificated, or
other investment property now or hereafter acquired by any Grantor are held or
acquired by such Grantor or its nominee through a securities intermediary or
commodity intermediary, such Grantor shall immediately notify the Secured Party
thereof and, at the Secured Party’s request and option, either (A) cause such
securities intermediary or (as the case may be) commodity intermediary to enter
into a written agreement or other authenticated record with the Secured Party,
in form and substance satisfactory to the Secured Party, pursuant to which such
securities intermediary or commodities intermediary, as the case may be, shall,
among other things, agree to comply with entitlement orders or other
instructions from the Secured Party to such securities intermediary as to such
securities or other investment property, or (as the case may be) to apply any
value distributed on account of any commodity contract as directed by the
Secured Party to such commodity intermediary, in each case without further
consent of such Grantor or such nominee, or (B) in the case of financial assets
or other investment property held through a securities intermediary, arrange for
the Secured Party to become the entitlement holder with respect to such
investment property, with such Grantor being permitted, only with the consent of
the Secured Party, to exercise rights to withdraw or otherwise deal with such
investment property. The Secured Party agrees with each Grantor that the Secured
Party shall not give any such entitlement orders or instructions or directions
to any such issuer, securities intermediary or commodity intermediary, and shall
not withhold its consent to the exercise of any withdrawal or dealing rights by
any Grantor, unless an Event of Default has occurred and is continuing, or,
after giving effect to any such investment and withdrawal rights not otherwise
permitted by the Related Documents, would occur. The provisions of this Section
6.08(b) shall not apply to (i) any financial assets credited to a securities
account for which the Secured Party is the securities intermediary and is in
automatic control pursuant to Section 9-106(a) of the NYUCC or (ii) any
commodity contract carried in a commodity account for which the Secured Party is
the commodity intermediary and is in automatic control pursuant to Section
9-106(b) of the NYUCC.
               (c) With respect to any investment property in the possession or
within the control of the Secured Party, each Grantor waives any restriction or
obligation imposed on the Secured Party by Sections 9-207(c)(1), 9-207(c)(2) and
9-208 of the NYUCC.
               (d) So long as no Event of Default shall have occurred and be
continuing, each Grantor shall be entitled:
                    (i) to exercise, but in a manner not inconsistent with the
terms hereof, all voting power and other consensual rights with respect to any
of the Pledged Securities of such Grantor, and for that purpose the Secured
Party shall (if such Pledged Securities shall be registered in the name of the
Secured Party or its nominee) execute or cause to be executed from time to time,
at the expense of such Grantor, such proxies or other instruments in favor of
such Grantor or its nominee as

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shall be reasonably required by such Grantor and shall be specified in a written
request therefor, to enable it to exercise such voting power with respect to the
Pledged Securities (any such proxies or other instruments to be in form and
substance satisfactory to the Secured Party in all respects); and
                    (ii) except as otherwise provided herein or in the Credit
Agreement, to receive and retain for its own account (subject to the Liens
created hereunder) any and all payments, proceeds, dividends, distributions,
monies, compensation, property, assets, instruments or rights to the extent such
are permitted pursuant to the terms of the Credit Agreement, other than
(x) stock or liquidating dividends or (y) other dividends or other amounts
payable under or in connection with any recapitalization, restructuring, or
other non-ordinary course event (the dividends and amounts in this clause
(y) being “Extraordinary Payments”), paid, issued or distributed from time to
time in respect of the Pledged Securities.
               (e) In case, upon the dissolution or liquidation (in whole or in
part) of any issuer of any Pledged Securities, any sum shall be paid or payable
as a liquidating dividend or otherwise upon or with respect to any of the
Pledged Securities or, in the event any other Extraordinary Payment is paid or
payable, then and in any such event, such sum shall be paid by each such Grantor
over to the Secured Party promptly, and in any event to be applied as set forth
in the Credit Agreement.
               (f) In case any stock dividend shall be declared with respect to
any of the Pledged Securities, or any shares of stock or fractions thereof shall
be issued pursuant to any stock split involving any of the Pledged Securities,
or any distribution of capital shall be made on any of the Pledged Securities,
or any shares, obligations or other property shall be distributed upon or with
respect to the Pledged Securities, in each case pursuant to a recapitalization
or reclassification of the capital of the issuer thereof, or pursuant to the
dissolution, liquidation (in whole or in part), bankruptcy or reorganization of
such issuer, or to the merger or consolidation of such issuer with or into
another corporation, the shares, obligations or other property so distributed
shall be delivered by the Grantor to the Secured Party promptly, and in any
event within ten (10) days after receipt by such Grantor thereof, to be held by
the Secured Party as Collateral hereunder subject to the terms of this Security
Agreement, and all of the same shall constitute Pledged Securities for all
purposes hereof.
               (g) Upon the occurrence and during the continuance of any Event
of Default, all rights of a Grantor to exercise or refrain from exercising any
of the voting and other consensual rights that it would otherwise be entitled to
exercise pursuant to Section 6.08(d)(i) and to receive and retain any of the
payments, proceeds, dividends, distributions, monies, compensation, property,
assets, instruments or rights that the Grantor would otherwise be authorized to
receive and retain pursuant to Section 6.08(d)(ii) shall cease, and thereupon
the Secured Party shall be entitled to exercise all voting power with respect to
the Pledged Securities and to receive and retain, as Collateral hereunder, any
and all payments, proceeds, dividends, distributions, monies, compensation,
property, assets, instruments or rights at any time declared or paid upon any of
the Pledged Securities during the continuance of an Event of Default and
otherwise to act with respect to the Pledged Securities as outright owner
thereof.
               (h) All payments, proceeds, dividends, distributions, monies,
compensation, property, assets, instruments or rights that are received by each
Grantor contrary to the provisions of this Section 6.08 shall be received and
held in trust for the benefit of the Secured Party shall be segregated by each
Grantor from other funds of such Grantor and shall be forthwith paid over to the
Secured Party as in the same form as so received (with any necessary or
reasonably requested endorsement).
          6.09. Collateral in the Possession of a Bailee. If any Collateral of
any Grantor is at any time in the possession of a bailee, such Grantor shall
promptly notify the Secured Party thereof in writing and, if requested by the
Secured Party, shall promptly obtain a written acknowledgement from such

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bailee, in form and substance satisfactory to the Secured Party, that such
bailee holds such Collateral for the benefit of the Secured Party and shall act
upon the instructions of the Secured Party at any time, without the further
consent of any Grantor. The Secured Party agrees with each Grantor that the
Secured Party shall not give any such instructions unless an Event of Default
has occurred and is continuing or would occur after taking into account any
action by any Grantor with respect to such bailee. Notwithstanding the
foregoing, to the extent such Grantor is unable to promptly obtain a written
acknowledgement from a bailee, then, at the request of the Secured Party, such
Grantor shall promptly move such Collateral to a bailee that shall authenticate
a record acknowledging that it is holding the Collateral for the benefit of the
Secured Party.
          6.10. Electronic Chattel Paper and Transferable Records. If any
Grantor at any time holds or acquires an interest in any electronic chattel
paper or any “transferable record,” as that term is defined in Section 201 of
the Federal Electronic Signatures in Global and National Commerce Act, or in
Section 16 of the Uniform Electronic Transactions Act as in effect in any
relevant jurisdiction, such Grantor shall promptly notify the Secured Party in
writing thereof and, at the request and option of the Secured Party, shall take
such action as the Secured Party may reasonably request to vest in the Secured
Party control, under Section 9-105 of the UCC, of such electronic chattel paper
or control under Section 201 of the Federal Electronic Signatures in Global and
National Commerce Act or, as the case may be, Section 16 of the Uniform
Electronic Transactions Act, as so in effect in such jurisdiction, of such
transferable record. The Secured Party agrees with each Grantor that the Secured
Party shall arrange, pursuant to procedures satisfactory to the Secured Party
and so long as such procedures will not result in the Secured Party’s loss of
control, for each Grantor to make alterations to the electronic chattel paper or
transferable record permitted under Section 9-105 of the UCC or, as the case may
be, Section 201 of the Federal Electronic Signatures in Global and National
Commerce Act or Section 16 of the Uniform Electronic Transactions Act for a
party in control to make without loss of control, unless an Event of Default has
occurred and is continuing or would occur after taking into account any action
by any Grantor with respect to such electronic chattel paper or transferable
record.
          6.11. Letter-of-Credit Rights. If any Grantor is at any time a
beneficiary under a letter of credit now or hereafter issued in favor of any
Grantor, or obtains or acquires any other letter-of-credit rights, such Grantor
shall promptly notify the Secured Party in writing thereof and, at the request
and option of the Secured Party, such Grantor shall either (a) arrange for the
issuer and any confirmer or other nominated Person with respect to such letter
of credit to consent, pursuant to an agreement or other authenticated record
with the Secured Party (which agreement or other authenticated record shall be
in form and substance satisfactory to the Secured Party), to an assignment to
the Secured Party of the proceeds of any drawing under the letter of credit or
(b) arrange for the Secured Party to become the transferee beneficiary of the
applicable letter of credit, with the Secured Party agreeing, in each case, that
the proceeds of any drawing under the letter of credit are to be applied as
provided in the Credit Agreement.
          6.12. Commercial Tort Claims. If any Grantor shall at any time hold or
acquire a commercial tort claim, such Grantor shall immediately notify the
Secured Party in a writing signed by such Grantor of the brief details thereof
and grant to the Secured Party in such writing a security interest therein and
in the proceeds thereof, all upon the terms of this Security Agreement, with
such writing to be in form and substance satisfactory to the Secured Party.
          6.13. Intellectual Property. If at any time any Grantor shall obtain
or otherwise hold any Patent, Trademark or Copyright that is not the subject of
a filed Patent Security Agreement Supplement, Trademark Security Agreement
Supplement, or Copyright Security Agreement Supplement, as the case may be, then
such Grantor shall execute and deliver to the Secured Party for filing in the
PTO or the Copyright Office, as applicable, the applicable supplement. In
addition, each Grantor agrees to

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comply with the following covenants in respect of any of such Grantor’s
Intellectual Property that constitutes Collateral:
               (a) each Grantor shall notify the Secured Party immediately if it
knows, or has reason to know, that any application or registration relating to
any Patent, Trademark or Copyright (now or hereafter existing) may become
abandoned or dedicated or may lapse, or of any adverse determination or
development regarding each Grantor’s ownership of any Patent, Trademark, or
Copyright, its right to register the same, or to keep and maintain the same
(including the institution of, or any determination or development in, any
proceeding in the PTO, the Copyright Office or any court);
               (b) in no event shall any Grantor, either itself or through any
agent, employee, licensee or designee, file an application for the registration
of any Patent, Trademark, or Copyright with the PTO, the Copyright Office or any
similar office or agency of any jurisdiction without giving the Secured Party
prior written notice thereof, and, upon request of the Secured Party, such
Grantor shall execute and deliver any and all Patent Security Agreement
Supplements, Trademark Security Agreement Supplements or Copyright Security
Agreement Supplements as the Secured Party may request to evidence the Secured
Party’s Security Interest in such Patent, Trademark or Copyright, and the
general intangibles of such Grantor relating thereto or represented thereby;
               (c) each Grantor promptly shall register all of its material
Copyrights with the Copyright Office and take all actions necessary or requested
by the Secured Party to maintain and pursue each application, to obtain the
relevant registration and to maintain the registration of each Copyright (now or
hereafter existing), including the filing of applications for renewal,
affidavits of use, affidavits of noncontestability and opposition and
interference and cancellation proceedings;
               (d) each Grantor shall take all actions necessary or requested by
the Secured Party to maintain and pursue each application, to obtain the
relevant registration and to maintain the registration of each Patent or
Trademark (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 Grantor shall reasonably
determine that such Patent or Trademark is not material to the conduct of its
business;
               (e) in the event that any of the Collateral consisting of
Patents, Trademarks, or Copyrights is infringed upon, or misappropriated or
diluted by a third party, such Grantor shall notify the Secured Party promptly
after such Grantor learns thereof and such Grantor shall, unless such Grantor
shall reasonably determine that such Patent, Trademark or Copyright is in no way
material to the conduct of its business or operations, take all reasonable
actions, including suing for infringement, misappropriation or dilution and to
recover any and all damages for such infringement, misappropriation or dilution,
shall periodically report to the Secured Party as to the status of such actions
and shall take such other actions as the Secured Party shall deem appropriate
under the circumstances to protect such Patent, Trademark or Copyright;
               (f) with respect to any Intellectual Property constituting
Collateral that any Grantor has reasonably determined continues to be useful and
material to the conduct of such Grantor’s business, unless the Secured Party
otherwise consents, such Grantor will not take or omit to take any action
whereby such Intellectual Property could reasonably be expected to become
abandoned, dedicated, lapsed, invalidated or whereby the remedies in respect of
such Intellectual Property with respect to potential infringers could reasonably
be expected to become weakened;
               (g) each Grantor assumes all responsibility and liability arising
from the use of the Intellectual Property and hereby indemnifies and holds the
Secured Party and each other Secured

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Party harmless from and against any claim, suit, loss, damage or expense
(including reasonable attorneys’ fees arising out of any alleged defect in any
product manufactured, promoted or sold by such Grantor (or any affiliate or
Subsidiary thereof) in connection with such Intellectual Property or out of the
manufacture, promotion, labeling, sale or advertisement of any such product by
any Grantor (or any affiliate or Subsidiary thereof);
               (h) each Grantor will do all things that are reasonably necessary
and proper within each Grantor’s power and control to keep each license of or
constituting Intellectual Property held by such Grantor as licensee or licensor
in full force and effect except to the extent that (i) such Grantor has
reasonably determined that the failure to keep any such license in full force
and effect could not be reasonably expected to have a Material Adverse Effect or
(ii) any such license would expire by its terms (as in effect on the date
hereof) or is terminable at will by a Person other than such Grantor; and
               (i) each Grantor shall not create any nonexclusive license in any
Trademark, Copyright, Patent or other Intellectual Property or general
intangible, in each case owned by or licensed to any Grantor unless such license
is in writing and by its terms is expressly subject and subordinate to the
Security Interest created hereby, such subordination to include a provision
expressly stating that such license shall terminate, at the option of the
Secured Party, upon foreclosure of such Security Interest.
          6.14. Limitation on Modification of Accounts, Chattel Paper,
Instruments and Payment Intangibles. None of the Grantors will, without the
Secured Party’s prior written consent: (a) grant any extension of the time of
payment of any of the Collateral consisting of accounts, chattel paper,
instruments or payment intangibles; (b) compromise, compound or settle the same
for less than the full amount thereof; (c) release, wholly or partly, any
obligor liable for the payment thereof or (d) allow any credit or discount
whatsoever thereon; provided, however, this Section 6.14 shall not restrict any
other extensions, credits, discounts, compromises or settlements granted or made
by any Grantor in the ordinary course of such Grantor’s business and consistent
with such prudent practices used in industries that are the same as or similar
to those in which such Grantor is engaged.
          6.15. Dispositions of Collateral. None of the Grantors shall make or
permit to be made an assignment for security, pledge or hypothecation of the
Collateral or shall grant any other Lien in respect of the Collateral, except as
expressly permitted by this Security Agreement and the Credit Agreement. None of
the Grantors shall make or permit to be made any transfer of the Collateral,
except that (a) inventory may be sold in the ordinary course of business and
(b) unless and until the Secured Party shall notify the Grantors that an Event
of Default shall have occurred and be continuing and that during the continuance
thereof the Grantors shall not sell, convey, lease, assign, transfer or
otherwise dispose of any Collateral (which notice may be given by telephone if
promptly confirmed in writing), the Grantors may use and dispose of the
Collateral in any lawful manner not prohibited by this Security Agreement, the
Credit Agreement or any other Related Document. Notwithstanding the foregoing,
in no event shall any Grantor create any lease of Collateral owned by or leased
to any Grantor unless such lease is in writing and by its terms is expressly
subject and subordinate to the Security Interest created hereby, such
subordination to include a provision expressly stating that such lease shall
terminate, at the option of the Secured Party, upon foreclosure of such Security
Interest.
          6.16. Insurance.
               (a) Maintenance of Insurance. Each Grantor will maintain with
financially sound and reputable insurers insurance with respect to its
properties and business against such casualties and contingencies as shall be in
accordance with general practices of businesses engaged in similar activities in
similar geographic areas. Such insurance shall be in such minimum amounts that
each Grantor will not be deemed a co-insurer under applicable insurance laws,
regulations and policies and

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otherwise shall be in such amounts, contain such terms, be in such forms and be
for such periods as may be reasonably satisfactory to the Secured Party. In
addition, all such insurance shall be payable to the Secured Party as loss
payee. Without limiting the foregoing, each Grantor will (i) keep all of its
physical property insured with casualty or physical hazard insurance on an “all
risks” basis, with broad form flood and earthquake coverages and electronic data
processing coverage, with a full replacement cost endorsement and an “agreed
amount” clause in an amount equal to 100% of the full replacement cost of such
property, (ii) maintain all such workers’ compensation or similar insurance as
may be required by law, and (iii) maintain, in amounts and with deductibles
equal to those generally maintained by businesses engaged in similar activities
in similar geographic areas, general public liability insurance against claims
of bodily injury, death or property damage occurring, on, in or about the
properties of each Grantor; business interruption insurance; and product
liability insurance.
               (b) Insurance Proceeds. The proceeds of any casualty insurance in
respect of any casualty loss of any Collateral shall, subject to the rights, if
any, of other parties with a prior interest in the property covered thereby, be
disbursed as set forth in the Credit Agreement.
          6.17. Periodic Certification. From time to time on demand from the
Secured Party, but in no event less frequently than annually, the Grantor shall
deliver to the Secured Party a supplemental perfection certificate (each, as
updated by any supplement with respect to a new Grantor pursuant to the
following sentence, a “Perfection Supplement”) executed by the Borrower either
(a) certifying that the information contained in the Perfection Certificate or
Perfection Supplement, as applicable, most recently delivered remains true and
correct in all material respects or (b) updating the information contained in
such Perfection Certificate or Perfection Supplement, as applicable, as
necessary to cause such information to be true and correct in all material
respects. In addition, at the time a Subsidiary shall become a Grantor
hereunder, the Borrower shall deliver to the Secured Party a supplemental
perfection certificate containing the required information for such new Grantor,
which information shall be true and correct in all material respects as of the
date of delivery thereof.
          6.18. Other Actions as to any and all Collateral.
               (a) Each Grantor further agrees, upon request of the Secured
Party, to take any and all other actions as the Secured Party may determine to
be necessary or useful for the attachment, perfection and first priority of, and
the ability of the Secured Party to enforce, the Security Interest in any and
all of the Collateral including (i) causing the Secured Party’s name to be noted
as secured party on any certificate of title for a titled good constituting
Collateral if such notation is a condition to attachment, perfection or priority
of, or ability of the Secured Party to enforce, the Security Interest in such
Collateral; (ii) complying with any provision of any statute, regulation or
treaty of the United States as to any Collateral if compliance with such
provision is a condition to the attachment, perfection or priority of, or the
ability of the Secured Party to enforce, the Security Interest in such
Collateral; (iii) obtaining governmental and other third-party waivers, consents
and approvals in form and substance satisfactory to the Secured Party, including
any consent of any licensor, lessor or other Person obligated on Collateral;
(iv) obtaining waivers from mortgagees, bailees, landlords and any other Person
who has possession of or any interest in any Collateral or any real property on
which any Collateral may be located, in form and substance satisfactory to the
Secured Party; and (v) taking all actions under any earlier versions of the UCC
or under any other law, as reasonably determined by the Secured Party to be
applicable in any relevant UCC or other jurisdiction, including any foreign
jurisdiction.
               (b) Each Grantor agrees that it will use reasonable efforts to
take such action as shall be necessary in order that all representations and
warranties hereunder shall be true and correct in all material respects with
respect to a particular item of Collateral within thirty (30) days after the
date it has been notified in writing by the Secured Party of the specific
identification of such Collateral and the

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representations and warranties that the Secured Party believes may not be true
and correct in all material respects.
          6.19. Taxes. Each Grantor shall pay promptly when due all taxes,
assessments, governmental charges and levies upon the Collateral or incurred in
connection with the use or operation of such Collateral or incurred in
connection with this Security Agreement.
     SECTION 7. INSPECTION AND VERIFICATION. The Secured Party and such Persons
as the Secured Party may designate shall have the right, at the Grantors’ own
cost and expense, to inspect the Collateral, all records related thereto (and to
make extracts and copies from such records) and the premises upon which any of
the Collateral is located, to discuss the Grantors’ affairs with the officers of
the Grantors and its independent accountants and to verify the validity, amount,
quality, quantity, value, condition and status of, or any other matter relating
to, the Collateral, including by contacting account debtors or others obligated
with respect to Collateral and, in the case of Collateral in the possession of
any third Person, the third Person possessing such Collateral, as provided in
the Credit Agreement.
     SECTION 8. COLLATERAL PROTECTION EXPENSES; PRESERVATION OF COLLATERAL.
          8.01. Expenses Incurred by Administrative Agent. In its discretion,
the Secured Party may discharge taxes, assessments, charges, fees, Liens,
security interests and other encumbrances at any time levied or placed on any of
the Collateral and not constituting Permitted Encumbrances, and may pay for the
maintenance and preservation of the Collateral and any necessary filing fees or
insurance premiums to the extent any Grantor fails to do so as required by the
Credit Agreement or this Security Agreement. Each Grantor jointly and severally
agrees to reimburse the Secured Party on demand for any and all expenditures so
made, and all sums disbursed by the Secured Party in connection with this
Section 8.01, including reasonable attorneys’ fees, court costs, expenses and
other charges relating thereto, shall be payable, upon demand, by the Grantors
to the Secured Party and shall constitute additional Obligations. The Secured
Party shall have no obligation to any Grantor to make any such expenditures, nor
shall the making thereof be construed as a waiver or cure of any Default or
Event of Default of any Grantor.
          8.02. Administrative Agent’s Obligations and Duties. Anything herein
to the contrary notwithstanding, each Grantor shall remain obligated and liable
under each contract, agreement or instrument comprised in the Collateral to be
observed or performed by such Grantor thereunder. The Secured Party or any agent
thereof shall not have any obligation or liability under any such contract,
agreement or instrument by reason of or arising out of this Security Agreement
or the receipt by the Secured Party of any payment relating to any of the
Collateral, nor shall the Secured Party or agent thereof be obligated in any
manner to perform any of the obligations of any Grantor under or pursuant to any
such contract, agreement or instrument, to make inquiry as to the nature or
sufficiency of any payment received by the Secured Party in respect of the
Collateral or as to the sufficiency of any performance by any party under any
such contract, agreement or instrument, to present or file any claim, to take
any action to enforce any performance or to collect the payment of any amounts
which may have been assigned to the Secured Party or to which the Secured Party
may be entitled at any time or times. The sole duty of the Secured Party or any
agent thereof with respect to the custody, safe keeping and physical
preservation of the Collateral in its possession, under Section 9-207 of the
NYUCC or otherwise, shall be to deal with such Collateral in the same manner as
the Secured Party or such agent deals with similar property for its own account.

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          8.03. Use of Collateral. With respect to any Collateral in the
possession of the Secured Party, or a bailee or other third party holding on its
behalf, the Secured Party may use or operate such Collateral in any manner and
to the extent provided for under Section 9-207 of the NYUCC.
     SECTION 9. SECURITIES AND DEPOSITS. Without limitation of Section 6.08, the
Secured Party may at any time after the occurrence and during the continuance of
an Event of Default, at its option, transfer to itself or any nominee any
securities constituting Collateral, receive any income thereon and hold such
income as additional Collateral or apply it to the Obligations. Whether or not
any Obligations are due, the Secured Party may after the occurrence and during
the continuance of an Event of Default, demand, sue for, collect, or make any
settlement or compromise which it deems desirable with respect to the
Collateral. Regardless of the adequacy of Collateral or any other security for
the Obligations, any deposits or other sums at any time credited by or due from
the Secured Party to any Grantor may at any time be applied to or set off
against any of the Obligations whether or not due and owing.
     SECTION 10. NOTIFICATION TO ACCOUNT DEBTORS AND OTHER PERSONS OBLIGATED ON
COLLATERAL. If an Event of Default shall have occurred and be continuing,
(a) each Grantor shall, at the request and option of the Secured Party, notify
account debtors and other Persons obligated on any of the Collateral of the
Security Interest of the Secured Party n any account, chattel paper, general
intangible, instrument or other property of such Grantor constituting Collateral
and that payment of such obligor’s obligation is to be made directly to the
Secured Party or to any financial institution designated by the Secured Party as
the Secured Party’s agent therefor, and (b) the Secured Party may itself,
without notice to or demand upon any Grantor, so notify such account debtors and
other Persons obligated on such Collateral. After the making of such a request
by the Secured Party or the giving of any such notification by the Secured Party
(as applicable), each Grantor shall hold any proceeds of collection of accounts,
chattel paper, general intangibles, instruments and other Collateral received by
such Grantor as trustee for the Secured Party without commingling the same with
other funds of such Grantor and shall turn the same over to the Secured Party in
the identical form received, together with any necessary endorsements or
assignments. The provisions of Section 9-209 of the NYUCC shall not apply to any
account, chattel paper or payment intangible as to which notification of
assignment has been sent to the account debtor or other Person obligated on the
Collateral.
     SECTION 11. POWER OF ATTORNEY.
          11.01. Appointment and Powers of Administrative Agent. Each Grantor
hereby irrevocably constitutes and appoints the Secured Party and any director,
officer or agent thereof, with full power of substitution, as its true and
lawful attorneys-in-fact with full irrevocable power and authority in the place
and stead of such Grantor or in the Secured Party’s own name, for the purpose of
carrying out the terms of this Security Agreement or any other Security
Document, to take any and all appropriate action and to execute any and all
documents and instruments that may be necessary or desirable to accomplish the
purposes of this Security Agreement and, without limiting the generality of the
foregoing, hereby gives said attorneys the power and right, on behalf of each
Grantor, without notice to or assent by any Grantor, to do the following:
               (a) upon the occurrence and during the continuance of an Event of
Default, generally to sell, transfer, pledge, license, lease, otherwise dispose
of, make any agreement with respect to or otherwise dispose of or deal with any
of the Collateral in such manner as is consistent with the NYUCC and as fully
and completely as though the Secured Party were the absolute owner thereof for
all purposes, and to do, at the Grantors’ expense, at any time, or from time to
time, all acts and things which the Secured Party deems necessary or desirable
to protect, preserve or realize upon the Collateral and the Secured Party’s
Security Interest therein, in order to effect the intent of this Security
Agreement, all at

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least as fully and effectively as the Grantors might do, including: (i) making,
settling and adjusting claims in respect of Collateral under policies of
insurance, endorsing the name of such Grantor on any check, draft, instrument or
other item of payment for the proceeds of such policies of insurance and for
making all determinations and decisions with respect thereto; (ii) filing and
prosecuting registration and transfer applications with the appropriate Federal,
state, or local agencies or authorities with respect to trademarks, copyrights
and patentable inventions and processes; (iii) exercising voting rights with
respect to voting securities, which rights may be exercised, if the Secured
Party so elects, with a view to causing the liquidation in a commercially
reasonable manner of assets of the issuer of any such securities; and
(iv) executing, delivering and recording, in connection with any sale or other
disposition of any Collateral, of the endorsements, assignments or other
instruments of conveyance or transfer with respect to such Collateral; and
               (b) to the extent that each Grantor’s authorization given in
Section 3 is not sufficient, to file such financing statements with respect
hereto, with or without such Grantor’s signature, or a photocopy of this
Security Agreement in substitution for a financing statement, as the Secured
Party may deem appropriate and to execute in each Grantor’s name such financing
statements and amendments thereto and continuation statements which may require
each Grantor’s signature.
          11.02. Ratification by Grantors. To the extent permitted by law, each
Grantor hereby ratifies all that said attorneys shall lawfully do or cause to be
done by virtue of this Section 11. This power of attorney is a power coupled
with an interest and is irrevocable until the termination of this Security
Agreement pursuant to Section 20.13.
          11.03. No Duty on Administrative Agent. The powers conferred on the
Secured Party, its directors, officers and agents pursuant to this Section 11
are solely to protect the Secured Party’s interests in the Collateral and shall
not impose any duty upon any of them to exercise any such powers. The Secured
Party shall be accountable only for the amounts that it actually receives as a
result of the exercise of such powers, and neither it nor any of its officers,
directors, employees or agents shall be responsible to the Grantors for any act
or failure to act, except for such Person’s own gross negligence or willful
misconduct as finally determined by a court of competent jurisdiction, nor for
any punitive, exemplary, indirect or consequential damages.
     SECTION 12. REMEDIES.
          12.01. Remedies upon Default. (a) If an Event of Default shall have
occurred and be continuing, the Secured Party, without any notice to or demand
upon any Grantor shall have in any jurisdiction in which enforcement hereof is
sought, in addition to all other rights and remedies, the rights and remedies of
a secured party under the NYUCC and any additional rights and remedies as may be
provided to a secured party in any jurisdiction in which Collateral is located,
including the right to take possession of the Collateral, and for that purpose
the Secured Party may, so far as each Grantor can give authority therefor, enter
upon any premises on which the Collateral may be situated and remove the same
therefrom. The Secured Party may in its discretion require each Grantor to
assemble all or any part of the Collateral at such location or locations within
the jurisdiction(s) of such Grantor’s principal office(s) or at such other
locations as the Secured Party may reasonably designate.
               (b) Unless the Collateral is perishable, threatens to decline
speedily in value or is of a type customarily sold on a recognized market, the
Secured Party shall give to the Grantor of such Collateral at least ten
(10) days’ prior written notice of the time and place of any public sale of
Collateral or of the time after which any private sale or any other intended
disposition is to be made. Each Grantor hereby acknowledges that ten (10) days’
prior written notice of such sale or sales shall be reasonable notice.

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               (c) To the maximum extent permitted by applicable law, the
Secured Party may purchase any Collateral at any public sale and, if the
Collateral is of a type customarily sold in a recognized market or is of the
type that is the subject of widely distributed standard price quotations, the
Secured Party may purchase such Collateral at private sale, and in each case may
make payment therefor by any means, including by release or discharge of
Obligations in lieu of cash payment.
               (d) In addition, each Grantor waives any and all rights that it
may have to a judicial hearing in advance of the enforcement of any of the
Secured Party’s rights hereunder, including its right following an Event of
Default to take immediate possession of the Collateral and to exercise its
rights with respect thereto. Whether or not any Obligations are due, the Secured
Party may after the occurrence and during the continuance of an Event of Default
demand, sue for, collect, or make any settlement or compromise which it deems
desirable with respect to the Collateral.
          12.02. Grant of License to Use Intellectual Property. For the purpose
of enabling the Secured Party to exercise any rights and remedies it may have
under this Section 12 or otherwise at such time as the Secured Party shall be
lawfully entitled to exercise such rights and remedies, each Grantor hereby
grants to the Secured Party an irrevocable, non-exclusive license (exercisable
without payment of royalty or other compensation to any of the Grantors) to use,
license or sub-license any of the Collateral consisting of Intellectual Property
now owned or hereafter acquired by such Grantor, and wherever the same may be
located, and including in such license reasonable access to all media in which
any of the licensed items may be recorded or stored and to all computer software
and programs used for the compilation or printout thereof. The use of such
license by the Secured Party shall be exercised, at the Secured Party’s option
upon the occurrence and during the continuation of an Event of Default;
provided, that any license, sub-license or other transaction entered into by the
Secured Party in accordance herewith shall be binding upon each Grantor
notwithstanding any subsequent cure, waiver or other termination of an Event of
Default.
          12.03. Disposition of Pledged Securities. Upon the occurrence and
during the continuance of an Event of Default:
               (a) The Secured Party may exercise in respect of the Pledged
Securities, in addition to other rights and remedies provided for herein or
otherwise available to it, all of the rights and remedies of a secured party on
default under the NYUCC at that time (irrespective of whether the NYUCC applies
to the affected Pledged Securities), and the Secured Party may also, without
notice (except as specified below) or obligation to resort to other security,
sell, resell, assign and deliver, in its sole discretion, all or any of the
Pledged Securities, in one or more parcels at the same or different times, on
any securities exchange on which any Pledged Securities may be listed, or at
public or private sale, for cash, upon credit or for future delivery, at such
time or times and at such price or prices and upon such other terms as the
Secured Party may deem commercially reasonable, irrespective of the impact of
any such sales on the market price of the Pledged Securities, and in connection
therewith the Secured Party may grant options. Each purchaser at any such sale
shall hold the property sold absolutely free from any claim or right on the part
of the Grantor, and the Grantor hereby waives (to the extent permitted by
applicable law) all rights of redemption, stay, or appraisal that it now has or
may at any time in the future have under any rule of law or statute now existing
or hereafter enacted.
               (b) If any of the Pledged Securities are sold by the Secured
Party upon credit or for future delivery, the Secured Party shall not be liable
for the failure of the purchaser to purchase or pay for the same and, in the
event of any such failure, the Secured Party may resell such Pledged Securities.
In no event shall any Grantor be credited with any part of the proceeds of sale
of any Pledged Securities until cash payment therefor has actually been received
by the Secured Party.

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               (c) Without limitation of Section 6.08, the Secured Party may at
its option, transfer to itself or any nominee any securities constituting
Collateral, receive any income thereon and hold such income as additional
Collateral or apply it to the Obligations.
               (d) Each Grantor recognizes that the Secured Party may be unable
to effect a public sale of all or part of the Pledged Securities consisting of
securities by reason of certain prohibitions contained in the Securities Act of
1933, as amended (the “Securities Act”), or in applicable Blue Sky or other
state securities laws, as now or hereafter in effect, but may be compelled to
resort to one or more private sales to a restricted group of purchasers who will
be obliged to agree, among other things, to acquire such securities for their
own account, for investment and not with a view to the distribution or resale
thereof. Each Grantor agrees that any such Pledged Securities sold at any such
private sale may be sold at a price and upon other terms less favorable to the
seller than if sold at public sale. The Secured Party shall have no obligation
to delay the sale of any such securities for the period of time necessary to
permit the issuer of such securities, even if such issuer would agree, to
register such securities for public sale under the Securities Act. Each Grantor
agrees that private sales made under the foregoing circumstances shall be deemed
to have been made in a commercially reasonable manner.
               (e) The Secured Party shall not be obligated to make any sale of
Pledged Securities if it shall determine not to do so, regardless of the fact
that notice of sale may have been given. The Secured Party may, without notice
or publication, adjourn any public or private sale or cause the same to be
adjourned from time to time by announcement at the time and place fixed for
sale, and such sale may, without further notice, be made at the time and place
to which the same was so adjourned.
     SECTION 13. STANDARDS FOR EXERCISING REMEDIES. To the extent that
applicable law imposes duties on the Secured Party to exercise remedies in a
commercially reasonable manner, each Grantor acknowledges and agrees that it is
not commercially unreasonable for the Secured Party (a) to fail to incur
expenses reasonably deemed significant by the Secured Party to prepare
Collateral for disposition or otherwise to complete raw material or work in
process into finished goods or other finished products for disposition or to
postpone any such disposition pending any such preparation or processing; (b) 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; (c) 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, any of the Collateral; (d) 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; (e) to advertise dispositions of Collateral through publications or
media of general circulation, whether or not the Collateral is of a specialized
nature; (f) to contact other Persons, whether or not in the same business as any
Grantor, for expressions of interest in acquiring all or any portion of the
Collateral; (g) to hire one or more professional auctioneers to assist in the
disposition of Collateral, whether or not the Collateral is of a specialized
nature; (h) 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 capability of doing so, or that match buyers and sellers of
assets; (i) to dispose of assets in wholesale rather than retail markets; (j) to
disclaim disposition warranties; (k) to purchase insurance or credit
enhancements to insure the Secured Party against risks of loss, collection or
disposition of Collateral or to provide to the Secured Party a guaranteed return
from the collection or disposition of Collateral; or (l) to the extent deemed
appropriate by the Secured Party, to obtain the services of brokers, investment
bankers, consultants and other professionals to assist the Secured Party in the
collection or disposition of any of the Collateral. Each Grantor acknowledges
that the purpose of this Section 13 is to provide non-exhaustive indications of
what actions or omissions by the Secured Party would fulfill the Secured Party’s
duties under the NYUCC or any other relevant jurisdiction in the Secured Party’s
exercise of remedies against the Collateral and that other actions or omissions
by the Secured Party shall

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not be deemed to fail to fulfill such duties solely on account of not being
indicated in this Section 13. Without limiting the foregoing, nothing contained
in this Section 13 shall be construed to grant any rights to any Grantor or to
impose any duties on the Secured Party that would not have been granted or
imposed by this Security Agreement or by Applicable Law in the absence of this
Section 13.
     SECTION 14. SURETYSHIP WAIVERS BY EACH GRANTOR.
               (a) All rights of the Secured Party hereunder and the Security
Interest and all obligations of the Grantors hereunder shall be absolute and
unconditional irrespective of (i) any lack of validity or enforceability of the
Credit Agreement, any other Related Document, any agreement with respect to any
of the Obligations or any other agreement or instrument relating to any of the
foregoing, (ii) any change in the time, manner or place of payment of, or in any
other term of, all or any of the Obligations, or any other amendment or waiver
of or any consent to any departure from the Credit Agreement, any other Related
Document or any other agreement or instrument, (iii) any exchange, release or
non-perfection of any Lien on other Collateral, (iv) any release, amendment or
waiver of, or consent under, or departure from, or any acceptance of partial
payment on and/or settlement, compromise or adjustment of, any Obligation or of
any guarantee, securing or guaranteeing all or any of the Obligations (other
than the indefeasible payment and performance in full in cash of the
Obligations, but subject to Section 18), or (v) any other circumstance that
might otherwise constitute a defense available to, or a discharge of, any
Grantor in respect of the Obligations or this Security Agreement (other than the
indefeasible payment and performance in full in cash of the Obligations, but
subject to Section 18)).
               (b) To the maximum extent permitted by applicable law, each
Grantor waives demand, notice, protest, notice of acceptance of this Security
Agreement, notice of loans made, credit extended, Collateral received or
delivered or other action taken in reliance hereon and all other demands and
notices of any description. The Secured Party shall have no duty as to the
collection or protection of the Collateral or any income thereon, nor as to the
preservation of rights against prior parties, nor as to the preservation of any
rights pertaining thereto beyond the safe custody thereof as set forth in
Section 8.02. Each Grantor further waives any and all other suretyship defenses.
     SECTION 15. MARSHALLING. The Secured Party shall not be required to marshal
any present or future collateral security (including but not limited to this
Security Agreement and the Collateral) for, or other assurances of payment of,
the Obligations or any of them or to resort to such collateral security or other
assurances of payment in any particular order, and all of its rights hereunder
and in respect of such collateral security and other assurances of payment shall
be cumulative and in addition to all other rights and remedies, however existing
or arising. To the extent that it lawfully may, each Grantor hereby agrees that
it shall not invoke any law relating to the marshalling of collateral which
might cause delay in or impede the enforcement of the Secured Party’s rights
under this Security Agreement or under any other instrument creating or
evidencing any of the Obligations or under which any of the Obligations is
outstanding or by which any of the Obligations is secured or payment thereof is
otherwise assured, and, to the extent that it lawfully may, each Grantor hereby
irrevocably waives the benefits of all such laws.
     SECTION 16. PROCEEDS OF DISPOSITIONS; EXPENSES. After deducting all
expenses payable by the Grantors, including pursuant to Section 20.10(a), the
residue of any proceeds of collection or sale or other disposition of Collateral
shall, to the extent actually received in cash, be applied to the payment of the
remaining Obligations in such order or preference as is provided in the Credit
Agreement, proper allowance and provision being made for any Obligations not
then due or held as additional Collateral. Upon the final payment and
satisfaction in full in cash of all of the Obligations and the termination of
all commitments under the Credit Agreement and after making any payments
required by Sections 9-608(a)(1)(C) or 9-615(a)(3) of the NYUCC, any excess
shall be returned to the Grantors, and

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in any event each Grantor shall remain liable, jointly and severally, for any
deficiency in the payment of the Obligations.
     SECTION 17. OVERDUE AMOUNTS. Until paid, all amounts due and payable by
each Grantor hereunder shall be a debt secured by the Collateral and shall bear,
whether before or after judgment, interest at the rate of interest set forth in
the Credit Agreement.
     SECTION 18. REINSTATEMENT. The obligations of each Grantor pursuant to this
Security Agreement shall continue to be effective or automatically be
reinstated, as the case may be, if at any time any payment, or part thereof, of
any of the Obligations is rescinded or otherwise must be restored or returned by
the Secured Party upon the insolvency, bankruptcy, dissolution, liquidation or
reorganization of any Grantor or any other obligor or otherwise, all as though
such payment had not been made.
     SECTION 19. LIMITATIONS. 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. All of 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, in whole or in part, or not entitled to be recorded, registered
or filed under the provisions of any applicable law.
     SECTION 20. MISCELLANEOUS.
          20.01. Notices. Except as otherwise provided herein, whenever it is
provided herein that any notice, demand, request, consent, approval, declaration
or other communication shall or may be given to or served upon any of the
parties by any other party, or whenever any of the parties desires to give and
serve upon any other party any communication with respect to this Security
Agreement (including any notice required under Section 12.01), each such notice,
demand, request, consent, approval, declaration or other communication shall be
in writing and shall be given in the manner and to the address, and deemed
received, as provided for in Section 10.02 of the Credit Agreement.
Notwithstanding the foregoing, notices and other communications to the Secured
Party shall not be effective until received by the Secured Party. Delivery by
telecopier of an executed counterpart of any signature page, amendment or any
other document or notice delivered hereunder or waiver of any provision of this
Security Agreement, Schedule, Perfection Certificate or Perfection Supplement
shall be effective as delivery of an original executed counterpart thereof.
          20.02. GOVERNING LAW; CONSENT TO JURISDICTION. (a) THIS SECURITY
AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF
THE STATE OF NEW YORK. EACH GRANTOR HEREBY IRREVOCABLY AND UNCONDITIONALLY
SUBMITS, FOR ITSELF AND ITS PROPERTY, TO THE NONEXCLUSIVE JURISDICTION OF ANY
NEW YORK STATE COURT OR FEDERAL COURT OF THE UNITED STATES OF AMERICA SITTING IN
NEW YORK CITY, AND ANY APPELLATE COURT FROM ANY THEREOF, IN ANY ACTION OR
PROCEEDING ARISING OUT OF OR RELATING TO THIS SECURITY AGREEMENT OR THE OTHER
RELATED DOCUMENTS, OR FOR RECOGNITION OR ENFORCEMENT OF ANY JUDGMENT, AND EACH
OF THE PARTIES HERETO HEREBY IRREVOCABLY AND UNCONDITIONALLY AGREES THAT ALL
CLAIMS IN RESPECT OF ANY SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED
IN SUCH NEW YORK STATE OR, TO THE EXTENT PERMITTED BY LAW, IN SUCH FEDERAL
COURT. EACH OF THE PARTIES HERETO AGREES THAT A FINAL JUDGMENT IN ANY SUCH
ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER
JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED

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BY LAW. NOTHING IN THIS SECURITY AGREEMENT SHALL AFFECT ANY RIGHT THAT THE
SECURED PARTY OR ANY LENDER MAY OTHERWISE HAVE TO BRING ANY ACTION OR PROCEEDING
RELATING TO THIS SECURITY AGREEMENT OR THE OTHER RELATED DOCUMENTS AGAINST ANY
GRANTOR OR ITS PROPERTIES IN THE COURTS OF ANY JURISDICTION.
               (a) Each Grantor hereby irrevocably and unconditionally waives,
to the fullest extent it may legally and effectively do so, any objection which
it may now or hereafter have to the laying of venue of any suit, action or
proceeding arising out of or relating to this Security Agreement or the other
Related Documents in any New York State or Federal court. Each of the parties
hereto hereby irrevocably waives, to the fullest extent permitted by law, the
defense of an inconvenient forum to the maintenance of such action or proceeding
in any such court.
               (b) Each party to this Security Agreement irrevocably consents to
service of process in the manner provided for notices in Section 20.01. Nothing
in this Security Agreement will affect the right of any party to this Security
Agreement to serve process in any other manner permitted by law.
          20.03. WAIVER OF JURY TRIAL, ETC. EACH PARTY HERETO HEREBY WAIVES ITS
RIGHT TO A JURY TRIAL WITH RESPECT TO ANY ACTION OR CLAIM ARISING OUT OF ANY
LITIGATION OR DISPUTE DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN
CONNECTION WITH THIS SECURITY AGREEMENT, ANY RIGHTS OR OBLIGATIONS HEREUNDER OR
THE PERFORMANCE OF ANY SUCH RIGHTS OR OBLIGATIONS. EXCEPT AS PROHIBITED BY LAW,
EACH GRANTOR WAIVES ANY RIGHT WHICH IT MAY HAVE TO CLAIM OR RECOVER IN ANY
LITIGATION OR DISPUTE REFERRED TO IN THE PRECEDING SENTENCE ANY SPECIAL,
EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES OR ANY DAMAGES OTHER THAN, OR IN
ADDITION TO, ACTUAL DAMAGES. EACH PARTY HERETO (A) CERTIFIES THAT NO
REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY
OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK
TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER
PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS SECURITY AGREEMENT AND THE
OTHER RELATED DOCUMENTS, AS APPLICABLE, BY, AMONG OTHER THINGS, THE MUTUAL
WAIVERS AND CERTIFICATIONS IN THIS SECTION 20.03.
          20.04. Counterparts. This Security Agreement may be executed in one or
more counterparts, each of which shall constitute an original but all of which
when taken together shall constitute but one contract (subject to
Section 20.11), and shall become effective as provided in Section 20.11.
Delivery of an executed signature page to this Security Agreement by facsimile
transmission shall be effective as delivery of a manually executed counterpart
hereof.
          20.05. Headings. The headings of each section of this Security
Agreement and the Table of Contents are for convenience only and are not to
affect the construction of, or be taken into consideration in interpreting this
Security Agreement.
          20.06. Successors and Assigns. Whenever in this Security Agreement any
of the parties hereto is referred to, such reference shall be deemed to include
the successors and assigns of such party; and all covenants, promises and
agreements by or on behalf of any Grantor or the Secured Party that are
contained in this Security Agreement shall bind and inure to the benefit of
their respective successors and assigns.

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          20.07. No Strict Construction. The parties hereto have participated
jointly in the negotiation and drafting of this Security Agreement. In the event
an ambiguity or question of intent or interpretation arises, this Security
Agreement shall be construed as if drafted jointly by the parties hereto and no
presumption or burden of proof shall arise favoring or disfavoring any party by
virtue of the authorship of any provisions of this Security Agreement.
          20.08. Severability. In the event any one or more of the provisions
contained in this Security Agreement should be held invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions contained herein shall not in any way be affected or
impaired thereby (it being understood that the invalidity of a particular
provision in a particular jurisdiction shall not in and of itself affect the
validity of such provision in any other jurisdiction). The parties shall
endeavor in good-faith negotiations to replace the invalid, illegal or
unenforceable provisions with valid provisions the economic effect of which
comes as close as possible to that of the invalid, illegal or unenforceable
provisions.
          20.09. Survival of Agreement. All covenants, agreements,
representations and warranties made by any Grantor herein and in the
certificates or other instruments prepared or delivered in connection with or
pursuant to this Security Agreement shall be considered to have been relied upon
by the Secured Party and shall survive the execution and delivery of the Related
Documents and the advance of all extensions of credit contemplated thereby,
regardless of any investigation made by the Lenders or on their behalf, and
shall continue in full force and effect until this Security Agreement shall
terminate (or thereafter to the extent provided herein or therein).
          20.10. Administrative Agent’s Fees and Expenses; Indemnification.
(a) Each Grantor jointly and severally agrees to pay upon demand to the Secured
Party the amount of any and all reasonable expenses, including the reasonable
fees, disbursements and other charges of its counsel and of any experts or
agents, which the Secured Party may incur in the manner and to the extent as set
forth in the Credit Agreement.
               (a) Without limitation of its indemnification obligations under
the Credit Agreement and the other Related Documents, each Grantor jointly and
severally agrees to indemnify the Secured Party and its officers, directors,
employees, agents and advisors (each, an “Indemnitee”) against, and hold each of
them harmless from, any and all losses, claims, damages, liabilities and related
expenses, including reasonable fees, disbursements and other charges of counsel,
incurred by or asserted against any of them arising out of, in any way connected
with, or as a result of, the execution, delivery or performance of this Security
Agreement or any claim, litigation, investigation or proceeding relating hereto
or to the Collateral, whether or not any Indemnitee is a party thereto; provided
that such indemnity shall not, as to any Indemnitee, be available to the extent
that such losses, claims, damages, liabilities or related expenses are
determined by a court of competent jurisdiction by final and nonappealable
judgment to have resulted from the gross negligence or willful misconduct of
such Indemnitee or any of its Affiliates.
               (b) Any such amounts payable as provided hereunder shall be
additional Obligations secured hereby and by the other Security Documents. The
provisions of this Section 20.10 shall remain operative and in full force and
effect regardless of the termination of this Security Agreement or any other
Related Document, the consummation of the transactions contemplated hereby, the
repayment of any of the Loans, the invalidity or unenforceability of any term or
provision of this Security Agreement or any other Related Document, or any
investigation made by or on behalf of the Secured Party or any Secured Party.
All amounts due under this Section 20.10 shall be payable on written demand
therefor.

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          20.11. Binding Effect; Several Agreement. This Security Agreement
shall become effective as to any Grantor when a counterpart hereof executed on
behalf of such Grantor shall have been delivered to the Secured Party and a
counterpart hereof shall have been executed on behalf of the Secured Party, and
thereafter shall be binding upon such Grantor and the Secured Party, and shall
inure to the benefit of such Grantor, the Secured Party and their respective
successors and assigns, except that no Grantor shall have the right to assign or
transfer its rights or obligations hereunder or any interest herein or in the
Collateral (and any such assignment or transfer shall be void) except as
expressly contemplated by this Security Agreement or the Credit Agreement. This
Security Agreement shall be construed as a separate agreement with respect to
each Grantor and may be amended, modified, supplemented, waived or released with
respect to any Grantor without the approval of any other Grantor and without
affecting the obligations of any other Grantor hereunder.
          20.12. Waivers; Amendment. (a) No failure or delay on the part of the
Secured Party in exercising any right, power or remedy hereunder shall operate
as a waiver thereof, nor shall any single or partial exercise of any such right,
power or remedy or any abandonment or discontinuance of steps to enforce any
such right, power or remedy, preclude any other or further exercise thereof or
the exercise of any other right, power or remedy. All rights, powers and
remedies hereunder and under the other Related Documents are cumulative and are
not exclusive of any other rights, powers and remedies provided by applicable
law or otherwise. No waiver of any provision of this Security Agreement or any
other Related Document or consent to any departure by any Grantor therefrom
shall in any event be effective unless the same shall be permitted by paragraph
(b) below, and then such waiver or consent shall be effective only in the
specific instance and for the purpose for which given. No notice to or demand on
any Grantor in any case shall entitle such Grantor or any other Grantor to any
other or further notice or demand in similar or other circumstances.
               (a) Neither this Security Agreement nor any provision hereof may
be waived, amended or modified except pursuant to an agreement or agreements in
writing entered into by the Secured Party and the Grantor or Grantors with
respect to which such waiver, amendment or modification is to apply, subject to
any consent required in accordance with Section 10.01 of the Credit Agreement.
          20.13. Termination. Notwithstanding any provision to the contrary
under Sections 9-207, 9-208 or 9-209 of the NYUCC, this Security Agreement and
the Security Interest shall terminate when all the Obligations have been
indefeasibly paid in cash in full, at which time the Secured Party shall execute
and deliver to the Grantors or the Grantors’ designee, at the Grantors’ expense,
all UCC termination statements and similar documents which the Grantors shall
reasonably request from time to time to evidence such termination. Any execution
and delivery of termination statements or documents pursuant to this
Section 20.13(a) shall be without recourse to or warranty by the Secured Party.
          20.14. Joint and Several Liability. All agreements and obligations of
the Grantors shall be joint and several.
[Remainder of the page intentionally left blank]

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     IN WITNESS WHEREOF, intending to be legally bound, each Grantor has caused
this Security Agreement to be duly executed as of the date first above written.

            GRANTORS:

LUMINENT MORTGAGE CAPITAL, INC.
      By:   /s/ Christopher J. Zyda         Name:   Christopher J. Zyda       
Title:   Chief Financial Officer        MERCURY MORTGAGE FINANCE STATUTORY TRUST
      By:   /s/ Christopher J. Zyda         Name:   Christopher J. Zyda       
Title:   President        LUMINENT CAPITAL MANAGEMENT, INC.
      By:   /s/ Christopher J. Zyda         Name:   Christopher J. Zyda       
Title:   President and Treasurer        PANTHEON HOLDING COMPANY, INC.
      By:   /s/ Christopher J. Zyda         Name:   Christopher J. Zyda       
Title:   Chief Financial Officer and Corporate Secretary        PROSERPINE LLC
      By:   /s/ S. Trezevant Moore, Jr.         Name:   S. Trezevant Moore, Jr. 
      Title:   President        MAIA MORTGAGE FINANCE STATUTORY TRUST
      By:   /s/ Christopher J. Zyda         Name:   Christopher J. Zyda       
Title:   President   

SIGNATURE PAGE FOR AMENDED AND
RESTATED SECURITY AND PLEDGE AGREEMENT

 

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            SATURN PORTFOLIO MANAGEMENT, INC.
      By:   /s/ Christopher J. Zyda         Name:   Christopher J. Zyda       
Title:   President and Treasurer        MINERVA MORTGAGE FINANCE CORPORATION
      By:   /s/ Christopher J. Zyda         Name:   Christopher J. Zyda       
Title:   President and Chief Financial Officer        MINERVA CDO DELAWARE SPV
LLC
      By:   /s/ Christopher J. Zyda         Name:   Christopher J. Zyda       
Title:   Treasurer and Assistant Secretary   

SIGNATURE PAGE FOR AMENDED AND
RESTATED SECURITY AND PLEDGE AGREEMENT

 

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            ACCEPTED:

ARCO CAPITAL CORPORATION LTD.,
as Secured Party
      By:   /s/ Jay Johnston         Name:   Jay Johnston        Title:   Chief
Executive Officer     

SIGNATURE PAGE FOR AMENDED AND
RESTATED SECURITY AND PLEDGE AGREEMENT

 

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SCHEDULE I
SUBSIDIARY GUARANTORS IN EXISTENCE ON THE CLOSING DATE
Mercury Mortgage Finance Statutory Trust
Luminent Capital Management
Pantheon Holding Company, Inc.
Proserpine LLC
Maia Mortgage Finance Statutory Trust
Saturn Portfolio Management
Minerva Mortgage Finance Corporation
Minerva CDO Delaware SPV LLC

 

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SCHEDULE II
PLEDGED SECURITIES
PART A
Pledged Notes

                                                          Original   Current    
      Instrument         Date of   Principal   Principal   Maturity   No. Name
of Issuer   Issuance   Amount   Balance   Date   (if any).

PART B
Pledged Stock

                                                                          Nature
  Number of   Is   Certificate Name of   Type of   Jurisdiction   of   Shares or
  Interest   No(s). Issuer   Entity   of Issuer   Interest   other Interests  
Certificated?   (if any).

PART C
Pledged Stock

                                                                          Nature
  Number of   Is   Certificate Name of   Type of   Jurisdiction   of   Shares or
  Interest   No(s). Issuer   Entity   of Issuer   Interest   other Interests  
Certificated?   (if any).