Exhibit 10.4

 

EXECUTION VERSION

 

 

 

SECURITY AGREEMENT

 

by

 

THE WET SEAL, INC.,

as the Lead Borrower, as a Debtor and as a Debtor-in-Possession

 

and

 

THE OTHER BORROWERS AND GUARANTORS PARTY HERETO

FROM TIME TO TIME, as Debtors and Debtors-in-Possession

 

and

 

B. Riley FINANCIAL, INC.,

as Lender,

 

Dated as of January 15, 2015

 

 

 

 

 

 

TABLE OF CONTENTS

 

    Page       PREAMBLE   1       RECITALS   1       AGREEMENT   2       ARTICLE
I   DEFINITIONS AND INTERPRETATION       SECTION 1.1. Definitions. 2 SECTION
1.2. Interpretation 5       ARTICLE II   GRANT OF SECURITY AND SECURED
OBLIGATIONS       SECTION 2.1. Pledge; Grant of Security Interest 6 SECTION 2.2.
Secured Obligations 7 SECTION 2.3. Security Interest 7       ARTICLE III  
PERFECTION; SUPPLEMENTS; FURTHER ASSURANCES; USE OF COLLATERAL       SECTION
3.1. Delivery of Certificated Securities Collateral 8 SECTION 3.2. Perfection of
Uncertificated Securities Collateral 8 SECTION 3.3. Maintenance of Perfected
Security Interest 9 SECTION 3.4. Other Actions 9 SECTION 3.5. Supplements;
Further Assurances 12       ARTICLE IV   REPRESENTATIONS, WARRANTIES AND
COVENANTS       SECTION 4.1. Title 13 SECTION 4.2. Limitation on Liens; Defense
of Claims; Transferability of Collateral 13 SECTION 4.3. Chief Executive Office;
Change of Name; Jurisdiction of Organization 13

 

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    Page       SECTION 4.4. Due Authorization and Issuance 13 SECTION 4.5. No
Conflicts, Consents, etc 13 SECTION 4.6. Collateral 14 SECTION 4.7. Insurance 14
SECTION 4.8. Payment of Taxes; Compliance with Laws; Contested Liens; Claims 14
      ARTICLE V   CERTAIN PROVISIONS CONCERNING SECURITIES COLLATERAL      
SECTION 5.1. Pledge of Additional Securities Collateral 15 SECTION 5.2. Voting
Rights; Distributions; etc. 15 SECTION 5.3. Organization Documents 16 SECTION
5.4. Defaults, Etc 16 SECTION 5.5. Certain Agreements of Grantors As Issuers and
Holders of Equity Interests. 16       ARTICLE VI   CERTAIN PROVISIONS CONCERNING
INTELLECTUAL PROPERTY COLLATERAL       SECTION 6.1. Registrations 17 SECTION
6.2. No Violations or Proceedings 17 SECTION 6.3. Protection of Lender’s
Security 17 SECTION 6.4. After-Acquired Property 18 SECTION 6.5. Modifications
18 SECTION 6.6. Litigation 18       ARTICLE VII   CERTAIN PROVISIONS CONCERNING
  CREDIT CARD RECEIVABLES AND ACCOUNTS       SECTION 7.1. Special
Representations and Warranties 19 SECTION 7.2. Maintenance of Records 19 SECTION
7.3. Legend 20 SECTION 7.4. Modification of Terms, Etc 20 SECTION 7.5.
Collection 20

 

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    Page       ARTICLE VIII   REMEDIES       SECTION 8.1. Remedies 20 SECTION
8.2. Notice of Sale 23 SECTION 8.3. Waiver of Notice and Claims 23 SECTION 8.4.
Certain Sales of Collateral 23 SECTION 8.5. No Waiver; Cumulative Remedies. 24
SECTION 8.6. Certain Additional Actions Regarding Intellectual Property 24
SECTION 8.7. Application of Proceeds 25 SECTION 8.8. Grant of License; Use of
Assets 25       ARTICLE IX   MISCELLANEOUS       SECTION 9.1. Concerning Lender.
25 SECTION 9.2. Lender May Perform; Lender Appointed Attorney-in-Fact 26 SECTION
9.3. Expenses 27 SECTION 9.4. Continuing Security Interest; Assignment 27
SECTION 9.5. Termination 27 SECTION 9.6. Modification in Writing 28 SECTION 9.7.
Notices 28 SECTION 9.8. GOVERNING LAW 28 SECTION 9.9. CONSENT TO JURISDICTION;
SERVICE OF PROCESS; WAIVER OF JURY TRIAL. 28 SECTION 9.10. Severability of
Provisions 29 SECTION 9.11. Execution in Counterparts; Effectiveness 30 SECTION
9.12. No Release 30 SECTION 9.13. Obligations Absolute 30 SECTION 9.14.
Pre-Petition Cash Collateral Account. 31 SECTION 9.15. Conflicts between
Security Agreement and DIP Orders. 31       SIGNATURES   S-1

 

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EXHIBIT 1 Form of Securities Pledge Amendment SCHEDULE I Intercompany Notes
SCHEDULE II Intellectual Property SCHEDULE III Pledged Interests SCHEDULE IV
Commercial Tort Claims SCHEDULE V Instruments and Chattel Paper SCHEDULE VI
Securities Accounts SCHEDULE VII Organizational Information

 

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SECURITY AGREEMENT

 

SECURITY AGREEMENT dated as of January 15, 2015 (as amended, restated,
supplemented or otherwise modified from time to time in accordance with the
provisions hereof, this “Security Agreement”) made by (i) THE WET SEAL, INC., a
Delaware corporation, as lead borrower for itself and the other Borrowers, each
as a debtor and debtor-in-possession (the “Lead Borrower”), (ii) THE OTHER
BORROWERS LISTED ON THE SIGNATURE PAGES HERETO, each as a debtor and
debtor-in-possession (together with the Lead Borrower, the “Original Borrowers”)
OR FROM TIME TO TIME PARTY HERETO BY EXECUTION OF A JOINDER AGREEMENT, each as a
debtor and debtor-in-possession (the “Additional Borrowers,” and together with
the Original Borrowers, the “Borrowers”), and (iii) THE GUARANTORS LISTED ON THE
SIGNATURE PAGES HERETO, each as a debtor and debtor-in-possession (the “Original
Guarantors”) AND THE OTHER GUARANTORS FROM TIME TO TIME PARTY HERETO BY
EXECUTION OF A JOINDER AGREEMENT, as Debtors and Debtors-in-Possession (the
“Additional Guarantors,” and together with the Original Guarantor, the
“Guarantors”), as pledgors, assignors and debtors (the Borrowers, together with
the Guarantors, in such capacities and together with any successors in such
capacities, the “Grantors,” and each, a “Grantor”), in favor of B. RILEY
FINANCIAL, INC., as pledgee, assignee and secured party (in such capacities and
together with any successors in such capacities, the “Lender”).

 

RECITALS:

 

A.           On January 15, 2015, the Borrowers and the Guarantors commenced
Case Nos. 15-10081, 15-10082,  15-10083, and 15-10084 (collectively, the
“Bankruptcy Case”) by filing  voluntary petitions for relief under Chapter 11 of
the Bankruptcy Code in the United States Bankruptcy Court for the District of
Delaware (the “Bankruptcy Court”). The Borrowers and Guarantors continue to
operate their business and manage their properties as debtors and
debtors-in-possession pursuant to Sections 1107(a) and 1108 of the Bankruptcy
Code.

 

B.           The Borrowers, the Guarantors and the Lender, among others, have,
in connection with the execution and delivery of this Security Agreement,
entered into that certain Senior Secured, Super-Priority Debtor-In-Possession
Credit Agreement dated as of the date hereof (as amended, restated, supplemented
or otherwise modified from time to time, the “Credit Agreement”).

 

C.           The Borrowers and the Guarantors will receive substantial benefits
from the execution, delivery and performance of the Obligations and each is,
therefore, willing to enter into this Security Agreement.

 

D.           This Security Agreement is given by each Grantor in favor of the
Lender for the benefit of the Credit Parties to secure the payment and
performance of all of the Secured Obligations (as hereinafter defined).

 

 

 

 

E.           It is a condition to the obligations of the Lender to make loans
under the Credit Agreement under the Credit Agreement that each Grantor execute
and deliver the applicable Loan Documents, including this Security Agreement.

 

AGREEMENT:

 

NOW THEREFORE, in consideration of the foregoing premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, each Grantor and the Lender hereby agree as follows:

 

ARTICLE I

 

DEFINITIONS AND INTERPRETATION

 

SECTION 1.1.          Definitions.        Unless otherwise defined herein or in
the Credit Agreement, capitalized terms used herein that are defined in the UCC
shall have the meanings assigned to them in the UCC.

 

(b)          Capitalized terms used but not otherwise defined herein that are
defined in the Credit Agreement shall have the meanings given to them in the
Credit Agreement.

 

(c)          The following terms shall have the following meanings:

 

“Additional Guarantors” shall have the meaning assigned to such term in the
Preamble hereof.

 

“Borrowers” shall have the meaning assigned to such term in the Preamble hereof.

 

“Claims” shall mean any and all property taxes and other taxes, assessments and
special assessments, levies, fees and all governmental charges imposed upon or
assessed against, and all claims (including, without limitation, landlords’,
carriers’, mechanics’, workmen’s, repairmen’s, laborers’, materialmen’s,
suppliers’ and warehousemen’s Liens and other claims arising by operation of
Law) against, all or any portion of the Collateral.

 

“Collateral” shall have the meaning assigned to such term in SECTION 2.1 hereof.

 

“Control” shall mean in the case of any security entitlement, “control,” as such
term is defined in Section 8-106 of the UCC.

 

“Control Agreements” shall mean, collectively, the Blocked Account Agreements
and the Securities Account Control Agreements.

 

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“Copyrights” shall mean, collectively, with respect to each Grantor, all
copyrights (whether statutory or common Law, whether established or registered
in the United States or any other country or any political subdivision thereof
whether registered or unregistered and whether published or unpublished) and all
copyright registrations and applications made by such Grantor, in each case,
whether now owned or hereafter created or acquired by or assigned to such
Grantor, including, without limitation, the registrations and applications
listed on Schedule II hereto, together with any and all (i) rights and
privileges arising under applicable Law with respect to such Grantor’s use of
such copyrights, (ii) reissues, renewals, continuations and extensions thereof,
(iii) income, fees, royalties, damages, claims and payments now or hereafter due
and/or payable with respect thereto, including, without limitation, damages and
payments for past, present or future infringements thereof, (iv) rights
corresponding thereto throughout the world and (v) rights to sue for past,
present or future infringements thereof.

 

“Credit Agreement” shall have the meaning assigned to such term in Recital B
hereof.

 

“Distributions” shall mean, collectively, with respect to each Grantor, all
Restricted Payments from time to time received, receivable or otherwise
distributed to such Grantor in respect of or in exchange for any or all of the
Pledged Securities or Intercompany Notes.

 

“Goodwill” shall mean, collectively, with respect to each Grantor, the goodwill
connected with such Grantor’s business including, without limitation, (i) all
goodwill connected with the use of and symbolized by any of the Intellectual
Property Collateral in which such Grantor has any interest, (ii) all know-how,
trade secrets, customer and supplier lists, proprietary information, inventions,
methods, procedures, formulae, descriptions, compositions, technical data,
drawings, specifications, name plates, catalogs, confidential information and
the right to limit the use or disclosure thereof by any Person, pricing and cost
information, business and marketing plans and proposals, consulting agreements,
engineering contracts and such other assets which relate to such goodwill and
(iii) all product lines of such Grantor’s business.

 

“Grantor” shall have the meaning assigned to such term in the Preamble hereof.

 

“Guaranteed Obligations” shall have the meaning assigned to such term in the
Guaranty.

 

“Guarantors” shall have the meaning assigned to such term in the Preamble
hereof.

 

“Guaranty” shall have the meaning assigned to term “Facility Guaranty” in the
Credit Agreement.

 

“Intellectual Property Collateral” shall mean, collectively, the Patents,
Trademarks, Copyrights, Licenses and Goodwill.

 

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“Intercompany Notes” shall mean, with respect to each Grantor, all intercompany
notes described on Schedule I hereto and each intercompany note hereafter
acquired by such Grantor and all certificates, instruments or agreements
evidencing such intercompany notes, and all assignments, amendments,
restatements, supplements, extensions, renewals, replacements or modifications
thereof to the extent permitted pursuant to the terms hereof.

 

“Lead Borrower” shall have the meaning assigned to such term in the Preamble
hereof.

 

“Lender” shall have the meaning assigned to such term in the Preamble hereof.

 

“Letters of Credit” unless the context otherwise requires, shall have the
meaning given to such term in the UCC.

 

“Licenses” shall mean, collectively, with respect to each Grantor, all license
and distribution agreements with any other Person with respect to any Patent,
Trademark or Copyright or any other patent, trademark or copyright, whether such
Grantor is a licensor or licensee, distributor or distributee under any such
license or distribution agreement, together with any and all (i) renewals,
extensions, supplements and continuations thereof, (ii) income, fees, royalties,
damages, claims and payments now and hereafter due and/or payable thereunder and
with respect thereto including, without limitation, damages and payments for
past, present or future infringements or violations thereof, (iii) rights to sue
for past, present and future infringements or violations thereof and (iv) other
rights to use, exploit or practice any or all of the Patents, Trademarks or
Copyrights or any other patent, trademark or copyright.

 

“Patents” shall mean, collectively, with respect to each Grantor, all patents
issued or assigned to and all patent applications made by such Grantor (whether
established or registered or recorded in the United States or any other country
or any political subdivision thereof), including, without limitation, those
patents, patent applications listed on Schedule II hereto, together with any and
all (i) rights and privileges arising under applicable Law with respect to such
Grantor’s use of any patents, (ii) inventions and improvements described and
claimed therein, (iii) reissues, divisions, continuations, renewals, extensions
and continuations-in-part thereof, (iv) income, fees, royalties, damages, claims
and payments now or hereafter due and/or payable thereunder and with respect
thereto including, without limitation, damages and payments for past, present or
future infringements thereof, (v) rights corresponding thereto throughout the
world and (vi) rights to sue for past, present or future infringements thereof.

 

“Pledged Interests” shall mean, collectively, with respect to each Grantor, all
Equity Interests in any issuer now existing or hereafter acquired or formed,
including, without limitation, all Equity Interests of such issuer described in
Schedule III hereof and all Equity Interests in any successor corporation or
interests or certificates of any successor limited liability company,
partnership or other entity owned by such Grantor formed by or resulting from
any consolidation, merger or amalgamation in which any Person listed on Schedule
VII hereof is not the surviving entity, together with all rights, privileges,
authority and powers of such Grantor relating to such Equity Interests issued by
any such issuer or any such successor Person under the Organization Documents of
any such issuer or any such successor Person, and the certificates, instruments
and agreements representing such Equity Interests and any and all interest of
such Grantor in the entries on the books of any financial intermediary
pertaining to such Equity Interests, from time to time acquired by such Grantor
in any manner, and all other Investment Property owned by such Grantor.

 

4

 

 

“Secured Obligations” shall mean the Obligations (as defined in the Credit
Agreement) and the Guaranteed Obligations.

 

“Securities Account Control Agreement” means with respect to a Securities
Account established by a Grantor, an agreement, in form and substance
satisfactory to the Lender, establishing Control of such Securities Account by
the Lender and whereby the Securities Intermediary maintaining such Securities
Account agrees, upon notice received by such Securities Intermediary from the
Lender, to comply only with the instructions originated by the Lender without
the further consent of any Grantor.

 

“Securities Act” means the Securities Exchange Act of 1934 and the applicable
regulations promulgated by the Securities and Exchange Commission pursuant to
such Act.

 

“Securities Collateral” shall mean, collectively, the Pledged Interests, the
Intercompany Notes and the Distributions.

 

“Security Agreement” shall have the meaning assigned to such in the Preamble
hereof.

 

“Trademarks” shall mean, collectively, with respect to each Grantor, all
trademarks (including service marks), slogans, logos, certification marks, trade
dress, uniform resource locations (URLs), domain names, corporate names and
trade names, whether registered or unregistered, owned by or assigned to such
Grantor and all registrations and applications for the foregoing (whether
statutory or common Law and whether established or registered in the United
States or any other country or any political subdivision thereof), including,
without limitation, the registrations and applications listed on Schedule II
hereto, together with any and all (i) rights and privileges arising under
applicable Law with respect to such Grantor’s use of any trademarks,
(ii) reissues, continuations, extensions and renewals thereof, (iii) income,
fees, royalties, damages and payments now and hereafter due and/or payable
thereunder and with respect thereto, including, without limitation, damages,
claims and payments for past, present or future infringements thereof,
(iv) rights corresponding thereto throughout the world and (v) rights to sue for
past, present and future infringements thereof.

 

SECTION 1.2.          Interpretation. The rules of interpretation specified in
Article I of the Credit Agreement shall be applicable to this Security
Agreement.

 

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ARTICLE II

 

GRANT OF SECURITY AND SECURED OBLIGATIONS

 

SECTION 2.1.          Pledge; Grant of Security Interest. As collateral security
for the payment and performance in full of all the Secured Obligations, subject
to the DIP Orders, each Grantor hereby pledges and grants to the Lender for its
benefit and for the benefit of the other Credit Parties a lien on and security
interest in and to all of the right, title and interest of such Grantor in, to
and under all personal property and interests in such personal property,
wherever located, and whether now existing or hereafter arising or acquired from
time to time (collectively, the “Collateral”), including, without limitation:

 

(i)          all Accounts;

 

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

 

(iii)        all Documents, Instruments and Chattel Paper;

 

(iv)        all Letters of Credit and Letter-of-Credit Rights;

 

(v)         all Securities Collateral;

 

(vi)        all Investment Property;

 

(vii)       all Intellectual Property Collateral;

 

(viii)      all Commercial Tort Claims, including, without limitation, those
described on Schedule IV hereto;

 

(ix)         all General Intangibles, including, without limitation, all Credit
Card Receivables;

 

(x)          all Deposit Accounts;

 

(xi)         all Supporting Obligations;

 

(xii)        all books and records relating to the Collateral;

 

(xiii)       Bankruptcy Recoveries, but only: (A) the full amount of any such
recovery or settlement thereof to the extent arising under section 549 of the
Bankruptcy Code, and (B) all amounts necessary to reimburse the Lender for the
amount of the Professional Fee Carve Out, if any, used to finance the pursuit of
such recovery or settlement with respect to all Bankruptcy Recoveries ((A) and
(B) being hereinafter defined as the “Specified Bankruptcy Recoveries”);

 

6

 

 

(xiv)      all owned real estate of the Grantors, all proceeds from the
disposition of real estate, and all proceeds from the disposition of real estate
leases (including, without limitation, all non-residential real property
leases); provided that, with respect to the Grantors’ non-residential real
property Leases, and notwithstanding anything to the contrary in the DIP Orders
or any Loan Document, no Liens or encumbrances shall be granted on or extend to
the Grantors’ real property Leases themselves, but rather, any such Liens
granted shall extend only to the proceeds realized upon the sale, assignment,
termination, or other disposition of such real property lease(s); and

 

(xv)       to the extent not covered by the foregoing clauses (i) through (xiv),
all other personal property of such Grantor, whether tangible or intangible and
all Proceeds and products of each of the foregoing and all accessions to,
substitutions and replacements for, and rents, profits and products of, each of
the foregoing, any and all proceeds of any insurance, indemnity, warranty or
guaranty payable to such Grantor from time to time with respect to any of the
foregoing.

 

Notwithstanding anything to the contrary contained in clauses (i) through (xv)
above, the security interest created by this Security Agreement shall not extend
to, and the term “Collateral” shall not include, any Bankruptcy Recoveries other
than Specified Bankruptcy Recoveries.

 

SECTION 2.2.          Secured Obligations. This Security Agreement secures, and
the Collateral is collateral security for, the payment and performance in full
when due of the Secured Obligations.

 

SECTION 2.3.          Security Interest.

 

(a)  Each Grantor hereby irrevocably authorizes the Lender at any time and from
time to time to authenticate and file in any relevant jurisdiction any financing
statements (including fixture filings) and amendments thereto that contain the
information required by Article 9 of the Uniform Commercial Code of each
applicable jurisdiction for the filing of any financing statement or amendment
relating to the Collateral, including, without limitation, (i) whether such
Grantor is an organization, the type of organization and any organizational
identification number issued to such Grantor, (ii) a description of the
Collateral as “all assets of the Grantor, wherever located, whether now owned or
hereafter acquired” and (iii) in the case of a financing statement filed as a
fixture filing, a sufficient description of the real property to which such
Collateral relates. Each Grantor agrees to provide all information described in
the immediately preceding sentence to the Lender promptly upon request.

 

(b)          Each Grantor hereby ratifies its prior authorization for the Lender
to file in any relevant jurisdiction any financing statements or amendments
thereto relating to the Collateral if filed prior to the date hereof.

 

(c)          Each Grantor hereby further authorizes the Lender to file filings
with the United States Patent and Trademark Office and United States Copyright
Office (or any successor office or any similar office in any other country) or
other necessary documents for the purpose of perfecting, confirming, continuing,
enforcing or protecting the security interest granted by such Grantor hereunder
in any Intellectual Property Collateral, without the signature of such Grantor,
and naming such Grantor, as debtor, and the Lender, as secured party.

 

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ARTICLE III

 

PERFECTION; SUPPLEMENTS; FURTHER ASSURANCES;

USE OF COLLATERAL

 

SECTION 3.1.          Delivery of Certificated Securities Collateral. Each
Grantor hereby agrees that all certificates, agreements or instruments
representing or evidencing Securities Collateral acquired by such Grantor on or
prior to the date hereof, shall be delivered to and held by or on behalf of the
Lender pursuant hereto no later than the earlier of (i) thirty (30) days after
the date hereof and (ii) the entry of the Final Order. Each Grantor hereby
agrees that all certificates, agreements or instruments representing or
evidencing Securities Collateral acquired by such Grantor after the date hereof,
shall promptly (and in any event within seven (7) Business Days) upon receipt
thereof by such Grantor be delivered to and held by or on behalf of the Lender
pursuant hereto. All certificated Securities Collateral shall be in suitable
form for transfer by delivery or shall be accompanied by duly executed
instruments of transfer or assignment in blank, all in form and substance
reasonably satisfactory to the Lender. The Lender shall have the right, at any
time upon the occurrence and during the continuance of any Event of Default and
subject to the DIP Orders, to endorse, assign or otherwise transfer to or to
register in the name of the Lender or any of its nominees or endorse for
negotiation any or all of the Securities Collateral, without any indication that
such Securities Collateral is subject to the security interest hereunder. In
addition, the Lender shall have the right with written notice to exchange
certificates representing or evidencing Securities Collateral for certificates
of smaller or larger denominations, accompanied by instruments of transfer or
assignment and letters of direction duly executed in blank.

 

SECTION 3.2.          Perfection of Uncertificated Securities Collateral.  Each
Grantor hereby agrees that if any of the Pledged Interests are at any time not
evidenced by certificates of ownership, then each applicable Grantor shall, to
the extent permitted by applicable Law and upon the request of the Lender, cause
such pledge to be recorded on the equityholder register or the books of the
issuer, execute customary pledge forms or other documents necessary or
reasonably requested to complete the pledge and give the Lender the right to
transfer such Pledged Interests under the terms hereof. Each Grantor hereby
agrees that it will not permit any of the Pledged Interests that do not
constitute “securities” (as defined in the UCC) to at any time become
“securities” (as defined in the UCC) unless, concurrently with such conversion,
such Grantor shall promptly notify the Lender thereof, cause such Pledged
Interests to become evidenced by certificates of ownership, and endorse, assign
and deliver the same to the Lender, accompanied by such instruments of transfer
or assignment duly executed in blank, all in form and substance reasonably
satisfactory to the Lender.

 

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SECTION 3.3.          Maintenance of Perfected Security Interest.  Each Grantor
represents and warrants that, effective immediately upon the entry of the
Interim Borrowing Order, the Lender will have a priming first priority,
continuing, valid, binding, enforceable, non-avoidable, and automatically
perfected post-petition security interest and Lien, senior and superior in
priority to all other secured and unsecured creditors of the Grantors’ estates
(except with respect to the Professional Fee Carve Out and as may otherwise be
provided in the DIP Orders), in, upon and to all of the Collateral securing the
payment and performance of the Secured Obligations. Upon the entry of the
Interim Borrowing Order, the Liens which secure the Secured Obligations shall
constitute first priority Liens pursuant to sections 361, 362, 364(c)(2),
364(c)(3), and 364(d) of the Bankruptcy Code, subject only to the Professional
Fee Carve Out. Each Grantor agrees that at the sole cost and expense of the
Grantors, (i) such Grantor will maintain the security interest created by this
Security Agreement in the Collateral as a perfected security interest having the
priority required by the Loan Documents and shall defend such security interest
against the claims and demands of all Persons (other than with respect to claims
and demands relating to the Professional Fee Carve Out), (ii) such Grantor shall
furnish to the Lender from time to time statements and schedules further
identifying and describing the Collateral and such other reports in connection
with the Collateral as the Lender may reasonably request, all in reasonable
detail and (iii) at any time and from time to time, upon the written request of
the Lender, such Grantor shall promptly and duly execute and deliver, and file
and have recorded, such further instruments and documents and take such further
action as the Lender may reasonably request, including the filing of any
financing statements, continuation statements and other documents and agreements
(including this Security Agreement) under the UCC (or other applicable Laws) in
effect in any jurisdiction with respect to the security interest created hereby
and the execution and delivery of Control Agreements, all in form reasonably
satisfactory to the Lender and in such offices (including, without limitation,
the United States Patent and Trademark Office and the United States Copyright
Office) wherever required by applicable Law in each case to perfect, continue
and maintain a valid, enforceable security interest in the Collateral (which
security interest shall have the priority required by the Loan Documents) as
provided herein and to preserve the other rights and interests granted to the
Lender hereunder, as against the Grantors and third parties (other than with
respect to claims and demands relating to the Professional Fee Carve Out), with
respect to the Collateral.

 

SECTION 3.4.          Other Actions.  In order to further evidence the
attachment, perfection and priority of, and the ability of the Lender to
enforce, the Lender’s security interest in the Collateral, each Grantor
represents, warrants and agrees, in each case at such Grantor’s own expense,
with respect to the following Collateral that:

 

(a)          Instruments and Tangible Chattel Paper. As of the date hereof
(i) no amount payable under or in connection with any of the Collateral is
evidenced by any Instrument or Tangible Chattel Paper other than such
Instruments and Tangible Chattel Paper listed on Schedule V hereto and (ii) each
Instrument and each item of Tangible Chattel Paper listed on Schedule V hereto,
to the extent requested by the Lender, has been properly endorsed, assigned and
delivered to the Lender, accompanied by instruments of transfer or assignment
and letters of direction duly executed in blank. If any amount payable under or
in connection with any of the Collateral shall be evidenced by any Instrument or
Tangible Chattel Paper, the Grantor acquiring such Instrument or Tangible
Chattel Paper shall promptly endorse, assign and deliver the same to the Lender,
accompanied by such instruments of transfer or assignment duly executed in blank
as the Lender may reasonably request from time to time.

 

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(b)          Investment Property.

 

(i)          As of the date hereof (a) it has no Securities Accounts other than
those listed on Schedule VI hereto, and (b) it does not hold, own or have any
interest in any certificated securities or uncertificated securities other than
those constituting Pledged Interests with respect to which the Lender has a
perfected security interest in such Pledged Interests (subject only to the
Professional Fee Carve Out) having the priority required by the Loan Documents.

 

(ii)         If any Grantor shall at any time hold or acquire any certificated
securities, such Grantor shall promptly (a) notify the Lender thereof, and (b)
upon request of the Lender and without derogating from the Lender’s rights in
after-acquired Collateral pursuant to the DIP Orders, either (i) endorse, assign
and deliver such certificated securities to the Lender, accompanied by such
instruments of transfer or assignment duly executed in blank, all in form and
substance reasonably satisfactory to the Lender or (ii) deliver such securities
into a Securities Account with respect to which a Securities Account Control
Agreement is in effect in favor of the Lender. If any securities now or
hereafter acquired by any Grantor are uncertificated, such Grantor shall
promptly (a) notify the Lender thereof, and (b) upon request of the Lender and
without derogating from the Lender’s rights in after-acquired Collateral
pursuant to the DIP Orders, either (i) grant Control to the Lender and cause the
issuer to agree to comply with instructions from the Lender as to such
securities, without further consent of any Grantor or such nominee, (ii) cause a
security entitlement with respect to such uncertificated security to be held in
a Securities Account with respect to which the Lender has Control or (iii)
arrange for the Lender to become the registered owner of the securities, in each
case pursuant to an agreement in form and substance reasonably satisfactory to
the Lender. No Grantor shall hereafter establish and maintain any Securities
Account with any Securities Intermediary unless (1) the applicable Grantor shall
have given the Lender ten (10) Business Days’ prior written notice of its
intention to establish such new Securities Account with such Securities
Intermediary, (2) such Securities Intermediary shall be reasonably acceptable to
the Lender and (3) upon request of the Lender and without derogating from the
Lender’s rights in after-acquired Collateral pursuant to the DIP Orders, such
Securities Intermediary and such Grantor shall have duly executed and delivered
a Control Agreement with respect to such Securities Account. Each Grantor shall
accept any cash and Investment Property which are proceeds of the Pledged
Interests in trust for the benefit of the Lender and promptly upon receipt
thereof, deposit any cash received by it into an account in which the Lender has
Control, or with respect to any Investment Properties or additional securities,
take such actions as required above with respect to such securities. No Grantor
shall grant control over any Pledged Interests to any Person other than the
Lender.

 

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(iii)        As between the Lender and the Grantors, the Grantors shall bear the
investment risk with respect to the Investment Property and Pledged Interests,
and the risk of loss of, damage to, or the destruction of the Investment
Property and Pledged Interests, whether in the possession of, or maintained as a
security entitlement or deposit by, or subject to the control of, the Lender, a
Securities Intermediary, any Grantor or any other Person; provided, however,
that nothing contained in this SECTION 3.4(b) shall release or relieve any
Securities Intermediary of its duties and obligations to the Grantors or any
other Person under any Control Agreement or under applicable Law. Each Grantor
shall promptly pay all Claims and fees of whatever kind or nature with respect
to the Pledged Interests pledged by it under this Security Agreement. In the
event any Grantor shall fail to make such payment contemplated in the
immediately preceding sentence, the Lender may do so for the account of such
Grantor and the Grantors shall promptly reimburse and indemnify the Lender for
all costs and expenses incurred by the Lender under this SECTION 3.4(b) and
under SECTION 9.3 hereof.

 

(c)          Electronic Chattel Paper and Transferable Records. As of the date
hereof no amount payable under or in connection with any of the Collateral is
evidenced by any Electronic Chattel Paper or any “transferable record” (as that
term is defined in Section 201 of the Federal Electronic Signatures in Global
and National Commerce Act, or in Section 16 of the Uniform Electronic
Transactions Act as in effect in any relevant jurisdiction). If any amount
payable under or in connection with any of the Collateral shall be evidenced by
any Electronic Chattel Paper or any transferable record, the Grantor acquiring
such Electronic Chattel Paper or transferable record shall promptly notify the
Lender thereof and shall take such action as the Lender may reasonably request
to vest in the Lender control under UCC Section 9-105 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 Lender agrees with such Grantor that the Lender
will arrange, pursuant to procedures reasonably satisfactory to the Lender and
so long as such procedures will not result in the Lender’s loss of control, for
the Grantor to make alterations to the Electronic Chattel Paper or transferable
record permitted under UCC Section 9-105 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
allow without loss of control, unless an Event of Default has occurred and is
continuing or would occur after taking into account any action by such Grantor
with respect to such Electronic Chattel Paper or transferable record.

 

(d)          Letter-of-Credit Rights. If such Grantor is at any time a
beneficiary under a Letter of Credit now or hereafter issued in favor of such
Grantor, (which, for the avoidance of doubt, shall not include any Letter of
Credit issued pursuant to the Credit Agreement), such Grantor shall promptly
notify the Lender thereof and such Grantor shall, at the request of the Lender,
pursuant to an agreement in form and substance reasonably satisfactory to the
Lender, either (i) arrange for the issuer and any confirmer of such Letter of
Credit to consent to an assignment to the Lender of, and to pay to the Lender,
the proceeds of, any drawing under the Letter of Credit or (ii) arrange for the
Lender to become the beneficiary of such Letter of Credit, with the Lender
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.

 

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(e)          Commercial Tort Claims. As of the date hereof it holds no
Commercial Tort Claims other than those listed on Schedule IV hereto. If any
Grantor shall at any time hold or acquire a Commercial Tort Claim, such Grantor
shall immediately notify the Lender in writing signed by such Grantor of the
brief details thereof and grant to the Lender 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 reasonably
satisfactory to the Lender.

 

SECTION 3.5.          Supplements; Further Assurances.  Each Grantor shall take
such further actions, and execute and deliver to the Lender such additional
assignments, agreements, supplements, powers and instruments, as the Lender may
in its reasonable judgment deem necessary or appropriate, wherever required by
Law, in order to perfect, preserve and protect the security interest in the
Collateral as provided herein and the rights and interests granted to the Lender
hereunder, to carry into effect the purposes hereof or better to assure and
confirm unto the Lender or permit the Lender to exercise and enforce its rights,
powers and remedies hereunder with respect to any Collateral. Without limiting
the generality of the foregoing, each Grantor shall make, execute, endorse,
acknowledge, file or refile and/or deliver to the Lender from time to time upon
reasonable request such lists, descriptions and designations of the Collateral,
copies of warehouse receipts, receipts in the nature of warehouse receipts,
bills of lading, documents of title, vouchers, invoices, schedules, confirmatory
assignments, supplements, additional security agreements, conveyances, financing
statements, transfer endorsements, powers of attorney, certificates, reports and
other assurances or instruments. If an Event of Default has occurred and is
continuing, subject to the DIP Orders, the Lender may institute and maintain, in
its own name or in the name of any Grantor, such suits and proceedings as the
Lender may be advised by counsel shall be necessary or expedient to prevent any
impairment of the security interest in or the perfection thereof in the
Collateral. All of the foregoing shall be at the sole cost and expense of the
Grantors. The Grantors and the Lender acknowledge that this Security Agreement
is intended to grant to the Lender for the benefit of the Credit Parties a
security interest in and Lien upon the Collateral and shall not constitute or
create a present assignment of any of the Collateral.

 

ARTICLE IV

 

REPRESENTATIONS, WARRANTIES AND COVENANTS

 

In addition to, and without limitation of, each of the representations,
warranties and covenants set forth in the Credit Agreement and the other Loan
Documents, each Grantor represents, warrants and covenants as follows:

 

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SECTION 4.1.          Title. No financing statement or other public notice with
respect to all or any part of the Collateral is on file or of record in any
public office, except such as have been filed in favor of the Lender pursuant to
this Security Agreement or as are permitted by the Credit Agreement. No Person
other than the Lender has control or possession of all or any part of the
Collateral, except as permitted by the Credit Agreement.

 

SECTION 4.2.          Limitation on Liens; Defense of Claims; Transferability of
Collateral.  Each Grantor is as of the date hereof, and, as to Collateral
acquired by it from time to time after the date hereof, such Grantor will be,
the sole direct and beneficial owner of all Collateral pledged by it hereunder
free from any Lien or other right, title or interest of any Person other
than the Liens and security interest created by this Security Agreement,
Permitted Encumbrances and the Professional Fee Carve Out. Each Grantor shall,
at its own cost and expense, defend title to the Collateral pledged by it
hereunder and the security interest therein and Lien thereon granted to the
Lender and the priority thereof against all claims and demands of all Persons,
at its own cost and expense, at any time claiming any interest therein adverse
to the Lender or any other Credit Party other than (i) with respect to claims or
demands regarding priority of Liens and the Professional Fee Carve Out, and (ii)
with respect to all other claims and demands, Permitted Encumbrances. There is
no agreement, and no Grantor shall enter into any agreement or take any other
action, that would restrict the transferability of any of the Collateral or
otherwise impair or conflict with such Grantors’ obligations or the rights of
the Lender hereunder.

 

SECTION 4.3.          Chief Executive Office; Change of Name; Jurisdiction of
Organization.  The exact legal name, type of organization, jurisdiction of
organization, federal taxpayer identification number, organizational
identification number and chief executive office of such Grantor is indicated
next to its name on Schedule VII hereto.

 

SECTION 4.4.          Due Authorization and Issuance.  All of the Pledged
Interests have been, and to the extent any Pledged Interests are hereafter
issued, such shares or other equity interests will be, upon such issuance, duly
authorized, validly issued and, to the extent applicable, fully paid and
non-assessable. All of the Pledged Interests have been fully paid for, and there
is no amount or other obligation owing by any Grantor to any issuer of the
Pledged Interests in exchange for or in connection with the issuance of the
Pledged Interests or any Grantor’s status as a partner or a member of any issuer
of the Pledged Interests.

 

SECTION 4.5.          No Conflicts, Consents, etc.  No consent of any party
(including, without limitation, equity holders or creditors of such Grantor) and
no consent, authorization, approval, license or other action by, and no notice
to or filing with, any Governmental Authority or regulatory body or other Person
is required (A) for the grant of the security interest by such Grantor of the
Collateral pledged by it pursuant to this Security Agreement or for the
execution, delivery or performance hereof by such Grantor, (B) for the exercise
by the Lender of the voting or other rights provided for in this Security
Agreement or (C) for the exercise by the Lender of the remedies in respect of
the Collateral pursuant to this Security Agreement except, in each case, (x) for
such consents which have been obtained prior to the date hereof and (y) the
entry of the DIP Orders. Following the occurrence and during the continuation of
an Event of Default, subject to the DIP Orders, if the Lender desires to
exercise any remedies, voting or consensual rights or attorney-in-fact powers
set forth in this Security Agreement and determines it necessary to obtain any
approvals or consents of any Governmental Authority or any other Person
therefor, then, upon the reasonable request of the Lender, such Grantor agrees
to use commercially reasonable efforts to assist and aid the Lender to obtain as
soon as commercially practicable any necessary approvals or consents for the
exercise of any such remedies, rights and powers.

 

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SECTION 4.6.          Collateral.  All information set forth herein, including
the schedules annexed hereto, and all information contained in any documents,
schedules and lists heretofore delivered to any Credit Party in connection with
this Security Agreement, in each case, relating to the Collateral, is accurate
and complete in all material respects. The Collateral described on the schedules
annexed hereto constitutes all of the property of such type of Collateral owned
or held by the Grantors.

 

SECTION 4.7.          Insurance.  Such Grantor shall maintain or shall cause to
be maintained such insurance as is required pursuant to Section 6.06 of the
Credit Agreement. Each Grantor hereby irrevocably makes, constitutes and
appoints the Lender (and all officers, employees or agents designated by the
Lender) as such Grantor’s true and lawful agent (and attorney-in-fact),
exercisable only after the occurrence and during the continuance of an Event of
Default and subject to the DIP Orders, for the purpose of making, settling and
adjusting claims in respect of the Collateral under policies of insurance,
endorsing the name of such Grantor on any check, draft, instrument or other item
of payment for the proceeds of such policies of insurance and for making all
determinations and decisions with respect thereto. In the event that any Grantor
at any time or times shall fail to obtain or maintain any of the policies of
insurance required hereby or to pay any premium in whole or in part relating
thereto, the Lender may, without waiving or releasing any obligation or
liability of the Grantors hereunder or any Default or Event of Default, in its
sole discretion but subject to the DIP Orders, obtain and maintain such policies
of insurance and pay such premium and take any other actions with respect
thereto as the Lender deems advisable. All sums disbursed by the Lender in
connection with this SECTION 4.7, including reasonable attorneys’ fees, court
costs, reasonable and documented expenses and other charges relating thereto,
shall be payable, upon demand, by the Grantors to the Lender and shall be
additional Secured Obligations secured hereby.

 

SECTION 4.8.          Payment of Taxes; Compliance with Laws; Contested Liens;
Claims.  Each Grantor represents and warrants that all Claims imposed upon or
assessed against the Collateral have been paid and discharged except to the
extent (i) such Claims constitute a Lien not yet due and payable, a Permitted
Encumbrance or the Professional Fee Carve Out, or (ii) the enforcement of which
Claims has been stayed by virtue of the filing of the Chapter 11 Case. Each
Grantor shall comply with all applicable Law relating to the Collateral the
failure to comply with which, individually or in the aggregate, could reasonably
be expected to have a Material Adverse Effect. Each Grantor may at its own
expense contest the validity, amount or applicability of any Claims so long as
the contest thereof shall be conducted in accordance with, and permitted
pursuant to the provisions of, the Credit Agreement. Notwithstanding the
foregoing provisions of this SECTION 4.8, no contest of any such obligation may
be pursued by such Grantor if such contest would expose the Lender or any other
Credit Party to (i) any possible criminal liability or (ii) any additional civil
liability for failure to comply with such obligations unless such Grantor shall
have furnished a bond or other security therefor satisfactory to the Lender, or
such other Credit Party, as the case may be.

 

14

 

 

ARTICLE V

 

CERTAIN PROVISIONS CONCERNING SECURITIES COLLATERAL

 

SECTION 5.1.          Pledge of Additional Securities Collateral.  Upon request
of the Lender and without derogating from the Lender’s rights in after-acquired
Collateral pursuant to the DIP Orders, each Grantor shall, upon obtaining any
Pledged Interests or Intercompany Notes of any Person required to be pledged
hereunder, accept the same in trust for the benefit of the Lender and forthwith
deliver to the Lender a pledge amendment, duly executed by such Grantor, in
substantially the form of Exhibit 1 annexed hereto (each, a “Pledge Amendment”),
and the certificates and other documents required under SECTION 3.1 and SECTION
3.2 hereof in respect of the additional Pledged Interests or Intercompany Notes
which are to be pledged pursuant to this Security Agreement, and confirming the
attachment of the Lien created hereby and by the DIP Orders on and in respect of
such additional Pledged Interests or Intercompany Notes. Each Grantor hereby
authorizes the Lender to attach each such Pledge Amendment to this Security
Agreement and agrees that all Pledged Interests or Intercompany Notes (whether
or not listed on any Pledge Amendment delivered to the Lender) shall for all
purposes hereunder be considered Collateral.

 

SECTION 5.2.          Voting Rights; Distributions; etc.  So long as no Event of
Default shall have occurred and be continuing, each Grantor shall be entitled to
exercise any and all voting and other consensual rights pertaining to the
Securities Collateral or any part thereof for any purpose not inconsistent with
the terms or purposes hereof, the Credit Agreement or any other Loan Document
evidencing the Secured Obligations (it being understood and agreed that no vote
by any Grantor may cause action or inaction in violation of any DIP Order or any
other order entered in connection with the Chapter 11 Case or any successor
case). The Lender shall be deemed without further action or formality to have
granted to each Grantor all necessary consents relating to voting rights and
shall, if necessary, upon written request of any Grantor and at the sole cost
and expense of the Grantors, from time to time execute and deliver (or cause to
be executed and delivered) to such Grantor all such instruments as such Grantor
may reasonably request in order to permit such Grantor to exercise the voting
and other rights which it is entitled to exercise pursuant to this SECTION
5.2(i).

 

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(ii)         Upon the occurrence and during the continuance of any Event of
Default, subject to the DIP Orders, all rights of each Grantor to exercise the
voting and other consensual rights it would otherwise be entitled to exercise
pursuant to SECTION 5.2(i) hereof without any action, other than, in the case of
any Securities Collateral, or the giving of any notice shall immediately cease,
and all such rights shall thereupon become vested in the Lender, which shall
thereupon have the sole right to exercise such voting and other consensual
rights; provided that the Lender shall have the right, in its sole discretion,
from time to time following the occurrence and continuance of an Event of
Default to permit such Grantor to exercise such rights under SECTION 5.2(i).
After such Event of Default is no longer continuing, each Grantor shall have the
right to exercise the voting, managerial and other consensual rights and powers
that it would otherwise be entitled to pursuant to SECTION 5.2(i) hereof.

 

(iii)        Subject to the DIP Orders, the Lender shall have the sole right to
receive and hold as Collateral any and all Distributions, and any Distributions
received by any Grantor contrary to the foregoing shall be held in trust for the
benefit of the Lender and immediately be paid over to the Lender in accordance
with Section 6.11 of the Credit Agreement.

 

(iv)        Each Grantor shall, at its sole cost and expense, from time to time
execute and deliver to the Lender appropriate instruments as the Lender may
reasonably request in order to permit the Lender to exercise the voting and
other rights which it may be entitled to exercise pursuant to SECTION 5.2(ii)
hereof and to receive all Distributions which it may be entitled to receive
under SECTION 5.2(iii) hereof.

 

SECTION 5.3.          Organization Documents. No Grantor will terminate or agree
to terminate any Organization Documents or make any amendment or modification to
any Organization Documents, including electing to treat any Pledged Interests of
such Grantor as a security under Section 8-103 of the UCC, except as permitted
by the Credit Agreement.

 

SECTION 5.4.          Defaults, Etc. No Securities Collateral pledged by such
Grantor is subject to any defense, offset or counterclaim, nor have any of the
foregoing been asserted or alleged against such Grantor by any Person with
respect thereto, and as of the date hereof, there are no certificates,
instruments, documents or other writings (other than the Organization Documents
and certificates, if any, delivered to the Lender) which evidence any Pledged
Interests of such Grantor.

 

SECTION 5.5.          Certain Agreements of Grantors As Issuers and Holders of
Equity Interests.      In the case of each Grantor which is an issuer of
Securities Collateral, such Grantor agrees to be bound by the terms of this
Security Agreement relating to the Securities Collateral issued by it and will
comply with such terms insofar as such terms are applicable to it.

 

(ii)         In the case of each Grantor which is a partner in a partnership,
limited liability company or other entity, such Grantor hereby consents to the
extent required by the applicable Organization Documents to the pledge by each
other Grantor, pursuant to the terms hereof, of the Pledged Interests in such
partnership, limited liability company or other entity and, upon the occurrence
and during the continuance of an Event of Default and subject to the DIP Orders,
to the transfer of such Pledged Interests to the Lender or its nominee and to
the substitution of the Lender or its nominee as a substituted partner or member
in such partnership, limited liability company or other entity with all the
rights, powers and duties of a general partner or a limited partner or member,
as the case may be.

 

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ARTICLE VI

 

CERTAIN PROVISIONS CONCERNING INTELLECTUAL

PROPERTY COLLATERAL

 

SECTION 6.1.          Registrations.  Except pursuant to licenses and other user
agreements entered into by any Grantor in the ordinary course of business that
are listed on Schedule II hereto, on and as of the date hereof (i) each Grantor
owns and possesses the right to use, and has done nothing to authorize or enable
any other Person to use, any material Copyright, Patent or Trademark listed on
Schedule II hereto, and (ii) all registrations listed on Schedule II hereto are
valid and in full force and effect.

 

SECTION 6.2.          No Violations or Proceedings.  To each Grantor’s
knowledge, on and as of the date hereof, there is no violation by others of any
right of such Grantor with respect to any Copyright, Patent or Trademark listed
on Schedule II hereto, respectively, pledged by it under the name of such
Grantor.

 

SECTION 6.3.          Protection of Lender’s Security.  On a continuing basis,
each Grantor shall, at its sole cost and expense, (i) promptly following its
becoming aware thereof, notify the Lender of (A) any adverse determination in
any proceeding in the United States Patent and Trademark Office or the United
States Copyright Office with respect to any Patent, Trademark or Copyright
necessary for the conduct of business of such Grantor or (B) the institution of
any proceeding or any adverse determination in any federal, state or local court
or administrative body regarding such Grantor’s claim of ownership in or right
to use any of the Intellectual Property Collateral material to the use and
operation of the Collateral, its right to register such Intellectual Property
Collateral or its right to keep and maintain such registration in full force and
effect, (ii) maintain and protect the Intellectual Property Collateral necessary
for the conduct of business of such Grantor, (iii) not permit to lapse or become
abandoned any Intellectual Property Collateral necessary for the conduct of
business of such Grantor, and not settle or compromise any pending or future
litigation or administrative proceeding with respect to such Intellectual
Property Collateral, in each case, except as shall be consistent with
commercially reasonable business judgment and, if any Event of Default has
occurred and is continuing, with the prior approval of the Lender (such approval
not to be unreasonably withheld), (iv) upon such Grantor’s obtaining knowledge
thereof, promptly notify the Lender in writing of any event which may be
reasonably expected to materially and adversely affect the value or utility of
the Intellectual Property Collateral or any portion thereof material to the use
and operation of the Collateral, the ability of such Grantor or the Lender to
dispose of the Intellectual Property Collateral or any portion thereof or the
rights and remedies of the Lender in relation thereto including, without
limitation, a levy or threat of levy or any legal process against the
Intellectual Property Collateral or any portion thereof, (v) not license the
Intellectual Property Collateral other than licenses entered into by such
Grantor in, or incidental to, the ordinary course of business, or amend or
permit the amendment of any of the material licenses in a manner that materially
and adversely affects the right to receive payments thereunder, or in any manner
that would materially impair the value of the Intellectual Property Collateral
or the Lien on and security interest in the Intellectual Property Collateral
intended to be granted to the Lender for the benefit of the Credit Parties,
without the consent of the Lender, (vi) until the Lender exercises its rights to
make collection, diligently keep adequate records respecting the Intellectual
Property Collateral and (vii) furnish to the Lender from time to time upon the
Lender’s reasonable request therefor detailed statements and amended schedules
further identifying and describing the Intellectual Property Collateral and such
other materials evidencing or reports pertaining to the Intellectual Property
Collateral as the Lender may from time to time reasonably request.
Notwithstanding the foregoing, nothing herein shall prevent any Grantor from
selling, disposing of or otherwise using any Intellectual Property Collateral as
permitted under the Credit Agreement.

 

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SECTION 6.4.          After-Acquired Property.  If any Grantor shall, at any
time before this Security Agreement shall have been terminated in accordance
with SECTION 9.5, (i) obtain any rights to any additional Intellectual Property
Collateral or (ii) become entitled to the benefit of any additional Intellectual
Property Collateral or any renewal or extension thereof, including any reissue,
division, continuation, or continuation-in-part of any Intellectual Property
Collateral, or any improvement on any Intellectual Property Collateral, the
provisions hereof shall automatically apply thereto and any such item enumerated
in clause (i) or (ii) of this SECTION 6.4 with respect to such Grantor shall
automatically constitute Intellectual Property Collateral if such would have
constituted Intellectual Property Collateral at the time of execution hereof and
be subject to the Lien and security interest created by this Security Agreement
without further action by any party. With respect to any federally registered
Intellectual Property Collateral, each Grantor shall promptly (a) provide to the
Lender written notice of any of the foregoing and (b) upon request of the Lender
and without derogating from the Lender’s rights in after-acquired Collateral
pursuant to the DIP Orders, confirm the attachment of the Lien and security
interest created by this Security Agreement to any rights described in clauses
(i) and (ii) of the immediately preceding sentence of this SECTION 6.4 by
execution of an instrument in form reasonably acceptable to the Lender.

 

SECTION 6.5.          Modifications.  Each Grantor authorizes the Lender to
modify this Security Agreement by amending Schedule II hereto to include any
Intellectual Property Collateral acquired or arising after the date hereof of
such Grantor including, without limitation, any of the items listed in SECTION
6.4 hereof.

 

SECTION 6.6.          Litigation.  Unless there shall occur and be continuing
any Event of Default, each Grantor shall have the right to commence and
prosecute in its own name, as the party in interest, for its own benefit and at
the sole cost and expense of the Grantors, such applications for protection of
the Intellectual Property Collateral and suits, proceedings or other actions to
prevent the infringement, counterfeiting, unfair competition, dilution,
diminution in value or other damage as are necessary to protect the Intellectual
Property Collateral. Upon the occurrence and during the continuance of any Event
of Default and subject to the DIP Orders, the Lender shall have the right but
shall in no way be obligated to file applications for protection of the
Intellectual Property Collateral and/or bring suit in the name of any Grantor,
the Lender or the other Credit Parties to enforce the Intellectual Property
Collateral and any license thereunder. In the event of such suit, each Grantor
shall, at the reasonable request of the Lender, do any and all lawful acts and
execute any and all documents requested by the Lender in aid of such enforcement
and the Grantors shall promptly reimburse and indemnify the Lender, as the case
may be, for all costs and expenses incurred by the Lender in the exercise of its
rights under this SECTION 6.6 in accordance with SECTION 9.3 hereof. In the
event that the Lender shall elect not to bring suit to enforce the Intellectual
Property Collateral, each Grantor agrees, at the request of the Lender, to take
all commercially reasonable actions necessary, whether by suit, proceeding or
other action, to prevent the infringement, counterfeiting, unfair competition,
dilution, diminution in value of or other damage to any of the Intellectual
Property Collateral by others and for that purpose agrees to diligently maintain
any suit, proceeding or other action against any Person so infringing necessary
to prevent such infringement.

 

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ARTICLE VII

 

CERTAIN PROVISIONS CONCERNING

CREDIT CARD RECEIVABLES AND ACCOUNTS

 

SECTION 7.1.          Special Representations and Warranties.  As of the time
when any of its Credit Card Receivables is included in the Borrowing Base as an
Eligible Credit Card Receivable, each Grantor shall be deemed to have
represented and warranted that such Credit Card Receivable and all records,
papers and documents relating thereto (i) are genuine and correct and in all
material respects what they purport to be, (ii) represent the legal, valid and
binding obligation of the account debtor, except as such enforceability may be
limited by bankruptcy, insolvency, reorganization, moratorium or similar Laws
relating to or limiting creditors’ rights generally or by equitable principles
relating to enforceability, evidencing indebtedness unpaid and owed by such
account debtor, arising out of the performance of labor or services or the sale,
lease, license, assignment or other disposition and delivery of the goods or
other property listed therein or out of an advance or a loan, (iii) are in all
material respects in compliance and conform with all applicable material
federal, state and local Laws and applicable Laws of any relevant foreign
jurisdiction, and (iv) are not subject to any right of offset as a result of any
rebates, allowances, or similar promotional credit.

 

SECTION 7.2.          Maintenance of Records.  Each Grantor shall keep and
maintain at its own cost and expense materially complete records of each Credit
Card Receivable and each Account, in a manner consistent with prudent business
practice, including, without limitation, records of all payments received, all
credits granted thereon, all merchandise returned and all other documentation
relating thereto and the amount of the Credit Card Holdback. Each Grantor shall,
at such Grantor’s sole cost and expense, upon the Lender’s demand made at any
time after the occurrence and during the continuance of any Event of Default and
subject to the DIP Orders, deliver all tangible evidence of all Credit Card
Receivables and Accounts, including, without limitation, all documents
evidencing such Credit Card Receivables and Accounts and any books and records
relating thereto to the Lender or to its representatives (copies of which
evidence and books and records may be retained by such Grantor). Upon the
occurrence and during the continuance of any Event of Default and subject to the
DIP Orders, the Lender may transfer a full and complete copy of any Grantor’s
books, records, credit information, reports, memoranda and all other writings
relating to the Credit Card Receivables and Accounts to and for the use by any
Person that has acquired or is contemplating acquisition of an interest in the
Credit Card Receivables and Accounts or the Lender’s security interest therein
in accordance with applicable Law without the consent of any Grantor.

 

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SECTION 7.3.          Legend.  Subject to the DIP Orders, each Grantor shall
legend, at the request of the Lender made at any time after the occurrence and
during the continuance of any Event of Default and in form and manner reasonably
satisfactory to the Lender, the Credit Card Receivables and Accounts and the
other books, records and documents of such Grantor evidencing or pertaining to
the Credit Card Receivables and Accounts with an appropriate reference to the
fact that the Credit Card Receivables have been collaterally assigned to the
Lender for the benefit of the Credit Parties and that the Lender has a security
interest therein.

 

SECTION 7.4.          Modification of Terms, Etc.  No Grantor shall rescind or
cancel any indebtedness evidenced by any Credit Card Receivable or Account or
modify any term thereof or make any adjustment with respect thereto except in
the ordinary course of business consistent with prudent business practice, or
extend or renew any such indebtedness except in the ordinary course of business
consistent with prudent business practice or compromise or settle any dispute,
claim, suit or legal proceeding relating thereto or sell any Credit Card
Receivable, Account or interest in any of the foregoing except in the ordinary
course of business consistent with prudent business practice or in accordance
with the Credit Agreement without the prior written consent of the Lender.

 

SECTION 7.5.          Collection.  Each Grantor shall cause to be collected from
the account debtor of each of the Credit Card Receivables and Accounts, as and
when due in the ordinary course of business consistent with prudent business
practice (including, without limitation, Accounts that are delinquent, such
Accounts to be collected in accordance with generally accepted commercial
collection procedures), any and all amounts owing under or on account of such
Credit Card Receivable or Account, and apply forthwith upon receipt thereof all
such amounts as are so collected to the outstanding balance of such Credit Card
Receivable or Account. The costs and reasonable expenses (including, without
limitation, attorneys’ fees) of collection, in any case, whether incurred by any
Grantor, the Lender or any other Credit Party, shall be paid by the Grantors.

 

ARTICLE VIII

 

REMEDIES

 

SECTION 8.1.          Remedies.  Upon the occurrence and during the continuance
of any Event of Default and subject to the provisions of the DIP Orders, the
Lender may, from time to time in respect of the Collateral, in addition to the
other rights and remedies provided for herein, under applicable Law or otherwise
available to it:

 

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(i)          Personally, or by agents or attorneys, immediately take possession
of the Collateral or any part thereof, from any Grantor or any other Person who
then has possession of any part thereof with or without notice or process of
law, and for that purpose may enter upon any Grantor’s premises where any of the
Collateral is located, remove such Collateral, remain present at such premises
to receive copies of all communications and remittances relating to the
Collateral and use in connection with such removal and possession any and all
services, supplies, aids and other facilities of any Grantor;

 

(ii)         Demand, sue for, collect or receive any money or property at any
time payable or receivable in respect of the Collateral including, without
limitation, instructing the obligor or obligors on any agreement, instrument or
other obligation constituting part of the Collateral to make any payment
required by the terms of such agreement, instrument or other obligation directly
to the Lender, and in connection with any of the foregoing, compromise, settle,
extend the time for payment and make other modifications with respect thereto;
provided, however, that in the event that any such payments are made directly to
any Grantor, prior to receipt by any such obligor of such instruction, such
Grantor shall segregate all amounts received pursuant thereto in trust for the
benefit of the Lender and shall promptly pay such amounts to the Lender;

 

(iii)        Sell, assign, grant a license to use or otherwise liquidate, or
direct any Grantor to sell, assign, grant a license to use or otherwise
liquidate, any and all investments made in whole or in part with the Collateral
or any part thereof, and take possession of the proceeds of any such sale,
assignment, license or liquidation;

 

(iv)        Take possession of the Collateral or any part thereof, by directing
any Grantor in writing to deliver the same to the Lender at any place or places
so designated by the Lender, in which event such Grantor shall at its own
expense: (A) forthwith cause the same to be moved to the place or places
designated by the Lender and therewith delivered to the Lender, (B) store and
keep any Collateral so delivered to the Lender at such place or places pending
further action by the Lender and (C) while the Collateral shall be so stored and
kept, provide such security and maintenance services as shall be necessary to
protect the same and to preserve and maintain them in good condition. Each
Grantor’s obligation to deliver the Collateral as contemplated in this SECTION
8.1 is of the essence hereof. Upon application to a court of equity having
jurisdiction, the Lender shall be entitled to a decree requiring specific
performance by any Grantor of such obligation;

 

(v)         Without limiting any rights of the Lender pursuant to Section 6.11
of the Credit Agreement and subject to the provisions of the DIP Orders,
withdraw all moneys, instruments, securities and other property in any bank,
financial securities, deposit or other account of any Grantor constituting
Collateral for application to the Secured Obligations as provided in Article
VIII hereof;

 

(vi)        Without limiting any rights of the Lender pursuant to Section 6.11
of the Credit Agreement, retain and apply the Distributions to the Secured
Obligations as provided in Article VIII hereof;

 

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(vii)       Exercise any and all rights as beneficial and legal owner of the
Collateral, including, without limitation, perfecting assignment of and
exercising any and all voting, consensual and other rights and powers with
respect to any Collateral;

 

(viii)      Exercise any rights and remedies provided by, or not contrary to,
the DIP Orders; and

 

(ix)         Exercise all the rights and remedies of a secured party under the
UCC, and the Lender may also in its sole discretion, without notice except as
specified in SECTION 8.2 hereof, sell, assign or grant a license to use the
Collateral or any part thereof in one or more parcels at public or private sale,
at any exchange, broker’s board or at any of the Lender’s offices or elsewhere,
as part of one or more going out of business sales in the Lender’s own right or
by one or more agents and contractors, all as the Lender, in its sole
discretion, may deem advisable, for cash, on credit or for future delivery, and
at such price or prices and upon such other terms as the Lender may deem
commercially reasonable. The Lender shall have the right to conduct such sales
on any Grantor’s premises and shall have the right to use any Grantor’s premises
without charge for such sales for such time or times as the Agent may see fit.
The Lender or any other Credit Party or any of their respective Affiliates may
be the purchaser, licensee, assignee or recipient of any or all of the
Collateral at any such sale and shall be entitled, for the purpose of bidding
and making settlement or payment of the purchase price for all or any portion of
the Collateral sold, assigned or licensed at such sale, to use and apply any of
the Secured Obligations owed to such Person as a credit on account of the
purchase price of any Collateral payable by such Person at such sale. Each
purchaser, assignee, licensee or recipient at any such sale shall acquire the
property sold, assigned or licensed absolutely free from any claim or right on
the part of any Grantor, and each Grantor hereby waives, to the fullest extent
permitted by Law, all rights of redemption, stay and/or appraisal which it now
has or may at any time in the future have under any rule of Law now existing or
hereafter enacted. The Lender shall not be obligated to make any sale of
Collateral regardless of notice of sale having been given. The Lender may
adjourn any public or private sale from time to time by announcement at the time
and place fixed therefor, and such sale may, without further notice, be made at
the time and place to which it was so adjourned. To the fullest extent permitted
by Law, each Grantor hereby waives any claims against the Lender arising by
reason of the fact that the price at which any Collateral may have been sold,
assigned or licensed at such a private sale was less than the price which might
have been obtained at a public sale, even if the Lender accepts the first offer
received and does not offer such Collateral to more than one offeree. In
connection with any sale or other disposition of Inventory and Goods, the Lender
and any agent or contractor conducting any such sale may augment the Inventory
with other goods (all of which other goods shall remain the sole property of the
Lender or such agent or contractor). Any amounts realized from the sale of such
goods which constitute augmentations to the Inventory (net of an allocable share
of the costs and expenses incurred in their disposition) shall be the sole
property of the Lender or such agent or contractor and neither any Grantor nor
any Person claiming under or in right of any Grantor shall have any interest
therein.

 

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SECTION 8.2.          Notice of Sale.  Subject to the DIP Orders, each Grantor
acknowledges and agrees that, to the extent notice of sale or other disposition
of Collateral shall be required by applicable Law and unless the Collateral is
perishable or threatens to decline speedily in value, or is of a type
customarily sold on a recognized market (in which event the Lender shall provide
such Grantor such advance notice as may be practicable under the circumstances),
ten (10) days’ prior notice to such Grantor of the time and place of any public
sale or of the time after which any private sale or other intended disposition
is to take place shall be commercially reasonable notification of such matters.
Except as required by the DIP Orders, no notification need be given to any
Grantor if it has signed, after the occurrence and during the continuance of an
Event of Default, a statement renouncing or modifying (as permitted under Law)
any right to notification of sale or other intended disposition.

 

SECTION 8.3.          Waiver of Notice and Claims.  Subject to the DIP Orders,
each Grantor hereby waives, to the fullest extent permitted by applicable Law,
notice or judicial hearing in connection with the Lender’s taking possession or
the Lender’s disposition of any of the Collateral, including, without
limitation, any and all prior notice and hearing for any prejudgment remedy or
remedies and any such right which such Grantor would otherwise have under Law,
and each Grantor hereby further waives, to the fullest extent permitted by
applicable Law: (i) all damages occasioned by such taking of possession,
(ii) all other requirements as to the time, place and terms of sale or other
requirements with respect to the enforcement of the Lender’s rights hereunder
and (iii) all rights of redemption, appraisal, valuation, stay, extension or
moratorium now or hereafter in force under any applicable Law. The Lender shall
not be liable for any incorrect or improper payment made pursuant to this
Article VIII in the absence of gross negligence or willful misconduct. Any sale
of, or the grant of options to purchase, or any other realization upon, any
Collateral shall operate to divest all right, title, interest, claim and demand,
either at law or in equity, of the applicable Grantor therein and thereto, and
shall be a perpetual bar both at law and in equity against such Grantor and
against any and all Persons claiming or attempting to claim the Collateral so
sold, optioned or realized upon, or any part thereof, from, through or under
such Grantor.

 

SECTION 8.4.          Certain Sales of Collateral.  Subject to the DIP Orders:

 

(i)          Each Grantor recognizes that, by reason of certain prohibitions
contained in law, rules, regulations or orders of any Governmental Authority
(including, without limitation, the Securities Act, and applicable state
securities Laws), the Lender may be compelled, with respect to any sale of all
or any part of the Collateral (including, without limitation, Securities
Collateral and Investment Property), to limit purchasers to those who meet the
requirements of such Governmental Authority (which requirements may include,
with respect to Securities Collateral and/or Investment Property, that such
purchasers shall agree, among other things, to acquire such Securities
Collateral or Investment Property for their own account, for investment and not
with a view to the distribution or resale thereof). Each Grantor acknowledges
that any such sales may be at prices and on terms less favorable to the Lender
than those obtainable through a public sale without such restrictions
(including, without limitation, a public offering made pursuant to a
registration statement under the Securities Act), and, notwithstanding such
circumstances, agrees that any such private sale shall be deemed to have been
made in a commercially reasonable manner and that, except as may be required by
applicable Law, the Lender shall have no obligation to engage in public sales
and no obligation to delay the sale of any Securities Collateral or Investment
Property for the period of time necessary to permit the issuer thereof to
register it for a form of public sale requiring registration under the
Securities Act or under applicable state securities Laws, even if such issuer
would agree to do so.

 

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(ii)         If the Lender determines to exercise its right to sell any or all
of the Securities Collateral or Investment Property, upon written request, the
applicable Grantor shall from time to time furnish to the Lender all such
information as the Lender may reasonably request in order to determine the
number of securities included in the Securities Collateral or Investment
Property which may be sold by the Lender as exempt transactions under the
Securities Act and the rules of the Securities and Exchange Commission
thereunder, as the same are from time to time in effect.

 

(iii)        Each Grantor further agrees that a breach of any of the covenants
contained in this SECTION 8.4 will cause irreparable injury to the Lender and
the other Credit Parties, that the Lender and the other Credit Parties have no
adequate remedy at law in respect of such breach and, as a consequence, that
each and every covenant contained in this SECTION 8.4 shall be specifically
enforceable against such Grantor, and such Grantor hereby waives and agrees not
to assert any defenses against an action for specific performance of such
covenants except for a defense that no Event of Default has occurred and is
continuing.

 

SECTION 8.5.          No Waiver; Cumulative Remedies.      No failure on the
part of the Lender to exercise, no course of dealing with respect to, and no
delay on the part of the Lender 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 hereunder preclude any other or
further exercise thereof or the exercise of any other right, power or remedy;
nor shall the Lender be required to look first to, enforce or exhaust any other
security, collateral or guaranties. The remedies herein provided are cumulative
and are not exclusive of any remedies provided by Law.

 

(ii)         In the event that the Lender shall have instituted any proceeding
to enforce any right, power or remedy under this Security Agreement by
foreclosure, sale, entry or otherwise, and such proceeding shall have been
discontinued or abandoned for any reason or shall have been determined adversely
to the Lender, then and in every such case, the Grantors, the Lender and each
other Credit Party shall be restored to their respective former positions and
rights hereunder with respect to the Collateral, and all rights, remedies and
powers of the Lender and the other Credit Parties shall continue as if no such
proceeding had been instituted.

 

SECTION 8.6.          Certain Additional Actions Regarding Intellectual
Property. If any Event of Default shall have occurred and be continuing, subject
to the DIP Orders, upon the written demand of the Lender, each Grantor shall
execute and deliver to the Lender an assignment or assignments of the registered
Patents, Trademarks and/or Copyrights and such other documents as are necessary
or appropriate to carry out the intent and purposes hereof to the extent such
assignment does not result in any loss of rights therein under applicable Law.
Within five (5) Business Days of written notice thereafter from the Lender, each
Grantor shall make available to the Lender, to the extent within such Grantor’s
power and authority, such personnel in such Grantor’s employ on the date of the
Event of Default as the Lender may reasonably designate to permit such Grantor
to continue, directly or indirectly, to produce, advertise and sell the products
and services sold by such Grantor under the registered Patents, Trademarks
and/or Copyrights, and such Persons shall be available to perform their prior
functions on the Lender’s behalf.

 

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SECTION 8.7.          Application of Proceeds.  Subject to the DIP Orders, the
proceeds received by the Lender in respect of any sale of, collection from or
other realization upon all or any part of the Collateral pursuant to the
exercise by the Lender of its remedies shall be applied, together with any other
sums then held by the Lender pursuant to this Security Agreement, in accordance
with and as set forth in Section 8.03 of the Credit Agreement. It is understood
and agreed that the Grantors shall remain jointly and severally liable to the
extent of any deficiency between the amount of the proceeds of the Collateral
and the aggregate amount of the Secured Obligations.

 

SECTION 8.8.          Grant of License; Use of Assets.  Without limiting the
Lender’s rights as holder of a Lien in the Collateral, for the purpose of
enabling the Lender, during the continuance of an Event of Default, to exercise
rights and remedies under this Article VIII at such time as the Lender shall be
lawfully entitled to exercise such rights and remedies, and for no other
purpose, each Grantor hereby grants to the Lender, to the extent assignable, an
irrevocable, non-exclusive license (exercisable without payment of royalty, rent
or other compensation to such Grantor) to use, assign, license or sublicense any
assets of such Grantor (including, without limitation, all Fixtures, Equipment
and Intellectual Property now owned or hereafter acquired by such Grantor) and
to occupy any Real Property owned or leased by such Grantor, wherever the same
may be located and whether or not constituting Collateral, including in such
license access to all media in which any of the licensed items may be recorded
or stored and to all computer programs used for the compilation or printout
hereof.

 

ARTICLE IX

 

MISCELLANEOUS

 

SECTION 9.1.          Concerning Lender.      The actions of the Lender
hereunder are subject to the provisions of the Credit Agreement. The Lender
shall have the right hereunder to make demands, to give notices, to exercise or
refrain from exercising any rights, and to take or refrain from taking action
(including, without limitation, the release or substitution of the Collateral),
in accordance with this Security Agreement and the Credit Agreement, but subject
to the DIP Orders. The Lender may employ agents and attorneys-in-fact in
connection herewith and shall not be liable for the negligence or misconduct of
any such agents or attorneys-in-fact.

 

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(ii)         The Lender shall be deemed to have exercised reasonable care in the
custody and preservation of the Collateral in its possession if such Collateral
is accorded treatment substantially equivalent to that which the Lender, in its
individual capacity, accords its own property consisting of similar instruments
or interests, it being understood that neither the Lender nor any of the other
Credit Parties shall have responsibility for, without limitation (i)
ascertaining or taking action with respect to calls, conversions, exchanges,
maturities, tenders or other matters relating to any Securities Collateral,
whether or not the Lender or any other Credit Party has or is deemed to have
knowledge of such matters or (ii) taking any necessary steps to preserve rights
against any Person with respect to any Collateral. In no event shall the
Lender’s or any other Credit Party’s responsibility for the custody and
preservation of the Collateral in its possession extend to matters beyond the
control of such Person, including, without limitation, acts of God, war,
insurrection, riot, governmental actions or acts of any corporate or other
depository.

 

(iii)        The Lender shall be entitled to rely upon any written notice,
statement, certificate, order or other document or any telephone message
believed by it to be genuine and correct and to have been signed, sent or made
by the proper Person, and, with respect to all matters pertaining to this
Security Agreement and its duties hereunder, upon advice of counsel selected by
it.

 

(iv)        If any item of Collateral also constitutes collateral granted to
Lender under any other security agreement, pledge or instrument of any type, in
the event of any conflict between the provisions hereof and the provisions of
such other security agreement, pledge or instrument of any type in respect of
such collateral, Lender, in its sole discretion, shall select which provision or
provisions shall control.

 

SECTION 9.2.          Lender May Perform; Lender Appointed Attorney-in-Fact. If
any Grantor shall fail to perform any covenants contained in this Security
Agreement or in the Credit Agreement (including, without limitation, such
Grantor’s covenants to (i) pay the premiums in respect of all required insurance
policies hereunder, (ii) pay Claims, (iii) make repairs, (iv) discharge Liens or
(v) pay or perform any other obligations of such Grantor with respect to any
Collateral) or if any warranty on the part of any Grantor contained herein shall
be breached, the Lender may (but shall not be obligated to), subject to the DIP
Orders, do the same or cause it to be done or remedy any such breach, and may
expend funds for such purpose; provided, however, that Lender shall in no event
be bound to inquire into the validity of any tax, lien, imposition or other
obligation which such Grantor fails to pay or perform as and when required
hereby. Any and all amounts so expended by the Lender shall be paid by the
Grantors in accordance with the provisions of SECTION 9.3 hereof. Neither the
provisions of this SECTION 9.2 nor any action taken by the Lender pursuant to
the provisions of this SECTION 9.2 shall prevent any such failure to observe any
covenant contained in this Security Agreement nor any breach of warranty from
constituting an Event of Default. Each Grantor hereby appoints the Lender its
attorney-in-fact, with full authority in the place and stead of such Grantor and
in the name of such Grantor, or otherwise, from time to time after the
occurrence and during the continuation of an Event of Default in the Lender’s
discretion (but subject to the DIP Orders) to take any action and to execute any
instrument consistent with the terms of the Credit Agreement and the other
Security Documents which the Lender may deem necessary to accomplish the
purposes hereof. The foregoing grant of authority is a power of attorney coupled
with an interest and such appointment shall be irrevocable for the term hereof.
Each Grantor hereby ratifies all that such attorney shall lawfully do or cause
to be done by virtue hereof.

 

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SECTION 9.3.          Expenses. Each Grantor will upon demand pay to the Lender
the amount of any and all amounts required to be paid pursuant to Section 9.04
of the Credit Agreement.

 

SECTION 9.4.          Continuing Security Interest; Assignment. Upon entry of
the Interim Borrowing Order, this Security Agreement shall create a continuing
security interest in the Collateral and shall (i) be binding upon the Grantors
and their respective successors and assigns, and (ii) inure, together with the
rights and remedies of the Lender hereunder, to the benefit of the Lender and
the other Credit Parties and each of their respective successors, transferees
and permitted assigns. No other Persons (including, without limitation, any
other creditor of any Grantor) shall have any interest herein or any right or
benefit with respect hereto. Without limiting the generality of the foregoing
clause (ii), any Credit Party may assign or otherwise transfer any indebtedness
held by it secured by this Security Agreement to any other Person, and such
other Person shall thereupon become vested with all the benefits in respect
thereof granted to such Credit Party, herein or otherwise, subject, however, to
the provisions of the Credit Agreement.

 

SECTION 9.5.          Termination. This Security Agreement, the Lien in favor of
the Lender (for the benefit of itself and the other Credit Parties) and all
other security interests granted hereby shall terminate with respect to all
Secured Obligations when (i) the Commitment shall have expired or been
terminated and the L/C Issuer has no further obligation to issue Letters of
Credit under the Credit Agreement, (ii) the principal of and interest on each
Loan and all fees and other Secured Obligations (other than contingent
indemnification claims for which a claim has not been asserted) shall have been
indefeasibly paid in full in cash, (iii) all Letters of Credit (as defined in
the Credit Agreement) shall have (A) expired or terminated and have been reduced
to zero, (B) been Cash Collateralized to the extent required by the Credit
Agreement, or (C) been supported by another letter of credit in a manner
reasonably satisfactory to the Lender, and (iv) all Unreimbursed Amounts shall
have been indefeasibly paid in full in cash; provided, however, that (A) this
Security Agreement, the Lien in favor of the Lender (for the benefit of itself
and the other Credit Parties) and all other security interests granted hereby
shall be reinstated if at any time payment, or any part thereof, of any Secured
Obligation is rescinded or must otherwise be restored by any Credit Party or any
Grantor upon the bankruptcy or reorganization of any Grantor or otherwise, and
(B) in connection with the termination of this Security Agreement, the Lender
may require such indemnities and collateral security as it shall reasonably deem
necessary or appropriate to protect the Credit Parties against (x) loss on
account of credits previously applied to the Secured Obligations that may
subsequently be reversed or revoked, (y) any obligations that may thereafter
arise with respect to the Other Liabilities, and (z) any Secured Obligations
that may thereafter arise under Section 9.04 of the Credit Agreement.

 

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SECTION 9.6.          Modification in Writing. No amendment, modification,
supplement, termination or waiver of or to any provision hereof, nor consent to
any departure by any Grantor therefrom, shall be effective unless the same shall
be made in accordance with the terms of the Credit Agreement and the DIP Orders
and unless in writing and signed by the Lender and the Grantors. Any amendment,
modification or supplement of or to any provision hereof, any waiver of any
provision hereof and any consent to any departure by any Grantor from the terms
of any provision hereof shall be effective only in the specific instance and for
the specific purpose for which made or given. Except where notice is
specifically required by this Security Agreement or any other document
evidencing the Secured Obligations, no notice to or demand on any Grantor in any
case shall entitle any Grantor to any other or further notice or demand in
similar or other circumstances.

 

SECTION 9.7.          Notices. Unless otherwise provided herein, in the Credit
Agreement or in the DIP Orders, any notice or other communication herein
required or permitted to be given shall be given in the manner and become
effective as set forth in the Credit Agreement, as to any Grantor, addressed to
it at the address of the Lead Borrower set forth in the Credit Agreement and as
to the Lender, addressed to it at the address set forth in the Credit Agreement,
or in each case at such other address as shall be designated by such party in a
written notice to the other parties hereto complying as to delivery with the
terms of this SECTION 9.7.

 

SECTION 9.8.          GOVERNING LAW. THIS SECURITY AGREEMENT SHALL BE GOVERNED
BY, AND CONSTRUED IN ACCORDANCE WITH, THE BANKRUPTCY CODE AND THE LAWS OF THE
STATE OF NEW YORK.

 

SECTION 9.9.          CONSENT TO JURISDICTION; SERVICE OF PROCESS; WAIVER OF
JURY TRIAL. (a)          EACH GRANTOR IRREVOCABLY AND UNCONDITIONALLY SUBMITS,
FOR ITSELF AND ITS PROPERTY, TO THE NONEXCLUSIVE JURISDICTION OF THE COURTS OF
THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE, THE COURTS OF
THE STATE OF NEW YORK SITTING IN NEW YORK COUNTY AND OF THE UNITED STATES
DISTRICT COURT OF THE SOUTHERN DISTRICT OF NEW YORK AND ANY APPELLATE COURT FROM
ANY THEREOF, IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS
SECURITY AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR FOR RECOGNITION OR ENFORCEMENT
OF ANY JUDGMENT, AND EACH GRANTOR IRREVOCABLY AND UNCONDITIONALLY AGREES THAT
ALL CLAIMS IN RESPECT OF ANY SUCH ACTION OR PROCEEDING MAY BE HEARD AND
DETERMINED IN SUCH BANKRUPTCY COURT, SUCH NEW YORK STATE COURT OR, TO THE
FULLEST EXTENT PERMITTED BY APPLICABLE LAW, IN SUCH FEDERAL COURT. EACH GRANTOR
AGREES THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE
CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR
IN ANY OTHER MANNER PROVIDED BY LAW. NOTHING IN THIS SECURITY AGREEMENT OR IN
ANY OTHER LOAN DOCUMENT SHALL AFFECT ANY RIGHT THAT ANY CREDIT PARTY MAY
OTHERWISE HAVE TO BRING ANY ACTION OR PROCEEDING RELATING TO THIS SECURITY
AGREEMENT OR ANY OTHER LOAN DOCUMENT AGAINST ANY GRANTOR OR ITS PROPERTIES IN
THE COURTS OF ANY JURISDICTION.

 

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(b)          EACH GRANTOR IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO THE FULLEST
EXTENT PERMITTED BY APPLICABLE LAW, ANY OBJECTION THAT IT MAY NOW OR HEREAFTER
HAVE TO THE LAYING OF VENUE OF ANY ACTION OR PROCEEDING ARISING OUT OF OR
RELATING TO THIS SECURITY AGREEMENT OR ANY OTHER LOAN DOCUMENT IN ANY COURT
REFERRED TO IN PARAGRAPH (A) OF THIS SECTION. EACH GRANTOR HEREBY IRREVOCABLY
WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, THE DEFENSE OF AN
INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH ACTION OR PROCEEDING IN ANY SUCH
COURT.

 

(c)          EACH GRANTOR AGREES THAT ANY ACTION COMMENCED BY ANY GRANTOR
ASSERTING ANY CLAIM OR COUNTERCLAIM ARISING UNDER OR IN CONNECTION WITH THIS
SECURITY AGREEMENT OR ANY OTHER LOAN DOCUMENT SHALL BE BROUGHT SOLELY IN THE
BANKRUPTCY COURT, A COURT OF THE STATE OF NEW YORK SITTING IN NEW YORK COUNTY OR
ANY FEDERAL COURT SITTING THEREIN AS THE LENDER MAY ELECT IN ITS SOLE DISCRETION
AND CONSENTS TO THE EXCLUSIVE JURISDICTION OF SUCH COURTS WITH RESPECT TO ANY
SUCH ACTION.

 

(d)          EACH PARTY HERETO IRREVOCABLY CONSENTS TO SERVICE OF PROCESS IN THE
MANNER PROVIDED FOR NOTICES IN SECTION 9.7. NOTHING IN THIS SECURITY AGREEMENT
WILL AFFECT THE RIGHT OF ANY PARTY HERETO TO SERVE PROCESS IN ANY OTHER MANNER
PERMITTED BY APPLICABLE LAW.

 

(e)          EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT
PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY
LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS
SECURITY AGREEMENT OR ANY OTHER LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATED
HEREBY OR THEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY AND
WHETHER INITIATED BY OR AGAINST ANY SUCH PERSON OR IN WHICH ANY SUCH PERSON IS
JOINED AS A PARTY LITIGANT). EACH PARTY HERETO (A) CERTIFIES THAT NO
REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PERSON HAS REPRESENTED, EXPRESSLY
OR OTHERWISE, THAT SUCH OTHER PERSON WOULD NOT, IN THE EVENT OF LITIGATION, SEEK
TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER
PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS SECURITY AGREEMENT AND THE
OTHER LOAN DOCUMENTS BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND
CERTIFICATIONS IN THIS SECTION.

 

SECTION 9.10.         Severability of Provisions. Any provision hereof which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof or affecting the validity or
enforceability of such provision in any other jurisdiction.

 

29

 

 

SECTION 9.11.         Execution in Counterparts; Effectiveness. This Security
Agreement may be executed in any number of counterparts (and by different
parties hereto in different counterparts), each of which shall constitute an
original, but all of which when taken together shall constitute a single
contract. Delivery of an executed counterpart of a signature page of this
Security Agreement by telecopy, pdf or other electronic transmission shall be as
effective as delivery of a manually executed counterpart of this Security
Agreement.

 

SECTION 9.12.         No Release. Nothing set forth in this Security Agreement
shall relieve any Grantor from the performance of any term, covenant, condition
or agreement on such Grantor’s part to be performed or observed under or in
respect of any of the Collateral or from any liability to any Person under or in
respect of any of the Collateral or shall impose any obligation on the Lender or
any other Credit Party to perform or observe any such term, covenant, condition
or agreement on such Grantor’s part to be so performed or observed or shall
impose any liability on the Lender or any other Credit Party for any act or
omission on the part of such Grantor relating thereto or for any breach of any
representation or warranty on the part of such Grantor contained in this
Security Agreement, the Credit Agreement or the other Loan Documents, or under
or in respect of the Collateral or made in connection herewith or therewith. The
obligations of each Grantor contained in this SECTION 9.12 shall survive the
termination hereof and the discharge of such Grantor’s other obligations under
this Security Agreement, the Credit Agreement and the other Loan Documents.

 

SECTION 9.13.         Obligations Absolute. All obligations of each Grantor
hereunder shall be absolute and unconditional irrespective of:

 

(i)          any lack of validity or enforceability of the Credit Agreement or
any other Loan Document, or any other agreement or instrument relating thereto;

 

(ii)         any change in the time, manner or place of payment of, or in any
other term of, all or any of the Secured Obligations, or any other amendment or
waiver of or any consent to any departure from the Credit Agreement or any other
Loan Document or any other agreement or instrument relating thereto;

 

(iii)        any pledge, exchange, release or non-perfection of any other
collateral, or any release or amendment or waiver of or consent to any departure
from any guarantee, for all or any of the Secured Obligations;

 

(iv)        any exercise, non-exercise or waiver of any right, remedy, power or
privilege under or in respect hereof, the Credit Agreement or any other Loan
Document except as specifically set forth in a waiver granted pursuant to the
provisions of SECTION 9.6 hereof; or

 

(v)         any other circumstances which might otherwise constitute a defense
available to, or a discharge of, any Grantor (other than the termination of this
Security Agreement in accordance with SECTION 9.5 hereof).

 

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SECTION 9.14.         Pre-Petition Cash Collateral Account.

 

Notwithstanding anything to the contrary contained herein, the Lender’s Lien in
and to the cash collateral maintained in the Pre-Petition Cash Collateral
Account (as defined in the Interim Borrowing Order) shall be subordinate to the
Lien in favor of the Administrative Agent under the Pre-Petition Loan Documents
as security for the Pre-Petition Liabilities in respect of Letters of Credit
issued by the L/C Issuer under the Pre-Petition Credit Agreement.

 

SECTION 9.15.         Conflicts between Security Agreement and DIP Orders.

 

In the event of any conflict between the terms and conditions of this Security
Agreement and the terms and conditions of the DIP Orders, the terms and
conditions of the DIP Orders shall prevail.

 

[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]

 

31

 

 

IN WITNESS WHEREOF, the Grantors and the Lender have caused this Security
Agreement to be duly executed and delivered by their duly authorized officers as
of the date first above written.

 

  THE WET SEAL, INC., as a Grantor, Lead Borrower, a Borrower, a Debtor and a
Debtor-in-Possession         By: /s/: Edmond Thomas   Name: Edmond Thomas  
Title: Chief Executive Officer       THE WET SEAL RETAIL, INC., as a Grantor, a
Borrower, a Debtor and a Debtor-in-Possession         By: /s/: Edmond Thomas  
Name: Edmond Thomas   Title: Chief Executive Officer       WET SEAL CATALOG,
INC., as a Grantor, a Borrower, a Debtor and a Debtor-in-Possession         By:
/s/: Edmond Thomas   Name: Edmond Thomas   Title: Chief Executive Officer      
WET SEAL GC, LLC, as a Grantor, a Guarantor, a Debtor and a Debtor
-in-Possession         By: /s/: Edmond Thomas   Name: Edmond Thomas   Title:
Chief Executive Officer

 

Signature Page to Security Agreement

 

 

 

 

  B. Riley FINANCIAL, INC., as Lender         By: /s/: Phillip J. Ahn   Name:
Phillip J. Ahn   Title: CFO & COO

 

Signature Page to Security Agreement