Exhibit 10.2

 

Execution Version

 

SECURITY AGREEMENT

 

This Security Agreement (the “Agreement”) is dated as of October 1, 2018, by and
among Willdan Group, Inc., a Delaware corporation (the “Borrower”), the other
parties executing this Agreement under the heading “Debtors” (the Borrower and
such other parties, along with any parties who execute and deliver to the Agent
referred to herein an agreement attached hereto as Schedule H, being hereinafter
referred to collectively as the “Debtors” and individually as a “Debtor”), each
with its mailing address as set forth in Section 13(b) hereof, and BMO Harris
Bank N.A., a national banking association (“BMO Harris”), with its mailing
address as set forth in Section 13(b) hereof, acting as administrative agent
hereunder for the Secured Creditors hereinafter identified and defined
(BMO Harris acting as such administrative agent and any successor or successors
to BMO Harris acting in such capacity being hereinafter referred to as the
“Agent”).  The term “Debtor” and “Debtors” as used herein shall mean and include
the Debtors collectively and also each individually, with all grants,
representations, warranties and covenants of and by the Debtors, or any of them,
herein contained to constitute joint and several grants, representations,
warranties and covenants of and by the Debtors; provided, however, that unless
the context in which the same is used shall otherwise require, any grant,
representation, warranty or covenant contained herein related to the Collateral
shall be made by each Debtor only with respect to the Collateral owned by it or
represented by such Debtor as owned by it.

 

PRELIMINARY STATEMENT

 

A.                                    The Borrower , the other Debtors, and
BMO Harris, individually and as Agent, have entered into a Credit Agreement
dated as of October 1, 2018 (such Credit Agreement, as the same may be amended
or modified from time to time, including amendments and restatements thereof in
its entirety, being hereinafter referred to as the “Credit Agreement”), pursuant
to which BMO Harris and other banks and financial institutions and letter of
credit issuers from time to time party to the Credit Agreement (BMO Harris, in
its individual capacity, and such other banks and financial institutions being
hereinafter referred to collectively as the “Lenders” and individually as a
“Lender” and such letter of credit issuers being hereinafter referred to
collectively as the “L/C Issuers” and individually as a “L/C Issuer”) have
agreed, subject to certain terms and conditions, to extend credit and make
certain other financial accommodations available to the Borrower (the Agent, the
L/C Issuers, and the Lenders, together with affiliates of the Lenders with
respect to Hedging Liability and Bank Product Obligations referred to below,
being hereinafter referred to collectively as the “Secured Creditors” and
individually as a “Secured Creditor”).

 

B.                                    In addition, one or more of the Debtors
may from time to time be liable to the Lenders and/or their affiliates with
respect to Hedging Liability and/or Bank Product Obligations (as such terms are
defined in the Credit Agreement).

 

C.                                    As a condition to extending credit or
otherwise making financial accommodations available to or for the account of the
Borrower under the Credit Agreement, the Secured

 

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Creditors require, among other things, that each Debtor grant to the Agent for
the benefit of the Secured Creditors a lien on and security interest in the
personal property and fixtures of such Debtor described herein subject to the
terms and conditions hereof.

 

D.                                    The Borrower owns or controls, directly or
indirectly, equity interests in each other Debtor and the Borrower provides each
of the other Debtors with financial, management, administrative, and technical
support which enables such Debtors to conduct their businesses in an orderly and
efficient manner in the ordinary course.

 

E.                                     Each Debtor will benefit, directly or
indirectly, from credit and other financial accommodations extended by the
Secured Creditors to the Borrower.

 

NOW, THEREFORE, in consideration of the benefits accruing to the Debtors, and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:

 

Section 1.                                          Terms defined in Credit
Agreement.  Except as otherwise provided in Section 2 below, all capitalized
terms used herein without definition shall have the same meanings herein as such
terms have in the Credit Agreement.  The term “Debtor” and “Debtors” as used
herein shall mean and include the Debtors collectively and also each
individually, with all grants, representations, warranties, and covenants of and
by the Debtors, or any of them, herein contained to constitute joint and several
grants, representations, warranties, and covenants of and by the Debtors;
provided, however, that unless the context in which the same is used shall
otherwise require, any grant, representation, warranty or covenant contained
herein related to the Collateral shall be made by each Debtor only with respect
to the Collateral owned by it or represented by such Debtor as owned by it.

 

Section 2.                                          Grant of Security Interest
in the Collateral.  As collateral security for the Secured Obligations defined
below, each Debtor hereby grants to the Agent for the benefit of the Secured
Creditors a lien on and security interest in, and right of set-off against, and
acknowledges and agrees that the Agent has and shall continue to have for the
benefit of the Secured Creditors a continuing lien on and security interest in,
and right of set-off against, all right, title, and interest of each Debtor,
whether now owned or existing or hereafter created, acquired or arising, in and
to all of the following:

 

(a)                                 Accounts (including all
Health-Care-Insurance Receivables, if any);

 

(b)                                 Chattel Paper;

 

(c)                                  Instruments (including Promissory Notes);

 

(d)                                 Documents;

 

(e)                                  General Intangibles (including Payment
Intangibles and Software, patents, trademarks, tradestyles, copyrights, and all
other intellectual property rights, including all

 

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applications, registration, and licenses therefor, and all goodwill of the
business connected therewith or represented thereby);

 

(f)                                   Letter-of-Credit Rights;

 

(g)                                  Supporting Obligations;

 

(h)                                 Deposit Accounts;

 

(i)                                     Investment Property (including
certificated and uncertificated Securities, Securities Accounts, Security
Entitlements, Commodity Accounts, and Commodity Contracts);

 

(j)                                    Inventory;

 

(k)                                 Equipment (including all software, whether
or not the same constitutes embedded software, used in the operation thereof);

 

(l)                                     Fixtures;

 

(m)                             Commercial Tort Claims (as described on Schedule
F hereto or on one or more supplements to this Agreement);

 

(n)                                 Rights to merchandise and other Goods
(including rights to returned or repossessed Goods and rights of stoppage in
transit) which is represented by, arises from, or relates to any of the
foregoing;

 

(o)                                 Monies, personal property, and interests in
personal property of such Debtor of any kind or description now held by any
Secured Creditor or at any time hereafter transferred or delivered to, or coming
into the possession, custody or control of, any Secured Creditor, or any agent
or affiliate of any Secured Creditor, whether expressly as collateral security
or for any other purpose (whether for safekeeping, custody, collection or
otherwise), and all dividends and distributions on or other rights in connection
with any such property;

 

(p)                                 Supporting evidence and documents relating
to any of the above-described property, including, without limitation, computer
programs, disks, tapes and related electronic data processing media, and all
rights of such Debtor to retrieve the same from third parties, written
applications, credit information, account cards, payment records,
correspondence, delivery and installation certificates, invoice copies, delivery
receipts, notes, and other evidences of indebtedness, insurance certificates and
the like, together with all books of account, ledgers, and cabinets in which the
same are reflected or maintained;

 

(q)                                 Accessions and additions to, and
substitutions and replacements of, any and all of the foregoing; and

 

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(r)                                    Proceeds and products of the foregoing,
and all insurance of the foregoing and proceeds thereof;

 

all of the foregoing being herein sometimes referred to as the “Collateral”;
provided, however, that “Collateral” shall not include any Excluded Property.  
All terms which are used in this Agreement which are defined in the Uniform
Commercial Code of the State of New York as in effect from time to time (“UCC”)
shall have the same meanings herein as such terms are defined in the UCC, unless
this Agreement shall otherwise specifically provide.  For purposes of this
Agreement, the term (a) “Receivables” means all rights to the payment of a
monetary obligation, whether or not earned by performance, and whether evidenced
by an Account, Chattel Paper, Instrument, General Intangible, or otherwise and
(b) “Subsidiary Interests” means all equity interests (which do not constitute
Excluded Property) held by a Debtor in its subsidiaries, whether such equity
interests constitute Investment Property or General Intangibles under the UCC,
it being acknowledged and agreed that all Receivables and Subsidiary Interests
which do not constitute Excluded Property constitute Collateral hereunder.

 

Section 3.                                          Obligations Hereby Secured. 
This Agreement is made and given to secure, and shall secure, the prompt payment
and performance of (a) all “Obligations,” “Hedging Liability,” and “Bank Product
Obligations,” as such terms are defined in the Credit Agreement, including,
without limitation, all obligations with respect to Loans made and to be made
under the Credit Agreement (whether or not evidenced by Notes issued
thereunder), all obligations of the Borrower to reimburse the Secured Creditors
for the amount of all drawings on all Letters of Credit issued pursuant to the
Credit Agreement and all other obligations of the Borrower under all
Applications for Letters of Credit, all other obligations of the Borrower and
the other Debtors under the Loan Documents, all obligations of the Debtors, and
of any of them individually, with respect to any Hedging Liability and the
agreements relating thereto, all obligations of the Debtors, and of any of them
individually, with respect to any Bank Product Obligations and the agreements
relating thereto, and all obligations of the Debtors, and of any of them
individually, arising under any guaranty issued by it relating to the foregoing
or any part thereof, in each case whether now existing or hereafter arising (and
whether arising before or after the filing of a petition in bankruptcy and
including all interest, costs, fees, and charges after the entry of an order for
relief against a Debtor in a case under Title 11 of the United States Bankruptcy
Code or any similar proceeding, whether or not such interest, costs, fees and
charges would be an allowed claim against such Debtor in such proceeding), due
or to become due, direct or indirect, absolute or contingent, and howsoever
evidenced, held or acquired and (b) any and all expenses and charges, legal or
otherwise, suffered or incurred by the Secured Creditors, and any of them
individually, in collecting or enforcing any of such indebtedness, obligations,
and liabilities or in realizing on or protecting or preserving any security
therefor, including, without limitation, the lien and security interest granted
hereby (all of the indebtedness, obligations, liabilities, expenses, and charges
described above being hereinafter referred to as the “Secured Obligations”). 
Notwithstanding anything in this Agreement to the contrary, the right of
recovery against any Debtor (other than the Borrower to which this limitation
shall not apply) under this Agreement shall not exceed $1.00 less than the
lowest amount that would render such Debtor’s obligations under this Agreement
void or voidable under applicable law, including fraudulent conveyance law.

 

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Section 4.                                          Covenants, Agreements,
Representations and Warranties.  Each Debtor hereby covenants and agrees with,
and represents and warrants to, the Secured Creditors that:

 

(a)                                 Each Debtor is duly organized and validly
existing in good standing under the laws of the jurisdiction of its
organization.  Each Debtor is the sole and lawful owner of its Collateral
(subject only to Liens permitted under Section 8.8 of the Credit Agreement), and
has full right, power, and authority to enter into this Agreement and to perform
each and all of the matters and things herein provided for.  The execution and
delivery of this Agreement, and the observance and performance of each of the
matters and things herein set forth, will not (i) contravene or constitute a
default under (A) any provision of law or any judgment, injunction, order, or
decree binding upon any Debtor or any provision of any Debtor’s organizational
documents (e.g., charter, articles or certificate of incorporation and by-laws,
articles or certificate of formation and limited liability company operating
agreement, partnership agreement, or other similar organizational documents) or
(B) any covenant, indenture, or agreement of or affecting any Debtor or any of
its property, in the case of clause (B), in each case, where such contravention
or default, individually or in the aggregate could reasonably be expected to
have a Material Adverse Effect or (ii) result in the creation or imposition of
any lien or encumbrance on any property of any Debtor except for the lien and
security interest granted to the Agent hereunder.

 

(b)                                 Each Debtor’s respective chief executive
office is at the location listed under Column 2 on Schedule A attached hereto
opposite such Debtor’s name; and such Debtor has no other executive offices or
places of business other than those listed under Column 3 on Schedule A attached
hereto opposite such Debtor’s name.  The Collateral owned or leased by each
Debtor is and shall remain in such Debtor’s possession or control at the
locations listed under Columns 2 and 3 on Schedule A attached hereto opposite
such Debtor’s name (collectively for each Debtor, as such locations may be
amended or supplemented from time to time with written notice to the Agent as
provided below, the “Permitted Collateral Locations”) other than (i) Collateral
that is temporarily located at job sites in the ordinary course of business or
in-transit thereto or therefrom and (ii) Collateral aggregating less than
$150,000 in fair market value outstanding at any one time.  If for any reason
any Collateral is at any time kept or located at a location other than a
Permitted Collateral Location, the Agent shall nevertheless have and retain a
lien on and security interest therein.  The Debtors own and shall at all times
own all Permitted Collateral Locations, except to the extent otherwise disclosed
under Columns 2 and 3 on Schedule A.  No Debtor shall move its chief executive
office or maintain a place of business at a location other than those specified
under Columns 2 or 3 on Schedule A or permit the Collateral to be located at a
location other than those specified under Columns 2 or 3 on Schedule A, in each
case without first providing the Agent 15 days’ prior (or such shorter period of
time as Agent may agree in its sole discretion) written notice of such Debtor’s
intent to do so (at which time Schedule A will be deemed amended or supplemented
with such additional or modified locations); provided that each Debtor shall at
all times maintain its chief executive office and, unless otherwise specifically
agreed to in writing by the Agent, Permitted Collateral Locations in the United
States of America and, with respect to any new chief executive office or place
of business or location of Collateral, such Debtor shall have taken all action
reasonably requested by the Agent to maintain the lien and security interest of
the Agent in the Collateral at all times fully perfected and in full force and
effect.

 

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(c)                                  Each Debtor’s legal name, jurisdiction of
organization and organizational number (if any) are correctly set forth under
Column 1 on Schedule A of this Agreement.  No Debtor has transacted business at
any time during the immediately preceding five-year period, and does not
currently transact business, under any other legal names or trade names other
than the prior legal names and trade names (if any) set forth on Schedule B
attached hereto.  No Debtor shall change its jurisdiction of organization
without the Agent’s prior written consent.  No Debtor shall change its legal
name or transact business under any other trade name without first giving
15 days’ prior written notice (or such shorter period as the Agent may agree in
its sole discretion) of its intent to do so to the Agent.

 

(d)                                 The Collateral and every part thereof is and
shall be free and clear of all security interests, liens (including, without
limitation, mechanics’, laborers’ and statutory liens), attachments, levies, and
encumbrances of every kind, nature and description, whether voluntary or
involuntary, except for the lien and security interest of the Agent therein and
as otherwise permitted by Section 8.8 of the Credit Agreement.  Each Debtor
shall warrant and defend the Collateral against any claims and demands of all
persons at any time claiming the same or any interest in the Collateral adverse
to any of the Secured Creditors other than against Liens permitted by
Section 8.8 of the Credit Agreement.

 

(e)                                  Each Debtor shall promptly pay when due all
material taxes, assessments, and governmental charges and levies upon or against
such Debtor or any of its Collateral, in each case before the same become
delinquent and before penalties accrue thereon, unless and to the extent that
the same are being contested in good faith by appropriate proceedings which
prevent attachment of any lien resulting therefrom to, foreclosure on or other
realization upon any of the Collateral and preclude interference with the
operation of such Debtor’s business in the ordinary course, and such Debtor
shall have established adequate reserves therefor.

 

(f)                                   No Debtor shall use, manufacture, sell, or
distribute any Collateral in violation of any statute, ordinance, or other
governmental requirement except in each case as could not reasonably be expected
to result in a Material Adverse Effect.  No Debtor shall waste or destroy the
Collateral or any part thereof or be negligent in the care or use of any
Collateral.  Each Debtor shall perform in all respects its obligations under any
contract or other agreement constituting part of the Collateral, except as could
not reasonably be expected to result in a Material Adverse Effect, it being
understood and agreed that the Secured Creditors have no responsibility to
perform such obligations.

 

(g)                                  Subject to Sections 5(b), 7(b), 7(c), and
8(c) hereof and the terms of the Credit Agreement (including, without
limitation, Sections 8.8 and 8.10 thereof), no Debtor shall, without the Agent’s
prior written consent, sell, assign, mortgage, lease, or otherwise dispose of
the Collateral or any interest therein.

 

(h)                                 The Debtors shall at all times insure the
Collateral consisting of tangible personal property against such risks and
hazards as other persons similarly situated insure against, and including in any
event loss or damage by fire, theft, burglary, pilferage, loss in transit and
such other hazards as the Agent may reasonably specify.  All insurance required
hereby shall be maintained in amounts and under policies and with insurers
reasonably acceptable to the Agent,

 

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and all such policies shall contain lender loss payable clauses naming the Agent
as loss payee as its interest may appear (and, if the Agent requests, naming the
Agent as an additional insured therein) in a form reasonably acceptable to the
Agent.  All premiums on such insurance shall be paid by the Debtors. 
Certificates of insurance evidencing compliance with the foregoing and, at the
Agent’s request, the policies of such insurance shall be delivered by the
Debtors to the Agent.  All insurance required hereby shall provide that any loss
shall be payable to the Agent notwithstanding any act or negligence of any
Debtor, shall provide that no cancellation thereof shall be effective until at
least 30 days (ten (10) days’ in the case of nonpayment of insurance premiums)
after receipt by the relevant Debtor and the Agent of written notice thereof,
and shall be reasonably satisfactory to the Agent in all other respects.  In
case of any material loss, damage to or destruction of the Collateral or any
part thereof, the relevant Debtor shall promptly give written notice thereof to
the Agent generally describing the nature and extent of such damage or
destruction.  In case of any loss, damage to or destruction of the Collateral or
any part thereof, the relevant Debtor, whether or not the insurance proceeds, if
any, received on account of such damage or destruction shall be sufficient for
that purpose, at such Debtor’s cost and expense, shall promptly repair or
replace the Collateral so lost, damaged, or destroyed, except to the extent such
Collateral, prior to its loss, damage, or destruction, had become uneconomical,
obsolete, or worn out and is not necessary for or of importance to the proper
conduct of such Debtor’s business in the ordinary course.  In the event any
Debtor shall receive any proceeds of such insurance, such Debtor shall
immediately pay over such proceeds to the Agent to the extent required by the
Credit Agreement.  Each Debtor hereby authorizes the Agent, at the Agent’s
option, to adjust, compromise, and settle any losses under any insurance
afforded at any time during the existence of any Event of Default and each
Debtor does hereby irrevocably constitute the Agent, and each of its nominees,
officers, agents, attorneys, and any other person whom the Agent may designate,
as such Debtor’s attorneys-in-fact, with full power and authority to effect such
adjustment, compromise, and/or settlement and to endorse any drafts drawn by an
insurer of the Collateral or any part thereof and to do everything necessary to
carry out such purposes and to receive and receipt for any unearned premiums due
under policies of such insurance.  Unless the Agent elects to adjust,
compromise, or settle losses as aforesaid, any adjustment, compromise, and/or
settlement of any losses under any insurance during the existence of an Event of
Default shall be made by the relevant Debtor subject to final approval of the
Agent in the case of losses exceeding $375,000.  Net insurance proceeds received
by the Agent under the provisions hereof or under any policy of insurance
covering the Collateral or any part thereof shall be applied to the reduction of
the Secured Obligations (whether or not then due) to the extent required under
the Credit Agreement; provided, however, that the Agent agrees to release such
insurance proceeds to the relevant Debtor in accordance with
Section 2.8(b)(ii) of the Credit Agreement.  All insurance proceeds shall be
subject to the lien and security interest of the Agent hereunder.

 

UNLESS THE DEBTORS PROVIDE THE AGENT WITH EVIDENCE OF THE INSURANCE COVERAGE
REQUIRED BY THIS AGREEMENT, THE AGENT MAY PURCHASE INSURANCE AT THE DEBTORS’
EXPENSE TO PROTECT THE SECURED PARTY’S INTERESTS IN THE COLLATERAL.  THIS
INSURANCE MAY, BUT NEED NOT, PROTECT THE DEBTORS’ INTERESTS IN THE COLLATERAL. 
THE COVERAGE PURCHASED BY THE AGENT MAY NOT PAY ANY CLAIMS THAT ANY DEBTOR MAKES
OR ANY CLAIM THAT IS MADE AGAINST ANY DEBTOR IN CONNECTION WITH THE COLLATERAL. 
THE RELEVANT DEBTOR MAY LATER CANCEL ANY SUCH INSURANCE PURCHASED BY THE AGENT,
BUT ONLY AFTER PROVIDING THE AGENT WITH EVIDENCE THAT

 

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SUCH DEBTOR HAS OBTAINED INSURANCE AS REQUIRED BY THIS AGREEMENT.  IF THE AGENT
PURCHASES INSURANCE FOR THE COLLATERAL, THE DEBTORS WILL BE RESPONSIBLE FOR THE
COSTS OF THAT INSURANCE, INCLUDING INTEREST AND ANY OTHER CHARGES THAT THE AGENT
MAY IMPOSE IN CONNECTION WITH THE PLACEMENT OF THE INSURANCE, UNTIL THE
EFFECTIVE DATE OF THE CANCELLATION OR EXPIRATION OF THE INSURANCE.  THE COSTS OF
THE INSURANCE MAY BE ADDED TO THE SECURED OBLIGATIONS SECURED HEREBY.  THE COSTS
OF THE INSURANCE MAY BE MORE THAN THE COST OF INSURANCE THE DEBTORS MAY BE ABLE
TO OBTAIN ON THEIR OWN.

 

(i)                                     Each Debtor shall at all times allow the
Secured Creditors and their respective representatives free access to and right
of inspection of the Collateral in accordance with Section 8.6 of the Credit
Agreement.

 

(j)                                    If any Collateral is in the possession or
control of any of any Debtor’s agents or processors and the Agent so requests,
such Debtor agrees to notify such agents or processors in writing of the Agent’s
security interest therein and instruct them to hold all such Collateral for the
Agent’s account and subject to the Agent’s instructions.  Each Debtor shall,
upon the request of the Agent, authorize and instruct all bailees and other
parties, if any, at any time processing, labeling, packaging, holding, storing,
shipping, or transferring all or any part of the Collateral to permit the
Secured Creditors and their respective representatives to examine and inspect
any of the Collateral then in such party’s possession and to verify from such
party’s own books and records any information concerning the Collateral or any
part thereof which the Secured Creditors or their respective representatives may
seek to verify.  Subject to Section 8.25(a) of the Credit Agreement, as to any
premises not owned by a Debtor wherein any of the Collateral is located, the
relevant Debtor shall, at the Agent’s request, use commercially reasonable
efforts to cause each party having any right, title or interest in, or lien on,
any of such premises to enter into an agreement (any such agreement to contain a
legal description of such premises) whereby such party disclaims any right,
title and interest in, and lien on, the Collateral and allows the removal of
such Collateral by the Agent or its agents or representatives, and is otherwise
in form and substance reasonably acceptable to the Agent; provided, however,
that no such agreement need be obtained with respect to any one location wherein
the value of the Collateral as to which such agreement has not been obtained
aggregates less than $375,000 at any one time.

 

(k)                                 Each Debtor agrees from time to time to
deliver to the Agent such evidence of the existence, identity, and location of
its Collateral and of its availability as collateral security pursuant hereto
(including, without limitation, schedules describing all Receivables created or
acquired by such Debtor, copies of customer invoices or the equivalent, and
original shipping or delivery receipts for all merchandise and other goods sold
or leased or services rendered by it, together with such Debtor’s warranty of
the genuineness thereof, and reports stating the book value of its Inventory and
Equipment by major category and location), in each case as the Agent may
reasonably request.  The Agent shall have the right to verify all or any part of
the Collateral in any manner, and through any medium, which the Agent considers
appropriate (including, without limitation, the verification of Collateral by
use of a fictitious name), and each Debtor agrees to furnish all assistance and
information, and perform any acts, which the Agent may reasonably require in
connection therewith.

 

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(l)                                     Each Debtor shall comply in all material
respects with the terms and conditions of all leases, easements, right-of-way
agreements, and other similar agreements binding upon such Debtor or affecting
the Collateral or any part thereof, and all orders, ordinances, laws, and
statutes of any city, state, or other governmental entity, department, or agency
having jurisdiction with respect to the premises wherein such Collateral is
located or the conduct of business thereon except, in each case, as could not
reasonably be expected to have a Material Adverse Effect.

 

(m)                             Schedule C attached hereto contains a true,
complete, and current listing of all patents, trademarks, tradestyles,
copyrights, and other intellectual property rights (including all registrations
and applications therefor) owned by the Debtors as of the date hereof that are
registered with any governmental authority.  The Debtors shall promptly notify
the Agent in writing of any additional intellectual property rights acquired or
arising after the date hereof that are or are required to be registered with any
governmental authority, and shall submit to the Agent a supplement to Schedule C
to reflect such additional rights (provided any Debtor’s failure to do so shall
not impair the Agent’s security interest therein).  Each Debtor owns or
possesses rights to use all franchises, licenses, patents, trademarks, trade
names, tradestyles, copyrights, and rights with respect to the foregoing which
are required to conduct its business.  No event has occurred which permits, or
after notice or lapse of time or both would permit, the revocation or
termination of any such rights, and the Debtors are not liable to any person for
infringement under applicable law with respect to any such rights as a result of
its business operations.

 

(n)                                 Schedule F attached hereto contains a true,
complete and current listing of all Commercial Tort Claims held by the Debtors
as of the date hereof, each described by reference to the specific incident
giving rise to the claim.  Each Debtor agrees to execute and deliver to the
Agent a supplement to this Agreement in the form attached hereto as Schedule G,
or in such other form acceptable to the Agent, promptly upon becoming aware of
any other Commercial Tort Claim in excess of $375,000 held or maintained by such
Debtor arising after the date hereof (provided such Debtor’s failure to do so
shall not impair the Agent’s security interest therein).

 

(o)                                 Each Debtor agrees to execute and deliver to
the Agent such further agreements, assignments, instruments, and documents and
to do all such other things as the Agent may reasonably deem necessary or
appropriate to assure the Agent its lien and security interest hereunder,
including, without limitation, (i) such financing statements, and amendments
thereof or supplements thereto, and such other instruments and documents as the
Agent may from time to time reasonably require in order to comply with the UCC
and any other applicable law, (ii) such agreements with respect to patents,
trademarks, copyrights, and similar intellectual property rights as the Agent
may from time to time reasonably require to comply with the filing requirements
of the United States Patent and Trademark Office and the United States Copyright
Office, and (iii) such control agreements with respect to all Deposit
Accounts, Investment Property, Letter-of-Credit Rights, and electronic Chattel
Paper (in each case, other than Excluded Property), and to cause the relevant
depository institutions, financial intermediaries, and issuers to execute and
deliver such control agreements, as the Agent may from time to time reasonably
require.  Each Debtor hereby agrees that a carbon, photographic, or other
reproduction of this Agreement or any such financing statement is sufficient for
filing as a financing statement by the Agent without notice thereof to such
Debtor wherever the Agent in its sole discretion desires to file the same.  Each
Debtor hereby authorizes the Agent to file any and all financing statements

 

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covering the Collateral or any part thereof as the Agent may require, including
financing statements describing the Collateral as “all assets” or “all personal
property” or words of like meaning.  The Agent may order lien searches from time
to time against each Debtor and the Collateral, and the Debtor shall promptly
reimburse the Agent for all reasonable costs and expenses incurred in connection
with such lien searches.  In the event for any reason the law of any
jurisdiction other than New York becomes or is applicable to the Collateral or
any part thereof, or to any of the Secured Obligations, each Debtor agrees to
execute and deliver all such instruments and documents and to do all such other
things as the Agent in its sole discretion deems necessary or appropriate to
preserve, protect, and enforce the lien and security interest of the Agent under
the law of such other jurisdiction.  Each Debtor agrees to mark its books and
records to reflect the lien and security interest of the Agent in the
Collateral.

 

(p)                                 On failure of any Debtor to perform any of
the covenants and agreements herein contained, the Agent may, at its option,
perform the same and in so doing may expend such sums as the Agent may
reasonably deem advisable in the performance thereof, including, without
limitation, the payment of any insurance premiums, the payment of any taxes,
liens, and encumbrances, expenditures made in defending against any adverse
claims, and all other expenditures which the Agent may be compelled to make by
operation of law or which the Agent may make by agreement or otherwise for the
protection of the security hereof.  All such sums and amounts so expended shall
be repayable by the relevant Debtor immediately upon demand, shall constitute
additional Secured Obligations secured hereunder and shall bear interest from
the date payment of said amounts is demanded at the rate per annum (computed on
the basis of a 360-day year for the actual number of days elapsed) determined by
adding 2.0% per annum to the Base Rate from time to time in effect plus the
Applicable Margin from time to time in effect for Base Rate Loans under the
Revolving Credit, with any change in such rate per annum as so determined by
reason of a change in such Base Rate to be effective on the date of such change
in said Base Rate (such rate per annum as so determined being hereinafter
referred to as the “Default Rate”).  No such performance of any covenant or
agreement by the Agent on behalf of any Debtor, and no such advancement or
expenditure therefor, shall relieve the Debtor of any default under the terms of
this Agreement or in any way obligate any Secured Creditor to take any further
or future action with respect thereto.  The Agent, in making any payment hereby
authorized, may do so according to any bill, statement, or estimate procured
from the appropriate public office or holder of the claim to be discharged
without inquiry into the accuracy of such bill, statement, or estimate or into
the validity of any tax assessment, sale, forfeiture, tax lien, or title or
claim.  The Agent, in performing any act hereunder, shall be the sole judge of
whether any Debtor is required to perform same under the terms of this
Agreement.  The Agent is hereby authorized to charge any account of the relevant
Debtor maintained with any Secured Creditor for the amount of such sums and
amounts so expended.

 

Section 5.                                          Special Provisions Re:
Receivables.  (a) As of the time any Receivable owned by a Debtor becomes
subject to the security interest provided for hereby, and at all times
thereafter, such Debtor shall be deemed to have warranted as to each and all of
such Receivables that all warranties of such Debtor set forth in this Agreement
are true and correct in all material respects with respect to each such
Receivable; that each Receivable and all papers and documents relating thereto
are genuine and in all respects what they purport to be in all material
respects; that each Receivable is valid and subsisting in all material respects;
that no such

 

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Receivable is evidenced by any Instrument or Chattel Paper unless such
Instrument or Chattel Paper has theretofore been endorsed by such Debtor and
delivered to the Agent (except that, prior to the occurrence of an Event of
Default and thereafter until otherwise notified by the Agent, such Debtor will
not be required to endorse and deliver to the Agent any such Instrument or
Chattel Paper if and only so long as the aggregate outstanding balance of all
such Instruments and Chattel Paper not so endorsed and delivered to the Agent
hereunder is less than $375,000 at any one time outstanding); that the amount of
the Receivable represented as owing is the correct amount actually and
unconditionally owing, except for normal cash discounts on normal trade terms in
the ordinary course of business; and that the amount of such Receivable
represented as owing is not disputed and is not subject to any set-offs,
credits, deductions, or countercharges other than those arising in the ordinary
course of such Debtor’s business or which are disclosed to the Agent in writing
promptly upon such Debtor becoming aware thereof.  Without limiting the
foregoing, if any Receivables in excess of $375,000 in the aggregate arise out
of a contract with the United States of America, or any state or political
subdivision thereof, or any department, agency, or instrumentality of any of the
foregoing, each Debtor agrees to notify the Agent and, at the Agent’s request,
execute whatever instruments and documents are required by the Agent in order
that such Receivable shall be assigned to the Agent and that proper notice of
such assignment shall be given under the federal Assignment of Claims Act (or
any successor statute) or any similar state or local statute, as the case may
be.

 

(b)                                 Unless and until an Event of Default occurs
and is continuing, any merchandise or other goods which are returned by a
customer or account debtor or otherwise recovered may be resold by a Debtor in
the ordinary course of its business as presently conducted in accordance with
Section 7(b) hereof; and, during the existence of any Event of Default, such
merchandise and other goods shall be set aside at the request of the Agent and
held by the relevant Debtor as trustee for the Secured Creditors and shall
remain part of the Secured Creditors’ Collateral.  Unless and until an Event of
Default occurs and is continuing, the Debtors may settle and adjust disputes and
claims with its customers and account debtors, handle returns and recoveries,
and grant discounts, credits, and allowances in the ordinary course of its
business as presently conducted for amounts and on terms which the relevant
Debtor in good faith considers advisable; and, during the existence of any Event
of Default, at the Agent’s request, the Debtors shall notify the Agent promptly
of all returns and recoveries and, on the Agent’s request, deliver any such
merchandise or other goods to the Agent.  During the existence of any Event of
Default, at the Agent’s request, the Debtor shall also notify the Agent promptly
of all disputes and claims and settle or adjust them at no expense to the Agent,
but no discount, credit, or allowance other than on normal trade terms in the
ordinary course of business as presently conducted shall be granted to any
customer or account debtor and no returns of merchandise or other goods shall be
accepted by any Debtor other than in the ordinary course of business as
presently conducted without the Agent’s consent.  The Agent may, at all times
during the existence of any Event of Default, settle or adjust disputes and
claims directly with customers or account debtors for amounts and upon terms
which the Agent considers advisable.

 

(c)                                  Unless delivered to the Agent or its agent,
all tangible Chattel Paper and Instruments shall contain a legend acceptable to
the Agent indicating that such Chattel Paper or Instrument is subject to the
security interest of the Agent contemplated by this Agreement.

 

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Section 6.                                          Collection of Receivables. 
(a) Except as otherwise provided in this Agreement, the Debtors shall make
collection of all Receivables and may use the same to carry on its business in
accordance with sound business practice and otherwise subject to the terms
hereof.

 

(b)                                 Upon the occurrence and during the
continuance of any Event of Default, whether or not the Agent has exercised any
or all of its rights under other provisions of this Section 6, in the event the
Agent requests any Debtor to do so:

 

(i)                           all Instruments and Chattel Paper at any time
constituting part of the Receivables or any other Collateral (including any
postdated checks) shall, upon receipt by such Debtor, be immediately endorsed to
and deposited with the Agent; and/or

 

(ii)                        such Debtor shall instruct all customers and account
debtors to remit all payments in respect of Receivables or any other Collateral
to a lockbox or lockboxes under the sole custody and control of the Agent and
which are maintained at post office(s) selected by the Agent.

 

(c)                                  Upon the occurrence and during the
continuance of any Event of Default or of any event or condition which with the
lapse of time or the giving of notice, or both, would constitute an Event of
Default, whether or not the Agent has exercised any or all of its rights under
other provisions of this Section 6, the Agent or its designee may notify the
Debtors’ customers and account debtors at any time that Receivables or any other
Collateral have been assigned to the Agent or of the Agent’s security interest
therein, and either in its own name, or the relevant Debtor’s name, or both,
demand, collect (including, without limitation, through a lockbox analogous to
that described in Section 6(b)(ii) hereof), receive, receipt for, sue for,
compound, and give acquittance for any or all amounts due or to become due on
Receivables or any other Collateral, and in the Agent’s discretion file any
claim or take any other action or proceeding which the Agent may deem reasonably
necessary or appropriate to protect or realize upon the security interest of the
Agent in the Receivables or any other Collateral.

 

(d)                                 Any proceeds of Receivables or other
Collateral transmitted to or otherwise received by the Agent pursuant to any of
the provisions of Sections 6(b) or 6(c) hereof may be handled and administered
by the Agent in and through a remittance account at the Agent, and the Debtors
acknowledge that the maintenance of such remittance account by the Agent is
solely for the Agent’s convenience and that the Debtors do not have any right,
title, or interest in such remittance account.  The Agent may, after the
occurrence and during the continuation of any Event of Default, apply all or any
part of any proceeds of Receivables or other Collateral received by it from any
source to the payment of the Secured Obligations (whether or not then due and
payable), such applications to be made in such amounts, in such manner and order
and at such intervals as the Agent may from time to time in its discretion
determine, but not less often than once each week.  The Agent need not apply or
give credit for any item included in proceeds of Receivables or other Collateral
until the Agent has received final payment therefor at its office in cash or
final solvent credits current in Chicago, Illinois, acceptable to the Agent as
such.  However, if the Agent does give credit for any item prior to receiving
final payment therefor and the Agent fails to receive such final payment or an
item is charged back to the Agent for any

 

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reason, the Agent may at its election in either instance charge the amount of
such item back against the remittance account or any account of the relevant
Debtor maintained with the Agent, together with interest thereon at the Default
Rate.  Concurrently with each transmission of any proceeds of Receivables or
other Collateral to the remittance account, each Debtor shall furnish the Agent
with a report in such form as the Agent shall reasonably require identifying the
particular Receivable or other Collateral from which the same arises or
relates.  Unless and until an Event of Default shall have occurred and be
continuing, the Agent will release proceeds of Collateral which the Agent has
not applied to the Secured Obligations as provided above from the remittance
account from time to time promptly after receipt thereof. Each Debtor hereby
indemnifies the Secured Creditors from and against all liabilities, damages,
losses, actions, claims, judgments, costs, expenses, charges and attorneys’ fees
suffered or incurred by the Secured Creditors because of the maintenance of the
foregoing arrangements; provided, however, that no Debtor shall be required to
indemnify any Secured Creditor for any of the foregoing to the extent they arise
solely from the gross negligence or willful misconduct of such Secured Creditor
(as determined by a court of competent jurisdiction by final and nonappealable
judgment).  The Secured Creditors shall have no liability or responsibility to
any Debtor for the Agent accepting any check, draft or other order for payment
of money bearing the legend “payment in full” or words of similar import or any
other restrictive legend or endorsement whatsoever or be responsible for
determining the correctness of any remittance.

 

Section 7.                                          Special Provisions Re: 
Inventory and Equipment.  (a) Each Debtor shall at its own cost and expense
maintain, keep and preserve its Inventory in good and merchantable condition and
keep and preserve its Equipment in good repair, working order and condition,
ordinary wear and tear excepted, and, without limiting the foregoing, make all
necessary and proper repairs, replacements and additions to its Equipment so
that the efficiency thereof shall be fully preserved and maintained, except, in
each as expressly permitted under the Credit Agreement.

 

(b)                                 Each Debtor may, until otherwise notified by
the Agent following the occurrence and during the continuance of an Event of
Default, use, consume, lease and sell the Inventory in the ordinary course of
its business, but a sale in the ordinary course of business shall not under any
circumstance include any transfer or sale in satisfaction, partial or complete,
of a debt owing by such Debtor.

 

(c)                                  Each Debtor may, until an Event of Default
has occurred and is continuing and thereafter until otherwise notified by the
Agent, sell or otherwise dispose of Equipment to the extent permitted by
Section 8.10 of the Credit Agreement.

 

(d)                                 As of the time any Inventory or Equipment
becomes subject to the security interest provided for hereby and at all times
thereafter, the relevant Debtor shall be deemed to have warranted as to any and
all of such Inventory and Equipment that all warranties of such Debtor set forth
in this Agreement are true and correct in all material respects with respect to
such Inventory and Equipment; that all of such Inventory and Equipment is
located at a location set forth pursuant to Section 4(b) hereof; and that, in
the case of Inventory, such Inventory is new and unused and in good and
merchantable condition.  Each Debtor warrants and agrees that no

 

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Inventory owned by it is or will be consigned to any other person without the
Agent’s prior written consent.

 

(e)                                  Subject to Section 12.1 of the Credit
Agreement, upon the Agent’s request, each Debtor shall at its own cost and
expense cause the lien of the Agent in and to any portion of the Collateral
subject to a certificate of title law to be duly noted on such certificate of
title or to be otherwise filed in such manner as is prescribed by law in order
to perfect such lien and shall cause all such certificates of title and
evidences of lien to be deposited with the Agent.

 

(f)                                   Except for Equipment from time to time
located on the real estate described on Schedule D attached hereto and as
otherwise disclosed to the Agent in writing, none of the Equipment is or will be
attached to real estate in such a manner that the same may become a fixture.

 

(g)                                  If any of the Inventory is at any time
evidenced by a document of title, such document shall be promptly delivered by
the relevant Debtor to the Agent except to the extent the Agent specifically
requests such Debtor not to do so with respect to any such document.

 

Section 8.                                          Special Provisions Re: 
Investment Property, Subsidiary Interests, and Deposits.  (a) Unless and until
an Event of Default has occurred and is continuing and thereafter until notified
to the contrary by the Agent pursuant to Section 10(d) hereof:

 

(i)                           each Debtor shall be entitled to exercise all
voting and/or consensual powers pertaining to its Investment Property and
Subsidiary Interests constituting Collateral, or any part thereof, for all
purposes not inconsistent with the terms of this Agreement, the Credit Agreement
or any other document evidencing or otherwise relating to any Secured
Obligations; and

 

(ii)                        each Debtor shall be entitled to receive and retain
all cash dividends paid upon or in respect of its Investment Property and
Subsidiary Interests constituting Collateral to the extent permitted by the
Credit Agreement subject to the lien and security interest of this Agreement.

 

(b)                                 All Investment Property (including all
securities, certificated or uncertificated, securities accounts, and commodity
accounts) and Subsidiary Interests of the Debtors constituting Collateral on the
date hereof is listed and identified on Schedule E attached hereto and made a
part hereof.  Each Debtor shall promptly notify the Agent of any other
Investment Property or Subsidiary Interests constituting Collateral acquired or
maintained by such Debtor after the date hereof, and shall submit to the Agent a
supplement to Schedule E to reflect such additional rights (provided any
Debtor’s failure to do so shall not impair the Agent’s security interest
therein).  Certificates for all certificated securities now or at any time
constituting Investment Property or Subsidiary Interests and part of the
Collateral hereunder shall be promptly delivered by the relevant Debtor to the
Agent duly endorsed in blank for transfer or accompanied by an appropriate
assignment or assignments or an appropriate undated stock power or powers, in
every case sufficient to transfer title thereto, including, without limitation,
all stock received in respect of a stock dividend or resulting from a split-up,
revision or reclassification of the

 

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Investment Property or Subsidiary Interests constituting Collateral or any part
thereof or received in addition to, in substitution of or in exchange for the
Investment Property or Subsidiary Interests constituting Collateral or any part
thereof as a result of a merger, consolidation or otherwise.  With respect to
any uncertificated securities or any Investment Property or Subsidiary Interests
constituting Collateral held by a securities intermediary, commodity
intermediary, or other financial intermediary of any kind, at the Agent’s
request, the relevant Debtor shall execute and deliver, and shall cause any such
issuer or intermediary to execute and deliver, an agreement among such Debtor,
the Agent, and such issuer or intermediary in form and substance reasonably
satisfactory to the Agent which provides, among other things, for the issuer’s
or intermediary’s agreement that it will comply with such entitlement orders,
and apply any value distributed on account of any such Investment Property or
Subsidiary Interests, as directed by the Agent without further consent by such
Debtor.  The Agent may, at any time after the occurrence of an Event of Default,
cause to be transferred into its name or the name of its nominee or nominees any
and all of the Investment Property and Subsidiary Interests constituting
Collateral hereunder.

 

(c)                                  Unless and until an Event of Default has
occurred and is continuing, the Debtors may sell or otherwise dispose of any
Investment Property and Subsidiary Interests to the extent permitted by the
Credit Agreement.  After the occurrence and during the continuation of any Event
of Default, no Debtor shall sell all or any part of the Investment Property or
Subsidiary Interests constituting Collateral without the prior written consent
of the Agent.

 

(d)                                 The Debtors represent that on the date of
this Agreement, none of the Investment Property or Subsidiary Interests consists
of margin stock (as such term is defined in Regulation U of the Board of
Governors of the Federal Reserve System) except to the extent the Debtors have
delivered to the Agent a duly executed and completed Form U-1 with respect to
such stock.  If at any time the Investment Property or Subsidiary Interests or
any part thereof consists of margin stock, the Debtors shall promptly so notify
the Agent and deliver to the Agent a duly executed and completed Form U-1 and
such other instruments and documents reasonably requested by the Agent in form
and substance reasonably satisfactory to the Agent.

 

(e)                                  Each Debtor represents and warrants to, and
agrees with, the Secured Creditors as follows:  (i) as of the date hereof, the
Subsidiary Interests listed and described on Schedule E hereto constitute the
percentage of the equity interest in each Subsidiary set forth thereon owned by
such Debtor; (ii) as of the date hereof, copies of the certificate or articles
of incorporation and by-laws, certificate or articles of organization and
operating agreement, and partnership agreement of each Subsidiary (each such
agreement being hereinafter referred to as an “Organizational Agreement”)
heretofore delivered to the Agent are true and correct copies thereof and have
not been amended or modified in any respect other than as stated therein, and
(iii) without the prior written consent of the Agent, such Debtor hereby agrees
not to amend or modify any Organizational Agreement which would in any manner
materially adversely affect or impair the Subsidiary Interests of such Debtor or
reduce or dilute the rights of such Debtor with respect to any Subsidiary
Interests, any of such actions done without such prior written consent to be
null and void. Each Debtor shall perform when due all of its obligations under
each Organizational Agreement.

 

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(f)                                   All Deposit Accounts of the Debtors on the
date hereof are listed and identified (by account number and depository
institution) on Schedule E attached hereto and made a part hereof.  Each Debtor
shall promptly notify the Agent of any other Deposit Account opened or
maintained by such Debtor after the date hereof, and shall submit to the Agent a
supplement to Schedule E to reflect such additional accounts (provided such
Debtor’s failure to do so shall not impair the Agent’s security interest
therein).  With respect to any Deposit Account (other than an Excluded Deposit
Account) maintained by a depository institution other than the Agent, and,
except as otherwise provided in Sections 8.25(c) and 12.2 of the Credit
Agreement,  as a condition to the establishment and maintenance of any such
Deposit Account except as otherwise agreed to in writing by the Agent, such
Debtor, the depository institution, and the Agent shall execute and deliver an
account control agreement in form and substance reasonably satisfactory to the
Agent which provides, among other things, for the depository institution’s
agreement that it will comply with instructions originated by the Agent
directing the disposition of the funds in the Deposit Account without further
consent by such Debtor.

 

Section 9.                                          Power of Attorney.  In
addition to any other powers of attorney contained herein, each Debtor hereby
appoints the Agent, its nominee, and any other person whom the Agent may
designate, as such Debtor’s attorney-in-fact, with full power and authority upon
the occurrence and during the continuation of any Event of Default to sign such
Debtor’s name on verifications of Receivables and other Collateral; to send
requests for verification of Collateral to such Debtor’s customers, account
debtors, and other obligors; to exercise all voting rights with respect to the
Investment Property or other Collateral or any part thereof; to endorse or sign
such Debtor’s name on assignments, stock powers or other instruments of transfer
and any checks, notes, acceptances, money orders, drafts, and any other forms of
payment or security that may come into the Agent’s possession or on any
assignments, stock powers, or other instruments of transfer relating to the
Collateral or any part thereof; to sign such Debtor’s name on any invoice or
bill of lading relating to any Collateral, on claims to enforce collection of
any Collateral, on notices to and drafts against customers and account debtors
and other obligors, on schedules and assignments of Collateral, on notices of
assignment and on public records; to notify the post office authorities to
change the address for delivery of such Debtor’s mail to an address designated
by the Agent; to receive, open and dispose of all mail addressed to such Debtor;
and to do all things necessary to carry out this Agreement.  Each Debtor hereby
ratifies and approves all acts of any such attorney and agrees that neither the
Agent nor any such attorney will be liable for any acts or omissions or for any
error of judgment or mistake of fact or law other than such person’s gross
negligence or willful misconduct (as determined by a court of competent
jurisdiction by final and nonappealable judgment); provided that in no event
shall it be liable for any punitive, exemplary, indirect or consequential
damages.  The Agent may file one or more financing statements disclosing its
security interest in any or all of the Collateral without the relevant Debtor’s
signature appearing thereon.  Each Debtor also hereby grants the Agent a power
of attorney to execute any such financing statements, or amendments and
supplements to financing statements, on behalf of such Debtor without notice
thereof to such Debtor.  The foregoing powers of attorney, being coupled with an
interest, are irrevocable until the Secured Obligations have been fully paid and
satisfied (other than contingent indemnification obligations and Letters of
Credit that have been Cash Collateralized in accordance with the terms of the
Credit Agreement) and all commitments of the Lenders to extend credit to or for
the account of the Borrower under the Credit Agreement have expired or otherwise
have been terminated.

 

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Section 10.                             Defaults and Remedies.  (a) The
occurrence of any one or more of the following events shall constitute an “Event
of Default” hereunder:

 

(i)                           default for a period of 3 Business Days in the
payment when due (whether by demand, lapse of time, acceleration or otherwise)
of the Secured Obligations or any part thereof; or

 

(ii)                        default in the observance or performance of any
other provision hereof which is not remedied within 30 days after the earlier of
(a) the date on which such default shall first become known to any officer of
any Debtor or (b) written notice thereof is given to the Debtors by the Agent;
or

 

(iii)                     any representation or warranty made by any Debtor
herein, or in any statement or certificate furnished by it pursuant hereto, or
in connection with any loan or extension of credit made to or on behalf of or at
the request of any Debtor by the Agent, shall be false in any material respect
as of the date of the issuance or making thereof; or

 

(v)                       any event shall occur or condition shall exist which
is specified as an “Event of Default” under the Credit Agreement.

 

(b)                                 Upon the occurrence and during the
continuation of any Event of Default, the Agent shall have, in addition to all
other rights provided herein or by law, the rights and remedies of a secured
party under the UCC (regardless of whether the UCC is the law of the
jurisdiction where the rights or remedies are asserted and regardless of whether
the UCC applies to the affected Collateral), and further the Agent may, without
demand and without advertisement, notice, hearing, or process of law, all of
which the Debtors hereby waive, at any time or times, sell and deliver all or
any part of the Collateral (and any other property of the Debtors attached
thereto or found therein) held by or for it at public or private sale, at any
securities exchange or broker’s board or at the Agent’s office or elsewhere, for
cash, upon credit, or otherwise, at such prices and upon such terms as the Agent
deems advisable, in its sole discretion.  In the exercise of any such remedies,
the Agent may sell the Collateral as a unit even though the sales price thereof
may be in excess of the amount remaining unpaid on the Secured Obligations. 
Also, if less than all the Collateral is sold, the Agent shall have no duty to
marshal or apportion the part of the Collateral so sold as between the Debtors,
or any of them, but may sell and deliver any or all of the Collateral without
regard to which of the Debtors are the owners thereof.  In addition to all other
sums due any Secured Creditor hereunder, the Debtors shall pay the Secured
Creditors all costs and expenses incurred by the Secured Creditors, including
attorneys’ fees and court costs, in obtaining, liquidating or enforcing payment
of Collateral or the Secured Obligations or in the prosecution or defense of any
action or proceeding by or against any Secured Creditor or any Debtor concerning
any matter arising out of or connected with this Agreement or the Collateral or
the Secured Obligations, including, without limitation, any of the foregoing
arising in, arising under or related to a case under the United States
Bankruptcy Code (or any successor statute).  Any requirement of reasonable
notice shall be met if such notice is personally served on or mailed, postage
prepaid, to each Debtor in accordance with Section 13(b) hereof at least 10 days
before the time of sale or other event giving rise to the requirement of such
notice; provided however, no notification need be given to any Debtor if such
Debtor has signed, after an Event of

 

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Default has occurred, a statement renouncing any right to notification of sale
or other intended disposition.  The Agent shall not be obligated to make any
sale or other disposition of the Collateral regardless of notice having been
given.  Any Secured Creditor may be the purchaser at any such sale.  Each Debtor
hereby waives all of its rights of redemption from any such sale.  The Agent may
postpone or cause the postponement of the sale of all or any portion of the
Collateral by announcement at the time and place of such sale, and such sale
may, without further notice, be made at the time and place to which the sale was
postponed or the Agent may further postpone such sale by announcement made at
such time and place.  The Agent has no obligation to prepare the Collateral for
sale.  The Agent may sell or otherwise dispose of the Collateral without giving
any warranties as to the Collateral or any part thereof, including disclaimers
of any warranties of title or the like, and each Debtor acknowledges and agrees
that the absence of such warranties shall not render the disposition
commercially unreasonable.

 

(c)                                  Without in any way limiting the foregoing,
upon the occurrence and during the continuation of any Event of Default
hereunder, in addition to all other rights provided herein or by law, (i) the
Agent shall have the right to take physical possession of any and all of the
Collateral and anything found therein, the right for that purpose to enter
without legal process any premises where the Collateral may be found (provided
such entry be done lawfully), and the right to maintain such possession on the
relevant Debtor’s premises (each Debtor hereby agreeing, to the extent it may
lawfully do so, to lease such premises without cost or expense to the Agent or
its designee if the Agent so requests) or to remove the Collateral or any part
thereof to such other places as the Agent may desire, (ii) the Agent shall have
the right to direct any intermediary at any time holding any Investment Property
or other Collateral, or any issuer thereof, to deliver such Collateral or any
part thereof to the Agent and/or to liquidate such Collateral or any part
thereof and deliver the proceeds thereof to the Agent (including, without
limitation, the right to deliver a notice of control with respect to any
Collateral held in a securities account or commodities account and deliver all
entitlement orders with respect thereto), (iii) the Agent shall have the right
to exercise any and all rights with respect to all Deposit Accounts of each
Debtor, including, without limitation, the right to direct the disposition of
the funds in each Deposit Account and to collect, withdraw, and receive all
amounts due or to become due or payable thereunder, and (iv) each Debtor shall,
upon the Agent’s demand, promptly assemble the Collateral and make it available
to the Agent at a place designated by the Agent.  If the Agent exercises its
right to take possession of the Collateral, each Debtor shall also at its
expense perform any and all other steps requested by the Agent to preserve and
protect the security interest hereby granted in the Collateral, such as placing
and maintaining signs indicating the security interest of the Agent, appointing
overseers for the Collateral and maintaining Collateral records.  The Agent may,
if it so elects, seek the appointment of a receiver or keeper to take possession
of Collateral and to enforce any of the Agent’s remedies (for the benefit of the
Secured Creditors), with respect to such appointment without prior notice or
hearing as to such appointment.

 

(d)                                 Without in any way limiting the foregoing,
upon the occurrence and during the continuation of any Event of Default, all
rights of each Debtor to exercise the voting and/or consensual powers which it
is entitled to exercise pursuant to Section 8(a)(i) hereof and/or to receive and
retain the distributions which it is entitled to receive and retain pursuant to
Section 8(a)(ii) hereof, shall, at the option of the Agent, cease and thereupon
become vested in

 

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the Agent, which, in addition to all other rights provided herein or by law,
shall then be entitled solely and exclusively to exercise all voting and other
consensual powers pertaining to the Investment Property (including, without
limitation, the right to deliver notice of control with respect to any
Investment Property held in a securities account or commodity account and
deliver all entitlement orders with respect thereto) and/or to receive and
retain the distributions which any Debtor would otherwise have been authorized
to retain pursuant to Section 8(a)(ii) hereof and shall then be entitled solely
and exclusively to exercise any and all rights of conversion, exchange, or
subscription or any other rights, privileges, or options pertaining to any
Investment Property as if the Agent were the absolute owner thereof.  Without
limiting the foregoing, the Agent shall have the right to exchange, at its
discretion, any and all of the Investment Property upon the merger,
consolidation, reorganization, recapitalization, or other readjustment of the
respective issuer thereof or upon the exercise by or on behalf of any such
issuer or the Agent of any right, privilege, or option pertaining to any
Investment Property and, in connection therewith, to deposit and deliver any and
all of the Investment Property with any committee, depositary, transfer agent,
registrar, or other designated agency upon such terms and conditions as the
Agent may determine.  In the event the Agent in good faith believes any of the
Collateral constitutes restricted securities within the meaning of any
applicable securities laws, any disposition thereof in compliance with such laws
shall not render the disposition commercially unreasonable.

 

(e)                                  EACH DEBTOR HEREBY IRREVOCABLY CONSTITUTES
AND APPOINTS THE AGENT AS ITS PROXY AND ATTORNEY-IN-FACT WITH RESPECT TO ITS
INVESTMENT PROPERTY AND OTHER COLLATERAL, INCLUDING THE RIGHT TO VOTE SUCH
INVESTMENT PROPERTY AND OTHER COLLATERAL, WITH FULL POWER OF SUBSTITUTION TO DO
SO. IN ADDITION TO THE RIGHT TO VOTE ANY SUCH INVESTMENT PROPERTY AND OTHER
COLLATERAL, THE APPOINTMENT OF THE AGENT AS PROXY AND ATTORNEY-IN-FACT SHALL
INCLUDE THE RIGHT TO EXERCISE ALL OTHER RIGHTS, POWERS, PRIVILEGES AND REMEDIES
TO WHICH A HOLDER OF SUCH INVESTMENT PROPERTY AND OTHER COLLATERAL WOULD BE
ENTITLED (INCLUDING GIVING OR WITHHOLDING WRITTEN CONSENTS OF SHAREHOLDERS OR
OTHER EQUITY HOLDERS, CALLING SPECIAL MEETINGS OF SHAREHOLDERS OR OTHER EQUITY
HOLDERS AND VOTING AT SUCH MEETINGS). SUCH PROXY SHALL BE EFFECTIVE,
AUTOMATICALLY AND WITHOUT THE NECESSITY OF ANY ACTION (INCLUDING ANY TRANSFER OF
ANY SUCH INVESTMENT PROPERTY AND OTHER COLLATERAL ON THE RECORD BOOKS OF THE
ISSUER THEREOF) BY ANY PERSON (INCLUDING THE ISSUER OF SUCH INVESTMENT PROPERTY
AND OTHER COLLATERAL OR ANY OFFICER OR AGENT THEREOF), UPON THE OCCURRENCE OF AN
EVENT OF DEFAULT.  EACH DEBTOR HEREBY RATIFIES AND APPROVES ALL ACTS OF ANY SUCH
ATTORNEY AND AGREES THAT NEITHER THE AGENT NOR ANY SUCH ATTORNEY WILL BE LIABLE
FOR ANY ACTS OR OMISSIONS OR FOR ANY ERROR OF JUDGMENT OR MISTAKE OF FACT OR LAW
OTHER THAN SUCH PERSON’S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT AS FINALLY
DETERMINED BY A COURT OF COMPETENT JURISDICTION; PROVIDED THAT, IN NO EVENT
SHALL THEY BE LIABLE FOR ANY PUNITIVE, EXEMPLARY, INDIRECT OR CONSEQUENTIAL
DAMAGES. THE FOREGOING POWERS OF ATTORNEY AND PROXY, BEING COUPLED WITH AN
INTEREST, ARE IRREVOCABLE UNTIL THE SECURED OBLIGATIONS HAVE BEEN FULLY PAID AND
SATISFIED (OTHER THAN CONTINGENT INDEMNIFICATION OBLIGATIONS AND LETTERS OF
CREDIT THAT HAVE BEEN CASH COLLATERALIZED IN ACCORDANCE WITH THE TERMS OF THE
CREDIT AGREEMENT) AND ALL COMMITMENTS OF THE LENDERS TO EXTEND CREDIT TO OR FOR
THE ACCOUNT OF THE BORROWER UNDER THE CREDIT AGREEMENT HAVE EXPIRED OR OTHERWISE
TERMINATED.

 

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(f)                                   Without in any way limiting the foregoing,
each Debtor hereby grants to the Agent a royalty-free irrevocable license and
right to use all of such Debtor’s patents, patent applications, patent licenses,
trademarks, trademark registrations, trademark licenses, trade names, trade
styles, copyrights, copyright applications, copyright licenses, and similar
intangibles in connection with any foreclosure or other realization by the Agent
or the Secured Creditors on all or any part of the Collateral.  The license and
right granted the Secured Creditors hereby shall be without any royalty or fee
or charge whatsoever.

 

(g)                                  The powers conferred upon the Secured
Creditors hereunder are solely to protect their interest in the Collateral and
shall not impose on them any duty to exercise such powers.  The Agent shall be
deemed to have exercised reasonable care in the custody and preservation of the
Collateral in its possession or control if such Collateral is accorded treatment
substantially equivalent to that which the Agent accords its own property,
consisting of similar type assets, it being understood, however, that the Agent
shall have no responsibility for ascertaining or taking any action with respect
to calls, conversions, exchanges, maturities, tenders, or other matters relating
to any such Collateral, whether or not the Agent has or is deemed to have
knowledge of such matters.  This Agreement constitutes an assignment of rights
only and not an assignment of any duties or obligations of the Debtors, or any
of them, in any way related to the Collateral, and the Agent shall have no duty
or obligation to discharge any such duty or obligation.  The Agent shall have no
responsibility for taking any necessary steps to preserve rights against any
parties with respect to any Collateral or initiating any action to protect the
Collateral against the possibility of a decline in market value.  Neither any
Secured Creditor nor any party acting as attorney for any Secured Creditor shall
be liable for any acts or omissions or for any error of judgment or mistake of
fact or law other than its gross negligence or willful misconduct (as determined
by a court of competent jurisdiction by final and nonappealable judgment).

 

(h)                                 Failure by the Agent to exercise any right,
remedy, or option under this Agreement or any other agreement between the
Debtors, or any of them, and the Agent or provided by law, or delay by the Agent
in exercising the same, shall not operate as a waiver; and no waiver by the
Agent shall be effective unless it is in writing and then only to the extent
specifically stated.  The rights and remedies of the Secured Creditors under
this Agreement shall be cumulative and not exclusive of any other right or
remedy which any Secured Creditor may have.

 

Section 11.                                   Application of Proceeds.  The
proceeds and avails of the Collateral at any time received by the Agent upon the
occurrence and during the continuation of any Event of Default shall, when
received by the Agent in cash or its equivalent, be applied by the Agent in
reduction of, or held as collateral security for, the Secured Obligations in
accordance with the terms of the Credit Agreement.  The Debtors shall remain
liable to the Secured Creditors for any deficiency.  Any surplus remaining after
the full payment and satisfaction of the Secured Obligations shall be returned
to the Borrower, as agent for the Debtors, or to whomsoever the Agent reasonably
determines is lawfully entitled thereto.

 

Section 12.                                   Continuing Agreement.  This
Agreement shall be a continuing agreement in every respect and shall remain in
full force and effect until all of the Secured Obligations, both for principal
and interest, have been fully paid and satisfied and all commitments of the
Lenders to extend credit to or for the account of the Borrower have expired or
otherwise have been

 

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terminated.  Upon such termination of this Agreement, the Agent shall, upon the
request and at the expense of the Debtors, forthwith release its security
interest hereunder.

 

Section 13.                                   Miscellaneous.  (a) This Agreement
cannot be changed or terminated orally.  This Agreement shall create a
continuing lien on and security interest in the Collateral and shall be binding
upon each Debtor, its successors and assigns and shall inure, together with the
rights and remedies of the Secured Creditors hereunder, to the benefit of the
Secured Creditors and their successors and permitted assigns; provided, however,
that no Debtor may assign its rights or delegate its duties hereunder without
the Agent’s prior written consent.  Without limiting the generality of the
foregoing, and subject to the provisions of the Credit Agreement, any Lender may
assign or otherwise transfer any indebtedness held by it secured by this
Agreement to any other person, and such other person shall thereupon become
vested with all the benefits in respect thereof granted to such Lender herein or
otherwise.

 

(b)                                 Except as otherwise specified herein, all
notices hereunder shall be in writing (including, without limitation, notice by
telecopy) and shall be given to the relevant party at its address or telecopier
number set forth below (or, if no such address is set forth below, at the
address of the relevant Debtor as shown on the records of the Agent), or such
other address or telecopier number as such party may hereafter specify by notice
to the other given by courier, by United States certified or registered mail, by
telecopy or by other telecommunication device capable of creating a written
record of such notice and its receipt.  Notices hereunder shall be addressed:

 

If to the Agent:

BMO Harris Bank N.A.

 

115 South LaSalle Street, 20W

 

Chicago, Illinois 60603

 

Attention: Doug Chinery

 

Facsimile No.: (312) 765-1138

 

Telephone No. (312) 461-3016

 

Email: Doug.Chinery@bmo.com

 

 

If the Debtors:

Willdan Group, Inc.,

 

   as Borrower

 

2401 East Katella Avenue, Suite 300

 

Anaheim, California 92806

 

Attention: Stacy McLaughlin

 

Facsimile No.: (714) 940-4920

 

Telephone No. (714) 940-6349

 

Email: smclaughlin@willdan.com

 

Each such notice, request or other communication shall be effective (i) if given
by telecopier, when such telecopy is transmitted to the telecopier number
specified in this Section and a confirmation of such telecopy has been received
by the sender, (ii) if given by mail, five (5) days after such communication is
deposited in the mail, certified or registered with return receipt

 

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requested, addressed as aforesaid or (iii) if given by any other means, when
delivered at the addresses specified in this Section.

 

(c)                                  In the event and to the extent that any
provision hereof shall be deemed to be invalid or unenforceable by reason of the
operation of any law or by reason of the interpretation placed thereon by any
court, this Agreement shall to such extent be construed as not containing such
provision, but only as to such jurisdictions where such law or interpretation is
operative, and the invalidity or unenforceability of such provision shall not
affect the validity of any remaining provisions hereof, and any and all other
provisions hereof which are otherwise lawful and valid shall remain in full
force and effect.  Without limiting the generality of the foregoing, in the
event that this Agreement shall be deemed to be invalid or otherwise
unenforceable with respect to any Debtor, such invalidity or unenforceability
shall not affect the validity of this Agreement with respect to the other
Debtors.

 

(d)                                 The lien and security interest herein
created and provided for stand as direct and primary security for the Secured
Obligations of the Borrower arising under or otherwise relating to the Credit
Agreement as well as for the other Secured Obligations secured hereby.  No
application of any sums received by the Secured Creditors in respect of the
Collateral or any disposition thereof to the reduction of the Secured
Obligations or any part thereof shall in any manner entitle any Debtor to any
right, title or interest in or to the Secured Obligations or any collateral or
security therefor, whether by subrogation or otherwise, unless and until all
Secured Obligations have been fully paid and satisfied (other than contingent
indemnification obligations and Letters of Credit that have been Cash
Collateralized in accordance with the terms of the Credit Agreement) and all
commitments to extend credit to or for the account of the Borrower under the
Credit Agreement have expired or otherwise terminated.  Each Debtor acknowledges
and agrees that the lien and security interest hereby created and provided are
absolute and unconditional and shall not in any manner be affected or impaired
by any acts or omissions whatsoever of any Secured Creditor or any other holder
of any Secured Obligations, and without limiting the generality of the
foregoing, the lien and security interest hereof shall not be impaired by any
acceptance by any Secured Creditor or any other holder of any Secured
Obligations of any other security for or guarantors upon any of the Secured
Obligations or by any failure, neglect or omission on the part of any Secured
Creditor or any other holder of any of the Secured Obligations to realize upon
or protect any of the Secured Obligations or any collateral or security
therefor.  The lien and security interest hereof shall not in any manner be
impaired or affected by (and the Secured Creditors, without notice to anyone,
are hereby authorized to make from time to time) any sale, pledge, surrender,
compromise, settlement, release, renewal, extension, indulgence, alteration,
substitution, exchange, change in, modification or disposition of any of the
Secured Obligations or of any collateral or security therefor, or of any
guaranty thereof, or of any instrument or agreement setting forth the terms and
conditions pertaining to any of the foregoing.  The Secured Creditors may at
their discretion at any time grant credit to the Borrower without notice to the
other Debtors in such amounts and on such terms as the Secured Creditors may
elect (all of such to constitute additional Secured Obligations hereby secured)
without in any manner impairing the lien and security interest created and
provided for.  In order to realize hereon and to exercise the rights granted the
Secured Creditors hereunder and under applicable law, there shall be no
obligation on the part of any Secured Creditor or any other holder of any
Secured Obligations at any time to first resort for payment to the Borrower or
any other Debtor or

 

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to any guaranty of the Secured Obligations or any portion thereof or to resort
to any other collateral, security, property, liens or any other rights or
remedies whatsoever, and the Secured Creditors shall have the right to enforce
this Agreement against any Debtor or its Collateral irrespective of whether or
not other proceedings or steps seeking resort to or realization upon or from any
of the foregoing are pending.

 

(e)                                  In the event the Secured Creditors shall at
any time in their discretion permit a substitution of Debtors hereunder or a
party shall wish to become a Debtor hereunder, such substituted or additional
Debtor shall, upon executing an agreement in the form attached hereto as
Schedule H, become a party hereto and be bound by all the terms and conditions
hereof to the same extent as though such Debtor had originally executed this
Agreement and, in the case of a substitution, in lieu of the Debtor being
replaced.  Any such agreement shall contain information as to such Debtor
necessary to update Schedules A, B, C, D, E, and F hereto with respect to it. 
No such substitution shall be effective absent the written consent of the Agent
nor shall it in any manner affect the obligations of the other Debtors
hereunder.

 

(f)                                   This Agreement, and the rights and duties
of the parties hereto, shall be construed and determined in accordance with the
laws of the State of New York (including Section 5-1401 and Section 5-1402 of
the General Obligations law of the State of New York) without regard to
conflicts of law principles that would require application of the laws of
another jurisdiction.  The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning of any
provision hereof.

 

(g)                                  This Agreement may be executed in
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 Agreement by facsimile or in electronic (e.g., “pdf” or
“tif”) format shall be effective as delivery of a manually executed counterpart
of this Agreement.  Each Debtor acknowledges that this Agreement is and shall be
effective upon its execution and delivery by such Debtor to the Agent, and it
shall not be necessary for the Agent to execute this Agreement or any other
acceptance hereof or otherwise to signify or express its acceptance hereof.

 

(h)                                 Each Debtor hereby submits to the
non-exclusive jurisdiction of the Supreme Court 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, for purposes of
all legal proceedings arising out of or relating to this Agreement or the
transactions contemplated hereby.  Each Debtor irrevocably waives, to the
fullest extent permitted by law, any objection which it may now or hereafter
have to the laying of the venue of any such proceeding brought in such a court
and any claim that any such proceeding brought in such a court has been brought
in an inconvenient form.  THE DEBTORS AND THE AGENT EACH HEREBY IRREVOCABLY
WAIVE ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF
OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.

 

Section 14.                                   The Agent.  In acting under or by
virtue of this Agreement, the Agent shall be entitled to all the rights,
authority, privileges, and immunities provided in the Credit Agreement, all of
which provisions of said Credit Agreement (including, without limitation,

 

23

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Section 10 thereof) are incorporated by reference herein with the same force and
effect as if set forth herein in their entirety.  The Agent hereby disclaims any
representation or warranty to the Secured Creditors or any other holders of the
Secured Obligations concerning the perfection of the liens and security
interests granted hereunder or in the value of any of the Collateral.

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK; SIGNATURE PAGES FOLLOW]

 

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IN WITNESS WHEREOF, the Debtors have caused this Security Agreement to be duly
executed and delivered as of the date and year first above written.

 

 

“DEBTORS”

 

 

 

WILLDAN GROUP, INC.

 

LUNA FRUIT, INC.

 

 

 

 

By:

/s/ Thomas D. Brisbin

 

 

Name:  Thomas D. Brisbin

 

 

Title:  Chief Executive Officer

 

 

 

ELECTROTEC OF NY ELECTRICAL INC.

 

PUBLIC AGENCY RESOURCES

 

WILLDAN ENERGY SOLUTIONS

 

WILLDAN ENGINEERING

 

WILLDAN FINANCIAL SERVICES

 

WILLDAN HOMELAND SOLUTIONS

 

WILLDAN LIGHTING & ELECTRIC, INC.

 

WILLDAN LIGHTING & ELECTRIC OF CALIFORNIA

 

WILLDAN LIGHTING & ELECTRIC OF WASHINGTON, INC.

 

ABACUS RESOURCE MANAGEMENT COMPANY

 

INTEGRAL ANALYTICS, INC.

 

NEWCOMB ANDERSON MCCORMICK, INC.

 

 

 

 

By:

/s/ Thomas D. Brisbin

 

 

Name

Thomas D. Brisbin

 

 

Title

Chairman of the Board

 

 

 

GENESYS ENGINEERING, P.C.

 

 

 

 

By:

/s/ Rachel Seraspe

 

 

Name

Rachel Seraspe

 

 

Title

Vice President

 

[Signature Page to Security Agreement]

 

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Accepted and agreed to as of the date and year first above written.

 

 

BMO HARRIS BANK N.A., as Agent

 

 

 

 

By:

/s/ Michael Gift

 

 

Name: Michael Gift

 

 

Title: Director

 

[Signature Page to Security Agreement]

 

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