EXHIBIT 10.3

PLEDGE AND SECURITY AGREEMENT

THIS PLEDGE AND SECURITY AGREEMENT (as it may be amended, restated, supplemented
or otherwise modified from time to time, this “Security Agreement”) is entered
into as of December 2, 2015 by and among Graham Corporation, a Delaware
corporation (the “Borrower”), Energy Steel & Supply Co., a Michigan corporation
(“ESSC”), and any additional entities which become parties to this Security
Agreement by executing a Security Agreement Supplement in substantially the form
of Annex I hereto (such additional entities, together with the Borrower and
ESSC, each a “Grantor”, and collectively, the “Grantors”), and JPMorgan Chase
Bank, N.A., in its capacity as administrative agent (the “Administrative Agent”)
for itself and for the Lenders party to the Credit Agreement referred to below,
(each a “Secured Party”, and collectively, the “Secured Parties”).

PRELIMINARY STATEMENT

The Borrower, each Grantor as a Loan Guarantor, the Administrative Agent, the
other Loan Parties, and the Lenders are entering into a Credit Agreement dated
as of December 2, 2015 (as it may be amended, restated, supplemented or
otherwise modified from time to time, the “Credit Agreement”). Each Grantor is
entering into this Security Agreement in order to induce the Lenders to enter
into and extend credit to the Borrower under the Credit Agreement and to secure
the Secured Obligations that it has agreed to guarantee pursuant to Article X of
the Credit Agreement.

ACCORDINGLY, the Grantors and the Administrative Agent on behalf of the Secured
Parties, hereby agree as follows:

ARTICLE I

DEFINITIONS

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

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

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

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

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

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

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

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

“Collateral Access Agreement” means any landlord waiver or other agreement, in
form and substance satisfactory to the Administrative Agent, between the
Administrative Agent and any third party (including any

 

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bailee, consignee, customs broker, or other similar Person) in possession of any
Collateral or any landlord of any real property where any Collateral is located,
as such landlord waiver or other agreement may be amended, restated,
supplemented or otherwise modified from time to time.

“Collateral Report” means any certificate, report or other document delivered by
any Grantor to the Administrative Agent or any Lender with respect to the
Collateral pursuant to any Loan Document.

“Commercial Tort Claims” means the commercial tort claims as defined in Article
9 of the UCC, including each commercial tort claim specifically described on
Exhibit H.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

“Lenders” means the lenders party to the Credit Agreement and their successors
and assigns.

 

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

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

“Loan Parties” means the Borrower and each Grantor who guarantees the Borrower’s
obligations under the Credit Agreement.

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

“Pledged Collateral” means all Instruments, Securities and other Investment
Property of the Grantors, whether or not physically delivered to the
Administrative Agent pursuant to this Security Agreement; provided, however,
unless otherwise required by the Administrative Agent during existence of an
Event of Default, the portion of Pledged Collateral constituting any Equity
Interests of a Foreign Subsidiary shall be limited to sixty-six percent (66%) of
the issued and outstanding Equity Interests of such Foreign Subsidiary.

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

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

“Secured Parties” shall have the meaning set forth in the Credit Agreement.

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

“Security Agreement Supplement” shall mean any Security Agreement Supplement to
this Security Agreement in substantially the form of Annex I hereto executed by
an entity that becomes a Grantor under this Security Agreement after the date
hereof.

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

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

“Trademarks” means, with respect to any Person, all of such Person’s right,
title, and interest in and to the following: (a) all trademarks (including
service marks), trade names, trade dress, and trade styles and the registrations
and applications for registration thereof and the goodwill of the business
symbolized by the foregoing; (b) all licenses of the foregoing, whether as
licensee or licensor; (c) all renewals of the foregoing; (d) all income,
royalties, damages, and payments now or hereafter due or payable with respect
thereto, including,

 

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without limitation, damages, claims, and payments for past and future
infringements thereof; (e) all rights to sue for past, present, and future
infringements of the foregoing, including the right to settle suits involving
claims and demands for royalties owing; and (f) all rights corresponding to any
of the foregoing throughout the world.

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

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

ARTICLE II

GRANT OF SECURITY INTEREST

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

 

  (i)

all Accounts;

 

  (ii)

all Chattel Paper;

 

  (iii)

all Copyrights, Patents and Trademarks;

 

  (iv)

all Documents;

 

  (v)

all Equipment;

 

  (vi)

all Fixtures;

 

  (vii)

all General Intangibles;

 

  (viii)

all Goods;

 

  (ix)

all Instruments;

 

  (x)

all Inventory;

 

  (xi)

all Investment Property;

 

  (xii)

all cash or cash equivalents;

 

  (xiii)

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

 

  (xiv)

all Deposit Accounts with any bank or other financial institution;

 

  (xv)

all Commercial Tort Claims; and

 

  (xvi)

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

to secure the prompt and complete payment and performance of the Secured
Obligations.

 

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ARTICLE III

REPRESENTATIONS AND WARRANTIES

Each Grantor represents and warrants, and each Grantor that becomes a party to
this Security Agreement pursuant to the execution of a Security Agreement
Supplement represents and warrants (after giving effect to supplements, if any,
to each of the Exhibits hereto with respect to such Grantor as attached to such
Security Agreement Supplement), to the Administrative Agent and the Secured
Parties that:

3.1       Title, Authorization, Validity, Enforceability, Perfection and
Priority.   Such Grantor has good and valid rights in or the power to transfer
the Collateral and title to the Collateral with respect to which it has
purported to grant a security interest hereunder, free and clear of all Liens
except for Liens permitted under Section 4.1(e), and has full power and
authority to grant to the Administrative Agent the security interest in the
Collateral pursuant hereto. The execution and delivery by such Grantor of this
Security Agreement has been duly authorized by proper corporate proceedings of
such Grantor, and this Security Agreement constitutes a legal valid and binding
obligation of such Grantor and creates a security interest which is enforceable
against such Grantor in all Collateral it now owns or hereafter acquires,
subject to applicable bankruptcy, insolvency, reorganization, moratorium or
other laws affecting creditors’ rights generally and subject to general
principles of equity, regardless of whether considered in a proceeding in equity
or at law. When financing statements have been filed in the appropriate offices
against such Grantor in the locations listed on Exhibit G, the Administrative
Agent will have a fully perfected first priority security interest in that
Collateral of such Grantor in which a security interest may be perfected by
filing, subject only to Liens permitted under Section 4.1(e).

3.2      Type and Jurisdiction of Organization, Organizational and
Identification Numbers.   The type of entity of such Grantor, its state of
organization, the organizational number issued to it by its state of
organization and its federal employer identification number are set forth on
Exhibit A.

3.3      Principal Location.  Such Grantor’s mailing address and the location of
its place of business and of its chief executive office are disclosed in Exhibit
A; such Grantor has no other places of business except those set forth in
Exhibit A.

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

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

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

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

 

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3.8        Accounts and Chattel Paper.

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

(b)        With respect to its Accounts, except as disclosed on the most recent
Collateral Report, (i) all Accounts represent bona fide sales of Inventory or
rendering of services to Account Debtors in the ordinary course of such
Grantor’s business and are not evidenced by a judgment, Instrument or Chattel
Paper; and (ii) there are no setoffs, claims or disputes existing or asserted
with respect thereto and such Grantor has not made any agreement with any
Account Debtor for any extension of time for the payment thereof, any compromise
or settlement for less than the full amount thereof, any release of any Account
Debtor from liability therefor, or any deduction therefrom except a discount or
allowance allowed by such Grantor in the ordinary course of its business for
prompt payment and disclosed to the Administrative Agent.

(c)        In addition, with respect to all of its Accounts, (i) the amounts
shown on all Collateral Reports invoices and statements with respect thereto are
actually and absolutely owing to such Grantor as indicated thereon and are not
in any way contingent, and (ii) to such Grantor’s knowledge, all Account Debtors
have the capacity to contract.

3.9        Inventory.  With respect to any of its Inventory scheduled or listed
on the most recent Collateral Report, (a) such Inventory (other than Inventory
in transit) is located at one of such Grantor’s locations set forth on Exhibit
A, (b) no Inventory (other than Inventory in transit) is now, or shall at any
time or times hereafter be stored at any other location except as permitted by
Section 4.1(g), (c) such Grantor has good, indefeasible and merchantable title
to such Inventory and such Inventory is not subject to any Lien or security
interest or document whatsoever except for the security interest granted to the
Administrative Agent hereunder, for the benefit of the Administrative Agent and
Secured Parties, and Permitted Encumbrances, (d) except as may be disclosed in
the most recent Collateral Report, such Inventory is of good and merchantable
quality, free from any defects, (e) such Inventory is not subject to any
licensing, patent, royalty, trademark, trade name or copyright agreements with
any third parties which would require any consent of any third party upon sale
or disposition of that Inventory or the payment of any monies to any third party
upon such sale or other disposition, and (f) such Inventory has been produced in
accordance with the Federal Fair Labor Standards Act of 1938, as amended, and
all rules, regulations and orders thereunder.

3.10       Intellectual Property.    Such Grantor does not have any interest in,
or title to, any Patent, registered Trademark or registered Copyright except as
set forth in Exhibit D. This Security Agreement is effective to create a valid
and continuing Lien and, upon filing of appropriate financing statements in the
offices listed on Exhibit G and this Security Agreement, or any other similar
security agreement relating to the Intellectual Property of any Grantor, with
the United States Copyright Office and the United States Patent and Trademark
Office, as applicable, fully perfected first priority security interests in
favor of the Administrative Agent on such Grantor’s Patents, Trademarks and
Copyrights, such perfected security interests are enforceable as such as against
any and all creditors of and purchasers from such Grantor; and all action
necessary or desirable to protect and perfect the Administrative Agent’s Lien on
such Grantor’s Patents, Trademarks or Copyrights shall have been duly taken.

3.11       Filing Requirements.  None of its Equipment is covered by any
certificate of title, except for the vehicles described in Part I of Exhibit E.
None of the Collateral owned by it is of a type for which security interests or
liens may be perfected by filing under any federal statute except for (a) the
vehicles described in Part II of Exhibit E and (b) Patents, Trademarks and
Copyrights held by such Grantor and described in Exhibit D.

3.12       No Financing Statements, Security Agreements.  No financing statement
or security agreement describing all or any portion of the Collateral which has
not lapsed or been terminated (by a filing authorized by

 

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the secured party in respect thereof) naming such Grantor as debtor has been
filed or is of record in any jurisdiction except for financing statements or
security agreements (a) naming the Administrative Agent on behalf of the Secured
Parties as the secured party and (b) in respect to other Liens permitted under
Section 6.02 of the Credit Agreement.

3.13      Pledged Collateral.

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

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

(c)        Except as set forth in Exhibit F, such Grantor owns 100% of the
issued and outstanding Equity Interests which constitute Pledged Collateral
owned by it and none of the Pledged Collateral which represents Indebtedness
owed to such Grantor is subordinated in right of payment to other Indebtedness
or subject to the terms of an indenture.

ARTICLE IV

COVENANTS

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

 

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4.1.       General.

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

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

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

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

(e)        Liens.  Such Grantor will not create, incur, or suffer to exist any
Lien on the Collateral except (i) the security interest created by this Security
Agreement, and (ii) other Liens permitted under Section 6.02 of the Credit
Agreement.

(f)        Other Financing Statements.  Such Grantor will not authorize the
filing of any financing statement naming it as debtor covering all or any
portion of the Collateral owned by it, except for financing statements
(i) naming the Administrative Agent on behalf of the Secured Parties as the
secured party, and (ii) in respect to other Liens permitted under Section 6.02
of the Credit Agreement. Such Grantor acknowledges that it is not authorized to
file any financing statement or amendment or termination statement with respect
to any financing statement naming any of the Secured Parties as secured party
without the prior written consent of the Administrative Agent, subject to such
Grantor’s rights under Section 9-509(d)(2) of the UCC.

(g)        Locations.  Such Grantor will not (i) maintain any Collateral owned
by it at any location other than those locations listed on Exhibit A or
disclosed to Administrative Agent pursuant to clause (ii) of this Section,
(ii) otherwise change, or add to, such locations without the Administrative
Agent’s prior written consent as required by the Credit Agreement, such consent
not to be unreasonably withheld or delayed (and if the Administrative Agent
gives such consent, such Grantor will concurrently therewith obtain a Collateral
Access Agreement for each such location to the extent required by the Credit
Agreement), or (iii) change its principal place of business or chief executive
office from the location identified on Exhibit A, other than as permitted by the
Credit Agreement.

 

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

4.2.       Receivables.

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

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

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

(d)        Disclosure of Counterclaims on Receivables.   If (i) any material
discount, credit or agreement to make a rebate or to otherwise reduce the amount
owing on any material Receivable owned by such Grantor exists or (ii) if, to the
knowledge of such Grantor, any material dispute, setoff, claim, counterclaim or
defense exists or has been asserted or threatened with respect to any such
material Receivable, such Grantor will promptly disclose such fact to the
Administrative Agent in writing. Such Grantor shall report each credit
memorandum and each of the facts required to be disclosed to the Administrative
Agent in accordance with this Section 4.2(d) on a Collateral Report submitted by
it to the Administrative Agent concurrently with the certificate to be delivered
to the Administrative Agent pursuant to Section 5.01(d) of the Credit Agreement.

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

4.3.       Inventory and Equipment.

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

(b)        Returned Inventory.  In the event any Account Debtor returns
Inventory to such Grantor when an Event of Default exists, such Grantor, upon
the request of the Administrative Agent, shall: (i) hold the returned Inventory
in trust for the Administrative Agent; (ii) segregate all returned Inventory
from all of its other property; (iii) dispose of the returned Inventory solely
according to the Administrative Agent’s written instructions; and (iv) not issue
any credits or allowances with respect thereto without the Administrative
Agent’s prior written consent. All returned Inventory shall be subject to the
Administrative Agent’s Liens thereon.

 

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(c)        Inventory Count; Perpetual Inventory System.   Such Grantor will
conduct a physical count of its Inventory at least once per fiscal year, and
after and during the continuation of an Event of Default, at such other times as
the Administrative Agent requests. Such Grantor, at its own expense, shall
deliver to the Administrative Agent the results of each physical verification,
which such Grantor has made, or has caused any other Person to make on its
behalf, of all or any portion of its Inventory. Such Grantor will maintain a
perpetual inventory reporting system at all times.

(d)        Equipment.   Such Grantor shall not permit any Equipment to become a
fixture with respect to real property or to become an accession with respect to
other personal property with respect to which real or personal property the
Administrative Agent does not have a Lien. Such Grantor will not, without the
Administrative Agent’s prior written consent, alter or remove any identifying
symbol or number on any of such Grantor’s Equipment constituting Collateral.

(e)        Titled Vehicles.    Such Grantor will give the Administrative Agent
notice of its acquisition of any vehicle covered by a certificate of title and
deliver to the Administrative Agent, upon request, the original of any vehicle
title certificate and provide and/or file all other documents or instruments
necessary to have the Lien of the Administrative Agent noted on any such
certificate or with the appropriate state office.

4.4.       Delivery of Instruments, Securities, Chattel Paper and Documents.   
Such Grantor will (a) deliver to the Administrative Agent immediately upon
execution of this Security Agreement the originals of all Chattel Paper,
Securities and Instruments constituting Collateral owned by it (if any then
exist), (b) hold in trust for the Administrative Agent upon receipt and
immediately thereafter deliver to the Administrative Agent any Chattel Paper,
Securities and Instruments constituting Collateral, (c) upon the Administrative
Agent’s request, deliver to the Administrative Agent (and thereafter hold in
trust for the Administrative Agent upon receipt and immediately deliver to the
Administrative Agent) any Document evidencing or constituting Collateral.

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

4.6.       Pledged Collateral.

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

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

 

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

(d)        Exercise of Rights in Pledged Collateral.

(i)       Without in any way limiting the foregoing and subject to clause
(ii) below, such Grantor shall have the right to exercise all voting rights or
other rights relating to the Pledged Collateral owned by it for all purposes not
inconsistent with this Security Agreement, the Credit Agreement or any other
Loan Document; provided however, that no vote or other right shall be exercised
or action taken which would have the effect of impairing the rights of the
Administrative Agent in respect of such Pledged Collateral.

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

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

(iv)     All Excluded Payments and all other distributions in respect of any of
the Pledged Collateral owned by such Grantor, whenever paid or made, shall be
delivered to the Administrative Agent to hold as Pledged Collateral and shall,
if received by such Grantor, be received in trust for the benefit of the
Administrative Agent, be segregated from the other property or funds of such
Grantor, and be forthwith delivered to the Administrative Agent as Pledged
Collateral in the same form as so received (with any necessary endorsement).

4.7.       Intellectual Property.

(a)        Such Grantor will use its best efforts to secure all consents and
approvals necessary or appropriate for the assignment to or benefit of the
Administrative Agent of any License held by such Grantor and to enforce the
security interests granted hereunder.

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

 

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(c)        In the event that any Grantor, either directly or through any agent,
employee, licensee or designee, shall file an application for the registration
of any Patent, Trademark or Copyright with the United States Patent and
Trademark Office, the United States Copyright Office or any similar office or
agency, such Grantor shall (i) provide prompt written notice to the
Administrative Agent regarding such filing and (ii) execute and deliver any and
all security agreements as the Administrative Agent may request to evidence the
Administrative Agent’s first priority security interest on such Patent,
Trademark or Copyright, and the General Intangibles of such Grantor relating
thereto or represented thereby.

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

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

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

4.9.       Letter-of-Credit Rights.  If such Grantor is or becomes the
beneficiary of a letter of credit, it shall promptly, and in any event within
two (2) Business Days after becoming a beneficiary, notify the Administrative
Agent thereof and cause the issuer and/or confirmation bank to (i) consent to
the assignment of any Letter-of-Credit Rights to the Administrative Agent and
(ii) agree to direct all payments thereunder to a Deposit Account at the
Administrative Agent or subject to a Deposit Account Control Agreement for
application to the Secured Obligations, in accordance with Section 2.18 of the
Credit Agreement, all in form and substance reasonably satisfactory to the
Administrative Agent.

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

4.11.     No Interference.  Such Grantor agrees that it will not interfere with
any right, power and remedy of the Administrative Agent provided for in this
Security Agreement or now or hereafter existing at law or in equity or by
statute or otherwise, or the exercise or beginning of the exercise by the
Administrative Agent of any one or more of such rights, powers or remedies.

4.12.     Insurance.  (a)    All insurance policies required hereunder and under
Section 5.10 of the Credit Agreement shall name the Administrative Agent (for
the benefit of the Administrative Agent and the Secured Parties) as an
additional insured or as lender’s loss payee, as applicable, and shall contain
lender loss payable clauses or mortgagee clauses, through endorsements in form
and substance satisfactory to the Administrative Agent, which provide that:
(i) all proceeds thereunder with respect to any Collateral shall be payable to
the Administrative Agent; (ii) no such insurance shall be affected by any act or
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the property described in such policy; and (iii) such policy and lender loss
payable or mortgagee clauses may be canceled, amended, or terminated only upon
at least thirty (30) days prior written notice given to the Administrative
Agent.

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

4.13.     Collateral Access Agreements.    Such Grantor shall use commercially
reasonable efforts to obtain a Collateral Access Agreement from the lessor of
each leased property, mortgagee of owned property or bailee or consignee with
respect to any warehouse, processor or converter facility or other location
where Collateral is stored or located, which agreement or letter shall provide
access rights, contain a waiver or subordination of all Liens or claims that the
landlord, mortgagee, bailee or consignee may assert against the Collateral at
that location, and shall otherwise be reasonably satisfactory in form and
substance to the Administrative Agent.

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

4.15.     Change of Name or Location; Change of Fiscal Year.  Such Grantor shall
not (a) change its name as it appears in official filings in the state of its
incorporation or organization, (b) change its chief executive office, principal
place of business, mailing address, corporate offices or warehouses or locations
at which Collateral is held or stored, or the location of its records concerning
the Collateral as set forth in this Security Agreement, (c) change the type of
entity that it is, (d) change its organization identification number, if any,
issued by its state of incorporation or other organization, or (e) change its
state of incorporation or organization, in each case, unless the Administrative
Agent shall have received at least thirty (30) days prior written notice of such
change and the Administrative Agent shall have acknowledged in writing that
either (1) such change will not adversely affect the validity, perfection or
priority of the Administrative Agent’s security interest in the Collateral, or
(2) any reasonable action requested by the Administrative Agent in connection
therewith has been completed or taken (including any action to continue the
perfection of any Liens in favor of the Administrative Agent, on behalf of the
Secured Parties, in any Collateral), provided that, any new location shall be in
the continental U.S. Such Grantor shall not change its fiscal year which
currently ends on March 31.

ARTICLE V

EVENTS OF DEFAULT AND REMEDIES

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

(a)        The occurrence of any “Event of Default” as defined in the Credit
Agreement.

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

 

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5.2.  Remedies.

(a)        Upon the occurrence of an Event of Default, the Administrative Agent
may, with the concurrence or at the direction of the Required Lenders, exercise
any or all of the following rights and remedies:

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

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

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

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

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

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

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

(d)        Until the Administrative Agent is able to effect a sale, lease, or
other disposition of Collateral, the Administrative Agent shall have the right
to hold or use Collateral, or any part thereof, to the extent that it deems
appropriate for the purpose of preserving Collateral or its value or for any
other purpose deemed appropriate by the Administrative Agent. The Administrative
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 Administrative Agent’s
remedies (for the benefit of the Administrative Agent and the other Secured
Parties), with respect to such appointment without prior notice or hearing as to
such appointment.

 

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(e)        If, after the Credit Agreement has terminated by its terms and all of
the Obligations have been paid in full, there remain Swap Agreement Obligations
outstanding, the Required Lenders may exercise the remedies provided in this
Section 5.2 upon the occurrence of any event which would allow or require the
termination or acceleration of any Swap Agreement Obligations pursuant to the
terms of the Swap Agreement.

(f)        Notwithstanding the foregoing, neither the Administrative Agent nor
any other Secured Party shall be required to (i) make any demand upon, or pursue
or exhaust any of its rights or remedies against, any Grantor, any other
obligor, guarantor, pledgor or any other Person with respect to the payment of
the Secured Obligations or to pursue or exhaust any of its rights or remedies
with respect to any Collateral therefor or any direct or indirect guarantee
thereof, (ii) marshal the Collateral or any guarantee of the Secured Obligations
or to resort to the Collateral or any such guarantee in any particular order, or
(iii) effect a public sale of any Collateral.

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

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

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

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

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

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

(e)        at its own expense, cause the independent certified public
accountants then engaged by each Grantor to prepare and deliver to the
Administrative Agent and each Lender, at any time, and from time to

 

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time, promptly upon the Administrative Agent’s request, the following reports
with respect to the applicable Grantor: (i) a reconciliation of all Accounts;
(ii) an aging of all Accounts; (iii) trial balances; and (iv) a test
verification of such Accounts.

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

ARTICLE VI

ACCOUNT VERIFICATION; ATTORNEY IN FACT; PROXY

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

6.2.       Authorization for Administrative Agent to Take Certain Action.

(a)        Each Grantor irrevocably authorizes the Administrative Agent at any
time and from time to time in the sole discretion of the Administrative Agent
and appoints the Administrative Agent as its attorney-in-fact (A)(i) to endorse
and collect any cash proceeds of the Collateral, (ii) to file any financing
statement with respect to the Collateral and to file any other financing
statement or amendment of a financing statement (which does not add new
collateral or add a debtor) in such offices as the Administrative Agent in its
sole discretion deems necessary or desirable to perfect and to maintain the
perfection and priority of the Administrative Agent’s security interest in the
Collateral, (iii) to contact and enter into one or more agreements with the
issuers of uncertificated securities which are Pledged Collateral or with
securities intermediaries holding Pledged Collateral as may be necessary or
advisable to give the Administrative Agent Control over such Pledged Collateral,
(iv) to discharge past due taxes, assessments, charges, fees or Liens on the
Collateral (except for such Liens that are permitted under Section 6.02 of the
Credit Agreement), and (v) to do all other acts and things necessary to carry
out this Security Agreement; and (B) after the occurrence and during the
continuance of an Event of Default, (i) to contact Account Debtors for any
reason, (ii) to demand payment or enforce payment of the Receivables in the name
of the Administrative Agent or such Grantor and to endorse any and all checks,
drafts, and other instruments for the payment of money relating to the
Receivables, (iii) to sign such Grantor’s name on any invoice or bill of lading
relating to the Receivables, drafts against any Account Debtor of the Grantor,
assignments and verifications of Receivables, (iv) to exercise all of such
Grantor’s rights and remedies with respect to the collection of the Receivables
and any other Collateral, (v) to settle, adjust, compromise, extend or renew the
Receivables, (vi) to settle, adjust or compromise any legal proceedings brought
to collect Receivables, (vii) to prepare, file and sign such Grantor’s name on a
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bankruptcy or similar document against any Account Debtor of such Grantor,
(viii) to prepare, file and sign such Grantor’s name on any notice of Lien,
assignment or satisfaction of Lien or similar document in connection with the
Receivables, and (ix) to change the address for delivery of mail addressed to
such Grantor to such address as the Administrative Agent may designate and to
receive, open and dispose of all mail addressed to such Grantor; and such
Grantor agrees to reimburse the Administrative Agent on demand for any payment
made or any expense incurred by the Administrative Agent in connection with any
of the foregoing; provided that, this authorization shall not relieve such
Grantor of any of its obligations under this Security Agreement or under the
Credit Agreement.

(b)        All acts of said attorney or designee are hereby ratified and
approved. The powers conferred on the Administrative Agent, for the benefit of
the Administrative Agent and Secured Parties, under this Section 6.2 are solely
to protect the Administrative Agent’s interests in the Collateral and shall not
impose any duty upon the Administrative Agent or any other Secured Party to
exercise any such powers. The Administrative Agent agrees that, except for the
powers granted in Section 6.2(a)(i)-(iv) and Section 6.2(a)(xiv), it shall not
exercise any power or authority granted to it unless an Event of Default has
occurred and is continuing.

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

6.4.       Nature of Appointment; Limitation of Duty.    THE APPOINTMENT OF THE
ADMINISTRATIVE AGENT AS PROXY AND ATTORNEY-IN-FACT IN THIS ARTICLE VI IS COUPLED
WITH AN INTEREST AND SHALL BE IRREVOCABLE UNTIL THE DATE ON WHICH THIS SECURITY
AGREEMENT IS TERMINATED IN ACCORDANCE WITH SECTION 7.14. NOTWITHSTANDING
ANYTHING CONTAINED HEREIN, NONE OF THE ADMINISTRATIVE AGENT, ANY LENDER, ANY
OTHER SECURED PARTY, ANY OF THEIR RESPECTIVE AFFILIATES, OR ANY OF THEIR OR
THEIR AFFILIATES’ RESPECTIVE OFFICERS, DIRECTORS, EMPLOYEES, AGENTS OR
REPRESENTATIVES SHALL HAVE ANY DUTY TO EXERCISE ANY RIGHT OR POWER GRANTED
HEREUNDER OR OTHERWISE OR TO PRESERVE THE SAME AND SHALL NOT BE LIABLE FOR ANY
FAILURE TO DO SO OR FOR ANY DELAY IN DOING SO, EXCEPT IN RESPECT OF DAMAGES
ATTRIBUTABLE SOLELY TO SUCH PARTY’S OWN GROSS NEGLIGENCE OR WILLFUL MISCONDUCT
AS FINALLY DETERMINED BY A COURT OF COMPETENT JURISDICTION; PROVIDED THAT, IN NO
EVENT SHALL THEY BE LIABLE FOR ANY PUNITIVE, EXEMPLARY, INDIRECT OR
CONSEQUENTIAL DAMAGES.

ARTICLE VII

GENERAL PROVISIONS

7.1       Waivers.  Each Grantor hereby waives notice of the time and place of
any public sale or the time after which any private sale or other disposition of
all or any part of the Collateral may be made. To the

 

17

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

7.2.      Limitation on Administrative Agent’s and Secured Parties’ Duty with
Respect to the Collateral. The Administrative Agent shall have no obligation to
clean-up or otherwise prepare the Collateral for sale. The Administrative Agent
and each other Secured Party shall use reasonable care with respect to the
Collateral in its possession or under its control. Neither the Administrative
Agent nor any other Secured Party shall have any other duty as to any Collateral
in its possession or control or in the possession or control of any agent or
nominee of the Administrative Agent or such other Secured Party, or any income
thereon or as to the preservation of rights against prior parties or any other
rights pertaining thereto. To the extent that applicable law imposes duties on
the Administrative Agent to exercise remedies in a commercially reasonable
manner, each Grantor acknowledges and agrees that it is commercially reasonable
for the Administrative Agent (i) to fail to incur expenses deemed significant by
the Administrative Agent to prepare Collateral for disposition or otherwise to
transform raw material or work in process into finished goods or other finished
products for disposition, (ii) to fail to obtain third party consents for access
to Collateral to be disposed of, or to obtain or, if not required by other law,
to fail to obtain governmental or third party consents for the collection or
disposition of Collateral to be collected or disposed of, (iii) to fail to
exercise collection remedies against Account Debtors or other Persons obligated
on Collateral or to remove Liens on or any adverse claims against Collateral,
(iv) to exercise collection remedies against Account Debtors and other Persons
obligated on Collateral directly or through the use of collection agencies and
other collection specialists, (v) to advertise dispositions of Collateral
through publications or media of general circulation, whether or not the
Collateral is of a specialized nature, (vi) to contact other Persons, whether or
not in the same business as such Grantor, for expressions of interest in
acquiring all or any portion of such Collateral, (vii) to hire one or more
professional auctioneers to assist in the disposition of Collateral, whether or
not the Collateral is of a specialized nature, (viii) to dispose of Collateral
by utilizing internet sites that provide for the auction of assets of the types
included in the Collateral or that have the reasonable capacity of doing so, or
that match buyers and sellers of assets, (ix) to dispose of assets in wholesale
rather than retail markets, (x) to disclaim disposition warranties, such as
title, possession or quiet enjoyment, (xi) to purchase insurance or credit
enhancements to insure the Administrative Agent against risks of loss,
collection or disposition of Collateral or to provide to the Administrative
Agent a guaranteed return from the collection or disposition of Collateral, or
(xii) to the extent deemed appropriate by the Administrative Agent, to obtain
the services of other brokers, investment bankers, consultants and other
professionals to assist the Administrative Agent in the collection or
disposition of any of the Collateral. The Grantor acknowledges that the purpose
of this Section 7.2 is to provide non-exhaustive indications of what actions or
omissions by the Administrative Agent would be commercially reasonable in the
Administrative Agent’s exercise of remedies against the Collateral and that
other actions or omissions by the Administrative Agent shall not be deemed
commercially unreasonable solely on account of not being indicated in this
Section 7.2. Without limitation upon the foregoing, nothing contained in this
Section 7.2 shall be construed to grant any rights to the Grantor or to impose
any duties on the Administrative Agent that would not have been granted or
imposed by this Security Agreement or by applicable law in the absence of this
Section 7.2.

 

18

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

7.4.      Secured Party Performance of Debtor Obligations.  Without having any
obligation to do so, the Administrative Agent may perform or pay any obligation
which any Grantor has agreed to perform or pay in this Security Agreement and
the Grantors shall reimburse the Administrative Agent for any amounts paid by
the Administrative Agent pursuant to this Section 7.4. The Grantors’ obligation
to reimburse the Administrative Agent pursuant to the preceding sentence shall
be a Secured Obligation payable on demand.

7.5       Specific Performance of Certain Covenants.  Each Grantor acknowledges
and agrees that a breach of any of the covenants contained in Sections 4.1(d),
4.1(e), 4.4, 4.5, 4.6, 4.7, 4.8, 4.9, 4.10, 4.12, 4.13, 4.14, 4.15, 5.3, or 7.7
will cause irreparable injury to the Administrative Agent and the other Secured
Parties, that the Administrative Agent and the other Secured Parties have no
adequate remedy at law in respect of such breaches and therefore agrees, without
limiting the right of the Administrative Agent or the other Secured Parties to
seek and obtain specific performance of other obligations of the Grantors
contained in this Security Agreement, that the covenants of the Grantors
contained in the Sections referred to in this Section 7.5 shall be specifically
enforceable against the Grantors.

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

7.7.      No Waiver; Amendments; Cumulative Remedies.  No failure or delay by
the Administrative Agent or any other Secured Party in exercising any right or
power under this Security Agreement shall operate as a waiver thereof, nor shall
any single or partial exercise of any such right or power, or any abandonment or
discontinuance of steps to enforce such a right or power, preclude any other or
further exercise thereof or the exercise of any other right or power. The rights
and remedies of the Administrative Agent and the other Secured Parties hereunder
are cumulative and are not exclusive of any rights or remedies that they would
otherwise have. No waiver of any provision of this Security Agreement or consent
to any departure by the Grantor therefrom shall in any event be effective unless
in writing signed by the Administrative Agent with the concurrence or at the
direction of the Lenders required under Section 9.02 of the Credit Agreement and
then only to the extent in such writing specifically set forth.

7.8.      Limitation by Law; Severability of Provisions.  All rights, remedies
and powers provided in this Security Agreement may be exercised only to the
extent that the exercise thereof does not violate any applicable provision of
law, and all the provisions of this Security Agreement are intended to be
subject to all applicable mandatory provisions of law that may be controlling
and to be limited to the extent necessary so that they shall not render this
Security Agreement invalid, unenforceable or not entitled to be recorded or
registered, in whole or in part. Any provision in this Security Agreement held
to be invalid, illegal or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such invalidity, illegality or
unenforceability without affecting the validity, legality and enforceability of
the remaining provisions thereof; and the invalidity of a particular provision
in a particular jurisdiction shall not invalidate such provision in any other
jurisdiction, and to this end the provisions of this Security Agreement are
declared to be severable.

 

19

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

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

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

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

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

7.14.    Termination.  This Security Agreement shall continue in effect
(notwithstanding the fact that from time to time there may be no Secured
Obligations outstanding) until (i) the Credit Agreement has terminated pursuant
to its express terms and (ii) all of the Secured Obligations have been paid and
performed in full (or with respect to any outstanding Letters of Credit, a cash
deposit has been delivered to the Administrative Agent as required by the Credit
Agreement) and no commitments of the Administrative Agent or the Lenders which
would give rise to any Secured Obligations are outstanding.

7.15.    Entire Agreement.  This Security Agreement and the other Loan Documents
embody the entire agreement and understanding between the Grantors and the
Administrative Agent relating to the Collateral and supersedes all prior
agreements and understandings between the Grantors and the Administrative Agent
relating to the Collateral.

 

20

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

7.17.    CONSENT TO JURISDICTION.      EACH GRANTOR HEREBY IRREVOCABLY SUBMITS,
FOR ITSELF AND ITS PROPERTY, TO THE EXCLUSIVE JURISDICTION OF ANY U.S. FEDERAL
OR NEW YORK STATE COURT SITTING IN NEW YORK, NEW YORK IN ANY ACTION OR
PROCEEDING ARISING OUT OF OR RELATING TO THIS SECURITY AGREEMENT OR ANY OTHER
LOAN DOCUMENT OR FOR RECOGNITION OR ENFORCEMENT OF ANY JUDGMENT, AND EACH
GRANTOR HEREBY IRREVOCABLY AND UNCONDITIONALLY AGREES THAT ALL CLAIMS IN RESPECT
OF SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH COURT AND
IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO THE FULLEST EXTENT IT MAY LEGALLY AND
EFFECTIVELY DO SO, ANY OBJECTION IT MAY NOW OR HEREAFTER HAVE AS TO THE VENUE OF
ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN SUCH A COURT OR THAT SUCH COURT
IS AN INCONVENIENT FORUM. EACH OF THE PARTIES HERETO AGREES THAT A FINAL
JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE
ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER
PROVIDED BY LAW. NOTHING HEREIN SHALL AFFECT THE RIGHT OF THE ADMINISTRATIVE
AGENT OR ANY LENDER TO BRING PROCEEDINGS AGAINST ANY GRANTOR IN THE COURTS OF
ANY OTHER JURISDICTION. ANY JUDICIAL PROCEEDING BY ANY GRANTOR AGAINST THE
ADMINISTRATIVE AGENT OR ANY LENDER OR ANY AFFILIATE OF THE ADMINISTRATIVE AGENT
OR ANY LENDER INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER IN ANY WAY ARISING
OUT OF, RELATED TO, OR CONNECTED WITH THIS SECURITY AGREEMENT OR ANY OTHER LOAN
DOCUMENT SHALL BE BROUGHT ONLY IN A COURT IN NEW YORK, NEW YORK.

7.18.    WAIVER OF JURY TRIAL.  EACH PARTY HERETO HEREBY 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, ANY OTHER LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATED
HEREBY OR THEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH
PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE OR OTHER AGENT (INCLUDING ANY
ATTORNEY) OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH
OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING
WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN
INDUCED TO ENTER INTO THIS SECURITY AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL
WAIVERS AND CERTIFICATIONS IN THIS SECTION.

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

 

21

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

 

            7.21  

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

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

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

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

(d)        the insolvency of any Person; or

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

 

            7.22  

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

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

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

ARTICLE VIII

NOTICES

8.1.       Sending Notices.  Any notice required or permitted to be given under
this Security Agreement shall be sent in accordance with Section 9.01 of the
Credit Agreement.

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

 

22

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ARTICLE IX

THE ADMINISTRATIVE AGENT

JPMorgan Chase Bank, N.A. has been appointed Administrative Agent for the
Lenders hereunder pursuant to Article VIII of the Credit Agreement. It is
expressly understood and agreed by the parties to this Security Agreement that
any authority conferred upon the Administrative Agent hereunder is subject to
the terms of the delegation of authority made by the Lenders to the
Administrative Agent pursuant to Article VIII of the Credit Agreement, and that
the Administrative Agent has agreed to act (and any successor Administrative
Agent shall act) as such hereunder only on the express conditions contained in
such Article VIII. Any successor Administrative Agent appointed pursuant to
Article VIII of the Credit Agreement shall be entitled to all the rights,
interests and benefits of the Administrative Agent hereunder.

[Signature Page Follows]

 

23

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

 

  

GRANTORS:

  

GRAHAM CORPORATION

  

By: /s/  Jeffrey Glajch

  

Name: Jeffrey Glajch

  

Title: Chief Financial Officer

  

ENERGY STEEL & SUPPLY CO.

  

By: /s/  Jeffrey Glajch

  

Name: Jeffrey Glajch

  

Title: Chief Financial Officer

  

ADMINISTRATIVE AGENT:

  

JPMORGAN CHASE BANK, N.A.,

  

By: /s/  Philip M. Hendrix

  

Name: Philip M. Hendrix

  

Title: Vice-President & Authorized Officer

 

24

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EXHIBIT A

(See Sections 3.2, 3.3, 3.4, 3.9 and 8.1 of Security Agreement)

 

  

 NOTICE ADDRESS FOR ALL GRANTORS

  

GRAHAM CORPORATION.

  

20 Florence Avenue

  

Batavia, New York 14020

  

Attention: Jeffrey Glajch

  

Fax No: (585) 815-2003

INFORMATION AND COLLATERAL LOCATIONS OF GRAHAM CORPORATION

 

I.

Name of Grantor: Graham Corporation

 

II.

State of Incorporation or Organization: Delaware

 

III.

Type of Entity: Corporation

 

IV.

Organizational Number assigned by State of Incorporation or Organization:
2004194

 

V.

Federal Identification Number: 16-1194720

 

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

 

  

GRAHAM CORPORATION.

  

20 Florence Avenue

  

Batavia, New York 14020

  

Attention: Jeffrey Glajch

  

Fax No: (585) 815-2003

 

VII.

Locations of Collateral:

 

  (a)

Properties Owned by the Grantor:

ALL ADDRESSES IN BATAVIA, NEW YORK 14020:

16-24 Florence Avenue (manufacturing facility and office property)

6 Cedar Street (manufacturing facility)

4-12 Howard Street (manufacturing facility)

9-31 Howard Street (manufacturing facility)

33-37 Howard Street (manufacturing facility)

16 Howard Street (land)

2 Howard Street (land)

3 Howard Street (land)

19 Florence Avenue (land)

6 Florence Avenue (land)

623 E. Main Street (land)

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

60 Evans Street (land)

33 Harvester Avenue (land)

113 Harvester Avenue (land)

111 Harvester Avenue (land)

119 Harvester Avenue (land)

121 Harvester Avenue (land)

114-A Harvester Avenue (land)

114-B Harvester Avenue (land)

114-C Harvester Avenue (land)

 

  (b)

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

None.

 

  (c)

Public Warehouses or other Locations pursuant to Bailment or Consignment
Arrangements

(include name of Warehouse Operator or other Bailee or Consignee):

The Borrower has a consignment arrangement with the following company, located
in the UK:

Kinder & Janes Ltd.

151 Marsland Road

Sale, Cheshire, UK M33 3WE

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

INFORMATION AND COLLATERAL LOCATIONS OF ENERGY STEEL & SUPPLY CO.

 

I. Name of Grantor: Energy Steel & Supply Co.

 

II. State of Incorporation or Organization: Michigan

 

III. Type of Entity: Corporation

 

IV. Organizational Number assigned by State of Incorporation or Organization:
256690

 

V. Federal Identification Number: 38-2451402

 

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

3123 John Conley Drive

Lapeer, MI 48446

Attention: Frank J. Helin, President

 

VII. Locations of Collateral:

 

  (a) Properties Owned by the Grantor:

None.

 

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

3123 John Conley Drive

Lapeer, Michigan 48446

 

  (c) Public Warehouses or other Locations pursuant to Bailment or Consignment
Arrangements

(include name of Warehouse Operator or other Bailee or Consignee):

None.

[NOTE: ADD ADDITIONAL INFORMATION PAGE FOR EACH GRANTOR]

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

EXHIBIT B

(See Section 3.5 of Security Agreement)

DEPOSIT ACCOUNTS

(see attached)

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

EXHIBIT C

(See Section 3.7 of Security Agreement)

LETTER-OF-CREDIT RIGHTS

None.

CHATTEL PAPER

None.

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

EXHIBIT D

(See Section 3.10 and 3.11 of Security Agreement)

INTELLECTUAL PROPERTY RIGHTS

PATENTS

 

Name of Grantor   Patent Description   Patent Number   Issue Date Graham
Corporation   Instantaneous Water Heater   7140378   11-28-2006 Graham
Corporation   Apparatus For Removing Ammonia And Carbon Dioxide Gases From A
Steam   5772709   06-30-1998

PATENT APPLICATIONS

None.

TRADEMARKS

 

Name of Grantor      Trademark  

Registration

Date

   Registration Number    Country Graham Corporation      GRAHAM   11/18/1997  
2,113,725   US Graham Corporation      LOGO [g107138ex10_3pg030a.jpg]  
12/23/1997   2,123,101   US Graham Corporation      LOGO
[g107138ex10_3pg030b.jpg]   11/20/2007   3,339,668   US Graham Corporation     
GRAHAM PRECISION PUMPS   7/7/1998   2,171,065   US Graham Corporation     

GRAHAM VACUUM AND 

HEAT TRANSFER

  7/7/1998   2,171,070   US Graham Corporation      HELIFLOW   4/8/2003  
2,704,853   US Graham Corporation      MICROMAX   6/17/2008   3,450,764   US
Graham Corporation      MICROMIX   11/18/1958   669,905   US Graham
Corporation      SEALCOOL   8/8/2000   2,375,893   US Graham Corporation     
ULTRAHEAT   10/23/2007   3,319,469   US Graham Corporation      VACADEMICS  
9/24/2002   2,626,331   US Graham Corporation      VACWORKS   11/30/1999  
2,296,884   US Graham Corporation      G Logo   10/06/2006   004596011   CTM
Graham Corporation      GRAHAM   000486845   01/16/200   CTM Graham
Corporation      GRAHAM   004586467   11/27/2006   CTM Graham Corporation     
GRAHAM & DESIGN   000486852   3/3/1997   CTM Graham Corporation     
GRAHAM ENGINEERING  ANSWERS & DESIGN (Class 07)   5288202   4/14/2006   CN
Graham Corporation      GRAHAM ENGINEERING  ANSWERS & DESIGN (Class 37)  
5288203   4/14/2006   CN Graham Corporation      GRAHAM ENGINEERING  ANSWERS &
DESIGN (Class 40)   5288204   4/14/2006   CN

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

Graham Corporation      GRAHAM ENGINEERING  ANSWERS & DESIGN (Class 42)  
5288205   4/14/2006   CN Graham Corporation      GRAHAM ENGINEERING  & DESIGN  
005290275   8/23/2007   CTM Graham Corporation      GRAHAM ENGINEERING  ANSWERS
& DESIGN   1502414   11/08/2006   IN Graham Corporation      GRAHAM ENGINEERING 
ANSWERS & DESIGN (Class 07)   992949   07/23/2007   MX Graham Corporation     
GRAHAM ENGINEERING  ANSWERS & DESIGN (Class 37)   971079   01/30/2007   MX
Graham Corporation      GRAHAM ENGINEERING  ANSWERS & DESIGN (Class 40)   971080
  01/30/2007   MX Graham Corporation      GRAHAM ENGINEERING  ANSWERS & DESIGN
(Class 42)   971081   01/30/2007   MX Graham Corporation     
GRAHAM ENGINEERING  ANSWERS & DESIGN (Class 11)   848887   04/17/2007   MX
Graham Corporation      GRAHAM VACUUM AND  HEAT TRANSFER & DESIGN (Class 07)  
5288206   04/14/2006   CN Graham Corporation      GRAHAM VACUUM AND  HEAT
TRANSFER & DESIGN (Class 37)   5288207   04/14/2006   CN Graham Corporation     
GRAHAM VACUUM AND  HEAT TRANSFER & DESIGN (Class 40)   5288208   04/14/2006   CN
Graham Corporation      GRAHAM VACUUM AND  HEAT TRANSFER & DESIGN (Class 42)  
5288209   04/14/2006   CN Graham Corporation      GVHT (Class 07)   5288210  
04/14/2006   CN Graham Corporation      GVHT (Class 37)   5288211   04/14/2006  
CN Graham Corporation      GVHT (Class 40)   5288186   04/14/2006   CN Graham
Corporation      GVHT (Class 42)   5288187   04/14/2006   CN Graham
Corporation      GVHT (Class 11)   5882574   02/01/2007   CN Graham
Corporation      HELIFLOW   736590   12/01/2003   BX Graham Corporation     
HELIFLOW   TMA169350   05/22/1970   CA Graham Corporation      HELIFLOW   977506
  07/27/1987   DE Graham Corporation      HELIFLOW   226805   01/08/2003   IE
Graham Corporation      HELIFLOW   2320120   01/08/2003   UK Graham
Corporation      MICROMAX   TMA631,364   01/27/2005   CA Graham Corporation     
MICROMIX   TMA169351   05/22/1970   CA

TRADEMARK APPLICATIONS

None.

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

COPYRIGHTS

 

Name of Grantor    Copyright   Registration Date   Registration Number Energy
Steel & Supply Co.    The Duke of Nuke   1-9-1989   VA0000363219               

COPYRIGHT APPLICATIONS

None.

INTELLECTUAL PROPERTY LICENSES

None.

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

EXHIBIT E

(See Section 3.11 of Security Agreement)

TITLE DOCUMENTS

I. Vehicles subject to certificates of title:

 

Name of Grantor   Description   Title Number   State Where Issued Graham
Corporation   Chevrolet 2500   1GCHC24K68E123351   New York Graham Corporation  
Chevrolet Silverado   1GCNCPEX1CZ209484   New York Energy Steel & Supply Co.  
Chevrolet Silverado   1GCHK24U86E126950   Michigan Energy Steel & Supply Co.  
Ford F700   1FDNF70J6SVA82906   Michigan Energy Steel & Supply Co.   Ford Super
Duty   1FDXE45S01HA47853   Michigan Energy Steel & Supply Co.   Dodge Pickup  
1B7HF16Z7TS584662   Michigan

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

None.

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

EXHIBIT F

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

LIST OF PLEDGED COLLATERAL, SECURITIES AND OTHER INVESTMENT PROPERTY

STOCKS

 

Name of Grantor    Issuer        Certificate    
Number(s)          Number of      
Shares    Class of Stock         Percentage of   
Outstanding
Shares Graham Corporation    Energy Steel & Supply Co.    9    9,000    Common
   100% Graham Corporation    Graham Vacuum and Heat Transfer and Technology
(Suzhou) Co., Ltd.                   66 2/3

BONDS

None.

GOVERNMENT SECURITIES

None.

OTHER SECURITIES OR OTHER INVESTMENT PROPERTY

(CERTIFICATED AND UNCERTIFICATED)

None.

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

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

EXHIBIT G

(See Section 3.1 of Security Agreement)

OFFICES IN WHICH FINANCING STATEMENTS HAVE BEEN FILED

Graham Corporation: Secretary of State of Delaware

Energy Steel & Supply Co.: Secretary of State of Michigan

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

EXHIBIT H

(See Definition of “Commercial Tort Claim”)

COMMERCIAL TORT CLAIMS

{NOTE: SPECIFICALLY DESCRIBE THE CLAIM (I.E. PARTIES, DESCRIPTION OF THE
DISPUTE, CASE NUMBER – IF AVAILABLE) - SEE OFFICIAL COMMENT 5 TO SECTION 9-108
OF THE UCC}.

None.

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

EXHIBIT I

(See Section 4.8 of Security Agreement)

AMENDMENT

 

This Amendment, dated                                 ,        is delivered
pursuant to Section 4.8 of the Security Agreement referred to below. All defined
terms herein shall have the meanings ascribed thereto or incorporated by
reference in the Security Agreement. The undersigned hereby certifies that the
representations and warranties in Article III of the Security Agreement are and
continue to be true and correct. The undersigned further agrees that this
Amendment may be attached to that certain Pledge and Security Agreement, dated
December 2, 2015, by and among the undersigned, as the Grantors, and JPMorgan
Chase Bank, N.A., as the Administrative Agent, (as amended, restated,
supplemented or otherwise modified from time to time prior to the date hereof,
the “Security Agreement”) and that the Collateral listed on Schedule I to this
Amendment shall be and become a part of the Collateral referred to in said
Security Agreement and shall secure all Secured Obligations referred to in the
Security Agreement.

 

 

 

     By:         Name:   

 

     Title:   

 

  

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

Schedule I to Amendment to Security Agreement

COMMERCIAL TORT CLAIMS

{NOTE: SPECIFICALLY DESCRIBE THE CLAIM (I.E. PARTIES, DESCRIPTION OF THE
DISPUTE, CASE NUMBER – IF AVAILABLE) - SEE OFFICIAL COMMENT 5 TO SECTION 9-108
OF THE UCC}.

 

Name of Grantor    Description of Claim                Parties                
Case Number; Name of Court
where Case was Filed                                  

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

ANNEX I TO PLEDGE AND SECURITY AGREEMENT

Reference is hereby made to the Pledge and Security Agreement (as amended,
restated, supplemented or otherwise modified from time to time, the “Security
Agreement”), dated as of December 2, 2015 by and among Graham Corporation, a
Delaware corporation (the “Borrower”), Energy Steel & Supply Co., a Michigan
corporation (“ESSC”), and certain other entities which become parties to the
Security Agreement from time to time, including, without limitation, those that
become party thereto by executing a Security Agreement Supplement in
substantially the form hereof (such parties, including the undersigned, together
with the Borrower and ESCC, the “Grantors”), in favor of JPMorgan Chase Bank,
N.A., as Administrative Agent (the “Administrative Agent”), for the benefit of
the Secured Parties under the Credit Agreement. Each capitalized term used
herein and not defined herein shall have the meaning given to it in the Security
Agreement.

By its execution below, the undersigned, [NAME OF NEW GRANTOR], a
[                                                     ] [corporation]
[partnership] [limited liability company] (the “New Grantor”) agrees to become,
and does hereby become, a Grantor under the Security Agreement and agrees to be
bound by such Security Agreement as if originally a party thereto. The New
Grantor hereby pledges, assigns and grants to the Administrative Agent, on
behalf of and for the ratable benefit of the Secured Parties, a security
interest in all of the New Grantor’s right, title and interest in and to the
Collateral, whether now owned or hereafter acquired, to secure the prompt and
complete payment and performance of the Secured Obligations.

By its execution below, the New Grantor represents and warrants as to itself
that all of the representations and warranties contained in the Security
Agreement are true and correct in all respects as of the date hereof. The New
Grantor represents and warrants that the supplements to the Exhibits to the
Security Agreement attached hereto are true and correct in all respects and such
supplements set forth all information required to be scheduled under the
Security Agreement. The New Grantor shall take all steps necessary to perfect,
in favor of the Administrative Agent, a first-priority security interest in and
lien against the New Grantor’s Collateral, including, without limitation,
delivering all certificated Pledged Collateral to the Administrative Agent (and
other Collateral required to be delivered under the Security Agreement), and
taking all steps necessary to properly perfect the Administrative Agent’s
interest in any uncertificated Pledged Collateral.

IN WITNESS WHEREOF, [NAME OF NEW GRANTOR], a
[                                    ] [corporation] [partnership] [limited
liability company] has executed and delivered this Annex I counterpart to the
Security Agreement as of this                        day of
                        ,         .

 

  [NAME OF NEW GRANTOR]     By:       Name:  

 

    Title: