Exhibit 10.2

SECURITY AGREEMENT

THIS SECURITY AGREEMENT (as it may be amended or modified from time to time,
this “Security Agreement”) is entered into as of July 21, 2017 by and among
Skyline Corporation, an Indiana corporation (the “Company”), Skyline Homes,
Inc., a California corporation, Homette Corporation, an Indiana corporation,
Layton Homes Corp., and Indiana corporation, the other Loan Parties party hereto
from time to time (each of the foregoing a “Grantor”, and collectively, the
“Grantors”), and JPMorgan Chase Bank, N.A., (the “Lender”).

PRELIMINARY STATEMENT

The Company, the Loan Parties and the Lender are entering into a Credit
Agreement of even date herewith (as it may be amended, restated, supplemented or
otherwise or modified from time to time, the “Credit Agreement”). The Grantors
are entering into this Security Agreement in order to induce the Lender to enter
into and extend credit to the Borrowers under the Credit Agreement.

ACCORDINGLY, the Grantors and the Lender, 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:

“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 Lender, between the Lender and any third
party (including any bailee, consignee, customs broker, or other similar Person)
in possession of any Collateral or any landlord of any Grantor for any real
property where any Collateral is located, as such landlord waiver or other
agreement may be amended, restated, or otherwise modified from time to time.

“Collateral Report” means any certificate (including any Borrowing Base
Certificate), report or other document delivered by any Grantor to the Lender
with respect to the Collateral pursuant to any Loan Document.

“Commercial Tort Claims” means the following existing commercial tort claims of
the Grantors: none as of the Effective Date.

“Control Agreement” means an agreement, in form and substance satisfactory to
the Lender, among the Grantors, a bank, financial institution, securities
intermediary or other Person holding the Grantors’ funds or maintaining a
Deposit Account or Securities Account for the Grantors, and the Lender, with
respect to collection and control of all deposits, balances, securities and
other assets held in a Deposit Account or Securities Account maintained by any
Grantor with such bank, financial institution, securities intermediary or other
Person.

“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.

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“Event of Default” means an event described in Article VII of the Credit
Agreement.

“Lock Box Agreement” and “Lock Boxes” shall have the respective meanings set
forth in Section 7.1(a).

“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.

“Perfection Certificate” means the Perfection Certificate executed and delivered
by the Grantors to the Lender in connection herewith.

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

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

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

“UCC” means the Uniform Commercial Code, as in effect from time to time, in the
Governing State 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, Lender’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 Lender, on behalf of and
for the 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;

 

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(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 and Securities Accounts with any bank, financial
institution, securities intermediary or other Person;

 

  (xv) all Commercial Tort Claims; and

 

  (xvi) all accessions to, substitutions for and replacements, proceeds
(including all dividends and distributions), 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; provided that, notwithstanding anything herein or in the other Loan
Documents to the contrary, the term “Collateral” shall not include any life
insurance policy owned by any Grantor on the Effective Date.

ARTICLE III

REPRESENTATIONS AND WARRANTIES

Each Grantor represents and warrants to the Lender 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, 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 Lender the security interest in the Collateral pursuant hereto. This
Security Agreement 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 in Section H of the Perfection Certificate,
the Lender 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 in Section A of the Perfection
Certificate.

 

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

3.4. Collateral Locations. All of such Grantor’s locations where Collateral is
located are listed in Section A of the Perfection Certificate. All of said
locations are owned by such Grantor except for locations (i) which are leased by
such Grantor as lessee and designated in Part VII(b) of Section A of the
Perfection Certificate 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 Section A of the Perfection Certificate.

3.5. Deposit and Securities Accounts. All of such Grantor’s Deposit Accounts and
Securities Accounts are listed on in Section B of the Perfection Certificate.

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. Section C of the Perfection
Certificate 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
Lender’s Lien on each item listed in Section C of the Perfection Certificate
(including the delivery of all originals and the placement of a legend on all
Chattel Paper as required hereunder) has been duly taken. The Lender will have a
fully perfected first priority security interest in the Collateral listed in
Section C of the Perfection Certificate, subject only to Liens permitted under
Section 4.1(e).

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 Lender 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 its Accounts, except as specifically disclosed on the most
recent Collateral Report, (i) all Accounts are Eligible Accounts; (ii) 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; (iii) 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 Lender; (iv) to such Grantor’s knowledge, there are no facts, events or
occurrences which in any way impair the validity or enforceability thereof or
could reasonably be expected to reduce the amount payable thereunder as shown on
such Grantor’s books and records and any invoices, statements and Collateral
Reports with respect thereto; (v) such Grantor has not received any notice of
proceedings or actions which are threatened or pending against any Account
Debtor which might result in any adverse change in such Account Debtor’s
financial condition; and (vi) such Grantor has no knowledge that any Account
Debtor has become insolvent or is generally unable to pay its debts as they
become due.

(c) In addition, with respect to all of its Accounts, (i) the amounts shown on
all invoices, statements and Collateral Reports with respect thereto are
actually and absolutely owing to such Grantor as indicated thereon and are not
in any way contingent; (ii) no payments have been or shall be made thereon
except payments immediately delivered to a Lock Box or a Collateral Deposit
Account as required pursuant to Section 2.09 of the Credit Agreement; and
(iii) to such Grantor’s knowledge, all Account Debtors have the capacity to
contract.

 

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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 in Section A of
the Perfection Certificate, (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 Liens permitted
under Section 4.1(e), (d) except as specifically disclosed in the most recent
Collateral Report, such Inventory is Eligible Inventory 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, (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, and (g) the completion of
manufacture, sale or other disposition of such Inventory by the Lender following
an Event of Default shall not require the consent of any Person and shall not
constitute a breach or default under any contract or agreement to which such
Grantor is a party or to which such property is subject.

3.10. Intellectual Property. Such Grantor does not have any interest in, or
title to, any Patent, Trademark or Copyright except as set forth in Section D of
the Perfection Certificate. This Security Agreement is effective to create a
valid and continuing Lien and, upon filing of appropriate financing statements
in the offices listed on Section H of the Perfection Certificate and this
Security Agreement with the United States Copyright Office and the United States
Patent and Trademark Office, fully perfected first priority security interests
in favor of the Lender on such Grantor’s Patents, Trademarks and Copyrights,
which 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 Lender’s Lien on such Grantor’s Patents,
Trademarks or Copyrights shall have been duly taken.

3.11. Filing Requirements. 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 Patents, Trademarks and Copyrights held by such Grantor and
described in Section D of the Perfection Certificate. The legal description,
county and street address of each property on which any Fixtures are located is
set forth in Section F of the Perfection Certificate together with the name and
address of the record owner of each such property.

3.12. No Financing Statements, Security Agreements. No financing statement or
security agreement describing all or any portion of the Collateral which has not
lapsed or been terminated (by a filing authorized by 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 Lender as the secured party and (b) in respect to Liens permitted
under Section 4.1(e).

3.13. Pledged Collateral.

(a) Section G of the Perfection Certificate sets forth a complete and accurate
list of all Pledged Collateral owned by such Grantor. Such Grantor is the
direct, sole beneficial owner and sole holder of record of the Pledged
Collateral listed in Section G of the Perfection Certificate as being owned by
it, free and clear of any Liens, except for any Liens permitted by
Section 4.1(e). 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 Lender 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 Lender so that the Lender may take
steps to perfect its security interest therein as a General Intangible,
(iii) all Pledged Collateral held by a securities intermediary is covered by a
Control Agreement among such Grantor, the securities intermediary and the Lender
pursuant to which the Lender has Control and (iv) all Pledged Collateral which
represents Indebtedness owed to such Grantor has been duly authorized,
authenticated or issued and delivered by the issuer of such Indebtedness, is the
legal, valid and binding obligation of such issuer and such issuer is not in
default thereunder.

 

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(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 Lender 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 Section G of the Perfection Certificate, 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, each Grantor agrees that:

 

  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
Lender, such reports relating to such Collateral as the Lender shall from time
to time request.

(b) Authorization to File Financing Statements; Ratification. Such Grantor
hereby authorizes the Lender to file, and if requested will deliver to the
Lender, all financing statements and other documents and take such other actions
as may from time to time be requested by the Lender 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 Lender may be filed
in any filing office in any UCC jurisdiction and may (i) indicate such Grantor’s
Collateral (1) as all assets of such Grantor or words of similar effect,
regardless of whether any particular asset comprised in the Collateral falls
within the scope of Article 9 of the 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 Lender promptly
upon request. Such Grantor also ratifies its authorization for the Lender 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 Lender,
furnish to the Lender, as often as the Lender requests, statements and schedules
further identifying and describing the Collateral and such other reports and
information in connection with its Collateral as the Lender may reasonably
request, all in such detail as the Lender 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 Lender 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 owned by it except for dispositions specifically
permitted pursuant to Section 6.05 of the Credit Agreement.

 

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(e) Liens. Such Grantor will not create, incur, or suffer to exist any Lien on
the Collateral owned by it except (i) the security interest created by this
Security Agreement, and (ii) Liens permitted under 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 Lender as
the secured party and (ii) in respect to Liens permitted under Section 6.02 of
the Credit Agreement. Such Grantor acknowledges that it is not authorized to
file any financing statement with respect to this Security Agreement or the
Lender, or any amendment or termination thereof, without the prior written
consent of the Lender, 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 in Section A of the Perfection
Certificate, (ii) otherwise change, or add to, such locations without the
Lender’s prior written consent as required by the Credit Agreement (and if the
Lender 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 in Section A of the Perfection
Certificate, other than as permitted by the Credit Agreement.

(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.

(i) Titled Vehicles. Upon the request of the Lender, such Grantor will provide
to the Lender a list of all vehicles owned by such Grantor and covered by a
certificate of title and deliver to the Lender, upon request, the original of
any such vehicle title certificate and provide and/or file all other documents
or instruments necessary to have the Lien of the Lender noted on any such
certificate or with the appropriate state office.

(j) Control. Such Grantor shall take all steps necessary to grant the Lender
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.

4.2 Delivery of Instruments, Securities, Chattel Paper and Documents. Such
Grantor will (a) deliver to the Lender 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 Lender upon receipt and immediately thereafter deliver to the
Lender any such Chattel Paper, Securities and Instruments constituting
Collateral, (c) upon the Lender’s request, deliver to the Lender (and thereafter
hold in trust for the Lender upon receipt and immediately deliver to the Lender)
any Document evidencing or constituting Collateral and (d) promptly upon the
Lender’s request, deliver to the Lender a duly executed amendment to this
Security Agreement, in the form satisfactory to the Lender (the “Amendment”),
pursuant to which such Grantor will pledge such additional Collateral. Such
Grantor hereby authorizes the Lender to attach each Amendment to this Security
Agreement and agrees that all additional Collateral owned by it set forth in
such Amendments shall be considered to be part of the Collateral.

4.3 Uncertificated Pledged Collateral. Such Grantor will permit the Lender 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 Lender 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 such Pledged
Collateral, to cause the Lender 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 giving the Lender
Control.

 

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  4.4 Pledged Collateral.

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

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

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

(d) Exercise of Rights in Pledged Collateral. 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 Lender in respect of such Pledged Collateral.

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

(ii) 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.

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

(e) Interests in Limited Liability Companies and Limited Partnerships. Each
Grantor agrees that no ownership interests in a limited liability company or a
limited partnership which are included within the Collateral owned by such
Grantor shall at any time constitute a Security under Article 8 of the UCC of
the applicable jurisdiction.

 

  4.5 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 Lender of any
license by such Grantor of any Patent, Trademark or Copyright (and all rights
under or relating to such license) and to enforce the security interests granted
hereunder.

 

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(b) Such Grantor shall notify the Lender 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.

(c) In no event shall such Grantor, either directly or through any agent,
employee, licensee or designee, file an application for the registration of any
Patent, Trademark or Copyright with the United States Patent and Trademark
Office, the United States Copyright Office or any similar office or agency
without giving the Lender prior written notice thereof, and, upon request of the
Lender, such Grantor shall execute and deliver any and all security agreements
as the Lender may request to evidence the Lender’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 Lender 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 the Lender 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 Lender 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 4.6.

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

4.7 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 Business Days
after becoming a beneficiary, notify the Lender thereof and cause the issuer
and/or confirmation bank to (i) consent to the assignment of any
Letter-of-Credit Rights to the Lender and (ii) agree to direct all payments
thereunder to a Deposit Account at the Lender or subject to a Control Agreement
for application to the Secured Obligations, in accordance with Section 2.17 of
the Credit Agreement, all in form and substance reasonably satisfactory to the
Lender.

4.8 Federal, State or Municipal Claims. Such Grantor will promptly notify the
Lender 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.

4.9 No Interference. Such Grantor agrees that it will not interfere with any
right, power and remedy of the Lender provided for in this Security Agreement or
any other Loan Document, 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 Lender
of any one or more of such rights, powers or remedies.

 

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4.10 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. After the Closing Date, no real property
or warehouse space shall be leased by such Grantor and no Inventory shall be
shipped to a processor or converter under arrangements established after the
Closing Date, unless and until a Collateral Access Agreement shall first have
been obtained with respect to such location; provided that, the Lender may, in
its discretion, defer delivery of any such Collateral Access Agreement and
establish a Reserve with respect to any such location for which the Lender has
not received such Collateral Access Agreement. Such Grantor shall timely and
fully pay and perform its obligations under all leases and other agreements with
respect to each leased location or third party warehouse where any Collateral is
or may be located.

4.11 Control Agreements. Such Grantor will provide to the Lender promptly upon
the Lender’s request, a Control Agreement duly executed on behalf of each bank,
financial institution, securities intermediary or other Person holding such
Grantor’s funds or maintaining a Deposit Account or Securities Account for such
Grantor; provided that, the Lender may, in its discretion, defer delivery of any
such Control Agreement, establish a Reserve with respect to any Deposit Account
or Securities Account for which the Lender has not received such Control
Agreement, and require such Grantor to open and maintain a new Deposit Account
or Securities Account with a bank, financial institution, securities
intermediary or other Person subject to a Control Agreement.

4.12 Change of Name or Location. Such Grantor shall not (a) change its name as
it appears in official filings in the state of its incorporation or
organization, or (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, except as otherwise expressly permitted in this Security Agreement
or the Credit Agreement.

ARTICLE V

REMEDIES

 

  5.1 Remedies.

(a) Upon the occurrence of an Event of Default, the Lender may 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 5.1(a) shall
not be understood to limit any rights or remedies available to the Lender 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 Control
Agreement and take any action therein with respect to the Collateral subject
thereto;

(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 Lender 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

 

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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 Lender was the outright owner thereof.

(b) The Lender 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 Lender 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 Lender the whole or any part of the Collateral so sold,
free of any right of equity redemption, which equity redemption such Grantor
hereby expressly releases.

(d) Until the Lender is able to effect a sale, lease, or other disposition of
Collateral, the Lender 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 Lender. The Lender may, if it so elects, seek the appointment of a
receiver or keeper to take possession of Collateral and to enforce any of the
Lender’s remedies, with respect to such appointment without prior notice or
hearing as to such appointment.

(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 Lender may exercise the remedies provided in this Section 5.1
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, the Lender shall not be required to (i) make
any demand upon, or pursue or exhaust any of its rights or remedies against, any
Grantor, any other obligor, guarantor, pledgor or any other Person with respect
to the payment of the Secured Obligations or to pursue or exhaust any of its
rights or remedies with respect to any Collateral therefor or any direct or
indirect guarantee thereof, (ii) 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 Lender 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 Lender 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.

5.2 Grantor’s Obligations upon Default. Upon the request of the Lender after the
occurrence of a Default, each Grantor will:

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

(b) permit the Lender, by the Lender’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 such Grantor for such use and occupancy;

 

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(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 Lender may
request, all in form and substance satisfactory to the Lender, and furnish to
the Lender, or cause an issuer of Pledged Collateral to furnish to the Lender,
any information regarding the Pledged Collateral in such detail as the Lender
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 Lender 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 Lender, at any time, and
from time to time, promptly upon the Lender’s request, the following reports
with respect to 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.

5.3 Grant of Intellectual Property License. For the purpose of enabling the
Lender to exercise the rights and remedies under this Article V at such time as
the Lender shall be lawfully entitled to exercise such rights and remedies, each
Grantor hereby (a) grants to the Lender, for the benefit of itself 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
any 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 Lender may sell any of such
Grantor’s Inventory directly to any person, including without limitation persons
who have previously purchased such Grantor’s Inventory from such Grantor and in
connection with any such sale or other enforcement of such Lender’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 Lender 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 Lender may, at any time, in the Lender’s own name,
in the name of a nominee of the Lender, or in the name of any Grantor
communicate (by mail, telephone, facsimile or otherwise) with the Account
Debtors of such Grantor, parties to contracts with any such Grantor and obligors
in respect of Instruments of any such Grantor to verify with such Persons, to
the Lender’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 Lender to Take Certain Action.

(a) Each Grantor irrevocably authorizes the Lender at any time and from time to
time in the sole discretion of the Lender and appoints the Lender as its
attorney-in-fact (i) to execute on behalf of such Grantor as debtor and to file
financing statements necessary or desirable in the Lender’s sole discretion to
perfect and to maintain the perfection and priority of the Lender’s security
interest in the Collateral, (ii) to endorse and collect any cash proceeds of the
Collateral, (iii) to file a carbon, photographic or other reproduction of this
Security Agreement or any financing statement with respect to the Collateral as
a financing statement and to file any other financing statement or amendment of
a financing statement (which does not add new collateral or add a debtor) in
such offices as the Lender in its sole discretion deems necessary or desirable
to perfect and to maintain the perfection and priority of the Lender’s security
interest in the Collateral, (iv) to contact and enter into one or more
agreements with the issuers of uncertificated securities which are Pledged
Collateral or with securities intermediaries holding Pledged Collateral as may
be necessary or advisable to give the Lender Control over such Pledged
Collateral, (v) to apply the proceeds of any Collateral received by the Lender
to the Secured Obligations as provided in Section 2.09 of the Credit Agreement,
(vi) to discharge past due taxes, assessments, charges, fees or Liens on the
Collateral (except for such Liens that are Permitted Encumbrances),

 

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(vii) to contact Account Debtors for any reason, (viii) to demand payment or
enforce payment of the Receivables in the name of the Lender or such Grantor and
to endorse any and all checks, drafts, and other instruments for the payment of
money relating to the Receivables, (ix) to sign such Grantor’s name on any
invoice or bill of lading relating to the Receivables, drafts against any
Account Debtor of such Grantor, assignments and verifications of Receivables,
(x) to exercise all of such Grantor’s rights and remedies with respect to the
collection of the Receivables and any other Collateral, (xi) to settle, adjust,
compromise, extend or renew the Receivables, (xii) to settle, adjust or
compromise any legal proceedings brought to collect Receivables, (xiii) to
prepare, file and sign such Grantor’s name on a proof of claim in bankruptcy or
similar document against any Account Debtor of such Grantor, (xiv) to prepare,
file and sign such Grantor’s name on any notice of Lien, assignment or
satisfaction of Lien or similar document in connection with the Receivables,
(xv) to change the address for delivery of mail addressed to such Grantor to
such address as the Lender may designate and to receive, open and dispose of all
mail addressed to such Grantor, and (xvi) to do all other acts and things
necessary to carry out this Security Agreement; and such Grantor agrees to
reimburse the Lender on demand for any payment made or any expense incurred by
the Lender 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 Lender under this Section 6.2 are solely to protect the
Secured Parties’ interests in the Collateral and shall not impose any duty upon
the Lender to exercise any such powers. The Lender agrees that, except for the
powers granted in Section 6.2(a)(i) through (vi) and Section 6.2(a)(xvi), 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 LENDER
AS ITS PROXY AND ATTORNEY-IN-FACT (AS SET FORTH IN SECTION 6.2 ABOVE) OF SUCH
GRANTOR WITH RESPECT TO ITS PLEDGED COLLATERAL, INCLUDING THE RIGHT TO VOTE ANY
OF THE PLEDGED COLLATERAL, WITH FULL POWER OF SUBSTITUTION TO DO SO. IN ADDITION
TO THE RIGHT TO VOTE ANY OF THE PLEDGED COLLATERAL, THE APPOINTMENT OF THE
LENDER AS PROXY AND ATTORNEY-IN-FACT SHALL INCLUDE THE RIGHT TO EXERCISE ALL
OTHER RIGHTS, POWERS, PRIVILEGES AND REMEDIES TO WHICH A HOLDER OF ANY OF THE
PLEDGED COLLATERAL WOULD BE ENTITLED (INCLUDING GIVING OR WITHHOLDING WRITTEN
CONSENTS OF SHAREHOLDERS, CALLING SPECIAL MEETINGS OF SHAREHOLDERS AND VOTING AT
SUCH MEETINGS). SUCH PROXY SHALL BE EFFECTIVE, AUTOMATICALLY AND WITHOUT THE
NECESSITY OF ANY ACTION (INCLUDING ANY TRANSFER OF ANY OF THE PLEDGED COLLATERAL
ON THE RECORD BOOKS OF THE ISSUER THEREOF) BY ANY PERSON (INCLUDING THE ISSUER
OF THE PLEDGED COLLATERAL OR ANY OFFICER OR AGENT THEREOF), UPON THE OCCURRENCE
OF A DEFAULT.

6.4 Nature of Appointment; Limitation of Duty. THE APPOINTMENT OF THE LENDER AS
PROXY AND ATTORNEY-IN-FACT IN THIS ARTICLE VI IS COUPLED WITH AN INTEREST AND
SHALL BE IRREVOCABLE UNTIL THE DATE ON WHICH THIS SECURITY AGREEMENT IS
TERMINATED IN ACCORDANCE WITH SECTION 8.13. NOTWITHSTANDING ANYTHING CONTAINED
HEREIN, NEITHER THE LENDER NOR ANY OF ITS AFFILIATES, NOR ANY OF ITS OR ITS
AFFILIATES’ RESPECTIVE OFFICERS, DIRECTORS, EMPLOYEES, AGENTS OR REPRESENTATIVES
SHALL HAVE ANY DUTY TO EXERCISE ANY RIGHT OR POWER GRANTED HEREUNDER OR
OTHERWISE OR TO PRESERVE THE SAME AND SHALL NOT BE LIABLE FOR ANY FAILURE TO DO
SO OR FOR ANY DELAY IN DOING SO, EXCEPT IN RESPECT OF DAMAGES ATTRIBUTABLE
SOLELY TO ITS OWN GROSS NEGLIGENCE OR WILLFUL MISCONDUCT AS FINALLY DETERMINED
BY A COURT OF COMPETENT JURISDICTION; PROVIDED THAT, IN NO EVENT SHALL THEY BE
LIABLE FOR ANY PUNITIVE, EXEMPLARY, INDIRECT OR CONSEQUENTIAL DAMAGES.

 

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ARTICLE VII

COLLECTION AND APPLICATION OF COLLATERAL PROCEEDS; DEPOSIT ACCOUNTS

7.1 Collection of Receivables.

(a) On or before the Closing Date, each Grantor shall (a) execute and deliver to
the Lender Control Agreements for each Deposit Account maintained by such
Grantor into which all cash, checks or other similar payments relating to or
constituting payments made in respect of Receivables will be deposited (each a
“Collateral Deposit Account”), which Collateral Deposit Accounts are identified
as such on Section B of the Perfection Certificate, and (b) establish lock box
service (the “Lock Boxes”) with the bank(s) set forth in Section B of the
Perfection Certificate, which Lock Boxes shall be subject to irrevocable lockbox
agreements in the form provided by or otherwise acceptable to the Lender and
shall be accompanied by an acknowledgment by the bank where the Lock Box is
located of the Lien of the Lender granted hereunder and of irrevocable
instructions to wire all amounts collected therein to the Collection Account
(each, a “Lock Box Agreement”). After the Closing Date, each Grantor will comply
with the terms of Section 7.2.

(b) Each Grantor shall direct all of its Account Debtors to forward payments
directly to Lock Boxes subject to Lock Box Agreements. The Lender shall have
sole access to the Lock Boxes at all times and each Grantor shall take all
actions necessary to grant the Lender such sole access. At no time shall any
Grantor remove any item from a Lock Box or a Collateral Deposit Account without
the Lender’s prior written consent. If any Grantor should refuse or neglect to
notify any Account Debtor to forward payments directly to a Lock Box subject to
a Lock Box Agreement after notice from the Lender, the Lender shall,
notwithstanding the language set forth in Section 6.2(b), be entitled to make
such notification directly to such Account Debtor. If notwithstanding the
foregoing instructions, any Grantor receives any proceeds of any Receivables,
such Grantor shall receive such payments as the Lender’s trustee, and shall
immediately deposit all cash, checks or other similar payments related to or
constituting payments made in respect of Receivables received by it to a
Collateral Deposit Account.

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

7.3 Application of Other Collateral; Deficiency. The Lender shall require all
other cash proceeds of the Collateral, which are not required to be applied to
the Secured Obligations pursuant to Section 2.10 of the Credit Agreement, to be
deposited in a special non-interest bearing cash collateral account with the
Lender and held there as security for the Secured Obligations. No Grantor shall
have any control whatsoever over said cash collateral account. Any such proceeds
of the Collateral shall be applied in the order set forth in Section 2.17 of the
Credit Agreement unless a court of competent jurisdiction shall otherwise
direct. The balance, if any, after all of the Secured Obligations have been
satisfied, shall be deposited by the Lender into such Grantor’s general
operating account with the Lender. The Grantors shall remain liable, jointly and
severally, for any deficiency if the proceeds of any sale or disposition of the
Collateral are insufficient to pay all Secured Obligations, including any
attorneys’ fees and other expenses incurred by the Lender to collect such
deficiency.

ARTICLE VIII

GENERAL PROVISIONS

8.1 Waivers. Each Grantor hereby waives notice of the time and place of any
public sale or the time after which any private sale or other disposition of all
or any part of the Collateral may be made. To the extent such notice may not be
waived under applicable law, any notice made shall be deemed reasonable if sent
to the Grantors, addressed as set forth in Article IX, at least ten days prior
to (i) the date of any such public sale or (ii) the time after which any such
private sale or other disposition may be made. To the maximum extent permitted
by applicable law, each Grantor waives all claims, damages, and demands against
the Lender or any other 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 Lender 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 Lender or any
other Secured Party, any valuation, stay, appraisal, extension, moratorium,
redemption or similar

 

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laws and any and all rights or defenses it may have as a surety now or hereafter
existing which, but for this provision, might be applicable to the sale of any
Collateral made under the judgment, order or decree of any court, or privately
under the power of sale conferred by this Security Agreement, or otherwise.
Except as otherwise specifically provided herein, each Grantor hereby waives
presentment, demand, protest or any notice (to the maximum extent permitted by
applicable law) of any kind in connection with this Security Agreement or any
Collateral.

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

8.3 Compromises and Collection of Collateral. The Grantors and the Lender
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 Lender
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 Lender in its sole discretion shall
determine or abandon any Receivable, and any such action by the Lender shall be
commercially reasonable so long as the Lender acts in good faith based on
information known to it at the time it takes any such action.

8.4 Secured Party Performance of Debtor Obligations. Without having any
obligation to do so, the Lender 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 Lender for any amounts paid by the Lender pursuant to this
Section 8.4. The Grantors’ obligation to reimburse the Lender pursuant to the
preceding sentence shall be a Secured Obligation payable on demand.

 

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8.5 Specific Performance of Certain Covenants. Each Grantor acknowledges and
agrees that a breach of any of the covenants contained in Sections 4.1(d),
4.1(e), 4.2, 4.3, 4.4, 4.5, 4.6, 4.7, 4.8, 4.9, 4.11, 4.12, 5.2 or 5.3, or in
Article VII will cause irreparable injury to the Lender and the other Secured
Parties, that the Lender 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 Lender to seek and obtain specific performance of other obligations
of the Grantors contained in this Security Agreement, that the covenants of the
Grantors contained in the Sections referred to in this Section 8.5 shall be
specifically enforceable against the Grantors.

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

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

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

8.9 Reinstatement. This Security Agreement shall remain in full force and effect
and continue to be effective should any petition be filed by or against any
Grantor for liquidation or reorganization, should 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.

8.10 Benefit of Agreement. The terms and provisions of this Security Agreement
shall be binding upon and inure to the benefit of the Grantors, the Lender and
their respective successors and assigns (including all persons who become bound
as a debtor to this Security Agreement), except that no Grantor shall not 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
Lender. 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
Lender hereunder.

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

 

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

8.13 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
indefeasibly paid and performed in full (or with respect to any outstanding
Letters of Credit, a cash deposit or at the discretion of the Lender, a backup
standby Letter of Credit satisfactory to the Lender has been delivered to the
Lender as required by the Credit Agreement) other than contingent
indemnification obligations as to which no claim has been made and no
commitments of the Lender which would give rise to any Secured Obligations are
outstanding.

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

8.15 Governing Law; Jurisdiction; Consent to Service of Process. THIS SECURITY
AGREEMENT SHALL BE GOVERNED BY SECTION 8.09 OF THE CREDIT AGREEMENT.

8.16 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.

ARTICLE IX

NOTICES

9.1 Sending Notices. Any notice required or permitted to be given under this
Security Agreement shall be sent in accordance with Section 8.01 of the Credit
Agreement.

[Signature Page Follows.]

 

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

 

GRANTORS:   SKYLINE CORPORATION SKYLINE HOMES, INC. HOMETTE CORPORATION LAYTON
HOMES CORP.

By:  

/s/ Jon Pilarski

Name:   Jon Pilarski Title:   Vice President/Treasurer of each of the above, on
behalf of each of the above

 

Signature Page to Security Agreement

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LENDER: JPMORGAN CHASE BANK, N.A.

By:  

/s/ Sabina Lin

Name:   Sabina Lin Title:   Authorized Officer

 

Signature Page to Security Agreement