SECURITY AGREEMENT

This SECURITY AGREEMENT (this “Agreement”), dated as of September 30, 2008,
among Grantors listed on the signature pages hereof and those additional
entities that hereafter become parties hereto by executing the form of
Supplement attached hereto as Annex 1 (collectively, jointly and severally, the
“Grantors” and each, individually, a “Grantor”), and WELLS FARGO FOOTHILL, LLC,
in its capacity as agent for the Lender Group and the Hedge Agreement Providers
(together with its successors, the “Agent”).

W I T N E S S E T H:

WHEREAS, pursuant to that certain Credit Agreement of even date herewith (as
amended, restated, supplemented, or otherwise modified from time to time,
including all schedules thereto, the “Credit Agreement”) among Securus
Technologies, Inc., a Delaware corporation, as parent (“Parent”), the various
Subsidiaries of Parent party thereto, as co-borrowers (each a “Borrower” and
collectively, the “Borrowers”), the lenders party thereto as “Lenders”
(“Lenders”), and Agent, the Lender Group has agreed to make certain financial
accommodations available to Borrowers from time to time pursuant to the terms
and conditions thereof, and

WHEREAS, Agent has agreed to act as agent for the benefit of the Lender Group
and the Hedge Agreement Providers in connection with the transactions
contemplated by the Credit Agreement and this Agreement, and

WHEREAS, in order to induce the Lender Group to enter into the Credit Agreement
and the other Loan Documents and to induce the Lender Group to make financial
accommodations to Borrowers as provided for in the Credit Agreement, Grantors
have agreed to grant a continuing security interest in and to the Collateral in
order to secure the prompt and complete payment, observance and performance of,
among other things, the Secured Obligations, and

NOW, THEREFORE, for and in consideration of the recitals made above and other
good and valuable consideration, the receipt, sufficiency and adequacy of which
are hereby acknowledged, the parties hereto agree as follows:

1.       Defined Terms. All capitalized terms used herein (including in the
preamble and recitals hereof) without definition shall have the meanings
ascribed thereto in the Credit Agreement. The following terms have the meanings
given to them in the PPSA and terms used herein without definition that are
defined in the PPSA have the meanings given to them in the PPSA (such meanings
to be equally applicable to both the singular and plural forms of the terms
defined): “account”, “chattel paper”, “document of title”, “equipment”,
“fixture”, “goods”, “intangible”, “instrument”, “investment property”, “money”,
“inventory”, “motor vehicle” and “proceeds”. The following terms have the
meanings given to them in the STA (such meanings to be equally applicable to
both the singular and plural forms of the terms defined): “certificated
security”, “entitlement holder”, “entitlement order”, “financial asset”,
“securities account”, “securities intermediary”, “security”, “security
certificate”, “security entitlement” and “uncertificated security”. In addition
to those terms defined elsewhere in this Agreement, as used in this Agreement,
the following terms shall have the following meanings:

 

(a)

“Agent” has the meaning specified therefor in the preamble to this Agreement.

 

(b)

“Agent’s Lien” has the meaning specified therefor in the Credit Agreement.

 

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

 

(c)

“Agreement” means this Security Agreement.

(d)        “Applicable IP Office” means the Canadian Intellectual Property
Office, the Canadian Industrial Design Office or any similar office or agency
within or outside the Canada.

(e)        “Books” means books and records (including each Grantor’s Records
indicating, summarizing, or evidencing such Grantor’s assets (including the
Collateral) or liabilities, each Grantor’s Records relating to such Grantor’s
business operations or financial condition, and each Grantor’s goods or
intangibles related to such information).

(f)        “Borrower” and “Borrowers” have the respective meanings specified
therefor in the recitals to this Agreement.

 

(g)

“Cash Equivalents” has the meaning specified therefor in the Credit Agreement.

 

(h)

“Collateral” has the meaning specified therefor in Section 2.

 

(i)

“Collections” has the meaning specified therefor in the Credit Agreement.

(j)        “Contractual Obligation” means, as to any Person, any provision of
any security issued by such Person or of any agreement, undertaking, contract
indenture, mortgage, deed of trust or other instrument, document or agreement to
which such Person is a party or by which such Person or any of such Person’s
property is bound.

 

(k)

“Control Agreement” means:

(i)      with respect to any uncertificated securities included in the
Collateral, an agreement between the issuer of such uncertificated securities
and another Person whereby such issuer agrees to comply with instructions that
are originated by such Person in respect of such uncertificated securities,
without the further consent of a Grantor; and

(ii)     with respect to any securities accounts or security entitlements
included in the Collateral, an agreement between the securities intermediary and
another Person in respect of such securities accounts or security entitlements
to comply with any entitlement orders with respect to such securities accounts
or security entitlements that are originated by such Person, without the further
consent of a Grantor.

 

(l)

“Controlled Account” has the meaning specified therefor in Section 6(m).

(m)       “Controlled Account Agreements” means those certain cash management
agreements, in form and substance reasonably satisfactory to Agent, each of
which is among a Loan Party, Agent, and one of the Controlled Account Banks.

 

(n)

“Controlled Account Bank” has the meaning specified therefor in Section 6(m).

(o)        “Controlled Securities Account” means each securities account
(including all financial assets held therein and all certificates and
instruments, if any, representing or evidencing such financial assets) that is
the subject of an effective Control Agreement.

(p)        “Copyrights” means any and all copyrights and copyright
registrations, including, (i) the copyright registrations and recordings thereof
and all applications in connection therewith listed on Schedule 1 attached
hereto and made a part hereof, (ii) all reissues, continuations, extensions or
renewals thereof, (iii) all income, royalties, damages and payments now and
hereafter due or payable under and with

 

 

2

 

 

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

respect thereto, including payments under all licenses entered into in
connection therewith and damages and payments for past or future infringements
or dilutions thereof, (iv) the right to sue for past, present and future
infringements and dilutions thereof, (v) the goodwill of each Grantor’s business
symbolized by the foregoing or connected therewith, and (vi) all of each
Grantor’s rights corresponding thereto throughout the world.

(q)        “Copyright Security Agreement” means each Copyright Security
Agreement among Grantors, or any of them, and Agent, for the benefit of the
Lender Group and the Hedge Agreement Providers, in substantially the form of
Exhibit A attached hereto, pursuant to which Grantors have granted to Agent, for
the benefit of the Secured Parties, a security interest in all their respective
Copyrights.

(r)        “Credit Agreement” has the meaning specified therefor in the recitals
to this Agreement.

(s)        “Deposit Account” means a demand, savings, passbook, or similar
account maintained with a bank or other deposit taking institution.

 

(t)

“Event of Default” has the meaning specified therefor in the Credit Agreement.

(u)        “Excluded Property” means, collectively, (i) any permit or license or
any Contractual Obligation entered into by any Grantor (A) that prohibits or
requires the consent of any Person other than a Borrower or any Affiliate of a
Borrower which has not been obtained as a condition to the creation by such
Grantor of a Lien on any right, title or interest in such permit, license or
Contractual Obligation or any Stock related thereto or (B) to the extent that
any Requirement of Law applicable thereto prohibits the creation of a Lien
thereon, but only, with respect to the prohibition in (A) and (B), to the
extent, and for as long as, such prohibition is not terminated or rendered
unenforceable or otherwise deemed ineffective by the PPSA or any other
Requirement of Law, (ii) Property owned by any Grantor that is subject to a
purchase money Lien or a Capital Lease permitted under the Credit Agreement if
the Contractual Obligation pursuant to which such Lien is granted (or in the
document providing for such Capital Lease) prohibits or requires the consent of
any Person other than a Borrower or any Affiliate of a Borrower which has not
been obtained as a condition to the creation of any other Lien on such equipment
and (iii) any “intent to use” Trademark applications for which a statement of
use has not been filed (but only until such statement is filed); provided,
however, “Excluded Property” shall not include any proceeds, products,
substitutions or replacements of Excluded Property (unless such proceeds,
products, substitutions or replacements would otherwise constitute Excluded
Property).

(v)        “Grantor” and “Grantors” have the respective meanings specified
therefor in the recitals to this Agreement.

 

(w)

“Guaranty” has the meaning specified therefor in the Credit Agreement.

 

(x)

“Insolvency Proceeding” has the meaning specified therefor in the Credit
Agreement.

(y)        “Intellectual Property” means any and all Intellectual Property
Licenses, Patents, Copyrights, Trademarks, the goodwill associated with such
Trademarks, trade secrets and customer lists.

(z)        “Intellectual Property Licenses” means rights under or interests in
any patent, trademark, copyright or other intellectual property, including
software license agreements with any other party, whether the applicable Grantor
is a licensee or licensor under any such license agreement (but excluding any
off-the-shelf software license agreement), including the license agreements
listed on Schedule 2 attached hereto and made a part hereof, and the right to
use the foregoing in connection with the enforcement of the Lender Group’s
rights under the Loan Documents, including the right to prepare for sale and
sell any and all Inventory and Equipment now or hereafter owned by any Grantor
and now or hereafter covered by such licenses.

 

 

3

 

 

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

(aa)      “Investment Related Property” means (i) any and all investment
property, and (ii) any and all Pledged Collateral including all Pledged
Operating Agreements and Pledged Partnership Agreements (regardless of whether
the same constitutes investment property);

 

(bb)

“Lender Group” has the meaning specified therefor in the Credit Agreement.

 

(cc)

“Loan Document” has the meaning specified therefor in the Credit Agreement.

 

(dd)

“Loan Party” has the meaning specified therefor in the Credit Agreement.

 

(ee)

“Obligations” has the meaning specified therefor in the Credit Agreement.

(ff)       “Patents” means patents and patent applications, including, (i) the
patents and patent applications listed on Schedule 3 attached hereto and made a
part hereof, (ii) all renewals thereof, (iii) all income, royalties, damages and
payments now and hereafter due or payable under and with respect thereto,
including payments under all licenses entered into in connection therewith and
damages and payments for past or future infringements or dilutions thereof, (iv)
the right to sue for past, present and future infringements and dilutions
thereof, and (v) all of each Grantor’s rights corresponding thereto throughout
the world.

(gg)      “Patent Security Agreement” means each Patent Security Agreement among
Grantors, or any of them, and Agent, for the benefit of the Lender Group and the
Hedge Agreement Providers, in substantially the form of Exhibit B attached
hereto, pursuant to which Grantors have granted to Agent, for the benefit of the
Secured Parties, a security interest in all their respective Patents.

 

(hh)

“Permitted Liens” has the meaning specified therefor in the Credit Agreement.

 

(ii)

“Person” has the meaning specified therefor in the Credit Agreement.

 

(jj)

“Pledge Amendment” has the meaning specified therefor in Section 21(f)(ii).

(kk)      “Pledged Certificated Stock” means all of each Grantor’s right, title
and interest, in and to all certificated securities and any other Stock of any
Person evidenced by a certificate, instrument or other similar document, in each
case owned by any Grantor, including in each of the Pledged Companies and any
distribution of property made on, in respect of or in exchange for the foregoing
from time to time, including all Stock listed on Schedule 4.

(ll)       “Pledged Collateral” means, collectively, the Pledged Stock and the
Pledged Debt Instruments.

(mm)    “Pledged Companies” means, each Person listed on Schedule 4 hereto as a
“Pledged Company”, together with each other Person, all or a portion of whose
Stock, is acquired or otherwise owned by a Grantor after the Closing Date.

(nn)      “Pledged Debt Instruments” means all right, title and interest of any
Grantor in instruments evidencing any Indebtedness owed to such Grantor or other
obligations, and any distribution of property made on, in respect of or in
exchange for the foregoing from time to time, including all instruments
described on Schedule 4, issued by the obligors named therein.

(oo)      “Pledged Investment Property” means all of each Grantor’s right, title
and interest in and to all investment property of any Grantor, and any
distribution of property made on, in respect of or in exchange for the foregoing
from time to time, other than any Pledged Stock or Pledged Debt Instruments.

 

 

4

 

 

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

(pp)      “Pledged Operating Agreements” means all of each Grantor’s rights,
powers, and remedies under the limited liability company operating agreements of
each of the Pledged Companies that are limited liability companies.

(qq)      “Pledged Partnership Agreements” means all of each Grantor’s rights,
powers, and remedies under the partnership agreements of each of the Pledged
Companies that are partnerships.

(rr)       “Pledged Stock” means all Pledged Certificated Stock and all Pledged
Uncertificated Stock.

(ss)       “Pledged ULC Stock” shall mean the Pledged Stock which are shares in
the capital stock of a ULC.

(tt)       “Pledged Uncertificated Stock” means all of each Grantor’s right,
title and interest in and to all Stock of any Person that is not Pledged
Certificated Stock, including all right, title and interest of any Grantor as a
limited or general partner in any partnership (including all Pledged Partnership
Agreements), not constituting Pledged Certificated Stock or as a member of any
limited liability company (including all Pledged Operating Agreements), all
right, title and interest of any Grantor in, to and under any organization
document of any partnership or limited liability company to which it is a party,
and any distribution of property made on, in respect of or in exchange for the
foregoing from time to time, including in each case those interests set forth on
Schedule 4, to the extent such interests are not certificated.

(uu)      “PPSA” means the Personal Property Security Act (British Columbia), as
such legislation may be amended, renamed or replaced from time to time (and
includes all regulations from time to time made under such legislation).

 

(vv)

“Proceeds” has the meaning specified therefor in Section 2.

(ww)    “Real Property” means any estates or interests in real property now
owned or hereafter acquired by any Grantor or any Subsidiary of any Grantor and
the improvements thereto.

 

(xx)

“Receiver” has the meaning specified in Section 8(b).

(yy)      “Records” means information that is inscribed on a tangible medium or
which is stored in an electronic or other medium and is retrievable in
perceivable form.

(zz)      “Related Persons” means, with respect to any Person, each Affiliate of
such Person and each director, officer, employer, agent, trustee,
representative, attorney, accountant and each insurance, environmental, legal,
financial and other advisors, consultants and agents of or to such Person or any
of its Affiliates.

(aaa)     “Requirement of Law” means, as to any Person, any law (statutory or
common), ordinance, treaty, rule, regulation, order, policy, other legal
requirement or determination of an arbitrator or of a Governmental Authority, in
each case applicable to or binding upon such Person or any of its Property or to
which such Person or any of its Property is subject.

 

(bbb)

“Rescission” has the meaning specified therefor in Section 6(m).

(ccc)     “Secured Obligations” means each and all of the following: (a) all of
the present and future obligations of Grantors arising from this Agreement, the
Credit Agreement, or the other Loan Documents (including any Guaranty), (b) all
Hedge Agreement Obligations, and (c) all Obligations of Borrowers, including, in
the case of each of clauses (a), (b) and (c), reasonable attorneys fees and
expenses (on a full indemnity basis) and any interest, fees, or expenses that
accrue after the filing of an Insolvency

 

 

5

 

 

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

Proceeding, regardless of whether allowed or allowable in whole or in part as a
claim in any Insolvency Proceeding.

(ddd)    “Secured Parties” means, collectively, the Agent, the Lender Group and
the Hedge Agreement Providers and “Secured Party” means any one of them;

(eee)     “Securities Laws” means applicable federal, provincial or territorial
or foreign securities laws and regulations.

 

(fff)

“Security Interest” has the meaning specified therefor in Section 2.

(ggg)    “Software” means (a) all computer programs, including source code and
object code versions, (b) all data, databases and compilations of data, whether
machine readable or otherwise, and (c) all documentation, training materials and
configurations related to any of the foregoing.

(hhh)    “STA” means the Securities Transfer Act (British Columbia), as such
legislation may be amended, renamed or replaced from time to time (and includes
all regulations from time to time made under such legislation).

 

(iii)

“Stock” has the meaning specified therefor in the Credit Agreement

(jjj)      “Trademarks” means any and all trademarks, trade names, registered
trademarks, trademark applications, service marks, registered service marks and
service mark applications, including (i) the trade names, registered trademarks,
trademark applications, registered service marks and service mark applications
listed on Schedule 5 attached hereto and made a part hereof, (ii) all renewals
thereof, (iii) all income, royalties, damages and payments now and hereafter due
or payable under and with respect thereto, including payments under all licenses
entered into in connection therewith and damages and payments for past or future
infringements or dilutions thereof, (iv) the right to sue for past, present and
future infringements and dilutions thereof, (v) the goodwill of each Grantor’s
business symbolized by the foregoing or connected therewith, and (vi) all of
each Grantor’s rights corresponding thereto throughout the world.

(kkk)    “Trademark Security Agreement” means each Trademark Security Agreement
among Grantors, or any of them, and Agent, for the benefit of the Lender Group
and the Hedge Agreement Providers, in substantially the form of Exhibit C
attached hereto, pursuant to which Grantors have granted to Agent, for the
benefit of the Secured Parties, a security interest in all their respective
Trademarks.

(lll)      “Triggering Event” means, as of any date of determination, that (a)
an Event of Default has occurred, or (b) average Excess Availability for the
preceding 30 day period is less than US$10,000,000.

(mmm) “ULC” shall mean any unlimited liability company or unlimited liability
corporation existing under the laws of any province or territory of Canada and
any successor to any such unlimited liability company or unlimited liability
corporation.

 

(nnn)

“URL” means “uniform resource locator,” an internet web address.

2.         Grant of Security. Each Grantor hereby unconditionally grants to and
creates in favour of Agent, for the benefit of the Secured Parties, to secure
the Secured Obligations, a continuing security interest (hereinafter referred to
as the “Security Interest”) in all present and after acquired personal property
of such Grantor, including such Grantor’s right, title, and interest in and to
the following, whether now owned or hereafter acquired or arising and wherever
located (collectively, the “Collateral”):

 

 

6

 

 

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

(a)        all accounts, chattel paper, documents of title, equipment,
instruments, inventory, Deposit Accounts, intangibles, Investment Related
Property, and any supporting obligations related to any of the foregoing;

 

(b)

all Books pertaining to the other property described in this Section 2;

(c)        all property of such Grantor held by any Secured Party, including all
property of every description, in the custody of or in transit to such Secured
Party for any purpose, including safekeeping, collection or pledge, for the
account of such Grantor or as to which such Grantor may have any right or power,
including but not limited to cash;

(d)        all other goods (including but not limited to fixtures) and personal
property of such Grantor, whether tangible or intangible and wherever located;
and

(e)        to the extent not otherwise included, all proceeds of the foregoing,
whether tangible or intangible, including proceeds of insurance covering or
relating to any or all of the foregoing, and any and all accounts, Books,
chattel paper, Deposit Accounts, goods, intangibles, Investment Related
Property, documents of title, instruments, money resulting from the sale, lease,
license, exchange, collection, or other disposition of any of the foregoing,
whatever is collected on, or distributed on account of any of the foregoing, any
and all rights arising out of the foregoing, the proceeds of any award in
condemnation with respect to any of the foregoing, any rebates or refunds,
whether for taxes or otherwise, and all proceeds of any such proceeds, or any
portion thereof or interest therein, and the proceeds thereof, claims arising
out of the loss, non-conformity, or interference with the use of, defects, or
infringement of rights in, or damage to, any of the foregoing, and all proceeds
of any loss of, damage to, or destruction of the above, whether insured or not
insured, and, to the extent not otherwise included, any indemnity, warranty,
insurance, or guaranty payable by reason of loss or non-conformity of, defects
or infringement of rights in, or damage to, or otherwise with respect to any of
the foregoing (the “Proceeds”). Without limiting the generality of the
foregoing, the term “Proceeds” includes whatever is receivable or received when
Investment Related Property or proceeds are sold, exchanged, collected, or
otherwise disposed of, whether such disposition is voluntary or involuntary, and
includes proceeds of any indemnity or guaranty payable to any Grantor or Agent
from time to time with respect to any of the Investment Related Property,

ALL PROVIDED THAT, notwithstanding the foregoing or anything contained in this
Agreement to the contrary, no Lien or security interest is hereby granted on and
the term “Collateral” shall not include: (i) any Excluded Property, provided
further that, if and when any property shall cease to be Excluded Property, a
Lien on and security interest in such property shall be deemed to be immediately
granted therein; (ii) voting Stock of any CFC solely to the extent that (y) such
Stock represents more than 65% of the outstanding voting Stock of such CFC, and
(z) hypothecating more than 65% of the total outstanding voting Stock of such
CFC would result in material adverse tax consequences; (iii) the last day of the
term of any lease of real property or agreement therefor, provided further that,
upon enforcement of the Security Interest, each Grantor shall stand possessed of
such last day in trust or assign the same to any person acquiring such term, (A)
provided that the foregoing exclusions from the Lien and Security Interest
hereof shall in no way be construed to limit, impair, or otherwise affect the
Lender Group’s continuing security interests in and liens upon any rights or
interests of any Grantor in or to (x) monies due or to become due under any
described contract, lease, permit, license, charter or license agreement
(including any Accounts), or (y) any proceeds from the sale, license, lease, or
other dispositions of any such contract, lease, permit, license, charter,
license agreement, or Stock, or (B) apply to the extent that any consent or
waiver has been obtained that would permit the security interest or lien
notwithstanding the prohibition).

 

3.

Security for Obligations and Attachment.

(a)        The Security Interest created hereby secures the payment and
performance of the Secured Obligations, whether now existing or arising
hereafter. Without limiting the generality of the foregoing, this Agreement
secures the payment of all amounts which constitute part of the Secured
Obligations and would be owed by Grantors, or any of them, to the Secured
Parties or any of them, but for the fact that

 

 

7

 

 

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

they are unenforceable or not allowable due to the existence of an Insolvency
Proceeding involving any Grantor.

(b)        Each Grantor acknowledges that (i) value has been given, (ii) it has
rights in the Collateral, (iii) it has not agreed to postpone the time for
attachment of the Security Interest, and (iv) it has received a copy of this
Security Agreement and waives any right to receive a copy of any financing
statement or financing change statement registered by Agent in connection with
this Security Agreement.

4.         Grantors Remain Liable. Anything herein to the contrary
notwithstanding, (a) each of the Grantors shall remain liable under the
contracts and agreements included in the Collateral, including the Pledged
Operating Agreements and the Pledged Partnership Agreements, to perform all of
the duties and obligations thereunder to the same extent as if this Agreement
had not been executed, (b) the exercise by Agent or any other member of the
Lender Group of any of the rights hereunder shall not release any Grantor from
any of its duties or obligations under such contracts and agreements included in
the Collateral, and (c) none of the members of the Lender Group shall have any
obligation or liability under such contracts and agreements included in the
Collateral by reason of this Agreement, nor shall any of the members of the
Lender Group be obligated to perform any of the obligations or duties of any
Grantors thereunder or to take any action to collect or enforce any claim for
payment assigned hereunder. Until an Event of Default shall occur and be
continuing, except as otherwise provided in this Agreement, the Credit
Agreement, or other Loan Documents, Grantors shall have the right to possession
and enjoyment of the Collateral for the purpose of conducting the ordinary
course of their respective businesses, subject to and upon the terms hereof and
of the Credit Agreement and the other Loan Documents. Without limiting the
generality of the foregoing, it is the intention of the parties hereto that
record and beneficial ownership of the Pledged Collateral, including all voting,
consensual, and dividend rights, shall remain in the applicable Grantor until
the occurrence of an Event of Default and until Agent shall notify the
applicable Grantor of Agent's exercise of voting, consensual, or dividend rights
with respect to the Pledged Collateral pursuant to Section 10 hereof.

 

5.

Representations and Warranties. Each Grantor hereby represents and warrants as
follows:

(a)        The exact legal name of each of the Grantors is set forth on the
signature pages of this Agreement or a written notice provided to Agent pursuant
to Section 6.5 of the Credit Agreement.

 

(b)

None of the Grantors owns any Real Property except as identified in Schedule 6.

(c)        As of the Closing Date, no Grantor has any interest in, or title to,
any Copyrights, Intellectual Property Licenses, Patents, or Trademarks except as
set forth on Schedules 1, 2, 3 and 5, respectively, attached hereto. This
Agreement is effective to create a valid and continuing Lien on such Copyrights,
Intellectual Property Licenses, Patents and Trademarks and, upon filing of the
Copyright Security Agreement, the Patent Security Agreement and the Trademark
Security Agreement with the Applicable IP Office, and the filing of appropriate
financing statements in the jurisdictions listed on Schedule 7 hereto, all
action necessary or desirable to protect and perfect the Security Interest in
and to on each Grantor’s Patents, Trademarks, or Copyrights has been taken and
such perfected Security Interest is enforceable as such as against any and all
creditors of and purchasers from any Grantor. No Grantor has any interest in any
Copyright that is necessary in connection with the operation of such Grantor’s
business, except for those Copyrights identified on Schedule 1 attached hereto
which have been registered with the applicable IP Office.

(d)        Each Grantor (i) is the holder of record and sole legal and
beneficial owner of the Collateral pledged by it hereunder constituting
instruments or certificates and (ii) has rights in or the power to transfer each
other item of Collateral in which a Lien is granted by it hereunder, free and
clear of any other Lien.

(e)        The Security Interest granted pursuant to this Agreement constitutes
a valid and continuing perfected security interest in favor of the Agent in all
Collateral subject, for the following

 

 

8

 

 

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

Collateral, to the occurrence of the following: (i) in the case of all
Collateral in which a security interest may be perfected by filing a financing
statement under the PPSA, the completion of the filing of financing statements
listing each applicable Grantor, as a debtor, and Agent, a secured party, in the
jurisdictions listed next to such Grantor’s name on Schedule 7 attached hereto,
(ii) with respect to any uncertificated securities, any securities account or
any security entitlements, the execution of Control Agreements in the case of
such Collateral to which the PPSA applies and (iii) in the case of all
Copyrights, Trademarks, Patents and Material Intellectual Property Licenses for
which PPSA filings are insufficient, all appropriate filings having been made
with the Canadian Intellectual Property Office as contemplated above. Such
Security Interest shall be prior to all other Liens on the Collateral except for
Permitted Liens having priority over the Agent’s Lien by operation of law or of
the type described in clause (f) of the definition of “Permitted Lien” in the
Credit Agreement upon (i) in the case of all Pledged Certificated Stock, Pledged
Debt Instruments and Pledged Investment Property, the delivery thereof to the
Agent of such Pledged Certificated Stock, Pledged Debt Instruments and Pledged
Investment Property consisting of instruments and certificates, in each case
properly endorsed for transfer to the Agent or in blank, (ii) in the case of all
Pledged Investment Property not in certificated form to which the PPSA applies,
the execution of Control Agreements, (iv) in the case of all other instruments
and tangible chattel paper that are not Pledged Certificated Stock, Pledged Debt
Instruments or Pledged Investment Property, the delivery thereof to the Agent of
such instruments and tangible chattel paper, and (v) with respect to serial
numbered goods, including motor vehicles, the filing of a financing statement
containing the information required under Section 6(a)(iv). Except as set forth
in this Section 5(e), all actions by each Grantor necessary or desirable to
protect and perfect the Security Interest granted hereunder on the Collateral
have been duly taken.

(f)        Each Grantor’s jurisdiction of organization, legal name and
organizational identification number, if any, and the location of such Grantor’s
chief executive office or sole place of business, in each case as of the date
hereof, is specified on Schedule 8 and such Schedule 8 also lists all
jurisdictions of incorporation, legal names and locations of such Grantor’s
chief executive office or sole place of business for the five years preceding
the date hereof.

(g)        On the date hereof, such Grantor’s inventory and equipment (other
than inventory or equipment in transit) and books and records concerning the
Collateral are kept at the locations listed on Schedule 9.

 

(h)

The Pledged Collateral pledged by each Grantor hereunder:

(i)      is listed on Schedule 4 and, in the case of Pledged Stock, constitutes
that percentage of the issued and outstanding equity of all classes of each
issuer thereof as set forth on Schedule 4,

(ii)     in the case of Pledged Stock, has been duly authorized, validly issued
and is fully paid and nonassessable (other than Pledged Stock in limited
liability companies and partnerships), and

(iii)    constitutes the legal, valid and binding obligation of the obligor with
respect thereto, enforceable in accordance with its terms.

(i)        As of the Closing Date, all Pledged Collateral (other than Pledged
Uncertificated Stock) and all Pledged Investment Property consisting of
instruments and certificates has been delivered to the Agent in accordance with
Section 6(c).

(j)        No amount payable to such Grantor under or in connection with any
account is evidenced by any instrument or tangible chattel paper that has not
been delivered to the Agent, properly endorsed for transfer, to the extent
delivery is required by Section 6(c).

(k)        No consent, approval, authorization, or other order or other action
by, and no notice to or filing with, any Governmental Authority or any other
Person is required (i) for the grant of a Security

 

 

9

 

 

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

Interest by such Grantor in and to the Collateral pursuant to this Agreement or
for the execution, delivery, or performance of this Agreement by such Grantor,
or (ii) for the exercise by Agent of the voting or other rights provided for in
this Agreement with respect to the Investment Related Property or the remedies
in respect of the Collateral pursuant to this Agreement, except as may be
required in connection with such disposition of Investment Related Property by
laws affecting the offering and sale of securities generally. No Intellectual
Property License to which such Grantor is a party requires any consent for such
Grantor to grant the security interest granted hereunder in such Grantor’s
right, title or interest in or to any Intellectual Property.

(l)        The Excluded Property, if any, when taken as a whole, is not material
to the business operations or financial condition of the Grantors taken as a
whole.

6.         Covenants. Each Grantor, jointly and severally, covenants and agrees
with Agent that from and after the date of this Agreement and until the date of
termination of this Agreement in accordance with Section 21(h) hereof:

(a)        Maintenance of Perfected Security Interest; Further Documentation and
Consents.

(i)      Such Grantor shall not use or permit any Collateral to be used
unlawfully or in violation of any provision of any Loan Document, any
Requirement of Law or any policy of insurance covering the Collateral;

(ii)     Such Grantor shall maintain the Security Interest created by this
Agreement as a perfected security interest having at least the priority
described in Section 5(e) and shall defend such Security Interest and such
priority against the claims and demands of all Persons;

(iii)    Such Grantor shall furnish to the Agent from time to time statements
and schedules further identifying and describing the Collateral and such other
documents in connection with the Collateral as the Agent may reasonably request,
all in reasonable detail and in form and substance satisfactory to the Agent;

(iv)    If requested by the Agent, the Grantor shall provide a list of all
serial numbers of all serial numbered goods and all vehicle identification
numbers of all motor vehicles;

(v)     To ensure that a Lien and security interest is granted on any of the
Excluded Property set forth in clauses (i) or (ii) of the definition of
“Excluded Property”, such Grantor shall use its best efforts to obtain any
required consents from any Person other than the Borrower and its Affiliates
with respect to any permit or license or any Contractual Obligation with such
Person entered into by such Grantor that requires such consent as a condition to
the creation by such Grantor of a Lien on any right, title or interest in such
permit, license or Contractual Obligation or any Stock related thereto;

(b)        Changes in Locations, Name, Etc. Except upon 30 days’ prior written
notice to the Agent and delivery to the Agent of (x) all documents reasonably
requested by the Agent to maintain the validity, perfection and priority of the
security interests provided for herein and (y) if applicable, a written
supplement to Schedule 9 showing any additional locations at which inventory or
equipment shall be kept, such Grantor shall not do any of the following:

(i)      permit any inventory or equipment to be kept at a location other than
those listed on Schedule 9, except for inventory or equipment in transit;

(ii)     change its jurisdiction of organization or its location or the location
of its chief executive office, in each case from that referred to in Section
5(f); or

 

 

10

 

 

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

(iii)    change its legal name or organizational identification number, if any,
or corporation, limited liability company, partnership or other organizational
structure to such an extent that any financing statement filed in connection
with this Agreement would become misleading;

 

(c)

Pledged Collateral.

(i)      Such Grantor shall (A) deliver to the Agent, in suitable form for
transfer and in form and substance satisfactory to the Agent, (1) all Pledged
Certificated Stock, (2) all Pledged Debt Instruments and (3) all certificates
and instruments evidencing Pledged Investment Property and (B) maintain all
other Pledged Investment Property in a Controlled Securities Account or take
such other measures as the Agent may reasonably request in connection with the
perfection of the security interest created therein under this Agreement.

(ii)     During the continuance of an Event of Default, the Agent shall have the
right, at any time in its discretion and without notice to the Grantor, to (A)
transfer to or to register in its name or in the name of its nominees any
Pledged Collateral or any Pledged Investment Property and (B) exchange any
certificate or instrument representing or evidencing any Pledged Collateral or
any Pledged Investment Property for certificates or instruments of smaller or
larger denominations.

(d)        Commodity Contracts. Such Grantor shall not have any commodity
contract, unless subject to a Control Agreement;

(e)        Delivery of Instruments and Tangible Chattel Paper and Control of
Investment Property, Letter-of-Credit Rights and Electronic Chattel Paper.

(i)      If any amount in excess of US$100,000 payable under or in connection
with any Collateral owned by such Grantor shall be or become evidenced by an
instrument or tangible chattel paper other than such instruments or chattel
paper as have been delivered in accordance with Section 6(c)(i) and are in the
possession of the Agent, such Grantor shall mark all such instruments and
tangible chattel paper with the following legend: “This writing and the
obligations evidenced or secured hereby are subject to the security interest of
Wells Fargo Foothill, LLC, as Agent” and, at the request of the Agent, shall
immediately deliver such instrument or tangible chattel paper to the Agent, duly
endorsed in a manner satisfactory to the Agent;

(ii)     Such Grantor shall not grant “control” (within the meaning of such term
under the PPSA over any investment property to any Person other than the Agent;

(iii)    If such Grantor is or becomes the beneficiary of a letter of credit,
such Grantor shall promptly, and in any event within 5 Business Days after
becoming a beneficiary, notify the Agent thereof and enter into a tri-party
agreement with Agent and the issuer or confirming back with respect to
letter-of-credit rights assigning such letter-of-credit rights to Agent and
directing all payments thereunder to Agent’s Account at all times during which
an Event of Default is in existence, all in form and substance satisfactory to
Agent;

(f)        Controlled Securities Account. Each Grantor shall deposit all of its
Cash Equivalents in securities accounts that are Controlled Securities Accounts
except for Cash Equivalents the aggregate value of which does not exceed
US$50,000;

(g)        Government Contracts. If any account or chattel paper arises out of a
contract or contracts with the government of Canada or any province thereof or
the government of the United States of America or any state thereof, or any
department, agency, or instrumentality of any such government which, in the case
of any such Contract, provides for revenue thereunder in excess of US$100,000,
such Grantor shall promptly (and in any event within 5 Business Days of the
creation thereof) notify Agent thereof in writing and execute any instruments or
take any steps reasonably required by Agent in order that all moneys due or to

 

 

11

 

 

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

become due under such contract or contracts shall be assigned to Agent, for the
benefit of the Secured Parties, and shall provide all necessary or desirable
notices thereof under other applicable law;

 

(h)

Intellectual Property.

(i)      Upon request of Agent, in order to facilitate filings with the
Applicable IP Office, each Grantor shall execute and deliver to Agent one or
more Copyright Security Agreements, Trademark Security Agreements, or Patent
Security Agreements to further evidence Agent's Lien on such Grantor's Patents,
Trademarks, or Copyrights, and the intangibles of such Grantor relating thereto
or represented thereby;

(ii)     Each Grantor shall have the duty, to the extent necessary or
economically desirable in the operation of such Grantor's business, (A) to
promptly sue for infringement, misappropriation, or dilution and to recover any
and all damages for such infringement, misappropriation, or dilution, (B) to
prosecute diligently any trademark application or service mark application that
is part of the Trademarks pending as of the date hereof or hereafter until the
termination of this Agreement, (C) to prosecute diligently any patent
application that is part of the Patents pending as of the date hereof or
hereafter until the termination of this Agreement, and (D) to take all
reasonable and necessary action to preserve and maintain all of such Grantor’s
Intellectual Property, and its rights therein, including the filing of
applications for renewal, affidavits of use, affidavits of noncontestability and
opposition and interference and cancellation proceedings. Each Grantor shall
promptly file an application with any Applicable IP Offices in respect of any
Copyright that has not already been registered with any such office if such
Copyright is necessary in connection with the operation of such Grantor’s
business. Any expenses incurred in connection with the foregoing shall be borne
by the appropriate Grantor. Each Grantor further agrees not to abandon any
Intellectual Property that is necessary or economically desirable in the
operation of such Grantor’s business;

(iii)    Grantors acknowledge and agree that the Lender Group shall have no
duties with respect to the Intellectual Property. Without limiting the
generality of this Section 6(h), the Grantors acknowledge and agree that no
member of the Lender Group shall be under any obligation to take any steps
necessary to preserve rights in any Intellectual Property against any other
Person, but any member of the Lender Group may do so at its option from and
after the occurrence and during the continuance of an Event of Default, and all
expenses incurred in connection therewith (including reasonable fees and
expenses of attorneys and other professionals) shall be for the sole account of
Grantors and shall be chargeable to the Loan Account;

(iv)    In no event shall any Grantor, either itself or through any agent,
employee, licensee, or designee, file an application for the registration of any
Copyright or Patent with any Applicable IP Office without giving Agent prior
written notice thereof. Promptly upon any such filing, each Grantor shall comply
with Section 6(h)(i) hereof;

 

(i)

Investment Related Property.

(i)      If any Grantor shall receive or become entitled to receive any Pledged
Collateral after the Closing Date, it shall promptly (and in any event within 2
Business Days of receipt thereof) deliver to Agent a duly executed Pledge
Amendment identifying such Pledged Collateral;

(ii)     Following the occurrence and during the continuance of an Event of
Default, all sums of money and property paid or distributed in respect of any
Investment Related Property which are received by any Grantor shall be held by
the applicable Grantor in trust for the benefit of Agent segregated from such
Grantor’s other property, and such Grantor shall deliver it forthwith to Agent’s
in the exact form received;

 

 

12

 

 

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

(iii)    Each Grantor shall promptly deliver to Agent a copy of each notice or
other communication received by it in respect of any Pledged Collateral;

(iv)    No Grantor shall make or consent to any amendment or other modification
or waiver with respect to any Pledged Stock, Pledged Operating Agreement, or
Pledged Partnership Agreement, or enter into any agreement or permit to exist
any restriction with respect to any Pledged Stock other than pursuant to the
Loan Documents;

(v)     Each Grantor agrees that it will cooperate with Agent in obtaining all
necessary approvals and making all necessary filings under federal, state,
local, or foreign law in connection with the Security Interest or any Investment
Related Property or any sale or transfer thereof;

(vi)    As to all limited liability company or partnership interests, issued
under any Pledged Operating Agreement or Pledged Partnership Agreement, each
Grantor hereby represents, warrants and covenants that the Pledged Stock issued
pursuant to such agreement (A) is not and shall not be dealt in or traded on
securities exchanges or in securities markets, (B) does not and will not
constitute investment company securities, and (C) is not and will not be held by
such Grantor in a securities account. In addition, none of the Pledged Operating
Agreements, the Pledged Partnership Agreements, or any other agreements
governing any of the Pledged Stock issued under any Pledged Operating Agreement
or Pledged Partnership Agreement, provide or shall provide that such Pledged
Stock constitutes securities governed by the PPSA;

(j)        Real Property; Fixtures. Each Grantor covenants and agrees that upon
the acquisition of any fee simple interest in Real Property it will promptly
(and in any event within 2 Business Days of acquisition) notify Agent of the
acquisition of such Real Property and with respect to any such Real Property
with a fair market value in excess of US$500,000, will grant to Agent, for the
benefit of the Secured Parties, a first priority Mortgage on each fee simple
interest in Real Property now or hereafter owned by such Grantor and shall
deliver such other documentation and opinions, in form and substance
satisfactory to Agent, in connection with the grant of such Mortgage as Agent
shall request in its Permitted Discretion, including title insurance policies,
financing statements, fixture filings and environmental audits and such Grantor
shall pay all recording costs, taxes and other fees and costs (including
reasonable attorneys fees and expenses) incurred in connection therewith. Each
Grantor acknowledges and agrees that, to the extent permitted by applicable law,
all of the Collateral shall remain personal property regardless of the manner of
its attachment or affixation to real property;

(k)        Transfers and Other Liens. Grantors shall not (i) sell, assign (by
operation of law or otherwise) or otherwise dispose of, or grant any option with
respect to, any of the Collateral, except expressly permitted by the Credit
Agreement, or (ii) create or permit to exist any Lien upon or with respect to
any of the Collateral of any of Grantors, except for Permitted Liens. The
inclusion of Proceeds in the Collateral shall not be deemed to constitute
Agent’s consent to any sale or other disposition of any of the Collateral except
as expressly permitted in this Agreement or the other Loan Documents;

(l)        Other Actions as to Any and All Collateral. Each Grantor shall
promptly (and in any event within 2 Business Days of acquiring or obtaining such
Collateral) notify Agent in writing upon (i) acquiring or otherwise obtaining
any Collateral after the date hereof consisting of Intellectual Property,
Investment Related Property, chattel paper (electronic, tangible or otherwise),
instruments or (ii) any amount payable under or in connection with any of the
Collateral being or becoming evidenced after the date hereof by any chattel
paper or instruments and, in each such case upon the request of Agent, promptly
execute such other documents, or if applicable, deliver such chattel paper,
instruments or certificates evidencing any Investment Related Property and do
such other acts or things deemed necessary or desirable by Agent to protect
Agent’s Security Interest therein;

 

(m)

Controlled Accounts.

 

 

13

 

 

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

(i)      Each Grantor shall and shall cause each other Grantor to (i) establish
and maintain cash management services of a type and on terms reasonably
satisfactory to Agent at one or more of the banks set forth on Schedule 10 (each
a “Controlled Account Bank”), and shall take reasonable steps to ensure that all
of its and its Subsidiaries’ customer and other account debtors forward payment
of the amounts owed by them directly to such Controlled Account Bank, and (ii)
deposit or cause to be deposited promptly, and in any event no later than the
first Business Day after the date of receipt thereof, all of their Collections
(including those sent directly by their Account Debtors to a Loan Party) into a
bank account of such Loan Party (each, a “Controlled Account”) at one of the
Controlled Account Banks;

(ii)     Each Controlled Account Bank shall establish and maintain Controlled
Account Agreements with Agent and the applicable Loan Party, in form and
substance reasonably acceptable to Agent. Each such Controlled Account Agreement
shall provide, among other things, that (a) the Controlled Account Bank will
comply with any instructions originated by Agent directing the disposition of
the funds in such Controlled Account without further consent by the applicable
Loan Party, (b) the Controlled Account Bank has no rights of setoff or
recoupment or any other claim against the applicable Controlled Account other
than for payment of its service fees and other charges directly related to the
administration of such Controlled Account and for returned checks or other items
of payment, and (c) upon the instruction of the Agent (an “Activation
Instruction”), the Controlled Account Bank will forward by daily sweep all
amounts in the applicable Controlled Account to the Agent’s Account. Agent
agrees not to issue an Activation Instruction with respect to the Controlled
Accounts unless a Triggering Event has occurred and is continuing at the time
such Activation Instruction is issued. Agent agrees to use commercially
reasonable efforts to rescind an Activation Instruction (the “Rescission”) if:
(x) the Triggering Event upon which such Activation Instruction was issued has
been waived in writing in accordance with the terms of this Agreement, and (y)
no additional Triggering Event has occurred and is continuing prior to the date
of the Rescission or is reasonably expected to occur on or immediately after the
date of the Rescission;

(iii)    So long as no Default or Event of Default has occurred and is
continuing, the Grantors may amend Schedule 10 to add or replace a Controlled
Account Bank or Controlled Account; provided, however, that (i) such prospective
Controlled Account Bank shall be reasonably satisfactory to Agent, and (ii)
prior to the time of the opening of such Controlled Account, the applicable Loan
Party and such prospective Controlled Account Bank shall have executed and
delivered to Agent a Controlled Account Agreement. Parent shall and shall cause
each Loan Party to close any of its Controlled Accounts (and establish
replacement Controlled Account accounts in accordance with the foregoing
sentence) as promptly as practicable and in any event within 45 days of notice
from Agent that the operating performance, funds transfer, or availability
procedures or performance of the Controlled Account Bank with respect to
Controlled Account accounts or Agent’s liability under any Controlled Account
Agreement with such Controlled Account Bank is no longer acceptable in Agent’s
reasonable judgment;

(n)        Each Grantor agrees that from time to time, at its own expense, such
Grantor will promptly execute and deliver all further instruments and documents,
and take all further action, that may be necessary or that Agent may reasonably
request, in order to perfect and protect the Security Interest granted or
purported to be granted hereby or to enable Agent to exercise and enforce its
rights and remedies hereunder with respect to any of the Collateral; and

(o)        Each Grantor authorizes the filing by Agent financing or continuation
statements, or amendments thereto, and such Grantor will execute and deliver to
Agent such other instruments or notices, as may be necessary or as Agent may
reasonably request, in order to perfect and preserve the Security Interest
granted or purported to be granted hereby.

7.         Relation to Other Security Documents. The provisions of this
Agreement shall be read and construed with the other Loan Documents referred to
below in the manner so indicated.

 

 

14

 

 

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

(a)        Credit Agreement. In the event of any conflict between any provision
in this Agreement and a provision in the Credit Agreement, such provision of the
Credit Agreement shall control.

(b)        Patent, Trademark, Copyright Security Agreements. The provisions of
the Copyright Security Agreements, Trademark Security Agreements, and Patent
Security Agreements are supplemental to the provisions of this Agreement, and
nothing contained in the Copyright Security Agreements, Trademark Security
Agreements, or the Patent Security Agreements shall limit any of the rights or
remedies of Agent hereunder.

 

8.

Remedial Provisions.

(a)        PPSA Remedies. During the continuance of an Event of Default, the
Agent may exercise, in addition to all other rights and remedies granted to it
in this Agreement and in any other instrument or agreement securing, evidencing
or relating to any Secured Obligation, all rights and remedies of a secured
party under the PPSA or any other applicable law.

(b)        Appointment of Receiver. Upon the occurrence and during the
continuance of any Event of Default, the Agent may appoint or reappoint by
instrument in writing, any Person or Persons, whether an officer or officers or
an employee or employees of the Agent or not, to be an interim receiver,
receiver or receivers (hereinafter called a “Receiver”, which term when used
herein shall include a receiver and manager) of Collateral (including any
interest, income or profits therefrom) and may remove any Receiver so appointed
and appoint another in his/her/its stead. Any such Receiver shall, so far as
concerns responsibility for his/her/its acts, be deemed the agent of the
applicable Grantor and not the Agent or any of Lenders, and neither the Agent
nor any Lender shall be in any way responsible for any misconduct, negligence or
non-feasance on the part of any such Receiver or his/her/its servants, agents or
employees. Subject to the provisions of the instrument appointing him/her/it and
the provisions of applicable law, any such Receiver shall have power to take
possession of Collateral, to preserve Collateral or its value, to carry on or
concur in carrying on all or any part of the business of the Grantor and to
sell, lease, license or otherwise dispose of or concur in selling, leasing,
licensing or otherwise disposing of Collateral. To facilitate the foregoing
powers, any such Receiver may, to the exclusion of all others, including the
Grantor, or any of them, enter upon, use and occupy all premises owned or
occupied by the Grantor wherein Collateral may be situate, maintain Collateral
upon such premises, borrow money on a secured or unsecured basis and use
Collateral directly in carrying on any Grantor’s business or as security for
loans or advances to enable the Receiver to carry on the Grantor’s business or
otherwise, as such Receiver shall, in its discretion, determine. Except as may
be otherwise directed by the Agent, all money received from time to time by such
Receiver in carrying out his/her/its appointment shall be received in trust for
and be paid over to the Agent. Every such Receiver may, in the discretion of the
Agent, be vested with all or any of the rights and powers of the Agent.

(c)        The Agent may, either directly or through its agents or nominees,
exercise any or all of the powers and rights given to a Receiver by virtue of
Section 8(b).

(d)        Disposition of Collateral. Without limiting the generality of the
foregoing, the Agent may, without demand of performance or other demand,
presentment, protest, advertisement or notice of any kind (except any notice
required by law referred to below) to or upon any Grantor or any other Person
(all and each of which demands, defenses, advertisements and notices are hereby
waived), during the continuance of any Event of Default (personally or through
its agents or attorneys), (i) enter upon the premises where any Collateral is
located, without any obligation to pay rent, through self-help, without judicial
process, without first obtaining a final judgment or giving any Grantor or any
other Person notice or opportunity for a hearing on the Agent’s claim or action,
(ii) collect, receive, appropriate and realize upon any Collateral and (iii)
sell, assign, convey, transfer, grant option or options to purchase and deliver
any Collateral (enter into Contractual Obligations to do any of the foregoing),
in one or more parcels at public or private sale or sales, at any exchange,
broker’s board or office of any Secured Party or elsewhere upon such terms and
conditions as it may deem advisable and at such prices as it may deem best, for
cash or on credit or for future delivery without

 

 

15

 

 

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

assumption of any credit risk. The Agent shall have the right, upon any such
public sale or sales and, to the extent permitted by the PPSA and other
applicable Requirements of Law, upon any such private sale, to purchase the
whole or any part of the Collateral so sold, free of any right or equity of
redemption of any Grantor, which right or equity is hereby waived and released.

(e)        Management of the Collateral. Each Grantor further agrees, that,
during the continuance of any Event of Default, (i) at the Agent’s request, it
shall assemble the Collateral and make it available to the Agent at places that
the Agent shall reasonably select, whether at such Grantor’s premises or
elsewhere, (ii) without limiting the foregoing, the Agent also has the right to
require that each Grantor store and keep any Collateral pending further action
by the Agent and, while any such Collateral is so stored or kept, provide such
guards and maintenance services as shall be necessary to protect the same and to
preserve and maintain such Collateral in good condition, (iii) until the Agent
is able to sell, assign, convey or transfer any Collateral, the Agent shall have
the right to hold or use such Collateral to the extent that it deems appropriate
for the purpose of preserving the Collateral or its value or for any other
purpose deemed appropriate by the Agent and (iv) the Agent may, if it so elects,
seek the appointment of a receiver or keeper to take possession of any
Collateral and to enforce any of the Agent’s remedies (for the benefit of the
Secured Parties), with respect to such appointment without prior notice or
hearing as to such appointment. The Agent shall not have any obligation to any
Grantor to maintain or preserve the rights of any Grantor as against third
parties with respect to any Collateral while such Collateral is in the
possession of the Agent.

(f)        Application of Proceeds. The Agent shall apply the cash proceeds of
any action taken by it pursuant to this Section 8, after deducting all
reasonable costs and expenses of every kind incurred in connection therewith or
incidental to the care or safekeeping of any Collateral or in any way relating
to the Collateral or the rights of the Agent and any other Secured Party
hereunder, including reasonable legal fees and disbursements (on a full
indemnity basis), to the payment in whole or in part of the Secured Obligations,
as contemplated in the Credit Agreement, and only after such application and
after the payment by the Agent of any other amount required by any Requirement
of Law, need the Agent account for the surplus, if any, to any Grantor.

(g)        Direct Obligation. Neither the Agent nor any other Secured Party
shall be required to make any demand upon, or pursue or exhaust any right or
remedy against, any Grantor, any other Credit Party or any other Person with
respect to the payment of the Secured Obligations or to pursue or exhaust any
right or remedy with respect to any Collateral therefor or any direct or
indirect guarantee thereof. All of the rights and remedies of the Agent and any
other Secured Party under any Loan Document shall be cumulative, may be
exercised individually or concurrently and not exclusive of any other rights or
remedies provided by any Requirement of Law. 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 Agent or any other
Secured Party, any valuation, stay, appraisement, extension, redemption or
similar laws and any and all rights or defenses it may have as a surety, now or
hereafter existing, arising out of the exercise by them of any rights hereunder.
If any notice of a proposed sale or other disposition of any Collateral shall be
required by law, such notice shall be deemed reasonable and proper if given at
least 10 days before such sale or other disposition.

(h)        Commercially Reasonable. To the extent that applicable Requirements
of Law impose duties on the Agent to exercise remedies in a commercially
reasonable manner, each Grantor acknowledges and agrees that it is not
commercially unreasonable for the Agent to do any of the following:

(i)      fail to incur significant costs, expenses or other liabilities
reasonably deemed as such by the Agent to prepare any Collateral for disposition
or otherwise to complete raw material or work in process into finished goods or
other finished products for disposition;

(ii)     fail to obtain permits, or other consents, for access to any Collateral
to sell or for the collection or sale of any Collateral, or, if not required by
other Requirements of Law, fail to obtain permits or other consents for the
collection or disposition of any Collateral;

 

 

16

 

 

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

(iii)    fail to exercise remedies against account debtors or other Persons
obligated on any Collateral or to remove Liens on any Collateral or to remove
any adverse claims against any Collateral;

(iv)    advertise dispositions of any Collateral through publications or media
of general circulation, whether or not such Collateral is of a specialized
nature, or to contact other Persons, whether or not in the same business as any
Grantor, for expressions of interest in acquiring any such Collateral;

(v)     exercise collection remedies against account debtors and other Persons
obligated on any Collateral, directly or through the use of collection agencies
or other collection specialists, hire one or more professional auctioneers to
assist in the disposition of any Collateral, whether or not such Collateral is
of a specialized nature, or, to the extent deemed appropriate by the Agent,
obtain the services of other brokers, investment bankers, consultants and other
professionals to assist the Agent in the collection or disposition of any
Collateral, or utilize 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 to dispose of any
Collateral;

 

(vi)

dispose of assets in wholesale rather than retail markets;

(vii)   disclaim disposition warranties, such as title, possession or quiet
enjoyment; or

(viii)  purchase insurance or credit enhancements to insure the Agent against
risks of loss, collection or disposition of any Collateral or to provide to the
Agent a guaranteed return from the collection or disposition of any Collateral.

Each Grantor acknowledges that the purpose of this Section 8(h) is to provide a
non-exhaustive list of actions or omissions that are commercially reasonable
when exercising remedies against any Collateral and that other actions or
omissions by the Secured Parties shall not be deemed commercially unreasonable
solely on account of not being indicated in this Section 8(h). Without
limitation upon the foregoing, nothing contained in this Section 8(h) shall be
construed to grant any rights to any Grantor or to impose any duties on the
Agent that would not have been granted or imposed by this Agreement or by
applicable Requirements of Law in the absence of this Section 8(h).

(i)        IP Licenses. For the purpose of enabling the Agent to exercise rights
and remedies under this Section 8 (including in order to take possession of,
collect, receive, assemble, process, appropriate, remove, realize upon, sell,
assign, convey, transfer or grant options to purchase any Collateral) at such
time as the Agent shall be lawfully entitled to exercise such rights and
remedies, each Grantor hereby grants to the Agent, for the benefit of the
Secured Parties, (i) an irrevocable, nonexclusive, worldwide license
(exercisable without payment of royalty or other compensation to such Grantor),
including in such license the right to sublicense, use and practice any
Intellectual Property now owned or hereafter acquired by such Grantor and access
to all media in which any of the licensed items may be recorded or stored and to
all Software and programs used for the compilation or printout thereof and (ii)
an irrevocable license (without payment of rent or other compensation to such
Grantor) to use, operate and occupy all Real Property owned, operated, leased,
subleased or otherwise occupied by such Grantor.

 

9.

Accounts and Payments in Respect of Intangibles.

(a)        In addition to, and not in substitution for, any similar requirement
in the Credit Agreement, if required by the Agent at any time during the
continuance of an Event of Default, any payment of accounts or payment in
respect of intangibles, when collected by any Grantor, shall be promptly (and,
in any event, within 2 Business Days) deposited by such Grantor in the exact
form received, duly endorsed by such Grantor to the Agent, in a Controlled
Account, subject to withdrawal by the Agent as provided in Section 11. Until so
turned over, such payment shall be held by such Grantor in trust for the Agent,
segregated from other

 

 

17

 

 

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

funds of such Grantor. Each such deposit of proceeds of accounts and payments in
respect of intangibles shall be accompanied by a report identifying in
reasonable detail the nature and source of the payments included in the deposit.

 

(b)

At any time during the continuance of an Event of Default:

(i)      each Grantor shall, upon the Agent’s request, deliver to the Agent all
original and other documents evidencing, and relating to, the Contractual
Obligations and transactions that gave rise to any account or any payment in
respect of intangibles, including all original orders, invoices and shipping
receipts and notify account debtors that the accounts or intangibles have been
collaterally assigned to the Agent and that payments in respect thereof shall be
made directly to the Agent;

(ii)     the Agent may, without notice, at any time during the continuance of an
Event of Default, limit or terminate the authority of a Grantor to collect its
accounts or amounts due under intangibles or any thereof and, in its own name or
in the name of others, communicate with account debtors to verify with them to
the Agent’s satisfaction the existence, amount and terms of any account or
amounts due under any intangibles. In addition, the Agent may at any time
enforce such Grantor’s rights against such account debtors and obligors of
intangibles; and

(c)        Anything herein to the contrary notwithstanding, each Grantor shall
remain liable under each account and each payment in respect of intangibles to
observe and perform all the conditions and obligations to be observed and
performed by it thereunder, all in accordance with the terms of any agreement
giving rise thereto. No Secured Party shall have any obligation or liability
under any agreement giving rise to an account or a payment in respect of
intangibles by reason of or arising out of any Loan Document or the receipt by
any Secured Party of any payment relating thereto, nor shall any Secured Party
be obligated in any manner to perform any obligation of any Grantor under or
pursuant to any agreement giving rise to an account or a payment in respect of a
intangibles, to make any payment, to make any inquiry as to the nature or the
sufficiency of any payment received by it or as to the sufficiency of any
performance by any party thereunder, to present or file any claim, to take any
action to enforce any performance or to collect the payment of any amounts that
may have been assigned to it or to which it may be entitled at any time or
times.

 

10.

Pledged Collateral.

(a)        Voting Rights. Subject to Section 21(l) during the continuance of an
Event of Default, upon 10 Business Days notice in writing by the Agent to the
relevant Grantor or Grantors, the Agent or its nominee may exercise (A) any
voting, consent, corporate and other right pertaining to the Pledged Collateral
at any meeting of shareholders, partners or members, as the case may be, of the
relevant issuer or issuers of Pledged Collateral or otherwise and (B) any right
of conversion, exchange and subscription and any other right, privilege or
option pertaining to the Pledged Collateral as if it were the absolute owner
thereof (including the right to exchange at its discretion any Pledged
Collateral upon the merger, amalgamation, consolidation, reorganization,
recapitalization or other fundamental change in the corporate or equivalent
structure of any issuer of Pledged Stock, the right to deposit and deliver any
Pledged Collateral with any committee, depositary, transfer agent, registrar or
other designated agency upon such terms and conditions as the Agent may
determine), all without liability except to account for property actually
received by it; provided, however, that the Agent shall have no duty to any
Grantor to exercise any such right, privilege or option and shall not be
responsible for any failure to do so or delay in so doing.

(b)        Proxies. In order to permit the Agent to exercise the voting and
other consensual rights that it may be entitled to exercise pursuant hereto and
to receive all dividends and other distributions that it may be entitled to
receive hereunder, (i) each Grantor shall promptly execute and deliver (or cause
to be executed and delivered) to the Agent all such proxies, dividend payment
orders and other instruments as the Agent may from time to time reasonably
request and (ii) without limiting the effect of clause (i) above, such Grantor
hereby grants to the Agent an irrevocable proxy to vote all or any part of the
Pledged Collateral and to

 

 

18

 

 

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

exercise all other rights, powers, privileges and remedies to which a holder of
the Pledged Collateral would be entitled (including giving or withholding
written consents of shareholders, partners or members, as the case may be,
calling special meetings of shareholders, partners or members, as the case may
be, and voting at such meetings), which proxy shall be effective, automatically
and without the necessity of any action (including any transfer of any Pledged
Collateral on the record books of the issuer thereof) by any other person
(including the issuer of such Pledged Collateral or any officer or agent
thereof) during the continuance of an Event of Default and which proxy shall
only terminate upon the payment in full of the Secured Obligations (other than
contingent indemnification obligations to the extent no claim giving rise
thereto has been asserted).

(c)        Authorization of Issuers. Each Grantor hereby expressly irrevocably
authorizes and instructs, without any further instructions from such Grantor,
each issuer of any Pledged Collateral pledged hereunder by such Grantor to (i)
comply with any instruction received by it from the Agent in writing that states
that an Event of Default is continuing and is otherwise in accordance with the
terms of this Agreement and each Grantor agrees that such issuer shall be fully
protected from any liability to such Grantor in so complying and (ii) unless
otherwise expressly permitted hereby or the Credit Agreement, pay any dividend
or make any other payment with respect to the Pledged Collateral directly to the
Agent.

11.       Proceeds to be Turned over to and Held by Agent. Unless otherwise
expressly provided in the Credit Agreement or this Agreement, all proceeds of
any Collateral received by any Grantor hereunder in cash or Cash Equivalents
shall be held by such Grantor in trust for the Agent and the other Secured
Parties, segregated from other funds of such Grantor, and shall, promptly upon
receipt by any Grantor, be turned over to the Agent in the exact form received
(with any necessary endorsement). All such proceeds of Collateral and any other
proceeds of any Collateral received by the Agent in cash or Cash Equivalents
shall be held by the Agent in a Controlled Account. All proceeds being held by
the Agent in a Cash Collateral Account (or by such Grantor in trust for the
Agent) shall continue to be held as collateral security for the Secured
Obligations and shall not constitute payment thereof until applied as provided
in the Credit Agreement.

 

12.

Sale of Pledged Collateral.

(a)        Each Grantor recognizes that the Agent may be unable to effect a
public sale of any Pledged Collateral by reason of certain prohibitions
contained in securities laws or otherwise or may determine that a public sale is
impracticable, not desirable or not commercially reasonable and, accordingly,
may resort to one or more private sales thereof to a restricted group of
purchasers that shall be obliged to agree, among other things, to acquire such
securities for their own account for investment and not with a view to the
distribution or resale thereof. Each Grantor acknowledges and agrees that any
such private sale may result in prices and other terms less favorable than if
such sale were a public sale and, notwithstanding such circumstances, agrees
that any such private sale shall be deemed to have been made in a commercially
reasonable manner. The Agent shall be under no obligation to delay a sale of any
Pledged Collateral for the period of time necessary to permit the issuer thereof
to register such securities for public sale under Securities Laws even if such
issuer would agree to do so.

(b)        Each Grantor agrees to use its best efforts to do or cause to be done
all such other acts as may be necessary to make such sale or sales of any
portion of the Pledged Collateral pursuant to Section 8 and this Section 12
valid and binding and in compliance with all applicable Requirements of Law.
Each Grantor further agrees that a breach of any covenant contained herein will
cause irreparable injury to the Agent and other Secured Parties, that the Agent
and the other Secured Parties have no adequate remedy at law in respect of such
breach and, as a consequence, that each and every covenant contained herein
shall be specifically enforceable against such Grantor, and such Grantor hereby
waives and agrees not to assert any defense against an action for specific
performance of such covenants except for a defense that no Event of Default has
occurred under the Credit Agreement. Each Grantor waives any and all rights of
contribution or subrogation upon the sale or disposition of all or any portion
of the Pledged Collateral by Agent.

 

 

19

 

 

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

13.       Deficiency. Each Grantor shall remain liable for any deficiency if the
proceeds of any sale or other disposition of any Collateral are insufficient to
pay the Secured Obligations and the fees and disbursements of counsel retained
by the Agent (on a full indemnity basis) or any other Secured Party to collect
such deficiency.

 

14.

Agent’s Appointment as Attorney-in-Fact.

(a)        Each Grantor hereby irrevocably constitutes and appoints the Agent
and any Related Person thereof, with full power of substitution, as its true and
lawful attorney-in-fact with full irrevocable power and authority in the place
and stead of such Grantor and in the name of such Grantor or in its own name,
for the purpose of carrying out the terms of the Loan Documents, to take any
appropriate action and to execute any document or instrument that may be
necessary or desirable to accomplish the purposes of the Loan Documents, and,
without limiting the generality of the foregoing, each Grantor hereby gives the
Agent and its Related Persons the power and right, on behalf of such Grantor,
without notice to or assent by such Grantor, to do any of the following when an
Event of Default shall be continuing:

(i)      in the name of such Grantor, in its own name or otherwise, take
possession of and endorse and collect any cheque, draft, note, acceptance or
other instrument for the payment of moneys due under any account or intangible
or with respect to any other Collateral and file any claim or take any other
action or proceeding in any court of law or equity or otherwise deemed
appropriate by the Agent for the purpose of collecting any such moneys due under
any account or intangibles or with respect to any other Collateral whenever
payable;

(ii)     in the case of any Intellectual Property owned by or licensed to the
Grantors, execute, deliver and have recorded any document that the Agent may
request to evidence, effect, publicize or record the Agent’s security interest
in such Intellectual Property and the goodwill and intangibles of such Grantor
relating thereto or represented thereby;

(iii)    pay or discharge taxes and Liens levied or placed on or threatened
against any Collateral, effect any repair or pay any insurance called for by the
terms of the Credit Agreement (including all or any part of the premiums
therefor and the costs thereof);

(iv)    execute, in connection with any sale provided for in Section 8 or
Section 12, any document to effect or otherwise necessary or appropriate in
relation to evidence the sale of any Collateral; or

(v)     (A) direct any party liable for any payment under any Collateral to make
payment of any moneys due or to become due thereunder directly to the Agent or
as the Agent shall direct, (B) ask or demand for, and collect and receive
payment of and receipt for, any moneys, claims and other amounts due or to
become due at any time in respect of or arising out of any Collateral, (C) sign
and endorse any invoice, freight or express bill, bill of lading, storage or
warehouse receipt, draft against debtors, assignment, verification, notice and
other document in connection with any Collateral, (D) commence and prosecute any
suit, action or proceeding at law or in equity in any court of competent
jurisdiction to collect any Collateral and to enforce any other right in respect
of any Collateral, (E) defend any actions, suits, proceedings, audits, claims,
demands, orders or disputes brought against such Grantor with respect to any
Collateral, (F) settle, compromise or adjust any such actions, suits,
proceedings, audits, claims, demands, orders or disputes and, in connection
therewith, give such discharges or releases as the Agent may deem appropriate,
(G) assign any Intellectual Property owned by the Grantors throughout the world
on such terms and conditions and in such manner as the Agent shall in its sole
discretion determine, including the execution and filing of any document
necessary to effectuate or record such assignment and (H) generally, sell,
assign, convey, transfer or grant a Lien on, make any Contractual Obligation
with respect to and otherwise deal with, any Collateral as fully and completely
as though the Agent were the absolute owner thereof for all purposes and do, at
the Agent’s option, at any time or from time to time, all acts and things that
the Agent deems necessary to protect, preserve or

 

 

20

 

 

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

realize upon any Collateral and the Secured Parties’ security interests therein
and to effect the intent of the Loan Documents, all as fully and effectively as
such Grantor might do.

(vi)    If any Grantor fails to perform or comply with any Contractual
Obligation contained herein, the Agent, at its option, but without any
obligation so to do, may perform or comply, or otherwise cause performance or
compliance, with such Contractual Obligation.

(b)        The expenses of the Agent incurred in connection with actions
undertaken as provided in this Section 14, together with interest thereon at a
rate set forth in Section 2.5 of the Credit Agreement, from the date of payment
by the Agent to the date reimbursed by the relevant Grantor, shall be payable by
such Grantor to the Agent on demand.

(c)        Each Grantor hereby ratifies all that said attorneys shall lawfully
do or cause to be done by virtue of this Section 14. All powers, authorizations
and agencies contained in this Agreement are coupled with an interest and are
irrevocable until this Agreement is terminated and the security interests
created hereby are released.

15.       Authorization to File Financing Statements. Each Grantor authorizes
the Agent and its Related Persons, at any time and from time to time, to file or
record financing statements, financing change statements thereto, and other
filing or recording documents or instruments with respect to any Collateral in
such form and in such offices as the Agent reasonably determines appropriate to
perfect the security interests of the Agent under this Agreement, and such
financing statements and financing change statements may describe the Collateral
covered thereby as “all present and after-acquired personal property of the
debtor” or “all assets of the debtor”. Such Grantor also hereby ratifies its
authorization for the Agent to have filed any initial financing statement or
financing change statement thereto under the PPSA (or other similar laws) in
effect in any jurisdiction if filed prior to the date hereof.

16.       Authority of Agent. Each Grantor acknowledges that the rights and
responsibilities of the Agent under this Agreement with respect to any action
taken by the Agent or the exercise or non-exercise by the Agent of any option,
voting right, request, judgment or other right or remedy provided for herein or
resulting or arising out of this Agreement shall, as between the Agent and the
other Secured Parties, be governed by the Credit Agreement and by such other
agreements with respect thereto as may exist from time to time among them, but,
as between the Agent and the Grantors, the Agent shall be conclusively presumed
to be acting as agent for the Secured Parties with full and valid authority so
to act or refrain from acting, and no Grantor shall be under any obligation or
entitlement to make any inquiry respecting such authority.

 

17.

Duty; Obligations and Liabilities.

(a)        The Agent’s sole duty with respect to the custody, safekeeping and
physical preservation of the Collateral in its possession shall be to deal with
it in the same manner as the Agent deals with similar property for its own
account. The powers conferred on the Agent hereunder are solely to protect the
Agent’s interest in the Collateral and shall not impose any duty upon the Agent
to exercise any such powers. The Agent shall be accountable only for amounts
that it receives as a result of the exercise of such powers, and neither it nor
any of its Related Persons shall be responsible to any Grantor for any act or
failure to act hereunder, except for their own gross negligence or willful
misconduct as finally determined by a court of competent jurisdiction. In
addition, the Agent shall not be liable or responsible for any loss or damage to
any Collateral, or for any diminution in the value thereof, by reason of the act
or omission of any warehousemen, carrier, forwarding agency, consignee or other
bailee if such Person has been selected by the Agent in good faith.

(b)        No Secured Party and no Related Person thereof shall be liable for
failure to demand, collect or realize upon any Collateral or for any delay in
doing so or shall be under any obligation to sell or otherwise dispose of any
Collateral upon the request of any Grantor or any other Person or to take any
other action whatsoever with regard to any Collateral. The powers conferred on
the Agent hereunder shall not

 

 

21

 

 

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

impose any duty upon any other Secured Party to exercise any such powers. The
other Secured Parties shall be accountable only for amounts that they actually
receive as a result of the exercise of such powers, and neither they nor any of
their respective officers, directors, employees or agents shall be responsible
to any Grantor for any act or failure to act hereunder, except for their own
gross negligence or willful misconduct as finally determined by a court of
competent jurisdiction.

18.       Remedies Cumulative. Each right, power, and remedy of Agent as
provided for in this Agreement or in the other Loan Documents or now or
hereafter existing at law or in equity or by statute or otherwise shall be
cumulative and concurrent and shall be in addition to every other right, power,
or remedy provided for in this Agreement or in the other Loan Documents or now
or hereafter existing at law or in equity or by statute or otherwise, and the
exercise or beginning of the exercise by Agent, of any one or more of such
rights, powers, or remedies shall not preclude the simultaneous or later
exercise by Agent of any or all such other rights, powers, or remedies.

19.       Marshaling. Agent shall not be required to marshal any present or
future collateral security (including but not limited to the Collateral) for, or
other assurances of payment of, the Secured Obligations or any of them or to
resort to such collateral security or other assurances of payment in any
particular order, and all of its rights and remedies hereunder and in respect of
such collateral security and other assurances of payment shall be cumulative and
in addition to all other rights and remedies, however existing or arising. To
the extent that it lawfully may, each Grantor hereby agrees that it will not
invoke any law relating to the marshaling of collateral which might cause delay
in or impede the enforcement of Agent's rights and remedies under this Agreement
or under any other instrument creating or evidencing any of the Secured
Obligations or under which any of the Secured Obligations is outstanding or by
which any of the Secured Obligations is secured or payment thereof is otherwise
assured, and, to the extent that it lawfully may, each Grantor hereby
irrevocably waives the benefits of all such laws.

 

20.

Indemnity and Expenses.

(a)        Each Grantor agrees to indemnify Agent and the other members of the
Lender Group from and against all claims, lawsuits and liabilities (including
reasonable legal fees and disbursements (on a full indemnity basis) growing out
of or resulting from this Agreement (including enforcement of this Agreement) or
any other Loan Document to which such Grantor is a party, except claims, losses
or liabilities resulting from the gross negligence or willful misconduct of the
party seeking indemnification as determined by a final non-appealable order of a
court of competent jurisdiction. This provision shall survive the termination of
this Agreement and the Credit Agreement and the repayment of the Secured
Obligations.

(b)        Grantors, jointly and severally, shall, upon demand, pay to Agent (or
Agent, may charge to the Loan Account) all the Lender Group Expenses which Agent
may incur in connection with (i) the administration of this Agreement, (ii) the
custody, preservation, use or operation of, or, upon an Event of Default, the
sale of, collection from, or other realization upon, any of the Collateral in
accordance with this Agreement and the other Loan Documents, (iii) the exercise
or enforcement of any of the rights of Agent hereunder or (iv) the failure by
any of Grantors to perform or observe any of the provisions hereof.

 

21.

General

 

(a)

Reinstatement.

Each Grantor agrees that, if any payment made by any Credit Party or other
Person and applied to the Secured Obligations is at any time annulled, avoided,
set aside, rescinded, invalidated, declared to be fraudulent or preferential or
otherwise required to be refunded or repaid, or the proceeds of any Collateral
are required to be returned by any Secured Party to such Credit Party, its
estate, trustee, receiver or any other party, including any Grantor, under any
bankruptcy law, provincial or federal law, common law or equitable cause, then,
to the extent of such payment or repayment, any Lien or other Collateral
securing such liability shall be and remain in full force and effect, as fully
as if such payment had never been made. If, prior to any of the foregoing, (a)
any Lien or other

 

 

22

 

 

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

Collateral securing such Grantor’s liability hereunder shall have been released
or terminated by virtue of the foregoing, such Lien, other Collateral or
provision shall be reinstated in full force and effect and such prior release,
termination, cancellation or surrender shall not diminish, release, discharge,
impair or otherwise affect the obligations of any such Grantor in respect of any
Lien or other Collateral securing such obligation or the amount of such payment.

(b)        Merger, Amendments; Etc. THIS AGREEMENT, TOGETHER WITH THE OTHER LOAN
DOCUMENTS, REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS
OF THE PARTIES. THERE ARE NO UNWRITTEN AGREEMENTS BETWEEN THE PARTIES. No waiver
of any provision of this Agreement, and no consent to any departure by any of
Grantors herefrom, shall in any event be effective unless the same shall be in
writing and signed by Agent, and then such waiver or consent shall be effective
only in the specific instance and for the specific purpose for which given. No
amendment of any provision of this Agreement shall be effective unless the same
shall be in writing and signed by Agent and each of Grantors to which such
amendment applies.

 

(c)

Independent Obligations.

The obligations of each Grantor hereunder are independent of and separate from
the Secured Obligations. If any Secured Obligation is not paid when due, or upon
any Event of Default, the Agent may, at its sole election, proceed directly and
at once, without notice, against any Grantor and any Collateral to collect and
recover the full amount of any Secured Obligation then due, without first
proceeding against any other Grantor, any other Credit Party or any other
Collateral and without first joining any other Grantor or any other Credit Party
in any proceeding.

 

(d)

No Waiver by Course of Conduct.

No Secured Party shall by any act, delay, indulgence, omission or otherwise be
deemed to have waived any right or remedy hereunder or to have acquiesced in any
Default or Event of Default. No failure to exercise, nor any delay in
exercising, on the part of any Secured Party, any right, power or privilege
hereunder shall operate as a waiver thereof. No single or partial exercise of
any right, power or privilege hereunder shall preclude any other or further
exercise thereof or the exercise of any other right, power or privilege. A
waiver by any Secured Party of any right or remedy hereunder on any one occasion
shall not be construed as a bar to any right or remedy that such Secured Party
would otherwise have on any future occasion.

 

(e)

Amendments in Writing.

None of the terms or provisions of this Agreement may be waived, amended,
supplemented or otherwise modified except in accordance with Section 14.1 of the
Credit Agreement; provided, however, that annexes to this Agreement may be
supplemented (but no existing provisions may be modified and no Collateral may
be released) through Supplements and Pledge Amendments, in substantially the
form of Annex 1 and Annex 2, respectively, in each case duly executed by the
Agent and each Grantor directly affected thereby.

 

(f)

Additional Grantors; Additional Pledged Collateral.

(i)      Supplements. If, at the option of the Grantors or as required pursuant
to Sections 5.11 and 5.12 of the Credit Agreement, any Borrower shall cause any
direct or indirect Subsidiary that is not a Grantor to become a Grantor
hereunder, such Subsidiary shall execute and deliver to the Agent a supplement
substantially in the form of Annex 1 (each, a “Supplement”) and shall thereafter
for all purposes be a party hereto and a Grantor hereunder with the same force
and effect as if originally a Grantor hereunder and have the same rights,
benefits and obligations as a Grantor party hereto on the Closing Date. The
execution and delivery of any instrument adding an additional Grantor as a party
to this Agreement shall not require the consent of any Grantor hereunder. The
rights and obligations of each Grantor hereunder shall remain in full force and
effect notwithstanding the addition of any new Grantor hereunder.

 

 

23

 

 

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

(ii)     Pledge Amendments. To the extent any Pledged Collateral has not been
delivered as of the Closing Date, the applicable Grantor shall deliver a pledge
amendment duly executed by the Grantor in substantially the form of Annex 2
(each, a “Pledge Amendment”). Such Grantor authorizes the Agent to attach each
Pledge Amendment to this Agreement.

 

(g)

Addresses for Notices.

All notices and other communications provided for hereunder shall be given in
the form and manner and delivered to Agent at its address specified in the
Credit Agreement, and to any of the Grantors at their respective addresses
specified in the Credit Agreement or Guaranty, as applicable, or, as to any
party, at such other address as shall be designated by such party in a written
notice to the other party.

 

(h)

Continuing Security Interest: Assignment under Credit Agreement.

This Agreement shall create a continuing security interest in the Collateral and
shall (a) remain in full force and effect until the Obligations have been paid
in full in cash in accordance with the provisions of the Credit Agreement and
the Commitments have expired or have been terminated, (b) be binding upon each
of Grantors, and their respective successors and assigns, and (c) enure to the
benefit of, and be enforceable by, Agent, and its successors, transferees and
assigns. Without limiting the generality of the foregoing clause (c), any Lender
may, in accordance with the provisions of the Credit Agreement, assign or
otherwise transfer all or any portion of its rights and obligations under the
Credit Agreement to any other Person, and such other Person shall thereupon
become vested with all the benefits in respect thereof granted to such the
Lender herein or otherwise. Upon payment in full in cash of the Obligations in
accordance with the provisions of the Credit Agreement and the expiration or
termination of the Commitments, the Security Interest granted hereby shall
terminate and all rights to the Collateral shall revert to Grantors or any other
Person entitled thereto. At such time, Agent will authorize the filing of
appropriate financing change statements or termination statements to terminate
and discharge such Security Interests. No transfer or renewal, extension,
assignment, or termination of this Agreement or of the Credit Agreement, any
other Loan Document, or any other instrument or document executed and delivered
by any Grantor to Agent nor any additional Advances or other loans made by any
Lender to a Borrower, nor the taking of further security, nor the retaking or
re-delivery of the Collateral to Grantors, or any of them, by Agent, nor any
other act of the Lender Group or the Hedge Agreement Providers, or any of them,
shall release any of Grantors from any obligation, except a release or discharge
executed in writing by Agent in accordance with the provisions of the Credit
Agreement. Agent shall not by any act, delay, omission or otherwise, be deemed
to have waived any of its rights or remedies hereunder, unless such waiver is in
writing and signed by Agent and then only to the extent therein set forth. A
waiver by Agent of any right or remedy on any occasion shall not be construed as
a bar to the exercise of any such right or remedy which Agent would otherwise
have had on any other occasion.

 

(i)

Governing Law, Attornment and Waiver of Jury Trial.

(A)     EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN ANY OF THE LOAN DOCUMENTS, IN
ALL RESPECTS, INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE,
THIS SECURITY AGREEMENT AND THE OBLIGATIONS ARISING HEREUNDER SHALL BE GOVERNED
BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE PROVINCE OF
BRITISH COLUMBIA AND THE FEDERAL LAWS OF CANADA APPLICABLE THEREIN.

(B)      EACH GRANTOR HEREBY CONSENTS AND AGREES THAT THE COURTS LOCATED IN
BRITISH COLUMBIA, SHALL HAVE NON-EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE
ANY CLAIMS OR DISPUTES BETWEEN GRANTOR, AGENT AND THE SECURED PARTIES PERTAINING
TO THIS SECURITY AGREEMENT OR TO ANY MATTER ARISING OUT OF OR RELATING TO THIS
SECURITY AGREEMENT, PROVIDED THAT AGENT, THE SECURED PARTIES AND GRANTOR
ACKNOWLEDGE THAT ANY APPEALS FROM THOSE COURTS MAY HAVE TO BE HEARD BY A COURT
LOCATED OUTSIDE OF BRITISH COLUMBIA, AND PROVIDED

 

 

24

 

 

FURTHER, NOTHING IN THIS AGREEMENT SHALL BE DEEMED OR OPERATE TO PRECLUDE AGENT
FROM BRINGING SUIT OR TAKING OTHER LEGAL ACTION IN ANY OTHER JURISDICTION IN
CONNECTION WITH THIS SECURITY AGREEMENT OR TO REALIZE ON THE COLLATERAL OR ANY
OTHER SECURITY FOR THE SECURED OBLIGATIONS, OR TO ENFORCE A JUDGMENT OR OTHER
COURT ORDER IN FAVOUR OF AGENT. GRANTOR EXPRESSLY SUBMITS AND CONSENTS IN
ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT,
AND GRANTOR HEREBY WAIVES ANY OBJECTION WHICH IT MAY HAVE BASED UPON LACK OF
PERSONAL JURISDICTION, IMPROPER VENUE OR FORUM NON CONVENIENS AND HEREBY
CONSENTS TO THE GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED
APPROPRIATE BY SUCH COURT. GRANTOR HEREBY WAIVES PERSONAL SERVICE OF THE
SUMMONS, COMPLAINT AND OTHER PROCESS ISSUED IN ANY SUCH ACTION OR SUIT AND
AGREES THAT SERVICE OF SUCH SUMMONS, COMPLAINTS AND OTHER PROCESS MAY BE MADE BY
REGISTERED OR CERTIFIED MAIL ADDRESSED TO GRANTOR AT THE ADDRESS FOR NOTICE
CONTEMPLATED IN THE CREDIT AGREEMENT AND THAT SERVICE SO MADE SHALL BE DEEMED
COMPLETED UPON THE ACTUAL RECEIPT THEREOF OR THREE (3) DAYS AFTER DEPOSIT WITH
CANADA POST, PROPER POSTAGE PREPAID.

(C)     TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW, AGENT AND EACH
GRANTOR HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR
CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT OR ANY OF THE
TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS,
BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS. AGENT AND
EACH GRANTOR REPRESENT THAT EACH HAS REVIEWED THIS WAIVER AND EACH KNOWINGLY AND
VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL
COUNSEL. IN THE EVENT OF LITIGATION, A COPY OF THIS AGREEMENT MAY BE FILED AS A
WRITTEN CONSENT TO A TRIAL BY THE COURT.

(j)        Agent. Each reference herein to any right granted to, benefit
conferred upon or power exercisable by the “Agent” shall be a reference to
Agent, for the benefit of the Secured Parties.

(k)        Permitted Liens. The inclusion or reference to Permitted Liens in
this Agreement or in any other Loan Document is not intended to subordinate and
shall no subordinate, and shall not be interpreted as subordinating, the Lien
and security interest created by this Agreement or any other Loan Document to
any Permitted Liens.

(l)        ULC Limitation. Notwithstanding any provisions to the contrary
contained in this Agreement, the Credit Agreement or any other document or
agreement among all or some of the parties hereto, each Grantor is as of the
date of this Agreement the sole registered and beneficial owner of all Pledged
ULC Stock more particularly described in Schedule 4 to this Agreement and will
remain so until such time as such Pledged ULC Stock are fully and effectively
transferred into the name of the Secured Party or any other person on the books
and records of such ULC. Nothing in this Agreement, the Credit Agreement or any
other document or agreement delivered among all or some of the parties hereto is
intended to or shall constitute the Secured Party or any person other than a
Grantor to be a member or shareholder of any ULC until such time as written
notice is given to the applicable Grantor and all further steps are taken so as
to register the Secured Party or other person as holder of the Pledged ULC
Stock. The granting of the pledge and Security Interest pursuant to Section 2
hereof does not make the Agent or any Secured Party a successor to any Grantor
as a member or shareholder of any ULC, and neither any Secured Party nor any of
its respective successors or assigns hereunder shall be deemed to become a
member or shareholder of any ULC by accepting this Agreement or exercising any
right granted herein unless and until such time, if any, when any Secured Party
or any successor or assign expressly becomes a registered member or shareholder
of any ULC. To the extent any provision hereof would have the effect of
constituting the Agent or any Secured Party to be a member or shareholder of any
ULC prior to such time, such provision shall be severed herefrom and ineffective
with

 

 

25

 

 

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

respect to the relevant Pledged ULC Stock without otherwise invalidating or
rendering unenforceable this Agreement or invalidating or rendering
unenforceable such provision insofar as it relates to Collateral other than
Pledged ULC Stock. Notwithstanding anything herein to the contrary (except to
the extent, if any, that the Agent or any Secured Party or any of its successors
or assigns hereafter expressly becomes a registered member or shareholder of any
ULC), neither the Agent nor any Secured Party nor any of their respective
successors or assigns shall be deemed to have assumed or otherwise become liable
for any debts or obligations of any ULC. Except upon the exercise by the Secured
Party or other persons of rights to sell or otherwise dispose of Pledged ULC
Stock or other remedies following the occurrence and during the continuance of
an Event of Default, no Grantor shall cause or permit, or enable any ULC in
which it holds Pledged ULC Stock to cause or permit, the Agent or any Secured
Party to: (a) be registered as member or shareholder of such ULC; (b) have any
notation entered in its favour in the share register of such ULC; (c) be held
out as member or shareholder of such ULC; (d) receive, directly or indirectly,
any dividends, property or other distributions from such ULC by reason of the
Agent or applicable Secured Party or other person holding a security interest in
the Pledged ULC Stock; or (e) act as a member or shareholder of such ULC, or
exercise any rights of a member or shareholder of such ULC, including the right
to attend a meeting of such ULC or vote the shares of such ULC.

(m)       Amalgamation. Each Grantor acknowledges and agrees that, in the event
it amalgamates or merges with any other corporation or corporations, it is the
intention of the parties hereto that the term “Grantor”, when used herein, shall
apply to each of the amalgamating or merging corporations and to the amalgamated
or merged corporation, such that the Security Interest granted hereby:

(i)      shall extend to “Collateral” (as that term is herein defined) owned by
each of the amalgamating corporations and the amalgamated or merged corporation
at the time of amalgamation and to any “Collateral” thereafter owned or acquired
by the amalgamated or merged corporation, and

(ii)     shall secure all “Secured Obligations” (as that term is herein defined)
of each of the amalgamating or merging corporations and the amalgamated or
merged corporation to Agent and Secured Parties at the time of amalgamation or
merger and all “Secured Obligations” of the amalgamated or merged corporation to
Agent and Secured Parties thereafter arising. The Security Interest shall attach
to all “Collateral” owned by each corporations amalgamating or merging with any
Debtor, and by the amalgamated or merged company, at the time of the
amalgamation or merger, and shall attach to all “Collateral” thereafter owned or
acquired by the amalgamated or merged corporation when such becomes owned or is
acquired.

 

22.

Miscellaneous.

(a)        This Agreement may be executed in any number of counterparts and by
different parties on separate counterparts, each of which, when executed and
delivered, shall be deemed to be an original, and all of which, when taken
together, shall constitute but one and the same Agreement. Delivery of an
executed counterpart of this Agreement by telefacsimile or other electronic
method of transmission shall be equally as effective as delivery of an original
executed counterpart of this Agreement. Any party delivering an executed
counterpart of this Agreement by telefacsimile or other electronic method of
transmission also shall deliver an original executed counterpart of this
Agreement but the failure to deliver an original executed counterpart shall not
affect the validity, enforceability, and binding effect of this Agreement. The
foregoing shall apply to each other Loan Document mutatis mutandis.

(b)        Any provision of this Agreement which is prohibited or unenforceable
shall be ineffective to the extent of such prohibition or unenforceability
without invalidating the remaining provisions hereof in that jurisdiction or
affecting the validity or enforceability of such provision in any other
jurisdiction.

(c)        Headings used in this Agreement are for convenience only and shall
not be used in connection with the interpretation of any provision hereof.

 

 

26

 

 

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

(d)        The pronouns used herein shall include, when appropriate, either
gender and both singular and plural, and the grammatical construction of
sentences shall conform thereto.

(e)        Unless the context of this Agreement or any other Loan Document
clearly requires otherwise, references to the plural include the singular,
references to the singular include the plural, the terms “includes” and
“including” are not limiting, and the term “or” has, except where otherwise
indicated, the inclusive meaning represented by the phrase “and/or.” The words
“hereof,” “herein,” “hereby,” “hereunder,” and similar terms in this Agreement
or any other Loan Document refer to this Agreement or such other Loan Document,
as the case may be, as a whole and not to any particular provision of this
Agreement or such other Loan Document, as the case may be. Section, subsection,
clause, schedule, and exhibit references herein are to this Agreement unless
otherwise specified. Any reference in this Agreement or in any other Loan
Document to any agreement, instrument, or document shall include all
alterations, amendments, changes, extensions, modifications, renewals,
replacements, substitutions, joinders, and supplements, thereto and thereof, as
applicable (subject to any restrictions on such alterations, amendments,
changes, extensions, modifications, renewals, replacements, substitutions,
joinders, and supplements set forth herein). Any reference herein or in any
other Loan Document to the satisfaction or repayment in full of the Obligations
shall mean the repayment in full in cash (or cash collateralization in
accordance with the terms of the Credit Agreement) of all Obligations other than
unasserted contingent indemnification Obligations and other than any Hedge
Agreement Obligations that, at such time, are allowed by the Hedge Agreement
Providers to remain outstanding and that are not required by the provisions of
the Credit Agreement to be repaid or cash collateralized. Any reference herein
to any Person shall be construed to include such Person’s successors and
assigns. Any requirement of a writing contained herein or in any other Loan
Document shall be satisfied by the transmission of a Record.

 

 

27

 

 

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

IN WITNESS WHEREOF, the undersigned parties hereto have executed this Agreement
by and through their duly authorized officers, as of the day and year first
above written.

 

GRANTORS:

SYSCON JUSTICE SYSTEMS CANADA LTD., a British Columbia company:

 

By:        /s/ Richard Smith
               Name: Richard Smith
               Title: President

 

 

AGENT:

WELLS FARGO FOOTHILL, LLC, as Agent

 

By:        /s/ Samantha Alexander
               Name: Samantha Alexander
               Title: Underwriter, Vice Presient

 

 

 

 

28