Exhibit 10.4

 

PLEDGE AND SECURITY AGREEMENT

 

THIS PLEDGE AND SECURITY AGREEMENT (this “Security Agreement”) is entered into
as of December 17, 2004 by and among INERGY, L.P., a Delaware limited
partnership (the “Borrower”) and the other Subsidiaries of the Borrower listed
on the signature pages hereto (together with the Borrower, the “Initial
Grantors,” and together with any additional Domestic Subsidiaries, whether now
existing or hereafter formed which become parties to this Security Agreement by
executing a Supplement hereto in substantially the form of Annex I, the
“Grantors”), and JPMORGAN CHASE BANK, N.A., a national banking association, in
its capacity as administrative agent (the “Administrative Agent”) for the
lenders party to the Credit Agreements referred to below (collectively, the
“Lenders”).

 

PRELIMINARY STATEMENT

 

The Borrower is party to (i) a 5-Year Credit Agreement dated as of the date
hereof (as the same may be amended, restated, supplemented or otherwise modified
from time to time, the “5-Year Credit Agreement”), by and among the Borrower,
the Administrative Agent, and certain financial institutions from time to time
party thereto (collectively, the “5-Year Lenders”) and (ii) a 364-Day Credit
Agreement dated as of the date hereof (as the same may be amended, restated,
supplemented or otherwise modified from time to time, the “364-Day Credit
Agreement” and, together with the 5-Year Credit Agreement, the “Credit
Agreements”) by and among the Borrower, the Administrative Agent and certain
financial institutions from time to time party thereto (together with the 5-Year
Lenders, the “Lenders”). The Grantors are entering into this Security Agreement
in order to induce the Lenders to enter into and extend credit to the Borrower
under the Credit Agreements.

 

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

 

ARTICLE I

 

DEFINITIONS

 

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

 

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

 

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

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

 

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

 

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

 

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

 

“Collateral” means all Accounts, Chattel Paper, Commercial Tort Claims,
Documents, Equipment, Fixtures, Goods, General Intangibles, Instruments,
Inventory, Investment Property, Pledged Deposits, Supporting Obligations and
Other Collateral, wherever located, in which any Grantor now has or hereafter
acquires any right or interest, and the proceeds (including Stock Rights),
insurance proceeds and products thereof, together with all books and records,
customer lists, credit files, computer files, programs, printouts and other
computer materials and records related thereto.

 

“Commercial Tort Claims” means those certain currently existing commercial tort
claims of any Grantor, including each commercial tort claim specifically
described in Exhibit “F”.

 

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

 

“Default” means an event described in Section 5.1 hereof.

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

“New York UCC” means the New York Uniform Commercial Code as in effect from time
to time.

 

2

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

“Other Collateral” means any property of the Grantors, not included within the
defined terms Accounts, Chattel Paper, Commercial Tort Claims, Documents,
Equipment, Fixtures, General Intangibles, Instruments, Inventory, Investment
Property and Pledged Deposits, including, without limitation, all cash on hand,
letter-of-credit rights, letters of credit, Stock Rights and Deposit Accounts or
other deposits (general or special, time or demand, provisional or final) with
any bank or other financial institution, it being intended that the Collateral
include all personal property of the Grantors and motor vehicles to the extent
required by Section 5.13 and Article VIII of the Credit Agreement.

 

“Pledged Deposits” means all time deposits of money (other than Deposit Accounts
and Instruments), whether or not evidenced by certificates, which a Grantor may
from time to time designate as pledged to the Administrative Agent or to any
Holder of Secured Obligations as security for any Obligations, and all rights to
receive interest on said deposits.

 

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

 

“Required Lenders” means, at any time, the Lenders having Revolving Credit
Exposures and unused Commitments representing more than 50% of the sum of the
total Revolving Credit Exposures and unused Commitments under the Credit
Agreements.

 

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

 

“Security” has the meaning set forth in Article 8 of the New York UCC.

 

“Stock Rights” means any Securities, dividends or other distributions and any
other right or property which any Grantor shall receive or shall become entitled
to receive for any reason whatsoever with respect to, in substitution for or in
exchange for any Securities or other ownership interests in a corporation,
partnership, joint venture or limited liability company constituting Collateral
and any Securities, any right to receive Securities and any right to receive
earnings, in which any Grantor now has or hereafter acquires any right, issued
by an issuer of such Securities.

 

“Supporting Obligation” shall have the meaning set forth in Article 9 of the New
York UCC.

 

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

 

ARTICLE II

 

GRANT OF SECURITY INTEREST

 

Each of the Grantors hereby pledges, assigns and grants to the Administrative
Agent, on behalf of and for the ratable benefit of the Holders of Secured
Obligations and (to the extent specifically provided herein) their Affiliates, a
security interest in all of such Grantor’s right, title

 

3

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

and interest, whether now owned or hereafter acquired, in and to the Collateral
to secure the prompt and complete payment and performance of the Obligations.

 

ARTICLE III

 

REPRESENTATIONS AND WARRANTIES

 

Each of the Initial Grantors represents and warrants to the Administrative Agent
and the Holders of Secured Obligations, and each Grantor that becomes a party to
this Security Agreement pursuant to the execution of a Security Agreement
Supplement in substantially the form of Annex I represents and warrants (after
giving effect to supplements to each of the Exhibits hereto with respect to such
subsequent Grantor as attached to such Security Agreement Supplement), that:

 

3.1. Title, Authorization, Validity and Enforceability. Such Grantor has good
and valid rights in or the power to transfer the Collateral owned by it and
title to the Collateral with respect to which it has purported to grant a
security interest hereunder, free and clear of all Liens except for Liens
permitted under Section 4.1.6 hereof, and has full corporate, limited liability
company or partnership, as applicable, power and authority to grant to the
Administrative Agent the security interest in such Collateral pursuant hereto.
The execution and delivery by such Grantor of this Security Agreement has been
duly authorized by proper corporate, limited liability company or partnership,
as applicable, proceedings, and this Security Agreement constitutes a legal,
valid and binding obligation of such Grantor and creates a security interest
which is enforceable against such Grantor in all Collateral it now owns or
hereafter acquires, except as enforceability may be limited by (i) bankruptcy,
insolvency, fraudulent conveyances, reorganization or similar laws relating to
or affecting the enforcement of creditors’ rights generally, (ii) general
equitable principles (whether considered in a proceeding in equity or at law),
and (iii) requirements of reasonableness, good faith and fair dealing. When
financing statements have been filed in the appropriate offices against such
Grantor in the locations listed on Exhibit “E”, the Administrative Agent will
have a fully perfected first priority security interest in the Collateral owned
by such Grantor in which a security interest may be perfected by such filings,
subject only to Liens permitted under Section 4.1.6 hereof.

 

3.2. Conflicting Laws and Contracts. Neither the execution and delivery by such
Grantor of this Security Agreement, the creation and perfection of the security
interest in the Collateral granted hereunder, nor compliance with the terms and
provisions hereof will violate (i) any law, rule, regulation, order, writ,
judgment, injunction, decree or award binding on such Grantor, or (ii) such
Grantor’s Organic Documents, or (iii) the provisions of any material indenture,
instrument or agreement to which such Grantor is a party or is subject, or by
which it, or its property may be bound or affected, or conflict with or
constitute a default thereunder, except where such violation, conflict or
default could not reasonably be expected to have a Material Adverse Effect, or
result in or require the creation or imposition of any Lien in, of or on the
property of such Grantor pursuant to the terms of any such material indenture,
instrument or agreement (other than any Lien of the Administrative Agent on
behalf of the Holders of Secured Obligations).

 

4

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

3.3. Principal Location. Such Grantor’s mailing address and the location of its
place of business (if it has only one) or its chief executive office (if it has
more than one place of business), is disclosed in Exhibit “A”; such Grantor has
no other places of business except those set forth in Exhibit “A”.

 

3.4. Property Locations. Except for tanks and inventory located on customers’
property and motor vehicles, the Inventory, Equipment and Fixtures of each
Grantor are located solely at the locations of such Grantor described in Exhibit
“A”. All of said locations are owned by such Grantor except for locations (i)
which are leased by such Grantor as lessee and designated in Part B of Exhibit
“A” and (ii) at which Inventory is held in a public warehouse or is otherwise
held by a bailee or on consignment by such Grantor as designated in Part C of
Exhibit “A”, with respect to which Inventory such Grantor has delivered bailment
agreements, warehouse receipts, financing statements or other documents
satisfactory to the Administrative Agent to protect the Administrative Agent’s
and the Holders of Secured Obligations’ security interest in such Inventory.

 

3.5. No Other Names. Except as described in Exhibit “H”, such Grantor has not
conducted business under any name except the name in which it has executed this
Security Agreement, which is the exact name as it appears in such Grantor’s
Organic Documents, as amended, as filed with such Grantor’s jurisdiction of
organization as of the Closing Date.

 

3.6. No Default. No Default or Event of Default exists.

 

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

 

3.8. Filing Requirements. None of the Equipment owned by such Grantor is covered
by any certificate of title, except for the vehicles described in Part A of
Exhibit “B”. None of the Collateral owned by such Grantor is of a type for which
security interests or liens may be perfected by filing under any federal statute
except for (i) the vehicles described in Part B of Exhibit “B” and (ii) patents,
trademarks and copyrights held by such Grantor and described in Part C of
Exhibit “B”. The street address of the property on which any Fixtures owned by
such Grantor are located is set forth in Exhibit “C” together with the name and
address of the record owner of each such property.

 

3.9. No Financing Statements. No financing statement describing all or any
portion of the Collateral which has not lapsed or been terminated naming such
Grantor as debtor has been filed in any jurisdiction except financing statements
(i) naming the Administrative Agent on behalf of the Holders of Secured
Obligations as the secured party and (ii) in respect of Liens permitted by
Section 6.02 of any Credit Agreement; provided, that nothing herein shall be
deemed to constitute an agreement to subordinate any of the Liens of the
Administrative Agent

 

5

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

under the Credit Documents to any Liens otherwise permitted under Section 6.02
of any Credit Agreement.

 

3.10. Federal Employer Identification Number; State Organization Number;
Jurisdiction of Organization. Such Grantor’s federal employer identification
number is, and if such Grantor is a registered organization, such Grantor’s
State of organization, type of organization and State of organization
identification number is, as follows:

 

GRANTOR

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

 

Federal
Employer
Identification
Number

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

 

Type of
Organization

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

 

State of
Organization or
Incorporation

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

 

State
Organization
Number

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

INERGY, L.P.   43-1918951   Limited Partnership   Delaware   3365578 L&L
TRANSPORTATION, LLC   43-1905384   Limited Liability Company   Delaware  
3293748 INERGY TRANSPORTATION, LLC   43-1905383   Limited Liability Company  
Delaware   3293746 INERGY SALES & SERVICE, INC.   43-1931522   Corporation  
Delaware   3363846 INERGY PROPANE, LLC   56-1995482   Limited Liability Company
  Delaware   2678540 INERGY FINANCE CORP.   20-1647744   Corporation   Delaware
  3857399 INERGY ACQUISITION COMPANY, LLC   20-1647837   Limited Liability
Company   Delaware   3857400 INERGY GAS, LLC       Limited Liability Company  
Delaware     STELLAR PROPANE SERVICE, LLC   86-1123848   Limited Liability
Company   Delaware   3881149

 

6

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

3.11. Pledged Securities and Other Investment Property. Exhibit “D” sets forth a
complete and accurate list of the Instruments, Securities and other Investment
Property delivered to the Administrative Agent. Each Grantor is the direct and
beneficial owner of each Instrument, Security and other type of Investment
Property listed on Exhibit “D” as being owned by it, free and clear of any
Liens, except for the security interest granted to the Administrative Agent for
the benefit of the Holders of Secured Obligations hereunder or as permitted by
Section 6.02 of any Credit Agreement. Each Grantor further represents and
warrants that (i) all such Instruments, Securities or other types of Investment
Property which are shares of stock in a corporation or ownership interests in a
partnership or limited liability company have been (to the extent such concepts
are relevant with respect to such Instrument, Security or other type of
Investment Property) duly and validly issued, are fully paid and non-assessable
and constitute the percentage of the issued and outstanding shares of stock (or
other equity interests) of the respective issuers thereof indicated on Exhibit
“D” hereto and (ii) with respect to any certificates delivered to the
Administrative Agent representing an ownership interest in a partnership or
limited liability company, either such certificates are Securities as defined in
Article 8 of the New York UCC of the applicable jurisdiction as a result of
actions by the issuer or otherwise, or, if such certificates are not Securities,
such Grantor has so informed the Administrative Agent so that the Administrative
Agent may take steps to perfect its security interest therein as a General
Intangible.

 

ARTICLE IV

 

COVENANTS

 

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

 

4.1. General.

 

4.1.1 Inspection. Each Grantor will permit the Administrative Agent or any
Holder of Secured Obligations, by its representatives and agents (i) to inspect
the Collateral, (ii) to examine and make copies of the records of such Grantor
relating to the Collateral and (iii) to discuss the Collateral and the related
records of such Grantor with, and to be advised as to the same by, such
Grantor’s officers and employees (and, in the case of any Receivable, with any
person or entity which is or may be obligated thereon), at all such reasonable
times and intervals as the Administrative Agent or such Holder of Secured
Obligations may determine, and all at such Grantor’s expense.

 

4.1.2 Taxes. Such Grantor will pay when due all taxes, assessments and
governmental charges and levies upon the Collateral owned by such Grantor,
except (i) those which are being contested in good faith by appropriate
proceedings and with

 

7

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

respect to which adequate reserves have been set aside in accordance with GAAP
and with respect to which no Lien exists, and (ii) those which by reason of the
amount involved or the remedies available to the taxing authority could not
reasonably be expected to have a Material Adverse Effect.

 

4.1.3 Records and Reports; Notification of Default. Each Grantor shall keep and
maintain complete, accurate and proper books and records with respect to the
Collateral owned by such Grantor, and furnish to the Administrative Agent, with
sufficient copies for each of the Holders of Secured Obligations, such reports
relating to the Collateral as the Administrative Agent shall from time to time
reasonably request. Each Grantor will give prompt notice in writing to the
Administrative Agent and the Lenders of the occurrence of any Default or Event
of Default and of any other development, financial or otherwise, which might
materially and adversely affect the Collateral.

 

4.1.4 Financing Statements and Other Actions; Defense of Title. Each Grantor
hereby authorizes the Administrative Agent to file, all financing statements
describing the Collateral owned by such Grantor and take such other actions as
may from time to time reasonably be requested by the Administrative Agent in
order to maintain a first perfected security interest in and, if applicable,
Control of, the Collateral owned by such Grantor, subject to Liens permitted
under Section 6.02 of any Credit Agreement, provided that nothing herein shall
be deemed to constitute an agreement to subordinate any of the Liens of the
Administrative Agent under the Credit Documents to any Liens otherwise permitted
under Section 6.02 of any Credit Agreement. Such financing statements may
describe the Collateral in the same manner as described herein or may contain an
indication or description of collateral that describes such property in any
other manner as the Administrative Agent may determine, in its sole discretion,
is necessary, advisable or prudent to ensure that the perfection of the security
interest in the Collateral granted to the Administrative Agent herein,
including, without limitation, describing such property as “all assets” or “all
personal property, whether now owned or hereafter acquired.” Each Grantor will
take any and all actions necessary to defend title to the Collateral owned by
such Grantor against all persons and to defend the security interest of the
Administrative Agent in such Collateral and the priority thereof against any
Lien not expressly permitted hereunder.

 

4.1.5 Disposition of Collateral. No Grantor will sell, lease or otherwise
dispose of the Collateral owned by such Grantor except (i) dispositions
specifically permitted pursuant to Section 6.03 of any Credit Agreement and (ii)
until such time as such Grantor receives a notice from the Administrative Agent
pursuant to Article VII, proceeds of Inventory and Accounts collected in the
ordinary course of business.

 

4.1.6 Liens. No Grantor will create, incur, or suffer to exist any Lien on the
Collateral owned by such Grantor except Liens permitted pursuant to Section 6.02
of any Credit Agreement, provided, that nothing herein shall be deemed to
constitute an agreement to subordinate any of the Liens of the Administrative
Agent under the Credit Documents to any Liens otherwise permitted under Section
6.02 of any Credit Agreement.

 

8

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

4.1.7 Change in Corporate Existence, Type or Jurisdiction of Organization,
Location, Name. Each Grantor will:

 

  (i) preserve its existence and entity structure as in effect on the Closing
Date;

 

  (ii) not change its jurisdiction of organization;

 

  (iii) not maintain its place of business (if it has only one) or its chief
executive office (if it has more than one place of business) at a location other
than a location specified on Exhibit “A;” and

 

  (iv) not (i) have any Inventory, Equipment or Fixtures or proceeds or products
thereof (other than Inventory and proceeds thereof disposed of as permitted by
Section 4.1.5, motor vehicles, and tanks and inventory located on customers’
property) at a location other than a location specified in Exhibit “A” as
amended from time to time, (ii) change its name or taxpayer identification
number or (iii) change its mailing address,

 

unless, in each such case, such Grantor shall have given the Administrative
Agent not less than 30 days’ prior written notice of such event or occurrence
and the Administrative Agent shall have either (x) determined that such event or
occurrence will not adversely affect the validity, perfection or priority of the
Administrative Agent’s security interest in the Collateral, or (y) taken such
steps (with the cooperation of such Grantor to the extent necessary or
advisable) as are necessary or advisable to properly maintain the validity,
perfection and priority of the Administrative Agent’s security interest in the
Collateral owned by such Grantor.

 

4.1.8 Other Financing Statements. No Grantor will suffer to exist or authorize
the filing of any financing statement naming it as debtor covering all or any
portion of the Collateral owned by such Grantor, except any financing statement
authorized under Section 4.1.4 hereof and Liens permitted under Section 6.02 of
the Credit Agreements.

 

4.2. Receivables.

 

4.2.1 Certain Agreements on Receivables. During the occurrence and continuation
of a Default, no Grantor will make or agree to make any discount, credit, rebate
or other reduction in the original amount owing on a Receivable or accept in
satisfaction of a Receivable less than the original amount thereof. Prior to the
occurrence and continuation of a Default, such Grantor may reduce the amount of
Accounts arising from the sale of Inventory or the rendering of services in
accordance with its present policies and in the ordinary course of business and
as otherwise permitted under the Credit Agreements.

 

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

 

9

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

4.2.3 Delivery of Invoices. Each Grantor will deliver to the Administrative
Agent immediately upon its request, if a Default has occurred and is continuing,
duplicate invoices with respect to each Account owned by such Grantor bearing
such language of assignment as the Administrative Agent shall specify.

 

4.2.4 Disclosure of Counterclaims on Receivables. If (i) any material discount,
credit or agreement to make a rebate or to otherwise reduce the amount owing on
a Receivable owned by such Grantor exists or (ii) if, to the knowledge of such
Grantor, any material dispute, setoff, claim, counterclaim or defense exists or
has been asserted or threatened with respect to a Receivable, such Grantor will
disclose such fact to the Administrative Agent in writing in connection with the
inspection by the Administrative Agent of any record of such Grantor relating to
such Receivable and in connection with any invoice or report furnished by such
Grantor to the Administrative Agent relating to such Receivable.

 

4.3. Inventory and Equipment.

 

4.3.1 Maintenance of Goods. Each Grantor will do all things necessary to
maintain, preserve, protect and keep the Inventory and the Equipment owned by
such Grantor in good repair, working order and saleable condition (ordinary wear
and tear excepted) and make all necessary and proper repairs, renewals and
replacements so that its business carried on in connection therewith may be
properly conducted at all times, except where the failure to do so, individually
or in the aggregate, could not reasonably be expected to have a Material Adverse
Effect.

 

4.3.2 Titled Vehicles. Each Grantor will give the Administrative Agent notice of
its acquisition of any vehicle covered by a certificate of title and, if
required under the terms of the Credit Agreements, deliver to the Administrative
Agent, upon request, the original of any vehicle title certificate and do all
things necessary to have the Lien of the Administrative Agent noted on any such
certificate.

 

4.4. Instruments, Securities, Chattel Paper, Documents and Pledged Deposits.
Each Grantor will (i) at the request of the Administrative Agent, deliver to the
Administrative Agent immediately upon execution of this Security Agreement the
originals of all Chattel Paper, Securities and Instruments constituting
Collateral (if any then exist), other than Chattel Paper, Securities and
Instruments having a book value which do not exceed $1,000,000 in the aggregate
(except that the Securities evidencing ownership of each Subsidiary (other than
an Excluded Subsidiary) will be delivered to the Administrative Agent regardless
of value), (ii) hold in trust for the Administrative Agent upon receipt and
immediately thereafter deliver (except as provided in subsection 4.4(i) above)
to the Administrative Agent any Chattel Paper, Securities and Instruments
constituting Collateral, (iii) upon the designation of any Pledged Deposits (as
set forth in the definition thereof), deliver to the Administrative Agent such
Pledged Deposits which are evidenced by certificates included in the Collateral
endorsed in blank, marked with such legends and assigned as the Administrative
Agent shall specify, and (iv) upon the Administrative Agent’s request, after the
occurrence and during the continuance of a Default, deliver to the
Administrative Agent (and thereafter hold in trust for the Administrative Agent
upon receipt and

 

10

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

immediately deliver to the Administrative Agent) any Document evidencing or
constituting Collateral.

 

4.5. Uncertificated Securities and Certain Other Investment Property. Each
Grantor will permit the Administrative Agent from time to time to cause the
appropriate issuers (and, if held with a securities intermediary, such
securities intermediary) of uncertificated securities or other types of
Investment Property not represented by certificates which are Collateral owned
by such Grantor to mark their books and records with the numbers and face
amounts of all such uncertificated securities or other types of Investment
Property not represented by certificates and all rollovers and replacements
therefor to reflect the Lien of the Administrative Agent granted pursuant to
this Security Agreement. Each Grantor will use all commercially reasonable
efforts, with respect to Investment Property constituting Collateral owned by
such Grantor held with a financial intermediary, to cause such financial
intermediary to enter into a control agreement with the Administrative Agent in
form and substance reasonably satisfactory to the Administrative Agent.

 

4.6. Stock and Other Ownership Interests.

 

4.6.1 Changes in Capital Structure of Issuers. Except as permitted in the Credit
Agreements, no Grantor will (i) to the extent such Grantor owns a controlling
interest therein, permit or suffer any issuer of privately held corporate
securities or other ownership interests in a corporation, partnership, joint
venture or limited liability company constituting Collateral owned by such
Grantor to dissolve, liquidate, retire any of its capital stock or other
Instruments or Securities evidencing ownership, reduce its capital or merge or
consolidate with any other entity, or (ii) vote any of the Instruments,
Securities or other Investment Property in favor of any of the foregoing except
to the extent permitted under Section 6.03 of any Credit Agreement.

 

4.6.2 Issuance of Additional Securities. To the extent such Grantor owns a
Controlling interest therein, no Grantor will permit or suffer the issuer of
privately held corporate securities or other ownership interests in a
corporation, partnership, joint venture or limited liability company
constituting Collateral to issue any such securities or other ownership
interests, any right to receive the same or any right to receive earnings,
except to such Grantor.

 

4.6.3 Registration of Pledged Securities and other Investment Property. Each
Grantor will permit any registerable Collateral owned by such Grantor to be
registered in the name of the Administrative Agent or its nominee at any time at
the option of the Required Lenders following the occurrence and during the
continuance of an Event of Default and without any further consent of such
Grantor.

 

4.6.4 Exercise of Rights in Pledged Securities and other Investment Property.
Each Grantor will permit the Administrative Agent or its nominee at any time
after a Default has occurred and is continuing, without notice, to exercise or
refrain from exercising any and all voting and other consensual rights
pertaining to the Collateral owned by such Grantor or any part thereof, and to
receive all dividends and interest in respect of such Collateral.

 

11

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

4.7. Deposit Accounts. Each Grantor will (i) upon the Administrative Agent’s
request, use commercially reasonable efforts to cause each bank or other
financial institution in which it maintains (a) a Deposit Account to enter into
a control agreement with the Administrative Agent, in form and substance
satisfactory to the Administrative Agent in order to give the Administrative
Agent Control of the Deposit Account or (b) other deposits (general or special,
time or demand, provisional or final) to be notified of the security interest
granted to the Administrative Agent hereunder and use commercially reasonable
efforts to cause each such bank or other financial institution to acknowledge
such notification in writing and (ii) upon the Administrative Agent’s request
after the occurrence and during the continuance of a Default, deliver to each
such bank or other financial institution a letter, in form and substance
acceptable to the Administrative Agent, transferring ownership of the Deposit
Account to the Administrative Agent or transferring dominion and control over
each such other deposit to the Administrative Agent until such time as no
Default exists. In the case of deposits maintained with Lenders, the terms of
such letter shall be subject to the provisions of the Credit Agreements
regarding setoffs.

 

4.8. Letter-of-Credit Rights. Each Grantor will, upon the Administrative Agent’s
request, use commercially reasonable efforts to cause each issuer of a letter of
credit, to consent to the assignment of proceeds of the letter of credit in
order to give the Administrative Agent Control of the letter-of-credit rights to
such letter of credit.

 

4.9. Federal, State or Municipal Claims. Each Grantor will notify the
Administrative Agent of any Collateral owned by such Grantor which constitutes a
claim against the United States government or any state or local government or
any instrumentality or agency thereof, the assignment of which claim is
restricted by federal, state or municipal law at any time when the aggregate
book value of such Collateral is greater than $500,000.

 

4.10. Intellectual Property. If, after the date hereof, any Grantor obtains
rights to, or applies for or seeks registration of, any new patentable
invention, trademark or copyright in addition to the patents, trademarks and
copyrights described in Part C of Exhibit “B”, which are all of such Grantor’s
patents, trademarks and copyrights as of the Closing Date, then such Grantor
shall give the Administrative Agent notice thereof, as part of each compliance
certificate provided to the Administrative Agent pursuant to any Credit
Agreement. Each Grantor agrees promptly upon request by the Administrative Agent
to execute and deliver to the Administrative Agent any supplement to this
Security Agreement or any other document reasonably requested by the
Administrative Agent to evidence such security interest in a form appropriate
for recording in the applicable federal office. Each Grantor also hereby
authorizes the Administrative Agent to modify this Security Agreement
unilaterally (i) by amending Part C of Exhibit “B” to include any future
patents, trademarks and/or copyrights of which the Administrative Agent receives
notification from such Grantor pursuant hereto and (ii) by recording, in
addition to and not in substitution for this Security Agreement, a duplicate
original of this Security Agreement containing in Part C of Exhibit “B” a
description of such future patents, trademarks and/or copyrights.

 

4.11. Commercial Tort Claims. If, after the date hereof, any Grantor identifies
the existence of a commercial tort claim belonging to such Grantor that has
arisen in the course of such Grantor’s business in addition to the commercial
tort claims described in Exhibit “F”,

 

12

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

which are all of such Grantor’s commercial tort claims as of the Closing Date,
then such Grantor shall give the Administrative Agent prompt notice thereof, but
in any event not less frequently than quarterly. Each Grantor agrees promptly
upon request by the Administrative Agent to execute and deliver to the
Administrative Agent any supplement to this Security Agreement or any other
document reasonably requested by the Administrative Agent to evidence the grant
of a security interest therein in favor of the Administrative Agent.

 

ARTICLE V

 

DEFAULT

 

5.1. The occurrence of any one or more of the following events shall constitute
a Default:

 

5.1.1 Any material portion of the Collateral shall be transferred or otherwise
disposed of, either voluntarily or involuntarily, in any manner not permitted by
Section 4.1.5 or 8.7 hereof or shall be lost, stolen, damaged or destroyed and
such loss, theft, damage or destruction is not fully insured (subject to
reasonable deductibles or self-insurance to the extent permitted by the Credit
Agreement).

 

5.1.2 The occurrence of any “Event of Default” under, and as defined in, any
Credit Agreement.

 

5.2. Acceleration and Remedies. Upon the acceleration of the Obligations under
any Credit Agreement pursuant to Article VII thereof, the Obligations under such
Credit Agreement and, to the extent provided for under the Hedging Agreements
evidencing the same, the Obligations under the Hedging Agreements, shall
immediately become due and payable without presentment, demand, protest or
notice of any kind, all of which are hereby expressly waived, and the
Administrative Agent may, with the concurrence or at the direction of the
Required Lenders, exercise any or all of the following rights and remedies:

 

5.2.1 Those rights and remedies provided in this Security Agreement, any Credit
Agreement, or any other Credit Document, provided that this Section 5.2.1 shall
not be understood to limit any rights or remedies available to the
Administrative Agent and the Holders of Secured Obligations prior to a Default.

 

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

 

5.2.3 Without notice except as specifically provided in Section 8.1 hereof or
elsewhere herein, sell, lease, assign, grant an option or options to purchase or
otherwise dispose of the Collateral or any part thereof in one or more parcels
at public or private sale, for cash, on credit or for future delivery, and upon
such other terms as the Administrative Agent may deem commercially reasonable.

 

13

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

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

 

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

 

5.3. Grantors’ Obligations Upon Default. Upon the request of the Administrative
Agent if a Default has occurred and is continuing, each Grantor will:

 

5.3.1 Assembly of Collateral. Assemble and make available to the Administrative
Agent the Collateral and all records relating thereto at any place or places
specified by the Administrative Agent.

 

5.3.2 Secured Party Access. Permit the Administrative Agent, by the
Administrative Agent’s representatives and agents, to enter any premises where
all or any part of the Collateral, or the books and records relating thereto, or
both, are located, to take possession of all or any part of the Collateral and
to remove all or any part of the Collateral.

 

5.4. License. The Administrative Agent is hereby granted a license or other
right to use, following the occurrence and during the continuance of a Default,
without charge, each Grantor’s labels, patents, copyrights, rights of use of any
name, trade secrets, trade names, trademarks, service marks, customer lists and
advertising matter, or any property of a similar nature, as it pertains to the
Collateral, in completing production of, advertising for sale, and selling any
Collateral, and, following the occurrence and during the continuance of a
Default, such Grantor’s rights under all licenses and all franchise agreements
shall inure to the Administrative Agent’s benefit. In addition, each Grantor
hereby irrevocably agrees that the Administrative Agent may, following the
occurrence and during the continuance of a Default, sell any of such Grantor’s
Inventory directly to any person, including without limitation persons who have
previously purchased such Grantor’s Inventory from such Grantor and in
connection with any such sale or other enforcement of the Administrative Agent’s
rights under this Security Agreement, may sell Inventory which bears any
trademark owned by or licensed to such Grantor and any Inventory that is covered
by any copyright owned by or licensed to such Grantor and the Administrative
Agent may finish any work in process and affix any trademark owned by or
licensed to such Grantor and sell such Inventory as provided herein.

 

ARTICLE VI

 

WAIVERS, AMENDMENTS AND REMEDIES

 

No delay or omission of the Administrative Agent or any Holder of Secured
Obligations to exercise any right or remedy granted under this Security
Agreement shall impair such right or

 

14

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

remedy or be construed to be a waiver of any Default or an acquiescence therein,
and any single or partial exercise of any such right or remedy shall not
preclude any other or further exercise thereof or the exercise of any other
right or remedy. No waiver, amendment or other variation of the terms,
conditions or provisions of this Security Agreement whatsoever shall be valid
unless in writing signed by the Administrative Agent with the concurrence or at
the direction of the (a) Required Lenders and (b) each Grantor, and then only to
the extent in such writing specifically set forth, provided that the addition of
any Domestic Subsidiary as a Grantor hereunder by execution of a Security
Agreement Supplement in the form of Annex I (with such modifications as shall be
acceptable to the Administrative Agent) shall not require receipt of any consent
from or execution of any documentation by any other Grantor party hereto. All
rights and remedies contained in this Security Agreement or by law afforded
shall be cumulative and all shall be available to the Administrative Agent and
the Holders of Secured Obligations until the Obligations have been paid in full.

 

ARTICLE VII

 

PROCEEDS; COLLECTION OF RECEIVABLES

 

7.1. Lockboxes. Upon request of the Administrative Agent after the occurrence
and during the continuance of a Default, each Grantor shall execute and deliver
to the Administrative Agent irrevocable lockbox agreements in the form provided
by or otherwise acceptable to the Administrative Agent, which agreements shall
be accompanied by an acknowledgment by the bank where the lockbox is located of
the Lien of the Administrative Agent granted hereunder and of irrevocable
instructions to wire all amounts collected therein to a special collateral
account at the Administrative Agent.

 

7.2. Collection of Receivables. The Administrative Agent may at any time after
the occurrence and during the continuation of a Default, by giving each Grantor
written notice, elect to require that the Receivables be paid directly to the
Administrative Agent for the benefit of the Holders of Secured Obligations. In
such event, each Grantor shall, and shall permit the Administrative Agent to,
promptly notify the account debtors or obligors under the Receivables owned by
such Grantor of the Administrative Agent’s interest therein and direct such
account debtors or obligors to make payment of all amounts then or thereafter
due under such Receivables directly to the Administrative Agent. Upon receipt of
any such notice from the Administrative Agent, each Grantor shall thereafter
hold in trust for the Administrative Agent, on behalf of the Holders of Secured
Obligations, all amounts and proceeds received by it with respect to the
Receivables and Other Collateral and immediately and at all times thereafter
deliver to the Administrative Agent all such amounts and proceeds in the same
form as so received, whether by cash, check, draft or otherwise, with any
necessary endorsements. The Administrative Agent shall hold and apply funds so
received as provided by the terms of Sections 7.3 and 7.4 hereof.

 

7.3. Special Collateral Account. The Administrative Agent may at any time after
the occurrence and during the continuation of a Default require all cash
proceeds of the Collateral to be deposited in a special non-interest bearing
cash collateral account with the Administrative Agent and held there as security
for the Obligations. No Grantor shall have any control whatsoever over said cash
collateral account. The Administrative Agent may (and shall, at the

 

15

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

direction of the Required Lenders), from time to time, apply the collected
balances in said cash collateral account to the payment of the Obligations
whether or not the Obligations shall then be due.

 

7.4. Application of Proceeds. The proceeds of the Collateral shall be applied by
the Administrative Agent to payment of the Obligations in the following order
unless a court of competent jurisdiction shall otherwise direct:

 

(a) FIRST, to payment of all costs and expenses of the Administrative Agent
incurred in connection with the collection and enforcement of the Obligations or
of the security interest granted to the Administrative Agent pursuant to this
Security Agreement;

 

(b) SECOND, to payment of that portion of the Obligations constituting accrued
and unpaid interest and fees, pro rata among the Lenders and their Affiliates in
accordance with the amount of such accrued and unpaid interest and fees owing to
each of them;

 

(c) THIRD, to payment of the principal of the Obligations and the net early
termination payments and any other obligations under any Hedging Agreements then
due and unpaid from the Borrower to any of the Lenders or their Affiliates, pro
rata among the Lenders and their Affiliates in accordance with the amount of
such principal and such net early termination payments and other obligations
under any Hedging Agreements then due and unpaid owing to each of them;

 

(d) FOURTH, to payment of any Obligations (other than those listed above) pro
rata among those parties to whom such Obligations are due in accordance with the
amounts owing to each of them; and

 

(e) FIFTH, the balance, if any, after all of the Obligations have been
satisfied, shall be distributed by the Administrative Agent to the applicable
Grantor or at its direction.

 

ARTICLE VIII

 

GENERAL PROVISIONS

 

8.1. Notice of Disposition of Collateral; Condition of Collateral. Each Grantor
hereby waives notice of the time and place of any public sale or the time after
which any private sale or other disposition of all or any part of the Collateral
may be made. To the extent such notice may not be waived under applicable law,
any notice made shall be deemed reasonable if sent to the Borrower, addressed as
set forth in Article IX, at least ten days prior to (i) the date of any such
public sale or (ii) the time after which any such private sale or other
disposition may be made. Administrative Agent shall have no obligation to
clean-up or otherwise prepare the Collateral for sale.

 

8.2. Compromises and Collection of Collateral. Each Grantor and the
Administrative Agent recognize that setoffs, counterclaims, defenses and other
claims may be asserted by

 

16

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

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

 

8.3. Secured Party Performance of Grantor’s Obligations. If a Default has
occurred and is continuing, without having any obligation to do so, the
Administrative Agent may perform or pay any obligation which any Grantor has
agreed to perform or pay in this Security Agreement and such Grantor shall
reimburse the Administrative Agent for any reasonable amounts paid by the
Administrative Agent pursuant to this Section 8.3. Each Grantor’s obligation to
reimburse the Administrative Agent pursuant to the preceding sentence shall be a
Obligation payable on demand.

 

8.4. Authorization for Secured Party to Take Certain Action. Each Grantor
irrevocably authorizes the Administrative Agent at any time and from time to
time in the sole discretion of the Administrative Agent and appoints the
Administrative Agent as its attorney in fact (i) to file financing statements
necessary or desirable in the Administrative Agent’s sole discretion to perfect
and to maintain the perfection and priority of the Administrative Agent’s
security interest in the Collateral, (ii) after the occurrence and during the
continuation of a Default to indorse and collect any cash proceeds of the
Collateral, (iii) to file a carbon, photographic or other reproduction of this
Security Agreement or any financing statement with respect to the Collateral as
a financing statement and to file any other financing statement or amendment of
a financing statement (which does not add new collateral or add a debtor) in
such offices as the Administrative Agent in its sole discretion deems necessary
or desirable to perfect and to maintain the perfection and priority of the
Administrative Agent’s security interest in the Collateral, (iv) to contact and
enter into one or more agreements with the issuers of uncertificated securities
which are Collateral owned by such Grantor and which are Securities or with
financial intermediaries holding other Investment Property as may be necessary
or advisable to give the Administrative Agent Control over such Securities or
other Investment Property, (v) after the occurrence and during the continuation
of a Default subject to the terms of Section 4.2 hereof, to enforce payment of
the Instruments, Accounts and Receivables in the name of the Administrative
Agent or such Grantor, (vi) to apply the proceeds of any Collateral received by
the Administrative Agent to the Obligations as provided in Article VII and (vii)
after the occurrence and during the continuation of a Default to discharge past
due taxes, assessments, charges, fees or Liens on the Collateral (except for
such Liens as are specifically permitted hereunder or under any other Credit
Document), and each Grantor agrees to reimburse the Administrative Agent on
demand for any reasonable payment made or any reasonable expense incurred by the
Administrative Agent in connection therewith, provided that this authorization
shall not relieve any Grantor of any of its obligations under this Security
Agreement or under any Credit Agreement.

 

17

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

8.5. Specific Performance of Certain Covenants. Each Grantor acknowledges and
agrees that a breach of any of the covenants contained in Sections 4.1.5, 4.1.6,
4.4, 5.3, or 8.7 or in Article VII hereof will cause irreparable injury to the
Administrative Agent and the Holders of Secured Obligations, that the
Administrative Agent and Holders of Secured Obligations have no adequate remedy
at law in respect of such breaches and therefore agrees, without limiting the
right of the Administrative Agent or the Holders of Secured Obligations to seek
and obtain specific performance of other obligations of the Grantors contained
in this Security Agreement, that the covenants of the Grantors contained in the
Sections referred to in this Section 8.5 shall be specifically enforceable
against the Grantors.

 

8.6. Use and Possession of Certain Premises. If a Default has occurred and is
continuing, the Administrative Agent shall be entitled to occupy and use any
premises owned or leased by the Grantors where any of the Collateral or any
records relating to the Collateral are located until the Obligations are paid or
the Collateral is removed therefrom, whichever first occurs, without any
obligation to pay any Grantor for such use and occupancy.

 

8.7. Dispositions Not Authorized. No Grantor is authorized to sell or otherwise
dispose of the Collateral except as set forth in Section 4.1.5 hereof and
notwithstanding any course of dealing between any Grantor and the Administrative
Agent or other conduct of the Administrative Agent, no authorization to sell or
otherwise dispose of the Collateral (except as set forth in Section 4.1.5
hereof) shall be binding upon the Administrative Agent or the Holders of Secured
Obligations unless such authorization is in writing signed by the Administrative
Agent with the consent or at the direction of the Required Lenders.

 

8.8. Benefit of Agreement. The terms and provisions of this Security Agreement
shall be binding upon and inure to the benefit of the Grantors, the
Administrative Agent and the Holders of Secured Obligations and their respective
successors and assigns (including all persons who become bound as a debtor to
this Security Agreement), except that the Grantors shall not have the right to
assign their rights or delegate their obligations under this Security Agreement
or any interest herein, without the prior written consent of the Administrative
Agent.

 

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

 

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

 

18

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

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

 

8.12. Termination. This Security Agreement shall continue in effect
(notwithstanding the fact that from time to time there may be no Obligations
outstanding) until (i) each Credit Agreement has terminated pursuant to its
express terms and (ii) all of the Obligations have been paid in full in cash
(other than contingent indemnity obligations and obligations under Hedging
Agreements) and no commitments of the Administrative Agent or the Holders of
Secured Obligations which would give rise to any Obligations are outstanding.

 

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

 

8.14. CHOICE OF LAW. THIS SECURITY AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED
IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK BUT GIVING EFFECT TO
FEDERAL LAWS APPLICABLE TO NATIONAL BANKS.

 

8.15. Indemnity. Each Grantor hereby agrees, jointly with the other Grantors and
severally, to indemnify the Administrative Agent and the Holders of Secured
Obligations, and their respective successors, assigns, agents and employees,
from and against any and all liabilities, damages, penalties, suits, costs, and
expenses of any kind and nature (including, without limitation, all expenses of
litigation or preparation therefor whether or not the Administrative Agent or
any Holder of Secured Obligations is a party thereto) imposed on, incurred by or
asserted against the Administrative Agent or the Holders of Secured Obligations,
or their respective successors, assigns, agents and employees, in any way
relating to or arising out of this Security Agreement, or the manufacture,
purchase, acceptance, rejection, ownership, delivery, lease, possession, use,
operation, condition, sale, return or other disposition of any Collateral
(including, without limitation, latent and other defects, whether or not
discoverable by the Administrative Agent or the Holders of Secured Obligations
or any Grantor, and any claim for patent, trademark or copyright infringement);
provided that such indemnity shall not be available to the extent that such
loss, claim, damage, liability or related expense is determined by a court of
competent jurisdiction by a final and nonappealable order to have resulted from
the gross negligence or willful misconduct of the indemnitee.

 

8.16. Subordination of Intercompany Indebtedness. Each Grantor agrees that any
and all claims of such Grantor against any other Grantor (each an “Obligor”)
with respect to any “Intercompany Indebtedness” (as hereinafter defined), any
endorser, obligor or any other guarantor of all or any part of the Obligations,
or against any of its properties shall be subordinate and subject in right of
payment to the prior payment, in full and in cash, of all Obligations (other
than contingent indemnity obligations and obligations under Hedging Agreements),
provided that, and not in contravention of the foregoing, so long as no Default
has occurred and is continuing, such Grantor may make loans to and receive
payments in the ordinary course of business with respect to such Intercompany
Indebtedness from each such

 

19

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

Obligor to the extent not prohibited by the terms of this Security Agreement and
the other Credit Documents. Notwithstanding any right of any Grantor to ask,
demand, sue for, take or receive any payment from any Obligor, all rights, liens
and security interests of such Grantor, whether now or hereafter arising and
howsoever existing, in any assets of any other Obligor shall be and are
subordinated to the rights of the Holders of Secured Obligations and the
Administrative Agent in those assets. No Grantor shall have any right to
possession of any such asset or to foreclose upon any such asset, whether by
judicial action or otherwise, unless and until all of the Obligations (other
than contingent indemnity obligations and obligations under Hedging Agreements)
shall have been fully paid and satisfied (in cash) and all Commitments and
Letters of Credit issued under each Credit Agreement have terminated or expired.
If all or any part of the assets of any Obligor, or the proceeds thereof, are
subject to any distribution, division or application to the creditors of such
Obligor, whether partial or complete, voluntary or involuntary, and whether by
reason of liquidation, bankruptcy, arrangement, receivership, assignment for the
benefit of creditors or any other action or proceeding, or if the business of
any such Obligor is dissolved or if substantially all of the assets of any such
Obligor are sold, then, and in any such event (such events being herein referred
to as an “Insolvency Event”), any payment or distribution of any kind or
character, either in cash, securities or other property, which shall be payable
or deliverable upon or with respect to any indebtedness of any Obligor to any
Grantor (“Intercompany Indebtedness”) shall be paid or delivered directly to the
Administrative Agent for application on any of the Obligations, due or to become
due, until such Obligations (other than contingent indemnity obligations and
obligations under Hedging Agreements) shall have first been fully paid and
satisfied (in cash). Should any payment, distribution, security or instrument or
proceeds thereof be received by the applicable Grantor upon or with respect to
the Intercompany Indebtedness after any Insolvency Event and prior to the
satisfaction of all of the Obligations (other than contingent indemnity
obligations and obligations under Hedging Agreements) and the termination or
expiration of all Commitments of the Lenders and Letters of Credit issued
pursuant to the Credit Agreements, such Grantor shall receive and hold the same
in trust, as trustee, for the benefit of the Holders of Secured Obligations and
shall forthwith deliver the same to the Administrative Agent, for the benefit of
the Holders of Secured Obligations, in precisely the form received (except for
the endorsement or assignment of the Grantor where necessary), for application
to any of the Obligations, due or not due, and, until so delivered, the same
shall be held in trust by the Grantor as the property of the Holders of Secured
Obligations. If any such Grantor fails to make any such endorsement or
assignment to the Administrative Agent, the Administrative Agent or any of its
officers or employees is irrevocably authorized to make the same. Each Grantor
agrees that until the Obligations (other than the contingent indemnity
obligations and obligations under Hedging Agreements) have been paid in full (in
cash) and satisfied and all Commitments and Letters of Credit issued under the
Credit Agreements have terminated or expired, no Grantor will assign or transfer
to any Person (other than the Administrative Agent or the Borrower or another
Grantor) any claim any such Grantor has or may have against any Obligor.

 

8.17. Release of Certain Liens on Motor Vehicles. In the event that a Grantor
desires to retire or sell any motor vehicle that is part of the Collateral, the
Borrower shall submit to the Administrative Agent a Request for Vehicle Lien
Release in the form of Exhibit “G” hereto, and, upon the approval of such
request by the Administrative Agent (which approval shall not be unreasonably
withheld, conditioned or delayed), the Administrative Agent shall release its
priority Lien on such motor vehicle.

 

20

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

ARTICLE IX

 

NOTICES

 

9.1. Sending Notices. Any notice required or permitted to be given under this
Security Agreement shall be sent (and deemed received) in the manner and to the
addresses set forth in Section 9.01 of each Credit Agreement. Any notice
delivered to the Borrower shall be deemed to have been delivered to all of the
Grantors.

 

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

 

ARTICLE X

 

THE ADMINISTRATIVE AGENT

 

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

 

[SIGNATURE PAGES TO FOLLOW]

 

21

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

 

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

 

INERGY, L.P., as a Grantor

     

L & L TRANSPORTATION, LLC, as a Grantor

By: INERGY GP, LLC,       By:  

/s/ R. Brooks Sherman, Jr.

its managing general partner

     

Name:

 

R. Brooks Sherman, Jr.

       

Title:

 

Senior Vice President and CFO

By:  

/s/ R. Brooks Sherman, Jr.

           

Name:

 

R. Brooks Sherman, Jr.

           

Title:

 

Senior Vice President and CFO

           

INERGY TRANSPORTATION, LLC, as a Grantor

     

INERGY SALES & SERVICE, INC., as a Grantor

By:  

/s/ R. Brooks Sherman, Jr.

      By:  

/s/ R. Brooks Sherman, Jr.

Name:

 

R. Brooks Sherman, Jr.

     

Name:

 

R. Brooks Sherman, Jr.

Title:

 

Senior Vice President and CFO

     

Title:

 

Senior Vice President and CFO

INERGY PROPANE, LLC, as a Grantor

     

INERGY FINANCE CORP., as a Grantor

By:  

/s/ R. Brooks Sherman, Jr.

      By:  

/s/ R. Brooks Sherman, Jr.

Name:

 

R. Brooks Sherman, Jr.

     

Name:

 

R. Brooks Sherman, Jr.

Title:

 

Senior Vice President and CEO

     

Title:

 

Senior Vice President and CFO

INERGY GAS, LLC, as a Grantor

     

STELLAR PROPANE SERVICE, LLC, as a Grantor

By:  

/s/ R. Brooks Sherman, Jr.

      By:  

/s/ R. Brooks Sherman, Jr.

Name:

 

R. Brooks Sherman, Jr.

     

Name:

 

R. Brooks Sherman, Jr.

Title:

 

Senior Vice President and CFO

     

Title:

 

Senior Vice President and CFO

JPMORGAN CHASE BANK, N.A., as Administrative Agent

     

INERGY ACQUISITION COMPANY, LLC, as a Grantor

By:  

/s/ Jane Bek Keil

      By:  

/s/ R. Brooks Sherman, Jr.

Name:

 

Jane Bek Keil

     

Name:

 

R. Brooks Sherman, Jr.

Title:

 

Director

     

Title:

 

Senior Vice President and CFO

 

SIGNATURE PAGE TO PLEDGE AND SECURITY AGREEMENT