Exhibit 10.3

Dated as of March 27, 2013

COOPER RIVER LLC,

a Delaware limited liability company

as Pledgor

and

CITIBANK, N.A.,

a national banking association

as Security Agent

 

 

SECURITY AGREEMENT

 

 

 

LOGO [g511715ex10_3cov.jpg]

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CONTENTS

 

SECTION    PAGE  

Definitions and Interpretation

     1   

Grant Of Security Interest

     3   

Representations And Warranties

     3   

Ownership of Collateral

     3   

Security Interest

     3   

Covenants

     4   

Title Covenants

     4   

Security Agent May Perform

     4   

Perfection, etc.

     4   

No Other Financing Statements

     5   

Prior Parties; Care of Collateral

     5   

Continuing Liability of the Pledgor

     5   

Limitation on Certain Changes

     6   

Further Assurances

     6   

Remedies

     6   

Remedies

     6   

Application of Proceeds

     9   

Power of Attorney

     9   

Custodial Account And Collection Account

     10   

Collection of Money

     10   

Custodial Account; Collection Account

     10   

Release of Security Interest in Collateral

     12   

Method of Collateral Transfer

     13   

Termination

     13   

The Security Agent

     13   

Miscellaneous

     15   

Notices

     15   

No Waiver

     16   

Amendments, Etc.

     16   

Successors and Assigns

     16   

Counterparts

     17   

Governing Law

     17   

Jurisdiction

     17   

Waiver of Jury Trial

     17   

Captions

     17   

Agents and Attorneys-in-Fact

     18   

Severability

     18   

Third Party Beneficiaries

     18   

 

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Execution Copy

SECURITY AGREEMENT dated as of March 27, 2013 (this Agreement) between COOPER
RIVER LLC, a Delaware limited liability company (the Pledgor), and Citibank,
N.A., a national banking association, as security agent for the Secured Parties
referred to below (in such capacity, the Security Agent).

WHEREAS:

A. The Pledgor, the financial institutions and other lenders from time to time
party thereto as “Lenders” (the Lenders) and Citibank, N.A., a national banking
association, as administrative agent for the Lenders (in such capacity, together
with its successors in such capacity, the Administrative Agent), have entered
into a Loan Agreement dated as of March 27, 2013 (the Loan Agreement).

B. To induce the Lenders to enter into the Loan Agreement and extend credit
thereunder, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Pledgor has agreed to pledge
and grant to the Security Agent for the ratable benefit of the Secured Parties a
security interest in the Collateral (as hereinafter defined) as security for the
Pledgor’s present and future obligations under the Loan Agreement and the
Account Control Agreement (collectively, the Secured Obligations). Accordingly,
the parties hereto agree as follows:

DEFINITIONS AND INTERPRETATION

1.1 Capitalized terms used but not defined herein have the respective meanings
given to such terms in the Loan Agreement. Terms used but not defined herein or
in the Loan Agreement, if defined in the UCC, shall have the respective meanings
given to such terms in the UCC. The principles of construction and rules of
interpretation set forth in Section 1.2 of the Loan Agreement shall apply,
mutatis mutandis, to this Agreement, with each reference to “this Agreement” in
said Section 1.2 being a reference to this Agreement. In addition, as used
herein, the following terms have the following respective meanings:

Accounts has the meaning specified in the Account Control Agreement.

Account Control Agreement means the Account Control Agreement dated as of the
date hereof between the between the Pledgor, the Security Agent, Citibank, N.A.,
in its capacity as securities intermediary (the Securities Intermediary) and
Virtus Group, LP, a Texas limited partnership, in its capacity as collateral
administrator (the Collateral Administrator).

Administrative Agent has the meaning assigned to such term in the recitals
hereto.

Agreement has the meaning specified in the first paragraph of this Agreement.

Authorized Officer means any officer of the Pledgor or the Security Agent who is
authorized to act for the Pledgor or the Security Agent, as the case may be, in
matters

 

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relating to, and binding upon, the Pledgor or the Security Agent, as the case
may be, which, for the avoidance of doubt, shall include any duly appointed
attorney-in-fact and who is listed in the applicable list delivered in the form
pursuant to Exhibit A to the Account Control Agreement.

Cash means Money and any collected funds standing to the credit of the Accounts.

Certificated Security has the meaning specified in Section 8-102(a)(4) of the
UCC.

Collateral has the meaning specified in Section 2.1.

Collection Account has the meaning specified in the Account Control Agreement.

Collections means, with respect to any Collateral owned by the Pledgor, all
principal payments, interest payments, fees and other payments received by the
Pledgor with respect thereto and all other amounts paid with respect to such
Collateral, including all distributions with respect thereto and any proceeds of
collateral for, or any guaranty of, such Collateral or the relevant obligor’s
obligation to make payments with respect thereto.

Credit Documents means the Loan Agreement and the Support Documents.

Custodial Account means the account, referenced as such, established pursuant to
the Account Control Agreement.

Financial Asset has the meaning specified in Section 8-102(a)(9) of the UCC.

Firm Bid has the meaning specified in Section 5.1.

Instrument has the meaning specified in Section 9-102(a)(47) of the UCC.

Money has the meaning specified in Section 1-201(24) of the UCC.

Pledgor has the meaning specified in the first paragraph of this Agreement.

Pledgor Order means a written order or request dated and signed in the name of
the Pledgor by an Authorized Officer of the Pledgor.

Proceedings has the meaning specified in Section 8.7.

Lenders has the meaning assigned to such term in the recitals hereto.

Loan Agreement has the meaning assigned to such term in the recitals hereto.

Secured Obligations has the meaning assigned to such term in the recitals
hereto.

Secured Parties means the Lenders, the Administrative Agent, the Security Agent,
the Securities Intermediary, the Collateral Administrator and the Security Agent
Custodian.

 

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Security Agent has the meaning specified in the first paragraph of this
Agreement.

Security Agent Custodian has the meaning specified in Section 6.3(c).

UCC means the Uniform Commercial Code as in effect from time to time in the
State of New York.

GRANT OF SECURITY INTEREST

2.1 As collateral security for the prompt payment in full and performance when
due (whether at stated maturity, by acceleration, by liquidation or otherwise)
of the Secured Obligations, the Pledgor hereby pledges to the Security Agent,
for the ratable benefit of the Secured Parties, and grants to the Security
Agent, for the ratable benefit of the Secured Parties, a continuing security
interest in, lien on, and right of set-off against, all of its right, title and
interest in, to and under all accounts, payment intangibles, general
intangibles, chattel paper, electronic chattel paper, instruments, deposit
accounts, letter-of-credit rights, securities, investment property and any and
all other property of any type or nature owned by it, including the Accounts,
the Debt Obligations and the Assignment Agreements and all of the Pledgor’s
rights and remedies thereunder, and all Collections and other proceeds with
respect to any of the foregoing, whether now owned or hereafter acquired and
whether now existing or hereafter coming into existence (collectively, the
Collateral).

REPRESENTATIONS AND WARRANTIES

On each Representation Date, the Pledgor represents and warrants to the Secured
Parties that:

Ownership of Collateral

3.1 Immediately before and immediately after giving effect to each transfer of
Collateral by the Pledgor to the Security Agent for the benefit of the Secured
Parties in accordance herewith, the Pledgor will have good and marketable title
to such Collateral, the Pledgor will be the sole beneficial owner of such
Collateral, and the Pledgor will have the right to receive all Collections on
such Collateral, in each case free and clear of all Liens other than Permitted
Liens.

Security Interest

3.2 The Pledgor has full right to grant the pledge, security interest, lien and
right of set-off in its rights in the Collateral to the Security Agent. Upon
each transfer of Collateral by the Pledgor in the manner specified in
Section 6.4, and after the other actions described in Section 6.2(a) and
Section 6.4 have been taken by the appropriate parties, the Security Agent will
have a perfected pledge of and security interest in such Collateral and all
proceeds thereof (subject to Section 9-315 of the UCC), which security interest
will be prior to all other interests in such Collateral (in the case of
proceeds,

 

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subject to Section 9-315 of the UCC). No filings other than those described or
referred to in Section 6.4 or any other action other than those described in
Section 6.2(a) and Section 6.4 will be necessary to perfect such security
interest in the Collateral.

COVENANTS

The Pledgor agrees that, until the later of (a) the termination of the
Commitments and (b) the payment and satisfaction in full of the Secured
Obligations (other than contingent obligations for which no claim has been
made):

Title Covenants

4.1 At no time shall the Pledgor create, permit or suffer to exist any lien or
security interest in the Collateral other than Permitted Liens.

Security Agent May Perform

4.2 If (i) the Pledgor fails to perform any obligation to be performed by it
contained herein after the Secured Party has made a written request for the
Pledgor to so perform such obligation (and, if the performance of such
obligation involves the incurrence of any material expense, the Secured Party
has given the Pledgor a reasonable opportunity to so perform such obligation) or
(ii) an Event of Default has occurred and is continuing, the Security Agent may
itself give, make, execute, deliver, file and/or record any financing statement,
notice, instrument, document, agreement or other papers, and take such acts, as
may be necessary or (in the reasonable judgment of the Security Agent) desirable
from time to time to create and perfect, and establish, preserve or otherwise
protect the priority of, the pledge, security interest, lien and right of
set-off of the Security Agent in the Collateral and otherwise perform, or cause
performance of, any other such actions as may be necessary or (in the reasonable
judgment of the Security Agent) desirable in connection with such failure to
perform, and the reasonable and documented out-of-pocket expenses of the
Security Agent incurred in connection therewith shall be payable by the Pledgor
and shall be part of the Secured Obligations.

Perfection, etc.

 

4.3 The Pledgor shall:

 

(a) give, make, execute, deliver, file and/or record any financing statement,
notice, instrument, document, agreement or other papers and take any other
actions, including, without limitation, fulfilling its obligations under the
Account Control Agreement, that may be necessary or (in the reasonable judgment
of the Security Agent) desirable to create and perfect, and establish, preserve
or otherwise protect the priority of, the pledge, security interest, lien and
right of set-off granted by it pursuant to Section 2 or to enable the Security
Agent to exercise and enforce its rights hereunder with respect to such pledge,
security interest, lien and right of set-off;

 

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(b) keep proper books and records relating to the Collateral;

 

(c) permit representatives of the Security Agent, during normal business hours,
to examine, copy and make extracts from its books and records pertaining to the
Collateral, to inspect any of the Collateral, and to require that the Security
Agent be provided with copies of all notices or other communications received by
the Pledgor with respect to the Collateral, all to the extent reasonably
requested by the Security Agent (including on behalf of any Lender); provided
that any exercise of rights under this clause (c) shall be subject to the
proviso to Section 5.1(a)(ix) of the Loan Agreement (as if each reference
therein to “the Administrative Agent” were also a reference to the Security
Agent); and

 

(d) direct each obligor in respect of any Collateral to make any payments due or
to become due in respect of such Collateral directly to the Collection Account.

No Other Financing Statements

4.4 The Pledgor shall not file, or affirmatively authorize or permit to be filed
or to be on file, in any jurisdiction, any financing statement or like
instrument with respect to the Collateral in which the Security Agent (or its
nominee) is not named as the sole secured party.

Prior Parties; Care of Collateral

4.5 The Security Agent shall not be required to take steps necessary to preserve
any rights against prior parties with respect to any of the Collateral. The
Security Agent shall use reasonable care in the custody and preservation of
Collateral in the Secured Party’s own possession.

Continuing Liability of the Pledgor

4.6 Anything herein to the contrary notwithstanding, the Pledgor shall remain
liable under each interest and obligation included in the Collateral to observe
and perform all the conditions and obligations to be observed and performed by
it thereunder, all in accordance with and pursuant to the terms and provisions
thereof, and shall do nothing to impair the security interest of the Security
Agent in any Collateral (it being agreed that any actions expressly permitted by
the Loan Agreement shall not be deemed to impair such security interest). The
Security Agent shall not have any obligation or liability under any such
interest or obligation by reason of or arising out of this Agreement or the
receipt by the Security Agent of any payment relating to any such interest or
obligation pursuant hereto, and the Security Agent shall not be required or
obligated in any manner to perform or fulfill any of the obligations of the
Pledgor thereunder or pursuant thereto or to make any payment or to make any
inquiry as to the nature or the sufficiency of any payment received by it or the
sufficiency of any performance by any party under any such interest or
obligation or to present or file any claim or to take any action to collect or
enforce any performance or the payment of any amount thereunder to which it may
be entitled at any time.

 

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Limitation on Certain Changes

4.7 The Pledgor shall not, without at least 30 days prior written notice to the
Security Agent, (a) change its location (within the meaning of Section 9-307 of
the UCC) or (b) change its corporate name from the name shown on the signature
pages hereto.

Further Assurances

4.8 The Pledgor agrees that, from time to time upon the written request of the
Security Agent, it shall execute and deliver such further documents and do such
other acts and things as the Security Agent may reasonably request in order
fully to effect the purposes of this Agreement.

REMEDIES

Remedies

 

5.1 At any time that an Event of Default shall have occurred and be continuing:

 

(a) the Pledgor shall, at the request of the Security Agent, assemble any
Collateral not held pursuant to the Account Control Agreement at such place or
places, reasonably convenient to both the Security Agent and the Pledgor,
designated in such request;

 

(b) the Security Agent may make any reasonable compromise or settlement deemed
desirable with respect to any of the Collateral and may extend the time of
payment, arrange for payment in installments or otherwise modify the terms of
any of the Collateral;

 

(c) the Security Agent shall have all of the rights and remedies with respect to
the Collateral of a secured party under the Uniform Commercial Code (whether or
not the Uniform Commercial Code is in effect in the jurisdiction where the
rights and remedies are asserted) and such additional rights and remedies to
which a secured party is entitled under the laws in effect in any jurisdiction
where any rights and remedies hereunder may be asserted, including the right, to
the maximum extent permitted by law, to exercise all voting, consensual and
other powers of ownership pertaining to the Collateral as if the Security Agent
were the sole and absolute owner thereof (and the Pledgor agrees to take all
such actions as may be appropriate to give effect to such right);

 

(d) the Security Agent in its discretion may, in its name or in the name of the
Pledgor or otherwise, demand, sue for, collect or receive any money or property
at any time payable or receivable on account of or in exchange for any of the
Collateral but shall be under no obligation to do so;

 

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(e) the Security Agent may set-off any amounts payable by the Pledgor with
respect to any Secured Obligations against any Collateral in the form of Cash;

 

(f) subject to Section 5.1(g), the Security Agent may, upon ten Business Days’
prior written notice to the Pledgor of the time and place, with respect to the
Collateral or any part thereof which shall then be or shall thereafter come into
the possession, custody or control of the Security Agent or any of its agents,
sell, assign or otherwise dispose of all or any part of such Collateral, in a
commercially reasonable manner, at such place or places as the Security Agent
deems best in such manner, and for Cash or for credit or for future delivery
(without thereby assuming any credit risk), at public or private sale, without
demand of performance or notice of intention to effect any such disposition or
of the time or place thereof (except such notice as is required above or by
applicable statute and cannot be waived), and the Security Agent or anyone else
may be the purchaser, lessee, assignee or recipient of any or all of the
Collateral so disposed of at any public sale (or, to the extent permitted by
law, at any private sale) and thereafter hold the same absolutely, free from any
claim or right of whatsoever kind, including any right or equity of redemption
(statutory or otherwise) of the Pledgor, any such demand, notice, claim and
right or equity being hereby expressly waived and released to the extent
permitted by law. Subject to Section 5.1(g), the Security Agent may, without
notice or publication, adjourn any public or private sale or cause the same to
be adjourned from time to time by announcement at the time and place fixed for
the sale, and such sale may be made at any time or place to which the sale may
be so adjourned; and

 

(g)

in the event that any Debt Obligation becomes the subject of a disposition
pursuant to this Section 5.1, the Security Agent shall attempt to obtain Firm
Bids (or a combination of Firm Bids) for the entire Debt Obligation from three
or more Dealers (and may obtain Firm Bids from any other Person or Persons
selected by the Security Agent); provided that the Security Agent may in its
commercially reasonable discretion obtain Firm Bids with respect to any group or
groups of such Debt Obligations. The Security Agent will give the Pledgor notice
of its intention to obtain Firm Bids pursuant to this Section 5.1(g) (such
notice to be given telephonically and via electronic mail) not later than
5:00 p.m. New York time on the date 10 Business Days prior to the bid submission
deadline specified below. By notice to the Security Agent not later than such
bid submission deadline, the Pledgor may, but shall not be obligated to,
designate any Dealer to provide a Firm Bid (and the Security Agent will seek a
Firm Bid from such Dealer if so designated by the Pledgor on a timely basis). A
“Firm Bid” shall be a good and irrevocable bid for value, to purchase all or any
portion of the relevant Debt Obligation (or an entire specified group of Debt
Obligations) for scheduled settlement no later than the date customary for
settlement substantially in accordance with the then-current market practice in
the principal market for the relevant Debt Obligation (or group of Debt
Obligations), submitted by a Dealer as of a time during regular business hours
in New York City on the date 10 Business

 

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  Days after any date specified by the Security Agent to the Pledgor in its
commercially reasonable discretion. The Security Agent will conduct the bid
process in accordance with the procedures set forth in this Section 5.1(g) and
otherwise in a commercially reasonable manner.

Notwithstanding anything to the contrary herein,

(i) the Security Agent shall be entitled to disregard any Firm Bid submitted by
a Dealer or other Person if, in the Security Agent’s commercially reasonable
judgment, (x) such Dealer or other Person is ineligible pursuant to the
documentation evidencing or otherwise governing the relevant Debt Obligation to
accept assignment or transfer of the relevant Debt Obligation or portion
thereof, as applicable, substantially in accordance with the then-current market
practice in the principal market for the relevant Debt Obligation, as determined
by the Security Agent, or (y) such Dealer or other Person would not, through the
exercise of its commercially reasonable efforts, be able to obtain any consent
required under any agreement or instrument governing or otherwise relating to
the relevant Debt Obligation to the assignment or transfer of the relevant Debt
Obligation or portion thereof, as applicable, to it; and

(ii) if the Security Agent determines on any commercially reasonable basis that
any Firm Bid is not bona fide, including, without limitation, due to (x) the
insolvency of the bidder or (y) the inability, failure or refusal of the bidder
to settle the purchase of the relevant Debt Obligation or portion thereof, as
applicable, or otherwise settle transactions in the relevant market or perform
its obligations generally,

such Firm Bid shall be disregarded. With respect to each Debt Obligation being
sold pursuant to this Section 5.1(g), the Security Agent shall transfer, or
cause the transfer of, the relevant Debt Obligation to the Person or Persons
providing the highest Firm Bid or combination of Firm Bids (other than any Firm
Bid that is disregarded as aforesaid) in relation to such Debt Obligation;
provided that, if the Security Agent has obtained Firm Bids with respect to any
group of Debt Obligations, then the Security Agent shall transfer, or cause the
transfer of, a group of Debt Obligations for which Firm Bids were obtained to
the Person or Persons providing the highest Firm Bid or combination of Firm Bids
(other than any Firm Bid that is disregarded as aforesaid) in relation to such
group of Debt Obligations. If any Debt Obligation is not sold in connection with
the Firm Bids so obtained for any reason whatsoever (other than as a result of
the failure of the Security Agent to consummate such sale as provided in this
Section 5.1(g)), the Security Agent may thereafter dispose of the relevant Debt
Obligation in the manner contemplated by Section 5.1(f).

The Security Agent shall incur no liability as a result of the sale of any Debt
Obligation, or any part thereof, at any private sale pursuant to this
Section 5.1 conducted as provided in the foregoing paragraphs of this
Section 5.1. To the extent the sale of any Debt

 

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Obligation is conducted as provided in the foregoing paragraphs of this
Section 5.1, the Pledgor hereby waives any claims against the Security Agent
arising by reason of the fact that the price at which the relevant Debt
Obligation may have been sold at any private sale effected as provided above was
less than the price which might have been obtained at a public sale or was less
than the aggregate amount of the Secured Obligations.

The proceeds of each collection, sale or other disposition under this
Section 5.1 shall be applied in accordance with Section 5.2.

Application of Proceeds

5.2 The proceeds of any collection, sale or other realization of all or any part
of the Collateral pursuant to Section 5.1 (including any amounts on deposit in,
or otherwise standing to the credit of, the Custodial Account) shall be
deposited in to the Collection Account and applied by the Security Agent
Custodian (at the prior written direction of an Authorized Officer of the
Security Agent) in the following order of priority (and, among the items in any
one paragraph, equally and ratably in accordance with the respective amounts
thereof then due and owing):

First, to the payment of the reasonable costs and expenses of such collection,
sale or other realization, including reasonable and documented out-of-pocket
costs and expenses of the Security Agent and the other Secured Parties and the
reasonable and documented fees, charges and expenses of the agents and counsel
of the Security Agent and the other Secured Parties and all other reasonable
expenses incurred by any of the Security Agent and the other Secured Parties in
connection with such collection, sale or other realization;

Second, to the payment in full of all remaining Secured Obligations then due and
payable; and

Third, to the payment to the Pledgor, or as a court of competent jurisdiction
may otherwise direct, of any surplus then remaining.

Power of Attorney

5.3 The Security Agent is hereby appointed the attorney-in-fact of the Pledgor
for the purpose of taking, during any period when the Security Agent is
attempting to sell all or any portion of any Debt Obligation pursuant to
Section 5.1(f) or 5.1(g), of taking any action and executing any instruments
which the Security Agent may reasonably deem necessary or advisable to
accomplish the purposes of this Agreement (including with respect to the
exercise of any remedies hereunder against the Pledgor), which appointment as
attorney-in-fact is irrevocable and coupled with an interest.

 

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CUSTODIAL ACCOUNT AND COLLECTION ACCOUNT

Collection of Money

6.1 Except as otherwise expressly provided herein, while an Event of Default has
occurred and is continuing, the Security Agent shall receive and collect,
directly and without intervention or assistance of any fiscal agent or other
intermediary, all Money and other property payable to or receivable by the
Security Agent. All amounts so received or collected shall be deposited in the
Collection Account.

Custodial Account; Collection Account

 

6.2(a) The Security Agent Custodian has specified in the Account Control
Agreement that it has established a single, segregated trust account which shall
be designated as the Custodial Account (which may include any sub-accounts
thereof established by the Security Agent Custodian for administrative
purposes), and a single, segregated trust account which shall be designated as
the Collection Account (which may include any sub-accounts thereof established
by the Security Agent Custodian for administrative purposes), each of which
shall be held in the name of the Security Agent and over which, except as
expressly provided in the Account Control Agreement, the Security Agent shall
have control and the sole right of withdrawal. Any reference in this Agreement
to the “Custodial Account” or to the “Collection Account” shall, unless
otherwise expressly provided, include a reference to any sub-account of the
Custodial Account or the Collection Account, respectively. To the extent that an
obligor does not make the applicable payment directly to the Collection Account,
the Pledgor shall from time to time deposit into the Collection Account promptly
(and in no event more than one Business Day) following its receipt thereof
(i) all proceeds received from the disposition of any Collateral by the Pledgor,
(ii) all Collections with respect to the Collateral and (iii) all other funds
received by the Pledgor in respect of the Collateral. The provisions of this
Section 6.2 are subject to the terms of the Account Control Agreement.

 

(b) By Pledgor Order executed by an Authorized Officer of the Pledgor (which may
be in the form of standing instructions), the Pledgor may direct the Security
Agent Custodian in writing (with a copy to the Security Agent) to invest all
funds on deposit in the Accounts as so directed in one or more Eligible
Investments having stated maturities no later than the Business Day immediately
preceding the next Payment Date. Absent such prior written specific investment
direction, all such funds shall be held uninvested.

 

(c) On any date on which interest or any fee is due and payable under the Loan
Agreement (including any Payment Date), the Pledgor shall by Pledgor Order
executed by an Authorized Officer of the Pledgor, delivered to the Security
Agent and the Security Agent Custodian, direct the Security Agent Custodian to
withdraw funds on deposit in the Collection Account and remit such funds as
indicated in such Pledgor Order to pay such interest or fee as required by, and
subject to the conditions of, Sections 3.2, 3.3, 3.6 and 3.8 of the Loan
Agreement.

 

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(d) On any date on which principal is due and payable under the Loan Agreement
(including the Scheduled Maturity Date), the Pledgor shall by Pledgor Order
executed by an Authorized Officer of the Pledgor, delivered to the Security
Agent and the Security Agent Custodian, direct the Security Agent Custodian to
withdraw funds on deposit in the Collection Account and remit such funds as
indicated in such Pledgor Order to pay principal as required by, and subject to
the conditions of, Sections 3.1, 3.6, 3.7 and 3.8 of the Loan Agreement.

 

(e) On any date on which any amount (other than principal, interest or any fee
owing under the Loan Agreement) is due and payable by the Pledgor under the Loan
Agreement or is otherwise permitted under Section 3.8 of the Loan Agreement, the
Security Agent shall give the Pledgor written notice of same, and the Pledgor
shall by Pledgor Order executed by an Authorized Officer of the Pledgor,
delivered to the Security Agent and the Security Agent Custodian, direct the
Security Agent Custodian to withdraw funds on deposit in the Collection Account
and remit such funds as indicated in such Pledgor Order to pay such amount as
required by, and subject to the conditions of, Section 3.8, 3.9, 3.11, 3.12,
3.14 and 8.1 of the Loan Agreement.

 

(f) On any date on which any Equity Restricted Payment is to be made by the
Pledgor, the Pledgor may by Pledgor Order executed by an Authorized Officer of
the Pledgor, delivered to the Security Agent and the Security Agent Custodian,
direct the Security Agent Custodian to withdraw funds on deposit in the
Collection Account and remit such funds as indicated in such Pledgor Order to
pay such amount, subject to the conditions of Section 3.8(b) of the Loan
Agreement.

 

(g) On any date on which any Qualifying Purchase of a Debt Obligation is to be
made pursuant to clause (i) or (ii) of Section 5.2(a) of the Loan Agreement, the
Pledgor shall by Pledgor Order executed by an Authorized Officer of the Pledgor,
delivered to the Security Agent and the Security Agent Custodian, direct the
Security Agent Custodian to withdraw funds on deposit in the Collection Account
and remit such funds as indicated in such Pledgor Order to pay the purchase
price for such Debt Obligation.

 

(h) The Security Agent shall at all times be party to the Account Control
Agreement. Any and all assets or securities at any time on deposit in, or
otherwise to the credit of, the Accounts shall be held for the benefit of the
Security Agent. Except in connection with a liquidation pursuant to Section 5,
the only permitted withdrawal of assets or securities (other than Cash) from the
Accounts or in, or otherwise to the credit of, the Accounts shall be as
directed, upon Pledgor Order, in accordance with the provisions of this
Section 6.2, Section 6.3 and Section 6.4.

 

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(h) The Security Agent agrees to give the Pledgor immediate notice if the
Security Agent obtains notice that any Account or any assets or securities on
deposit therein, or otherwise to the credit thereof, shall become subject to any
writ, order, judgment, warrant of attachment, execution or similar process.

 

(i) The Security Agent agrees with the Pledgor that the Security Agent will not
give an Entitlement Order (as defined in the Account Control Agreement) under
the Account Control Agreement unless (i) an Event of Default has occurred and is
continuing on the date such Entitlement Order is given or (ii) such Entitlement
Order is to the effect that instructions of the Pledgor given under the Account
Control Agreement are not permitted by Section 6.2 or 6.3 of this Agreement
(including as to the permitted application of funds contemplated hereby) or
would constitute a Potential Event of Default or Event of Default.

Release of Security Interest in Collateral

 

6.3(a) Upon any sale or other disposition by the Pledgor of the Collateral (or
portion thereof) in accordance with the terms of this Agreement and the Loan
Agreement, the pledge, security interest, lien and right of set-off of the
Security Agent in such Collateral (or the portion thereof which has been sold or
otherwise disposed of), and in all Collections and rights with respect to such
Collateral (but not in the proceeds of such sale or other disposition), shall,
immediately upon the sale or other disposition of such Collateral (or such
portion), and without any further action on the part of the Security Agent, be
released except to the extent of the interest, if any, in such Collateral which
is then retained by the Pledgor or which thereafter reverts to the Pledgor for
any reason; provided that the Security Agent shall execute and deliver to the
Pledgor any documentation reasonably requested by the Pledgor to effectuate or
evidence the foregoing.

 

(b) If no Event of Default has occurred and is continuing, the Security Agent
Custodian shall, upon receipt of an Pledgor Order executed by an Authorized
Officer of the Pledgor or as otherwise provided by the Account Control
Agreement, delivered to the Security Agent and the Security Agent Custodian at
least two Business Days prior to the date of delivery directed in such Pledgor
Order (or such fewer number of days as the Security Agent may agree), deliver or
cause to be delivered to or on the order of the Pledgor any Instrument included
in the Collateral to the related debtor for ultimate sale or exchange or for
presentation, collection, enforcement, renewal or registration of transfer;
provided that the lien of this Agreement on such Instrument remains perfected in
accordance with Section 9-312(g) of the UCC and such Instrument shall remain
subject to the lien of this Agreement unless and until released in accordance
with the foregoing clause (a).

 

(c)

The Security Agent shall hold for the benefit of the Secured Parties all
Certificated Securities and Instruments in physical form at the office of a
custodian appointed by it (the Security Agent Custodian). Initially, such
Security

 

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  Agent Custodian shall be Citibank N.A. with its address at 111 Wall Street,
15th Floor, New York, New York 10005, Attention: Global Transaction Services –
COOPER RIVER LLC. Any successor custodian shall be a state or national bank or
trust company which is not an Affiliate of the Pledgor and has capital and
surplus of at least USD1,000,000,000. There may be only one Security Agent
Custodian appointed at any one time, and any successor thereto shall be
appointed only as provided in the Account Control Agreement.

Method of Collateral Transfer

6.4 The transfer of Collateral to the Security Agent Custodian to be held for
the benefit of the Security Agent shall be done in the following manner (with
any and all other actions necessary to create in favor of the Security Agent a
valid, first-priority security interest in each item of Collateral under
applicable law and regulations (including Articles 8 and 9 of the UCC) in effect
at the time of such transfer):

 

(a) each time that the Pledgor shall direct or cause the acquisition of any
Collateral, the Pledgor shall, if such Collateral has not already been
transferred to the Custodial Account and credited thereto, cause the transfer of
such Collateral to the Security Agent Custodian to be held in and credited to
the Custodial Account for the benefit of the Security Agent in accordance with
the terms of the Account Control Agreement; and

 

(b) the Pledgor shall, within ten days after the date of execution of this
Agreement, file, or cause the filing of, all appropriate financing statements
covering the Collateral in the proper filing office in the appropriate
jurisdictions under applicable law.

Termination

6.5 Upon the termination of this Agreement, the termination of the Commitments
and the payment and satisfaction in full of the Secured Obligations (other than
contingent obligations for which no claim has been made), the Security Agent
shall forthwith cause to be assigned, transferred and delivered, against receipt
but without any recourse, warranty or representation whatsoever, any remaining
Collateral and money received in respect thereof, to or on the order of the
Pledgor. The Security Agent shall also execute and deliver to the Pledgor upon
such termination and payment such UCC termination statements and such other
documentation as shall be reasonably requested by the Pledgor to effect the
termination and release of the pledge, security interest, lien and right of
set-off granted pursuant to Section 2.

THE SECURITY AGENT

7.1 The Person serving as the Security Agent hereunder shall have the same
rights and powers in its capacity as a Secured Party as any other Secured Party
and may exercise the same as though it were not the Security Agent, and such
Person and its

 

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Affiliates may accept deposits from, lend money to and generally engage in any
kind of business with the Pledgor or any Subsidiary or other Affiliate thereof
as if it were not the Security Agent hereunder.

7.2 The Security Agent shall not have any duties or obligations except those
expressly set forth herein. Without limiting the generality of the foregoing,
(a) the Security Agent shall not be subject to any fiduciary or other implied
duties, regardless of whether an Event of Default or Potential Event of Default
has occurred and is continuing, (b) the Security Agent shall not have any duty
to take any discretionary action or exercise any discretionary powers, except
discretionary rights and powers expressly contemplated hereby that the Security
Agent is required to exercise by the Required Lenders in writing, and (c) except
as expressly set forth herein or in the other Credit Documents, the Security
Agent shall not have any duty to disclose, and shall not be liable for the
failure to disclose, any information relating to the Pledgor or any of its
Affiliates that is communicated to or obtained by it or any of its Affiliates in
any capacity other than as Security Agent hereunder. The Security Agent shall
not be liable for any action taken or not taken by it with the consent or at the
request of the Required Lenders or in the absence of its own gross negligence or
willful misconduct. The Security Agent shall be deemed not to have knowledge of
any Event of Default or Potential Event of Default unless and until written
notice thereof is given to the Security Agent by the Pledgor or a Secured Party
(other than itself), and the Security Agent shall not be responsible for or have
any duty to ascertain or inquire into (i) any statement, warranty or
representation made in or in connection with this Agreement or any other Credit
Document, (ii) the contents of any certificate, report or other document
delivered hereunder or thereunder or in connection herewith or therewith,
(iii) the performance or observance of any of the covenants, agreements or other
terms or conditions set forth herein or therein, (iv) the validity,
enforceability, effectiveness or genuineness of this Agreement, any other Credit
Document or any other agreement, instrument or document, or (v) the satisfaction
of any condition set forth in Schedule I of the Loan Agreement or elsewhere
herein or therein, other than to confirm receipt of items expressly required to
be delivered to the Security Agent.

7.3 The Security Agent shall be entitled to rely upon, and shall not incur any
liability for relying upon, any notice, request, certificate, consent,
statement, instrument, document or other writing believed by it to be genuine
and to have been signed or sent by the proper Person. The Security Agent also
may rely upon any statement made to it orally or by telephone and believed by it
to be made by the proper Person, and shall not incur any liability for relying
thereon. The Security Agent may consult with legal counsel (who may be counsel
for an obligor on the Collateral), independent accountants and other experts
selected by it, and shall not be liable (absent gross negligence or willful
misconduct) for any action taken or not taken by it in accordance with the
advice of any such counsel, accountants or experts (unless such advice is
contrary to an express provision of a Loan Document).

7.4 The Security Agent may perform any and all its duties and exercise its
rights and powers by or through any one or more sub-agents appointed by the
Security Agent, to the

 

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extent such sub-agent is an Affiliate of the Security Agent. The Security Agent
and any such sub-agent may perform any and all its duties and exercise its
rights and powers through their respective Affiliates. The exculpatory
provisions of the preceding paragraphs shall apply to any such sub-agent and to
the Affiliates of the Security Agent and any such sub-agent.

7.5 Subject to the appointment and acceptance of a successor Security Agent as
provided in this paragraph, the Security Agent may resign at any time by
notifying the Secured Parties and the Pledgor. Upon any such resignation, the
Required Lenders shall have the right, after prior written consent from the
Pledgor (not to be unreasonably withheld), to appoint a successor. If no
successor shall have been so appointed by the Required Lenders and shall have
accepted such appointment within 30 days after the retiring Security Agent gives
notice of its resignation, then the retiring Security Agent may, on behalf of
the Secured Parties and after prior written consent from the Pledgor (not to be
unreasonably withheld), appoint a successor Security Agent, which shall be a
bank with an office in New York City or an Affiliate of any such bank. Upon the
acceptance of its appointment as Security Agent hereunder by a successor, such
successor shall succeed to and become vested with all the rights, powers,
privileges and duties of the retiring Security Agent and the retiring Security
Agent shall be discharged from its duties and obligations hereunder. The fees
payable by the Pledgor to a successor Security Agent shall be the same as those
payable to its predecessor unless otherwise agreed between the Pledgor and such
successor. After the Security Agent’s resignation hereunder, the provisions of
this Section shall continue in effect for its benefit in respect of any actions
taken or omitted to be taken by it while it was acting as Security Agent.

7.6 The Security Agent Custodian shall be entitled to the same rights,
protections and immunities as those afforded to the Security Agent in
Sections 7.1 through 7.6, mutatis mutandis, together with those set forth in the
Account Control Agreement.

MISCELLANEOUS

Notices

8.1 All notices and other communications provided for herein shall be in writing
and shall be delivered by hand or overnight courier service, mailed by certified
or registered mail (airmail, if overseas) or the equivalent (return receipt
requested) or sent by facsimile transmission, as follows:

 

(a) if to the Pledgor, to it at c/o FS Investment Corporation II, Cira Centre,
2929 Arch Street, Suite 675, Philadelphia, PA 19104, Attention: Bill Goebel,
Chief Financial Officer, and Ken Miller, Vice President (Facsimile No.
(215) 222-4649; Telephone No. (215) 495-1164); and

 

(b) if to the Security Agent, to it at 390 Greenwich Street, 4th Floor, New
York, New York 10013, Attention: Mitali Sohoni (Telecopy No. 646-291-5779;
Telephone No. 212-723-6181).

 

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Either party hereto may change its address or telecopy number for notices and
other communications hereunder by notice to the other party hereto. All notices
and other communications given to either party hereto shall be deemed to be
effective (i) if in writing and delivered by hand or overnight courier service,
on the date it is delivered; (ii) if sent by facsimile transmission, on the date
that a transmission report confirming transmission is generated by the sender’s
facsimile machine; or (iii) if sent by certified or registered mail (airmail, if
overseas) or the equivalent (return receipt requested), on the date that mail is
delivered or its delivery is attempted, unless the date of that delivery (or
attempted delivery) or that receipt, as applicable, is not a Business Day or
that communication is delivered (or attempted) or received, as applicable, after
the close of business on a Business Day, in which case that communication shall
be deemed given and effective on the first following day that is a Business Day.

No Waiver

8.2 No failure on the part of the Security Agent to exercise, and no course of
dealing with respect to, and no delay in exercising, any right, power or remedy
hereunder shall operate as a waiver thereof; nor shall any single or partial
exercise by the Security Agent of any right, power or remedy hereunder preclude
any other or further exercise thereof or the exercise of any other right, power
or remedy. The remedies herein are cumulative and are not exclusive of any
remedies provided by law.

Amendments, Etc.

8.3 No amendment, modification or waiver in respect of this Agreement will be
effective unless in writing (including a writing evidenced by a facsimile
transmission) and executed by each of the Pledgor and the Security Agent (acting
with the consent of the Required Lenders); provided that, without the prior
consent of each Lender, the Security Agent shall not (except as provided herein)
release any Collateral or otherwise terminate any Lien hereunder, agree to
additional obligations being secured by any Collateral security, alter the
relative priorities of the Secured Obligations entitled to the benefits of the
Lien created hereunder, except that no such consent shall be required, and the
Security Agent is hereby authorized, to release any Lien covering property that
is the subject of a sale, distribution or other disposition of property
permitted under the Loan Agreement.

Successors and Assigns

8.4 This Agreement shall be binding upon and inure to the benefit of the
respective successors and permitted assigns of the Pledgor and the Security
Agent. Neither party shall assign or transfer any of its rights or obligations
hereunder without the prior written consent of the other party, and any such
purported assignment without such consent shall be void.

 

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Counterparts

8.5 This Agreement (and each amendment, modification and waiver in respect of
it) may be executed and delivered in counterparts, each of which will be deemed
an original. Delivery of an executed counterpart signature page of this
Agreement by e-mail (PDF) or facsimile transmission shall be as effective as
delivery of a manually executed counterpart of this Agreement.

Governing Law

8.6 This Agreement shall be construed in accordance with, and this Agreement and
all matters arising out of this Agreement and the transactions contemplated
hereby (whether in contract, tort or otherwise) shall be governed by, the law of
the State of New York.

Jurisdiction

8.7 With respect to any suit, action or proceedings relating to this Agreement
or any matter between the parties arising under or in connection with this
Agreement (Proceedings), each party irrevocably: (a) submits to the
non-exclusive jurisdiction of the courts of the State of New York and the United
States District Court located in the Borough of Manhattan in New York City; and
(b) waives any objection which it may have at any time to the laying of venue of
any Proceedings brought in any such court, waives any claim that such
Proceedings have been brought in an inconvenient forum and further waives the
right to object, with respect to such Proceedings, that such court does not have
any jurisdiction over such party. Nothing in this Agreement precludes either
party from bringing Proceedings in any other jurisdiction, nor will the bringing
of Proceedings in any one or more jurisdictions preclude the bringing of
Proceedings in any other jurisdiction.

Waiver of Jury Trial

8.8 THE PLEDGOR AND THE SECURITY AGENT HEREBY IRREVOCABLY WAIVE, TO THE FULLEST
EXTENT PERMITTED BY APPLICABLE LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY
LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED HEREBY.

Captions

8.9 The captions and section headings appearing herein are included solely for
convenience of reference and are not intended to affect the interpretation of
any provision of this Agreement.

 

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Agents and Attorneys-in-Fact

8.10 The Security Agent may employ agents and attorneys-in-fact in connection
herewith and shall not be responsible for the negligence or misconduct of any
such agents or attorneys-in-fact selected by it in good faith and with due care;
provided that the foregoing shall not constitute the waiver of any rights
against any such agent or attorney-in-fact.

Severability

8.11 If any term, provision, covenant or condition of this Agreement, or the
application thereof to either party or any circumstance, is held to be
unenforceable, invalid or illegal (in whole or in part) for any reason (in any
relevant jurisdiction), the remaining terms, provisions, covenants and
conditions of this Agreement, modified by the deletion of the unenforceable,
invalid or illegal portion (in any relevant jurisdiction), will continue in full
force and effect, and such unenforceability, invalidity, or illegality will not
otherwise affect the enforceability, validity or legality of the remaining
terms, provisions, covenants and conditions of this Agreement so long as this
Agreement as so modified continues to express, without material change, the
original intentions of the parties as to the subject matter hereof and the
deletion of such portion of this Agreement will not substantially impair the
respective expectations or reciprocal obligations of the parties or the
practical realization of the benefits that would otherwise be conferred upon the
parties. The parties will endeavor in good faith negotiations to replace the
prohibited or unenforceable provision with a valid provision, the economic
effect of which comes as close as possible to that of the prohibited or
unenforceable provision.

Third Party Beneficiaries

8.12 Nothing in this Agreement, expressed or implied, shall give to any Person,
other than the parties hereto and their successors hereunder, any benefit or any
legal or equitable right, remedy or claim under this Agreement, except
Section 5.2 hereof, which shall benefit the Secured Parties.

 

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

 

COOPER RIVER LLC By:  

/s/ Gerald F. Stahlecker

  Name:   Gerald F. Stahlecker   Title:   Executive Vice President

CITIBANK, N.A.

as Security Agent

By:  

/s/ Victoria Chant

  Name:   Victoria Chant   Title:   Vice President

 

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