Exhibit 10.3

 

 

SECURITY AGREEMENT

dated as of

May 29, 2008

among

GREAT AMERICAN GROUP ENERGY EQUIPMENT, LLC

as Grantor,

GREAT AMERICAN GROUP, LLC

as Member,

and

GARRISON LOAN AGENCY SERVICES LLC

as Collateral Agent

 

 

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TABLE OF CONTENTS

 

ARTICLE I. DEFINITIONS

   1

SECTION 1.01.

  Credit Agreement    1

SECTION 1.02.

  Other Defined Terms    1

ARTICLE II. PLEDGE OF SECURITIES

   3

SECTION 2.01.

  Pledge    3

SECTION 2.02.

  Delivery of the Pledged Collateral    4

SECTION 2.03.

  Representations, Warranties and Covenants    4

SECTION 2.04.

  Registration in Nominee Name; Denominations    5

SECTION 2.05.

  Voting Rights; Dividends and Interest    6

ARTICLE III. SECURITY INTERESTS IN PERSONAL PROPERTY

   7

SECTION 3.01.

  Security Interest    7

SECTION 3.02.

  Representations and Warranties    9

SECTION 3.03.

  Covenants    10

SECTION 3.04.

  Other Actions    12

SECTION 3.05.

  Cash System    13

ARTICLE IV. REMEDIES

   14

SECTION 4.01.

  Remedies Upon Default    14

SECTION 4.02.

  Application of Proceeds    16

SECTION 4.03.

  Securities Act    16

ARTICLE V. MISCELLANEOUS

   17

SECTION 5.01.

  Notices    17

SECTION 5.02.

  Waivers; Amendment    17

SECTION 5.03.

  Collateral Agent’s Fees and Expenses; Indemnification    17

SECTION 5.04.

  Successors and Assigns    18

SECTION 5.05.

  Survival of Agreement    18

SECTION 5.06.

  Counterparts; Effectiveness    18

SECTION 5.07.

  Severability    19

SECTION 5.08.

  Right of Set-Off    19

SECTION 5.09.

  Governing Law; Jurisdiction; Consent to Service of Process    19

SECTION 5.10.

  WAIVER OF JURY TRIAL    20

SECTION 5.11.

  Headings    20

SECTION 5.12.

  Security Interest Absolute    20

SECTION 5.13.

  Termination or Release    20

SECTION 5.14.

  Collateral Agent Appointed Attorney-in-Fact    21

SECTION 5.15.

  Conflict with the Credit Agreement    21

 

Exhibits    Exhibit 1    Form of Perfection Certificate

 

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SECURITY AGREEMENT dated as of May 29, 2008, among Great American Group Energy
Equipment, LLC, a California limited liability company (the “Grantor”), Great
American Group, LLC, California limited liability company (the “Member”), and
Garrison Loan Agency Services LLC, a Delaware limited liability company (as
agent on behalf of the Lenders (as defined below), the “Collateral Agent”).

Reference is made to (a) the Credit Agreement dated as of May 29, 2008, (as
amended, supplemented or otherwise modified from time to time, the “Credit
Agreement”), among the Grantor, the Collateral Agent, Garrison Loan Agency
Services LLC, as administrative agent, and the lenders party thereto (the
“Lenders”) and (b) the Great American Group, LLC Guaranty, dated as of May 29,
2008 (the “GAG Guaranty”), by the Member in favor of the Lenders and the
Collateral Agent. The Lenders have agreed to extend credit to the Grantor
subject to the terms and conditions set forth in the Credit Agreement. The
obligations of the Lender to extend such credit are conditioned upon, among
other things, the execution and delivery of this Agreement. Accordingly, the
parties hereto agree as follows:

ARTICLE I

Definitions

SECTION 1.01. Credit Agreement. (a) Capitalized terms used in this Agreement and
not otherwise defined herein have the meanings specified in the Credit
Agreement. All terms defined in the New York UCC (as defined herein) and not
defined in this Agreement or the Credit Agreement have the respective meanings
specified therein.

(b) The rules of construction specified in Section 1.02 of the Credit Agreement
also apply to this Agreement.

SECTION 1.02. Other Defined Terms. As used in this Agreement, the following
terms have the meanings specified below:

“Account Debtor” means any person who is or who may become obligated to the
Grantor under, with respect to or on account of an Account.

“Article 9 Collateral” is defined in Section 3.01.

“Asset Purchase Agreement” means the Asset Purchase Agreement, dated as of
May 16, 2008, between Red River Energy, Inc. and the Member or its designee.

“Collateral” is defined in Section 3.01.

“Collateral Agent” is defined in the Preamble.

“Collection Account” is defined in Section 3.05(a).

“Control Agreement” means a Control Agreement in the form approved by the
Collateral Agent, among the Grantor, the Collateral Agent and a Deposit Bank.

 

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“Credit Agreement” is defined in the preliminary statement of this Agreement.

“Federal Securities Laws” is defined in Section 4.03.

“General Intangibles” means all choses in action and causes of action and all
other intangible personal property of every kind and nature (other than
Accounts) now owned or hereafter acquired by the Grantor, including corporate or
other business records, indemnification claims, contract rights (including
rights under leases, whether entered into as lessor or lessee and other
agreements, including but not limited to the Loan Documents), intellectual
property, goodwill, registrations, franchises, tax refund claims and any letter
of credit, guarantee, claim, security interest or other security held by or
granted to the Grantor to secure payment by an Account Debtor of any of the
Accounts.

“Grantor” is defined in the preamble to this Agreement.

“Lenders” is defined in the preamble to this Agreement.

“Member” is defined in the preamble to this Agreement.

“Member Obligations” means (a) the due and punctual payment by the Member of all
monetary obligations of the Member to any of the Secured Parties under the GAG
Guaranty or any other Loan Document, including obligations to pay fees, expense
reimbursement obligations and indemnification obligations, whether primary,
secondary, direct, contingent, fixed or otherwise (including monetary
obligations incurred during the pendency of any bankruptcy, insolvency,
receivership or other similar proceeding, regardless of whether allowed or
allowable in such proceeding) and (b) the due and punctual performance of all
other obligations of the Member under or pursuant to this Agreement and the
other Loan Documents to which Member is a party.

“Member Pledged Equity Interests” is defined in Section 2.01.

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

“Obligations” means (a) the due and punctual payment by the Grantor of (i) the
principal of and interest (including interest accruing during the pendency of
any bankruptcy, insolvency, receivership or other similar proceeding, regardless
of whether allowed or allowable in such proceeding) on the Loans, when and as
due, whether at maturity, by acceleration, upon one or more dates set for
prepayment or otherwise and (ii) all other monetary obligations of the Grantor
to any of the Secured Parties under the Credit Agreement and each of the other
Loan Documents, including obligations to pay fees, expense reimbursement
obligations and indemnification obligations, whether primary, secondary, direct,
contingent, fixed or otherwise (including monetary obligations incurred during
the pendency of any bankruptcy, insolvency, receivership or other similar
proceeding, regardless of whether allowed or allowable in such proceeding),
(b) the due and punctual performance of all other obligations of the Grantor
under or pursuant to the Credit Agreement and each of the other Loan Documents,
and (c) the due and punctual payment and performance of all the obligations of
the Grantor under or pursuant to this Agreement and each of the other Loan
Documents.

 

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“Perfection Certificate” means a certificate substantially in the form of
Exhibit I, completed and supplemented with the schedules and attachments
contemplated thereby, and duly executed by a Financial Officer of the Grantor.

“Pledged Collateral” is defined in Section 2.01.

“Pledged Debt Securities” is defined in Section 2.01.

“Pledged Securities” means any promissory notes, stock certificates or other
securities now or hereafter included in the Pledged Collateral or Member Pledged
Equity Interests, as applicable, including all certificates, Instruments or
other documents representing or evidencing any Pledged Collateral or Member
Pledged Equity Interests, as applicable.

“Pledged Stock” is defined in Section 2.01.

“Purchased Assets” shall have the meaning given to the term “Assets” in the
Asset Purchase Agreement.

“Secured Parties” means (a) the Lenders, (b) the beneficiaries of each
indemnification obligation undertaken by the Grantor under any Loan Document and
(c) the successors and assigns of each of the foregoing.

“Security Interest” is defined in Section 3.01.

ARTICLE II

Pledge of Securities

SECTION 2.01. Pledge. (a) As security for the payment or performance, as the
case may be, in full of the Obligations, the Grantor hereby assigns and pledges
to the Collateral Agent, its successors and assigns, for the benefit of the
Secured Parties, and hereby grants to the Collateral Agent, its successors and
assigns, for the benefit of the Secured Parties, a security interest in, all of
the Grantor’s right, title and interest, whether now owned or hereafter
acquired, in, to and under (i) any Equity Interests obtained in the future by
the Grantor and the certificates, if any, representing all such Equity Interests
(the “Pledged Stock”), (ii) (A) any debt securities in the future issued to the
Grantor and (B) the promissory notes and any other Instruments evidencing such
debt securities (the “Pledged Debt Securities”); (iii) all other property that
may be delivered to and held by the Collateral Agent pursuant to the terms of
this Section 2.01; (iv) subject to Section 2.05, all payments of principal or
interest, dividends, cash, Instruments and other property from time to time
received, receivable or otherwise distributed in respect of, in exchange for or
upon the conversion of, and all other Proceeds received in respect of, the
securities referred to in clauses (i), (ii) and (iii) above; (v) subject to
Section 2.05, all rights and privileges of the Grantor with respect to the
securities and other property referred to in clauses (i), (iii) and (iv) above;
and (vi) all Proceeds of any of the foregoing (the items referred to in clauses
(i) through (v) above being collectively referred to as the “Pledged
Collateral”); and (b) as security for the payment or performance, as the case
may be, in full of the Member Obligations, the Member hereby assigns and pledges
to the Collateral Agent, its successors and

 

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assigns, for the benefit of the Secured Parties, and hereby grants to the
Collateral Agent, its successors and assigns, for the benefit of the Secured
Parties, a security interest in, all of Member’s right, title and interest,
whether now owned or hereafter acquired, in, to and under (i) any Equity
Interests in the Grantor and the certificates, if any, representing all such
Equity Interests, (ii) subject to Section 2.05, all payments of principal or
interest, dividends, cash, instruments and other property from time to time
received, receivable or otherwise distributed in respect of, in exchange for or
upon the conversion of, and all other Proceeds received in respect of, the
Equity Interests referred to in clause (i) above; and (iii) all Proceeds of any
of the foregoing (the items referred to in clauses (i) through (ii) above being
collectively referred to as the “Member Pledged Equity Interests”).

TO HAVE AND TO HOLD the Pledged Collateral, the Member Pledged Equity Interests,
together with all right, title, interest, powers, privileges and preferences
pertaining or incidental thereto, unto the Collateral Agent, its successors and
assigns, for the benefit of the Secured Parties, forever; subject, however, to
the terms, covenants and conditions hereinafter set forth.

SECTION 2.02. Delivery of the Pledged Collateral. (a) The Grantor agrees
promptly to deliver or cause to be delivered to the Collateral Agent any and all
Pledged Collateral.

(b) At such time, if ever, any of the Member Pledged Equity Interests become
certificated, the Member agrees promptly to deliver or cause to be delivered to
the Collateral Agent any and all certificates representing the Member Pledged
Equity Interests.

(c) Upon delivery to the Collateral Agent, (i) any Pledged Securities shall be
accompanied by stock powers duly executed in blank or other Instruments of
transfer satisfactory to the Collateral Agent and by such other Instruments and
documents as the Collateral Agent may reasonably request and (ii) all other
property comprising part of the Pledged Collateral shall be accompanied by
proper Instruments of assignment duly executed by the Grantor or Member, as
applicable, and such other Instruments or documents as the Collateral Agent may
reasonably request. Each delivery of Pledged Securities shall be accompanied by
a schedule describing the securities, which schedule shall be attached hereto as
Schedule I and made a part hereof; provided, however, that failure to attach any
such schedule hereto shall not affect the validity of such pledge of such
Pledged Securities. Each schedule so delivered shall supplement any prior
schedules so delivered.

SECTION 2.03. Representations, Warranties and Covenants. Each of the Grantor and
Member represents, warrants and covenants to and with the Collateral Agent, for
the benefit of the Secured Parties, that:

(a) except for the security interests granted hereunder, it (i) is and, subject
to any transfers made in compliance with the Credit Agreement, will continue to
be the direct owner, beneficially and of record, of the Pledged Securities
indicated on Schedule I as owned by it, (ii) holds the same free and clear of
all Liens, other than Liens created by this Agreement, Permitted Liens and
transfers made in compliance with the Credit Agreement, (iii) will make no
assignment, pledge, hypothecation or transfer of, or create or permit to exist
any security interest

 

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in or other Lien on, the Pledged Collateral or Member Pledged Equity Interests,
as applicable, other than Liens created by this Agreement, Permitted Liens and
transfers made in compliance with the Credit Agreement, and (iv) will defend its
title or interest thereto or therein against any and all Liens (other than the
Lien created by this Agreement and Permitted Liens), however arising, of all
Persons whomsoever;

(b) except for restrictions and limitations imposed by the Loan Documents or
securities laws generally, the Pledged Collateral or Member Pledged Equity
Interests, as applicable, is and will continue to be freely transferable and
assignable, and none of the Pledged Collateral or Member Pledged Equity
Interests, as applicable, is or will be subject to any option, right of first
refusal, shareholders agreement, charter or by-law provisions or contractual
restriction of any nature that might prohibit, impair, delay or otherwise affect
the pledge of such Pledged Collateral or Member Pledged Equity Interests, as
applicable, hereunder, the sale or disposition thereof pursuant hereto or the
exercise by the Collateral Agent of rights and remedies hereunder;

(c) it has the power and authority to pledge the Pledged Collateral or Member
Pledged Equity Interests, as applicable, pledged by it hereunder in the manner
hereby done or contemplated;

(d) no consent or approval of any Governmental Authority, any securities
exchange or any other Person was or is necessary to the validity of the pledge
effected hereby (other than such as have been obtained and are in full force and
effect);

(e) by virtue of the execution and delivery by it of this Agreement, (i) if such
Pledged Securities are certificated, when any Pledged Securities are delivered
to the Collateral Agent in accordance with this Agreement, or (ii) in the case
of uncertificated Pledged Securities, upon the filing of a UCC-1 financing
statement with the Secretary of State of the State of California identifying the
Pledged Securities as Collateral, the Collateral Agent will obtain a legal,
valid and perfected first priority lien upon and security interest in such
Pledged Securities as security for the payment and performance of the
Obligations or Member Obligations, as applicable; and

(f) the pledge effected hereby is effective to vest in the Collateral Agent, for
the benefit of the Secured Parties, the rights granted by the Grantor in the
Pledged Collateral or the rights granted by the Member in the Member Pledged
Equity Interests, as applicable, as set forth herein.

SECTION 2.04. Registration in Nominee Name; Denominations. The Collateral Agent,
on behalf of the Secured Parties, shall have the right (in its sole and absolute
discretion) to hold the Pledged Securities in its own name as pledgee, the name
of its nominee (as pledgee or as sub-agent) or the name of the Grantor or
Member, as applicable, endorsed or assigned in blank or in favor of the
Collateral Agent. The Grantor or Member, as applicable, will promptly give to
the Collateral Agent copies of any written notices or other communications
received by it with respect to Pledged Securities registered in its name. The
Collateral Agent shall at all times have the right to exchange the certificates,
in any, representing Pledged Securities for certificates of smaller or larger
denominations for any purpose consistent with this Agreement.

 

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SECTION 2.05. Voting Rights; Dividends and Interest. (a) Unless and until an
Event of Default shall have occurred and be continuing and the Collateral Agent
shall have notified the Grantor or Member, as applicable, in writing, that its
rights under this Section 2.05 are being suspended:

(i) The Grantor or Member, as applicable, shall be entitled to exercise any and
all voting and/or other consensual rights and powers inuring to an owner of
Pledged Securities or any part thereof for any purpose consistent with the terms
of this Agreement, the Credit Agreement and the other Loan Documents; provided,
however, that such rights and powers shall not be exercised in any manner that
could be reasonably expected to materially and adversely affect the rights
inuring to a holder of any Pledged Securities or the rights and remedies of any
of the Collateral Agent or the other Secured Parties under this Agreement or the
Credit Agreement or any other Loan Document or the ability of the Secured
Parties to exercise the same.

(ii) The Collateral Agent shall execute and deliver to the Grantor or Member, as
applicable, or cause to be executed and delivered to the Grantor or Member, as
applicable, all such proxies, powers of attorney and other Instruments as such
party may reasonably request for the purpose of enabling it to exercise the
voting and/or consensual rights and powers it is entitled to exercise pursuant
to subparagraph (i) above.

(iii) The Grantor or Member, as applicable, shall be entitled to receive and
retain any and all dividends, interest, principal and other distributions paid
on or distributed in respect of the Pledged Securities to the extent and only to
the extent that such dividends, interest, principal and other distributions are
permitted by, and otherwise paid or distributed in accordance with, the terms
and conditions of the Credit Agreement, the other Loan Documents and applicable
laws; provided, however, that any noncash dividends, interest, principal or
other distributions that would constitute Pledged Stock or Pledged Debt
Securities, whether resulting from a subdivision, combination or
reclassification of the outstanding Equity Interests of the issuer of any
Pledged Securities or received in exchange for Pledged Securities or any part
thereof, or in redemption thereof, or as a result of any merger, consolidation,
acquisition or other exchange of assets to which such issuer may be a party or
otherwise, shall be and become part of the Pledged Collateral, and, if received
by the Grantor or Member, as applicable, shall not be commingled by it with any
of its other funds or property but shall be held separate and apart therefrom,
shall be held in trust for the benefit of the Lenders and shall be forthwith
delivered to the Collateral Agent in the same form as so received (with any
necessary endorsement).

(b) During the existence of an Event of Default, after the Collateral Agent
shall have notified the Grantor or Member, as applicable, in writing, of the
suspension of its rights under paragraph (a)(iii) of this Section 2.05, then all
rights of the Grantor to dividends, interest, principal or other distributions
that it is authorized to receive pursuant to paragraph (a)(iii) of this
Section 2.05 shall cease, and all such rights shall thereupon become vested in
the Collateral Agent, which shall have the sole and exclusive right and
authority to receive and retain such dividends, interest, principal or other
distributions. All dividends, interest, principal or other distributions
received by the Grantor contrary to the provisions of this

 

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Section 2.05 shall be held in trust for the benefit of the Lenders, shall be
segregated from other property or funds of the Grantor and shall be forthwith
delivered to the Collateral Agent upon demand in the same form as so received
(with any necessary endorsement). Any and all money and other property paid over
to or received by the Collateral Agent pursuant to the provisions of this
paragraph (b) shall be retained by the Collateral Agent in an account to be
established by the Collateral Agent upon receipt of such money or other property
and shall be applied in accordance with the provisions of Section 4.02. After
all Events of Default have been cured or waived and the Grantor or Member, as
applicable, has delivered to the Collateral Agent a certificate to that effect,
the Collateral Agent shall promptly repay to the Grantor (without interest) all
dividends, interest, principal or other distributions that the Grantor would
otherwise be permitted to retain pursuant to the terms of paragraph (a)(iii) of
this Section 2.05 and that remain in such account.

(c) During the existence of an Event of Default, after the Collateral Agent
shall have notified the Grantor or Member, as applicable, in writing, of the
suspension of its rights under paragraph (a)(i) of this Section 2.05, then all
rights of the Grantor or Member, as applicable, to exercise the voting and
consensual rights and powers it is entitled to exercise pursuant to
paragraph (a)(i) of this Section 2.05, and the obligations of the Collateral
Agent under paragraph (a)(ii) of this Section 2.05, shall cease, and all such
rights shall thereupon become vested in the Collateral Agent, which shall have
the sole and exclusive right and authority to exercise such voting and
consensual rights and powers.

(d) Any notice given by the Collateral Agent to the Grantor or Member under this
Section 2.05 (i) may be given by telephone if promptly confirmed in writing and
(ii) may suspend the rights of the Grantor or Member, as applicable, under
paragraph (a)(i) or paragraph (a)(iii) in part without suspending all such
rights (as specified by the Collateral Agent in its sole and absolute
discretion) and without waiving or otherwise affecting the Collateral Agent’s
rights to give additional written notices from time to time suspending other
rights as long as an Event of Default has occurred and is continuing.

ARTICLE III

Security Interests in Personal Property

SECTION 3.01. Security Interest. (a) As security for the payment or performance,
as the case may be, in full of the Obligations, the Grantor hereby assigns and
pledges to the Collateral Agent, its successors and assigns, for the benefit of
the Secured Parties, and hereby grants to the Collateral Agent, its successors
and assigns, for the benefit of the Secured Parties, a security interest (the
“Security Interest”) in, all right, title or interest in or to any and all
Purchased Assets; the Collection Account, and the cash, investments, and other
assets held therein; and any and all of the following assets and properties now
owned or at any time hereafter acquired by the Grantor or in which the Grantor
now has or at any time in the future may acquire any right, title or interest
(collectively, the “Article 9 Collateral,” and together with the Pledged
Collateral, the “Collateral”):

(i) all Accounts;

 

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(ii) all Chattel Paper (whether tangible or electronic);

(iii) all Commercial Tort Claims;

(iv) all Deposit Accounts, all cash, and all other property from time to time
deposited therein and the monies and property in the possession or under the
control of the Collateral Agent or any affiliate, representative, agent or
correspondent of the Collateral Agent;

(v) all Documents;

(vi) all Equipment;

(vii) all General Intangibles (including, without limitation, all Payment
Intangibles);

(viii) all Goods;

(ix) all Instruments (including, without limitation, Promissory Notes);

(x) all Inventory;

(xi) all Investment Property;

(xii) all Letter-of-Credit Rights;

(xiii) all Supporting Obligations;

(xiv) all other tangible and intangible personal property of the Grantor
(whether or not subject to the New York UCC), including, without limitation, all
bank and other accounts and all cash and all investments therein, all proceeds,
products, offspring, accessions, rents, profits, income, benefits, substitutions
and replacements of and to any of the property of the Grantor described in the
preceding clauses of this Section 3.01 (including, without limitation, any
proceeds of insurance thereon and all causes of action, claims and warranties
now or hereafter held by the Grantor in respect of any of the items listed
above), and all books, correspondence, files and other Records, including,
without limitation, all tapes, disks, cards, Software, data and computer
programs in the possession or under the control of the Grantor or any other
Person from time to time acting for the Grantor that at any time evidence or
contain information relating to any of the property described in the preceding
clauses of this Section 3.01 or are otherwise necessary or helpful in the
collection or realization thereof; and

(xv) all Proceeds, including all Cash Proceeds and Noncash Proceeds, and
products of any and all of the foregoing.

(b) The Grantor hereby irrevocably authorizes the Collateral Agent at any time
and from time to time to file in any relevant jurisdiction any initial financing
statements describing the Article 9 Collateral or any part thereof and
amendments thereto that contain the

 

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information required by Article 9 of the Uniform Commercial Code of each
applicable jurisdiction for the filing of any financing statement or amendment,
including whether the Grantor is an organization, the type of organization and
any organizational identification number issued to it. The Grantor agrees to
provide such information to the Collateral Agent promptly upon request.

The Grantor also ratifies its authorization for the Collateral Agent to file in
any relevant jurisdiction any initial financing statements or amendments thereto
describing the Article 9 Collateral if filed prior to the date hereof.

(c) The Security Interest is granted as security only and shall not subject the
Collateral Agent or any other Secured Party to, or in any way alter or modify,
any obligation or liability of the Grantor with respect to or arising out of the
Article 9 Collateral.

SECTION 3.02. Representations and Warranties. The Grantor represents and
warrants to the Collateral Agent and the Secured Parties that:

(a) Upon the consummation of the Purchase Agreement, it shall have good and
valid rights in and title to the Article 9 Collateral with respect to which it
has purported to grant a Security Interest hereunder and has full power and
authority to grant to the Collateral Agent the Security Interest in such Article
9 Collateral pursuant hereto and to execute, deliver and perform its obligations
in accordance with the terms of this Agreement, without the consent or approval
of any other Person other than any consent or approval that has been obtained.

(b) The Perfection Certificate has been duly prepared, completed and executed
and the information set forth therein, including the exact legal name of the
Grantor, is correct and complete as of the Closing Date. The Uniform Commercial
Code financing statements or other appropriate filings, recordings or
registrations prepared by or on behalf of the Collateral Agent based upon the
information provided to the Collateral Agent in the Perfection Certificate for
filing in each governmental, municipal or other office specified in Schedule 2
to the Perfection Certificate (or specified by notice from the Grantor to the
Collateral Agent after the date hereof in the case of filings, recordings or
registrations required by Section 5.01(g) of the Credit Agreement), are all the
filings, recordings and registrations that are necessary to publish notice of
and protect the validity of and to establish a legal, valid and perfected
security interest in favor of the Collateral Agent (for the benefit of the
Secured Parties) in respect of all Article 9 Collateral in which the Security
Interest may be perfected by filing, recording or registration in the United
States (or any political subdivision thereof) and its territories and
possessions, and no further or subsequent filing, refiling, recording,
rerecording, registration or reregistration is necessary in any such
jurisdiction, except as provided under applicable law with respect to the filing
of continuation statements.

(c) The Security Interest constitutes (i) a legal and valid security interest in
all the Article 9 Collateral securing the payment and performance of the
Obligations and (ii) upon the filing of a UCC-1 financing statement with the
Secretary of State of the State of California properly identifying the
Collateral, a perfected security interest in all Article 9 Collateral in which a
security interest may be perfected by filing, recording or registering a
financing statement or analogous document in the United States (or any political
subdivision thereof) and

 

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its territories and possessions pursuant to the Uniform Commercial Code. The
Security Interest is and shall be prior to any other Lien on any of the Article
9 Collateral, other than Permitted Liens that have priority as a matter of law.

(d) The Article 9 Collateral is owned by the Grantor free and clear of any Lien,
except for the Lien hereunder and Permitted Liens. The Grantor has not filed or
consented to the filing of (i) any financing statement or analogous document
that names the Grantor as debtor under the Uniform Commercial Code or any other
applicable laws covering any Article 9 Collateral or (ii) any assignment in
which the Grantor assigns any Article 9 Collateral or any security agreement or
similar Instrument covering any Article 9 Collateral with any foreign
governmental, municipal or other office, which financing statement or analogous
document, assignment, security agreement or similar Instrument is still in
effect, except, in each case, for the Lien hereunder and Permitted Liens.

SECTION 3.03. Covenants. (a) The Grantor agrees promptly to notify the
Collateral Agent in writing of any change (i) in its name, (ii) in its identity
or type of organization, (iii) in its organizational identification number or
(iv) in its jurisdiction of organization. The Grantor agrees to promptly provide
the Collateral Agent with certified organizational documents reflecting any of
the changes described in the first sentence of this paragraph. The Grantor
agrees not to effect or permit any change referred to in the preceding sentence
unless all filings have been made under the Uniform Commercial Code or otherwise
that are required in order for the Collateral Agent to continue at all times
following such change to have a valid, legal and perfected first priority
security interest in all the Article 9 Collateral. The Grantor agrees promptly
to notify the Collateral Agent if any material portion of the Article 9
Collateral owned or held by such Grantor is damaged or destroyed.

(b) The Grantor agrees to maintain, at its own cost and expense, such complete
and accurate records with respect to the Article 9 Collateral owned by it as is
consistent with its current practices, but in any event to include complete
accounting records indicating all payments and proceeds received with respect to
any part of the Article 9 Collateral, and at such time or times as the
Collateral Agent may reasonably request, promptly to prepare and deliver to the
Collateral Agent a duly certified schedule or schedules in form and detail
satisfactory to the Collateral Agent showing the identity, amount and location
of any and all Article 9 Collateral.

(c) Each fiscal quarter, at the time of delivery of quarterly unaudited
financial statements with respect to the preceding fiscal quarter pursuant to
Section 5.01(c)(i) of the Credit Agreement, the Grantor shall deliver to the
Collateral Agent a certificate executed by a Manager of the Grantor (i) setting
forth the information required pursuant to the Perfection Certificate or
confirming that there has been no change in such information since the date of
such certificate or the date of the most recent certificate delivered pursuant
to this Section 3.03(c) and (ii) certifying, to such Manager’s knowledge, that
all Uniform Commercial Code financing statements or other appropriate filings,
recordings or registrations, including all refilings, rerecordings and
reregistrations, containing a description of the Collateral have been filed of
record in each governmental, municipal or other appropriate office in each
jurisdiction identified pursuant to clause (a) of this Section 3.03 to the
extent necessary to protect and perfect the Security Interest for a period of
not less than 18 months after the date of such certificate (except as noted
therein with respect to any continuation statements to be filed within such
period).

 

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(d) The Grantor shall, at its own expense, take any and all actions necessary to
defend title to the Article 9 Collateral against all Persons and to defend the
Security Interest of the Collateral Agent in the Article 9 Collateral and the
priority thereof against any Lien not expressly permitted pursuant to
Section 6.01(b) of the Credit Agreement.

(e) The Grantor agrees, at its own expense, to execute, acknowledge, deliver and
cause to be duly filed all such further Instruments and documents and take all
such actions as the Collateral Agent may from time to time reasonably request to
better assure, preserve, protect and perfect the Security Interest and the
rights and remedies created hereby, including the payment of any fees and taxes
required in connection with the execution and delivery of this Agreement, the
granting of the Security Interest and the filing of any financing statements or
other documents in connection herewith or therewith. If any amount payable under
or in connection with any of the Article 9 Collateral shall be or become
evidenced by any promissory note or other Instrument, such note or Instrument
shall be immediately pledged and delivered to the Collateral Agent, duly
endorsed in a manner satisfactory to the Collateral Agent.

(f) At its option, the Collateral Agent may discharge past due taxes,
assessments, charges, fees, Liens, security interests or other encumbrances at
any time levied or placed on the Article 9 Collateral and not permitted pursuant
to Section 6.01(b) of the Credit Agreement, and may pay for the maintenance and
preservation of the Article 9 Collateral to the extent the Grantor fails to do
so as required by the Credit Agreement or this Agreement, and the Grantor agrees
to reimburse the Collateral Agent on demand for any payment made or any
reasonable expense incurred by the Collateral Agent pursuant to the foregoing
authorization; provided, however, that nothing in this paragraph shall be
interpreted as excusing the Grantor from the performance of, or imposing any
obligation on the Collateral Agent or any Secured Party to cure or perform, any
covenants or other promises of the Grantor with respect to taxes, assessments,
charges, fees, Liens, security interests or other encumbrances and maintenance
as set forth herein or in the other Loan Documents.

(g) If at any time the Grantor shall take a security interest in any property of
an Account Debtor or any other Person to secure payment and performance of an
Account, it shall promptly assign such security interest to the Collateral
Agent. Such assignment need not be filed of public record unless necessary to
continue the perfected status of the security interest against creditors of and
transferees from the Account Debtor or other Person granting the security
interest.

(h) The Grantor shall remain liable to observe and perform all the conditions
and obligations to be observed and performed by it under each contract,
agreement or Instrument relating to the Article 9 Collateral, all in accordance
with the terms and conditions thereof, and the Grantor agrees to indemnify and
hold harmless the Collateral Agent and the Secured Parties from and against any
and all liability for such performance.

(i) The Grantor shall not make or permit to be made an assignment, pledge or
hypothecation of the Article 9 Collateral or shall grant any other Lien in
respect of the Article 9 Collateral, except as permitted by the Credit
Agreement. Except as permitted by the Credit Agreement, the Grantor shall not
make or permit to be made any transfer of the Article 9 Collateral and it shall
remain at all times in possession of the Article 9 Collateral owned by it,

 

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except that unless and until the Collateral Agent shall notify the Grantor that
an Event of Default shall have occurred and be continuing and that during the
existence thereof the Grantor shall not sell, convey, lease, assign, transfer or
otherwise dispose of any Article 9 Collateral (which notice may be given by
telephone if promptly confirmed in writing), the Grantor may use and dispose of
the Article 9 Collateral in any lawful manner not inconsistent with the
provisions of this Agreement, the Credit Agreement, Liquidation Plan or any
other Loan Document.

(j) Except as provided in the Credit Agreement or any Loan Document, the Grantor
will not, without the Collateral Agent’s prior written consent, grant any
extension of the time of payment of any Accounts included in the Article 9
Collateral, compromise, compound or settle the same for less than the full
amount thereof, release, wholly or partly, any Person liable for the payment
thereof or allow any credit or discount whatsoever thereon, other than
extensions, compromises, settlements, releases, credits or discounts granted or
made in the ordinary course of business and consistent with its current
practices.

SECTION 3.04. Other Actions. In order to further insure the attachment,
perfection and priority of, and the ability of the Collateral Agent to enforce,
the Security Interest, the Grantor agrees, at its own expense, to take the
following actions with respect to the following Article 9 Collateral:

(a) Instruments. If the Grantor shall at any time hold or acquire any
Instruments, it shall forthwith endorse, assign and deliver the same to the
Collateral Agent, accompanied by such Instruments of transfer or assignment duly
executed in blank as the Collateral Agent may from time to time reasonably
request.

(b) Deposit Accounts. For each deposit account that the Grantor at any time
opens or maintains, including the Collection Account, it shall, either (i) cause
the depositary bank to agree to comply with instructions from the Collateral
Agent to such depositary bank directing the disposition of funds from time to
time credited to such deposit account, without further consent of the Grantor or
any other Person, pursuant to the Control Agreement or such other form
reasonably satisfactory to the Collateral Agent or (ii) arrange for the
Collateral Agent to become the customer of the depositary bank with respect to
the deposit account, with the Grantor being permitted, only with the consent of
the Collateral Agent, to exercise rights to withdraw funds from such deposit
account. The provisions of this paragraph shall not apply to (A) any deposit
account for which the Grantor, the depositary bank and the Collateral Agent have
entered into a cash collateral agreement specially negotiated among the Grantor,
the depositary bank and the Collateral Agent for the specific purpose set forth
therein and (B) deposit accounts for which the Collateral Agent or any Lender is
the depositary.

(c) Investment Property. Except to the extent otherwise provided in Article II,
if the Grantor shall at any time hold or acquire any certificated securities, it
shall forthwith endorse, assign and deliver the same to the Collateral Agent,
accompanied by such Instruments of transfer or assignment duly executed in blank
as the Collateral Agent may from time to time specify. If any securities now or
hereafter acquired by the Grantor are uncertificated and are issued to it or its
nominee directly by the issuer thereof, the Grantor shall immediately notify the
Collateral Agent thereof and, at the Collateral Agent’s request and option,
pursuant to an agreement in form and substance reasonably satisfactory to the
Collateral Agent, either

 

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(i) cause the issuer to agree to comply with instructions from the Collateral
Agent as to such securities, without further consent of the Grantor or such
nominee, or (ii) arrange for the Collateral Agent to become the registered owner
of the securities. If any securities, whether certificated or uncertificated, or
other investment property now or hereafter acquired by the Grantor are held by
it or its nominee through a securities intermediary or commodity intermediary,
the Grantor shall immediately notify the Collateral Agent thereof and, at the
Collateral Agent’s request and option, pursuant to an agreement in form and
substance reasonably satisfactory to the Collateral Agent, either (i) cause such
securities intermediary or (as the case may be) commodity intermediary to agree
to comply with entitlement orders or other instructions from the Collateral
Agent to such securities intermediary as to such security entitlements, or (as
the case may be) to apply any value distributed on account of any commodity
contract as directed by the Collateral Agent to such commodity intermediary, in
each case without further consent of the Grantor or such nominee or (ii) in the
case of financial assets or other Investment Property held through a securities
intermediary, arrange for the Collateral Agent to become the entitlement holder
with respect to such Investment Property, with the Grantor being permitted, only
with the consent of the Collateral Agent, to exercise rights to withdraw or
otherwise deal with such investment property. The Collateral Agent agrees with
the Grantor that the Collateral Agent shall not give any such entitlement orders
or instructions or directions to any such issuer, securities intermediary or
commodity intermediary, and shall not withhold its consent to the exercise of
any withdrawal or dealing rights by the Grantor, unless an Event of Default has
occurred and is continuing, or, after giving effect to any such investment and
withdrawal rights, would occur. The provisions of this paragraph shall not apply
to any financial assets credited to a securities account for which the
Collateral Agent is the securities intermediary.

SECTION 3.05. Cash System. (a) The Grantor will establish no later than June 9,
2008, in the name of the Collateral Agent, and subject to the control of the
Collateral Agent pursuant to a Control Agreement, for the benefit of the
Collateral Agent and the other Secured Parties, a segregated account (the
“Collection Account”) bearing a designation clearly indicating that the funds
deposited therein are held for the benefit of the Collateral Agent on behalf of
the Secured Parties. The Grantor shall deposit into the Collection Account
Collections with respect to the Collateral on each Business Day of a Monthly
Period in accordance with the Credit Agreement.

(b) Any funds on deposit in the Collection Account for more than one Business
Day shall at all time be invested in Permitted Investments at the written
direction of the Grantor or its agent, subject to the restrictions set forth
below. The Deposit Bank shall maintain, or cause to be maintained, possession of
the negotiable instruments or securities evidencing the Permitted Investments
described in clause (a) of the definition thereof from the time of purchase
thereof until the time of sale or maturity. Any Permitted Investment with a
stated maturity shall mature on or prior to the next Payment Date related to the
earliest Monthly Period in which Collections invested in such Permitted
Investments were received. On each applicable Payment Date, all interest and
earnings (less investment expenses) on funds on deposit in the Collection
Account, if any, shall be deposited in the Collection Account. For purposes of
determining the availability of funds or the balances in the Collection Account
for any reason under this Agreement, all investment earnings on such funds shall
be deemed not to be available or on deposit.

 

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(c) The Collection Account is, and shall remain, under the sole dominion and
control of the Collateral Agent. The Grantor acknowledges and agrees that (i) it
has no right of withdrawal from the Collection Account, (ii) the funds on
deposit in the Collection Account shall continue to be collateral security for
all of the Obligations and (iii) during the existence of an Event of Default, at
the Collateral Agent’s election, the funds on deposit in the Collection Account
shall be applied as provided in Section 4.02 hereof. The Collateral Agent agrees
that it shall not exercise its rights pursuant to Section 3.05(d) except during
the existence of an Event of Default. On each Payment Date, any funds on deposit
in the Collection Account (other than amounts attributable to the Monthly Period
following the related Monthly Period) shall be applied together with other funds
as forth in Section 2.09 of the Credit Agreement.

(d) Effective upon notice to the Grantor from the Collateral Agent during the
existence of an Event of Default (which notice may be given by telephone if
promptly confirmed in writing), the Collection Account will, without any further
action on the part of the Grantor, the Collateral Agent or any Deposit Bank,
convert into a closed account under the exclusive dominion and control of the
Collateral Agent in which funds are held subject to the rights of the Collateral
Agent hereunder (if not already under such dominion and control). The Grantor
irrevocably authorizes the Collateral Agent to notify each Deposit Bank (i) of
the occurrence of an Event of Default and (ii) of the matters referred to in
this paragraph (d). The Grantor hereby agrees to irrevocably direct the Deposit
Bank to comply with the instructions of the Collateral Agent with respect to the
Collection Account without further consent from the Grantor or any other Person.

ARTICLE IV

Remedies

SECTION 4.01. Remedies Upon Default. During the existence of an Event of
Default, the Grantor agrees to deliver each item of Collateral to the Collateral
Agent on demand, and it is agreed that the Collateral Agent shall have the right
to take any of or all the following actions at the same or different times: with
or without legal process and with or without prior notice or demand for
performance, to take possession of the Article 9 Collateral and without
liability for trespass to enter any premises where the Article 9 Collateral may
be located for the purpose of taking possession of or removing the Article 9
Collateral and, generally, to exercise any and all rights afforded to a secured
party under the Uniform Commercial Code or other applicable law. Without
limiting the generality of the foregoing, the Grantor agrees that the Collateral
Agent shall have the right, subject to the requirements of applicable law, to
sell or otherwise dispose of all or any part of the Collateral at a public or
private sale or at any broker’s board or on any securities exchange, for cash,
upon credit or for future delivery as the Collateral Agent shall deem
appropriate. The Collateral Agent shall be authorized at any such sale of
securities (if it deems it advisable to do so) to restrict the prospective
bidders or purchasers to Persons who will represent and agree that they are
purchasing the Collateral for their own account for investment and not with a
view to the distribution or sale thereof, and upon consummation of any such sale
the Collateral Agent shall have the right to assign, transfer and deliver to the
purchaser or purchasers thereof the Collateral so sold. Each such purchaser at
any sale of Collateral shall hold the property sold absolutely, free from any
claim or right on the part

 

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of the Grantor, and the Grantor hereby waives (to the extent permitted by law)
all rights of redemption, stay and appraisal which it now has or may at any time
in the future have under any rule of law or statute now existing or hereafter
enacted.

The Collateral Agent shall give the Grantor 10 days’ prior written notice (which
the Grantor agrees, to the extent permitted by applicable law, is reasonable
notice within the meaning of Section 9-611 of the New York UCC or its equivalent
in other jurisdictions) of the Collateral Agent’s intention to make any sale of
Collateral. Such notice, in the case of a public sale, shall state the time and
place for such sale and, in the case of a sale at a broker’s board or on a
securities exchange, shall state the board or exchange at which such sale is to
be made and the day on which the Collateral, or portion thereof, will first be
offered for sale at such board or exchange. Any such public sale shall be held
at such time or times within ordinary business hours and at such place or places
as the Collateral Agent may fix and state in the notice (if any) of such sale.
At any such sale, the Collateral Agent, or portion thereof, to be sold may be
sold in one lot as an entirety or in separate parcels, as the Collateral Agent
may (in its sole and absolute discretion) determine. The Collateral Agent shall
not be obligated to make any sale of any Collateral if it shall determine not to
do so, regardless of the fact that notice of sale of such Collateral shall have
been given. The Collateral 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 sale, and such sale may, without
further notice, be made at the time and place to which the same was so
adjourned. In case any sale of all or any part of the Collateral is made on
credit or for future delivery, the Collateral so sold may be retained by the
Collateral Agent until the sale price is paid by the purchaser or purchasers
thereof, but the Collateral Agent shall not incur any liability in case any such
purchaser or purchasers shall fail to take up and pay for the Collateral so sold
and, in case of any such failure, such Collateral may be sold again upon like
notice. At any public (or, to the extent permitted by law, private) sale made
pursuant to this Agreement, any Secured Party may bid for or purchase, free (to
the extent permitted by law) from any right of redemption, stay, valuation or
appraisal on the part of the Grantor (all said rights being also hereby waived
and released to the extent permitted by law), the Collateral or any part thereof
offered for sale and may make payment on account thereof by using any claim then
due and payable to such Secured Party from the Grantor as a credit against the
purchase price, and such Secured Party may, upon compliance with the terms of
sale, hold, retain and dispose of such property without further accountability
to the Grantor therefor. For purposes hereof, a written agreement to purchase
the Collateral or any portion thereof shall be treated as a sale thereof; the
Collateral Agent shall be free to carry out such sale pursuant to such agreement
and the Grantor shall not be entitled to the return of the Collateral or any
portion thereof subject thereto, notwithstanding the fact that after the
Collateral Agent shall have entered into such an agreement all Events of Default
shall have been remedied and the Obligations paid in full. As an alternative to
exercising the power of sale herein conferred upon it, the Collateral Agent may
proceed by a suit or suits at law or in equity to foreclose this Agreement and
to sell the Collateral or any portion thereof pursuant to a judgment or decree
of a court or courts having competent jurisdiction or pursuant to a proceeding
by a court-appointed receiver. To the extent permitted by applicable law, any
sale pursuant to the provisions of this Section 4.01 shall be deemed to conform
to the commercially reasonable standards as provided in Section 9-610(b) of the
New York UCC or its equivalent in other jurisdictions.

 

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SECTION 4.02. Application of Proceeds. The Collateral Agent shall apply the
proceeds of any collection or sale of Collateral, including any Collateral
consisting of cash, as follows:

FIRST, to the payment of all costs and expenses incurred by the Collateral Agent
in connection with such collection or sale or otherwise in connection with this
Agreement, any other Loan Document or any of the Obligations, including all
court costs and the fees and expenses of its agents and legal counsel (other
than the costs associated with preparing and negotiating this Agreement), the
repayment of all advances made by the Collateral Agent hereunder or under any
other Loan Document on behalf of the Grantor and any other costs or expenses
incurred in connection with the exercise of any right or remedy hereunder or
under any other Loan Document;

SECOND, to the payment in full of the Obligations (the amounts so applied to be
distributed among the secured parties pro rata in accordance with the amounts of
the Obligations owed to them on the date of any such distribution); and

THIRD, to the Grantor, its successors or assigns, or as a court of competent
jurisdiction may otherwise direct.

The Collateral Agent shall have absolute discretion as to the time of
application of any such proceeds, moneys or balances in accordance with this
Agreement. Upon any sale of Collateral by the Collateral Agent (including
pursuant to a power of sale granted by statute or under a judicial proceeding),
the receipt of the Collateral Agent or of the officer making the sale shall be a
sufficient discharge to the purchaser or purchasers of the Collateral so sold
and such purchaser or purchasers shall not be obligated to see to the
application of any part of the purchase money paid over to the Collateral Agent
or such officer or be answerable in any way for the misapplication thereof.

SECTION 4.03. Securities Act. In view of the position of the Grantor in relation
to the Pledged Collateral, or because of other current or future circumstances,
a question may arise under the Securities Act of 1933, as now or hereafter in
effect, or any similar statute hereafter enacted analogous in purpose or effect
(such Act and any such similar statute as from time to time in effect being
called the “Federal Securities Laws”) with respect to any disposition of the
Pledged Collateral permitted hereunder. The Grantor understands that compliance
with the Federal Securities Laws might very strictly limit the course of conduct
of the Collateral Agent if the Collateral Agent were to attempt to dispose of
all or any part of the Pledged Collateral, and might also limit the extent to
which or the manner in which any subsequent transferee of any Pledged Collateral
could dispose of the same. Similarly, there may be other legal restrictions or
limitations affecting the Collateral Agent in any attempt to dispose of all or
part of the Pledged Collateral under applicable Blue Sky or other state
securities laws or similar laws analogous in purpose or effect. The Grantor
recognizes that in light of such restrictions and limitations the Collateral
Agent may, with respect to any sale of the Pledged Collateral, limit the
purchasers to those who will agree, among other things, to acquire such Pledged
Collateral for their own account, for investment, and not with a view to the
distribution or resale thereof. The Grantor acknowledges and agrees, to the
extent permitted by law, that in light of such restrictions and limitations, the
Collateral Agent, in its sole and absolute discretion (a) may proceed to make
such

 

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a sale whether or not a registration statement for the purpose of registering
such Pledged Collateral or part thereof shall have been filed under the Federal
Securities Laws and (b) may approach and negotiate with a single potential
purchaser to effect such sale. The Grantor acknowledges and agrees, to the
extent permitted by law, that any such sale might result in prices and other
terms less favorable to the seller than if such sale were a public sale without
such restrictions. In the event of any such sale, the Collateral Agent shall
incur no responsibility or liability for selling all or any part of the Pledged
Collateral at a price that the Collateral Agent, in its sole and absolute
discretion, may in good faith deem reasonable under the circumstances,
notwithstanding the possibility that a substantially higher price might have
been realized if the sale were deferred until after registration as aforesaid or
if more than a single purchaser were approached. The provisions of this
Section 4.03 will apply notwithstanding the existence of a public or private
market upon which the quotations or sales prices may exceed substantially the
price at which the Collateral Agent sells.

ARTICLE V

Miscellaneous

SECTION 5.01. Notices. All communications and notices hereunder shall (except as
otherwise expressly permitted herein) be in writing and given as provided in
Section 9.01 of the Credit Agreement.

SECTION 5.02. Waivers; Amendment. (a) No failure or delay by the Collateral
Agent, in exercising any right or power hereunder or under any other Loan
Document shall operate as a waiver thereof, nor shall any single or partial
exercise of any such right or power, or any abandonment or discontinuance of
steps to enforce such a right or power, preclude any other or further exercise
thereof or the exercise of any other right or power. The rights and remedies of
the Collateral Agent hereunder and under the other Loan Documents are cumulative
and are not exclusive of any rights or remedies that it would otherwise have. No
waiver of any provision of this Agreement or consent to any departure by the
Grantor or Member, as applicable, therefrom shall in any event be effective
unless the same shall be permitted by paragraph (b) of this Section 5.02, and
then such waiver or consent shall be effective only in the specific instance and
for the purpose for which given. Without limiting the generality of the
foregoing, the making of a Loan shall not be construed as a waiver of any
Default, regardless of whether the Collateral Agent may have had notice or
knowledge of such Default at the time. No notice or demand on the Grantor or
Member, as applicable, in any case shall entitle the Grantor or Member, as
applicable, to any other or further notice or demand in similar or other
circumstances.

(b) Neither this Agreement nor any provision hereof may be waived, amended or
modified except pursuant to an agreement or agreements in writing entered into
by the parties hereto, subject to any consent required in accordance with
Section 9.08 of the Credit Agreement.

SECTION 5.03. Collateral Agent’s Fees and Expenses; Indemnification. (a) Without
limitation of its indemnification obligations under the other Loan Documents,
each of Grantor and Member agrees to indemnify the Collateral Agent and the
other Indemnitees (as defined in Section 9.05 of the Credit Agreement) against,
and hold each Indemnitee harmless

 

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from, any and all losses, claims, damages, liabilities and related expenses (but
specifically excluding any special, indirect, consequential or punitive
damages), including the fees, charges and disbursements of any counsel for any
Indemnitee, incurred by or asserted against any Indemnitee arising out of, in
connection with, or as a result of the execution, delivery or performance of
this Agreement or any claim, litigation, investigation or proceeding relating to
any of the foregoing or any agreement or Instrument contemplated hereby, or to
the Collateral, whether or not any Indemnitee is a party thereto; provided,
however, that such indemnity shall not, as to any Indemnitee, be available to
the extent that such losses, claims, damages, liabilities or related expenses
are determined by a court of competent jurisdiction by final and nonappealable
judgment to have resulted from the gross negligence or wilful misconduct of such
Indemnitee.

(b) Any such amounts payable as provided hereunder shall be additional
Obligations secured hereby and by the other Security Documents. The provisions
of this Section 5.03 shall remain operative and in full force and effect
regardless of the termination of this Agreement or any other Loan Document, the
consummation of the transactions contemplated hereby, the repayment of any of
the Obligations, the invalidity or unenforceability of any term or provision of
this Agreement or any other Loan Document, or any investigation made by or on
behalf of the Collateral Agent or any other Secured Party. All amounts due under
this Section 5.03 shall be payable on written demand therefor.

SECTION 5.04. Successors and Assigns. Whenever in this Agreement any of the
parties hereto is referred to, such reference shall be deemed to include the
permitted successors and assigns of such party; and all covenants, promises and
agreements by or on behalf of the parties hereto that are contained in this
Agreement shall bind and inure to the benefit of their respective successors and
assigns.

SECTION 5.05. Survival of Agreement. All covenants, agreements, representations
and warranties made by the Grantor or Member, as applicable, in the Loan
Documents and in the certificates or other Instruments prepared or delivered in
connection with or pursuant to this Agreement or any other Loan Documents shall
be considered to have been relied upon by the Collateral Agent and shall survive
the execution and delivery of the Loan Documents and the making of any Loans,
regardless of any investigation made by the Collateral Agent or on its behalf
and notwithstanding that the Collateral Agent may have had notice or knowledge
of any Default or incorrect representation or warranty at the time any credit is
extended under the Credit Agreement, and shall continue in full force and effect
as long as the principal of or any accrued interest on any Loan or any fee or
any other amount payable under any Loan Document is outstanding and unpaid and
as long as the Commitments have not expired or terminated.

SECTION 5.06. Counterparts; Effectiveness. This Agreement may be executed in
counterparts, each of which shall constitute an original but all of which when
taken together shall constitute single contract, and shall become effective as
provided in this Section 5.06. Delivery of an executed signature page to this
Agreement by facsimile transmission shall be as effective as delivery of a
manually signed counterpart of this Agreement.

 

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SECTION 5.07. Severability. Any provision of this Agreement held to be invalid,
illegal or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such invalidity, illegality or uneforceability
without affecting the validity, legality and enforceability of the remaining
provisions hereof; and the invalidity of a particular provision in a particular
jurisdiction shall not invalidate such provision in any other jurisdiction. The
parties shall endeavor in good-faith negotiations to replace the invalid,
illegal or unenforceable provisions with valid provisions the economic effect of
which comes as close as possible to that of the invalid, illegal or
unenforceable provisions.

SECTION 5.08. Right of Set-Off. If an Event of Default shall have occurred and
be continuing, the Collateral Agent is hereby authorized at any time and from
time to time, to the fullest extent permitted by law, to set off and apply any
and all deposits (general or special, time or demand, provisional or final) at
any time held and other obligations at any time owing by the Collateral Agent to
or for the credit or the account of the Grantor or Member, as applicable,
against any of and all the obligations of the Grantor or Member, as applicable,
now or hereafter existing under this Agreement owed to such Collateral Agent,
irrespective of whether or not the Collateral Agent shall have made any demand
under this Agreement and although such obligations may be unmatured. The rights
of the Collateral Agent under this Section 5.08 are in addition to other rights
and remedies (including other rights of set-off) which the Collateral Agent may
have.

SECTION 5.09. Governing Law; Jurisdiction; Consent to Service of Process.
(a) This Agreement shall be construed in accordance with and governed by the law
of the State of New York.

(b) Each party hereby irrevocably and unconditionally submits, for itself and
its property, to the nonexclusive jurisdiction of any New York State court or
Federal court of the United States of America sitting in New York City, and any
appellate court from any thereof, in any action or proceeding arising out of or
relating to this Agreement, or for recognition or enforcement of any judgment,
and each of the parties hereto hereby irrevocably and unconditionally agrees
that all claims in respect of any such action or proceeding may be heard and
determined in such New York State or, to the extent permitted by law, in such
Federal court. Each of the parties hereto agrees that a final judgment in any
such action or proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on the judgment or in any other manner provided by law.
Nothing in this Agreement shall affect any right that the Collateral Agent may
otherwise have to bring any action or proceeding relating to this Agreement or
any other Loan Document against the Grantor or Member, as applicable, or its
properties in the courts of any jurisdiction.

(c) Each party hereby irrevocably and unconditionally waives, to the fullest
extent it may legally and effectively do so, any objection which it may now or
hereafter have to the laying of venue of any suit, action or proceeding arising
out of or relating to this Agreement in any New York State or Federal court.
Each of the parties hereto hereby irrevocably waives, to the fullest extent
permitted by law, the defense of an inconvenient forum to the maintenance of
such action or proceeding in any such court.

 

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(d) Each party to this Agreement irrevocably consents to service of process in
the manner provided for notices in Section 5.01. Nothing in this Agreement will
affect the right of any party to this Agreement to serve process in any other
manner permitted by law.

SECTION 5.10. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO THE
FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY
JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER
OR IN CONNECTION WITH THIS AGREEMENT. EACH PARTY HERETO (A) CERTIFIES THAT NO
REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY
OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK
TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER
PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER
THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 5.10.

SECTION 5.11. Headings. Article and Section headings and the Table of Contents
used herein are for convenience of reference only, are not part of this
Agreement and are not to affect the construction of, or to be taken into
consideration in interpreting, this Agreement.

SECTION 5.12. Security Interest Absolute. All rights of the Collateral Agent
hereunder, the Security Interest, the grant of a security interest in the
Pledged Collateral and Member Pledged Equity Interests and all obligations of
the Grantor or Member hereunder shall be absolute and unconditional irrespective
of (a) any lack of validity or enforceability of the Credit Agreement, any other
Loan Document, any agreement with respect to any of the Obligations or Member
Obligations or any other agreement or Instrument relating to any of the
foregoing, (b) any change in the time, manner or place of payment of, or in any
other term of, all or any of the Obligations, Member Obligations or any other
amendment or waiver of or any consent to any departure from the Credit
Agreement, any other Loan Document or any other agreement or Instrument, (c) any
exchange, release or non-perfection of any Lien on other collateral, or any
release or amendment or waiver of or consent under or departure from any
guarantee, securing or guaranteeing all or any of the Obligations, or (d) any
other circumstance that might otherwise constitute a defense available to, or a
discharge of, the Grantor or Member in respect of the Obligations or Member
Obligations, as applicable, or this Agreement.

SECTION 5.13. Termination or Release. (a) This Agreement, the Security Interest
and all other security interests granted hereby shall terminate when all the
Obligations (other than contingent indemnification obligations, which shall
survive) have been indefeasibly paid in full and the Lenders have no further
commitment to lend under the Credit Agreement.

(b) Upon any sale or other transfer by the Grantor of any Collateral that is
permitted under the Credit Agreement or upon written consent to the release of
the security interest granted hereby in any Collateral pursuant to Section 9.08
of the Credit Agreement, the security interest in such Collateral shall be
automatically released.

(c) In connection with any termination or release pursuant to paragraph (a) or
(b) hereof, the Collateral Agent shall execute and deliver to the Grantor or
Member, as

 

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applicable, at such party’s expense, all documents that such party shall
reasonably request to evidence such termination or release. Any execution and
delivery of documents pursuant to this Section 5.13 shall be without recourse to
or warranty by the Lenders.

SECTION 5.14. Collateral Agent Appointed Attorney-in-Fact. The Grantor and
Member hereby appoint the Collateral Agent the attorney-in-fact of them for the
purpose of carrying out the provisions of this Agreement and taking any action
and executing any Instrument that the Collateral Agent may deem necessary or
advisable to accomplish the purposes hereof, which appointment is irrevocable
and coupled with an interest. Without limiting the generality of the foregoing,
the Collateral Agent shall have the right, during the existence of an Event of
Default and upon acceleration of the time of payment of the Obligations or
Member Obligations, with full power of substitution either in the Collateral
Agent’s name or in the name of the Grantor or Member, as applicable, (a) to
receive, endorse, assign and/or deliver any and all notes, acceptances, checks,
drafts, money orders or other evidences of payment relating to the Collateral or
any part thereof; (b) to demand, collect, receive payment of, give receipt for
and give discharges and releases of all or any of the Collateral; (c) to sign
the name of the Grantor or Member, as applicable, on any invoice or bill of
lading relating to any of the Collateral; (d) to commence and prosecute any and
all suits, actions or proceedings at law or in equity in any court of competent
jurisdiction to collect or otherwise realize on all or any of the Collateral or
to enforce any rights in respect of any Collateral; (e) to settle, compromise,
compound, adjust or defend any actions, suits or proceedings relating to all or
any of the Collateral; and (f) to use, sell, assign, transfer, pledge, make any
agreement with respect to or otherwise deal with all or any of the Collateral,
and to do all other acts and things necessary to carry out the purposes of this
Agreement, as fully and completely as though the Collateral Agent were the
absolute owner of the Collateral for all purposes; provided, however, that
nothing herein contained shall be construed as requiring or obligating the
Collateral Agent to make any commitment or to make any inquiry as to the nature
or sufficiency of any payment received by the Collateral Agent, or to present or
file any claim or notice, or to take any action with respect to the Collateral
or any part thereof or the moneys due or to become due in respect thereof or any
property covered thereby. The Collateral Agent and the other Secured Parties
shall be accountable only for amounts actually received as a result of the
exercise of the powers granted to them herein, and neither they nor their
officers, directors, employees or agents shall be responsible to the Grantor or
Member for any act or failure to act hereunder, except for their own gross
negligence or willful misconduct.

SECTION 5.15. Conflict with the Credit Agreement. To the extent the terms or
provisions of this Agreement conflict in any way with the terms or provisions of
the Credit Agreement, the terms and provisions of the Credit Agreement shall
govern.

 

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

 

GREAT AMERICAN GROUP ENERGY EQUIPMENT, LLC, as Grantor By:  

/s/ Harvey Yellen

Name:   Harvey Yellen Title:   Manager By:  

/s/ Andrew Gumaer

Name:   Andrew Gumaer Title:   Manager GREAT AMERICAN GROUP, LLC, as Member By:
 

/s/ Harvey Yellen

Name:   Harvey Yellen Title:   Manager By:  

/s/ Andrew Gumaer

Name:   Andrew Gumaer Title:   Manager GARRISON LOAN AGENCY SERVICES LLC, as
Collateral Agent, By:  

/s/ Joseph Tansey

Name:   Joseph Tansey Title:   Co-President

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EXHIBIT I

FORM OF PERFECTION CERTIFICATE

This Perfection Certificate is made as of May 29, 2008. Reference is made to the
Credit Agreement, dated as of May 29, 2008, (as amended, supplemented or
otherwise modified from time to time, the “Credit Agreement”), among Great
American Group Energy Equipment, LLC, a California limited liability company, as
borrower (the “Borrower”), Gage Investment Group, LLC, a Delaware limited
liability company, as a lender (“Gage”), Garrison Special Opportunities Fund LP,
a Delaware limited partnership, as a lender (collectively with Gage, the
“Lenders”), and Garrison Loan Agency Services LLC, in its capacity as
administrative agent (the “Administrative Agent”) and as collateral agent (the
“Collateral Agent”). Capitalized terms used but not defined herein have the
meanings assigned in the Credit Agreement or the Security Agreement referred to
therein, as applicable.

The undersigned, manager or authorized signatory of the Borrower, as indicated
in the signature block below, hereby certifies to the Lender as follows:

1. Names.(a) The exact name of the Borrower, as such name appears in its
certified certificate of formation or charter, is as follows:

(b) Set forth below is each other corporate name Borrower has had in the past
five years, together with the date of the relevant change:

(c) The Borrower has not changed its name in any way within the past five years.

(d) Set forth below is the organizational identification number, if any, used by
the jurisdiction of organization of the Borrower:

(e) The Borrower was formed on                                         .

2. Current Locations. (a) The mailing address of the Borrower is set forth
below:

(b) The jurisdiction of formation or charter of the Borrower is set forth below:

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3. UCC Search Reports. UCC search reports have been obtained from the California
Secretary of State, and such search reports reflect no liens against any of the
Collateral other than those permitted under the Credit Agreement.

4. UCC Filings. UCC financing statements in substantially the form of Schedule 1
hereto have been prepared for filing with the California Secretary of State.

5. Debt Instruments. Set forth below is a true and correct list of all
Instruments, including any promissory notes, and other evidence of indebtedness
held by the Borrower that are required to be pledged under the Security
Agreement.

6. Deposit Accounts. Set forth below is a true and correct list of deposit
accounts maintained by the Borrower, including the name and address of the
depositary institution, the type of account and the account number.

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IN WITNESS WHEREOF, the undersigned has duly executed this Perfection
Certificate as of the day and year first above written.

 

GREAT AMERICAN GROUP ENERGY EQUIPMENT, LLC, as Borrower By:  

 

Name:   Title:  

Security Agreement