Exhibit 10.1(b)

 

SECURITY AGREEMENT

 

SECURITY AGREEMENT, dated as of September 19, 2005, between SPANSION LLC, a
Delaware limited liability company (“Grantor”), and BANK OF AMERICA, N.A., in
its capacity as Agent for Lenders.

 

W I T N E S S E T H:

 

WHEREAS, pursuant to that certain Credit Agreement dated as of the date hereof
by and among Grantor, Agent and Lenders (including all annexes, exhibits and
schedules thereto, as from time to time amended, restated, supplemented or
otherwise modified, the “Credit Agreement”), Lenders have agreed to make the
Loans and issue Letters of Credit on behalf of Grantor;

 

WHEREAS, in order to induce Agent and Lenders to enter into the Credit Agreement
and the other Loan Documents and to induce Lenders to make the Loans and issue
Letters of Credit as provided for in the Credit Agreement, Grantor has agreed to
grant a continuing Lien on the Collateral (as hereinafter defined) to secure the
Obligations;

 

NOW, THEREFORE, in consideration of the premises and mutual covenants herein
contained and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:

 

1. DEFINED TERMS. The following terms shall have the following respective
meanings:

 

“Accounts” means all of the Grantor’s now owned or hereafter acquired or arising
accounts, as defined in the UCC, including any rights to payment for the sale or
lease of goods or rendition of services, whether or not they have been earned by
performance, and all medical receivables.

 

“Affiliate” means, as to any Person, any other Person which, directly or
indirectly, is in control of, is controlled by, or is under common control with,
such Person or which owns, directly or indirectly, ten percent (10%) or more of
the outstanding equity interest of such Person. A Person shall be deemed to
control another Person if the controlling Person possesses, directly or
indirectly, the power to direct or cause the direction of the management and
policies of the other Person, whether through the ownership of voting
securities, by contract, or otherwise.

 

“Blocked Account Agreement” means an agreement among Grantor, the Agent and a
Clearing Bank, in form and substance reasonably satisfactory to the Agent,
concerning the collection of payments which represent the proceeds of Accounts
or of any other Collateral.

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“Cash Dominion Period” means a period of one or more days commencing upon (i)
the occurrence of Availability (as defined in the Credit Agreement) measuring
less than $35,000,000 and ending upon (ii) the occurrence of Availability (as
defined in the Credit Agreement) measuring more than $35,000,000 for a sixty
(60) consecutive day period.

 

“Chattel Paper” means all of the Grantor’s now owned or hereafter acquired
chattel paper, as defined in the UCC, including electronic chattel paper.

 

“Clearing Bank” means the Bank or any other banking institution with whom a
Payment Account has been established pursuant to a Blocked Account Agreement.

 

“Collateral” has the meaning set forth in Section 2(a).

 

“Deposit Accounts” means all “deposit accounts” as such term is defined in the
UCC, now or hereafter held in the name of Grantor.

 

“Documents” means all documents as such term is defined in the UCC, including
bills of lading, warehouse receipts or other documents of title, now owned or
hereafter acquired by the Grantor.

 

“Equipment” means all “equipment” as such term is defined in the UCC, now owned
and hereafter acquired by Grantor, wherever located.

 

“General Intangibles” means all “general intangibles” as such term is defined in
the UCC, now owned or hereafter acquired by Grantor.

 

“Goods” means all “goods” as defined in the UCC (except Inventory and
Equipment), now owned or hereafter acquired by Grantor, wherever located,
including embedded software to the extent included in “goods” as defined in the
UCC (except Inventory and Equipment), manufactured homes, standing timber that
is cut and removed for sale and unborn young of animals.

 

“Instruments” means all instruments as such term is defined in the UCC, now
owned or hereafter acquired by the Grantor.

 

“Inventory” means all “inventory” as defined in the UCC, now owned or hereafter
acquired by Grantor, wherever located.

 

“Investment Property” means all of the Grantor’s right title and interest in and
to any and all: (a) securities whether certificated or uncertificated; (b)
securities entitlements; (c) securities accounts; (d) commodity contracts; or
(e) commodity accounts.

 

“Letter-of-Credit Rights” means “letter-of-credit rights” as such term is
defined in the UCC, now owned or hereafter acquired by Grantor, including rights
to payment or performance under a letter of credit, whether or not Grantor, as
beneficiary, has demanded or is entitled to demand payment or performance.

 

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“Other Affiliate Account” means an Account arising in the ordinary course of the
Grantor’s business for certain intercompany transactions between the Grantor and
any of its Affiliates other than for the sale of completed product by the
Grantor to any such Affiliate.

 

“Payment Account” means each bank account established pursuant to this Security
Agreement, to which the proceeds of Accounts and other Collateral are deposited
or credited, and which is maintained in the name of the Agent or the Grantor, as
the Agent may determine, on terms acceptable to the Agent.

 

“Person” means any individual, sole proprietorship, partnership, limited
liability company, joint venture, trust, unincorporated organization,
association, corporation, Governmental Authority, or any other entity.

 

“Supporting Obligations” means all supporting obligations as such term is
defined in the UCC.

 

“UCC” means the Uniform Commercial Code, as in effect from time to time, of the
State of California or of any other state the laws of which are required as a
result thereof to be applied in connection with the issue of perfection of
security interests.

 

“Uniform Commercial Code jurisdiction” means any jurisdiction that has adopted
“Revised Article 9” of the UCC on or after July 1, 2001.

 

All other capitalized terms used but not otherwise defined herein have the
meanings given to them in the Credit Agreement or in Annex A thereto. All other
undefined terms contained in this Security Agreement, unless the context
indicates otherwise, have the meanings provided for by the UCC to the extent the
same are used or defined therein.

 

2. GRANT OF LIEN.

 

(a) As security for all Obligations, the Grantor hereby grants to the Agent, for
the benefit of the Agent and the Lenders, a continuing security interest in,
lien on, assignment of and right of set-off against, all of the following
property and assets of the Grantor, whether now owned or existing or hereafter
acquired or arising, regardless of where located:

 

(i) all Accounts;

 

(ii) all contract rights;

 

(iii) all Chattel Paper;

 

(iv) all Documents;

 

(v) all Instruments;

 

(vi) all Supporting Obligations and Letter-of-Credit Rights;

 

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(vii) all General Intangibles (other than Intellectual Property (as such term is
defined below));

 

(viii) all Goods;

 

(ix) all Investment Property;

 

(x) all money, cash, cash equivalents, securities and other property of any kind
of the Grantor held directly or indirectly by the Agent or any Lender;

 

(xi) all of the Grantor’s Deposit Accounts, credits, and balances with and other
claims against the Agent or any Lender or any of their Affiliates or any other
financial institution with which the Grantor maintains deposits, including any
Payment Accounts;

 

(xii) all books, records and other property related to or referring to any of
the foregoing, including books, records, account ledgers, data processing
records, computer software and other property and General Intangibles at any
time evidencing or relating to any of the foregoing; and

 

(xiii) all accessions to, substitutions for and replacements, products and
proceeds of any of the foregoing, including, but not limited to, proceeds of any
insurance policies, claims against third parties, and condemnation or
requisition payments with respect to all or any of the foregoing.

 

All of the foregoing, together with the Real Estate covered by the Mortgage(s),
all equity interests in Subsidiaries pledged to the Agent and all other property
of the Grantor in which the Agent or any Lender may at any time be granted a
Lien as collateral for the Obligations, is herein collectively referred to as
the “Collateral.”

 

Notwithstanding the foregoing, the Collateral shall not be deemed to include the
following: (a) Equipment; (b) Inventory; (c) the Capital Stock of foreign
Subsidiaries of the Grantor; (d) any General Intangibles of the Grantor
consisting of licenses, leases or other contracts to the extent that (i) such
General Intangibles are not assignable or capable of being encumbered as a
matter of law or under the terms of the license, lease or other agreement
applicable thereto (but solely to the extent that any such restriction shall be
enforceable under applicable law), without the consent of the licensor or lessor
thereof or other applicable party thereto, and (ii) such consent has not been
obtained; provided, however, that the foregoing grant of security interest shall
extend to, and the term “Collateral” shall include (but subject to the
exclusions set forth in clause (i) and (ii) above), (1) any General Intangibles
which are proceeds of, or otherwise related to the enforcement or collection of,
any Account, (2) any and all proceeds of any General Intangible, and (3) upon
obtaining the consent of any such licensor, lessor or other applicable party
with respect to any such otherwise excluded General Intangibles (it being
understood by the parties that the Grantor shall be under no obligation
hereunder to obtain any such consent), such General Intangibles, as well as any
and all proceeds thereof, that might have theretofore have been excluded from
such grant of a security interest and the term “Collateral”; (e) any copyrights,
copyright applications, copyright registration and like protection in each work
of authorship and derivative work thereof, whether published or unpublished, now
owned or hereafter acquired;

 

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any patents, patent applications and like protections including without
limitation improvements, divisions, continuations, renewals, reissues,
extensions and continuations-in-part of the same, trademarks, servicemarks and
applications therefor, whether registered or not, and the goodwill of the
business of Grantor connected with and symbolized by such trademarks, any trade
secret rights, including any rights to unpatented inventions, know-how,
operating manuals, license rights and agreements and confidential information,
now owned or hereafter acquired; or any claims for damage by way of any past,
present and future infringement of any of the foregoing set forth in this clause
(e) (collectively, the “Intellectual Property”), except that the Collateral
shall include the proceeds of all the Intellectual Property that are Accounts of
Grantor, or General Intangibles consisting of rights to payment, if a judicial
authority (including a U.S. Bankruptcy Court) holds that a security interest in
the underlying Intellectual Property is necessary to have a security interest in
such Accounts and General Intangibles of Grantor that are proceeds of the
Intellectual Property, then the Collateral shall automatically, and effective as
of date hereof, include the Intellectual Property to the extent necessary to
permit perfection of Agent’s security interest in such Accounts and General
Intangibles of Grantor that are proceeds of the Intellectual Property.

 

(b) All of the Obligations shall be secured by all of the Collateral.

 

3. PERFECTION AND PROTECTION OF SECURITY INTEREST.

 

(a) The Grantor shall, at its expense, perform all steps requested by the Agent
at any time to perfect, maintain, protect, and enforce the Agent’s Liens,
including: (i) executing, delivering and/or filing and recording of the
Mortgage(s) and executing and filing financing or continuation statements, and
amendments thereof, in form and substance reasonably satisfactory to the Agent;
(ii) delivering to the Agent warehouse receipts covering any portion of the
Collateral located in warehouses and for which warehouse receipts are issued and
certificates of title covering any portion of the collateral for which
certificates of title have been issued; (iii) placing notations on the Grantor’s
books of account to disclose the Agent’s security interest; and (iv) taking such
other steps as are deemed necessary or desirable by the Agent to maintain and
protect the Agent’s Liens. The Grantor agrees that a carbon, photographic,
photostatic, or other reproduction of this Security Agreement or of a financing
statement is sufficient as a financing statement.

 

(b) Upon Agent’s request and after the occurrence of an Event of Default,
Grantor shall deliver to Agent all Collateral consisting of negotiable
Documents, certificated securities (accompanied by stock powers executed in
blank), Chattel Paper and Instruments promptly after Grantor receives the same.

 

(c) Grantor shall, in accordance with the terms of the Credit Agreement, obtain
or use its best efforts to obtain waivers or subordinations of Liens from
landlords and mortgagees, and Grantor shall in all instances obtain signed
acknowledgements of Agent’s Liens from bailees having possession of any
Collateral that they hold for the benefit of Agent.

 

(d) If required by the terms of the Credit Agreement and not waived by Agent in
writing (which waiver may be revoked), Grantor shall obtain authenticated
control agreements from each issuer of uncertificated securities, securities
intermediary, or commodities intermediary issuing or holding any financial
assets or commodities to or for Grantor.

 

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(e) If Grantor is or becomes the beneficiary of a letter of credit Grantor shall
direct all payments thereunder to the Payment Account.

 

(f) Grantor shall take all steps necessary, as requested by Agent, to grant the
Agent control of all electronic chattel paper in accordance with the Code and
all “transferable records” as defined in the Uniform Electronic Transactions
Act.

 

(g) Grantor hereby irrevocably authorizes the Agent at any time and from time to
time to file in any filing office in any Uniform Commercial Code jurisdiction
any initial financing statements and amendments thereto that (a) indicate the
Collateral (i) as set forth herein, regardless of whether any particular asset
comprised in the Collateral falls within the scope of Division 9 of the UCC of
the State of California or such other jurisdiction, or (ii) as being of an equal
or lesser scope or with greater detail, and (b) contain any other information
required by Part 5 of Division 9 of the UCC of the State of California or such
other jurisdiction for the sufficiency or filing office acceptance of any
financing statement or amendment, including (i) whether Grantor is an
organization, the type of organization and any organization identification
number issued to Grantor, and (ii) in the case of a financing statement filed as
a fixture filing or indicating Collateral as as-extracted collateral or timber
to be cut, a sufficient description of real property to which the Collateral
relates. Grantor agrees to furnish any such information to the Agent promptly
upon request. Grantor also ratifies its authorization for the Agent to have
filed in any Uniform Commercial Code jurisdiction any like initial financing
statements or amendments thereto if filed prior to the date hereof.

 

(h) Any commercial tort claim (as defined in the UCC) acquired by the Grantor
which the Grantor is required to disclose to the SEC in accordance with the
Exchange Act shall be disclosed to Agent, and unless otherwise consented to by
Agent, the Grantor shall enter into a supplement to this Security Agreement,
granting to Agent a Lien in such commercial tort claim.

 

(i) From time to time, the Grantor shall, upon the Agent’s request, execute and
deliver confirmatory written instruments pledging to the Agent, for the ratable
benefit of the Agent and the Lenders, the Collateral, but the Grantor’s failure
to do so shall not affect or limit any security interest or any other rights of
the Agent or any Lender in and to the Collateral with respect to the Grantor. So
long as the Credit Agreement is in effect and until all Obligations have been
fully satisfied, the Agent’s Liens shall continue in full force and effect in
all Collateral (whether or not deemed eligible for the purpose of calculating
the Availability or as the basis for any advance, loan, extension of credit, or
other financial accommodation).

 

(j) No Reincorporation. Without limiting the prohibitions on mergers involving
Grantor contained in the Credit Agreement, Grantor shall not reincorporate or
reorganize itself under the laws of any jurisdiction other than the jurisdiction
in which it is incorporated or organized as of the date hereof or change its
type of entity as identified on Schedule II without the prior written consent of
Agent, except as specifically provided in the definition of “Approved
Restructuring,” as defined under the Credit Agreement.

 

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(k) Terminations Amendments Not Authorized. Grantor acknowledges that it is not
authorized to file any financing statement or amendment or termination statement
with respect to any financing statement without the prior written consent of
Agent and agrees that it will not do so without the prior written consent of
Agent, subject to Grantor’s rights under UCC Section 9509(d)(2).

 

(l) No Restriction on Payments to Agent. Grantor shall not enter into any
Contract that restricts or prohibits the grant of a security interest in
Accounts, Chattel Paper, Instruments or payment intangibles or the proceeds of
the foregoing to Agent.

 

4. LOCATION OF COLLATERAL. (a) The Grantor represents and warrants to the Agent
and the Lenders that: (A) Schedule I is a correct and complete list of the
location of Grantor’s chief executive office, the location of its books and
records, the locations of the Collateral, and the locations of all of its other
places of business; and (b) Schedule I correctly identifies any of such
facilities and locations that are not owned by the Grantor and sets forth the
names of the owners and lessors or sublessors of such facilities and locations.
The Grantor covenants and agrees that it will not (i) maintain any Collateral at
any location other than those locations listed for the Grantor on Schedule I,
(ii) otherwise change or add to any of such locations, or (iii) change the
location of its chief executive office from the location identified in Schedule
I, unless in each case it gives the Agent at least thirty (30) days’ prior
written notice thereof and executes any and all financing statements and other
documents that the Agent reasonably requests in connection therewith.

 

5. JURISDICTION OF ORGANIZATION. Schedule II hereto identifies Grantor’s name as
of the Closing Date as it appears in official filings in the state of its
incorporation or other organization, the type of entity of Grantor (including
corporation, partnership, limited partnership or limited liability company),
organizational identification number issued by Grantor’s state of incorporation
or organization or a statement that no such number has been issued and the
jurisdiction in which the Grantor is incorporated or organized. Grantor has only
one state of incorporation or organization.

 

6. TITLE TO, LIENS ON, AND SALE AND USE OF COLLATERAL. The Grantor represents
and warrants to the Agent and the Lenders and agrees with the Agent and the
Lenders that: (a) Grantor has rights in and the power to transfer all of the
Collateral free and clear of all Liens whatsoever, except for Permitted Liens;
(b) the Agent’s Liens in the Collateral will not be subject to any prior Lien
except for those Liens identified in clauses (c), (d), (e), (g), (h) and (k) of
the definition of Permitted Liens; and (c) the Grantor will use, store, and
maintain the Collateral with all reasonable care and will use such Collateral
for lawful purposes only.

 

7. APPRAISALS. Whenever an Event of Default exists, and at such other times not
more frequently than once a year as the Agent requests, the Grantor shall, at
its expense and upon the Agent’s request, provide the Agent with appraisals or
updates thereof of any or all of the Collateral from an appraiser, and prepared
on a basis, satisfactory to the Agent, such appraisals and updates to include,
without limitation, information required by applicable law and regulation and by
the internal policies of the Lenders.

 

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8. ACCESS AND EXAMINATION. The Agent, accompanied by any Lender which so elects,
may at all reasonable times during regular business hours (and at any time when
a Default or Event of Default exists and is continuing) have access to, examine,
audit, make extracts from or copies of and inspect any or all of the Grantor’s
records, files, and books of account and the Collateral, and discuss the
Grantor’s affairs with the Grantor’s officers and management. The Grantor will
deliver to the Agent any instrument necessary for the Agent to obtain records
from any service bureau maintaining records for the Grantor. The Agent may, and
at the direction of the Required Lenders shall, at any time when a Default or
Event of Default exists, and at the Grantor’s expense, make copies of all of the
Grantor’s books and records, or require the Grantor to deliver such copies to
the Agent. The Agent may, without expense to the Agent, use such of the
Grantor’s respective personnel, supplies, and Real Estate as may be reasonably
necessary for maintaining or enforcing the Agent’s Liens. The Agent shall have
the right, at any time, in the Agent’s name or in the name of a nominee of the
Agent, to verify the validity, amount or any other matter relating to the
Accounts, or other Collateral, by mail, telephone, or otherwise.

 

9. COLLATERAL REPORTING. The Grantor shall provide the Agent with the following
documents at the following times in form satisfactory to the Agent:

 

(a) at the times specified in Section 5.2(l) of the Credit Agreement, or more
frequently if requested by the Agent, a schedule of the Grantor’s Accounts
(other than the Other Affiliate Accounts) created, credits given, cash collected
and other adjustments to Accounts (other than the Other Affiliate Accounts)
since the last such schedule and a Borrowing Base Certificate;

 

(b) on a monthly basis, by the 15th day of the following month, or more
frequently if requested by the Agent, an aging of the Grantor’s Accounts (other
than the Other Affiliate Accounts), together with a reconciliation to the
corresponding Borrowing Base and to the Grantor’s general ledger;

 

(c) on a monthly basis, by the 15th day of the following month, or more
frequently if requested by the Agent, an aging of the Grantor’s accounts
payable;

 

(d) on a monthly basis, by the 15th day of the following month (or more
frequently if requested by the Agent), a detailed calculation of Eligible
Accounts;

 

(e) upon request, copies of invoices in connection with the Grantor’s Accounts
(other than the Other Affiliate Accounts), customer statements, credit memos,
remittance advices and reports, deposit slips, shipping and delivery documents
in connection with the Grantor’s Accounts (other than the Other Affiliate
Accounts);

 

(f) upon request, a statement of the balance of each of the Other Affiliate
Accounts;

 

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(g) such other reports as to the Collateral of the Grantor as the Agent shall
reasonably request from time to time; and

 

(h) with the delivery of each of the foregoing, a certificate of the Grantor
executed by an officer thereof certifying as to the accuracy and completeness of
the foregoing.

 

Notwithstanding the foregoing, in the event that in any fiscal quarter of
Grantor, commencing after March 31, 2006, there are no Revolving Loans made in
such quarter, and there exists no Default or Event of Default in such quarter,
then the Grantor shall not be required to deliver the documents set forth in
Section 9(a) through (d) above on a monthly basis, and instead shall be required
to deliver such documents on a quarterly basis by the 15th day of each such
quarter. If any of the Grantor’s records or reports of the Collateral are
prepared by an accounting service or other agent, the Grantor hereby authorizes
such service or agent to deliver such records, reports, and related documents to
the Agent, for distribution to the Lenders.

 

10. ACCOUNTS.

 

(a) The Grantor hereby represents and warrants to the Agent and the Lenders,
with respect to the Grantor’s Accounts (other than the Other Affiliate
Accounts), that: (i) each existing Account (other than the Other Affiliate
Accounts) represents, and each future Account (other than the Other Affiliate
Accounts) will represent, a bona fide sale or lease and delivery of goods by the
Grantor, or rendition of services by the Grantor, in the ordinary course of the
Grantor’s business; (ii) each existing Account (other than the Other Affiliate
Accounts) is, and each future Account (other than the Other Affiliate Accounts)
will be, for a liquidated amount payable by the Account Debtor thereon on the
terms set forth in the invoice therefor or in the schedule thereof delivered to
the Agent, without any offset, deduction, defense, or counterclaim except those
known to the Grantor and disclosed to the Agent and the Lenders pursuant to this
Security Agreement; (iii) no payment will be received with respect to any
Account (other than the Other Affiliate Accounts), and no credit, discount, or
extension, or agreement therefor will be granted on any Account (other than the
Other Affiliate Accounts), except as reported to the Agent and the Lenders in
Borrowing Base Certificates delivered in accordance with this Security
Agreement; (iv) each copy of an invoice delivered to the Agent by the Grantor
will be a genuine copy of the original invoice sent to the Account Debtor named
therein; and (v) all goods described in any invoice representing a sale of goods
will have been delivered to the Account Debtor and all services of the Grantor
described in each invoice will have been performed.

 

(b) The Grantor shall not re-date any invoice or sale or make sales on extended
dating beyond that customary in the Grantor’s business or extend or modify any
Account (other than the Other Affiliate Accounts). If the Grantor becomes aware
of any matter adversely affecting the collectibility of any Account or the
Account Debtor therefor involving an amount greater than $2,500,000, including
information regarding the Account Debtor’s creditworthiness, the Grantor will
promptly so advise the Agent and exclude such Account from Eligible Accounts.

 

(c) The Grantor shall not accept any note or other instrument (except a check or
other instrument for the immediate payment of money) with respect to any Account
(other

 

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than the Other Affiliate Accounts) without the Agent’s written consent. If the
Agent consents to the acceptance of any such instrument, it shall be considered
as evidence of the Account (other than the Other Affiliate Accounts) and not
payment thereof and the Grantor will promptly deliver such instrument to the
Agent, endorsed by the Grantor to the Agent in a manner satisfactory in form and
substance to the Agent. Regardless of the form of presentment, demand, notice of
protest with respect thereto, the Grantor shall remain liable thereon until such
instrument is paid in full.

 

(d) The Grantor shall notify the Agent promptly of all disputes and claims in
excess of $5,000,000 with any Account Debtor, and agrees to settle, contest, or
adjust such dispute or claim at no expense to the Agent or any Lender. No
discount, credit or allowance shall be granted to any such Account Debtor
without the Agent’s prior written consent, except for discounts, credits and
allowances made or given in the ordinary course of the Grantor’s business when
no Event of Default exists hereunder. The Grantor shall send the Agent a copy of
each credit memorandum in excess of $5,000,000 as soon as issued, and the
Grantor shall promptly report that credit on Borrowing Base Certificates
submitted by it. The Agent may at all times when an Event of Default exists
hereunder, settle or adjust disputes and claims directly with Account Debtors
for amounts and upon terms which the Agent or the Required Lenders, as
applicable, shall consider advisable and, in all cases, the Agent will credit
the Grantor’s Loan Account with the net amounts received by the Agent in payment
of any Accounts (other than the Other Affiliate Accounts).

 

(e) If an Account Debtor returns any Inventory to the Grantor when no Event of
Default exists, then the Grantor shall promptly determine the reason for such
return and shall issue a credit memorandum to the Account Debtor in the
appropriate amount. The Grantor shall immediately report to the Agent any return
involving an amount in excess of $5,000,000. Each such report shall indicate the
reasons for the returns. In the event any Account Debtor returns Inventory to
the Grantor when an Event of Default exists, the Grantor, upon the request of
the Agent, shall not issue any credits or allowances with respect thereto
without the Agent’s prior written consent. Whenever any Inventory is returned,
the related Account shall be deemed ineligible to the extent of the amount owing
by the Account Debtor with respect to such returned Inventory.

 

11. COLLECTION OF ACCOUNTS; PAYMENTS.

 

(a) Until the Agent notifies the Grantor to the contrary, the Grantor shall make
collection of all Accounts (other than the Other Affiliate Accounts) and other
Collateral for the Agent, shall receive all payments as the Agent’s trustee, and
shall immediately deliver all payments in their original form duly endorsed in
blank into a Payment Account established for the account of the Grantor at a
Clearing Bank acceptable to the Agent, subject to a Blocked Account Agreement.
On or prior to the date hereof, the Grantor shall establish a lock-box service
for collections of Accounts (other than the Other Affiliate Accounts) at a
Clearing Bank acceptable to the Agent and subject to a Blocked Account Agreement
and other documentation acceptable to the Agent. The Grantor shall instruct all
Account Debtors to make all payments directly to the address established for
such service. If, notwithstanding such instructions, the Grantor receives any
proceeds of Accounts (other than the Other Affiliate Accounts), it shall

 

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receive such payments as the Agent’s trustee, and shall immediately deliver such
payments to the Agent in their original form duly endorsed in blank or deposit
them into a Payment Account, as the Agent may direct. All collections received
in any lock-box or Payment Account or directly by the Grantor or the Agent, and
all funds in any Payment Account or other account to which such collections are
deposited shall be subject to such Grantor’s control unless a Cash Dominion
Period exists, in which case the Agent shall be the only Person entitled to give
the Clearing Bank instructions directing dispositions of funds in such Payment
Account or other account to which such collections are deposited without further
consent by such Grantor. The Agent or the Agent’s designee may, at any time
after the occurrence of an Event of Default, notify Account Debtors with respect
to Accounts (other than the Other Affiliate Accounts) that such Accounts have
been assigned to the Agent and of the Agent’s security interest therein, and may
collect them directly and charge the collection costs and expenses to the Loan
Account as a Revolving Loan. So long as an Event of Default has occurred and is
continuing, the Grantor, at the Agent’s request, shall execute and deliver to
the Agent such documents as the Agent shall require to grant the Agent access to
any post office box in which collections of Accounts (other than the Other
Affiliate Accounts) are received.

 

(b) All payments including immediately available funds received by the Agent at
a bank account designated by it, will be the Agent’s sole property for its
benefit and the benefit of the Lenders.

 

(c) In the event the Grantor repays all of the Obligations upon the termination
of the Credit Agreement or upon acceleration of the Obligations, other than
through the Agent’s receipt of payments on account of the Accounts or proceeds
of the other Collateral, such payment will be credited (conditioned upon final
collection) to the Grantor’s Loan Account upon the Agent’s receipt of
immediately available funds.

 

12. INTENTIONALLY OMITTED.

 

13. INTENTIONALLY OMITTED.

 

14. INTENTIONALLY OMITTED.

 

15. DOCUMENTS, INSTRUMENTS, AND CHATTEL PAPER. The Grantor represents and
warrants to the Agent and the Lenders that (a) all Documents, Instruments, and
Chattel Paper describing, evidencing, or constituting Collateral, and all
signatures and endorsements thereon, are and will be complete, valid, and
genuine, and (b) all goods evidenced by such Documents, Instruments, Letter of
Credit Rights and Chattel Paper are and will be owned by the Grantor, free and
clear of all Liens other than Permitted Liens. If Grantor retains possession of
any Chattel Paper or Instruments with Agent’s consent, such Chattel Paper and
Instruments shall be marked with the following legend: “This writing and the
obligations evidenced or served hereby are subject to the security interest of
Bank of America, N.A., as Agent, for the benefit of Agent and certain Lenders.”

 

16. RIGHT TO CURE. The Agent may, in its discretion, and shall, at the direction
of the Required Lenders, pay any amount or do any act required of the Grantor
hereunder or

 

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under any other Loan Document in order to preserve, protect, maintain or enforce
the Obligations, the Collateral or the Agent’s Liens therein, and which the
Grantor fails to pay or do, including payment of any judgment against the
Grantor, any insurance premium, any warehouse charge, any finishing or
processing charge, any landlord’s or bailee’s claim, and any other Lien upon or
with respect to the Collateral. All payments that the Agent makes under this
Section 16 and all out-of-pocket costs and expenses that the Agent pays or
incurs in connection with any action taken by it hereunder shall be charged to
the Grantor’s Loan Account as a Revolving Loan. Any payment made or other action
taken by the Agent under this Section 16 shall be without prejudice to any right
to assert an Event of Default hereunder and to proceed thereafter as herein
provided.

 

17. POWER OF ATTORNEY. The Grantor hereby appoints the Agent and the Agent’s
designee as the Grantor’s attorney, with power: (a) so long as an Event of
Default has occurred and is continuing, to endorse the Grantor’s name on any
checks, notes, acceptances, money orders, or other forms of payment or security
that come into the Agent’s or any Lender’s possession; (b) so long as an Event
of Default has occurred and is continuing, to sign the Grantor’s name on any
invoice, bill of lading, warehouse receipt or other negotiable or non-negotiable
Document constituting Collateral, on drafts against customers, on assignments of
Accounts, on notices of assignment, financing statements and other public
records and to file any such financing statements by electronic means with or
without a signature as authorized or required by applicable law or filing
procedure; (c) so long as an Event of Default has occurred and is continuing, to
notify the post office authorities to change the address for delivery of the
Grantor’s mail to an address designated by the Agent and to receive, open and
dispose of all mail addressed to the Grantor; (d) to send requests for
verification of Accounts to customers or Account Debtors; (e) so long as an
Event of Default has occurred and is continuing, to complete in the Grantor’s
name or the Agent’s name, any order, sale or transaction, obtain the necessary
Documents in connection therewith, and collect the proceeds thereof; (f) to the
extent that Grantor’s authorization given in Section 3(g) of this Security
Agreement is not sufficient, to file such financing statements with respect to
this Security Agreement, with or without Grantor’s signature, or to file a
photocopy of this Security Agreement in substitution for a financing statement,
as the Agent may deem appropriate and to execute in Grantor’s name such
financing statements and amendments thereto and continuation statements which
may require the Grantor’s signature; and (g) to do all things necessary to carry
out the Credit Agreement and this Security Agreement. The Grantor ratifies and
approves all acts of such attorney. None of the Lenders or the Agent nor their
attorneys will be liable for any acts or omissions or for any error of judgment
or mistake of fact or law except for their gross negligence or willful
misconduct. This power, being coupled with an interest, is irrevocable until the
Credit Agreement has been terminated and the Obligations have been fully
satisfied.

 

18. THE AGENT’S AND LENDERS’ RIGHTS, DUTIES AND LIABILITIES.

 

(a) The Grantor assumes all responsibility and liability arising from or
relating to the use, sale, license or other disposition of the Collateral. The
Obligations shall not be affected by any failure of the Agent or any Lender to
take any steps to perfect the Agent’s Liens or to collect or realize upon the
Collateral, nor shall loss of or damage to the Collateral release the Grantor
from any of the Obligations. Following the occurrence and during the

 

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continuation of an Event of Default, the Agent may (but shall not be required
to), and at the direction of the Required Lenders shall, without notice to or
consent from the Grantor, sue upon or otherwise collect, extend the time for
payment of, modify or amend the terms of, compromise or settle for cash, credit,
or otherwise upon any terms, grant other indulgences, extensions, renewals,
compositions, or releases, and take or omit to take any other action with
respect to the Collateral, any security therefor, any agreement relating
thereto, any insurance applicable thereto, or any Person liable directly or
indirectly in connection with any of the foregoing, without discharging or
otherwise affecting the liability of the Grantor for the Obligations or under
the Credit Agreement or any other agreement now or hereafter existing between
the Agent and/or any Lender and the Grantor.

 

(b) It is expressly agreed by Grantor that, anything herein to the contrary
notwithstanding, Grantor shall remain liable under each of its contracts and
each of its licenses to observe and perform all the conditions and obligations
to be observed and performed by it thereunder. Neither Agent nor any Lender
shall have any obligation or liability under any contract or license by reason
of or arising out of this Security Agreement or the granting herein of a Lien
thereon or the receipt by Agent or any Lender of any payment relating to any
contract or license pursuant hereto. Neither Agent nor any Lender shall be
required or obligated in any manner to perform or fulfill any of the obligations
of Grantor under or pursuant to any contract or license, 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
contract or license, or to present or file any claims, or to take any action to
collect or enforce any performance or the payment of any amounts which may have
been assigned to it or to which it may be entitled at any time or times.

 

(c) Agent may at any time after an Event of Default has occurred and be
continuing (or if any rights of set-off (other than set-offs against an Account
arising under the contract giving rise to the same Account) or contra accounts
may be asserted with respect to the following), without prior notice to Grantor,
notify Account Debtors, and other Persons obligated on the Collateral that Agent
has a security interest therein, and that payments shall be made directly to
Agent, for itself and the benefit of Lenders. Upon the request of Agent, Grantor
shall so notify Account Debtors and other Persons obligated on Collateral. Once
any such notice has been given to any Account Debtor or other Person obligated
on the Collateral, the Grantor shall not give any contrary instructions to such
Account Debtor or other Person without Agent’s prior written consent.

 

(d) Agent may at any time in Agent’s own name or in the name of Grantor
communicate with Account Debtors, parties to Contracts and obligors in respect
of Instruments to verify with such Persons, to Agent’s satisfaction, the
existence, amount and terms of Accounts (other than the Other Affiliate
Accounts), payment intangibles, Instruments or Chattel Paper. If an Event of
Default shall have occurred and be continuing, Grantor, at its own expense,
shall cause the independent certified public accountants then engaged by Grantor
to prepare and deliver to Agent and each Lender at any time and from time to
time promptly upon Agent’s request the following reports with respect to
Grantor: (i) a reconciliation of all Accounts (other than the Other Affiliate
Accounts); (ii) an aging of all Accounts (other than the Other Affiliate
Accounts); (iii) trial balances; and (iv) a test verification of such Accounts
(other than the Other

 

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Affiliate Accounts) as Agent may request. Grantor, at its own expense, shall
deliver to Agent the results of each physical verification, if any, which
Grantor may in its discretion have made, or caused any other Person to have made
on its behalf, of all or any portion of its Inventory.

 

19. INTENTIONALLY OMITTED.

 

20. INDEMNIFICATION. In any suit, proceeding or action brought by Agent or any
Lender relating to any Collateral for any sum owing with respect thereto or to
enforce any rights or claims with respect thereto, Grantor will save, indemnify
and keep Agent and Lenders harmless from and against all expense (including
reasonable attorneys’ fees and expenses), loss or damage suffered by reason of
any defense, setoff, counterclaim, recoupment or reduction of liability
whatsoever of the Account Debtor or other Person obligated on the Collateral,
arising out of a breach by Grantor of any obligation thereunder or arising out
of any other agreement, indebtedness or liability at any time owing to, or in
favor of, such obligor or its successors from Grantor, except in the case of
Agent or any Lender, to the extent such expense, loss, or damage is attributable
solely to the gross negligence or willful misconduct of Agent or such Lender as
finally determined by a court of competent jurisdiction. All such obligations of
Grantor shall be and remain enforceable against and only against Grantor and
shall not be enforceable against Agent or any Lender.

 

21. LIMITATION ON LIENS ON PROPERTY. Grantor will not create, permit or suffer
to exist, and will defend any property now owned or hereafter acquired against,
and take such other action as is necessary to remove, any Lien on any property
now owned or hereafter acquired except Permitted Liens, and will defend the
right, title and interest of Agent and Lenders in and to any of Grantor’s rights
under the Collateral against the claims and demands of all Persons whomsoever.

 

22. NOTICE REGARDING COLLATERAL. Grantor will advise Agent promptly, in
reasonable detail, (i) of any Lien (other than Permitted Liens) or claim made or
asserted against any of the Collateral, and (ii) of the occurrence of any other
event which would have a Material Adverse Effect.

 

23. REMEDIES; RIGHTS UPON DEFAULT.

 

(a) In addition to all other rights and remedies granted to it under this
Security Agreement, the Credit Agreement, the other Loan Documents and under any
other instrument or agreement securing, evidencing or relating to any of the
Obligations, if any Event of Default shall have occurred and be continuing,
Agent may exercise all rights and remedies of a secured party under the UCC.
Without limiting the generality of the foregoing, Grantor expressly agrees that
in any such event Agent, without demand of performance or other demand,
advertisement or notice of any kind (except the notice specified below of time
and place of public or private sale) to or upon Grantor or any other Person (all
and each of which demands, advertisements and notices are hereby expressly
waived to the maximum extent permitted by the UCC and other applicable law), may
forthwith enter upon the premises of Grantor where any Collateral is located
through self-help, without judicial process, without first obtaining a final
judgment or giving Grantor or any other Person notice and opportunity for a
hearing on Agent’s claim or

 

14

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action and may collect, receive, assemble, process, appropriate and realize upon
the Collateral, or any part thereof, and may forthwith sell, lease, license,
assign, give an option or options to purchase, or sell or otherwise dispose of
and deliver said Collateral (or contract to do so), or any part thereof, in one
or more parcels at a public or private sale or sales, at any exchange at such
prices as it may deem acceptable, for cash or on credit or for future delivery
without assumption of any credit risk. Agent or any Lender shall have the right
upon any such public sale or sales and, to the extent permitted by law, upon any
such private sale or sales, to purchase for the benefit of Agent and Lenders,
the whole or any part of said Collateral so sold, free of any right or equity of
redemption, which equity of redemption Grantor hereby releases. Such sales may
be adjourned and continued from time to time with or without notice. Agent shall
have the right to conduct such sales on Grantor’s premises or elsewhere and
shall have the right to use Grantor’s premises without charge for such time or
times as Agent deems necessary or advisable.

 

(b) Grantor further agrees, at Agent’s request, to assemble the Collateral and
make it available to Agent at a place or places designated by Agent which are
reasonably convenient to Agent and Grantor, whether at Grantor’s premises or
elsewhere. Until Agent is able to effect a sale, lease, or other disposition of
Collateral, Agent shall have the right to hold or use Collateral, or any part
thereof, to the extent that it deems appropriate for the purpose of preserving
Collateral or its value or for any other purpose deemed appropriate by Agent.
Agent shall have no obligation to Grantor to maintain or preserve the rights of
Grantor as against third parties with respect to Collateral while Collateral is
in the possession of Agent. Agent may, if it so elects, seek the appointment of
a receiver or keeper to take possession of Collateral and to enforce any of
Agent’s remedies (for the benefit of Agent and Lenders), with respect to such
appointment without prior notice or hearing as to such appointment. Agent shall
apply the net proceeds of any such collection, recovery, receipt, appropriation,
realization or sale to the Obligations as provided in the Credit Agreement, and
only after so paying over such net proceeds, and after the payment by Agent of
any other amount required by any provision of law, need Agent account for the
surplus, if any, to Grantor. To the maximum extent permitted by applicable law,
Grantor waives all claims, damages, and demands against Agent or any Lender
arising out of the repossession, retention or sale of the Collateral except such
as arise solely out of the gross negligence or willful misconduct of Agent or
such Lender as finally determined by a court of competent jurisdiction. Grantor
agrees that ten (10) days prior notice by Agent of the time and place of any
public sale or of the time after which a private sale may take place is
reasonable notification of such matters. Grantor shall remain liable for any
deficiency if the proceeds of any sale or disposition of the Collateral are
insufficient to pay all Obligations, including any attorneys’ fees or other
expenses incurred by Agent or any Lender to collect such deficiency.

 

(c) Except as otherwise specifically provided herein, Grantor hereby waives
presentment, demand, protest or any notice (to the maximum extent permitted by
applicable law) of any kind in connection with this Security Agreement or any
Collateral.

 

(d) To the extent that applicable law imposes duties on the Agent to exercise
remedies in a commercially reasonable manner, Grantor acknowledges and agrees
that it is not commercially unreasonable for the Agent (i) to fail to incur
expenses reasonably deemed significant by the Agent to prepare Collateral for
disposition, (ii) to fail to obtain third party

 

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consents for access to Collateral to be disposed of, or to obtain or, if not
required by other law, to fail to obtain governmental or third party consents
for the collection or disposition of Collateral to be collected or disposed of,
(iii) to fail to exercise collection remedies against Account Debtors or other
Persons obligated on Collateral or to remove Liens on or any adverse claims
against Collateral, (iv) to exercise collection remedies against Account Debtors
and other Persons obligated on Collateral directly or through the use of
collection agencies and other collection specialists, (v) to advertise
dispositions of Collateral through publications or media of general circulation,
whether or not the Collateral is of a specialized nature, (vii) to contact other
Persons, whether or not in the same business as the Grantor, for expressions of
interest in acquiring all or any portion of such Collateral, (viii) to hire one
or more professional auctioneers to assist in the disposition of Collateral,
whether or not the Collateral is of a specialized nature, (ix) to dispose of
Collateral by utilizing internet sites that provide for the auction of assets of
the types included in the Collateral or that have the reasonable capacity of
doing so, or that match buyers and sellers of assets, (x) to dispose of assets
in wholesale rather than retail markets, (xi) to disclaim disposition
warranties, such as title, possession or quiet enjoyment, (xii) to purchase
insurance or credit enhancements to insure the Agent against risks of loss,
collection or disposition of Collateral or to provide to the Agent a guaranteed
return from the collection or disposition of Collateral, or (xiii) to the extent
deemed appropriate by the Agent, to obtain the services of other brokers,
investment bankers, consultants and other professionals to assist the Agent in
the collection or disposition of any of the Collateral. Grantor acknowledges
that the purpose of this Section 23(d) is to provide non-exhaustive indications
of what actions or omissions by the Agent would not be commercially unreasonable
in the Agent’s exercise of remedies against the Collateral and that other
actions or omissions by the Agent shall not be deemed commercially unreasonable
solely on account of not being indicated in this Section 23(d). Without
limitation upon the foregoing, nothing contained in this Section 23(d) shall be
construed to grant any rights to Grantor or to impose any duties on Agent that
would not have been granted or imposed by this Security Agreement or by
applicable law in the absence of this Section 23(d).

 

24. GRANT OF LICENSE TO USE INTELLECTUAL PROPERTY. For the purpose of enabling
Agent to exercise rights and remedies under Section 23 hereof (including,
without limiting the terms of Section 23 hereof, in order to take possession of,
hold, preserve, process, assemble, prepare for sale, market for sale, sell or
otherwise dispose of Collateral) at such time as Agent shall be lawfully
entitled to exercise such rights and remedies and at any time after Grantor has
granted to Agent a Lien upon the Grantor’s Inventory (without implying that
Grantor has any intent or obligation to do so), the Grantor shall grant to
Agent, for the benefit of Agent and Lenders, an irrevocable, nonexclusive
license (exercisable without payment of royalty or other compensation to
Grantor) to use, license or sublicense any Intellectual Property now owned or
hereafter acquired by Grantor, and wherever the same may be located, and
including in such license access to all media in which any of the licensed items
may be recorded or stored and to all computer software and programs used for the
compilation or printout thereof.

 

25. LIMITATION ON AGENT’S AND LENDERS’ DUTY IN RESPECT OF COLLATERAL. Agent and
each Lender shall use reasonable care with respect to the Collateral in its
possession or under its control. Neither Agent nor any Lender shall have any
other duty as to any Collateral in its possession or control or in the
possession or control of any agent or nominee of Agent or such Lender, or any
income thereon or as to the preservation of rights against prior parties or any
other rights pertaining thereto.

 

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26. MISCELLANEOUS.

 

(a) Reinstatement. This Security Agreement shall remain in full force and effect
and continue to be effective should any petition be filed by or against Grantor
for liquidation or reorganization, should Grantor become insolvent or make an
assignment for the benefit of any creditor or creditors or should a receiver or
trustee be appointed for all or any significant part of Grantor’s assets, and
shall continue to be effective or be reinstated, as the case may be, if at any
time payment and performance of the Obligations, or any part thereof, is,
pursuant to applicable law, rescinded or reduced in amount, or must otherwise be
restored or returned by any obligee of the Obligations, whether as a “voidable
preference,” “fraudulent conveyance,” or otherwise, all as though such payment
or performance had not been made. In the event that any payment, or any part
thereof, is rescinded, reduced, restored or returned, the Obligations shall be
reinstated and deemed reduced only by such amount paid and not so rescinded,
reduced, restored or returned.

 

(b) Notices. Except as otherwise provided herein, whenever it is provided herein
that any notice, demand, request, consent, approval, declaration or other
communication shall or may be given to or served upon any of the parties by any
other party, or whenever any of the parties desires to give and serve upon any
other party any communication with respect to this Security Agreement, each such
notice, demand, request, consent, approval, declaration or other communication
shall be in writing and shall be given in the manner, and deemed received, as
provided for in the Credit Agreement.

 

(c) Severability. Whenever possible, each provision of this Security Agreement
shall be interpreted in a manner as to be effective and valid under applicable
law, but if any provision of this Security Agreement shall be prohibited by or
invalid under applicable law, such provision shall be ineffective to the extent
of such prohibition or invalidity without invalidating the remainder of such
provision or the remaining provisions of this Security Agreement. This Security
Agreement is to be read, construed and applied together with the Credit
Agreement and the other Loan Documents which, taken together, set forth the
complete understanding and agreement of Agent, Lenders and Grantor with respect
to the matters referred to herein and therein.

 

(d) No Waiver; Cumulative Remedies. Neither Agent nor any Lender shall by any
act, delay, omission or otherwise be deemed to have waived any of its rights or
remedies hereunder, and no waiver shall be valid unless in writing, signed by
Agent and then only to the extent therein set forth. A waiver by Agent of any
right or remedy hereunder on any one occasion shall not be construed as a bar to
any right or remedy which Agent would otherwise have had on any future occasion.
No failure to exercise nor any delay in exercising on the part of Agent or any
Lender, any right, power or privilege hereunder, shall operate as a waiver
thereof, nor shall any single or partial exercise of any right, power or
privilege hereunder preclude any other or future exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies
hereunder provided are cumulative and may be exercised singly or concurrently,

 

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and are not exclusive of any rights and remedies provided by law. None of the
terms or provisions of this Security Agreement may be waived, altered, modified
or amended except by an instrument in writing, duly executed by Agent and
Grantor.

 

(e) Limitation by Law. All rights, remedies and powers provided in this Security
Agreement may be exercised only to the extent that the exercise thereof does not
violate any applicable provision of law, and all the provisions of this Security
Agreement are intended to be subject to all applicable mandatory provisions of
law that may be controlling and to be limited to the extent necessary so that
they shall not render this Security Agreement invalid, unenforceable, in whole
or in part, or not entitled to be recorded, registered or filed under the
provisions of any applicable law.

 

(f) Termination of this Security Agreement. Subject to Section 26(a) hereof,
this Security Agreement shall terminate upon the satisfactory collateralization
of all Letters of Credit and the payment in full of all other Obligations (other
than indemnification Obligations as to which no claim has been asserted).

 

(g) Successors and Assigns. This Security Agreement and all obligations of
Grantor hereunder shall be binding upon the successors and assigns of Grantor
(including any debtor-in-possession on behalf of Grantor) and shall, together
with the rights and remedies of Agent, for the benefit of Agent and Lenders,
hereunder, inure to the benefit of Agent and Lenders, all future holders of any
instrument evidencing any of the Obligations and their respective successors and
assigns. No sales of participations, other sales, assignments, transfers or
other dispositions of any agreement governing or instrument evidencing the
Obligations or any portion thereof or interest therein shall in any manner
affect the Lien granted to Agent, for the benefit of Agent and Lenders,
hereunder. Grantor may not assign, sell, hypothecate or otherwise transfer any
interest in or obligation under this Security Agreement.

 

(h) Counterparts. This Security Agreement may be authenticated in any number of
separate counterparts, each of which shall collectively and separately
constitute one and the same agreement. This Security Agreement may be
authenticated by manual signature, facsimile or, if approved in writing by
Agent, electronic means, all of which shall be equally valid.

 

(i) Governing Law; Choice of Forum; Service of Process; Jury Trial Waiver.

 

(i) THIS SECURITY AGREEMENT SHALL BE INTERPRETED AND THE RIGHTS AND LIABILITIES
OF THE PARTIES HERETO DETERMINED IN ACCORDANCE WITH THE INTERNAL LAWS (AS
OPPOSED TO THE CONFLICT OF LAWS PROVISIONS PROVIDED THAT ISSUES WITH RESPECT TO
CREATION, PERFECTION, AND ENFORCEMENT OF LIENS UNDER DIVISION 9 OF THE UCC MAY
GIVE EFFECT TO APPLICABLE CHOICE OR CONFLICT OF LAW RULES SET FORTH IN DIVISION
9 OF THE UCC) OF THE STATE OF CALIFORNIA; PROVIDED, THAT, THE AGENT AND THE
LENDERS SHALL RETAIN ALL RIGHTS ARISING UNDER FEDERAL LAW.

 

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(ii) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS SECURITY AGREEMENT OR
ANY OTHER LOAN DOCUMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF CALIFORNIA
OR OF THE UNITED STATES OF AMERICA LOCATED IN LOS ANGELES COUNTY, CALIFORNIA,
AND BY EXECUTION AND DELIVERY OF THIS SECURITY AGREEMENT, EACH OF THE GRANTOR,
THE AGENT AND THE LENDERS CONSENTS, FOR ITSELF AND IN RESPECT OF ITS PROPERTY,
TO THE NON-EXCLUSIVE JURISDICTION OF THOSE COURTS. EACH OF THE GRANTOR, THE
AGENT AND THE LENDERS IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING ANY OBJECTION
TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT
MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY ACTION OR PROCEEDING IN SUCH
JURISDICTION IN RESPECT OF THIS SECURITY AGREEMENT OR ANY DOCUMENT RELATED
HERETO. NOTWITHSTANDING THE FOREGOING: (1) THE AGENT AND THE LENDERS SHALL HAVE
THE RIGHT TO BRING ANY ACTION OR PROCEEDING AGAINST GRANTOR OR ITS PROPERTY IN
THE COURTS OF ANY OTHER JURISDICTION THE AGENT OR THE LENDERS DEEM NECESSARY OR
APPROPRIATE IN ORDER TO REALIZE ON THE COLLATERAL OR OTHER SECURITY FOR THE
GUARANTEED OBLIGATIONS AND (2) EACH OF THE PARTIES HERETO ACKNOWLEDGES THAT ANY
APPEALS FROM THE COURTS DESCRIBED IN THE IMMEDIATELY PRECEDING SENTENCE MAY HAVE
TO BE HEARD BY A COURT LOCATED OUTSIDE THOSE JURISDICTIONS.

 

(iii) THE GRANTOR HEREBY WAIVES PERSONAL SERVICE OF ANY AND ALL PROCESS UPON IT
AND CONSENTS THAT ALL SUCH SERVICE OF PROCESS MAY BE MADE BY OVERNIGHT MAIL,
COURIER SERVICE, OR REGISTERED MAIL (RETURN RECEIPT REQUESTED) DIRECTED TO
GRANTOR AT ITS ADDRESS SET FORTH IN SECTION 26(b) AND SERVICE SO MADE SHALL BE
DEEMED TO BE COMPLETED 5 DAYS AFTER THE SAME SHALL HAVE BEEN SO DEPOSITED IN THE
U.S. MAILS POSTAGE PREPAID. NOTHING CONTAINED HEREIN SHALL AFFECT THE RIGHT OF
THE AGENT OR THE LENDERS TO SERVE LEGAL PROCESS BY ANY OTHER MANNER PERMITTED BY
LAW.

 

(iv) NOTWITHSTANDING ANY OTHER PROVISION OF THIS SECURITY AGREEMENT TO THE
CONTRARY, ANY CONTROVERSY OR CLAIM BETWEEN OR AMONG THE PARTIES, ARISING OUT OF
OR RELATING TO THIS SECURITY AGREEMENT OR ANY OTHER LOAN DOCUMENT INCLUDING ANY
CLAIM BASED ON OR ARISING FROM AN ALLEGED TORT, SHALL AT THE REQUEST OF ANY
PARTY HERETO BE DETERMINED BY BINDING ARBITRATION. The arbitration shall be
conducted in accordance with the United States Arbitration Act (Title 9, U.S.
Code), notwithstanding any choice of law provision in this Security Agreement,
and under the Commercial Rules of the American Arbitration Association (“AAA”).
The arbitrator(s) shall give effect to statutes of limitation in determining any
claim. Any controversy concerning whether an issue is arbitrable shall be
determined by the arbitrator(s). Judgment upon the arbitration award may be
entered in any court having jurisdiction. The institution and maintenance of an
action for judicial relief or pursuant to a provisional or ancillary remedy
shall not constitute a waiver of the right of either party, including the
plaintiff, to submit the controversy or claim to arbitration if any other party
contests such action for judicial relief.

 

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(v) Notwithstanding the provisions of (iv) above, no controversy or claim shall
be submitted to arbitration without the consent of all parties if, at the time
of the proposed submission, such controversy or claim arises from or related to
an obligation to the Lenders which is secured by real estate property collateral
(exclusive of real estate space lease assignments). If all the parties do not
consent to submission of such a controversy or claim to arbitration, the
controversy or claim shall be determined as provided in Section 25 (i)(vi).

 

(vi) At the request of either party a controversy or claim which is not
submitted to arbitration as provided and limited in Sections 25 (i)(iv) and
25(i)(v) shall be determined by judicial reference. If such an election is made,
the parties shall designate to the court a referee or referees selected under
the auspices of the AAA in the same manner as arbitrators are selected in
AAA-sponsored proceedings. The presiding referee of the panel, or the referee if
there is a single referee, shall be an active attorney or retired judge.
Judgment upon the award rendered by such referee or referees shall be entered in
the court in which such proceeding was commenced.

 

(vii) No provision of Sections (iv) through (vi) shall limit the right of the
Agent or the Lenders to exercise self-help remedies such as setoff, foreclosure
against or sale of any real or personal property collateral or security, or
obtaining provisional or ancillary remedies from a court of competent
jurisdiction before, after, or during the pendency of any arbitration or other
proceeding. The exercise of a remedy does not waive the right of either party to
resort to arbitration or reference. At the Agent’s option, foreclosure under a
deed of trust or mortgage may be accomplished either by exercise of power of
sale under the deed of trust or mortgage or by judicial foreclosure.

 

(viii) SUBJECT TO THE PROVISIONS OF SECTION 25 (i)(iv) AND TO THE FULLEST EXTENT
PERMITTED BY APPLICABLE LAW, GRANTOR, THE AGENT AND THE LENDERS EACH IRREVOCABLY
WAIVE THEIR RESPECTIVE RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION
BASED UPON OR ARISING OUT OF OR RELATED TO THIS SECURITY AGREEMENT, THE OTHER
LOAN DOCUMENTS, OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY, IN ANY
ACTION, PROCEEDING OR OTHER LITIGATION OF ANY TYPE BROUGHT BY ANY OF THE PARTIES
AGAINST ANY OTHER PARTY OR ANY AGENT-RELATED PERSON, PARTICIPANT OR ASSIGNEE,
WHETHER WITH RESPECT TO CONTRACT CLAIMS, TORT CLAIMS, OR OTHERWISE. GRANTOR, THE
AGENT AND THE LENDERS EACH AGREE THAT ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE
TRIED BY A COURT TRIAL WITHOUT A JURY. WITHOUT LIMITING THE FOREGOING, THE
PARTIES FURTHER AGREE THAT THEIR RESPECTIVE RIGHT TO A TRIAL BY JURY IS WAIVED
BY OPERATION OF THIS SECTION AS TO ANY ACTION, COUNTERCLAIM OR OTHER PROCEEDING
WHICH SEEKS, IN WHOLE OR IN PART, TO CHALLENGE THE VALIDITY OR ENFORCEABILITY OF
THIS SECURITY AGREEMENT OR THE OTHER LOAN DOCUMENTS OR ANY PROVISION HEREOF OR
THEREOF. THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS,
SUPPLEMENTS OR MODIFICATIONS TO THIS SECURITY AGREEMENT AND THE OTHER LOAN
DOCUMENTS.

 

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(ix) NO CLAIM MAY BE MADE BY GRANTOR AGAINST THE AGENT OR THE LENDERS, OR THE
AFFILIATES, DIRECTORS, OFFICERS, OFFICERS, EMPLOYEES, OR AGENTS OF THE AGENT OR
THE LENDERS FOR ANY SPECIAL, INDIRECT, CONSEQUENTIAL OR PUNITIVE DAMAGES IN
RESPECT OF ANY CLAIM FOR BREACH OF CONTRACT OR ANY OTHER THEORY OF LIABILITY
ARISING OUT OF OR RELATED TO THE TRANSACTIONS CONTEMPLATED BY THIS SECURITY
AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR ANY ACT, OMISSION OR EVENT OCCURRING IN
CONNECTION THEREWITH, AND GRANTOR HEREBY WAIVES, RELEASES AND AGREES NOT TO SUE
UPON ANY CLAIM FOR SUCH DAMAGES, WHETHER OR NOT ACCRUED AND WHETHER OR NOT KNOWN
OR SUSPECTED TO EXIST IN ITS FAVOR.

 

(j) Section Titles. The Section titles contained in this Security Agreement are
and shall be without substantive meaning or content of any kind whatsoever and
are not a part of the agreement between the parties hereto.

 

(k) No Strict Construction. The parties hereto have participated jointly in the
negotiation and drafting of this Security Agreement. In the event an ambiguity
or question of intent or interpretation arises, this Security Agreement shall be
construed as if drafted jointly by the parties hereto and no presumption or
burden of proof shall arise favoring or disfavoring any party by virtue of the
authorship of any provisions of this Security Agreement.

 

(l) Advice of Counsel. Each of the parties represents to each other party hereto
that it has discussed this Security Agreement and, specifically, the provisions
of Section 26(i), with its counsel.

 

(m) Benefit of Lenders. All Liens granted or contemplated hereby shall be for
the benefit of Agent and Lenders, and all proceeds or payments realized from
Collateral in accordance herewith shall be applied to the Obligations in
accordance with the terms of the Credit Agreement.

 

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IN WITNESS WHEREOF, each of the parties hereto has caused this Security
Agreement to be executed and delivered by its duly authorized officer as of the
date first set forth above.

 

SPANSION LLC, a Delaware limited liability company By:  

/s/ Steven J. Geiser

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Name:   Steven J. Geiser Title:   Vice President, Chief Financial Officer and
Treasurer

 

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BANK OF AMERICA, N.A., as Agent By:  

/s/ Matthew R. VanSteenhuyse

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Name:   Matthew R. VanSteenhuyse Title:   Senior Vice President

 

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