GUARANTEE
AND COLLATERAL AGREEMENT
  made
by
  each of
the Grantors (as defined herein)
  in favor
of
  Prospect
Capital Corporation,
  as
Administrative Agent
  Dated as
of August 6, 2007
  
  TABLE
OF CONTENTS
 
 ARTICLE
      I Definitions
                1Section
      1.01
                Definitions
                1Section
      1.02
                Other
      Definitional Provisions; References
                3ARTICLE
      II Guarantee
                
                3Section
      2.01
                Guarantee
                3Section
      2.02
                Payments
                4ARTICLE
      III Grant of Security Interest
                4Section
      3.01
                Grant
      of Security Interest
                4Section
      102
                Transfer
      of Pledged Securities
                6Section
      3.03
                Grantors
      Remains Liable under Accounts, Chattel Paper and PaymentIntangibles
                
                6ARTICLE
      IV Acknowledgments, Waivers and Consents
                6Section
      4.01
                Acknowledgments,
      Waivers and Consents
                6Section
      4.02
                No
      Subrogation, Contribution or Reimbursement
                9ARTICLE
      V Representations and Warranties
                9Section
      5.01
                Representations
      in Credit Agreement
                9Section
      5.02
                Benefit
      to the Guarantor
                9Section
      5.03
                Solvency
                10Section
      5.04
                Title;
      No Other Liens
                10Section
      5.05
                Perfected
      First Priority Liens
                10Section
      5.06
                Legal
      Name, Organizational Status, Chief Executive Office
                10Section
      5.07
                Prior
      Names, Addresses, Locations of Tangible Assets
                10Section
      5.08
                Pledged
      Securities
                10Section
      5.09
                Goods
                11Section
      5.10
                Instruments
      and Chattel Paper
                11Section
      5.11
                Truth
      of Information; Accounts
                11Section
      5.12
                Governmental
      Obligors
                11Section
      5.13
                Patents
      and Trademarks
                11Section
      5.14
                Vehicles
                12ARTICLE
      VI Covenants
                12Section
      6.01
                Covenants
      in Credit Agreement
                12Section
      6.02
                Maintenance
      of Perfected Security Interest; Further Documentation
                12Section
      6.03
                Maintenance
      of Records
                13Section
      6.04
                Right
      of Inspection
                13Section
      6.05
                Further
      Identification of Collateral
                13Section
      6.06
                Changes
      in Locations, Name, etc.
                14Section
      6.07
                Compliance
      with Contractual Obligations
                14Section
      6.08
                Limitations
      on Dispositions of Collateral
                14Section
      6.09
                Pledged
      Securities
                14
 
 
 i
 
 Section
      6.10
                Limitations
      on Modifications, Waivers, Extensions of Agreements Giving Rise to
      Accounts
                15Section
      6.11
                Instruments
      and Tangible Chattel Paper
                16Section
      6.12
                Maintenance
      of Equipment
                16Section
      6.13
                Patents
      and Trademarks
                16Section
      6.14
                Commercial
      Tort Claims
                17Section
      6.15
                Vehicles
                18ARTICLE
      VII Remedial Provisions
                18Section
      7.01
                Pledged
      Securities
                18Section
      7.02
                Collections
      on Accounts, Etc
                19Section
      7.03
                Proceeds
                19Section
      7.04
                New
      York UCC and Other Remedies
                20Section
      7.05
                Private
      Sales of Pledged Securities
                21Section
      7.06
                Waiver;
      Deficiency
                22Section
      7.07
                Non-Judicial
      Enforcement
                22ARTICLE
      VIII The Administrative Agent
                22Section
      8.01
                Administrative
      Agent's Appointment as Attorney-in-Fact, Etc
                22Section
      8.02
                Duty
      of Administrative Agent
                24Section
      8.03
                Execution
      of Financing Statements
                24Section
      8.04
                Authority
      of Administrative Agent
                25ARTICLE
      IX Subordination of Indebtedness
                25Section
      9.01
                Subordination
      of All Guarantor Claims
                25Section
      9.02
                Claims
      in Bankruptcy
                25Section
      9.03
                Payments
      Held in Trust
                25Section
      9.04
                Liens
      Subordinate
                26Section
      9.05
                Notation
      of Records
                26ARTICLE
      X Miscellaneous
                26Section
      10.01
                Waiver
                26Section
      10.02
                Notices
                26Section
      10.03
                Payment
      of Expenses, Indemnities, Etc
                27Section
      10.04
                Amendments
      in WritingSection
      10.05
                Successors
      and Assigns
                27Section
      10.06
                Invalidity
                28Section
      10.07
                Counterparts
                28Section
      10.08
                Survival
                28Section
      10.09
                Captions
                28Section
      10.10
                No
      Oral Agreements
                28Section
      10.11
                Governing
      Law; Submission to Jurisdiction
                28Section
      10.12
                Acknowledgments
                29Section
      10.13
                Additional
      Grantors
                30Section
      10.14
                Set-Off
                30Section
      10.15
                Releases
                30Section
      10.16
                Reinstatement
                31
 
 
 ii
 Section
      10.17
                Acceptance
                31Section
      10.18
                Conflict
                31
 
 SCHEDULES:
 
 1.
                Notice
      Addresses of Guarantors2.
                Description
      of Pledged Securities3.
                Filings
      and Other Actions Required to Perfect Security Interests4.
                Legal
      Name, Location of Jurisdiction of Organization, Organizational Identification
      Number, Taxpayor Identification Number and Chief Executive
      Office5.
                Prior
      Names, Prior Chief Executive Office, Location of Tangible
      Assets6.
                Patents
      and Patent Licenses7.
                Trademarks
      and Trademark Licenses8.
                VehiclesANNEX:1.
                Form
      of Assumption Agreement
  iii
  This
GUARANTEE AND COLLATERAL AGREEMENT, dated as of August 6, 2007, is made by Deep
Down, Inc., a Nevada corporation (the "Borrower"),
and each of the other signatories hereto other than the Administrative Agent
(the Borrower and each of the other signatories hereto other than the
Administrative Agent, together with any other Person that becomes a party hereto
from time to time after the date hereof, the "Grantors"),
in favor of Prospect Capital Corporation, a Maryland corporation, as
administrative agent (in such capacity, together with its successors in such
capacity, the "Administrative
Agent"), for the banks and other financial institutions (the "Lenders")
from time to time parties to the Credit Agreement, dated as of August 6, 2007
(as amended, supplemented or otherwise modified from time to time, the "Credit
Agreement"), among the Borrower, the Lenders, the Administrative Agent,
and the other agents party thereto.
  NOW,
THEREFORE, pursuant to the terms of the Credit Agreement, each Grantor hereby
agrees with the Administrative Agent, for the ratable benefit of the Lenders, as
follows:
  ARTICLE
I
 Definitions
  Section
1.01 Definitions.
  (a)  As used
inthis Agreement, each term defined
above shall have the meaning
indicated above. Unless otherwise defined herein, terms defined in the Credit
Agreement and used herein shall have the meanings given to them in the Credit
Agreement, and the following terms as well as all uncapitalized terms which are
defined in the New York UCC on the date hereof are used herein as so defined:
Accounts, Chattel Paper, Commercial Tort Claims, Deposit Accounts, Documents,
Electronic Chattel Paper, Equipment, Fixtures, General Intangibles, Goods,
Instruments, Inventory, Investment Property, Letter-of-Credit Rights, Payment
Intangibles, Proceeds, Supporting Obligations, and Tangible Chattel
Paper.
  (b)  The
following terms shall have the following meanings:
  "Account
Debtor" shall mean a Person (other than any Grantor) obligated on an
Account, Chattel Paper, or General Intangible.
  "Administrative
Agent" shall have the meaning assigned such term in the introductory
paragraph.
  "Agreement"
shall mean this Guarantee and Collateral Agreement, as the same may be amended,
supplemented or otherwise modified from time to time.
  "Borrower"
shall have the meaning assigned such term in the introductory paragraph. "Collateral"
shall have the meaning assigned such term in Section 3.01.
  "Credit
Agreement" shall have the meaning assigned such term in the introductory
paragraph.
  "Grantors"
shall have the meaning assigned such term in the introductory
paragraph.
   1
   "Guarantor Claims"
shall have the meaning set forth in Section 9.01.
  "Guarantors" shall
mean, collectively, each Grantor other than the Borrower.
  "Issuers" shall mean,
collectively, each issuer of a Pledged Security.
  "Lenders" shall have
the meaning assigned such term in the introductory paragraph.
  "New York UCC" shall
mean the Uniform Commercial Code, as it may be amended, from time to time in
effect in the State of New York.
  "Note" shall mean the promissory note
of the Borrower described in Section 2.03(e) of the Credit Agreement and being
substantially in the form of Exhibit G to the Credit Agreement, together with
all amendments, modifications, replacements, extensions and rearrangements
thereof
  "Obligations" shall
mean, collectively, all Indebtedness, liabilities and obligations of the
Borrower and each Guarantor to the Administrative Agent and the Lenders, of
whatsoever nature and howsoever evidenced, due or to become due, now existing or
hereafter arising, whether direct or indirect, absolute or contingent, which may
arise under, out of, or in connection with the Credit Agreement, the other Loan
Documents, and all other agreements, guarantees, notes and other documents
entered into by any party in connection therewith, and any amendment,
restatement or modification of any of the foregoing, including, but not limited
to, the full and punctual payment when due of any unpaid principal of the Loans,
interest (including, without limitation, interest accruing at any post-default
rate and interest accruing after the filing of any petition in bankruptcy, or
the commencement of any insolvency, reorganization or like proceeding, whether
or not a claim for post-filing or post-petition interest is allowed in such
proceeding), fees, reimbursement obligations, guaranty obligations, penalties,
indemnities, legal and other fees, charges and expenses, and amounts advanced by
and expenses incurred in order to preserve any collateral or security interest,
whether due after acceleration or otherwise.
  "Patents" shall mean:
(i) all letters patent of the United States and all reissues and extensions
thereof, including, without limitation, any thereof referred to in Schedule 6
hereto, and (ii) all applications for letters patent of the United States and
all divisions, continuations and continuations-in-part thereof or any other
country, including, without limitation, any thereof referred to in Schedule 6
hereto.
  "Patent License"
shall mean all agreements, whether written or oral, providing for the grant by
any Grantor of any right to manufacture, use or sell any invention covered by a
Patent, including, without limitation, any thereof referred to in Schedule 6
hereto.
  "Pledged Securities"
shall mean: (i) the equity interests described or referred to in Schedule 2; and
(ii) (a) the certificates or instruments, if any, representing such equity
interests, (b) all dividends (cash, stock or otherwise), cash, instruments,
rights to subscribe, purchase or sell and all other rights and property from
time to time received, receivable or otherwise distributed in respect of or in
exchange for any or all of such equity interests, (c) all replacements,
additions to and substitutions for any of the property referred to in this
definition, including, without limitation, claims against third parties, (d) the
proceeds, interest, profits and
  2
   other
income of or on any of the property referred to in this definition and (e) all
books and records relating to any of the property referred to in this
definition.
  "Properties" shall
mean the facility located at 15473 East Freeway, Channelview, Texas 77530.
  "Secured Parties"
shall mean, collectively, the Administrative Agent and the Lenders.
  "Securities Act"
shall mean the Securities Act of 1933, as amended.
  "Trademarks" shall
mean: (i) all trademarks, trade names, corporate names, company names, business
names, fictitious business names, trade styles, service marks, logos and other
source or business identifiers, and the goodwill associated therewith, now
existing or hereafter adopted or acquired, all registrations and recordings
thereof, and all applications in connection therewith, whether in the United
States Patent and Trademark Office or in any similar office or agency of the
United States, any State thereof or any other country or any political
subdivision thereof, or otherwise, including, without limitation, any thereof
referred to in Schedule 7 hereto, and (ii) all renewals thereof.
  "Trademark License"
shall mean any agreement, written or oral, providing for the grant by any
Grantor of any right to use any Trademark, including, without limitation, any
thereof referred to in Schedule 7 hereto.
  "Vehicles" shall mean
all cars, trucks, trailers, construction and earth moving equipment and other
vehicles covered by a certificate of title law of any state and, in any event,
shall include, without limitation, the vehicles listed on Schedule 8 hereto and
all tires and other appurtenances to any of the foregoing.
  Section
1.02 Other
Definitional Provisions; References. The meanings given to terms defined
herein shall be equally applicable to both the singular and plural forms of such
terms. The gender of all words shall include the masculine, feminine, and
neuter, as appropriate. The words "herein," "hereof," "hereunder" and other
words of similar import when used in this Agreement refer to this Agreement as a
whole, and not to any particular article, section or subsection. Any reference
herein to a Section shall be deemed to refer to the applicable Section of this
Agreement unless otherwise stated herein. Any reference herein to an exhibit,
schedule or annex shall be deemed to refer to the applicable exhibit, schedule
or annex attached hereto unless otherwise stated herein. Where the context
requires, terms relating to the Collateral or any part thereof, when used in
relation to a Grantor, shall refer to such Grantor's Collateral or the relevant
part thereof.
  ARTICLE
II
 Guarantee
  Section
2.01 Guarantee.
  (a) Each
of the Guarantors hereby, jointly and severally, unconditionally and irrevocably,
guarantees to the Administrative Agent, for the ratable benefit of the Secured
Parties and each of their respective successors, endorsees, transferees and
assigns, the prompt and
  3
  complete
payment and performance by the Borrower and the Guarantors when due (whether at
the stated maturity, by acceleration or otherwise) of the Obligations. This is a
guarantee of payment and not collection and the liability of each Guarantor is
primary and not secondary.
  (b)  Anything
herein or in any other Loan Document to the contrary notwithstanding,
the maximum liability of each Guarantor hereunder and under the other Loan
Documents shall in no event exceed the amount which can be guaranteed by such
Guarantor under applicable federal and state laws relating to the insolvency of
debtors.
  (c)  Each
Guarantor agrees that the Obligations may at any time and from time to time
exceed the amount of the liability of such Guarantor hereunder without impairing
the guarantee contained in this Article II or affecting the rights and remedies
of the Administrative Agent or any Secured Party hereunder.
  (d)  Each
Guarantor agrees that if the maturity of any of the Obligations is accelerated
by bankruptcy or otherwise, such maturity shall also be deemed accelerated for
the purpose of this guarantee without demand or notice to such Guarantor. The
guarantee contained in this Article II shall remain in full force and effect
until all the Obligations shall have been satisfied by payment in full and the
Credit Agreement and the aggregate Commitments shall be terminated,
notwithstanding that from time to time during the term of the Credit Agreement,
no Obligations may be outstanding.
  (e)  Nopayment made by
the Borrower, any of the Guarantors, any other guarantor
or any other Person or received or collected by the Administrative Agent or any
other Secured Party from the Borrower, any of the Guarantors, any other
guarantor or any other Person by virtue of any action or proceeding or any
set-off or appropriation or application at any time or from time to time in
reduction of or in payment of the Obligations shall be deemed to modify, reduce,
release or otherwise affect the liability of any Guarantor hereunder which
shall, notwithstanding any such payment (other than any payment made by such
Guarantor in respect of the Obligations or any payment received or collected
from such Guarantor in respect of the Obligations), remain liable for the
Obligations up to the maximum liability of such Guarantor hereunder until the
Obligations are paid in full and the Credit Agreement and the aggregate
Commitments are terminated.
  Section
2.02 Payments.
Each Guarantor hereby agrees and guarantees that payments hereunder will be paid
to the Administrative Agent without set-off or counterclaim in Dollars at the
principal office of the Administrative Agent.
  ARTICLE
III
 Grant
of Security Interest
  Section
3.01 Grant of Security
Interest. Each Grantor hereby pledges, assigns and transfers to the Administrative Agent,and grants to the Administrative Agent,for the
ratable benefit of the Secured Parties, a security interest in all of the
following property now owned or at any time hereafter acquired by such Grantor
or in which such Grantor now has or at any time in the future may acquire any
right, title or interest and whether now existing or hereafter coming into
existence (collectively, the "Collateral"), as
collateral security for the prompt and complete
  4
  payment
and performance when due (whether at the stated maturity, by acceleration or
otherwise) of the Obligations:
  (1)  all
Accounts;
  (2)  all
Chattel Paper (whether Tangible Chattel Paper or Electronic Chattel Paper);
  (3)  all
Commercial Tort Claims;
  (4)  all
Deposit Accounts other than payroll, withholding tax and other fiduciary
Deposit Accounts;
  (5)  all
Documents;
  (6)  all
General Intangibles;
  (7)  all Goods
(including, without limitation, all Inventory and all Equipment, but
excluding all Fixtures);
  (8)  all
Instruments;
  (9)  all
Investment Property;
  (10)  all
Letter-of-Credit Rights (whether or not the letter of credit is evidenced by a
writing);
  (11)  all
Patents;
  (12)  all
Patent Licenses;
  (13)  all
Pledged Securities;
  (14)  all
Supporting Obligations;
  (15)  all
Trademarks;
  (16)  all
Vehicles;
  (17)  all books
and records pertaining to the Collateral; and
  (18)  to the
extent not otherwise included, all Proceeds and products of any and all of the
foregoing and all collateral security, guarantees and other Supporting
Obligations given with respect to any of the foregoing.
  5
   Section
3.02 Transfer
of Pledged Securities. All certificates and instruments representing
or evidencing the Pledged Securities shall be delivered to and held pursuant
hereto by the Administrative Agent or a Person designated by the Administrative
Agent and, in the case of an instrument or certificate in registered form, shall
be duly indorsed to the Administrative Agent or in blank by an effective
indorsement (whether on the certificate or instrument or on a separate writing),
and accompanied by any required transfer tax stamps to effect the pledge of the
Pledged Securities to the Administrative Agent. Notwithstanding the preceding
sentence, all Pledged Securities must be delivered or transferred in such
manner, and each Grantor shall take all such further action as may be requested
by the Administrative Agent, as to permit the Administrative Agent to be a
"protected purchaser" to the extent of its security interest as provided in
Section 8.303 of the New York UCC (if the Administrative Agent otherwise
qualifies as a protected purchaser).
  Section
3.03 Grantors
Remains Liable under Accounts, Chattel Paper and PaymentIntangibles.
Anything herein to the contrary notwithstanding, each Grantor shall remain
liable under each of the Accounts, Documents, Chattel Paper and General
Intangibles to observe and perform all the conditions and obligations to be
observed and performed by it thereunder, all in accordance with the terms of any
agreement giving rise to each such Account, Document, Chattel Paper or General
Intangible. Neither the Administrative Agent nor any other Secured Party shall
have any obligation or liability under any Account, Document, Chattel Paper or
General Intangible (or any agreement giving rise thereto) by reason of or
arising out of this Agreement or the receipt by the Administrative Agent or any
such other Secured Party of any payment relating to such Account, Document,
Chattel Paper or General Intangible, pursuant hereto, nor shall the
Administrative Agent or any other Secured Party be obligated in any manner to
perform any of the obligations of any Grantor under or pursuant to any Account,
Document, Chattel Paper or General Intangible (or any agreement giving rise
thereto), to make any payment, to make any inquiry as to the nature or the
sufficiency of any payment received by it or as to the sufficiency of any
performance by any party under any Account, Document, Chattel Paper or General
Intangible (or any agreement giving rise thereto), to present or file any claim,
to take any action to enforce any performance or to collect the payment of any
amounts which may have been assigned to it or to which it may be entitled at any
time or times.
 ARTICLE
IV
 Acknowledgments,
Waivers and Consents
  Section 4.01Acknowledgments, Waivers and
Consents.
  (a) Each
Grantor acknowledges and agrees that the obligations undertaken by it under
this Agreement involve the guarantee and the provision of collateral security
for the obligations of Persons other than such Grantor and that such Grantor's
guarantee and provision of collateral security for the Obligations are absolute,
irrevocable and unconditional under any and all circumstances. In full
recognition and furtherance of the foregoing, each Grantor understands and
agrees, to the fullest extent permitted under applicable law and except as may
otherwise be expressly and specifically provided in the Loan Documents, that
each Grantor shall remain obligated hereunder (including, without limitation,
with respect to the guarantee made such Grantor hereby and the collateral
security provided by such Grantor herein) and the enforceability and
effectiveness of this Agreement and the liability of such Grantor, and
the
  6
   rights,
remedies, powers and privileges of the Administrative Agent and the other
Secured Parties under this Agreement and the other Loan Documents shall not be
affected, limited, reduced, discharged or terminated in any way:
  (i)  notwithstanding
that, without any reservation of rights against any Grantor
and without notice to or further assent by any Grantor, (A) any demand for
payment of any of the Obligations made by the Administrative Agent or any other
Secured Party may be rescinded by the Administrative Agent or such other Secured
Party and any of the Obligations continued; (B) the Obligations, the liability
of any other Person upon or for any part thereof or any collateral security or
guarantee therefor or right of offset with respect thereto, may, from time to
time, in whole or in part, be renewed, extended, amended, modified, accelerated,
compromised, waived, surrendered or released by, or any indulgence or
forbearance in respect thereof granted by, the Administrative Agent or any other
Secured Party; (C) the Credit Agreement, the other Loan Documents and any other
documents executed and delivered in connection therewith may be amended,
modified, supplemented or terminated, in whole or in part, as the Administrative
Agent (or the Required Lenders, the Required Lenders or all Lenders, as the case
may be) may deem advisable from time to time; (D) the Borrower, any Grantor or
any other Person may from time to time accept or enter into new or additional
agreements, security documents, guarantees or other instruments in addition to,
in exchange for or relative to, any Loan Document, all or any part of the
Obligations or any Collateral now or in the future serving as security for the
Obligations; (E) any collateral security, guarantee or right of offset at any
time held by the Administrative Agent or any other Secured Party for the payment
of the Obligations may be sold, exchanged, waived, surrendered or released; and
(F) any other event shall occur which constitutes a defense or release of
sureties generally; and
  (ii)  without
regard to, and each Grantor hereby expressly waives to the fullest
extent permitted by law any defense now or in the future arising by reason of,
(A) the illegality, invalidity or unenforceability of the Credit Agreement, any
other Loan Document, any of the Obligations or any other collateral security
therefor or guarantee or right of offset with respect thereto at any time or
from time to time held by the Administrative Agent or any other Secured Party,
(B) any defense, set-off or counterclaim (other than a defense of payment or
performance) which may at any time be available to or be asserted by any Grantor
or any other Person against the Administrative Agent or any other Secured Party,
(C) the insolvency, bankruptcy arrangement, reorganization, adjustment,
composition, liquidation, disability, dissolution or lack of power of any
Grantor or any other Person at any time liable for the payment of all or part of
the Obligations or the failure of the Administrative Agent or any other Secured
Party to file or enforce a claim in bankruptcy or other proceeding with respect
to any Person; or any sale, lease or transfer of any or all of the assets of any
Grantor, or any changes in the shareholders of any Grantor, (D) the fact that
any Collateral or Lien contemplated or intended to be given, created or granted
as security for the repayment of the Obligations shall not be properly perfected
or created, or shall prove to be unenforceable or subordinate to any other Lien,
it being recognized and agreed by each of the Grantors that it is not entering
into this Agreement in reliance on, or in contemplation of the benefits of, the
validity, enforceability, collectability or value of any of the Collateral for
the Obligations, (E) any failure of the Administrative Agent or any other
Secured Party to marshal assets in favor of any Grantor or any other Person, to
exhaust any collateral for all or any part of the Obligations, to pursue or
exhaust any right, remedy, power or privilege it may have against any Grantor or
any other Person or to
  7
   take any
action whatsoever to mitigate or reduce any Grantor's liability under this
Agreement or any other Loan Document, (F) any law which provides that the
obligation of a surety or guarantor must neither be larger in amount nor in
other respects more burdensome than that of the principal or which reduces a
surety's or guarantor's obligation in proportion to the principal obligation,
(G) the possibility that the Obligations may at any time and from time to time
exceed the aggregate liability of such Grantor under this Agreement, or (H)any other circumstance or act
whatsoever which constitutes, or might be construed to constitute, an equitable
or legal discharge or defense of the Borrower for the Obligations, or of such
Grantor under the guarantee contained in Article IIor with respect to the
collateral security provided by such Grantor herein, or which might be available
to a surety or guarantor, in bankruptcy or in any other instance.
  (b)  Each
Grantor hereby waives to the extent permitted by law: (i) except as expressly
provided otherwise in any Loan Document, all notices to such Grantor, or to any
other Person, including but not limited to, notices of the acceptance of this
Agreement, the guarantee contained in Article IIor the provision of
collateral security provided herein, or the creation, renewal, extension,
modification, accrual of any Obligations, or notice of or proof of reliance by
the Administrative Agent or any other Secured Party upon the guarantee contained
in Article II or upon the collateral security provided herein, or of default in
the payment or performance of any of the Obligations owed to the Administrative
Agent or any other Secured Party and enforcement of any right or remedy with
respect thereto; or notice of any other matters relating thereto; the
Obligations, and any of them, shall conclusively be deemed to have been created,
contracted or incurred, or renewed, extended, amended or waived, in reliance
upon the guarantee contained in Article II and the collateral security provided
herein and no notice of creation of the Obligations or any extension of credit
already or hereafter contracted by or extended to the Borrower need be given to
any Grantor; and all dealings between the Borrower and any of the Grantors, on
the one hand, and the Administrative Agent and the other Secured Parties, on the
other hand, likewise shall be conclusively presumed to have been had or
consummated in reliance upon the guarantee contained in Article IIand on the collateral
security provided herein; (ii) diligence and demand of payment, presentment,
protest, dishonor and notice of dishonor; (iii) any statute of limitations
affecting any Grantor's liability hereunder or the enforcement thereof; (iv) all
rights of revocation with respect to the Obligations, the guarantee contained in
Article IIand the
provision of collateral security herein; and (v) all principles or provisions of
law which conflict with the terms of this Agreement and which can, as a matter
of law, be waived.
  (c)  When
making any demand hereunder or otherwise pursuing its rights and remedies
hereunder against any Grantor, the Administrative Agent or any other Secured
Party may, but shall be under no obligation to, join or make a similar demand on
or otherwise pursue or exhaust such rights and remedies as it may have against
the Borrower, any other Grantor or any other Person or against any collateral
security or guarantee for the Obligations or any right of offset with respect
thereto, and any failure by the Administrative Agent or any other Secured Party
to make any such demand, to pursue such other rights or remedies or to collect
any payments from the Borrower, any other Grantor or any other Person or to
realize upon any such collateral security or guarantee or to exercise any such
right of offset, or any release of the Borrower, any Grantor or any other Person
or any such collateral security, guarantee or right of offset, shall not relieve
any Grantor of any obligation or liability hereunder, and shall not impair or
affect the rights and remedies, whether express, implied or available as a
matter of law, of the Administrative Agent or any other Secured Party against
any Grantor. For the purposes hereof
  8
   "demand"
shall include the commencement and continuance of any legal proceedings. Neither
the Administrative Agent nor any other Secured Party shall have any obligation
to protect, secure, perfect or insure any Lien at any time held by it as
security for the Obligations or for the guarantee contained in Article IIor any property subject thereto.
  Section
4.02 No
Subrogation, Contribution or Reimbursement. Notwithstanding any payment
made by any Grantor hereunder or any set-off or application of funds of any
Grantor by the Administrative Agent or any other Secured Party, until the
Obligations are paid in full and the Commitments are terminated, no Grantor
shall be entitled to be subrogated to any of the rights of the Administrative
Agent or any other Secured Party against the Borrower or any other Grantor or
any collateral security or guarantee or right of offset held by the
Administrative Agent or any other Secured Party for the payment of the
Obligations, nor shall any Grantor seek or be entitled to seek any indemnity,
exoneration, participation, contribution or reimbursement from the Borrower or
any other Grantor in respect of payments made by such Grantor hereunder, and
each Grantor hereby expressly waives, releases, and agrees not to exercise any
all such rights of subrogation, reimbursement, indemnity and contribution. Each
Grantor further agrees that to the extent that such waiver and release set forth
herein is found by a court of competent jurisdiction to be void or voidable for
any reason, any rights of subrogation, reimbursement, indemnity and contribution
such Grantor may have against the Borrower, any other Grantor or against any
collateral or security or guarantee or right of offset held by the
Administrative Agent or any other Secured Party shall be junior and subordinate
to any rights the Administrative Agent and the other Secured Parties may have
against the Borrower and such Grantor and to all right, title and interest the
Administrative Agent and the other Secured Parties may have in any collateral or
security or guarantee or right of offset. The Administrative Agent, for the
benefit of the Secured Parties, may use, sell or dispose of any item of
Collateral or security as it sees fit without regard to any subrogation rights
any Grantor may have, and upon any disposition or sale, any rights of
subrogation any Grantor may have shall terminate.
 ARTICLE
V
 Representations
and Warranties
  Each
Grantor hereby represents and warrants to the Administrative Agent and each
other Secured Party that:
  Section
5.01 Representations
in Credit Agreement.Inthe case of each Guarantor, the
representations and warranties set forth in Article V of the Credit Agreement as
they relate to such Guarantor (in its capacity as a Subsidiary of the Borrower)
or to the Loan Documents to which such Guarantor is a party are true and correct
in all material respects, provided that each reference in each such
representation and warranty to the Borrower's knowledge shall, for the purposes
of this Section 5.01, be deemed to be a reference to such Guarantor's
knowledge.
  Section
5.02 Benefit
to the Guarantor. The Borrower is a member of an affiliated group of
companies that includes each Guarantor, and the Borrower and the Guarantors are
engaged in related businesses. Each Guarantor is a Subsidiary of the Borrower
and its guaranty and surety obligations pursuant to this Agreement reasonably
may be expected to benefit, directly or indirectly, it; and it has determined
that this Agreement is necessary and convenient to the conduct, promotion and
attainment of the business of such Guarantor and the Borrower.
  9
   Section
5.03 Solvency.
Such Grantor (i) is not insolvent as of the date hereof and will not be rendered
insolvent as a result of this Agreement (after giving effect to Section
2.01(a)), (ii) is not engaged in a business or a transaction, or about to engage
in a business or a transaction, for which any Property or assets remaining with
it constitute unreasonably small capital, and (iii) does not intend to incur, or
believe it will incur, debts that will be beyond its ability to pay as such
debts mature.
  Section
5.04 Title;No Other Liens.
Except for the security interest granted to the Administrative Agent for the
ratable benefit of the Secured Parties pursuant to this Agreement and Permitted
Liens, such Grantor is the legal and beneficial owner of its respective items of
the Collateral free and clear of any and all Liens. No financing statement or
other public notice with respect to all or any part of the Collateral is on file
or of record in any public office, except such as have been filed in favor of
the Administrative Agent, for the ratable benefit of the Secured Parties,
pursuant to this Agreement, the Security Instruments or as are filed to secure
Liens permitted by Section 7.01 of the Credit Agreement.
  Section
5.05 Perfected First
Priority Liens. The security interests granted pursuant to this Agreement
(a) upon completion of the filings and other actions set forth on Schedule 3
(which, in the case of all filings and other documents referred to on said
Schedule with respect to Collateral owned by any Guarantor on the date hereof
have been delivered to the Administrative Agent in completed and duly executed
form) will constitute valid perfected security interests in all of the
Collateral in favor of the Administrative Agent, for the ratable benefit of the
Secured Parties (to the extent such Collateral is owned by any Guarantor on the
date hereof), as collateral security for such Grantor's obligations, enforceable
in accordance with the terms hereof against all creditors of such Grantor and
any Persons purporting to purchase any Collateral from such Grantor and (b) are
prior to all other Liens on the Collateral in existence on the date hereof
except for Liens described in clauses (a) through (e) of the definition of
Permitted Liens in Section 1.01 of the Credit Agreement (provided that Liens
described in clauses (a) through (e) of the definition of Permitted Liens in
Section 1.01 of the Credit Agreement shall remain "Permitted Liens" only for so
long as no action to enforce such Lien has been commenced and no intention to
subordinate the first priority Lien granted in favor of the Beneficiary is to be
hereby implied or expressed by the permitted existence of any Permitted Liens)
but no intent to subordinate the first priority of the Liens created hereby is
intended or inferred to the extent no such priority otherwise
exists.
  Section
5.06 Legal Name,
Organizational Status, Chief Executive Office. On the date hereof, the
correct legal name of such Grantor, such Grantor's jurisdiction of organization,
organizational number, taxpayer identification number and the location of such
Grantor's chief executive office or sole place of business are specified on
Schedule 4.
  Section
5.07 Prior Names,
Addresses, Locations of Tangible Assets. Schedule 5 correctly sets forth
(a) all names and trade names that such Grantor has used in the last five (5)
years and (b) the chief executive office of such Grantor over the last five (5)
years (if different from that which is set forth in Section 5.06
above).
  Section
5.08 Pledged
Securities. The shares (or such other interests) of Pledged Securities
pledged by such Grantor hereunder constitute all the issued and outstanding
shares (or
  10
  such
other interests) of all classes of the capital stock or other equity interests
of each Issuer owned by such Grantor. All the shares (or such other interests)
of the Pledged Securities have been duly and validly issued and are fully paid
and nonassessable; and such Grantor is the record and beneficial owner of, and
has good title to, the Pledged Securities pledged by it hereunder, free of any
and all Liens, except the security interest created by this
Agreement.
  Section
5.09 Goods. No
portion of the Collateral constituting Goods is in the possession of a bailee
that has issued a negotiable or non-negotiable document covering such
Collateral.
  Section
5.10 Instruments and
Chattel Paper. Such Grantor has delivered to the Administrative Agent all
Collateral constituting Instruments and Chattel Paper. No Collateral
constituting Chattel Paper or Instruments contains any statement therein to the
effect that such Collateral has been assigned to an identified party other than
the Administrative Agent, and the grant of a security interest in such
Collateral in favor of the Administrative Agent hereunder does not violate the
rights of any other Person as a secured party.
  Section
5.11 Truth of
Information; Accounts. All information with respect to the Collateral set
forth in any schedule, certificate or other writing at any time heretofore or
hereafter furnished by such Grantor to the Administrative Agent or any other
Secured Party, and all other written information heretofore or hereafter
furnished by such Grantor to the Administrative Agent or any other Secured Party
is and will be true and correct in all material respects as of the date
furnished. The amount represented by such Grantor to the Administrative Agent
and the Lenders from time to time as owing by each Account Debtor or by all
Account Debtors in respect of the Accounts, Chattel Paper and Payment
Intangibles will at such time be the correct amount actually owing by such
Account Debtor or Account Debtors thereunder. The place where each Grantor keeps
its records concerning the Accounts, Chattel Paper and Payment Intangibles is
15473 East Freeway, Channelview, Texas USA 77530.
  Section
5.12 Governmental
Obligors. None of the Account Debtors on such Grantor's Accounts, Chattel
Paper or Payment Intangibles is a Governmental Authority.
  Section
5.13 Patents and
Trademarks. Schedule 6 hereto includes all Patents and Patent Licenses
owned by such Grantor in its own name as of the date hereof. Schedule 7 hereto
includes all Trademarks and Trademark Licenses owned by such Grantor in its own
name as of the date hereof To the best of each such Grantor's knowledge, each
Patent and Trademark is valid, subsisting, unexpired, enforceable and has not
been abandoned. Except as set forth in either such Schedule, none of such
Patents and Trademarks is the subject of any licensing or franchise agreement.
No holding, decision or judgment has been rendered by any Governmental Authority
which would limit, cancel or question the validity of any Patent or Trademark.
No action or proceeding is pending (i) seeking to limit, cancel or question the
validity of any Patent or Trademark, or (ii) which, if adversely determined,
would have a material adverse effect on the value of any Patent or
Trademark.
  11
  Section
5.14 Vehicles.
All Vehicles owned by such Grantor are listed on Schedule 8.
  ARTICLE
VI
 Covenants
  Each
Grantor covenants and agrees with the Administrative Agent and the other Secured
Parties that, from and after the date of this Agreement until the Obligations
shall have been paid in full and the aggregate Commitments shall have
terminated:
  Section
6.01 Covenants in
Credit Agreement. In the case of each Guarantor, such Guarantor shall
take, or shall refrain from taking, as the case may be, each action that is
necessary to be taken or not taken, as the case may be, so that no Default or
Event of Default is caused by the failure to take such action or to refrain from
taking such action by such Guarantor or any of its Subsidiaries.
  Section
6.02 Maintenance of
Perfected Security Interest; Further Documentation.
  (a)  Such
Grantor shall maintain the security interest created by this Agreement
as a perfected security interest having at least the priority described in
Section 5.05 and shall defend such security interest against the claims and
demands of all Persons whomsoever except for Permitted Liens.
  (b)  At any
time and from time to time, upon the request of the Administrative Agent or
any other Secured Party, and at the sole expense of such Grantor, such Grantor
will promptly and duly give, execute, deliver, indorse, file or record any and
all financing statements, continuation statements, amendments, notices
(including, without limitation, notifications to financial institutions and any
other Person), contracts, agreements, assignments, certificates, stock powers or
other instruments, obtain any and all governmental approvals and consents and
take or cause to be taken any and all steps or acts that may be necessary or
advisable or as the Administrative Agent may reasonably request to create,
perfect, establish the priority of, or to preserve the validity, perfection or
priority of, the Liens granted by this Agreement or to enable the Administrative
Agent or any other Secured Party to enforce its rights, remedies, powers and
privileges under this Agreement with respect to such Liens or to otherwise
obtain or preserve the full benefits of this Agreement and the rights, powers
and privileges herein granted.
  (c)
Without limiting the obligations of the Grantors under Section 6.02(b): (i) upon the
request of the Administrative Agent or any other Secured Party, such Grantor
shall take or cause to be taken all actions (other than any actions required to
be taken by the AdministrativeAgent or any
Lender) requested by the Administrative Agent to cause the Administrative Agentto (A)have "control" (within the meaning of Sections 9-104, 9-105, 9-106, and
9-107 of the UCC) over any Collateral constituting Deposit Accounts, Electronic
Chattel Paper, Investment Property (including the Pledged Securities), or
Letter-of-Credit Rights, including, without limitation, executing and delivering
any agreements, in form and substance satisfactory to the Administrative Agent,
with securities intermediaries, issuers or other Persons in order to establish
"control", and each Grantor shall promptly notify the Administrative Agent and
the other Secured Parties of such Grantor's acquisition of any such Collateral,
and (B) be a "protected purchaser" (as defined in Section 8.303 of the New York
UCC); (ii) with respect to
  12
  Collateral
other than certificated securities and goods covered by a document in the
possession of a Person other than such Grantor or the Administrative Agent, such
Grantor shall obtain written acknowledgment that such Person holds possession
for the Administrative Agent's benefit; and (iii) with respect to any Collateral
constituting Goods that are in the possession of a bailee, such Grantor shall
provide prompt notice to the Administrative Agent and the other Secured Parties
of any such Collateral then in the possession of such bailee, and such Grantor
shall take or cause to be taken all actions (other than any actions required to
be taken by the Administrative Agent or any other Secured Party) necessary or
requested by the Administrative Agent to cause the Administrative Agent to have
a perfected security interest in such Collateral under applicable
law.
  (d)This
Section 6.02 and the obligations imposed on each Grantor by this Section
6.02 shall be interpreted as broadly as possible in favor of the Administrative
Agent and the other Secured Parties in order to effectuate the purpose and
intent of this Agreement.
  Section
6.03 Maintenance of
Records. Such Grantor will keep proper books of record and account in
which full, true and correct entries are made of all dealings and transactions
in relation to its business and activities. For the Administrative Agent's and
the other Secured Parties' further security, the Administrative Agent, for the
ratable benefit of the Secured Parties, shall have a security interest in all of
such Grantor's books and records pertaining to the Collateral, and such Grantor
shall turn over any such books and records to the Administrative Agent or to its
representatives during normal business hours at the request of the
Administrative Agent and shall provide such clerical and other assistance as may
be reasonably requested with regard thereto.
  Section
6.04 Right of
Inspection. Such Grantor shall permit any representatives designated by
the Administrative Agent or any Secured Party, upon reasonable prior notice, to
visit and inspect its Properties, to make test verifications of the Accounts,
Chattel Paper and Payment Intangibles (as such terms are defined in the Uniform
Commercial Code), to examine and make extracts from its books and records, to
inspect the Collateral (including, without limitation, the Inventory and
Equipment), undertake appraisals of such Properties and to discuss its affairs,
finances and condition with its officers and independent accountants, all at
such reasonable times and as often as reasonably requested. At any time and from
time to time, upon the Administrative Agent's reasonable request and upon
reasonable prior notice and at the expense of the Grantor, such Grantor shall
furnish to the Administrative Agent reports showing reconciliations, aging and
test verifications of, and trial balances for, the Accounts, Chattel Paper and
Payment Intangibles, and all original and other documents evidencing, and
relating to, the agreements and transactions which gave rise to the Accounts,
Chattel Paper and Payment Intangibles, including, without limitation, all
original orders, invoices and shipping receipts.
  Section
6.05 Further
Identification of Collateral. Such Grantor will furnish to the
Administrative Agent and the Lenders from time to time, at such Grantor's sole
cost and expense, statements and schedules further identifying and describing
the Collateral and such other reports in connection with the Collateral as the
Administrative Agent may reasonably request, all in reasonable
detail.
  13
  Section
6.06 Changes in
Locations, Name, etc. Such Grantor recognizes that financing statements
pertaining to the Collateral have been or may be filed where such Grantor
maintains any Collateral or is organized. Without limitation of any other
covenant herein, such Grantor will not cause or permit (i) any change to be made
in its name, identity or corporate structure or (ii) any change to (A) the
identity of any warehouseman, common carrier, other third-party transporter,
bailee or any agent or processor in possession or control of any Collateral or
(iii) such Grantor's jurisdiction of organization or (iv) the location of any
Collateral, unless such Grantor shall have first (1) notified the Administrative
Agent of such change at least thirty (30) days prior to the effective date of
such change, and (2) taken all action reasonably requested by the Administrative
Agent or any other Secured Party for the purpose of maintaining the perfection
and priority of the Administrative Agent's security interests under this
Agreement. In any notice furnished pursuant to this Section 6.06, such Grantor
will expressly state in a conspicuous manner that the notice is required by this
Agreement and contains facts that may require additional filings of financing
statements or other notices for the purposes of continuing perfection of the
Administrative Agent's security interest in the Collateral.
  Section
6.07 Compliance with
Contractual Obligations. Such Grantor will perform and comply in all
material respects with all its contractual obligations relating to the
Collateral (including, without limitation, with respect to the goods or
services, the sale or lease or rendition of which gave rise or will give rise to
each Account).
  Section
6.08 Limitations on
Dispositions of Collateral. The Administrative Agent and the other
Secured Parties do not authorize, and such Grantor agrees not to sell, transfer,
lease or otherwise dispose of any of the Collateral, or attempt, offer or
contract to do so except to the extent expressly permitted by the Credit
Agreement.
  Section
6.09 Pledged
Securities.
  (a)  If such
Grantor shall become entitled to receive or shall receive any stock certificate
or other instrument (including, without limitation, any certificate or
instrument representing a dividend or a distribution in connection with any
reclassification, increase or reduction of capital or any certificate or
instrument issued in connection with any reorganization), option or rights in
respect of the capital stock or other equity interests of any Issuer, whether in
addition to, in substitution of, as a conversion of, or in exchange for, any
shares (or such other interests) of the Pledged Securities, or otherwise in
respect thereof, such Grantor shall accept the same as the agent of the
Administrative Agent and the other Secured Parties, hold the same in trust for
the Administrative Agent and the other Secured Parties and deliver the same
forthwith to the Administrative Agent in the exact form received, duly indorsed
by such Grantor to the Administrative Agent, if required, together with an
undated stock power or other equivalent instrument of transfer acceptable to the
Administrative Agent covering such certificate or instrument duly executed in
blank by such Grantor and with, if the Administrative Agent so requests,
signature guaranteed, to be held by the Administrative Agent, subject to the
terms hereof, as additional collateral security for the
Obligations.
  (b)  Without
the prior written consent of the Administrative Agent, such Grantor
will not (i) unless otherwise permitted hereby, vote to enable, or take any
other action to permit, any Issuer to issue any stock or other equity interests
of any nature or to issue any other
  14
  securities
or interests convertible into or granting the right to purchase or exchange for
any stock or other equity interests of any nature of any Issuer, (ii) sell,
assign, transfer, exchange or otherwise dispose of, or grant any option with
respect to, the Pledged Securities or Proceeds thereof (except pursuant to a
transaction expressly permitted by the Credit Agreement), (iii) create, incur or
permit to exist any Lien except for Permitted Liens or option in favor of, or
any claim of any Person with respect to, any of the Pledged Securities or
Proceeds thereof, or any interest therein, except for the security interests
created by this Agreement or (iv) enter into any agreement or undertaking
restricting the right or ability of such Grantor or the Administrative Agent to
sell, assign or transfer any of the Pledged Securities or Proceeds
thereof.
  (c)  In the
case of each Grantor which is an Issuer, such Issuer agrees that (i) it will be
bound by the terms of this Agreement relating to the Pledged Securities issued
by it and will comply with such terms insofar as such terms are applicable to
it, (ii) it will notify the Administrative Agent promptly in writing of the
occurrence of any of the events described in Section 6.09(a) with respect to the
Pledged Securities issued by it and (iii) the terms of Section 7.01(c) and
Section 7.05 shall apply to it, mutatis mutandis,with
respect to all actions that may be required of it pursuant to Section 7.01(c) or
Section 7.05 with respect to the Pledged Securities issued by it.
  (d)  Such
Grantor shall furnish to the Administrative Agent such stock powers and other
equivalent instruments of transfer as may be required by the Administrative
Agent to assure the transferability of and the perfection of the security
interest in the Pledged Securities when and as often as may be reasonably
requested by the Administrative Agent.
  (e) The
Pledged Securities will at all times constitute not less than 100% of the
capital stock or other equity interests of the Issuer thereof owned by any
Grantor. Each Grantor will not permit any Issuer of any of the Pledged
Securities to issue any new shares (or other interests) of any class of capital
stock or other equity interests of such Issuer without the prior written consent
of the Administrative Agent.
  Section
6.10 Limitations on
Modifications, Waivers, Extensions of Agreements GivingRise to Accounts.
Such Grantor will not (i) amend, modify, terminate or waive any provision of any
Chattel Paper, Instrument or any agreement giving rise to an Account or Payment
Intangible in any manner which could reasonably be expected to materially
adversely affect the value of such Chattel Paper, Instrument, Payment Intangible
or Account as Collateral, or (ii) fail to exercise promptly and diligently each
and every material right which it may have under any Chattel Paper, Instrument
and each agreement giving rise to an Account or Payment Intangible (other than
any right of termination). Such Grantor shall deliver to the Administrative
Agent a copy of each material demand, notice or document received by it relating
in any way to any Chattel Paper, Instrument or any agreement giving rise to an
Account or Payment Intangible.
  15
   Section
6.11 Instruments and
Tangible Chattel Paper. If any amount payable under or in connection with
any of the Collateral shall be or become evidenced by any Instrument or Tangible
Chattel Paper, such Instrument or Tangible Chattel Paper shall be immediately
delivered to the Administrative Agent, duly endorsed in a manner satisfactory to
the Administrative Agent, to be held as Collateral pursuant to this
Agreement.
  Section
6.12 Maintenance of
Equipment. Such Grantor will maintain each item of Equipment in good
operating condition, ordinary wear and tear and immaterial impairments of value
and damage by the elements excepted, and will provide all maintenance, service
and repairs necessary for such purpose.
  Section
6.13 Patents and
Trademarks.
  (a)  Such
Grantor (either itself or through licensees) will, except with respect to any
Trademark that such Grantor shall reasonably determine is of negligible economic
value to it, (i) continue to use each Trademark on each and every trademark
class of goods applicable to its current line as reflected in its current
catalogs, brochures and price lists in order to maintain such Trademark in full
force free from any claim of abandonment for non-use, (ii) maintain as in the
past the quality of products and services offered under such Trademark, (iii)
employ such Trademark with the appropriate notice of registration, (iv) not
adopt or use any mark which is confusingly similar or a colorable imitation of
such Trademark unless the Administrative Agent, for the ratable benefit of the
Secured Parties, shall obtain a perfected security interest in such mark
pursuant to this Agreement, and (v) not (and not permit any licensee or
sublicensee thereof to) do any act or knowingly omit to do any act whereby any
Trademark may become invalidated.
  (b)  Such
Grantor will not, except with respect to any Patent that such Grantor shall
reasonably determine is of negligible economic value to it, do any act, or omit
to do any act, whereby any Patent may become abandoned or
dedicated.
  (c)  Such
Grantor will notify the Administrative Agent and the other Secured Parties
immediately if it knows, or has reason to know, that any application or
registration relating to any Patent or Trademark may become abandoned or
dedicated, or of any adverse determination or development (including, without
limitation, the institution of, or any such determination or development in, any
proceeding in the United States Patent and Trademark Office or any court or
tribunal in any country) regarding such Grantor's ownership of any Patent or
Trademark or its right to register the same or to keep and maintain the
same.
  (d)  Whenever
a Grantor, either by itself or through any agent, employee, licensee
or designee, shall file an application for the registration of any Patent or
Trademark with the United States Patent and Trademark Office or any similar
office or agency in any other country or any political subdivision thereof, such
Grantor shall report such filing to the Administrative Agent and the other
Secured Parties within five (5) Business Days after the last day of the fiscal
quarter in which such filing occurs. Upon request of the Administrative Agent,
such Grantor shall execute and deliver any and all agreements, instruments,
documents, and papers as the Administrative Agent may request to evidence the
Administrative Agent's and the other Secured Parties' security interest in any
Patent or Trademark and the goodwill and General Intangibles of such Grantor
relating thereto or represented thereby, and such Grantor hereby
  16
   constitutes
the Administrative Agent its attorney-in-fact to execute and file all such
writings for the foregoing purposes, all acts of such attorney being hereby
ratified and confirmed; such power being coupled with an interest is irrevocable
until the Obligations are paid in full and the Commitments are
terminated.
  (e)  Such
Grantor will take all reasonable and necessary steps, including, without
limitation, in any proceeding before the United States Patent and Trademark
Office, or any similar office or agency in any other country or any political
subdivision thereof, to maintain and pursue each application (and to obtain the
relevant registration) and to maintain each registration of the Patents and
Trademarks, including, without limitation, filing of applications for renewal,
affidavits of use and affidavits of incontestability.
  (f)  In the
event that any Patent or Trademark included in the Collateral is infringed,
misappropriated or diluted by a third party, such Grantor shall promptly notify
the Administrative Agent after it learns thereof and shall, unless such Grantor
shall reasonably determine that such Patent or Trademark is of negligible
economic value to such Grantor which determination such Grantor shall promptly
report to the Administrative Agent and the other Secured Parties, promptly sue
for infringement, misappropriation or dilution, to seek injunctive relief where
appropriate and to recover any and all damages for such infringement,
misappropriation or dilution, or take such other actions as such Grantor shall
reasonably deem appropriate under the circumstances toprotect such Patent or Trademark.
  Section
6.14 Commercial Tort
Claims. If such Grantor shall at any time hold or acquire a Commercial
Tort Claim that satisfies the requirements of the following sentence, such
Grantor shall, within thirty (30) days after such Commercial Tort Claim
satisfies such requirements, notify the Administrative Agent in a writing signed
by such Grantor containing a brief description thereof, and granting to the
Administrative Agent in such writing (for the benefit of the Secured Parties) a
security interest therein and in the Proceeds thereof, all upon the terms of
this Agreement, with such writing to be in form and substance satisfactory to
the Administrative Agent and the other Secured Parties. The provisions of the
preceding sentence shall apply only to a Commercial Tort Claim that satisfies
the following requirements: (i) the monetary value claimed by or payable to the
relevant Grantor in connection with such Commercial Tort Claim shall exceed
$10,000,000, and either (ii) (A) such Grantor shall have filed a law suit or
counterclaim or otherwise commenced legal proceedings (including, without
limitation, arbitration proceedings) against the Person against whom such
Commercial Tort Claim is made, or (B)such Grantor and the Person against whom such Commercial Tort Claim is
asserted shall have entered into a settlement agreement with respect to such
Commercial Tort Claim. In addition, to the extent that the existence of any
Commercial Tort Claim held or acquired by any Grantor is disclosed by such
Grantor in any public filing with the Securities Exchange Commission or any
successor thereto or analogous Governmental Authority, or to the extent that the
existence of any such Commercial Tort Claim is disclosed in any press release
issued by any Grantor, then, upon the request of the Administrative Agent, the
relevant Grantor shall, within thirty (30) days after such request is made,
transmit to the Administrative Agent a writing signed by such Grantor containing
a brief description of such Commercial Tort Claim and granting to the
Administrative Agent in such writing (for the benefit of the Secured Parties) a
security interest therein and in the Proceeds thereof, all upon the terms of
this Agreement, with such
  17
  writing
to be in form and substance satisfactory to the Administrative Agent and the
other Secured Parties.
  Section
6.15 Vehicles.
Such Grantor will maintain each Vehicle in good operating condition, ordinary
wear and tear and immaterial impairments of value and damage by the elements
excepted, and will provide all maintenance, service and repairs necessary for
such purpose. No Vehicle shall be removed from the state which has issued the
certificate of title or ownership therefor for a period in excess of sixty (60)
days.
  ARTICLE
VII
 Remedial
Provisions
  Section 7.01Pledged
Securities.
  (a)  Unless an
Event of Default shall have occurred and be continuing and the Administrative
Agent shall have given notice to the relevant Grantor of the Administrative
Agent's intent to exercise its corresponding rights pursuant to Section 7.01(b),
each Grantor shall be permitted to receive all cash dividends paid in respect of
the Pledged Securities paid in the normal course of business of the relevant
Issuer, to the extent permitted in the Credit Agreement, and to exercise all
voting and corporate rights with respect to the Pledged Securities.
  (b)  If an
Event of Default shall occur and be continuing, then at any time in the
Administrative Agent's discretion without notice, (i) the Administrative Agent
shall have the right to receive any and all cash dividends, payments or other
Proceeds paid in respect of the Pledged Securities and make application thereof
to the Obligations in accordance with Section 3.03(b) of the Credit Agreement,
and (ii) any or all of the Pledged Securities shall be registered in the name of
the Administrative Agent or its nominee, and the Administrative Agent or its
nominee may thereafter exercise (x) all voting, corporate and other rights
pertaining to such Pledged Securities at any meeting of shareholders (or other
equivalent body) of the relevant Issuer or Issuers or otherwise and (y) any and
all rights of conversion, exchange and subscription and any other rights,
privileges or options pertaining to such Pledged Securities as if it were the
absolute owner thereof (including, without limitation, the right to exchange at
its discretion any and all of the Pledged Securities upon the merger,
consolidation, reorganization, recapitalization or other fundamental change in
the organizational structure of any Issuer, or upon the exercise by any Grantor
or the Administrative Agent of any right, privilege or option pertaining to such
Pledged Securities, and in connection therewith, the right to deposit and
deliver any and all of the Pledged Securities with any committee, depositary,
transfer agent, registrar or other designated agency upon such terms and
conditions as the Administrative Agent may determine), all without liability
except to account for property actually received by it, but the Administrative
Agent shall have no duty to any Grantor to exercise any such right, privilege or
option and shall not be responsible for any failure to do so or delay in so
doing.
  (c) Each
Grantor hereby authorizes and instructs each Issuer of any Pledged Securities
pledged by such Grantor hereunder (and each Issuer party hereto hereby agrees)
to (i) comply with any instniction received by it from the Administrative Agent
in writing that (x)
  18
   states
that an Event of Default has occurred and is continuing and (y) is otherwise in
accordance with the terms of this Agreement, without any other or further
instructions from such Grantor, and each Grantor agrees that each Issuer shall
be fully protected in so complying, and (ii) unless otherwise expressly
permitted hereby, pay any dividends or other payments with respect to the
Pledged Securities directly to the Administrative Agent.
  (d) After
the occurrence and during the continuation of an Event of Default, if the
Issuer of any Pledged Securities is the subject of bankruptcy, insolvency,
receivership, custodianship or other proceedings under the supervision of any
Governmental Authority, then all rights of the Grantor in respect thereof to
exercise the voting and other consensual rights which such Grantor would
otherwise be entitled to exercise with respect to the Pledged Securities issued
by such Issuer shall cease, and all such rights shall thereupon become vested in
the Administrative Agent who shall thereupon have the sole right to exercise
such voting and other consensual rights, but the Administrative Agent shall have
no duty to exercise any such voting or other consensual rights and shall not be
responsible for any failure to do so or delay in so doing.
  Section
7.02 Collections on
Accounts, Etc. The Administrative Agent hereby authorizes
each Grantor to collect upon the Accounts, Instruments, Chattel Paper and
Payment Intangibles subject to the Administrative Agent's direction and control,
and the Administrative Agent may curtail or terminate said authority at any time
after the occurrence and during the continuance of an Event of Default. Upon the
request of the Administrative Agent at any time after the occurrence and during
the continuance of an Event of Default, each Grantor shall notify the Account
Debtors that the applicable Accounts, Chattel Paper and Payment Intangibles have
been assigned to the Administrative Agent for the ratable benefit of the Secured
Parties and that payments in respect thereof shall be made directly to the
Administrative Agent. The Administrative Agent may in its own name or in the
name of others communicate with the Account Debtors to verify with them to its
satisfaction the existence, amount and terms of any Accounts, Chattel Paper or
Payment Intangibles.
  Section
7.03 Proceeds.
If required by the Administrative Agent at any time after the occurrence and
during the continuance of an Event of Default, any payments of Accounts,
Instruments, Chattel Paper and Payment Intangibles, when collected or received
by each Grantor, and any other cash or non-cash Proceeds received by each
Grantor upon the sale or other disposition of any Collateral, shall be forthwith
(and, in any event, within two (2) Business Days) deposited by such Grantor in
the exact form received, duly indorsed by such Grantor to the Administrative
Agent if required, in a special collateral account maintained by the
Administrative Agent, subject to withdrawal by the Administrative Agent for the
ratable benefit of the Secured Parties only, as hereinafter provided, and, until
so turned over, shall be held by such Grantor in trust for the Administrative
Agent for the ratable benefit of the Secured Parties, segregated from other
funds of any such Grantor. Each deposit of any such Proceeds shall be
accompanied by a report identifying in reasonable detail the nature and source
of the payments included in the deposit. All Proceeds (including, without
limitation, Proceeds constituting collections of Accounts, Chattel Paper,
Instruments) while held by the Administrative Agent (or by any Grantor in trust
for the Administrative Agent for the ratable benefit of the Secured Parties)
shall continue to be collateral security for all of the Obligations and shall
not constitute payment thereof until applied as hereinafter provided. At such
intervals as may be agreed upon
  19
   by each
Grantor and the Administrative Agent, or, if an Event of Default shall have
occurred and be continuing, at any time at the Administrative Agent's election,
the Administrative Agent shall apply all or any part of the funds on deposit in
said special collateral account on account of the Obligations in such order as
the Administrative Agent may elect, and any part of such funds which the
Administrative Agent elects not so to apply and deems not required as collateral
security for the Obligations shall be paid over from time to time by the
Administrative Agent to each Grantor or to whomsoever may be lawfully entitled
to receive the same.
  Section 7.04New York UCC and Other
Remedies.
  (a) If an
Event of Default shall occurand be
continuing, the Administrative Agent, on
behalf of the Secured Parties, may exercise in its discretion, in addition to
all other rights, remedies, powers and privileges granted to them in this
Agreement, the other Loan Documents, and in any other instrument or agreement
securing, evidencing or relating to the Obligations, all rights, remedies,
powers and privileges of a secured party under the New York UCC (whether the New
York UCC is in effect in the jurisdiction where such rights, remedies, powers or
privileges are asserted) or any other applicable law or otherwise available at
law or equity. Without limiting the generality of the foregoing, the
Administrative Agent, without demand of performance or other demand,
presentment, protest, advertisement or notice of any kind (except any notice
required by law referred to below) to or upon any Grantor or any other Person
(all and each of which demands, defenses, advertisements and notices are hereby
waived), may in such circumstances forthwith collect, receive, appropriate and
realize upon the Collateral, or any part thereof, and/or may forthwith sell,
lease, assign, give option or options to purchase, or otherwise dispose of and
deliver the Collateral or any part thereof (or contract to do any of the
foregoing), in one or more parcels at public or private sale or sales, at any
exchange, broker's board or office of the Administrative Agent or any other
Secured Party or elsewhere upon such terms and conditions as it may deem
advisable and at such prices as it may deem best, for cash or on credit or for
future delivery without assumption of any credit risk. The Administrative Agent
or any other Secured Party 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 the whole or any part of the Collateral so sold, free of any right
or equity of redemption in any Grantor, which right or equity is hereby waived
and released. If an Event of Default shall occur and be continuing, each Grantor
further agrees, at the Administrative Agent's request, to assemble the
Collateral and make it available to the Administrative Agent at places which the
Administrative Agent shall reasonably select, whether at such Grantor's premises
or elsewhere. Any such sale or transfer by the Administrative Agent either to
itself or to any other Person shall be absolutely free from any claim of right
by Grantor, including any equity or right of redemption, stay or appraisal which
Grantor has or may have under any rule of law, regulation or statute now
existing or hereafter adopted. Upon any such sale or transfer, the
Administrative Agent shall have the right to deliver, assign and transfer to the
purchaser or transferee thereof the Collateral so sold or transferred. The
Administrative Agent shall apply the net proceeds of any action taken by it
pursuant to this Section 7.04, after deducting all reasonable costs and expenses
of every kind incurred in connection therewith or incidental to the care or
safekeeping of any of the Collateral or in any way relating to the Collateral or
the rights of the Administrative Agent and the other Secured Parties hereunder,
including, without limitation, reasonable attorneys' fees and disbursements, to
the payment in whole or in part of the Obligations, in accordance with Section
3.03(b) of the Credit Agreement, and only after such application and after the
payment
  20
   by the
Administrative Agent of any other amount required by any provision of law,
including, without limitation, Section 9.615 of the New York UCC, need the
Administrative Agent account for the surplus, if any, to any Grantor. To the
extent permitted by applicable law, each Grantor waives all claims, damages and
demands it may acquire against the Administrative Agent or any other Secured
Party arising out of the exercise by them of any rights hereunder. If any notice
of a proposed sale or other disposition of Collateral shall be required by law,
such notice shall be deemed reasonable and proper if given at least ten (10)
days before such sale or other disposition.
  (b) In
the event that the Administrative Agent elects not to sell the Collateral, the
Administrative Agent retains its rights to dispose of or utilize the Collateral
or any part or parts thereof in any manner authorized or permitted by law or in
equity, and to apply the proceeds of the same towards payment of the
Obligations. Each and every method of disposition of the Collateral described in
this Agreement shall constitute disposition in a commercially reasonable manner.
The Administrative Agent may appoint any Person as agent to perform any act or
acts necessary or incident to any sale or transfer of the
Collateral.
  Section
7.05 Private
Sales of Pledged Securities. Each Grantor recognizes that the
Administrative Agent may be unable to effect a public sale of any or all the
Pledged Securities, by reason of certain prohibitions contained in the
Securities Act and applicable state securities laws or otherwise, and may be
compelled to resort to one or more private sales thereof to a restricted group
of purchasers which will be obliged to agree, among other things, to acquire
such securities for their own account for investment and not with a view to the
distribution or resale thereof. Each Grantor acknowledges and agrees that any
such private sale may result in prices and other terms less favorable than if
such sale were a public sale and, notwithstanding such circumstances, agrees
that any such private sale shall be deemed to have been made in a commercially
reasonable manner. The Administrative Agent shall be under no obligation to
delay a sale of any of the Pledged Securities for the period of time necessary
to permit the Issuer thereof to register such securities for public sale under
the Securities Act, or under applicable state securities laws, even if such
Issuer would agree to do so. Each Grantor agrees to use its best efforts to do
or cause to be done all such other acts as may reasonably be necessary to make
such sale or sales of all or any portion of the Pledged Securities pursuant to
this Section 7.05 valid and binding and in compliance with any and all other
applicable Governmental Requirements. Each Grantor further agrees that a breach
of any of the covenants contained in this Section 7.05 will cause irreparable
injury to the Administrative Agent and the other Secured Parties, that the
Administrative Agent and the other Secured Parties have no adequate remedy at
law in respect of such breach and, as a consequence, that each and every
covenant contained in this Section 7.05 shall be specifically enforceable
against such Grantor, and such Grantor hereby waives and agrees not to assert
any defenses against an action for specific performance of such
covenants.
  21
   Section
7.06 Waiver;
Deficiency. Each Grantor waives and agrees not to assert any rights or
privileges which it may acquire under the New York UCC or any other applicable
law. Each Grantor shall remain liable for any deficiency if the proceeds of any
sale or other disposition of the Collateral are insufficient to pay its
Obligations and the fees and disbursements of any attorneys employed by the
Administrative Agent or any other Secured Party to collect such
deficiency.
  Section
7.07 Non-Judicial
Enforcement. The Administrative Agent may enforce its rights hereunder
without prior judicial process or judicial hearing, and to the extent permitted
by law, each Grantor expressly waives any and all legal rights which might
otherwise require the Administrative Agent to enforce its rights by judicial
process.
  ARTICLE
VIII
 The
Administrative Agent
  Section 8.01Administrative Agent's
Appointment as Attorney-in-Fact, Etc.
  (a) Each
Grantor hereby irrevocably constitutes and appoints the Administrative
Agent and any officer or agent thereof, with full power of substitution, as its
true and lawful attorney-in-fact with full irrevocable power and authority in
the place and stead of such Grantor and in the name of such Grantor or in its
own name, for the purpose of carrying out the terms of this Agreement, to take
any and all reasonably appropriate action and to execute any and all documents
and instruments which may be reasonably necessary or desirable to accomplish the
purposes of this Agreement, and, without limiting the generality of the
foregoing, each Grantor hereby gives the Administrative Agent the power and
right, on behalf of such Grantor, without notice to or assent by such Grantor,
to do any or all of the following:
  (i)  unless
being disputed in good faith, pay or discharge taxes and Liens
levied or placed on or threatened against the Collateral, effect any repairs or
any insurance called for by the terms of this Agreement and pay all or any part
of the premiums therefor and the costs thereof;
  (ii)  execute,
in connection with any sale provided for in Section 7.04 or
Section 7.05, any endorsements, assignments or other instruments of conveyance
or transfer with respect to the Collateral; and
  (iii) (A) direct any partyliable for any payment under any of the Collateral
to make payment of any and all moneys due or to become due thereunder directly
to the Administrative Agent or as the Administrative Agent shall direct; (B)
take possession of and indorse and collect any checks, drafts, notes,
acceptances or other instruments for the payment of moneys due under any
Account, Instrument, General Intangible, Chattle Paper or Payment Intangible or
with respect to any other Collateral, and to file any claim or to take any other
action or proceeding in any court of law or equity or otherwise deemed
appropriate by the Administrative Agent for the purpose of collecting any all
such moneys due under any Account, Instrument or General Intangible or with
respect to any other Collateral whenever payable; (C) ask or demand for,
collect, and receive payment of and receipt for, any and all moneys, claims and
other amounts due or to become due at any time in respect of or arising out of
any Collateral;
  22
   (D) sign
and indorse any invoices, freight or express bills, bills of lading, storage or
warehouse receipts, drafts against debtors, assignments, verifications, notices
and other documents in connection with any of the Collateral; (E) receive,
change the address for delivery, open and dispose of mail addressed to any
Grantor, and to execute, assign and indorse negotiable and other instruments for
the payment of money, documents of title or other evidences of payment, shipment
or storage for any form of Collateral on behalf of and in the name of any
Grantor; (F) commence and prosecute any suits, actions or proceedings at law or
in equity in any court of competent jurisdiction to collect the Collateral or
any portion thereof and to enforce any other right in respect of any Collateral;
(G) defend any suit, action or proceeding brought against such Grantor with
respect to any Collateral; (H) settle, compromise or adjust any such suit,
action or proceeding and, in connection therewith, give such discharges or
releases as the Administrative Agent may deem appropriate; (I) assign any Patent
or Trademark (along with the goodwill of the business to which any such
Trademark pertains), throughout the world for such term or terms, on such
conditions, and in such manner, as the Administrative Agent shall in its sole
discretion determine; and (J) generally, sell, transfer, pledge and make any
agreement with respect to or otherwise deal with any of the Collateral as fully
and completely as though the Administrative Agent were the absolute owner
thereof for all purposes, and do, at the Administrative Agent's option and such
Grantor's expense, at any time, or from time to time, all acts and things which
the Administrative Agent deems necessary to protect, preserve or realize upon
the Collateral and the Administrative Agent's and the other Secured Parties'
security interests therein and to effect the intent of this Agreement, all as
fully and effectively as such Grantor might do.
  Anything
in this Section 8.01(a) to the contrary notwithstanding, the Administrative
Agent agrees that it will not exercise any rights under the power of attorney
provided for in this Section 8.01(a) unless an Event of Default shall have
occurred and be continuing.
  (b)  If any
Grantor fails to perform or comply with any of its agreements contained
herein within the applicable grace periods, the Administrative Agent, at its
option, but without any obligation so to do, may perform or comply, or otherwise
cause performance or compliance, with such agreement.
  (c)  The
expenses of the Administrative Agent incurred in connection with actions
undertaken as provided in this Section 8.01, together with interest thereon at
the post- default rate from the date of payment by the Administrative Agent to
the date reimbursed by the relevant Grantor, shall be payable by such Grantor to
the Administrative Agent on demand.
  (d) Each
Grantor hereby ratifies all that said attorneys shall lawfully do or cause to
be done by virtue and in compliance hereof. All powers, authorizations and
agencies contained in this Agreement are coupled with an interest and are
irrevocable until this Agreement is terminated and the security interests
created hereby are released.
  23
   Section
8.02 Duty of
Administrative Agent. The Administrative Agent's sole duty with respect
to the custody, safekeeping and physical preservation of the Collateral in its
possession, under Section 9.207 of the New York UCC or otherwise, shall be to
deal with it in the same manner as the Administrative Agent deals with similar
property for its own account and shall be deemed to have exercised reasonable
care in the custody and preservation of the Collateral in its possession if the
Collateral is accorded treatment substantially equal to that which comparable
secured parties accord comparable collateral. Neither the Administrative Agent,
any other Secured Party nor any of their respective officers, directors,
employees or agents shall be liable for failure to demand, collect or realize
upon any of the Collateral or for any delay in doing so or shall be under any
obligation to sell or otherwise dispose of any Collateral upon the request of
any Grantor or any other Person or to take any other action whatsoever with
regard to the Collateral or any part thereof. The powers conferred on the
Administrative Agent and the other Secured Parties hereunder are solely to
protect the Administrative Agent's and the other Secured Parties' interests in
the Collateral and shall not impose any duty upon the Administrative Agent or
any other Secured Party to exercise any such powers. The Administrative Agent
and the other Secured Parties shall be accountable only for amounts that they
actually receive as a result of the exercise of such powers, and neither they
nor any of their officers, directors, employees or agents shall be responsible
to any Grantor for any act or failure to act hereunder, except for their own
gross negligence or willful misconduct. To the fullest extent permitted by
applicable law, the Administrative Agent shall be under no duty whatsoever to
make or give any presentment, notice of dishonor, protest, demand for
performance, notice of non-performance, notice of intent to accelerate, notice
of acceleration, or other notice or demand in connection with any Collateral or
the Obligations, or to take any steps necessary to preserve any rights against
any Grantor or other Person or ascertaining or taking action with respect to
calls, conversions, exchanges, maturities, tenders or other matters relative to
any Collateral, whether or not it has or is deemed to have knowledge of such
matters. Each Grantor, to the extent permitted by applicable law, waives any
right of marshaling in respect of any and all Collateral, and waives any right
to require the Administrative Agent or any other Secured Party to proceed
against any Grantor or other Person, exhaust any Collateral or enforce any other
remedy which the Administrative Agent or any other Secured Party now has or may
hereafter have against each Grantor, any Grantor or other Person.
  Section
8.03 Execution of
Financing Statements. Pursuant to the New York UCC and any other
applicable law, each Grantor authorizes the Administrative Agent, its counsel or
its representative, at any time and from time to time, to file or record
financing statements, continuation statements, amendments thereto and other
filing or recording documents or instruments with respect to the Collateral
without the signature of such Grantor in such form and in such offices as the
Administrative Agent reasonably determines appropriate to perfect the security
interests of the Administrative Agent under this Agreement. Additionally, each
Grantor authorizes the Administrative Agent, its counsel or its representative,
at any time and from time to time, to file or record such financing statements
that describe the collateral covered thereby as "all assets of the Grantor",
"all personal property of the Grantor" or words of similar effect. A
photographic or other reproduction of this Agreement shall be sufficient as a
financing statement or other filing or recording document or instrument for
filing or recording in any jurisdiction.
  24
   Section
8.04 Authority of
Administrative Agent. Each Grantor acknowledges that the rights and
responsibilities of the Administrative Agent under this Agreement with respect
to any action taken by the Administrative Agent or the exercise or non-exercise
by the Administrative Agent of any option, voting right, request, judgment or
other right or remedy provided for herein or resulting or arising out of this
Agreement shall, as between the Administrative Agent and the other Secured
Parties, be governed by the Credit Agreement and by such other agreements with
respect thereto as may exist from time to time among them, but, as between the
Administrative Agent and the Grantors, the Administrative Agent shall be
conclusively presumed to be acting as agent for the Secured Parties with full
and valid authority so to act or refrain from acting, and no Grantor shall be
under any obligation, or entitlement, to make any inquiry respecting such
authority.
  ARTICLE
IX
 Subordination
of Indebtedness
  Section
9.01 Subordination of
All Guarantor Claims. As used herein, the term "Guarantor Claims"
shall mean all debts and obligations of the Borrower or any other Grantor to any
Grantor, whether such debts and obligations now exist or are hereafter incurred
or arise, or whether the obligation of the debtor thereon be direct, contingent,
primary, secondary, several, joint and several, or otherwise, and irrespective
of whether such debts or obligations be evidenced by note, contract, open
account, or otherwise, and irrespective of the Person or Persons in whose favor
such debts or obligations may, at their inception, have been, or may hereafter
be created, or the manner in which they have been or may hereafter be acquired
by. After and during the continuation of an Event of Default, no Grantor shall
receive or collect, directly or indirectly, from any obligor in respect thereof
any amount upon the Guarantor Claims until the Obligations shall have been paid
in full and the Commitments terminated.
  Section
9.02 Claims in
Bankruptcy. In the event of receivership, bankruptcy, reorganization,
arrangement, debtor's relief or other insolvency proceedings involving any
Grantor, the Administrative Agent on behalf of the Secured Parties shall have
the right to prove their claim in any proceeding, so as to establish their
rights hereunder and receive directly from the receiver, trustee or other court
custodian, dividends and payments which would otherwise be payable upon
Guarantor Claims. Each Grantor hereby assigns such dividends and payments to the
Administrative Agent for the benefit of the Secured Parties for application
against the Obligations as provided under Section 3.03(h) of the Credit
Agreement. Should any Agent or Secured Party receive, for application upon the
Obligations, any such dividend or payment which is otherwise payable to any
Grantor, and which, as between such Grantor, shall constitute a credit upon the
Guarantor Claims, then upon payment in full of the Obligations, the intended
recipient shall become subrogated to the rights of the Administrative Agent and
the other Secured Parties to the extent that such payments to the Administrative
Agent and the other Secured Parties on the Guarantor Claims have contributed
toward the liquidation of the Obligations, and such subrogation shall be with
respect to that proportion of the Obligations which would have been unpaid if
the Administrative Agent and the other Secured Parties had not received
dividends or payments upon the Guarantor Claims.
  Section
9.03 Payments Held in
Trust. In the event that notwithstanding Section 9.01 and Section 9.02,
any Grantor should receive any funds, payments, claims or distributions
which
  25
   isprohibited by
such Sections, then it agrees: (a) to hold in trust for the Administrative Agent
and the other Secured Parties an amount equal to the amount of all funds,
payments, claims or distributions so received, and (b) that it shall have
absolutely no dominion over the amount of such funds, payments, claims or
distributions except to pay them promptly to the Administrative Agent, for the
benefit of the Secured Parties; and each Grantor covenants promptly to pay the
same to the Administrative Agent. The Administrative Agent, on behalf of itself
and the Secured Parties, hereby acknowledges and agrees that the trust created
by this Section 9.03 is not a fiduciary trust, and thus a breach under this
Section 9.03 is a breach under this Agreement and the other Loan Documents, but
it is not a breach of any fiduciary duty.
  Section
9.04 Liens
Subordinate. Each Grantor agrees that, until the Obligations are paid in
full and the aggregate Commitments terminated, any Liens securing payment of the
Guarantor Claims shall be and remain inferior and subordinate to any Liens
securing payment of the Obligations, regardless of whether such encumbrances in
favor of such Grantor, the Administrative Agent or any other Secured Party
presently exist or are hereafter created or attach. Without the prior written
consent of the Administrative Agent, no Grantor, during the period in which any
of the Obligations are outstanding or the aggregate Commitments are in effect,
shall (a) exercise or enforce any creditor's right it may have against any
debtor in respect of the Guarantor Claims, or (b) foreclose, repossess,
sequester or otherwise take steps or institute any action or proceeding
(judicial or otherwise, including without limitation the commencement of or
joinder in any liquidation, bankruptcy, rearrangement, debtor's relief or
insolvency proceeding) to enforce any Lien held by it.
  Section
9.05 Notation of
Records. Upon the request of the Administrative Agent, all promissory
notes and all accounts receivable ledgers or other evidence of the Guarantor
Claims accepted by or held by any Grantor shall contain a specific written
notice thereon that the indebtedness evidenced thereby is subordinated under the
terms of this Agreement.
  ARTICLE
X
 Miscellaneous
  Section
10.01 Waiver.
No failure on the part of the Administrative Agent or any other Secured Party to
exercise and no delay in exercising, and no course of dealing with respect to,
any right, remedy, power or privilege under any of the Loan Documents shall
operate as a waiver thereof, nor shall any single or partial exercise of any
right, power or privilege under any of the Loan Documents preclude any other or
further exercise thereof or the exercise of any other right, remedy, power or
privilege. The rights, remedies, powers and privileges provided herein are
cumulative and not exclusive of any rights, remedies, powers and privileges
providedby law. The exercise by the Administrative Agent of any one or
more of the rights, powers and remedies herein shall not be construed as a
waiver of any other rights, powers and remedies,including, without limitation, any rights of set-off.
  Section
10.02 Notices.
All notices and other communications provided for herein shall be given in the
manner and subject to the terms of Section 12.01of the Credit
Agreement; provided that any such notice, request or demand to or upon any
Guarantor shall be addressed to such Guarantor at its notice address set forth
on Schedule 1.
  26
   Section
10.03 Payment of
Expenses, Indemnities, Etc.
  (a)  Each
Grantor agrees to pay or promptly reimburse the Administrative Agent and
each other Secured Party for all advances, charges, costs and expenses
(including, without limitation, all costs and expenses of holding, preparing for
sale and selling, collecting or otherwise realizing upon the Collateral and all
attorneys' fees, legal expenses and court costs) incurred by any Secured Party
in connection with the exercise of its respective rights and remedies hereunder,
including, without limitation, any advances, charges, costs and expenses that
may be incurred in any effort to enforce any of the provisions of this Agreement
or any obligation of any Grantor in respect of the Collateral or in connection
with (i) the preservation of the Lien of, or the rights of the Administrative
Agent or any other Secured Party under this Agreement, (ii) any actual or
attempted sale, lease, disposition, exchange, collection, compromise, settlement
or other realization in respect of, or care of, the Collateral, including all
such costs and expenses incurred in any bankruptcy, reorganization, workout or
other similar proceeding, or (iii) collecting against such Grantor under the
guarantee contained in Article II or otherwise enforcing or preserving any
rights under this Agreement and the other Loan Documents to which such Grantor
is a party.
  (b)  Each
Grantor agrees to pay, and to save the Administrative Agent and the other
Secured Parties harmless from, any and all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
of any kind or nature whatsoever (including, without limitation, court costs and
attorneys' fees, any and all liabilities with respect to, or resulting from any
delay in paying, any and all stamp, excise, sales or other taxes which may be
payable or determined to be payable with respect to any of the Collateral or in
connection with any of the transactions contemplated by this Agreement) incurred
because of, incident to, or with respect to, the Collateral (including, without
limitation, any exercise of rights or remedies in connection therewith) or the
execution, delivery, enforcement, performance and administration of this
Agreement, to the extent the Borrower would be required to do so pursuant to
Section 12.03 of the Credit Agreement. All amounts for which any Grantor is
liable pursuant to this Section 10.03 shall be due and payable by such Grantor
to the Secured Parties upon demand.
  Section
10.04 Amendments in
Writing. None of the terms or provisions of this Agreement may be waived,
amended, supplemented or otherwise modified except in accordance with Sections
12.02 and 12.03 of the Credit Agreement.
  Section
10.05 Successors and
Assigns. This Agreement shall be binding upon the successors and assigns
of each Grantor and shall inure to the benefit of the Administrative Agent and
the other Secured Parties and their successors and assigns; provided that except
as set forth in the Credit Agreement, no Grantor may assign, transfer or
delegate any of its rights or obligations under this Agreement without the prior
written consent of the Administrative Agent and the Lenders.
  27
   Section
10.06 Invalidity. In the
event that any one or more of the provisions contained in this Agreement or in
any of the Loan Documents to which a Grantor is a party shall, for any reason,
be held invalid, illegal or unenforceable in any respect, such invalidity,
illegality or unenforceability shall not affect any other provision of this
Agreement or such other Loan Document.
  Section
10.07 Counterparts. This
Agreement may be executed in any number of counterparts, all of which taken
together shall constitute one and the same instrument and any of the parties
hereto may execute this Agreement by signing any such counterpart.
  Section
10.08 Survival.
The obligations of the parties under Section 10.03 shall survive the repayment
of the Loans and the termination of the Credit Agreement and aggregate
Commitments. To the extent that any payments on the Obligations or proceeds of
any Collateral are subsequently invalidated, declared to be fraudulent or
preferential, set aside or required to be repaid to a trustee, debtor in
possession, receiver or other Person under any bankruptcy law, common law or
equitable cause, then to such extent, the Obligations so satisfied shall be
revived and continue as if such payment or proceeds had not been received and
the Administrative Agent's and the other Secured Parties' Liens, security
interests, rights, powers and remedies under this Agreement and each Security
Instrument shall continue in full force and effect. In such event, each Security
Instrument shall be automatically reinstated and each Grantor shall take such
action as may be reasonably requested by the Administrative Agent and the other
Secured Parties to effect such reinstatement.
  Section
10.09 Captions.
Captions and section headings appearing herein are included solely for
convenience of reference and are not intended to affect the interpretation of
any provision of this Agreement.
  Section
10.10 No Oral
Agreements. The Loan Documents embody the entire agreement and
understanding between the parties and supersede all other agreements and
understandings between such parties relating to the subject matter hereof and
thereof. The Loan Documents represent the final agreement between the parties
and may not be contradicted by evidence of prior, contemporaneous or subsequent
oral agreements of the parties. There are no unwritten oral agreements between
the parties.
  Section
10.11 Governing Law;
Submission to Jurisdiction.
  (a)  This
Agreement shall be governed by, and construed in accordance with, the laws of the
state of New York.
  (b)  Any legal
action or proceeding with respect to this Agreement or any Loan Document
shall be brought in the courts of the State of New York or of the United States
of America located in the Borough of Manhattan, New York, and, by execution and
delivery of this Agreement, each party hereby accepts for itself and (to the
extent permitted by law) in respect of its property, generally and
unconditionally, the jurisdiction of the aforesaid courts. Each party hereby
irrevocably waives any objection, including, without limitation, 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 such action or proceeding in
such respective jurisdictions. This
  28
  submission
to jurisdiction is non-exclusive and does not preclude a party from obtaining
jurisdiction over another party in any court otherwise having
jurisdiction.
  (c)  Each
party hereby irrevocably consents to the service of process of any of the aforementioned
courts in any such action or proceeding by the mailing of copies thereof by
registered or certified mail, postage prepaid, to such Person at the address
specified on its signature page of this Agreement or the Credit Agreement, as
applicable, such service to become effective thirty (30) days after such
mailing. Nothing herein shall affect the right of the Administrative Agent or
any Lender or any holder of a Note or Grantor to serve process in any other
manner permitted by law or to commence legal proceedings or otherwise proceed
against such Grantor in any other jurisdiction.
  (d)  Each
party hereby (i) irrevocably and unconditionally waives, to the fullest extent permitted
by law, trial by jury in any legal action or proceeding relating to this
Agreement or any other Loan Document and for any counterclaim therein; (ii)
irrevocably waives, to the maximum extent not prohibited by law, any right it
may have to claim or recover in any such litigation any special, exemplary,
punitive or consequential damages, or damages other than, or in addition to,
actual damages; (iii) certifies that no party hereto nor any representative or
agent of counsel for any party hereto has represented, expressly or otherwise,
or implied that such party would not, in the event of litigation, seek to
enforce the foregoing waivers; and (iv) acknowledges that it has been induced to
enter into this Agreement, the Loan Documents and the transactions contemplated
hereby and thereby by, among other things, the mutual waivers and certifications
contained in this Section 10.11.
  Section
10.12 Acknowledgments. Each
Grantor hereby acknowledges that:
  (a)  it has
been advised by counsel in the negotiation, execution and delivery of this
Agreement and the other Loan Documents to which it is a party;
  (b)  neither
the Administrative Agent nor any other Secured Party has any fiduciary
relationship with or duty to any Grantor arising out of or in connection with
this Agreement or any of the other Loan Documents, and the relationship between
the Grantors, on the one hand, and the Administrative Agent and the other
Secured Parties, on the other hand, in connection herewith or therewith is
solely that of debtor and creditor;
  (c)  no joint
venture is created hereby or by the other Loan Documents or otherwise
exists by virtue of the transactions contemplated hereby among the Secured
Parties or among the Grantors and the Lenders;
  (d)  Each of
the parties hereto specifically agrees that it has a duty to read this Agreement
and the Security Instruments and agrees that it is charged with notice and
knowledge of the terms of this Agreement and the Security Instruments; that it
has in fact read this Agreement and is fully informed and has full notice and
knowledge of the terms, conditions and effects of this Agreement; that it has
been represented by independent legal counsel of its choice throughout the
negotiations preceding its execution of this Agreement and the Security
Instruments; and has received the advice of its attorney in entering into this
Agreement and the Security Instruments; and that it recognizes that certain of
the terms of this Agreement and the Security Instruments result in one party
assuming the liability inherent in some aspects of the
  29
   transaction
and relieving the other party of its responsibility for such liability. Each
party hereto agrees and covenants that it will not contest the validity or
enforceability of any exculpatory provision of this Agreement and the Security
Instruments on the basis that the party had no notice or knowledge of such
provision or that the provision is not "conspicuous"; and
  (e) Each
Grantor warrants and agrees that each of the waivers and consents set forth
in this Agreement are made voluntarily and unconditionally after consultation
with outside legal counsel and with full knowledge of their significance and
consequences, with the understanding that events giving rise to any defense or
right waived may diminish, destroy or otherwise adversely affect rights which
such Grantor otherwise may have against the Borrower, any other Grantor, the
Secured Parties or any other Person or against any collateral. If,
notwithstanding the intent of the parties that the terms of this Agreement shall
control in any and all circumstances, any such waivers or consents are
determined to be unenforceable under applicable law, such waivers and consents
shall be effective to the maximum extent permitted by law.
  Section
10.13 Additional
Grantors. Each Subsidiary of the Borrower that is required to become a
party to this Agreement pursuant to Section 6.02 of the Credit Agreement and is
not a signatory hereto shall become a Grantor for all purposes of this Agreement
upon execution and delivery by such Subsidiary of an Assumption Agreement in the
form of Annex I hereto.
  Section
10.14 Set-Off.
Each Grantor agrees that, in addition to (and without limitation of) any right
of set-off, bankers' lien or counterclaim a Secured Party may otherwise have,
each Secured Party shall have the right and he entitled (after consultation with
the Administrative Agent), at its option, to offset (i) balances held by it or
by any of its Affiliates for account of any Grantor or any Subsidiary at any of
its offices, in Dollars or in any other currency, and (ii) amounts due and
payable to such Lender (or any Affiliate of such Lender) against any principal
of or interest on any of such Secured Party's Loans, or any other amount due and
payable to such Secured Party hereunder, which is not paid when due (regardless
of whether such balances are then due to such Person), in which case it shall
promptly notify the Borrower and the Administrative Agent thereof, provided that
such Secured Party's failure to give such notice shall not affect the validity
thereof.
  Section
10.15 Releases.
  (a) Release Upon Payment in
Full. The grant of a security interest hereunder and all
of rights, powers and remedies in connection herewith shall remain in full force
and effect until the Administrative Agent has (i) retransferred and delivered
all Collateral in its possession to the Grantors, and (ii) executed a written
release or termination statement and reassigned to the Grantors without recourse
or warranty any remaining Collateral and all rights conveyed hereby. Upon the
complete payment of the Obligations, the termination of the Credit Agreement and
the aggregate Commitments and the compliance by the Grantors with all covenants
and agreements hereof, the Administrative Agent, at the written request and
expense of the Borrower, will promptly release, reassign and transfer the
Collateral to the Grantors and declare this Agreement to be of no further force
or effect.
  30
  (b) Further Assurances.
If any of the Collateral shall be sold, transferred or otherwise
disposed of by any Grantor in a transaction permitted by the Credit Agreement,
then the Administrative Agent, at the request and sole expense of such Grantor,
shall promptly execute and deliver to such Grantor all releases or other
documents reasonably necessary or desirable for the release of the Liens created
hereby on such Collateral and the capital stock of such Grantor. At the request
and sole expense of the Borrower, a Grantor shall be released from its
obligations hereunder in the event that all the capital stock of such Grantor
shall be sold, transferred or otherwise disposed of in a transaction permitted
by the Credit Agreement; provided that the Borrower shall have delivered to the
Administrative Agent, at least ten (10) Business Days prior to the date of the
proposed release, a written request for release identifying the relevant Grantor
and the terms of the sale or other disposition in reasonable detail, including
the price thereof and any expenses in connection therewith, together with a
certification by the Borrower stating that such transaction is in compliance
with the Credit Agreement and the other Loan Documents.
  (c) Retention in
Satisfaction. Except as may be expressly applicable pursuant to
Section 9.620 of the New York UCC, no action taken or omission to act by the
Administrative Agent or the other Secured Parties hereunder, including, without
limitation, any exercise of voting or consensual rights or any other action
taken or inaction, shall be deemed to constitute a retention of the Collateral
in satisfaction of the Obligations or otherwise to be in full satisfaction of
the Obligations, and the Obligations shall remain in full force and effect,
until the Administrative Agent and the other Secured Parties shall have applied
payments (including, without limitation, collections from Collateral) towards
the Obligations in the full amount then outstanding or until such subsequent
time as is provided in Section 10.15(a).
  Section
10.16 Reinstatement. The
obligations of each Grantor under this Agreement (including, without limitation,
with respect to the guarantee contained in Article II and the provision of
collateral herein) shall continue to be effective, or be reinstated, as the case
may be, if at any time payment, or any part thereof, of any of the Obligations
is rescinded or must otherwise be restored or returned by the Administrative
Agent or any other Secured Party upon the insolvency, bankruptcy, dissolution,
liquidation or reorganization of the Borrower or any Grantor, or upon or as a
result of the appointment of a receiver, intervenor or conservator of, or
trustee or similar officer for, the Borrower or any Grantorr or any substantial
part of its property, or otherwise, all as though such payments had not been
made.
  Section
10.17 Acceptance. Each
Grantor hereby expressly waives notice of acceptance of this Agreement,
acceptance on the part of the Administrative Agent and the other Secured Parties
being conclusively presumed by their request for this Agreement and delivery of
the same to the Administrative Agent.
  Section
10.18 Conflict.
To the extent that there is any representation, warranty or covenant contained
herein which is also set forth in the Credit Agreement and the terms of such
representations, warranties or covenants are in direct conflict with each other,
then the representation, warranty or covenant set forth in the Credit Agreement
shall control.
  31
   BORROWER
      AND GUARANTOR:
                DEEP
      DOWN, INC. (NEVADA)By:
      /s/ Ronald E. SmithName:
      Ronald E. SmithTitle:
      CEOGUARANTORS:
                DEEP
      DOWN INC. (DELAWARE)By:
      /s/ Ronald E. SmithName:
      Ronald E. SmithTitle:
      CEOELECTROWAVE
      USE, INC.By:
      /s/ Ronald E. SmithName:
      Ronald E. SmithTitle:
      CEOADMINISTRATIVE
      AGENT:PROSPECT
      CAPITAL CORPORATIONBy:
      /s/ signatureName:Title: