GUARANTEE AND AMENDED AND
 RESTATED SECURITY AGREEMENT


made by


HC INNOVATIONS, INC.


and its Subsidiaries


in favor of


the Noteholders Identified Herein


and


Pacific Aerie Holding LLC


as Agent


Dated as of December 23, 2008







TABLE OF CONTENTS


	
 

	
 

	
 


	
ARTICLE 1 DEFINED TERMS

	
 

	
4


	
1.1

	
Definitions

	
4


	
1.2

	
Other Definitional Provisions

	
8


	
ARTICLE 2 GUARANTEE

	
9


	
2.1

	
Guarantee

	
9


	
2.2

	
Right of Contribution

	
9


	
2.3

	
No Subrogation

	
10


	
2.4

	
Amendments, Etc. With Respect to the
 Obligations

	
10


	
2.5

	
Guarantee Absolute and Unconditional

	
10


	
2.6

	
Reinstatement

	
11


	
2.7

	
Payments

	
11


	
ARTICLE 3 GRANT OF SECURITY INTEREST

	
12


	
3.1

	
Grant of Security Interest

	
12


	
3.2

	
Perfection: Authorization to File Financing
 Statements

	
12


	
ARTICLE 4 PLEDGE OF SECURITIES

	
13


	
4.1

	
Pledge

	
13


	
4.2

	
Delivery of the Pledged Collateral

	
14


	
4.3

	
Representations, Warranties and Covenants

	
14


	
4.4

	
Certification of Limited Liability Company
 and Limited Partnership Interests

	
15


	
4.5

	
Registration in Nominee Name; Denominations

	
16


	
4.6

	
Voting Rights; Dividends and Interest

	
16


	
ARTICLE 5 REPRESENTATIONS AND WARRANTIES

	
18


	
5.1

	
Representations in Securities Amendment and
 Purchase Agreement

	
18 


	
5.2

	
Title; No Other Liens

	
18


	
5.3

	
Perfected First Priority Liens

	
19


	
5.4

	
Chief Executive Office; Inventory and
 Equipment

	
19


	
5.5

	
Farm Products

	
19


	
5.6

	
Accounts

	
20


	
ARTICLE 6 COVENANTS

	
20


	
6.1

	
Covenants in Securities Amendment and
 Purchase Agreement

	
20


	
6.2

	
Other Actions

	
20


	
6.3

	
Covenants Regarding Patent, Trademark and
 Copyright Collateral

	
22


	
6.4

	
Payment of Obligations

	
24


	
6.5

	
Maintenance of Perfected Security Interest;
 Further Documentation

	
24


	
6.6

	
Changes in Locations, Name, etc.

	
24


	
6.7

	
Notices

	
25


	
6.8

	
Accounts

	
25


	
6.9

	
Maintenance of Inventory and Equipment

	
25


	
6.10

	
Additional Shares

	
26


	
ARTICLE 7 REMEDIAL PROVISIONS

	
26


	
7.1

	
Certain Matters Relating to Accounts

	
26


	
7.2

	
Communications with Obligors; Grantors
 Remain Liable

	
26


	
7.3

	
Proceeds to be Turned Over To Collateral
 Agent

	
27


	
7.4

	
Application of Proceeds

	
27


	
7.5

	
New York UCC and Other Remedies

	
28





i







	
 

	
 

	
 


	
7.6

	
Waiver; Deficiency

	
28


	
ARTICLE 8 THE COLLATERAL AGENT

	
29


	
8.1

	
Collateral Agent’s Appointment by
 Noteholders, Etc.

	
29


	
8.2

	
Delegation of Duties

	
29


	
8.3

	
Exculpatory Provisions

	
29


	
8.4

	
Reliance by Collateral Agent

	
29


	
8.5

	
Notice of Default

	
30


	
8.6

	
Non-Reliance on Collateral Agent and Other
 Noteholders

	
30


	
8.7

	
Indemnification

	
31


	
8.8

	
Collateral Agent In Its Individual Capacity

	
31


	
8.9

	
Successor Agent

	
31


	
8.10

	
Collateral Agent’s Appointment by Grantors
 as Attorney-in-Fact, Etc.

	
32


	
8.11

	
Duty of Collateral Agent

	
33


	
8.12

	
Execution of Financing Statements

	
34


	
8.13

	
Authority of Collateral Agent

	
34


	
ARTICLE 9 MISCELLANEOUS

	
34


	
9.1

	
Amendments in Writing

	
34


	
9.2

	
Notices

	
35


	
9.3

	
No Waiver by Course of Conduct; Cumulative
 Remedies

	
35


	
9.4

	
Enforcement Expenses; Indemnification

	
35


	
9.5

	
Successors and Assigns

	
36


	
9.6

	
Set-Off

	
36


	
9.7

	
Counterparts

	
36


	
9.8

	
Severability

	
36


	
9.9

	
Section Headings

	
37


	
9.10

	
Integration

	
37


	
9.11

	
GOVERNING LAW

	
37


	
9.12

	
Submission To Jurisdiction; Waivers

	
37


	
9.13

	
Acknowledgements

	
37


	
9.14

	
WAIVER OF JURY TRIAL

	
38


	
9.15

	
Additional Guarantors; Additional Grantors

	
38


	
9.16

	
Releases

	
38








	
 

	
 


	
SCHEDULES AND ANNEXES


	
 


	
ANNEX 1

	
Grantor
 Assumption Agreement


	
SCHEDULE
 1(i)

	
Copyrights


	
SCHEDULE
 1(r)

	
License


	
SCHEDULE
 1(w)

	
Patents


	
SCHEDULE
 1(ff)

	
Trademarks


	
SCHEDULE 4.1

	
Pledged
 Securities 


	
SCHEDULE 5.4

	
Chief
 Executive Office and Places of Business


	
SCHEDULE 6.2

	
Account
 Control Agreement


	
SCHEDULE
 9.15

	
Assumption
 Agreement





ii







GUARANTEE AND AMENDED
AND RESTATED SECURITY AGREEMENT


               GUARANTEE
AND AMENDED AND RESTATED SECURITY AGREEMENT, dated as of December 23, 2008,
among HC Innovations, Inc., a Delaware corporation (the “Company”), each
of the Subsidiaries of the Company identified herein (the Company, such
Subsidiaries and any other entity that may become a party hereto pursuant to Section
9.15, together, the “Grantors”), the holders of the Amended Notes
identified on Annex 1 hereto and those individuals and entities who may
become holders of such Amended Notes from time to time (the “Noteholders”),
and Pacific Aerie Holding LLC, as Collateral Agent (in such capacity, the “Collateral
Agent”) (the Noteholders, such individuals and entities and the Collateral
Agent, together, the “Secured Parties”).


W I T N E S S E T H:


               WHEREAS,
the Company previously has issued to the Noteholders certain secured
convertible promissory notes in the aggregate principal amount of $7,139,955
plus interest, pursuant to various subscription agreements (the “Existing
Notes”);


               WHEREAS,
the obligations of the Company under the Existing Notes were guaranteed by the
Company’s Subsidiaries and Affiliates pursuant to various guarantee agreements
entered into substantially contemporaneously with the issuance of the Existing
Notes (the “Existing Guarantee Agreements”);


               WHEREAS,
the Existing Notes were secured by certain collateral granted by the Company,
its Subsidiaries and Affiliates pursuant to various security agreements entered
into substantially contemporaneously with the issuance of the Existing Notes
(the “Existing Security Agreements”);


               WHEREAS,
the Company and the Noteholders have entered into that certain Securities
Amendment and Purchase Agreement dated as of December 23, 2008 (as amended,
supplemented or otherwise modified from time to time, the “Securities
Amendment and Purchase Agreement”), pursuant to which the Noteholders have
agreed, among other matters, to amend and restate their Existing Notes as
Amended Notes and to purchase from the Company additional notes which are also
Amended Notes upon the terms and subject to the conditions set forth therein;


               WHEREAS,
it is the intention of the parties hereto that the guarantees, security
interests and other benefits provided by, the Existing Guarantee Agreements and
the Existing Security Agreements shall continue for the benefit of the Secured
Parties hereto, and that further guarantees, security interests and other
benefits shall be provided to the Secured Parties, all upon terms and subject
to the conditions set forth herein;


               WHEREAS,
the proceeds of the sale of the additional Amended Notes under the Securities
Amendment and Purchase Agreement will be used by the Grantors solely for
repayment of the principal amount of, interest on, and other amounts owing in
respect of, the Existing Credit Agreement;


3







               WHEREAS,
the Grantors are members of an affiliated group of companies engaged in related
businesses, and each Grantor will derive substantial direct and indirect benefit
from the transactions contemplated by the Securities Amendment and Purchase
Agreement; and


               WHEREAS,
it is a condition precedent to the obligation of the Noteholders to consummate
the transactions contemplated by the Securities Amendment and Purchase Agreement
that the Grantors shall have executed and delivered this Agreement for the
ratable benefit of the Secured Parties.


               NOW,
THEREFORE, in consideration of the premises and to induce the Noteholders to
enter into the Securities Amendment and Purchase Agreement and to induce the
Noteholders to consummate the transactions contemplated thereby, each Grantor
hereby agrees, for the ratable benefit of the Secured Parties, as follows:


ARTICLE
1



DEFINED TERMS


          1.1
Definitions


          The
following terms shall have the following meanings:


               (a) “Accounts”
means,
collectively, and in each instance however and wherever arising all accounts
receivable and other rights to payment arising out of the sale or lease of
goods and services, whether or not such right is evidenced by an Instrument or
Chattel Paper, and whether or not earned by performance, including, without
limitation, all “accounts” as such term is defined in the New York UCC and all
other obligations of any kind at any time due or owing to Grantors


               (b) “Agreement”
means this
Guarantee and Amended and Restated Security Agreement, as the same may be
amended, supplemented or otherwise modified from time to time.


               (c) “Collateral”
has the meaning
set forth in Section 3.1 hereof.


               (d) “Collateral
Account” means any
collateral account established by the Collateral Agent as provided in Section
7.1.


               (e) “Collateral
Agent” shall have
the meaning set forth in the preamble to this Agreement.


               (f) “Collateral
Party” means the
pledgor, mortgagor or grantor of a security interest for the benefit of the
Collateral Agent and the Noteholders under any Security Document.


               (g) “Company”
has the meaning set
forth in the preamble to this Agreement.


               (h) “Company
Obligations” means,
collectively, the unpaid principal of and interest on the Amended Notes and all
other obligations and liabilities of the Company to the Collateral Agent or any
Secured Party, whether direct or indirect, absolute or contingent, due or to
become due, or now existing or hereafter incurred, which may arise under, out
of, or in connection with, 


4







the Securities
Amendment and Purchase Agreement, this Agreement, the other Transaction
Documents, or any other document made, delivered or given in connection
therewith, in each case whether on account of principal, interest, premium,
reimbursement obligations, fees, indemnities, costs, expenses or otherwise
(including, without limitation, all fees and disbursements of counsel to the
Collateral Agent or to the Secured Parties that are required to be paid by the
Company pursuant to the terms of any of the foregoing agreements).


               (i) “Copyright
License” means any
written agreement, now or hereafter in effect. granting any right to any third
party under any copyright now or hereafter owned by any Grantor or that such
Grantor otherwise has the right to license, or granting any right to any
Grantor under any copyright now or hereafter owned by any third party, and all
rights of such Grantor under any such agreement.


               (j) “Copyrights”
means all of the
following now owned or hereafter acquired by any Grantor: (i) all copyright
rights in any work subject to the copyright laws of the United States or any
other country, whether as author, assignee, transferee or otherwise, and (ii)
all registrations and applications for registration of any such copyright in
the United States or any other country. including registrations, recordings, supplemental
registrations and pending applications for registration in the United States
Copyright Office, including those listed on Schedule 1.1(i).


               (k) “Documents”
means,
collectively, the Pledged Securities, all chattel paper, all instruments, all
investment property and all documents and all payments thereunder and
instruments and other property from time to time delivered in respect thereof
or in exchange therefor, and all bills of lading, warehouse receipts and other
documents of title and other documents, including, without limitation, all
“chattel paper”, “instruments”, “investment property” and documents”, as such
terms are defined in the New York UCC, in each instance whether now owned or
hereafter acquired by such Grantor.


               (l) “Equipment”
means all
machinery and equipment, all manufacturing, distribution, selling, data
processing and office equipment, all furniture, furnishings, appliances, tools,
tooling, molds, dies, vehicles, vessels, aircraft and all other goods of every
type and description, in each instance whether now owned or hereafter acquired
by any Grantor and wherever located, including without limitation all
“equipment”, as such term is defined in the New York UCC; provided that
equipment shall not include “fixtures” as defined in Section 9-313 of the New
York UCC.


               (m) “Existing
Financing Statements”
means collectively, each UCC-1 financing statement naming each individual
Noteholder as the secured party and the Company as debtor filed in connection
with the Existing Security Agreements.


               (n) “Existing
Guarantee Agreements”
has the meaning set forth in the recitals to this Agreement.


               (o) “Existing
Security Agreements”
has the meaning set forth in the recitals to this Agreement.


               (p) “Financing Statement” means, as the context may require, (i) the
Existing Financing Statements; (ii) any and all UCC-3 financing statements
amending the Existing


5








Financing
Statements and (iii) any and all UCC-1 financing statements naming the Grantors
and the Secured Parties as secured party. 


          (q) “Fully
Satisfied” means, with respect to the Obligations as of any date, that, on
or before such date, (i) the principal of and interest accrued to such date on
such Obligations shall have been paid in full in cash, (ii) all fees, expenses
and other amounts then due and payable which constituted Obligations shall have
been paid in full in cash, and (iii) the New Warrants shall have expired or
irrevocably been terminated; provided, however, that, on such date, none of the
Collateral Agent or the Secured Parties shall have made any claims in respect
of Obligations against the Company or any Guarantor under any provision of any
of the Transaction Documents that has not been cash collateralized by an amount
sufficient in the reasonable judgment of the Collateral Agent and such Secured
Party to secure such claim.


          (r)
 “General Intangibles” means, collectively, and
in each instance however and wherever arising: (i) all rights, interests,
choses in action, causes of action, claims and all other intangible property of
any Grantor of every kind and nature, in each instance whether now owned or
hereafter acquired by any Grantor, including, without limitation, all corporate
and other business records; (ii) all loans, royalties, and other obligations
receivable; (iii) all Trademarks, inventions, designs, patents, patent
applications, (including any applications for the foregoing and whether or not
registered) and the goodwill of any Grantor’s business connected with and
symbolized by the same; (iv) trade secrets, computer programs, software,
printouts and other computer materials, goodwill, registrations, U.S. registered
copyrights, licenses relating to trademarks and U.S. registered copyrights,
franchises, customer lists, credit files, correspondence and advertising
materials; (v) all customer and supplier contracts, firm sale orders, rights
under license and franchise agreements, and other contracts and contract
rights; (vi) all interests in partnerships, joint ventures and other entities;
(vii) all tax refunds and tax refund claims; (viii) all right, title and
interest under leases, subleases, licenses and concessions and other agreements
relating to real or personal property; (ix) all payments due or made to any
Grantor in connection with any requisition, confiscation, condemnation, seizure
or forfeiture of any property by any person or governmental authority; (x) all deposit
accounts (general or special) with any bank or other financial institution;
(xi) all credits with and other claims against carriers and shippers; (xii) all
rights to indemnification; (xiii) all reversionary interests in pension and
profit sharing plans and reversionary, beneficial and residual interest in
trusts; (xiv) all proceeds of insurance of which any Grantor is a beneficiary;
(xv) all letters of credit, guaranties, liens, security interests and other
security held by or granted to any Grantor; and (xvi) all other intangible
property, whether or not similar to the foregoing, including, without
limitation, all “general intangibles,” as such term is defined in the New York
UCC.


          (s) “Grantors”
has the meaning set forth in the preamble to this Agreement.


          (t)
 “Guarantor” means each of the Company’s
Subsidiaries.


          (u)
 “Guarantor Obligations” means, with respect to
any Guarantor, the collective reference to (i) the Company Obligations and (ii)
all obligations and liabilities of such Guarantor which may arise under or in
connection with this Agreement or any other Transaction Document to which such
Guarantor is a party, in each case whether on account of guarantee obligations,
reimbursement obligations, fees, indemnities, costs, expenses or otherwise
(including, without limitation, all fees and disbursements of counsel to the
Collateral Agent or to the Secured Parties 


6







that are
required to be paid by such Guarantor pursuant to the terms of this Agreement
or any other Transaction Document).


          (v)
 “Instrument” means a negotiable instrument or
any other writing that evidences a right to the payment of a monetary
obligation, is not itself a security agreement or lease, and is of a type that
in the ordinary course of business is transferred by delivery with any
necessary indorsement or assignment, including, without limitation, all
“instruments” as such term is defined in the New York UCC. 


          (w)
 “Inventory” means, collectively, and in each
instance, however and wherever arising, all inventory, finished goods, raw
materials, work in process and other goods, including, without limitation, all
“inventory” as such term is defined in the New York UCC.


          (x)
 “License” means any Patent License, Trademark
License, Copyright License or other license or sublicense agreement to which
any Grantor is a party, including those listed on Schedule 1.1(r).


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


          (z)
 “Obligations” mean (i) in the case of the
Company, the Company Obligations, and (ii) in the case of each Guarantor, its
Guarantor Obligations.


          (aa)
 “Other Property” means, collectively, all
property or interests in property now owned or hereafter acquired by any
Grantor which now may be owned or hereafter may come into the possession,
custody or control of the Collateral Agent, any of the Secured Parties or any
agent or Affiliate of any of them in any way or for any purpose (whether for
safekeeping, deposit, custody, pledge, transmission, collection or otherwise);
and all rights and interests of any Grantor, now existing or hereafter arising
and however and wherever arising, in respect of any and all (i) notes, drafts,
letters of credit, bank accounts, stocks, bonds, and debt and equity
securities, whether or not certificated, and warrants, options, puts and calls
and other rights to acquire or otherwise relating to the same; (ii) money;
(iii) proceeds of loans; and (iv) insurance proceeds and books and records
relating to any of the Collateral. 


          (bb)
 “Patent License” means any written agreement,
now or hereafter in effect, granting to any third party any right to make, use
or sell any invention on which a patent, now or hereafter owned by any Grantor
or that any Grantor otherwise has the right to license, is in existence, or
granting to any Grantor any right to make, use or sell any invention on which a
patent, now or hereafter owned by any third party, is in existence, and all rights
of any Grantor under any such agreement. 


          (cc)
 “Patents” means all of the following now owned
or hereafter acquired by any Grantor: (i) all letters patent of the United
States or the equivalent thereof in any other country, all registrations and
recordings thereof, and all applications for letters patent of the United
States or the equivalent thereof in any other country, including registrations,
recordings and pending applications in the United States Patent and Trademark
Office or any similar offices in any other country, including those listed on Schedule
1(w), and (ii) all reissues, continuations, divisions,
continuations-in-past, renewals or extensions thereof. and the inventions
disclosed or claimed therein, including the right to make, use and/or sell the
inventions disclosed or claimed therein. 


7







          (dd)
 “Pledged Collateral” has the meaning set forth
in Section 4.1(f) hereof. 


          (ee)
 “Pledged Debt” has the meaning set forth in
Section 4.1(b) hereof. 


          (ff)
 “Pledged Securities” has the meaning set forth
in Section 4.1(a) hereof. 


          (gg)
 “Noteholders” has the meaning set forth in the
preamble to this Agreement. 


          (hh)
 “Securities Amendment and Purchase Agreement”
has the meaning set forth in the recitals to this Agreement. 


          (ii)
 “Secured Parties” has the meaning set forth in
the preamble to this Agreement. 


          (jj)
 “Securities Act”: means the Securities Act of
1933, as amended. 


          (kk)
 “Trademark License” means any written agreement,
now or hereafter in effect, granting to any third party any right to use any
trademark now or hereafter owned by any Grantor or that any Grantor otherwise
has the right to license, or granting to any Grantor any right to use any
trademark now or hereafter owned by any third party, and all rights of any
Grantor under any such agreement.


          (ll)
 “Trademarks” means all of the following now
owned or existing or hereafter adopted or acquired by any Grantor: (i) all
trademarks, service marks, trade names, corporate names, company names,
business names, fictitious business names, trade styles, trade dress, logos,
other source or business identifiers, designs and general intangibles of like
nature, all registrations and recordings thereof, and all registration and
recording applications filed in connections therewith, including without
limitation registrations and registration applications in the United States
Patent and Trademark Office or any similar offices in any state of the United
States or any other country or any political subdivision thereof, and all
extensions or renewals thereof, including without limitation those listed in
Schedule 1.1(ff), (ii) all goodwill associated therewith or symbolized thereby
and (iii) all other assets, rights and interests that uniquely reflect or
embody such goodwill.  


     1.2 Other
Definitional Provisions. 


          (a)
 Unless otherwise defined herein, terms defined in the
Securities Amendment and Purchase Agreement and used herein shall have the
meanings given to them in the Securities Amendment and Purchase Agreement, and
the following terms which are defined in the New York UCC in effect on the date
hereof are used herein as so defined: Chattel Paper, Equity Interests,
Instruments and Proceeds.


          (b)
 The words “hereof,” “herein”, “hereto” and “hereunder”
and words of similar import when used in this Agreement shall refer to this
Agreement as a whole and not to any particular provision of this Agreement, and
Section and Schedule references are to this Agreement unless otherwise
specified.


          (c)
 The meanings given to terms defined herein shall be
equally applicable to both the singular and plural forms of such terms. 


8







ARTICLE 2


GUARANTEE


     2.1 Guarantee



          (a)
 Each of the Guarantors hereby, jointly and severally,
unconditionally and irrevocably, guarantees to the Collateral Agent, for the
ratable benefit of the Secured Parties and their respective successors,
indorsees, transferees and assigns, the prompt and complete payment and performance
by the Company when due (whether at the stated maturity, by acceleration or
otherwise) of the Company Obligations.


          (b)
 Each of the Guarantors further agrees that its
guarantee hereunder constitutes a guarantee of payment when due and not of
collection, and waives any right to require that any resort be had by the
Collateral Agent or any other Secured Party to any security held for the
payment of the Obligations or to any balance of any deposit account or credit
on the books of the Collateral Agent or any other Secured Party in favor of the
Company or any other Person. 


          (c) Anything herein or in any other
Transaction Document to the contrary notwithstanding, the maximum liability of
each Guarantor hereunder and under the other Transaction 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 (after
giving effect to the right of contribution established in Section 2.2).


          (d)
 Each Guarantor agrees that the Company 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
2 or affecting the rights and remedies of the Collateral Agent or any
Secured Party hereunder.


          (e)
 The guarantee contained in this ARTICLE 2 shall
remain in full force and effect until all the Guarantor Obligations shall have
been Fully Satisfied.


          (f)
 No payment made by the Company, any of the Guarantors,
any other guarantor or any other Person or received or collected by the
Collateral Agent or any Secured Party from the Company, 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 Company 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 Company Obligations or any payment
received or collected from such Guarantor in respect of the Company
Obligations), remain liable for the Company Obligations up to the maximum
liability of such Guarantor hereunder until the Company Obligations are paid in
full. 


     2.2 Right of
Contribution 


     Each
Guarantor hereby agrees that to the extent that a Guarantor shall have paid
more than its proportionate share of any payment made hereunder, such Guarantor
shall be entitled to seek and receive contribution from and against any other
Guarantor hereunder which has not paid its proportionate share of such payment.
Each Guarantor’s right of contribution shall be subject to the terms and
conditions of Section 2.3. The provisions of this Section 2.2
shall in no respect 


9







limit the
obligations and liabilities of any Guarantor to the Collateral Agent and the
Secured Parties, and each Guarantor shall remain liable to the Collateral Agent
and the Secured Parties for the full amount guaranteed by such Guarantor
hereunder. 


     2.3 No
Subrogation 


     Notwithstanding
any payment made by any Guarantor hereunder or any set-off or application of
funds of any Guarantor by the Collateral Agent or any Secured Party, no
Guarantor shall be entitled to be subrogated to any of the rights of the
Collateral Agent or any Secured Party against the Company or any other
Guarantor or any collateral security or guarantee or right of offset held by
the Collateral Agent or any Secured Party for the payment of the Company
Obligations, nor shall any Guarantor seek or be entitled to seek any
contribution or reimbursement from the Company or any other Guarantor in
respect of payments made by such Guarantor hereunder, until all amounts owing
to the Collateral Agent and the Secured Parties on account of the Obligations
are Fully Satisfied. If any amount shall be paid to any Guarantor on account of
such subrogation rights at any time when all of the Obligations shall not have
been Fully Satisfied, such amount shall be held by such Guarantor in trust for
the Collateral Agent and the Secured Parties, segregated from other funds of
such Guarantor, and shall, forthwith upon receipt by such Guarantor, be turned
over to the Collateral Agent in the exact form received by such Guarantor (duly
indorsed by such Guarantor to the Collateral Agent, if required), to be applied
against the Obligations, whether matured or unmatured, in such order as the Collateral
Agent may determine. 


     2.4 Amendments,
Etc. With Respect to the Obligations 


     Each
Guarantor shall remain obligated hereunder notwithstanding that, without any
reservation of rights against any Guarantor and without notice to or further
assent by any Guarantor, any demand for payment of any of the Obligations made
by the Collateral Agent or any Secured Party may be rescinded by the Collateral
Agent or such Secured Party and any of the Obligations continued, and the
Obligations, or 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, extended, accelerated, compromised, waived,
surrendered or released by the Collateral Agent or any Secured Party, and the
Securities Amendment and Purchase Agreement and the other Transaction 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
Collateral Agent (or the Required Noteholders or all Secured Parties, as the
case may be) may deem advisable from time to time, and any collateral security,
guarantee or right of offset at any time held by the Collateral Agent or any
Secured Party for the payment of the Obligations may be sold, exchanged,
waived, surrendered or released. Neither the Collateral Agent nor any 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 this ARTICLE 2 or any property subject thereto. 


     2.5 Guarantee
Absolute and Unconditional 


     Each
Guarantor waives any and all notice of the creation, renewal, extension or
accrual of any of the Obligations and notice of or proof of reliance by the
Collateral Agent or any Secured Party upon the guarantee contained in this ARTICLE
2 or acceptance of the guarantee contained 


10







in this ARTICLE
2; 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 this ARTICLE 2; and all
dealings between the Company and any of the Guarantors, on the one hand, and
the Collateral Agent and the Secured Parties, on the other hand, likewise shall
be conclusively presumed to have been had or consummated in reliance upon the
guarantee contained in this ARTICLE 2. Each Guarantor waives diligence,
presentment, protest, demand for payment and notice of default or nonpayment to
or upon the Company or any of the Guarantors with respect to the Obligations.
Each Guarantor understands and agrees that the guarantee contained in this ARTICLE
2 shall be construed as a continuing, absolute and unconditional guarantee
of payment without regard to (a) the validity or enforceability of the
Securities Amendment and Purchase Agreement or any other Transaction 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 Collateral Agent or any 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 the Company or any other Person against
the Collateral Agent or any Secured Party, or (c) any other circumstance
whatsoever (with or without notice to or knowledge of the Company or such Guarantor)
which constitutes, or might be construed to constitute, an equitable or legal
discharge of the Company for the Company Obligations, or of such Guarantor
under the guarantee contained in this ARTICLE 2, in bankruptcy or in any
other instance. When making any demand hereunder or otherwise pursuing its
rights and remedies hereunder against any Guarantor, the Collateral Agent or
any Secured Party may, but shall be under no obligation to, make a similar
demand on or otherwise pursue such rights and remedies as it may have against
the Company, any other Guarantor 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 Collateral Agent or any Secured Party to make
any such demand, to pursue such other rights or remedies or to collect any
payments from the Company, any other Guarantor 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 Company, any other Guarantor or any
other Person or any such collateral security, guarantee or right of offset,
shall not relieve any Guarantor 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 Collateral Agent or any Secured Party
against any Guarantor. For the purposes hereof “demand” shall include the
commencement and continuance of any legal proceedings. 


     2.6 Reinstatement



     The
guarantee contained in this ARTICLE 2 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 Company Obligations is rescinded or must otherwise be restored or
returned by the Collateral Agent or any Secured Party upon the insolvency,
bankruptcy, dissolution, liquidation or reorganization of the Company or any
Guarantor, or upon or as a result of the appointment of a receiver, intervenor
or conservator of, or trustee or similar officer for, the Company or any
Guarantor or any substantial part of its property, or otherwise, all as though
such payments had not been made. 


     2.7 Payments



     Each
Guarantor hereby guarantees that payments hereunder will be paid to the Collateral
Agent without set-off or counterclaim in United States Dollars at the office of
the Collateral 


11







Agent located
at 8813 S. Blue Jay Circle, Salt Lake City, Utah 84121, Attention: Kenneth D.
Lame. 


ARTICLE 3


GRANT OF SECURITY INTEREST


     3.1 Grant of
Security Interest


     Each
Grantor hereby assigns and transfers to the Collateral Agent, and hereby grants
to the Collateral Agent, for the ratable benefit of the Secured Parties, a
first priority security interest (the “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, in each instance, with all accessions and additions
thereto, substitutions therefor, and replacements, proceeds and products
thereof (collectively, the “Collateral”), as collateral security for the prompt
and complete payment and performance when due (whether at the stated maturity,
by acceleration or otherwise) of such Grantor’s Obligations:


          (a)
 all Accounts;


          (b)
 all Equipment;


          (c)
 all General Intangibles;


          (d)
 all Pledged Collateral;


          (e) all Inventory;


          (f) all Documents; and


          (g)
 all Other Property.


     Each
Grantor hereby reaffirms the grant of security interests made pursuant to the
Existing Security Agreements. 


     3.2 Perfection:
Authorization to File Financing Statements 


     Each
Grantor hereby irrevocably authorizes the Collateral Agent at any time and from
time to time to file in any filing office in any Uniform Commercial Code
jurisdiction any initial financing statements and/or “in lieu of” financing
statements and/or amendments of any financing statements filed at any time and
from time to time that (a) indicate the Collateral (i) as all assets of each
Grantor or words of similar effect, regardless of whether any particular asset
comprised in the Collateral falls within the scope of Article 9 of the Uniform
Commercial Code of the State or such jurisdiction, or (ii) as being of an equal
or lesser scope or with greater detail, and (b) provide any other information
required by Part 5 of Article 9 of the Uniform Commercial Code of the State or
such other jurisdiction for the sufficiency or filing office acceptance of any
financing statement or amendment, including (i) whether such Grantor is an
organization, the type of organization and any organizational identification
number issued to such Grantor and, (ii) in the case of a financing statement filed
as a fixture filing or indicating Collateral as as-extracted collateral or
timber to be cut, a sufficient description of real property to which the
Collateral relates. Each Grantor agrees to furnish any such information to the
Collateral Agent promptly 


12







upon request.
Each Grantor also ratifies its authorization for the Collateral Agent to file
in any relevant jurisdiction any initial financing statements or amendments
thereto if filed prior to the date hereof. The Collateral Agent is further
authorized to file with the United States Patent and Trademark Office or United
States Copyright Office (or any successor office or any similar office in any
other country) such documents as may be necessary or advisable for the purpose
of perfecting, confirming, continuing, enforcing or protecting the Security
Interest granted by each Grantor, without the signature of any Grantor, and
naming any Grantor or the Grantors as debtors and the Collateral Agent as
secured party. The Security Interest is granted as security only and shall not
subject the Collateral Agent or any other Secured Party to or in any way alter
or modify, any obligation or liability of any Grantor with respect to or
arising out of the Collateral. Without limiting the foregoing, the Collateral Agent
will file the Financing Statements. 


     3.3 Ranking 


     Notwithstanding
the date, manner or order of grant, attachment or perfection of any Secured
Party and notwithstanding any provision of the UCC, or any other applicable
law, including, without limitation, the laws of the State of New York, the
Collateral Agent and the Secured Parties hereby agree that, as among
themselves, any and all security interests created by the Existing Security
Agreements and the security interests granted by Section 3.1 and Section 4.1 of
this Agreement, will rank pari passu
one with the other. 


ARTICLE 4


PLEDGE OF SECURITIES


     4.1 Pledge


     As
security for the payment or performance, as the
case may be, in full of the Obligations, each Grantor hereby assigns and pledges
to the Collateral Agent, its
successors and assigns, for the ratable benefit of the Secured Parties, and hereby grants to the
Collateral Agent, its successors and assigns,
for the ratable benefit of the Secured Parties, a security interest in, all of
such Grantor’s right, title and
interest in, to and under


          (a)
 the shares of capital stock and other Equity Interests owned by it and listed on
Schedule 4.1 and any other Equity Interests obtained in the future by such Grantor and the certificates
representing all such Equity Interests
(the “Pledged Securities”); provided that the Pledged Securities shall
not include more than 65% of the
issued and outstanding voting Equity Interests of any Foreign Subsidiary,


          (b)
 (i) the debt securities listed opposite the name of
such Grantor on Schedule 4.1, (ii) any debt securities in the future issued to such Grantor and (iii) the
promissory notes and any other instruments evidencing such debt securities (the
“Pledged Debt “),


          (c)
 all other property that may be delivered to and held by the Collateral Agent pursuant
to the terms of this Section 4.1,


13







          (d)
 subject to Section 4.6, all payments of
principal or interest, dividends, cash, instruments
and other property from time to time received, receivable or otherwise distributed in respect of, in exchange for
or upon the conversion of, and all other Proceeds
received in respect of, the securities referred to in clauses (a) and (b)
above,


          (e)
 subject to Section 4.6, all rights and
privileges of such Grantor with respect to the securities and other property referred to in clauses (a), (b), (c)
and (d) above, and


          (f)
 all Proceeds
of any of the foregoing (the items referred to in clauses (a) through (f) above
being collectively referred to as the “Pledged Collateral”).


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


     4.2 Delivery of
the Pledged Collateral 


          (a)
 Each Grantor agrees promptly to deliver or cause to be
delivered to the Collateral Agent any and all Pledged Collateral. 


          (b)
 Each Grantor will cause any Indebtedness for borrowed
money owed to such Grantor by any Person to be evidenced by a duly executed
promissory note that is pledged and delivered to the Collateral Agent pursuant
to the terms hereof. 


          (c)
 Upon delivery to the Collateral Agent, (i) any Pledged
Securities shall be accompanied by stock powers duly executed in blank or other
instruments of transfer satisfactory to the Collateral Agent and by such other
instruments and documents as the Collateral Agent may reasonably request and
(ii) all other property comprising part of the Pledged Collateral shall be
accompanied by proper instruments of assignment duly executed by the applicable
Grantor and such other instruments or documents as the Collateral Agent may
reasonably request. Each delivery of Pledged Collateral shall be accompanied by
a schedule describing the securities, which schedule shall be attached hereto as
Schedule 4.1 and made a part hereof; provided that failure to attach any
such schedule hereto shall not affect the validity of such pledge of such
Pledged Collateral. Each schedule so delivered shall supplement any prior
schedules so delivered. 


     4.3 Representations,
Warranties and Covenants 


     The
Grantors jointly and severally represent, warrant and covenant to and with the
Collateral Agent, for the benefit of the Secured Parties, that: 


          (a)
Schedule 4.1 correctly sets forth the percentage
of the issued and outstanding units of each class of the Equity Interests of
the issuer thereof represented by the Pledged Securities and includes all
Equity Interests, debt securities and promissory notes legally or beneficially
owned by Grantor; 


14







          (b)
 the Pledged Securities and Pledged Debt have been duly
and validly authorized and issued by the issuers thereof and (i) in the case of
Pledged Securities, are fully paid and nonassessable and (ii) in the case of
Pledged Debt are legal, valid and binding obligations of the issuers thereof; 


          (c)
 except for the security interests granted hereunder,
each of the Grantors (i) is and will continue to be the direct owner,
beneficially and of record, of the Pledged Collateral indicated on Schedule
4.1 as owned by such Grantor, (ii) holds the same free and clear of all
Liens, other than Liens created by this Agreement or Permitted Liens, (iii)
will make no assignment, pledge, hypothecation or transfer of, or create or
permit to exist any security interest in or other Lien on, the Pledged
Collateral, other than Liens created by this Agreement or Permitted Liens and
(iv) will defend its title or interest thereto or therein against any and all
Liens (other than the Lien created by this Agreement and Permitted Liens),
however, arising, of all Persons whomsoever; 


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


          (e)
 each of the Grantors has the power and authority to
pledge the Pledged Collateral pledged by it hereunder in the manner hereby done
or contemplated; 


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


          (g)
 by virtue of the execution and delivery by the
Grantors of this Agreement, when any Pledged Collateral is delivered to the
Collateral Agent in accordance with this Agreement, the Collateral Agent will
obtain a legal, valid and perfected lien upon and security interest in such
Pledged Collateral as security for the payment and performance of the
Obligations; and 


          (h)
 the pledge effected hereby is effective to vest in the
Collateral Agent, for the benefit of the Secured Parties, the rights of the
Collateral Agent in the Pledged Collateral as set forth herein. 


     4.4
Certification of Limited Liability Company and Limited Partnership Interests



     Each
interest in any limited liability company or limited partnership controlled by
any Grantor and pledged hereunder shall be represented by a certificate, shall
be a “security” within the meaning of Article 8 of the New York UCC and shall
be governed by Article 8 of the New York UCC. 


15







     4.5 Registration in Nominee Name; Denominations 


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


     4.6 Voting Rights; Dividends and Interest 


          (a) Unless and until an Event of Default
shall have occurred and be continuing and the Collateral Agent shall have
notified the Grantors that their rights under this Section 4.6 are being
suspended: 


	
 

	
 


	
 

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


	
 

	
 


	
 

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


	
 

	
 


	
 

	
          (iii) Each Grantor shall be entitled to
 receive and retain any and all dividends, interest, principal and other
 distributions paid on or distributed in respect of the Pledged Collateral to
 the extent and only to the extent that such dividends, interest, principal
 and other distributions are permitted by, and otherwise paid or distributed
 in accordance with, the terms and conditions of the Securities Amendment and
 Purchase Agreement, the other Transaction Documents and applicable laws;
 provided that any noncash dividends, interest, principal or other
 distributions that would constitute Pledged Securities or Pledged Debt,
 whether resulting from a subdivision, combination or reclassification of the
 outstanding Equity Interests of the issuer of any Pledged Collateral or
 received in exchange for Pledged Collateral or any part thereof, or in
 redemption thereof, or as a result of any merger, consolidation. acquisition
 or other exchange of assets to which such issuer may be a party or otherwise,
 shall be and become part of the Pledged Collateral, 





16







	
 

	
 


	
 

	
and, if
 received by any Grantor, shall not be commingled by such Grantor with any of
 its other funds or property but shall be held separate and apart therefrom,
 shall be held in trust for the benefit of the Collateral Agent and shall be
 forthwith delivered to the Collateral Agent in the same form as so received
 (with any necessary indorsement). 





          (b) Upon the occurrence and during the
continuance of an Event of Default, after the Collateral Agent shall have
notified the Grantors of the suspension of their rights under paragraph
(a)(iii) of this Section 4.6, then all rights of any Grantor to
dividends, interest. principal or other distributions that such Grantor is
authorized to receive pursuant to paragraph (a)(iii) of this Section 4.6
shall cease, and all such rights shall thereupon become vested in the
Collateral Agent, which shall have the sole and exclusive right and authority
to receive and retain such dividends, interest, principal or other
distributions. All dividends, interest, principal or other distributions
received by any Grantor contrary to the provisions of this Section 4.6
shall be held in trust for the benefit of the Collateral Agent, shall be
segregated from other property or funds of such Grantor and shall be forthwith
delivered to the Collateral Agent upon demand in the same form as so received
(with any necessary indorsement). Any and all money and other property paid
over to or received by the Collateral Agent pursuant to the provisions of this
paragraph (b) shall be retained by the Collateral Agent in an account to be
established by the Collateral Agent upon receipt of such money or other
property and shall be applied in accordance with the provisions of Section
7.4. After all Events of Default have been cured or waived and the Company
has delivered to the Collateral Agent a certificate to that effect, the
Collateral Agent shall promptly repay to each Grantor (without interest) all
dividends, interest, principal or other distributions that such Grantor would
otherwise be permitted to retain pursuant to the terms of paragraph (a)(iii) of
this Section 4.6 and that remain in such account. 


          (c) Upon the occurrence and during the
continuance of an Event of Default, after the Collateral Agent shall have
notified the Grantors of the suspension of their rights under paragraph (a)(i)
of this Section 4.6, then all rights of any Grantor to exercise the
voting and consensual rights and powers it is entitled to exercise pursuant to
paragraph (a)(i) of this Section 4.6, and the obligations of the
Collateral Agent under paragraph (a)(ii) of this Section 4.6. shall
cease, and all such rights shall thereupon become vested in the Collateral
Agent, which shall have the sole and exclusive right and authority to exercise
such voting and consensual rights and powers; provided, however, that, unless
otherwise directed by the Required Noteholders, the Collateral Agent shall have
the right from time to time following and during the continuance of an Event of
Default to permit the Grantors to exercise such rights. 


          (d) Any notice given by the Collateral
Agent to the Grantors suspending their rights under paragraph (a) of this Section
4.6 (i) may be given to one or more of the Grantors at the same or
different times and (ii) may suspend the rights of the Grantors under paragraph
(a)(i) or paragraph (a)(iii) in part without suspending all such rights (as
specified by the Collateral Agent in its sole and absolute discretion) and
without waiving or otherwise affecting the Collateral Agent’s rights to give
additional notices from time to time suspending other rights so long as an
Event of Default has occurred and is continuing. 


17







ARTICLE 5


REPRESENTATIONS AND WARRANTIES


          To
induce the Collateral Agent and the Noteholders to enter into the Securities
Amendment and Purchase Agreement and to induce the Noteholders to make their
respective purchases and exchanges of or for the Amended Notes and New Warrants
from the Company thereunder, the Company and each Guarantor hereby represents
and warrants to the Collateral Agent and each Secured Party that: 


     5.1 Representations in Securities Amendment and
Purchase Agreement 


     In
the case of each Guarantor, the representations and warranties of the Company
set forth in the Securities Amendment and Purchase Agreement as they relate to
such Guarantor or to the Transaction Documents to which such Guarantor is a
party, each of which is hereby incorporated herein by reference, are true and
correct, and the Collateral Agent and each Secured Party shall be entitled to
rely on each of them as if they were fully set forth herein, provided that each
reference in each such representation and warranty to the Company’s knowledge
shall, for the purposes of this Section 5.1, be deemed to be a reference
to such Guarantor’s knowledge. 


     5.2 Title; No Other Liens 


          (a) 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 (i) those created by the Existing Credit
Agreement, which liens shall be extinguished within 30 days after the Closing
and (ii) such as have been filed in favor of the Collateral Agent, for the
ratable benefit of the Secured Parties, pursuant to this Agreement or as are
permitted by the Securities Amendment and Purchase Agreement. 


          (b) Each Grantor is the legal and
beneficial owner of the Collateral free and clear of all liens, security
interests or other encumbrances, except as expressly permitted by the
Securities Amendment and Purchase Agreement. 


          (c) For the past five years, each Grantor
has conducted business only under its own corporate name and not under any
trade name or other name. 


          (d) Each Grantor has exclusive possession
and control of the Inventory (other than raw materials and work in process) and
Equipment, except for (i) Inventory and Equipment in the possession and control
of such Grantor’s lessees and licensees under written lease and license
agreements entered into in the ordinary course of business and consistent with
past practice and (ii) Inventory and Equipment in transit with common or other
carriers. 


          (e) The Pledged Securities have been duly
authorized and validly issued and are fully paid and non-assessable. The
Pledged Debt of each Grantor’s Subsidiaries (if any), and, to the best of each
Grantor’s knowledge, all other Pledged Debt, has been duly authorized, issued
and delivered, and is the legal, valid, binding and enforceable obligation of
the issuers thereof. 


          (f) The Pledged Securities indicated on Schedule
4.1 hereto constitute all of the shares held by each Grantor of the
respective issuers thereof and constitute 100% of all of the shares of stock of
the respective issuers who are Subsidiaries of such Grantor. 


18







          (g) Other than filings with the United
States Patent and Trademark Office, filings and registrations with the United
States Copyright Office and filings under the Uniform Commercial Code in effect
in each relevant jurisdiction, no authorization, approval or other action by,
and no notice to or filing with, any federal, state or local governmental
authority in the United States that have not already been taken or made and
which are in full force and effect, is required (i) for the pledge by each
Grantor of the Pledged Collateral or for the grant by each Grantor of the
security interest in the Collateral granted hereby or for the execution,
delivery or performance of this Agreement by such Grantor, (ii) for the
exercise by the Collateral Agent of the voting or other rights provided in this
Agreement with respect to the Pledged Collateral or the remedies in respect of
the Pledged Collateral pursuant to this Agreement (except as may be required in
connection with the disposition thereof by laws affecting the offering and sale
of securities generally), or (iii) for the exercise by the Collateral Agent of
any of its other rights or remedies hereunder. 


     5.3 Perfected First Priority Liens 


     In
the case of each Grantor, the security interests granted pursuant to this
Agreement (a) upon completion of the filings and other actions specified in Section
6.2 (which, in the case of all filings and other documents referred to in Section
6.2, have been delivered to the Collateral Agent in completed and duly
executed form) will constitute valid perfected security interests in all of the
Collateral in favor of the Collateral Agent, for the ratable benefit of the
Secured Parties, 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
(except as to the ability of the Collateral Agent, for the ratable benefit of
the Secured Parties, to have the U.S. federal government make payments directly
to the Collateral Agent, for the ratable benefit of the Secured Parties, in
respect of Accounts arising under contracts with the U.S. federal government as
to which no filing has been or will be made under the Federal Assignment of
Claims Act) and (b) are prior to all other Liens on the Collateral in existence
on the date hereof, except for such liens created by the Existing Credit
Agreement, which liens shall be extinguished within 30 days after the Closing. 


     5.4 Chief Executive Office; Inventory and Equipment 


     On
the date hereof, each Grantor’s jurisdiction of organization, the location of
such Grantor’s chief executive office and principal place of business are
specified on Schedule 5.4. As of the date of this Agreement, the
locations listed on Schedule 5.4 to this Agreement constitute all
locations at which its Inventory (other than raw materials and work in process)
or Equipment is located, except for (a) Inventory or Equipment temporarily in
transit from one location listed on Schedule 5.4 to another location
listed on Schedule 5.4 or (b) Inventory or Equipment in transit with
common or other carriers to a location listed on Schedule 5.4. 


     5.5 Farm Products 


     None
of the Collateral constitutes, or is the Proceeds of, Farm Products. 


19







     5.6 Accounts 


          (a) In the case of each Grantor, no amount
payable to such Grantor under or in connection with any Account is evidenced by
any Instrument or Chattel Paper which has not been delivered to the Collateral
Agent. 


          (b) In the case of each Grantor, the
amounts represented by such Grantor to the Secured Parties from time to time as
owing to such Grantor in respect of the Accounts will at such times be
accurate. 


ARTICLE 6


COVENANTS


          Each
Grantor covenants and agrees with the Collateral Agent and the Secured Parties
that, from and after the date of this Agreement until the Obligations shall
have been Fully Satisfied: 


     6.1 Covenants in Securities Amendment and Purchase
Agreement 


     Each
Grantor 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 Grantor or any of its Subsidiaries. 


     6.2 Other Actions 


     In
order to further insure the attachment, perfection and priority of, and the
ability of the Collateral Agent to enforce, the Security Interest, each Grantor
agrees, in each case at such Grantor’s own expense, to take the following
actions with respect to the following Collateral: 


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


          (b) Deposit Accounts. For each
deposit account that any Grantor at any time opens or maintains, such Grantor
and the Collateral Agent shall either (i) cause the depositary bank to agree to
comply with instructions from the Collateral Agent to such depositary bank
directing the disposition of funds from time to time credited to such deposit
account, without further consent of such Grantor or any other Person, pursuant
to a duly executed and completed Account Control Agreement substantially in the
form of Schedule 6.2 or in such other form proposed by such depository
bank as shall be acceptable to the Collateral Agent, it being understood that
the Collateral Agent shall issue such instructions to such depositary banks
only in connection with the exercise of remedies following the occurrence of an
Event of Default, or (ii) arrange for the Collateral Agent to become the
customer of the depositary bank with respect to the deposit account, with the
Grantor being permitted, only with the consent of the Collateral Agent, to
exercise rights to withdraw funds from such deposit account. The provisions of
this paragraph shall not apply to (A) any deposit account for which any
Grantor, the depositary bank and the 


20







Collateral
Agent have entered into a cash collateral agreement specially negotiated among
such Grantor, the depositary bank and the Collateral Agent for the specific
purpose set forth therein and (B) deposit accounts for which the Collateral
Agent is the depositary. 


          (c) Investment Property. Except to
the extent otherwise provided in ARTICLE 4, if any Grantor shall at any time
hold or acquire any certificated securities, such Grantor shall forthwith
indorse, assign and deliver the same to the Collateral Agent, accompanied by
such instruments of transfer or assignment duly executed in blank as the
Collateral Agent may from time to time specify. If any securities now or
hereafter acquired by any Grantor are uncertificated and are issued to such
Grantor or its nominee directly by the issuer thereof, such Grantor shall
immediately notify the Collateral Agent thereof and, at the Collateral Agent’s
request and option, pursuant to an agreement in form and substance reasonably
satisfactory to the Collateral Agent, either (i) cause the issuer to agree to
comply with instructions from the Collateral Agent as to such securities, without
further consent of any Grantor or such nominee, or (ii) arrange for the
Collateral Agent to become the registered owner of the securities. If any
securities, whether certificated or uncertificated, or other investment
property now or hereafter acquired by any Grantor are held by such Grantor or
its nominee through a securities intermediary or commodity intermediary, such
Grantor shall immediately notify the Collateral Agent thereof and, at the
Collateral Agent’s request and option, pursuant to an agreement in form and
substance reasonably satisfactory to the Collateral Agent, either (i) cause
such securities intermediary or (as the case may be) commodity intermediary to
agree to comply with entitlement orders or other instructions from the
Collateral Agent to such securities intermediary as to such security
entitlements, or (as the case may be) to apply any value distributed on account
of any commodity contract as directed by the Collateral Agent to such commodity
intermediary, in each case without further consent of any Grantor or such
nominee, or (ii) in the case of Financial Assets or other Investment Property
held through a securities intermediary, arrange for the Collateral Agent to
become the entitlement holder with respect to such investment property, with
the Grantor being permitted, only with the consent of the Collateral Agent, to
exercise rights to withdraw or otherwise deal with such investment property.
The Collateral Agent agrees with each of the Grantors that the Collateral Agent
shall not give any such entitlement orders or instructions or directions to any
such issuer, securities intermediary or commodity intermediary, and shall not
withhold its consent to the exercise of any withdrawal or dealing rights by any
Grantor, unless an Event of Default has occurred and is continuing, or, after
giving effect to any such investment and withdrawal rights would occur. The
provisions of this paragraph shall not apply to any financial assets credited
to a securities account for which the Collateral Agent is the securities
intermediary.  


          (d) Electronic Chattel Paper and
Transferable Records. If any Grantor at any time holds or acquires an
interest in any electronic chattel paper or any “transferable record,” as that
term is defined in Section 201 of the Federal Electronic Signatures in Global
and National Commerce Act, or in Section 16 of the Uniform Electronic
Transactions Act as in effect in any relevant jurisdiction, such Grantor shall
promptly notify the Collateral Agent thereof and, at the request of the
Collateral Agent, shall take such action as the Collateral Agent may reasonably
request to vest in the Collateral Agent control under New York UCC Section
9-105 of such electronic chattel paper or control under Section 201 of the
Federal Electronic Signatures in Global and National Commerce Act or, as the
case may be, Section 16 of the Uniform Electronic Transactions Act, as so in
effect in such jurisdiction, of such transferable record. The Collateral 


21







Agent agrees
with such Grantor that the Collateral Agent will arrange. pursuant to
procedures reasonably satisfactory to the Collateral Agent and so long as such
procedures will not result in the Collateral Agent’s loss of control. for the
Grantor to make alterations to the electronic chattel paper or transferable
record permitted under UCC Section 9-105 or, as the case may be, Section 201 of
the Federal Electronic Signatures in Global and National Commerce Act or
Section 16 of the Uniform Electronic Transactions Act for a party in control to
allow without loss of control, unless an Event of Default has occurred and is
continuing or would occur after taking into account any action by such Grantor
with respect to such electronic chattel paper or transferable record. 


          (e) Letter-of-Credit Rights. If any
Grantor is at any time a beneficiary under a letter of credit now or hereafter
issued in favor of such Grantor, such Grantor shall promptly notify the
Collateral Agent thereof and, at the request and option of the Collateral
Agent, such Grantor shall, pursuant to an agreement in form and substance
reasonably satisfactory to the Collateral Agent, either (i) arrange for the
issuer and any confirmer of such letter of credit to consent to an assignment
to the Collateral Agent of the proceeds of any drawing under the letter of
credit or (ii) arrange for the Collateral Agent to become the transferee
beneficiary of the letter of credit, with the Collateral Agent agreeing, in
each case, that the proceeds of any drawing under the letter of credit are to
be paid to the applicable Grantor unless an Event of Default has occurred or is
continuing. 


          (f) Commercial Tort Claims. If any
Grantor shall at any time hold or acquire a commercial tort claim in an amount
reasonably estimated to exceed $100,000, such Grantor shall promptly notify the
Collateral Agent thereof in a writing signed by such Grantor including a
summary description of such claim and grant to the Collateral Agent in such
writing 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
reasonably satisfactory to the Collateral Agent. 


          (g) Leasehold Deposits. If any
Grantor shall at any time hold or acquire any leasehold deposits, such Grantor
shall promptly notify the Collateral Agent thereof, and shall authorize the
Collateral Agent to file a UCC-9 financing statement in the county where the
leasehold is located and in the state of organization of such Grantor. 


     6.3 Covenants Regarding Patent, Trademark and
Copyright Collateral. 


          (a) Each Grantor agrees that it will not do
any act or omit to do any act (and will exercise commercially reasonable
efforts to prevent its licensees from doing any act or omitting to do any act)
whereby any Patent that is material to the conduct of such Grantor’s business
may become invalidated or dedicated to the public, and agrees that it shall
continue to mark any products covered by a Patent with the relevant patent
number as necessary and sufficient to establish and preserve its maximum rights
under applicable patent laws. 


          (b) Each Grantor (either itself or through
its licensees or its sublicensees) will, for each Trademark material to the
conduct of such Grantor’s business, (i) maintain such Trademark in full force
free from any claim of abandonment or invalidity for non-use, (ii) maintain the
quality of products and services offered under such Trademark, (iii) display
such Trademark with notice of Federal or foreign registration to the extent
necessary and sufficient to establish and 


22







preserve its
maximum rights under applicable law and (iv) not knowingly use or knowingly
permit the use of such Trademark in violation of any third party rights. 


          (c) Each Grantor (either itself or through
its licensees or sublicensees) will, for each work covered by a material
Copyright, continue to publish, reproduce, display, adopt and distribute the
work with appropriate copyright notice as necessary and sufficient to establish
and preserve its maximum rights under applicable copyright laws. 


          (d) Each Grantor shall notify the
Collateral Agent promptly if it knows or has reason to know that any Patent,
Trademark or Copyright material to the conduct of its business may become
abandoned, lost or dedicated to the public, or of any materially adverse
determination or development (including the institution of, or any such
determination or development in, any proceeding in the United States Patent and
Trademark Office, United States Copyright Office or any court or similar office
of any country) regarding such Grantor’s ownership of any Patent, Trademark or
Copyright, its right to register the same, or its right to keep and maintain
the same. 


          (e) In no event shall any Grantor, either
itself or through any agent, employee, licensee or designee, file an
application for any Patent, Trademark or Copyright (or for the registration of
any Trademark or Copyright) with the United States Patent and Trademark Office,
United States Copyright Office or any office or agency in any political
subdivision of the United States or in any other country or any political
subdivision thereof, unless it promptly informs the Collateral Agent, and, upon
request of the Collateral Agent, executes and delivers any and all agreements,
instruments, documents and papers as the Collateral Agent may reasonably
request to evidence the Collateral Agent’s security interest in such Patent,
Trademark or Copyright, and each Grantor hereby appoints the Collateral Agent as
its attorney-in-fact to execute and file 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. 


          (f) Each Grantor will take all necessary
steps that are consistent with the practice in any proceeding before the United
States Patent and Trademark Office, United States Copyright Office or any
office or agency in any political subdivision of the United States or in any
other country or any political subdivision thereof, to maintain and pursue each
material application relating to the Patents, Trademarks and/or Copyrights (and
to obtain the relevant grant or registration) and to maintain each issued
Patent and each registration of the Trademarks and Copyrights that is material
to the conduct of any Grantor’s business, including timely filings of
applications for renewal, affidavits of use, affidavits of incontestability and
payment of maintenance fees, and, if consistent with good business judgment, to
initiate opposition, interference and cancellation proceedings against third
parties. 


          (g) In the event that any Grantor has
reason to believe that any Collateral consisting of a Patent. Trademark or
Copyright material to the conduct of any Grantor’s business has been or is
about to be infringed, misappropriated or diluted by a third party, such
Grantor promptly shall notify the Collateral Agent and shall, if consistent
with good business judgment. promptly sue for infringement, misappropriation or
dilution and to recover any and all damages for such infringement,
misappropriation or dilution, and take such other actions as are appropriate
under the circumstances to protect such Collateral. 


23







          (h) Upon and during the continuance of an
Event of Default, each Grantor shall use its best efforts to obtain all
requisite consents or approvals by the licensor of each Copyright License,
Patent License or Trademark License to effect the assignment of all such
Grantor’s right, title and interest thereunder to the Collateral Agent or its
designee. 


     6.4 Payment of Obligations 


     Each
Grantor will pay and discharge or otherwise satisfy at or before maturity or
before they become delinquent, as the case may be, all taxes, assessments and
governmental charges or levies imposed upon the Collateral or in respect of
income or profits therefrom, as well as all claims of any kind (including,
without limitation, claims for labor, materials and supplies) against or with
respect to the Collateral, except that no such charge need be paid if the
amount or validity thereof is currently being contested in good faith by
appropriate proceedings, reserves in conformity with GAAP with respect thereto
have been provided on the books of such Grantor and such proceedings could not
reasonably be expected to result in the sale, forfeiture or loss of any
material portion of the Collateral or any interest therein. 


     6.5 Maintenance of Perfected Security Interest;
Further Documentation 


          (a) Each Grantor shall maintain the
security interest created by this Agreement as a perfected security interest
having first priority pursuant to
Section 5.3 and shall defend such
security interest against the claims and demands of all Persons whomsoever. 


          (b) Each Grantor will furnish to the
Collateral Agent and the Secured Parties from time to time statements and
schedules further identifying and describing the Collateral and such other
reports in connection with the Collateral as the Collateral Agent may
reasonably request, all in reasonable detail. 


          (c) At any time and from time to time, upon
the written request of the Collateral Agent, and at the sole expense of each
Grantor, such Grantor, will promptly and duly execute and deliver, and have recorded,
such further instruments and documents and take such further actions as the
Collateral Agent may reasonably request for the purpose of obtaining or
preserving the full benefits of this Agreement and of the rights and powers
herein granted, including, without limitation, the filing of any financing or
continuation statements under the Uniform Commercial Code (or other similar
laws) in effect in any jurisdiction with respect to the security interests
created hereby. 


     6.6 Changes in Locations, Name, etc. 


          No
Grantor will, except upon 15 days prior written notice to the Collateral Agent
and delivery to the Collateral Agent of all additional executed financing
statements and other documents reasonably requested by the Collateral Agent to
maintain the validity, perfection and priority of the security interests
provided for herein: 


          (a) change its jurisdiction of
organization, the location of its chief executive office, or the location of
its sole place of business from that referred to in Schedule 5.4 above;
or 


24







          (b) change its name, identity or corporate
structure to such an extent that any financing statement filed by the
Collateral Agent in connection with this Agreement would become misleading; or 


          (c) make any other change(s) which might
affect the perfection or priority of the Secured Parties’ Lien in the
Collateral. 


     6.7 Notices 


     In
the case of each Grantor, such Grantor will advise the Collateral Agent and the
Secured Parties promptly, in reasonable detail, of: 


          (a) any Lien (other than security interests
created hereby or Liens permitted under the Securities Amendment and Purchase
Agreement) on any of the Collateral which would adversely affect the ability of
the Collateral Agent to exercise any of its remedies hereunder; and 


          (b) of the occurrence of any other event
which could reasonably be expected to have a material adverse effect on the
aggregate value of the Collateral or on the security interests created hereby. 


     6.8 Accounts 


          (a) Each Grantor, other than in the
ordinary course of business consistent with its past practice, will not (i)
grant any extension of the time of payment of any Account, (ii) compromise or
settle any Account for less than the full amount thereof, (iii) release, wholly
or partially, any Person liable for the payment of any Account, (iv) allow any
credit or discount whatsoever on any Account or (v) amend, supplement or modify
any Account in any manner that could adversely affect the value thereof. 


     6.9 Maintenance of Inventory and Equipment 


          (a) Each Grantor hereby covenants that is
shall keep the Inventory and Equipment (other than raw materials and work in
process and Inventory sold in the ordinary course of business and Equipment
sold in accordance with the terms of the Securities Amendment and Purchase
Agreement) at the places specified on Schedule 5.4 hereof and deliver
written notice to the Collateral Agent at least 30 days prior to establishing
any other location at which it reasonably expects to maintain Inventory (other
than raw materials and work in process) or Equipment, in which jurisdiction all
action required by paragraph (b) hereof shall have been taken with respect to
all such Inventory or Equipment, as the case may be, in order to perfect the
security interest granted therein under this Agreement. 


          (b) Maintain or cause to be maintained in
good repair, working order and condition, excepting ordinary wear and tear and
damage due to casualty, all of the Inventory or Equipment, and make or cause to
be made all appropriate repairs, renewals and replacements thereof, to the
extent not obsolete and consistent with past practice of the each Grantor, as
quickly as practicable after the occurrence of any loss or damage thereto which
are necessary or desirable to such end. Each Grantor shall promptly furnish to
the Collateral Agent a statement respecting any material loss or damage as a
result of a single occurrence to any of its Inventory or Equipment which has an
aggregate fair market value exceeding $25,000. 


25







     6.10 Additional Shares 


     Each
Grantor agrees that it will (a) cause each issuer of the Pledged Securities
subject to its control not to issue any stock or other securities in addition to
or in substitution for the Pledged Securities issued by such issuer, except to
such Grantor or as otherwise permitted under the Securities Amendment and
Purchase Agreement, and (b) pledge, hereunder, immediately upon its acquisition
(directly or indirectly) thereof, any and all additional shares of stock or
other securities of each issuer of the Pledged Securities. Each Grantor hereby
authorizes the Collateral Agent to modify this Agreement by amending Schedule
4.1 to include such additional shares or other securities. 


ARTICLE 7


REMEDIAL PROVISIONS 


     7.1 Certain Matters Relating to Accounts


          (a) The Collateral Agent shall have the
right to make test verifications of the Accounts in any manner and through any
medium that it reasonably considers advisable, and each Grantor shall furnish
all such assistance and information as the Collateral Agent may require in
connection with such test verifications. At any time and from time to time,
upon the Collateral Agent’s request and at the expense of the relevant Grantor,
such Grantor shall cause independent public accountants or others satisfactory
to the Collateral Agent to furnish to the Collateral Agent reports showing
reconciliations, aging and test verifications of, and trial balances for, the
Accounts. 


          (b) The Collateral Agent hereby authorizes
each Grantor to collect such Grantor’s Accounts, subject to the Collateral
Agent’s direction and control, and the Collateral Agent may curtail or
terminate said authority at any time after the occurrence and during the
continuance of an Event of Default. If required by the Collateral Agent at any
time after the occurrence and during the continuance of an Event of Default,
any payments of Accounts, when collected by any Grantor, (i) shall be forthwith
(and, in any event, within two Business Days) deposited by such Grantor in the
exact form received, duly indorsed by such Grantor to the Collateral Agent if
required, in a Collateral Account maintained under the sole dominion and
control of the Collateral Agent, subject to withdrawal by the Collateral Agent
for the account of the Secured Parties only as provided in Section 7.4,
and (ii) until so turned over, shall be held by such Grantor in trust for the
Collateral Agent and the Secured Parties, segregated from other funds of such
Grantor. Each such deposit of Proceeds of Accounts shall be accompanied by a
report identifying in reasonable detail the nature and source of the payments
included in the deposit. 


          (c) At the Collateral Agent’s request, each
Grantor shall deliver to the Collateral Agent all original and other documents
evidencing, and relating to, the agreements and transactions which gave rise to
the Accounts, including, without limitation, all original orders, invoices and
shipping receipts. 


     7.2 Communications with Obligors; Grantors Remain
Liable 


          (a) The Collateral Agent in its own name or
in the name of others may at any time after the occurrence and during the
continuance of an Event of Default communicate with 


26







obligors under the Accounts to
verify with them to the Collateral Agent’s satisfaction the existence, amount
and terms of any Accounts. 


          (b)
Upon the request of the Collateral Agent at any time
after the occurrence and during the continuance of an Event of Default, each
Grantor shall notify obligors on the Accounts that the Accounts have been
assigned to the Collateral Agent for the ratable benefit of the Secured Parties
and that payments in respect thereof shall be made directly to the Collateral
Agent. 


          (c)
Anything herein to the contrary notwithstanding, each
Grantor shall remain liable under each of the Accounts 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
thereto. Neither the Collateral Agent nor any Secured Party shall have any
obligation or liability under any Account (or any agreement giving rise
thereto) by reason of or arising out of this Agreement or the receipt by the
Collateral Agent or any Secured Party of any payment relating thereto, nor
shall the Collateral Agent or any Secured Party be obligated in any manner to
perform any of the obligations of any Grantor under or pursuant to any Account
(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 thereunder, 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. 


     7.3 Proceeds to
be Turned Over To Collateral Agent 


     In
addition to the rights of the Collateral Agent and the Secured Parties
specified in Section 7.1 with respect to payments of Accounts, if an
Event of Default shall occur and be continuing, all Proceeds received by any
Grantor consisting of cash, checks and other near-cash items shall be held by
such Grantor in trust for the Collateral Agent and the Secured Parties,
segregated from other funds of such Grantor, and shall, forthwith upon receipt
by such Guarantor, be turned over to the Collateral Agent in the exact form
received by such Guarantor (duly indorsed by such Grantor to the Collateral
Agent, if required). All Proceeds received by the Collateral Agent hereunder
shall be held by the Collateral Agent in a Collateral Account maintained under
its sole dominion and control. All Proceeds while held by the Collateral Agent
in a Collateral Account (or by such Grantor in trust for the Collateral Agent
and the Secured Parties) shall continue to be held as collateral security for
all the Obligations and shall not constitute payment thereof until applied as
provided in Section 7.4. 


     7.4 Application
of Proceeds 


     If
an Event of Default shall have occurred and be continuing, at any time at the
Collateral Agent’s election, the Collateral Agent may apply all or any part of
Proceeds held in any Collateral Account in payment of the Obligations in such
order as the Collateral Agent may elect, and any part of such funds which the
Collateral 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
Collateral Agent to the Company or to whomsoever may be lawfully entitled to
receive the same. Any balance of such Proceeds remaining after the Obligations
shall have been Fully Satisfied shall be paid over to the Company or to whomsoever
may be lawfully entitled to receive the same. 


27







     7.5 New York
UCC and Other Remedies 


     If
an Event of Default shall occur and be continuing, the Collateral Agent, on
behalf of the Secured Parties, may exercise, in addition to all other rights
and remedies granted to them in this Agreement and in any other instrument or
agreement securing, evidencing or relating to the Obligations, all rights and
remedies of a secured party under the New York UCC or any other applicable law.
Without limiting the generality of the foregoing, the Collateral 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 Collateral Agent or any 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 Collateral Agent or any 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. Each Grantor further agrees, at the
Collateral Agent’s request, to assemble the Collateral and make it available to
the Collateral Agent at places which the Collateral Agent shall reasonably select,
whether at such Grantor’s premises or elsewhere. The Collateral Agent shall
apply the net proceeds of any action taken by it pursuant to this Section
7.5, 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 Collateral Agent and the Secured Parties hereunder, including, without
limitation, reasonable attorneys’ fees and disbursements, to the payment in
whole or in part of the Obligations, in such order as the Collateral Agent may
elect, and only after such application and after the payment by the Collateral
Agent of any other amount required by any provision of law, including, without
limitation, Section 9-504(1)(c) of the New York UCC, need the Collateral 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 Collateral Agent or any 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 10 days before such sale or
other disposition. 


     7.6 Waiver;
Deficiency 


     Each
Grantor waives and agrees not to assert any rights or privileges which it may
acquire under Section 9-112 of the New York UCC. 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 Collateral Agent or any Secured
Party to collect such deficiency. 


28







ARTICLE 8


THE COLLATERAL AGENT


     8.1 Collateral
Agent’s Appointment by Noteholders, Etc. 


          Each
Noteholder hereby irrevocably designates and appoints Pacific Aerie Holding LLC
as the Collateral Agent of such Noteholder under this Agreement and the other
Transaction Documents, and each such Noteholder irrevocably authorizes Pacific
Aerie Holding LLC, as the Collateral Agent for such Noteholder, to take such
action on its behalf under the provisions of this Agreement and the other
Transaction Documents and to exercise such powers and perform such duties as
are expressly delegated to the Collateral Agent by the terms of this Agreement
and the other Transaction Documents, together with such other powers as are
reasonably incidental thereto. Notwithstanding any provision to the contrary
elsewhere in this Agreement, the Collateral Agent shall not have any duties or
responsibilities except those expressly set forth herein, or any fiduciary
relationship with any Noteholder in connection with this Agreement, and no
implied covenants, functions, responsibilities, duties, obligations or
liabilities shall be read into this Agreement or any other Transaction Document
or otherwise exist against the Collateral Agent. 


     8.2 Delegation
of Duties 


          The
Collateral Agent may execute any of its duties under this Agreement and the
other Transaction Documents by or through agents or attorneys-in-fact and shall
be entitles to advice of counsel concerning all matters pertaining to such
duties. The Collateral Agent shall not be responsible for the negligence or
misconduct of any agents or attorneys in-fact selected by it with reasonable
care. 


     8.3 Exculpatory
Provisions 


          Neither
the Collateral Agent nor any of its officers, directors, shareholders, partners,
employees, agents or attorneys-in-fact shall be (a) liable for any action
lawfully taken or omitted to be taken by it or such person under or in
connection with this Agreement or any other Transaction Document (except for
its or such person’s own gross negligence or willful misconduct) or (b)
responsible in any manner to any of the Noteholders for any recitals,
statements, representations or warranties made by any Grantor or any officer
thereof contained in this Agreement or any other Transaction Document or in any
certificate, report, statement or other document referred to or provided for
in, or received by the Collateral Agent under or in connection with, this
Agreement or any other Transaction Document or for the value, validity,
effectiveness, genuineness, enforceability or sufficiency of this Agreement or
the Notes or any other Transaction Document or for any failure of any Grantor
to perform its obligations hereunder or thereunder. The Collateral Agent shall
not be under any obligation to any Noteholder to ascertain or to inquire as to
the observance or performance of any of the agreements contained in, or
conditions of, this Agreement or any other Transaction Document, or to inspect
the properties, books or records of any Grantor. 


     8.4 Reliance by
Collateral Agent 


29







          (a)
The Collateral Agent shall be entitled to rely, and
shall be fully protected in relying, upon (i) any Note, writing, resolution,
notice, consent, certificate, affidavit, letter, cablegram, telegram, telex, fax
or teletype message, statement, order or other document or conversation
believed by it to be genuine and correct and to have been signed, sent or made
by the proper person or persons and (ii) advice and statements of legal counsel
(including, without limitation, counsel to any Grantor), independent
accountants and other experts selected by the Collateral Agent. 


          (b) The Collateral Agent may deem and treat
the payee of any Amended Note as the owner thereof for all purposes unless a
written notice of assignment, negotiation or transfer thereof shall have been
filed with the Collateral Agent in accordance with Section 9.2. 


          (c) The Collateral Agent may be fully
justified in failing or refusing to take any action under this Agreement or any
other Transaction Document unless it shall first receive such advice or
concurrence of the Required Noteholders as it deems appropriate or it shall
first be indemnified to its satisfaction by the Noteholders against any and all
liability and expense which may be incurred by it by reason of taking or
continuing to take any such action. In all cases the Collateral Agent shall be
fully protected in acting or in refraining from acting under this Agreement and
the Amended Notes and the other Transaction Documents in accordance with a
request of the Required Noteholders, and such request and any action taken or
failure to act pursuant thereto shall be binding upon all the Noteholders. 


     8.5 Notice of
Default 


          The
Collateral Agent shall not be deemed to have knowledge or notice of the
occurrence of any Default or Event of Default unless the Collateral Agent has
received notice from a Noteholder or a Grantor (or a Guarantor or Collateral
Party) referring to this Agreement, describing such Default or Event of Default
and stating that such notice is a “notice of default.” In the event that the
Collateral Agent receives such a notice, the Collateral Agent shall give notice
thereof to the Noteholders. The Collateral Agent shall take such action with
respect to such Default or Event of Default as shall be reasonably directed by
the Required Noteholders; provided, that unless and until the Collateral
Agent shall have received such directions, the Collateral Agent may (but shall
not be obligated to) take such action, or refrain from taking such action, with
respect to such Default or Event of Default as it shall deem advisable in the
best interests of the Noteholders. 


     8.6
Non-Reliance on Collateral Agent and Other Noteholders 


          Each
Noteholder expressly acknowledges that neither the Collateral Agent nor any of
its officers, directors, shareholders, partners, employees, agents or
attorneys-in-fact has made any representations or warranties to it and that no
act by the Collateral Agent hereinafter taken, including any review of the
affairs of any Grantor, shall be deemed to constitute any representation or
warranty by the Collateral Agent to any Noteholder. Each Noteholder represents
to the Collateral Agent that it has, independently and without reliance upon
the Collateral Agent or any other Noteholder, and based on such documents and
information as it has deemed appropriate, made its own appraisal of and
investigation into the business, operations, property, financial and other
condition and creditworthiness of the Grantors and made its own decision to
enter into the transactions contemplated by the Transaction Documents. Each
Noteholder also represents to the Collateral Agent that it will independently
and without reliance 


30







upon the
Collateral Agent or any other Noteholder, and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit analysis, appraisals and decisions in taking or not taking action under
this Agreement and the other Transaction Documents, and to make such
investigation as it deems necessary to inform itself as to the business,
operations, property, financial and other condition and creditworthiness of the
Grantors. Except for notices, reports and other documents expressly required to
be furnished to the Noteholders by the Collateral Agent hereunder, the
Collateral Agent shall not have any duty or responsibility to provide any
Noteholder with any credit or other information concerning the business,
operations, property, condition (financial or otherwise), prospects or
creditworthiness of any Grantor which may come into the possession of the
Collateral Agent or any of its officers, directors, members, partners,
employees, agents or attorneys-in-fact. 


     8.7
Indemnification 


          The
Noteholders agree to indemnify the Collateral Agent in its capacity as such (to
the extent not reimbursed by the Grantors and without limiting any obligation
of any Grantor or Guarantor to do so), from and against any and all
liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements of any kind whatsoever which may at any
time (including, without limitation, at any time following the payment of the
Notes or any other amounts payable hereunder) be imposed on, incurred by or
asserted against the Collateral Agent in any way relating to or arising out of
this Agreement, any of the other Transaction Documents or any documents
contemplated by or referred to herein or therein or the transactions contemplated
hereby or thereby or any action taken or omitted by the Collateral Agent under
or in connection with any of the foregoing, provided that no Noteholder shall
be liable for the payment of any portion of such liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses of
disbursements resulting solely from the Collateral Agent’s gross negligence or
willful misconduct. The agreements in this subsection shall survive the payment
of the Notes and all other amounts payable hereunder. 


     8.8 Collateral
Agent In Its Individual Capacity 


          (a)
The Collateral Agent and its Affiliates may make loans to, accept deposits from
and generally engage in any kind of business with any of the Grantors as though
the Collateral Agent were not the Collateral Agent hereunder and under the
other Transaction Documents. 


          (b) With respect to its Notes made,
renewed, amended or restated by it and any Note issued to it, the Collateral
Agent shall have the same rights and powers under this Agreement and the other
Transaction Documents as any Noteholder and may exercise the same as though it
were not the Collateral Agent, and the terms “Noteholder” and “Noteholders”
shall include the Collateral Agent in its individual capacity.


     8.9 Successor
Agent 


          (a)
The Collateral Agent may resign as Collateral Agent
upon thirty (30) days’ notice to the Noteholders. If the Collateral Agent shall
resign as Collateral Agent under this Agreement and the other Transaction Documents,
then the Required Noteholders shall appoint from among the Noteholders a
successor agent for the Noteholders, subject to approval by the Grantors, which
approval shall not be unreasonably withheld, delayed or conditioned. Any
rejection by any Grantor of a successor Collateral Agent shall specify the
reasons for such rejection. Failure 


31







of the
Grantors to approve or rejection a successor Collateral Agent within ten (10)
days following request for approval shall be deemed to constitute approval. 


          (b) Upon such appointment and approval, (i)
the successor agent shall succeed to the rights, powers and duties of the
Collateral Agent, (ii) the term “Collateral Agent” shall mean such successor
agent effective upon its appointment, and (iii) the former Collateral Agent’s
rights, powers and duties as Collateral Agent shall be terminated, without any
other or further act or deed on the part of such former Collateral Agent or any
parties to this Agreement or any Noteholders. 


          (c) After any retiring Collateral Agent’s
resignation as Collateral Agent, the provisions of this Section 8.9
shall insure to its benefit as to any actions taken or omitted to be taken by
it while it was Collateral Agent under this Agreement and the other Transaction
Documents. 


     8.10 Collateral Agent’s Appointment by
Grantors as Attorney-in-Fact, Etc. 


          (a)
Each Grantor hereby irrevocably constitutes and
appoints the Collateral 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 appropriate action and to execute any and
all documents and instruments which may be necessary or desirable to accomplish
the purposes of this Agreement, and, without limiting the generality of the
foregoing, each Grantor hereby gives the Collateral 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) in
 the name of such Grantor or its own name, or otherwise, take possession of
 and indorse and collect any checks, drafts, notes, acceptances or other
 instruments for the payment of moneys due under any Account or with respect
 to any other Collateral and file any claim or take any other action or
 proceeding in any court of law or equity or otherwise deemed appropriate by
 the Collateral Agent for the purpose of collecting any and all such moneys
 due under any Account or with respect to any other Collateral whenever
 payable; 


	
 

	
 


	
 

	
          (ii) upon
 such Grantor’s failure to do so, 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; 


	
 

	
 


	
 

	
          (iii) execute,
 in connection with any sale provided for in Section 7.5, any
 indorsements, assignments or other instruments of conveyance or transfer with
 respect to the Collateral; and 


	
 

	
 


	
 

	
          (iv) (A)
 direct any party liable 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
 Collateral Agent or as the Collateral Agent shall direct; (B) 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; (C) sign 





32







	
 

	
 


	
 

	
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; (D) 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; (E) defend any
 suit, action or proceeding brought against such Guarantor with respect to any
 Collateral; (F) settle, compromise or adjust any such suit, action or
 proceeding and, in connection therewith, give such discharges or releases as
 the Collateral Agent may deem appropriate; and (G) 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 Collateral Agent were
 the absolute owner thereof for all purposes, and do, at the Collateral
 Agent’s option and such Grantor’s expense, at any time, or from time to time,
 all acts and things which the Collateral Agent deems necessary to protect,
 preserve or realize upon the Collateral and the Collateral Agent’s and the
 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 8.10(a) to the contrary notwithstanding, the Collateral
 Agent agrees that it will not exercise any rights under the power of attorney
 provided for in this Section 8.10(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, the Collateral Agent, at its option, but
without any obligation so to do, may perform or comply, or otherwise cause
performance or compliance, with such agreement. The Collateral Agent shall use
its best efforts to notify each Grantor if the Collateral Agent shall itself
perform or comply, or otherwise, cause performance or compliance, with any of
such Grantor’s agreements hereunder, but failure of the Collateral Agent to so
notify such Grantor should not affect the obligations of such Grantor. 


          (c) Each Grantor is authorized to assume
that, upon receipt by the Collateral Agent of any payment for the account of
the Secured Parties hereunder, the Collateral Agent will transmit such payment
to the Secured Parties in accordance with this Agreement, and no Grantor shall
be held liable for the Collateral Agent’s failure to do so. 


          (d)
The expenses of the Collateral Agent incurred in
connection with actions undertaken as provided in this Section 8.10,
together with interest thereon at a rate per annum equal to the rate per annum
at which interest would then be accruing on the Amended Notes, from the date of
payment by the Collateral Agent to the date reimbursed by the relevant Grantor,
shall be payable by such Grantor to the Collateral Agent on demand. 


          (e) Each Grantor hereby ratifies all that
said attorneys shall lawfully do or cause to be done by virtue 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. 


     8.11 Duty of
Collateral Agent 


     The
Collateral 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 Collateral Agent deals with similar 


33







property for
its own account. Neither the Collateral Agent, any 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 Collateral Agent and the Secured Parties
hereunder are solely to protect the Collateral Agent’s and the Secured Parties’
interests in the Collateral and shall not impose any duty upon the Collateral
Agent or any Secured Party to exercise any such powers. The Collateral Agent
and the 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. 


     8.12 Execution
of Financing Statements 


     Pursuant
to Section 9-402 of the New York UCC and any other applicable law, each Grantor
authorizes the Collateral Agent to file or record financing statements 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 Collateral Agent reasonably determines appropriate to perfect
the security interests of the Collateral Agent under this Agreement. 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. 


     8.13 Authority
of Collateral Agent 


     The
Company and each Guarantor acknowledges that the rights and responsibilities of
the Collateral Agent under this Agreement with respect to any action taken by
the Collateral Agent or the exercise or non-exercise by the Collateral 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
Collateral Agent and the Secured Parties, be governed by an agreement between
the Collateral Agent and Secured Parties, as may exist from time to time among
them, but, as between the Collateral Agent and the Company and the Guarantors,
the Collateral 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 neither the Company nor any Guarantor shall be under any
obligation, or entitlement, to make any inquiry respecting such authority. 


ARTICLE 9


MISCELLANEOUS 


     9.1 Amendments
in Writing


     None
of the terms or provisions of this Agreement may be waived, amended,
supplemented or otherwise modified except in accordance with Section 11.7
of the Securities Amendment and Purchase Agreement. 


34







     9.2 Notices



     All
notices, requests and demands to or upon the Collateral Agent or the Company or
any Guarantor hereunder shall be effected in the manner provided for in the
Securities Amendment and Purchase 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 5.4. 


     9.3 No Waiver
by Course of Conduct; Cumulative Remedies 


     Neither
the Collateral Agent nor any Secured Party shall by any act (except by a
written instrument pursuant to Section 9.1), delay, indulgence, omission
or otherwise be deemed to have waived any right or remedy hereunder or to have
acquiesced in any Default or Event of Default. No failure to exercise, nor any
delay in exercising, on the part of the Collateral Agent or any Secured Party,
any right, power or privilege hereunder shall operate as a waiver thereof. No
single or partial exercise of any right, power or privilege hereunder shall
preclude any other or further exercise thereof or the exercise of any other
right, power or privilege. A waiver by the Collateral Agent or any Secured
Party of any right or remedy hereunder on any one occasion shall not be
construed as a bar to any right or remedy which the Collateral Agent or such
Secured Party would otherwise have on any future occasion. The rights and
remedies herein provided are cumulative, may be exercised singly or
concurrently and are not exclusive of any other rights or remedies provided by
law. 


     9.4 Enforcement
Expenses; Indemnification 


          (a)
Each Guarantor agrees to pay or reimburse each Secured
Party and the Collateral Agent for all its costs and expenses incurred in
collecting against such Guarantor under the guarantee contained in ARTICLE 2
or otherwise enforcing or preserving any rights under this Agreement and the
other Transaction Documents to which such Guarantor is a party, including,
without limitation, the fees and disbursements of counsel to each Secured Party
and of counsel to the Collateral Agent. 


          (b) The Company and each Guarantor agrees to
pay, and to save the Collateral Agent and the Secured Parties harmless from,
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. 


          (c) The Company and each Guarantor agrees
to pay, and to save the Collateral Agent and the 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 with respect to the execution, delivery, enforcement, performance
and administration of this Agreement to the extent the Company would be
required to do so pursuant to the Securities Amendment and Purchase Agreement. 


          (d) The agreements in this Section 9.4
shall survive repayment of the Obligations and all other amounts payable under
the Securities Amendment and Purchase Agreement and the other Transaction
Documents. 


35







     9.5 Successors
and Assigns 


     This
Agreement shall be binding upon the successors and assigns of the Company and
each Guarantor and shall inure to the benefit of the Collateral Agent and the
Secured Parties and their successors and assigns; provided, that neither the
Company nor any Guarantor may assign, transfer or delegate any of its rights or
obligations under this Agreement without the prior written consent of the Collateral
Agent. 


     9.6 Set-Off



     The
Company and each Guarantor hereby irrevocably authorizes the Collateral Agent
and each Secured Party at any time and from time to time following the
occurrence of and during the continuation of a Default or an Event of Default,
without notice to the Company or such Guarantor or any other Guarantor, any
such notice being expressly waived by the Company and each Guarantor, to
set-off and appropriate and apply any and all deposits (general or special,
time or demand, provisional or final), in any currency, and any other credits,
indebtedness or claims, in any currency, in each case whether direct or
indirect, absolute or contingent, matured or unmatured, at any time held or
owing by the Collateral Agent or such Secured Party to or for the credit or the
account of such Person, or any part thereof in such amounts as the Collateral
Agent or such Secured Party may elect, against and on account of the
obligations and liabilities of such Person to the Collateral Agent or such Secured
Party hereunder and claims of every nature and description of the Collateral
Agent or such Secured Party against such Person, in any currency, whether
arising hereunder, under the Securities Amendment and Purchase Agreement, any
other Transaction Document or otherwise, as the Collateral Agent or such
Secured Party may elect, whether or not the Collateral Agent or any Secured
Party has made any demand for payment and although such obligations,
liabilities and claims may be contingent or unmatured. The Collateral Agent and
each Secured Party shall notify such Person promptly of any such set-off and
the application made by the Collateral Agent or such Secured Party of the
proceeds thereof, provided that the failure to give such notice shall not
affect the validity of such set-off and application. The rights of the
Collateral Agent and each Secured Party under this Section 9.6 are in
addition to other rights and remedies (including, without limitation, other
rights of set-off) which the Collateral Agent or such Secured Party may have. 


     9.7
Counterparts 


     This
Agreement may be executed by one or more of the parties to this Agreement on
any number of separate counterparts (including by facsimile), and all of said
counterparts taken together shall be deemed to constitute one and the same
instrument. 


     9.8
Severability 


     Any
provision of this Agreement which is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction. 


36







     9.9 Section Headings 


     The
Section headings used in this Agreement are for convenience of reference only
and are not to affect the construction hereof or be taken into consideration in
the interpretation hereof. 


     9.10 Integration 


     This
Agreement and the other Transaction Documents represent the agreement of the
Company, the Guarantors, the Collateral Agent and the Secured Parties with
respect to the subject matter hereof and thereof, and there are no promises,
undertakings, representations or warranties by the Collateral Agent or any
Secured Party relative to subject matter hereof and thereof not expressly set
forth or referred to herein or in the other Transaction Documents. 


     9.11 GOVERNING LAW 


     THIS
AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE
WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE CONFLICT OF LAWS
RULES THEREOF. 


     9.12 Submission To Jurisdiction; Waivers 


     The
Company and each Guarantor hereby irrevocably and unconditionally: 


          (a) submits for itself and its property in
any legal action or proceeding relating to this Agreement and the other
Transaction Documents to which it is a party, or for recognition and
enforcement of any judgment in respect thereof, to the non-exclusive general
jurisdiction of the Courts of the State of New York, the courts of the United
States of America for the Southern District of New York, and appellate courts
from any thereof; 


          (b) consents that any such action or
proceeding may be brought in such courts and waives any objection that it may
now or hereafter have to the venue of any such action or proceeding in any such
court or that such action or proceeding was brought in an inconvenient court
and agrees not to plead or claim the same; 


          (c) agrees that service of process in any
such action or proceeding may be effected by mailing a copy thereof by
registered or certified mail (or any substantially similar form of mail),
postage prepaid, to the Company or such Guarantor, as the case may be, at its
address referred to in Schedule 5.4 or at such other address of which
the Collateral Agent shall have been notified pursuant thereto; 


          (d) agrees that nothing herein shall affect
the right to effect service of process in any other manner permitted by law or
shall limit the right to sue in any other jurisdiction; and 


          (e) waives, to the maximum extent not
prohibited by law, any right it may have to claim or recover in any legal
action or proceeding referred to in this Section any special, exemplary,
punitive or consequential damages. 


     9.13 Acknowledgements 


     The
Company and each Guarantor hereby acknowledges that: 


37







          (a) it has been advised by counsel in the
negotiation, execution and delivery of this Agreement and the other Transaction
Documents to which it is a party; 


          (b) neither the Collateral Agent nor any
Secured Party has any fiduciary relationship with or duty to the Company or any
Guarantor arising out of or in connection with this Agreement or any of the
other Transaction Documents, and the relationship between the Company and the
Guarantors, on the one hand, and the Collateral Agent and Secured Parties, on
the other hand, in connection herewith or therewith is solely that of debtor
and creditor; and 


          (c) no joint venture is created hereby or
by the other Transaction Documents or otherwise exists by virtue of the
transactions contemplated hereby among the Secured Parties or among the Company
or the Guarantors and the Secured Parties. 


     9.14 WAIVER OF JURY TRIAL 


     THE
COMPANY AND EACH GUARANTOR AND, BY ACCEPTANCE OF THE BENEFITS HEREOF, EACH OF
THE SECURED PARTIES AND THE COLLATERAL AGENT, HEREBY IRREVOCABLY AND
UNCONDITIONALLY WAIVES TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING
TO THIS AGREEMENT OR ANY OTHER TRANSACTION DOCUMENT AND FOR ANY COUNTERCLAIM
THEREIN. 


     9.15 Additional Guarantors; Additional Grantors 


          Each
Subsidiary of the Company that is required to become a Grantor pursuant to the
Securities Amendment and Purchase Agreement shall become a Grantor for all
purposes of this Agreement upon execution and delivery by such Subsidiary of a
Grantor Assumption Agreement in the form of Annex 1 hereto. 


     9.16 Releases 


          (a) At such time as Obligations have been
Fully Satisfied, the Collateral shall be released from the Liens created
hereby, and this Agreement and all obligations (other than those expressly
stated to survive such termination) of the Collateral Agent, the Company and
each Guarantor hereunder shall terminate, all without delivery of any
instrument or performance of any act by any party, and all rights to the
Collateral shall revert to the Grantors. At the request and sole expense of any
Grantor following any such termination, the Collateral Agent shall deliver to
such Grantor any Collateral held by the Collateral Agent hereunder, and execute
and deliver to such Grantor such documents as such Grantor shall reasonably
request to evidence such termination. 


          (b) If any of the Collateral shall be sold,
transferred or otherwise disposed of by any Grantor in a transaction permitted
by the Securities Amendment and Purchase Agreement, then the Collateral Agent,
at the request and sole expense of such Grantor, shall 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. 


[signature
pages follow]


38









































































ANNEX 1


GRANTOR ASSUMPTION AGREEMENT


          GRANTOR
ASSUMPTION AGREEMENT, dated as of ________________, 20__, made by
______________________________, a ______________ corporation (the “Additional
Grantor”), in favor of [___________], as agent (in such capacity, the
“Agent”) for the purchasers of the New Notes and New Warrants (the “Purchasers”)
which are parties to that certain Securities Exchange and Purchase Agreement
dated as of December 23, 2008, by and among the Purchasers and the Company (as
amended, supplemented or otherwise modified from time to time, the “Purchase
Agreement”) and those individuals and entities who may become holders of
such New Notes and New Warrants from time to time (together with the
Purchasers, the “Secured Parties”). Capitalized terms not otherwise
defined herein shall have the meanings set forth in the Purchase Agreement.  


W I T N E S S E T H :


          WHEREAS,
in connection with the Purchase Agreement, the Company and certain of its
Subsidiaries (other than the Additional Grantor) have entered into the
Guarantee and Collateral Agreement, dated as of ___________, 2008 (as amended,
supplemented or otherwise modified from time to time, the “Guarantee and
Collateral Agreement”) in favor of the Collateral Agent for the benefit of
the Secured Parties; 


          WHEREAS,
the Purchase Agreement requires the Additional Grantor to become a party to the
Guarantee and Collateral Agreement; and 


          WHEREAS,
the Additional Grantor has agreed to execute and deliver this Assumption
Agreement in order to become a party to the Guarantee and Collateral Agreement;



          NOW,
THEREFORE, IT IS AGREED: 


          1.
Guarantee and Collateral Agreement. By executing and delivering this
Assumption Agreement, the Additional Grantor, as provided in Section 9.15
of the Guarantee and Collateral Agreement, hereby becomes a party to the
Guarantee and Collateral Agreement as a Grantor thereunder with the same force
and effect as if originally named therein as a Grantor and, without limiting
the generality of the foregoing, hereby expressly assumes all obligations and
liabilities of a Grantor thereunder. The information set forth in Exhibit A
hereto is hereby added to the information set forth in Schedules ____________
to the Guarantee and Collateral Agreement. The Additional Grantor hereby
represents and warrants that each of the representations and warranties
contained in ARTICLE 5 of the Guarantee and Collateral Agreement is true
and correct on and as the date hereof (after giving effect to this Assumption
Agreement) as if made on and as of such date. 


          2.
GOVERNING LAW. THIS ASSUMPTION AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.







IN WITNESS
WHEREOF, the undersigned has caused this Assumption Agreement to be duly executed
and delivered as of the date first above written. 


[ADDITIONAL
GRANTOR] 


	
 

	
 


	
By:

	
 


	
 

	



	
Name:


	
Title:













SCHEDULE 1 (i) 


COPYRIGHTS


There are no existing Copyrights or pending Copyrights.







SCHEDULE 1 (r)


LICENSE


There are no
existing or pending Licenses.







	
 


	
SCHEDULE 1 (w)


	
 


	

PATENTS






	
 

	
 


	
(1)

	
Method of
 generating a healthcare plan or wellness plan for a member of a group. 


	
 

	
 


	
(2)

	
Method and
 criterion for selecting patients for treatment. 


	
 

	
 


	
(3)

	
Care
 management method for managing the treatment of high risk patients. 


	
 

	
 


	
(4)

	
Care
 management method for managing the treatments of high risk mentally unstable
 patients. 













	
 


	
SCHEDULE 1(ff)


	
 


	
TRADEMARKS







	
 

	
 

	
 


	
(1)

	
MARK—SAMehr:


	
 

	
 

	
 


	
 

	
a.

	
It is
 intended that the above identified Trademark shall be used for medical
 software, namely, - MEDICAL MANAGEMENT SOFTWARE FOR MONITORING AND
 INTEGRATING DIFFERENT ASPECTS OF THE PATIENT’S CARE AND TREATMENT – in
 International Class 9 (Electrical & Scientific Apparatus).


	
 

	
 

	
 


	
(2)

	
MARK—Enhanced
 Care Initiatives Innovative/Targeted Health Solutions


	
 

	
 

	
 


	
 

	
a.

	
Medical
 coordination and assessment services to provided to patients by state
 licensed medical managers


	
 

	
 

	
 


	
(3)

	
MARK—Easy
 Care (Stylized)


	
 

	
 

	
 


	
 

	
a.

	
The Mark is
 used on advertising materials, advertising banners, billing statements,
 brochures, business cards, company e-mail accounts, company proprietary
 software, electronic and biometric devices furnished to patients, electronic
 medical records of patients, electronic presentations published for medical
 personnel, envelopes, exercise protocols for patients, giveaway promotional
 items, namely, T-shirts, pens and mugs, letterhead stationary, medical
 records for patients, notebooks, papers for medical records, prescription
 pads and treatment protocols for patients.


	
 

	
 

	
 


	
(4)

	
Enhanced
 Care Initiatives, Inc., acquired all right, title, interest and goodwill in
 and to US Application for Registration – EASY CARE – Serial Number 76612724.


	
 

	
 

	
 


	
(5)

	
Enhanced
 Care Initiatives, Inc., acquired all right, title, interest and goodwill in
 and to US Trademark Registration No. 3,075,366 – MINDFUL PATHS – Serial
 Number 76631406.













     SCHEDULE
4.1


PLEDGED SECURITIES


There are no existing Pledged Securities







	
 


	
SCHEDULE 5.4


	
 


	
CHIEF EXECUTIVE OFFICE AND PLACES OF BUSINESS









	
 

	
 

	
 


	
Alabama:


	
 

	
 

	
 


	
 

	
 •

	
Enhanced
 Care Initiatives of Alabama, Inc.


	
 

	
 

	
 


	
Connecticut:


	
 

	
 

	
 


	
 

	
 •

	
Enhance Care
 Initiatives, Inc.


	
 

	
 

	
 


	
 

	
 •

	
NP Care, LLC


	
 

	
 

	
 


	
Delaware:


	
 

	
 

	
 


	
 

	
•

	
HC
 Innovations, Inc. (PARENT COMPANY)


	
 

	
 

	
 


	
Florida:


	
 

	
 

	
 


	
 

	
•

	
NP Care, LLC


	
 

	
 

	
 


	
Illinois:


	
 

	
 

	
 


	
 

	
•

	
NP Care of Illinois,
 LLC


	
 

	
 

	
 


	
Massachusetts:


	
 

	
 

	
 


	
 

	
•

	
Enhanced
 Care Initiatives of MA, Inc.


	
 

	
 

	
 


	
 

	
•

	
NP Care of
 Massachusetts, LLC


	
 

	
 

	
 


	
New Jersey:


	
 

	
 

	
 


	
 

	
•

	
NP Care of
 New Jersey, LLC


	
 

	
 

	
 


	
New York:


	
 

	
 

	
 


	
 

	
•

	
Enhanced
 Care Initiative of New York, Inc.


	
 

	
 

	
 


	
 

	
•

	
Resident Care
 Medicine of New York, PLLC


	
 

	
 

	
 


	
Ohio:


	
 

	
 

	
 


	
 

	
•

	
NP Care of
 Ohio, LLC


	
 

	
 

	
 


	
Tennessee:


	
 

	
 

	
 


	
 

	
•

	
Enhanced
 Care Initiatives of Tennessee, Inc.


	
 

	
 

	
 


	
 

	
•

	
NP care of
 Tennessee, LLC


	
 

	
 

	
 


	
Texas:


	
 

	
 

	
 


	
 

	
•

	
Texas
 Enhanced Care Initiatives, Inc.













SCHEDULE 6.2


ACCOUNT CONTROL AGREEMENT


ACCOUNT
CONTROL AGREEMENT, dated as of _________, 20__, made by _________________, as “Secured Party,”____________________,
as “Grantor,”___________ as “Bank” in regards to Account Number ______________________.



WITNESSETH:


          WHEREAS,
in connection with the Securities Amendment and Purchase Agreement dated
______, 2008, Grantor has granted Secured Party a security interest in the
financial assets in the securities account identified above (the “Account”),
maintained by Bank for Grantor. 


          WHEREAS,
the parties are entering into this Agreement to provide for the control of the
Account as a means to perfect the security interest of Secured Party. 


          WHEREAS,
Bank has no responsibility to Secured Party in respect to the validity or
perfection of such security interest otherwise than to act in accordance with
the terms and conditions of this Agreement. 


          NOW,
therefore, it is agreed: 


          1. The Account. Bank represents and
warrants to Secured Party that Bank maintains the Account. Bank represents and
warrants that except for the claim and interest of Grantor and Secured Party,
Bank does not know of any claim to or interest in the Account or any financial
assets credited thereto. 


          2. Control by Secured Party. Bank will
comply with all written notifications it receives directing it to transfer or
redeem any financial assets in the Account (an “Entitlement Order”) (as set forth in Exhibit A attached
hereto) originated by an authorized person of the Secured Party (an “Authorized Person of Secured Party,” as set
forth in Exhibit B attached hereto) without further consent by Grantor. 


          3. Grantor’s Rights in Account. Until Bank
receives an Entitlement Order from an Authorized Person of Secured Party, Bank
may accept and comply with any Entitlement Order signed by an authorized person
of the Grantor (an “Authorized Person of
Grantor,” as set forth in Exhibit C attached hereto). If an
Authorized Person of Secured Party gives Bank an entitlement order notifying
Bank that Secured Party will exercise exclusive control over the Account, Bank
will cease complying with entitlement orders or other directions concerning the
Account originated by an Authorized Person of Grantor. All instructions
required under this Agreement will be delivered to Bank in writing, in either
original or facsimile form, executed by an Authorized Person. In its capacity
as Bank, Bank will accept all instructions and documents complying with the
above under the indemnities provided in this Agreement, and reserves the right
to refuse to accept any instructions or documents which fail, or appear to
fail, to comply. 







Further to
this procedure, Bank reserves the right to telephone an Authorized Person to
confirm the details of such instructions or documents if they are not already
on file with Bank as standing instructions. The parties agree that the above
constitutes a commercially reasonable security procedure. Entitlement orders
received after 12:00 p.m. E.S.T. will be treated as if received on the next
succeeding business day in New York. 


          4. Investments: Assets in the Account may
be invested only in investments specifically directed to the Bank in writing.
Neither Bank nor any of its affiliates assume any duty or liability for
monitoring the investment rating on any investments hereunder. 


          5. Priority of Secured Party’s Security
Interest.
Bank subordinates in favor of Secured Party any interest lien or right of
setoff it may have, now or in the future, against the Account or financial
assets in the Account (except that Bank may set off all amounts due to it in
respect of customary fees and expenses for the routine maintenance and
operation of the Account). 


          6. Statements, Confirmations and Notices of Adverse
Claims. Bank will send copies of all statements and confirmations
for the Account simultaneously to Grantor and Secured Party. Bank will use
reasonable efforts promptly to notify Secured Party and Grantor if any other
person claims that it has a property interest in the Account or any financial
asset in the Account. 


          7. Bank’s Responsibility. 


          (a)
Bank will not be liable to Secured Party for complying with entitlement orders
from an Authorized Person of Grantor that are received by Bank before Bank
receives and has a reasonable opportunity to act on an entitlement order from
an Authorized Person of Secured Party. 


          (b)
If at any time Bank is served with any judicial or administrative order,
judgment, decree, writ or other form of judicial or administrative process
which in any way affects the Account (including but not limited to orders of
attachment or garnishment or other forms of levies or injunctions or stays
relating to the transfer of the Account or any financial asset in the Account),
Bank is authorized to comply therewith in any manner it or legal counsel of its
own choosing deems appropriate; and if Bank complies with any such judicial or
administrative order, judgment, decree, writ or other form of judicial or
administrative process, Bank will not be liable to any of the parties hereto or
to any other person or entity even though such order, judgment, decree, writ or
process may be subsequently modified or vacated or otherwise determined to have
been without legal force or effect. 


          (c)
Bank will be entitled to conclusively rely upon any order, judgment,
certification, demand, notice, instrument or other writing delivered to it
hereunder without being required to determine the authenticity or the
correctness of any fact stated therein or the propriety or validity or the
service thereof. Bank may act in reliance upon any instrument or signature
believed by it to be genuine and may assume that any person purporting to give
receipt or advice to make any 







statement or
execute any document in connection with the provisions hereof has been duly
authorized to do so. 


          (d)
Bank will not be responsible in any respect for the form, execution, validity,
value or genuineness of documents or securities deposited hereunder, or for any
description therein, or for the identity, authority or rights of persons
executing or delivering or purporting to execute or deliver any such document,
security or endorsement. Bank will not be called upon to advise any party as to
the wisdom in selling or retaining or taking or refraining from any action with
respect to any securities or other property deposited hereunder. 


          (e)
This Agreement does not create any obligation of Bank except for those
expressly set forth in this Agreement. In particular, Bank need not investigate
whether Secured Party is entitled under Secured Party’s agreement with Grantor
to give an entitlement order. 


          (f)
Bank will maintain the Account and financial assets in the same manner as it
maintains accounts and assets for its custodial customers. During the term of
this Agreement, Bank will remain a securities intermediary within the meaning
of such term in Section 8- 102(a)(14) of Article 8 of the Uniform Commercial
Code of the State of New York as in effect from time to time (the “UCC”) and 31
C.F.R. 357.2. 


          8.
Indemnity 


          (a)
The duties, responsibilities and obligations of Bank will be limited to those
expressly set forth herein and no duties, responsibilities or obligations will
be inferred or implied. Bank will not be subject to, nor required to comply
with, any other agreement to which Grantor or Secured Party is a party, even
though reference thereto may be made herein, or to comply with any direction or
instruction (other than those contained herein or delivered in accordance with
this Agreement) from Grantor or an entity acting on its behalf. 


          (b)
Grantor will be liable for and will reimburse and indemnify and hold Bank
harmless from and against any and all claims, losses, actions, liabilities,
costs, damages or expenses (including reasonable attorneys’ fees and expenses)
(collectively “Losses”) arising from or in connection with its administration
of this Agreement, provided, however, that nothing contained herein will
require Bank to be indemnified for Losses caused by its own gross negligence or
own willful misconduct. 


          (c)
Bank may consult with legal counsel of its own choosing at the expense of the
Grantor and Secured Party as to any matter relating to this Agreement, and Bank
will not incur any liability in acting in good faith in accordance with any
advice from such counsel. 


          (d)
Bank will not incur any liability for not performing any act or fulfilling any
duty, obligation or responsibility hereunder by reason of any occurrence beyond
the control of Bank including, but not limited to any act or provision of any
present or future law or regulation or governmental authority, any act of God
or war or terrorism, or the unavailability of the Federal Reserve Bank wire or
facsimile or other wire or communication facility. 







          9. Termination; Survival. Secured Party may
terminate this Agreement by notice to Bank and Grantor. Upon receipt of a
notice of termination, Bank will cease accepting any entitlement order from
Grantor, and any previous entitlement order delivered by Grantor will be deemed
to be of no further force and effect. If Secured Party notifies Bank that its
security interest in the Account or all of the financial assets therein has
terminated, this Agreement will immediately terminate. Section 5, “Compensation”, Section 6, “Bank’s
Responsibility” and Section 7, “Indemnity,” will survive termination of
this Agreement. 


          10. Governing Law. Regardless of any
provision in any other agreement, for purposes of the UCC, New York shall be
deemed to be the “securities intermediary’s jurisdiction”, and this Agreement
and the Account (including all interests, duties and obligations with respect
thereto, as well as the entitlement orders related thereto) will be governed by
the laws of the State of New York. Bank and Grantor may not change the law
governing the Account without Secured Party’s express written agreement. Each
of the Grantor and Secured Party hereby submits to the personal jurisdiction
of, and each agrees that all proceedings relating hereto will be brought in,
courts located within the City and State of New York. 


          11. Entire Agreement. This Agreement is the
entire agreement and supersedes any prior agreements and contemporaneous oral
agreements, of the parties concerning its subject matter. 


          12. Amendments. No amendment of, or waiver
of a right under, this Agreement will be binding unless it is in writing and
signed by each of the parties hereto. 


          13. Severability. To the extent a provision
of this Agreement is unenforceable, this Agreement will be construed as if the
unenforceable provision were omitted. 


          14. Financial Assets. The Account and all
property (including cash) credited to the Account will be treated as financial
assets under the Article 8 of the UCC. 


          15. Successors and Assigns. A successor to
or assignee of Secured Party’s rights and obligations under the agreement
between Secured Party and Grantor will succeed to Secured Party’s rights and
obligations under this Agreement. 


          16. Notices A notice or other communication
to a party under this Agreement will be in writing (except that entitlement
orders will be given in accordance with procedures as Bank may reasonably
specify), will be sent to the party’s address set forth below or to such other
address as the party may notify the other parties and will be effective on
receipt. 


          17. Miscellaneous. 


          (a)
IMPORTANT INFORMATION ABOUT PROCEDURES FOR OPENING A NEW ACCOUNT: To help the
government fight the funding of terrorism and money laundering activities,
Federal law requires all financial institutions to obtain, verify, and record
information that identifies each person who opens an account. When an account
is opened, Bank will ask for information that will allow it to identify
relevant parties. 







          (b)
Each of Grantor and Secured Party hereby represents and warrants (a) that this
Agreement has been duly authorized, executed and delivered on its behalf and
constitutes its legal, valid and binding obligation and (b) that the execution,
delivery and performance of this Agreement by it does not and will not violate
any applicable law or regulation. 


          18. Counterparts. This Agreement may be
executed in any number of counterparts, all of which will constitute one and
the same instrument, and any party hereto may execute this Agreement by signing
and delivering one or more counterparts. 







	
 

	
 


	
SIGNATURES


	
 

	
 


	
[SECURED
 PARTY]


	
 

	
 


	
BY:


	
 

	



	
 

	
Name:


	
 

	
Title:


	
 

	
Address:


	
 

	
 


	
[GRANTOR]


	
 

	
 


	
BY:


	
 

	



	
 

	
Name:


	
 

	
Title:


	
 

	
Address:


	
 

	
 


	
[BANK]


	
 

	
 


	
BY:


	
 

	



	
 

	
Name:


	
 

	
Title:


	
 

	
Address:













FORM OF ENTITLEMENT ORDER


VIA FACSIMILE: 212-657-2762


[Depositary Bank]


Pursuant to the Account Control
Agreement dated [  ], among [specify parties], and Citibank, N.A., we hereby
instruct you of the following:


	
 

	
 

	
 

	
 

	
 


	
 

	
RECEIVE/DELIVER

	
 

	
 


	
 

	
 

	
 

	
 

	
 


	
 

	
 

	
ACCOUNT
 NUMBER:

	
 

	
 


	
 

	
 

	
 

	
 

	
 


	
 

	
 

	
USD:

	
 

	
 


	
 

	
 

	
 

	
 

	
 


	
 

	
 

	
VALUE DATE:

	
 

	
 


	
 

	
 

	
 

	
 

	
 


	
 

	
 

	
WIRE TO:

	
 

	
 


	
 

	
 

	
 

	
 

	
 


	
 

	
 

	
 

	
[                    ]


	
 

	
 

	
 

	
as [Secured
 Party][Grantor]


	
 

	
 

	
 

	
 

	
 


	
 

	
 

	
 

	
By:

	
 


	
 

	
 

	
 

	
 

	



	
 

	
 

	
 

	
 

	
Name:


	
 

	
 

	
 

	
 

	
Title:











Grantor Assumption Agreement




GRANTOR ASSUMPTION AGREEMENT, dated as of December 23, 2008, made by the undersigned corporations (each the “Additional Grantor”), in favor of ___________, as agent (in such capacity,
the “Agent”) for the purchasers of the New Notes and New Warrants (the “Purchasers”) which are parties to that certain Securities Exchange and
Purchase Agreement dated as of December 23, 2008, by and among the Purchasers and the Company (as amended, supplemented or
otherwise modified from time to time, the “Purchase Agreement”) and those individuals and entities who may become holders of such New Notes and New Warrants from time to time
(together with the Purchasers, the “Secured Parties”).  Capitalized terms not otherwise defined herein shall have the meanings set forth in the Purchase Agreement. 


W I T N E S S E T H:


WHEREAS, in connection with the Purchase Agreement, the Company and certain of its Subsidiaries (other than the Additional Grantor) have entered into the Guarantee and Collateral Agreement, dated as of ___________, 2008
(as amended, supplemented or otherwise modified from time to time, the “Guarantee and Collateral Agreement”) in favor of the Collateral Agent for the benefit of the Secured Parties;



WHEREAS, the Purchase Agreement requires the Additional Grantor to become a party to the Guarantee and Collateral Agreement; and 


WHEREAS, the Additional Grantor has agreed to execute and deliver this Assumption Agreement in order to become a party to the Guarantee and Collateral Agreement; 


NOW, THEREFORE, IT IS AGREED:


1. Guarantee and Collateral Agreement. By executing and delivering this Assumption Agreement, the Additional Grantor, as provided in Section
9.15 of the Guarantee and Collateral Agreement, hereby becomes a party to the Guarantee and Collateral Agreement as a Grantor thereunder with the same force and effect as if originally named therein as a Grantor and,
without limiting the generality of the foregoing, hereby expressly assumes all obligations and liabilities of a Grantor thereunder. The information set forth in Exhibit A hereto is hereby
added to the information set forth in Schedules ____________ to the Guarantee and Collateral Agreement. The Additional Grantor hereby represents and warrants that each of the representations and warranties contained in ARTICLE 5 of the
Guarantee and Collateral Agreement is true and correct on and as the date hereof (after giving effect to this Assumption Agreement) as if made on and as of such date. 


2. GOVERNING LAW.  THIS ASSUMPTION AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.