exv10w4






EXHIBIT 10.4




SECURITY AGREEMENT




     THIS SECURITY AGREEMENT (this “Security Agreement”) is made and entered into as of
June 1, 2009 by and among BORGWARNER INC., a Delaware corporation (the “Borrower” and a
“Grantor”), each of the undersigned Subsidiaries and each other person who shall become a
party hereto by execution of a Security Joinder Agreement (each a “Guarantor” and a
“Grantor”, and collectively with the Borrower, the “Grantors”), and BANK OF
AMERICA, N.A., as administrative agent (in such capacity, the “Administrative Agent”) for
each of the lenders (the “Lenders”) now or hereafter party to the Credit Agreement (as
defined below) and the other Secured Parties. All capitalized terms used but not otherwise defined
herein or pursuant to Section 1 hereof shall have the respective meanings assigned thereto in the
Credit Agreement.



W I T N E S S E T H:




     WHEREAS, the Secured Parties have agreed to provide to the Borrower certain credit facilities,
including a revolving credit facility with letter of credit and swing line subfacilities pursuant
to the terms of that certain Credit Agreement dated as of July 22, 2004, among the Borrower,
JPMorgan Chase Bank, as administrative agent and the Lenders (as amended by that certain Amendment
No. 1 and Consent Agreement dated as of April 30, 2009 among the Borrower, the Guarantors, the
Administrative Agent and certain of the Lenders, and as otherwise amended, modified, supplemented
or restated from time to time, the “Credit Agreement”); and



     WHEREAS, each Guarantor will materially benefit from the Loans to be made, and the Letters of
Credit to be issued, under the Credit Agreement, as well as the Secured Hedge Agreements and
Secured Cash Management Agreements, and each Guarantor is a party (as signatory or by joinder) to a
Guaranty pursuant to which each Guarantor guarantees the Obligations of the Borrower; and



     WHEREAS, each of (a) the Borrower, as collateral security for the payment and performance of
its Obligations, and the payment and performance of its obligations and liabilities (whether now
existing or hereafter arising) hereunder or under any of the other Loan Documents to which it is
now or hereafter becomes a party, and (b) each other Grantor, as collateral security for the
payment and performance of its Guarantor’s Obligations (as defined in the Guaranty to which it is a
party), and the payment and performance of its obligations and liabilities (whether now existing or
hereafter arising) hereunder or under any of the other Loan Documents to which it is now or
hereafter becomes a party (such obligations and liabilities of the Grantors described in clauses
(a) and (b) being referred to as “Secured Obligations”), is willing to pledge and grant to
the Administrative Agent for the benefit of the Secured Parties a security interest in certain of
its personal property and assets, all pursuant to the terms of this Pledge Agreement; and



     WHEREAS, as a condition to their obligations under the Loan Documents the Secured Parties have
required, and the Borrower has agreed and agreed to cause the other Grantors to enter into this
Security Agreement, and the Secured Parties are unwilling to make and maintain



 









 







the Loans, Letter of Credit, Secured Hedge Agreements and Secured Cash Management Agreements
unless the Grantors enter into this Pledge Agreement;



     NOW, THEREFORE, in accordance with the foregoing, and in further consideration of the premises
and the mutual covenants contained herein, the parties hereto agree as follows:



     1. Certain Definitions. Terms used in this Security Agreement, not otherwise
expressly defined herein or in the Credit Agreement, and for which meanings are provided in the
Uniform Commercial Code of the State of New York (the “UCC”), shall have such meanings.



     2. Grant of Security Interest. As collateral security for the payment and performance
by each Grantor of its now or hereafter existing Secured Obligations, each Grantor hereby grants,
pledges and collaterally assigns to the Administrative Agent for the benefit of the Secured Parties
a continuing first priority security interest in and to, the following property of such Grantor or
in which such Grantor has or may have or acquire an interest or the power to transfer rights
therein, whether now owned or existing or hereafter created, acquired or arising and wheresoever
located:




     (a) All accounts, including accounts receivable, contracts, bills, acceptances, choses
in action, and other forms of monetary obligations at any time owing to such Grantor arising
out of property sold, leased, licensed, assigned or otherwise disposed of or for services
rendered or to be rendered by such Grantor, including health-care-insurance receivables, and
all of such Grantor’s rights with respect to any property represented thereby, whether or
not delivered, property returned by customers and all rights as an unpaid vendor or lienor,
including rights of stoppage in transit and of recovering possession by proceedings
including replevin and reclamation (collectively referred to hereinafter as
“Accounts”);




     (b) All inventory, including all goods manufactured or acquired for sale or lease, and
any piece goods, raw materials, work in process and finished merchandise, component
materials, and all supplies, goods, incidentals, office supplies, packaging materials and
any and all items used or consumed in the operation of the business of such Grantor or which
may contribute to the finished product or to the sale, promotion and shipment thereof, in
which such Grantor now or at any time hereafter may have an interest, whether or not the
same is in transit or in the constructive, actual or exclusive occupancy or possession of
such Grantor or is held by such Grantor or by others for such Grantor’s account
(collectively referred to hereinafter as “Inventory”);




     (c) All goods, including all machinery, equipment, motor vehicles, parts, supplies,
apparatus, appliances, tools, tooling, patterns, molds, dies, blueprints, fittings,
furniture, furnishings, fixtures and articles of tangible personal property of every
description, and all computer programs embedded in any of the foregoing and all supporting
information relating to such computer programs (collectively referred to hereinafter as
“Equipment”);




     (d) All books and records relating to any of the forgoing (including customer data,
credit files, ledgers, computer programs, printouts, and other computer materials



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and records (and all media on which such data, files, programs, materials and records
are or may be stored)); and




     (e) All general intangibles, chattel paper, documents, supporting obligations related
to any of the foregoing and all proceeds, products and replacements of, accessions to, and
substitutions for, any of the foregoing, including without limitation proceeds of insurance
policies insuring any of the foregoing.


All of the property and interests in property described in subsections (a) through (e) are herein
collectively referred to as the “Collateral.”




     3. Perfection. As of the date of execution of this Security Agreement or Security
Joinder Agreement by each Grantor, as applicable (with respect to each Grantor, its “Applicable
Date”), such Grantor shall have furnished the Administrative Agent with properly executed
financing statements in form, number and substance suitable for filing, sufficient under applicable
law, and satisfactory to the Administrative Agent in order that upon the filing of the same the
Administrative Agent, for the benefit of the Secured Parties, shall have a duly perfected security
interest in all Collateral in which a security interest can be perfected by the filing of financing
statements, with the effect that the Liens conferred in favor of the Administrative Agent shall be
and remain duly perfected and of first priority subject only, to the extent applicable, to Liens
allowed to exist under Section 6.2 of the Credit Agreement (“Permitted Liens”). All
financing statements (including all amendments thereto and continuations thereof) and other
documents and instruments furnished in connection with the creation, enforcement, protection,
perfection or priority of the Administrative Agent’s security interest in Collateral, including
such items as are described above in this Section 3, are sometimes referred to herein as
“Perfection Documents”. The delivery of possession of items of or evidencing Collateral,
causing other Persons to execute and deliver Perfection Documents as appropriate, the filing or
recordation of Perfection Documents and the taking of such other actions as may be necessary or
advisable in the determination of the Administrative Agent to create, enforce, protect, perfect, or
establish or maintain the priority of, the security interest of the Administrative Agent for the
benefit of the Secured Parties in the Collateral are sometimes referred to herein as
“Perfection Actions”.



     4. Maintenance of Security Interest; Further Assurances.




     (a) Each Grantor will from time to time at its own expense, deliver specific
assignments of Collateral or such other Perfection Documents, and take such other or
additional Perfection Actions, as may be required by the terms of the Loan Documents or as
the Administrative Agent may reasonably request in connection with the administration or
enforcement of this Security Agreement or related to the Collateral or any part thereof in
order to carry out the terms of this Security Agreement, to perfect, protect, maintain the
priority of or enforce the Administrative Agent’s security interest in the Collateral,
subject only to Permitted Liens, or otherwise to better assure and confirm unto the
Administrative Agent its rights, powers and remedies for the benefit of the Secured Parties
hereunder. Without limiting the foregoing, each Grantor hereby irrevocably authorizes the
Administrative Agent to file (with or, to the extent permitted by applicable law, without
the signature of the Grantor appearing thereon) financing



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statements (including amendments thereto and initial financing statements in lieu of
continuation statements) or other Perfection Documents (including copies thereof) showing
such Grantor as “debtor” at such time or times and in all filing offices as the
Administrative Agent may from time to time determine to be necessary or advisable to perfect
or protect the rights of the Administrative Agent and the Secured Parties hereunder, or
otherwise to give effect to the transactions herein contemplated. Each Grantor hereby
irrevocably ratifies and acknowledges the Administrative Agent’s authority to have effected
filings of Perfection Documents made by the Administrative Agent prior to its Applicable
Date.




     (b) With respect to any and all Collateral, each Grantor agrees to do and cause to be
done all things necessary to perfect, maintain the priority of and keep in full force the
security interest granted in favor of the Administrative Agent for the benefit of the
Secured Parties, including, but not limited to, the prompt payment upon demand therefor by
the Administrative Agent of all fees and expenses (including documentary stamp, excise or
intangibles taxes) incurred in connection with the preparation, delivery, or filing of any
Perfection Document or the taking of any Perfection Action to perfect, protect or enforce a
security interest in Collateral in favor of the Administrative Agent for the benefit of the
Secured Parties, subject only to Permitted Liens. All amounts not so paid when due shall
constitute additional Secured Obligations and (in addition to other rights and remedies
resulting from such nonpayment) shall bear interest from the date of demand until paid in
full at the rate specified in Section 2.14(e) of the Credit Agreement.




     (c) Each Grantor agrees to maintain among its books and records appropriate notations
or evidence of, and to make or cause to be made appropriate disclosure upon its financial
statements of, the security interest granted hereunder to the Administrative Agent for the
benefit of the Secured Parties.




     (d) Each Grantor agrees that, in the event any proceeds (other than goods) of
Collateral shall be or become commingled with other property not constituting Collateral,
then such proceeds may, to the extent permitted by law, be identified by application of the
lowest intermediate balance rule to such commingled property.



     5. Receipt of Payment. In the event an Event of Default shall occur and be continuing
and a Grantor (or any of its Affiliates, subsidiaries, stockholders, directors, officers, employees
or agents) shall receive any proceeds of Collateral, including without limitation monies, checks,
notes, drafts or any other items of payment, each Grantor shall hold all such items of payment in
trust for the Administrative Agent for the benefit of the Secured Parties, and as the property of
the Administrative Agent for the benefit of the Secured Parties, separate from the funds and other
property of such Grantor, and no later than the first Business Day following the receipt thereof,
at the election of the Administrative Agent, such Grantor shall cause such Collateral to be
forwarded to the Administrative Agent for its custody, possession and disposition on behalf of the
Secured Parties in accordance with the terms hereof and of the other Loan Documents.



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     6. Preservation and Protection of Collateral.




     (a) The Administrative Agent shall be under no duty or liability with respect to the
collection, protection or preservation of the Collateral, or otherwise. Each Grantor shall
be responsible for the safekeeping of its Collateral, and in no event shall the
Administrative Agent have any responsibility for (i) any loss or damage thereto or
destruction thereof occurring or arising in any manner or fashion from any cause, (ii) any
diminution in the value thereof, or (iii) any act or default of any carrier, warehouseman,
bailee or forwarding agency thereof or other Person in any way dealing with or handling such
Collateral.




     (b) Each Grantor shall keep and maintain its tangible personal property Collateral in
good operating condition and repair, ordinary wear and tear excepted. No Grantor shall
permit any such items to become a fixture to real property (unless such Grantor has granted
the Administrative Agent for the benefit of the Secured Parties a Lien on such real property
having a priority acceptable to the Administrative Agent) or accessions to other personal
property.




     (c) Each Grantor agrees (i) to pay when due all taxes, charges and assessments against
the Collateral in which it has any interest, unless being contested in good faith by
appropriate proceedings diligently conducted and against which adequate reserves have been
established in accordance with GAAP applied on a basis consistent with the application of
GAAP in the audited financial statements and evidenced to the satisfaction of the
Administrative Agent and provided that all enforcement proceedings in the nature of levy or
foreclosure are effectively stayed, and (ii) to cause to be terminated and released all
Liens (other than Permitted Liens) on the Collateral. Upon the failure of any Grantor to so
pay or contest such taxes, charges, or assessments, or cause such Liens to be terminated,
the Administrative Agent at its option may pay or contest any of them or amounts relating
thereto (the Administrative Agent having the sole right to determine the legality or
validity and the amount necessary to discharge such taxes, charges, Liens or assessments)
but shall not have any obligation to make any such payment or contest. All sums so
disbursed by the Administrative Agent, including reasonable charges and disbursements of
counsel, court costs, expenses and other charges related thereto, shall be payable on demand
by the applicable Grantor to the Administrative Agent and shall be additional Secured
Obligations secured by the Collateral, and any amounts not so paid on demand (in addition to
other rights and remedies resulting from such nonpayment) shall bear interest from the date
of demand until paid in full at the rate specified in Section 2.14(e) of the Credit
Agreement.



     7. Status of Grantors and Collateral Generally. Each Grantor represents and warrants
to, and covenants with, the Administrative Agent for the benefit of the Secured Parties, with
respect to itself and the Collateral as to which it has or acquires any interest, that:




     (a) It is at its Applicable Date (or as to Collateral acquired after its Applicable
Date will be upon the acquisition of the same) and, except as permitted by the Credit
Agreement and subsection (b) of this Section 7, will continue to be, the owner of the
Collateral, free and clear of all Liens, other than the security interest hereunder in favor



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of the Administrative Agent for the benefit of the Secured Parties and Permitted Liens,
and that it will at its own cost and expense defend such Collateral and any products and
proceeds thereof against all claims and demands of all Persons (other than (i) the
Administrative Agent for the benefit of the Secured Parties and (ii) holders of Permitted
Liens to the extent of their claims permitted under the Credit Agreement) at any time
claiming the same or any interest therein adverse to the Secured Parties. Upon the failure
of any Grantor to so defend, the Administrative Agent may do so at its option but shall not
have any obligation to do so. All sums so disbursed by the Administrative Agent, including
reasonable charges and disbursements of counsel, court costs, expenses and other charges
related thereto, shall be payable on demand by the applicable Grantor to the Administrative
Agent and shall be additional Secured Obligations secured by the Collateral, and any amounts
not so paid on demand (in addition to other rights and remedies resulting from such
nonpayment) shall bear interest from the date of demand until paid in full at the rate
specified in Section 2.14(e) of the Credit Agreement.




     (b) It shall not (i) sell, assign, transfer, lease, license or otherwise dispose of any
of, or grant any option with respect to, the Collateral, except for dispositions permitted
under the Credit Agreement, (ii) create or suffer to exist any Lien upon or with respect to
any of the Collateral except for the security interests created by this Security Agreement
and Permitted Liens, or (iii) take any other action in connection with any of the Collateral
that would materially impair the value of the interest or rights of such Grantor in the
Collateral taken as a whole or that would materially impair the interest or rights of the
Administrative Agent for the benefit of the Secured Parties.




     (c) It has full power, legal right and lawful authority to enter into this Security
Agreement (and any Security Joinder Agreement applicable to it) and to perform its terms,
including the grant of the security interests in the Collateral herein provided for.




     (d) No authorization, consent, approval or other action by, and no notice to or filing
with, any Governmental Authority or any other Person which has not been given or obtained,
as the case may be, is required either (i) for the grant by such Grantor of the security
interests granted hereby or for the execution, delivery or performance of this Security
Agreement (or any Security Joinder Agreement) by such Grantor, or (ii) for the perfection of
or the exercise by the Administrative Agent, on behalf of the Secured Parties, of its rights
and remedies hereunder, except for action required by the Uniform Commercial Code to perfect
and exercise remedies with respect to the security interest conferred hereunder.




     (e) No effective financing statement or other Perfection Document similar in effect,
nor any other Perfection Action, covering all or any part of the Collateral purported to be
granted or taken by or on behalf of such Grantor (or by or on behalf of any other Person and
which remains effective as against all or any part of the Collateral) has been filed in any
recording office, delivered to another Person for filing (whether upon the occurrence of a
contingency or otherwise), or otherwise taken, as the case may be, except such as pertain to
Permitted Liens and such as may have been filed for the benefit of, delivered to, or taken
in favor of, the Administrative Agent for the benefit of the Secured Parties in connection
with the security interests conferred hereunder.



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     (f) Schedule 7(f) attached hereto contains true and complete information as to
each of the following: (i) the exact legal name of each Grantor as it appears in its
organizational documents as of its Applicable Date, (ii) each other legal name of each
Grantor and at any time during the five (5) year period ending as of its Applicable Date
(the “Covered Period”), (iii) the jurisdiction of formation and form of organization
of each Grantor, (iv) and the federal tax identification number of such Grantor and the
identification number of such Grantor in its jurisdiction of formation (if any), (v) each
address of the chief executive office of each Grantor as of its Applicable Date and at any
time during the Covered Period, (vi) all trade names or trade styles used by such Grantor as
of its Applicable Date and at any time during the Covered Period, (vii) the address of each
location of such Grantor at which any tangible personal property Collateral (including
Account Records and Account Documents) is located at its Applicable Date or has been located
at any time during the Covered Period, (viii) with respect to each location described in
clause (vii) that is not owned beneficially and of record by such Grantor, the name and
address of the owner thereof; and (ix) the name of each Person other than such Grantor and
the address of such Person at which any tangible personal property Collateral of such
Grantor is held under any warehouse, consignment, bailment or other arrangement as of its
Applicable Date. No Grantor shall change its name, change its jurisdiction of formation
(whether by reincorporation, merger or otherwise), change the location of its chief
executive office, or utilize any additional location where tangible personal property
Collateral (including Account Records and Account Documents) may be located, except in each
case upon giving not less than thirty (30) days’ prior written notice to the Administrative
Agent and taking or causing to be taken at such Grantor’s expense all such Perfection
Actions, including the delivery of such Perfection Documents, as may be reasonably requested
by the Administrative Agent to perfect or protect, or maintain the perfection and priority
of, the Lien of the Administrative Agent for the benefit of the Secured Parties in
Collateral contemplated hereunder.




     (g) No Grantor shall engage in any consignment transaction in respect of any of the
Collateral, whether as consignee or consignor, without the prior written consent of the
Administrative Agent in each instance.




     (h) No Grantor shall cause, suffer or permit any of the tangible personal property
Collateral (i) to be evidenced by any document of title (except for shipping documents as
necessary or customary to effect the receipt of raw materials or components or the delivery
of inventory to customers, in each case in the ordinary course of business) or (ii) to be in
the possession, custody or control of any warehouseman or other bailee without the prior
written consent of the Administrative Agent in each instance.




     (i) No tangible personal property Collateral is or shall be located at any location
that is leased by such Grantor from any other Person, unless such location and lessor is set
forth on Schedule 7(f) attached hereto or such Grantor provides not less than thirty
(30) days’ prior written notice thereof to the Administrative Agent.



     8. Inspection. The Administrative Agent (by any of its officers, employees and
agents), on behalf of the Secured Parties, shall have the right upon prior notice to an executive



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officer of any Grantor, and at any reasonable times during such Grantor’s usual business
hours, to inspect the Collateral, all records related thereto (and to make extracts or copies from
such records), and the premises upon which any of the Collateral is located, to discuss such
Grantor’s affairs and finances with any Person (other than Persons obligated on any Accounts
(“Account Debtors”) except as expressly otherwise permitted in the Loan Documents) and to
verify with any Person, other than (except as expressly otherwise permitted in the Loan Documents)
Account Debtors, the amount, quality, quantity, value and condition of, or any other matter
relating to, the Collateral and, if an Event of Default has occurred and is continuing, to discuss
such Grantor’s affairs and finances with such Grantor’s Account Debtors and to verify the amount,
quality, value and condition of, or any other matter relating to, the Collateral with such Account
Debtors. Upon or after the occurrence and during the continuation of an Event of Default, the
Administrative Agent may at any time and from time to time employ and maintain on such Grantor’s
premises a custodian selected by the Administrative Agent who shall have full authority to do all
acts necessary to protect the Administrative Agent’s (for the benefit of the Secured Parties)
interest. All expenses incurred by the Administrative Agent, on behalf of the Secured Parties, by
reason of the employment of such custodian shall be paid by such Grantor on demand from time to
time and shall be added to the Secured Obligations secured by the Collateral, and any amounts not
so paid on demand (in addition to other rights and remedies resulting from such nonpayment) shall
bear interest from the date of demand until paid in full at the rate specified in Section
2.14(e) of the Credit Agreement.



     9. Specific Collateral.




     (a) Accounts. With respect to its Accounts whether now existing or hereafter created
or acquired and wheresoever located, each Grantor represents, warrants and covenants to the
Administrative Agent for the benefit of the Secured Parties that:




     (i) Each Grantor shall keep accurate and complete records of its Accounts
(“Account Records”) and from time to time at intervals designated by the
Administrative Agent such Grantor shall provide the Administrative Agent with a
schedule of Accounts in form and substance reasonably acceptable to the
Administrative Agent describing all Accounts created or acquired by such Grantor
(“Schedule of Accounts”); provided that such Grantor’s failure to
execute and deliver any such Schedule of Accounts shall not affect or limit the
Administrative Agent’s security interest or other rights in and to any Accounts for
the benefit of the Secured Parties. If requested by the Administrative Agent, each
Grantor shall furnish the Administrative Agent with copies of proof of delivery and
other documents relating to the Accounts so scheduled, including without limitation
repayment histories and present status reports (collectively, “Account
Documents”) and such other matter and information relating to the status of then
existing Accounts as the Administrative Agent shall request.




     (ii) All Account Records and Account Documents are and shall at all times be
located only at such Grantor’s current chief executive office as set forth on
Schedule 7(f) attached hereto, such other locations as are specifically
identified on Schedule 7(f) attached hereto as an “Account Documents
location,” or as to which the Grantor has complied with Section 7(f) hereof.



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     (iii) The Accounts are genuine, are in all respects what they purport to be,
are not evidenced by an instrument or document or, if evidenced by an instrument or
document, are only evidenced by one original instrument or document.




     (iv) The Accounts cover bona fide sales, leases, licenses or other dispositions
of property usually dealt in by such Grantor, or the rendition by such Grantor of
services, to an Account Debtor in the ordinary course of business.




     (v) The amounts of the face value of any Account shown or reflected on any
Schedule of Accounts, invoice statement, or certificate delivered to the
Administrative Agent, are actually owing to such Grantor and are not contingent for
any reason; and there are no setoffs, discounts, allowances, claims, counterclaims
or disputes of any kind or description in an amount greater than $1,000,000 in the
aggregate, or greater than $500,000 individually, existing or asserted with respect
thereto and such Grantor has not made any agreement with any Account Debtor
thereunder for any deduction therefrom, except as may be stated in the Schedule of
Accounts and reflected in the calculation of the face value of each respective
invoice related thereto.




     (vi) Except for conditions generally applicable to such Grantor’s industry and
markets, there are no facts, events, or occurrences known to such Grantor pertaining
particularly to any Accounts which are reasonably expected to materially impair in
any way the validity, collectibility or enforcement of Accounts that would
reasonably be likely, in the aggregate, to be of material economic value, or in the
aggregate materially reduce the amount payable thereunder from the amount of the
invoice face value shown on any Schedule of Accounts, or on any certificate,
contract, invoice or statement delivered to the Administrative Agent with respect
thereto.




     (vii) The property or services giving rise thereto are not, and were not at the
time of the sale or performance thereof, subject to any Lien, claim, encumbrance or
security interest, except those of the Administrative Agent for the benefit of
Secured Parties and Permitted Liens.




     (viii) In the event any amounts due and owing in excess of $500,000
individually, or $1,000,000 in the aggregate amount, are in dispute between any
Account Debtor and a Grantor (which shall include without limitation any dispute in
which an offset claim or counterclaim may result), such Grantor shall provide the
Administrative Agent with written notice thereof as soon as reasonably practicable,
explaining in detail the reason for the dispute, all claims related thereto and the
amount in controversy.




     (b) Inventory. With respect to its Inventory whether now existing or hereafter created
or acquired and wheresoever located, each Grantor represents, warrants and covenants to the
Administrative Agent for the benefit of the Secured Parties that:



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     (i) Each Grantor shall keep accurate and complete records itemizing and
describing the kind, type, location and quantity of Inventory, its cost therefor and
the selling price of Inventory held for sale, and the daily withdrawals therefrom
and additions thereto, and shall furnish to the Administrative Agent from time to
time at reasonable intervals designated by the Administrative Agent, a current
schedule of Inventory (“Schedule of Inventory”) based upon its most recent
physical inventory and its daily inventory records. Each Grantor shall conduct a
physical inventory no less frequently than annually, and shall furnish to the
Administrative Agent such other documents and reports thereof as the Administrative
Agent shall reasonably request with respect to the Inventory.




     (ii) All Inventory, other than Inventory having a value of less than $1,000,000
in the aggregate for all locations, is and shall at all times be located only at
such Grantor’s locations as set forth on Schedule 7(f) attached hereto or at
such other locations as to which such Grantor has complied with Section 7(f) hereof.
No Grantor shall, other than in the ordinary course of business in connection with
its sale, lease, license or other permitted disposition, remove any Inventory having
an aggregate value in excess of that stated in the preceding sentence from such
locations.




     (iii) If any Account Debtor returns any Inventory to a Grantor after shipment
thereof, and such return generates a credit in excess of $500,000 on any individual
Account or $1,000,000 in the aggregate on any Accounts of such Account Debtor, such
Grantor shall notify the Administrative Agent in writing of the same as soon as
practicable.




     (c) Equipment. With respect to its Equipment whether now existing or hereafter created
or acquired and wheresoever located, each Grantor represents, warrants and covenants to the
Administrative Agent for the benefit of the Secured Parties that:




     (i) The Grantors, as soon as practicable following a request therefore by the
Administrative Agent, shall deliver to the Administrative Agent any and all evidence
of ownership of any of the Equipment (including without limitation certificates of
title and applications for title).




     (ii) The Grantors shall maintain accurate, itemized records describing the
kind, type, quality, quantity and value of its Equipment and shall furnish the
Administrative Agent upon request with a current schedule containing the foregoing
information.




     (iii) All Equipment, other than Equipment having a value of less than $250,000
in the aggregate for all locations, is and shall at all times be located only at
such Grantor’s locations as set forth on Schedule 7(f) attached hereto or at
such other locations as to which such Grantor has complied with Section 7(f) hereof
No Grantor shall, other than as expressly permitted under the Credit Agreement,
sell, lease, transfer, dispose of or remove any Equipment having an aggregate value
in excess of that stated in the preceding sentence from such locations.



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     10. Casualty and Liability Insurance Required. 




     (a) Each Grantor will keep the Collateral continuously insured, by policies of
insurance maintained with financially sound and reputable insurance companies, against such
risks as are customarily insured against by businesses of like size and type engaged in the
same or similar operations and operating in the same or similar locations.




     (b) Each insurance policy obtained in satisfaction of the requirements of

Section 10(a):




     (i) shall prohibit cancellation or substantial modification, termination or
lapse in coverage by the insurer without at least 30 days’ prior written notice to
the Administrative Agent, except for non-payment of premium, as to which such
policies shall provide for at least ten (10) days’ prior written notice to the
Administrative Agent; and




     (ii) shall name the Administrative Agent, for the benefit of the Secured
Parties, as loss payee or additional insured thereunder in respect of any claim for
payment, as applicable.




     (c) Prior to expiration of any such policy, such Grantor shall furnish the
Administrative Agent with evidence satisfactory to the Administrative Agent that the policy
or certificate has been renewed or replaced or is no longer required by this Security
Agreement.




     (d) Each Grantor hereby makes, constitutes and appoints the Administrative Agent (and
all officers, employees or agents designated by the Administrative Agent), for the benefit
of the Secured Parties, as such Grantor’s true and lawful attorney (and agent-in-fact) for
the purpose of making, settling and adjusting claims under such policies of insurance,
endorsing the name of such Grantor on any check, draft, instrument or other item or payment
for the proceeds of such policies of insurance and for making all determinations and
decisions with respect to such policies of insurance, which appointment is coupled with an
interest and is irrevocable; provided that the powers pursuant to such appointment
shall be exercisable only upon the occurrence and during the continuation of an Event of
Default.




     (e) In the event such Grantor shall fail to maintain, or fail to cause to be
maintained, the full insurance coverage required hereunder or shall fail to keep any of its
Collateral in good repair and good operating condition, the Administrative Agent may (but
shall be under no obligation to), without waiving or releasing any Secured Obligation or
Default or Event of Default by such Grantor hereunder, contract for the required policies of
insurance and pay the premiums on the same or make any required repairs, renewals and
replacements; and all sums so disbursed by Administrative Agent, including reasonable
charges and disbursements of counsel, court costs, expenses and other charges related
thereto, shall be payable on demand by such Grantor to the Administrative Agent, shall be
additional Secured Obligations secured by the Collateral, and (in addition to other rights
and remedies resulting from such nonpayment) shall bear



11









 







interest from the date of demand until paid in full at the rate specified in
Section 2.14(e) of the Credit Agreement.




     (f) Each Grantor agrees that to the extent that it shall fail to maintain, or fail to
cause to be maintained, the full insurance coverage required by Section 10(a), it shall in
the event of any loss or casualty pay promptly to the Administrative Agent, for the benefit
of the Secured Parties, to be held in a separate account for application in accordance with
the provisions of Sections 10(h), such amount as would have been received as Net Proceeds
(as hereinafter defined) by the Administrative Agent, for the benefit of the Secured
Parties, under the provisions of Section 10(h) had such insurance been carried to the extent
required.




     (g) The Net Proceeds of any liability insurance carried pursuant to the provisions of
Section 10(a) shall be applied by such Grantor toward satisfaction of the claim or liability
with respect to which such insurance proceeds may be paid.




     (h) The Net Proceeds of casualty insurance carried with respect to the Collateral
pursuant to the provisions of Section 10(a) hereof shall be paid to such Grantor and held by
such Grantor in a separate account and applied, as long as no Event of Default shall have
occurred and be continuing, as follows: after any loss under any such insurance and payment
of the proceeds of such insurance, each Grantor shall have a period of 30 days after payment
of the insurance proceeds with respect to such loss to elect to either (x) repair or replace
the Collateral so damaged, (y) deliver such Net Proceeds to the Administrative Agent, for
the benefit of the Secured Parties, as additional Collateral or (z) apply such Net Proceeds
to the acquisition of tangible assets constituting Collateral used or useful in the conduct
of the business of such Grantor, subject to the provisions of this Security Agreement. If
such Grantor elects to repair or replace the Collateral so damaged, such Grantor agrees the
Collateral shall be repaired to a condition substantially similar to or of better quality or
higher value than its condition prior to damage or replaced with Collateral in a condition
substantially similar to or of better quality or higher value than the condition of the
Collateral so replaced prior to damage. At all times during which an Event of Default shall
have occurred and be continuing, the Administrative Agent shall be entitled to receive
direct and immediate payment of the proceeds of such insurance and such Grantor shall take
all action as the Administrative Agent may reasonably request to accomplish such payment.
Notwithstanding the foregoing, in the event such Grantor shall receive any such proceeds,
such Grantor shall immediately deliver such proceeds to such Administrative Agent for the
benefit of the Secured Parties as additional Collateral, and pending such delivery shall
hold such proceeds in trust for the benefit of the Secured Parties and keep the same
segregated from its other funds.




     (i) “Net Proceeds” when used with respect to any insurance proceeds shall mean
the gross proceeds from such proceeds, award or other amount, less all taxes, fees and
expenses (including charges and disbursements of counsel) incurred in the realization
thereof.



12









 






     (j) In case of any material damage to, destruction or loss of, or claim or proceeding
against, all or any material part of the Collateral pledged hereunder by a Grantor, such
Grantor shall give prompt notice thereof to the Administrative Agent. Each such notice
shall describe generally the nature and extent of such damage, destruction, loss, claim or
proceeding. Subject to Section 10(d), each Grantor is hereby authorized and empowered to
adjust or compromise any loss under any such insurance other than losses relating to claims
made directly against any Secured Party as to which liability insurance described in Section
10(a) is applicable.




     (k) The provisions contained in this Security Agreement pertaining to insurance shall
be cumulative with any additional provisions imposing additional insurance requirements
under any of the Loan Documents.



     11. Rights and Remedies Upon Event of Default. Upon and after an Event of Default,
the Administrative Agent shall have the following rights and remedies on behalf of the Secured
Parties in addition to any rights and remedies set forth elsewhere in this Security Agreement or
the other Loan Documents, all of which may be exercised with or, if allowed by law, without notice
to a Grantor:




     (a) All of the rights and remedies of a secured party under the UCC or under other
applicable law, all of which rights and remedies shall be cumulative, and none of which
shall be exclusive, to the extent permitted by law, in addition to any other rights and
remedies contained in this Security Agreement or any other Loan Document;




     (b) The right to foreclose the Liens and security interests created under this Security
Agreement by any available judicial procedure or without judicial process;




     (c) The right to (i) enter upon the premises of a Grantor through self-help and without
judicial process, without first obtaining a final judgment or giving such Grantor notice or
opportunity for a hearing on the validity of the Administrative Agent’s claim and without
any obligation to pay rent to such Grantor, or any other place or places where any
Collateral is located and kept, and remove the Collateral therefrom to the premises of the
Administrative Agent or any agent of the Administrative Agent, for such time as the
Administrative Agent may desire, in order effectively to collect or liquidate the
Collateral, and (ii) require such Grantor or any bailee or other agent of such Grantor to
assemble the Collateral and make it available to the Administrative Agent at a place to be
designated by the Administrative Agent that is reasonably convenient to both parties;




     (d) The right to (i) exercise all of a Grantor’s rights and remedies with respect to
the collection of Accounts, including the right to demand payment thereof and enforce
payment, by legal proceedings or otherwise; (ii) settle, adjust, compromise, extend or renew
all or any Accounts or any legal proceedings pertaining thereto; (iii) discharge and release
all or any Payment Collateral; (iv) take control, in any manner, of any item of payment or
proceeds referred to in Section 5 above; (v) prepare, file and sign a Grantor’s name on any
Proof of Claim in bankruptcy, notice of Lien, assignment or satisfaction of Lien or similar
document in any action or proceeding adverse to any obligor under any Payment Collateral or
otherwise in connection with any Payment Collateral; (vi) endorse



13









 







the name of a Grantor upon any document, instrument, invoice, freight bill, bill of
lading or similar document or agreement relating to any Collateral; (vii) use the
information recorded on or contained on a Grantor’s internet website or otherwise in any
data processing equipment and computer hardware and software relating to any Collateral to
which a Grantor has access; (viii) open such Grantor’s mail and collect any and all amounts
due to such Grantor from any Account Debtors or other obligor in respect of Payment
Collateral; (ix) take over such Grantor’s post office boxes or make other arrangements as
the Administrative Agent, on behalf of the Secured Parties, deems necessary to receive such
Grantor’s mail, including notifying the post office authorities to change the address for
delivery of such Grantor’s mail to such address as the Administrative Agent, on behalf of
the Secured Parties, may designate; (x) notify any or all Account Debtors or other obligor
on any Payment Collateral that such Payment Collateral has been assigned to the
Administrative Agent for the benefit of the Secured Parties and that Administrative Agent
has a security interest therein for the benefit of the Secured Parties (provided
that the Administrative Agent may at any time give such notice to an Account Debtor that is
a department, agency or authority of the United States government); each Grantor hereby
agrees that any such notice, in the Administrative Agent’s sole discretion, may (but need
not) be sent on such Grantor’s stationery, in which event such Grantor shall co-sign such
notice with the Administrative Agent if requested to do so by the Administrative Agent; and
(xi) do all acts and things and execute all documents necessary, in Administrative Agent’s
sole discretion, to collect the Payment Collateral; and




     (e) The right to sell all or any Collateral in its then existing condition, or after
any further manufacturing or processing thereof, at such time or times, at public or private
sale or sales, with such notice as may be required by law, in lots or in bulk, for cash or
on credit, with or without representations and warranties, all as the Administrative Agent,
in its sole discretion, may deem advisable. The Administrative Agent shall have the right
to conduct such sales on a Grantor’s premises or elsewhere and shall have the right to use a
Grantor’s premises without charge for such sales for such time or times as the
Administrative Agent may see fit. The Administrative Agent may, if it deems it reasonable,
postpone or adjourn any sale of the Collateral from time to time by an announcement at the
time and place of such postponed or adjourned sale, and such sale may, without further
notice, be made at the time and place to which it was so adjourned. Each Grantor agrees
that the Administrative Agent has no obligation to preserve rights to the Collateral against
prior parties or to marshal any Collateral for the benefit of any Person. The
Administrative Agent for the benefit of the Secured Parties is hereby granted an irrevocable
fully paid license or other right (including each Grantor’s rights under any license or any
franchise agreement), each of which shall remain in full force and effect until the Facility
Termination Date, to use, without charge, each of the labels, patents, copyrights, names,
trade secrets, trade names, trademarks and advertising matter, or any property of a similar
nature owned or licensed by any Grantor, as it pertains to the Collateral, in completing
production of, advertising for sale and selling any Collateral. If any of the Collateral
shall require repairs, maintenance, preparation or the like, or is in process or other
unfinished state, the Administrative Agent shall have the right, but shall not be obligated,
to perform such repairs, maintenance, preparation, processing or completion of manufacturing
for the purpose of putting the same in such



14









 







saleable form as the Administrative Agent shall deem appropriate, but the
Administrative Agent shall have the right to sell or dispose of the Collateral without such
processing and no Grantor shall have any claim against the Administrative Agent for the
value that may have been added to such Collateral with such processing. In addition, each
Grantor agrees that in the event notice is necessary under applicable law, written notice
mailed to such Grantor in the manner specified herein ten (10) days prior to the date of
public sale of any of the Collateral or prior to the date after which any private sale or
other disposition of the Collateral will be made shall constitute commercially reasonable
notice to such Grantor. All notice is hereby waived with respect to any of the Collateral
which threatens to decline speedily in value or is of a type customarily sold on a
recognized market. The Administrative Agent may purchase all or any part of the Collateral
at public or, if permitted by law, private sale, free from any right of redemption which is
hereby expressly waived by such Grantor and, in lieu of actual payment of such purchase
price, may set off the amount of such price against the Secured Obligations. Each Grantor
recognizes that the Administrative Agent may be unable to effect a public sale of certain of
the Collateral by reason of certain prohibitions contained in the Securities Act of 1933, as
amended (the “Securities Act”), and applicable state law, and may be otherwise
delayed or adversely affected in effecting any sale by reason of present or future
restrictions thereon imposed by governmental authorities (“Affected Collateral”),
and that as a consequence of such prohibitions and restrictions the Administrative Agent may
be compelled (i) to resort to one or more private sales to a restricted group of purchasers
who will be obliged to agree, among other things, to acquire Affected Collateral for their
own account, for investment and not with a view to the distribution or resale thereof, or
(ii) to seek regulatory approval of any proposed sale or sales, or (iii) to limit the amount
of Affected Collateral sold to any Person or group. Each Grantor agrees and acknowledges
that private sales so made may be at prices and upon terms less favorable to such Grantor
than if such Affected Collateral was sold either at public sales or at private sales not
subject to other regulatory restrictions, and that the Administrative Agent has no
obligation to delay the sale of any Affected Collateral for the period of time necessary to
permit the Grantor or any other Person to register or otherwise qualify them under or exempt
them from any applicable restriction, even if such Grantor or other Person would agree to
register or otherwise qualify or exempt such Affected Collateral so as to permit a public
sale under the Securities Act or applicable state law. Each Grantor further agrees, to the
extent permitted by applicable law, that the use of private sales made under the foregoing
circumstances to dispose of Affected Collateral shall be deemed to be dispositions in a
commercially reasonable manner. Each Grantor hereby acknowledges that a ready market may
not exist for Affected Collateral that is not traded on a national securities exchange or
quoted on an automated quotation system.



     The net cash proceeds resulting from the collection, liquidation, sale, or other disposition
of the Collateral shall be applied first to the expenses (including all charges and disbursements
of counsel) of retaking, holding, storing, processing and preparing for sale, selling, collecting,
liquidating and the like, and then to the satisfaction of all Secured Obligations in accordance
with the terms of Section 2.13 of the Credit Agreement. Each Grantor shall be liable to
the Administrative Agent, for the benefit of the Secured Parties, and shall pay to the
Administrative Agent, for the benefit of the Secured Parties, on demand any deficiency which may
remain after such sale, disposition, collection or liquidation of the Collateral.



15









 





     12. Attorney-in-Fact. Each Grantor hereby appoints the Administrative Agent as the
Grantor’s attorney-in-fact for the purposes of carrying out the provisions of this Security
Agreement and taking any action and executing any instrument which the Administrative Agent may
deem necessary or advisable to accomplish the purposes hereof, which appointment is irrevocable and
coupled with an interest; provided that the Administrative Agent shall have and may
exercise rights under this power of attorney only upon the occurrence and during the continuance of
an Event of Default. Without limiting the generality of the foregoing, upon the occurrence and
during the continuance of an Event of Default, the Administrative Agent shall have the right and
power;




     (a) to ask, demand, collect, sue for, recover, compromise, receive and give acquittance
and receipts for moneys due and to become due under or in respect of any of the Collateral;




     (b) to receive, endorse and collect any drafts or other instruments, documents and
chattel paper in connection with clause (a) above;




     (c) to endorse such Grantor’s name on any checks, notes, drafts or any other payment
relating to or constituting proceeds of the Collateral which comes into the Administrative
Agent’s possession or the Administrative Agent’s control, and deposit the same to the
account of the Administrative Agent, for the benefit of the Secured Parties, on account and
for payment of the Secured Obligations.




     (d) to file any claims or take any action or institute any proceedings that the
Administrative Agent may deem necessary or desirable for the collection of any of the
Collateral or otherwise to enforce the rights of the Administrative Agent, for the benefit
of the Secured Parties, with respect to any of the Collateral; and




     (e) to execute, in connection with any sale or other disposition of Collateral provided
for herein, any endorsement, assignments, or other instruments of conveyance or transfer
with respect thereto.



     13. Reinstatement. The granting of a security interest in the Collateral and the
other provisions hereof shall continue to be effective or be reinstated, as the case may be, if at
any time any payment of any of the Secured Obligations is rescinded or must otherwise be returned
by any Secured Party or is repaid by any Secured Party in whole or in part in good faith settlement
of a pending or threatened avoidance claim, whether upon the insolvency, bankruptcy or
reorganization of any Grantor or any other Loan Party or otherwise, all as though such payment had
not been made. The provisions of this Section 13 shall survive repayment of all of the Secured
Obligations and the termination or expiration of this Security Agreement in any manner, including
but not limited to termination upon occurrence of the Facility Termination Date. For purposes of
this Security Agreement, “Facility Termination Date” means the date as of which all of the
following shall have occurred: (a) the Commitments have expired or been terminated and the
principal of and interest on each Loan and all fees and other Obligations payable hereunder and
under the other Loan Documents shall have been paid in full and all Letters of Credit shall have
expired or terminated and all LC Disbursements shall have been reimbursed, (b) the obligations and
liabilities of the Borrower and each other Loan Party under all Secured Cash



16









 







Management Agreements and Secured Hedge Agreements shall have been fully, finally and
irrevocably paid and satisfied in full and the Secured Cash Management Agreement and Secured Hedge
Agreement shall have expired or been terminated, or other arrangements satisfactory to the
counterparties shall have been made with respect thereto; and (c) the Borrower and each other Loan
Party shall have fully, finally and irrevocably paid and satisfied in full all of their respective
obligations and liabilities arising under the Loan Documents, including with respect to the
Borrower and the Obligations (except for future obligations consisting of continuing indemnities
and other contingent Obligations of the Borrower or any Loan Party that may be owing to any Secured
Party or any Lender pursuant to the Loan Documents and expressly survive termination of the Credit
Agreement).



     14. Certain Waivers by the Grantors. Each Grantor waives to the extent permitted by
applicable law (a) any right to require any Secured Party or any other obligee of the Secured
Obligations to (x) proceed against any Person or entity, including without limitation any Loan
Party, (y) proceed against or exhaust any Collateral or other collateral for the Secured
Obligations, or (z) pursue any other remedy in its power; (b) any defense arising by reason of any
disability or other defense of any other Person, or by reason of the cessation from any cause
whatsoever of the liability of any other Person or entity, (c) any right of subrogation, (d) any
right to enforce any remedy which any Secured Party or any other obligee of the Secured Obligations
now has or may hereafter have against any other Person and any benefit of and any right to
participate in any collateral or security whatsoever now or hereafter held by the Administrative
Agent for the benefit of the Secured Parties. Each Grantor authorizes each Secured Party and each
other obligee of the Secured Obligations without notice (except notice required by applicable law)
or demand and without affecting its liability hereunder or under the Loan Documents from time to
time to: (i) take and hold security, other than the Collateral herein described, for the payment of
such Secured Obligations or any part thereof, and exchange, enforce, waive and release the
Collateral herein described or any part thereof or any such other security; and (ii) apply such
Collateral or other security and direct the order or manner of sale thereof as such Secured Party
or obligee in its discretion may determine.



     The Administrative Agent may at any time deliver (without representation, recourse or
warranty) the Collateral or any part thereof to a Grantor and the receipt thereof by such Grantor
shall be a complete and full acquittance for the Collateral so delivered, and the Administrative
Agent shall thereafter be discharged from any liability or responsibility therefor.



     15. Continued Powers. Until the Facility Termination Date shall have occurred, the
power of sale and other rights, powers and remedies granted to the Administrative Agent for the
benefit of the Secured Parties hereunder shall continue to exist and may be exercised by the
Administrative Agent at any time and from time to time irrespective of the fact that any of the
Secured Obligations or any part thereof may have become barred by any statute of limitations or
that any part of the liability of any Grantor may have ceased.



     16. Other Rights. The rights, powers and remedies given to the Administrative Agent
for the benefit of the Secured Parties by this Security Agreement shall be in addition to all
rights, powers and remedies given to the Administrative Agent or any Secured Party under any other
Loan Document or by virtue of any statute or rule of law. Any forbearance or failure or delay by
the Administrative Agent in exercising any right, power or remedy hereunder shall not



17









 







be deemed to be a waiver of such right, power or remedy, and any single or partial exercise of
any right, power or remedy hereunder shall not preclude the further exercise thereof; and every
right, power and remedy of the Secured Parties shall continue in full force and effect until such
right, power or remedy is specifically waived in accordance with the terms of the Credit Agreement.



     17. Anti-Marshaling Provisions. The right is hereby given by each Grantor to the
Administrative Agent, for the benefit of the Secured Parties, to make releases (whether in whole or
in part) of all or any part of the Collateral agreeable to the Administrative Agent without notice
to, or the consent, approval or agreement of other parties and interests, including junior lienors,
which releases shall not impair in any manner the validity of or priority of the Liens and security
interests in the remaining Collateral conferred hereunder, nor release any Grantor from personal
liability for the Secured Obligations. Notwithstanding the existence of any other security
interest in the Collateral held by the Administrative Agent, for the benefit of the Secured
Parties, the Administrative Agent shall have the right to determine the order in which any or all
of the Collateral shall be subjected to the remedies provided in this Security Agreement. Each
Grantor hereby waives any and all right to require the marshaling of assets in connection with the
exercise of any of the remedies permitted by applicable law or provided herein or in any other Loan
Document.



     18. Entire Agreement. This Security Agreement and each Security Joinder Agreement,
together with the Credit Agreement and other Loan Documents, constitutes and expresses the entire
understanding between the parties hereto with respect to the subject matter hereof, and supersedes
all prior negotiations, agreements and understandings, inducements, commitments or conditions,
express or implied, oral or written, except as contained in the Loan Documents. The express terms
hereof and of the Security Joinder Agreements control and supersede any course of performance or
usage of the trade inconsistent with any of the terms hereof or thereof. Neither this Security
Agreement nor any Security Joinder Agreement nor any portion or provision hereof or thereof may be
changed, altered, modified, supplemented, discharged, canceled, terminated, or amended orally or in
any manner other than as provided in the Credit Agreement.



     19. Third Party Reliance. Each Grantor hereby consents and agrees that all issuers of
or obligors in respect of any Collateral, and all securities intermediaries, warehousemen, bailees,
public officials and other Persons having any interest in, possession of, control over or right,
privilege, duty or discretion in respect of, any Collateral shall be entitled to accept the
provisions hereof and of the Security Joinder Agreements as conclusive evidence of the right of the
Administrative Agent, on behalf of the Secured Parties, to exercise its rights hereunder or
thereunder with respect to the Collateral, notwithstanding any other notice or direction to the
contrary heretofore or hereafter given by any Grantor or any other Person to any of such Persons.



     20. Binding Agreement; Assignment. This Security Agreement and each Security Joinder
Agreement, and the terms, covenants and conditions hereof and thereof, shall be binding upon and
inure to the benefit of the parties hereto, and to their respective successors and assigns;
provided that unless (and only to the extent) the same is permitted under the Credit
Agreement no Grantor shall be permitted to assign this Security Agreement, any Security Joinder
Agreement or any interest herein or therein or, except as expressly permitted herein or in the
Credit



18









 







Agreement, in the Collateral or any part thereof or interest therein. Without limiting the
generality of the foregoing sentence of this Section 20, any Lender may assign to one or more
Persons, or grant to one or more Persons participations in or to, all or any part of its rights and
obligations under the Credit Agreement (to the extent permitted by the Credit Agreement); and to
the extent of any such assignment or participation such other Person shall, to the fullest extent
permitted by law, thereupon become vested with all the benefits in respect thereof granted to such
Lender herein or otherwise, subject however, to the provisions of the Credit Agreement, including
Article VIII thereof (concerning the Administrative Agent) and Section 9.4 thereof (concerning
assignments and participations). All references herein to the Administrative Agent and to the
Secured Parties shall include any successor thereof or permitted assignee, and any other obligees
from time to time of the Secured Obligations.



     21. Secured Cash Management Agreements; Secured Hedge Agreements. All obligations of
the Borrower under (a) Secured Cash Management Agreements to which any Cash Management Bank is a
party, or (b) Secured Hedge Agreements to which any Hedge Bank is a party, shall be deemed to be
Secured Obligations secured hereby, and each Cash Management Bank and each Hedge Bank shall be
deemed to be a Secured Party hereunder with respect to such Secured Obligations.



     No Person who obtains the benefit of any Lien by virtue of the provisions of this Section
shall have any right to notice of any action or to consent to, direct or object to any action
hereunder or under any other Loan Document or otherwise in respect of the Collateral (including the
release or impairment of any Collateral) other than in its capacity as a Lender and only to the
extent expressly provided in the Loan Documents. Each Secured Party not a party to the Credit
Agreement who obtains the benefit of this Security Agreement by virtue of the provisions of this
Section shall be deemed to have acknowledged and accepted the appointment of the Administrative
Agent pursuant to the terms of the Credit Agreement, and that with respect to the actions and
omissions of the Administrative Agent hereunder or otherwise relating hereto that do or may affect
such Secured Party, the Administrative Agent and its Affiliates shall be entitled to all the
rights, benefits and immunities conferred under Article VIII of the Credit Agreement.



     22. Severability. The provisions of this Security Agreement are independent of and
separable from each other. If any provision hereof shall for any reason be held invalid or
unenforceable, such invalidity or unenforceability shall not affect the validity or enforceability
of any other provision hereof, but this Security Agreement shall be construed as if such invalid or
unenforceable provision had never been contained herein.



     23. Counterparts. This Security Agreement may be executed in any number of
counterparts each of which when so executed and delivered shall be deemed an original, and it shall
not be necessary in making proof of this Security Agreement to produce or account for more than one
such counterpart executed by the Grantor against whom enforcement is sought. Without limiting the
foregoing provisions of this Section 23, the provisions of Section 9.1 of the Credit
Agreement shall be applicable to this Security Agreement.



     24. Termination. Subject to the provisions of Section 13, this Security Agreement and
each Security Joinder Agreement, and all obligations of the Grantors hereunder (excluding those
obligations and liabilities that expressly survive such termination) shall terminate without



19









 







delivery of any instrument or performance of any act by any party on the Facility Termination
Date. Upon such termination of this Security Agreement, the Administrative Agent shall, at the
request and sole expense of the Grantors, promptly deliver to the Grantors such termination
statements and take such further actions as the Grantors may reasonably request to terminate of
record, or otherwise to give appropriate notice of the termination of, any Lien conferred
hereunder.



     25. Notices. All notices and communications hereunder or under any Security Joinder
Agreement shall be given to the addresses and otherwise made in accordance with Section 9.1
of the Credit Agreement; provided that notices and communications to the Guarantors shall be
directed to the Guarantors, at the address of the Borrower set forth in Section 9.1 of the
Credit Agreement.



     26. Joinder. Each Person who is required to become a Loan Party pursuant to
Section 5.12 of the Credit Agreement shall execute and deliver to the Administrative Agent
a Security Joinder Agreement (a “Security Joinder Agreement”) substantially in the form
attached as Exhibit A hereto shall thereupon irrevocably, absolutely and unconditionally become a
party hereto and obligated hereunder as a Grantor and shall have thereupon pursuant to Section 2
hereof granted a security interest in and collaterally assigned to the Administrative Agent for the
benefit of the Secured Parties all Collateral in which it has at its Applicable Date or thereafter
acquires any interest or the power to transfer, and all references herein and in the other Loan
Documents to the Grantors or to the parties to this Security Agreement shall be deemed to include
such Person as a Grantor hereunder. Each Security Joinder Agreement shall be accompanied by the
Supplemental Schedules referred to therein, appropriately completed with information relating to
the Grantor executing such Security Joinder Agreement and its property. Each of the applicable
Schedules attached hereto shall be deemed amended and supplemented without further action by such
information reflected on the Supplemental Schedules.



     27. Rules of Interpretation. The rules of interpretation contained in Sections
1.2, 1.3 and 1.5 of the Credit Agreement shall be applicable to this Security
Agreement and each Security Joinder Agreement and are hereby incorporated by reference. All
representations and warranties contained herein shall survive the delivery of documents and any
credit extensions referred to herein or secured hereby.



     28. Governing Law; Jurisdiction; Consent to Service of Process; WAIVER OF JURY TRIAL.




     (a) This Security Agreement shall be construed in accordance with and governed by the
law of the State of New York.




     (b) Each Grantor hereby irrevocably and unconditionally submits, for itself and its
property, to the nonexclusive jurisdiction of the Supreme Court of the State of New York
sitting in New York County and of the United States District Court of the Southern District
of New York, and any appellate court from any thereof, in any action or proceeding arising
out of or relating to this Security Agreement, or for recognition or enforcement of any
judgment, and each of the parties hereto hereby irrevocably and unconditionally agrees that
all claims in respect of any such action or proceeding may be



20









 







heard and determined in such New York State or, to the extent permitted by law, in such
Federal court. Each of the parties hereto agrees that a final judgment in any such action
or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the
judgment or in any other manner provided by law. Nothing in this Security Agreement shall
affect any right that the Administrative Agent or any other Secured Party may otherwise have
to bring any action or proceeding relating to this Security Agreement against the any
Grantor or its properties in the courts of any jurisdiction.




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




     (d) Each party to this Security Agreement irrevocably consents to service of process in
the manner provided for notices in Section 9.1 of the Credit Agreement. Nothing in
this Security Agreement will affect the right of any party to this Security Agreement to
serve process in any other manner permitted by law.




     (e) EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW,
ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY
ARISING OUT OF OR RELATING TO THIS SECURITY AGREEMENT OR THE TRANSACTIONS CONTEMPLATED
HEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A)
CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED,
EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO
ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE
BEEN INDUCED TO ENTER INTO THIS SECURITY AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL
WAIVERS AND CERTIFICATIONS IN THIS SECTION.



     29. Collateral Trigger. Notwithstanding anything herein to the contrary, those
representations, covenants, deliveries, filings and actions described in Sections 4 (as it pertains
to filing of financing statements), 5, 8, 9 (as it pertains to delivery of information to the
Administrative Agent), 10(b), 11 and 12 shall not be required or deemed to be made or done until
the occurrence of the Collateral Trigger in accordance with Section 5.10 of the Credit
Agreement.



[Signature page follows]




21









 





     IN WITNESS WHEREOF, the parties have duly executed this Security Agreement on the day and year
first written above.



	 	 	 	 	 	 	 
	 	 	GRANTOR:	 	 
	 
	 	 	 	 	 	 
	 	 	BORGWARNER INC., as Grantor	 	 
	 
	 	 	 	 	 	 
	 

	 	By:

Name:
	 	 
 

 
 

	 	  
	 

	 	Title:
	 	 
 

	 	 
	 
	 	 	 	 	 	 
	 	 	BORGWARNER DIVERSIFIED	 	 
	 	 	TRANSMISSION PRODUCTS INC., as Grantor	 	 
	 
	 	 	 	 	 	 
	 

	 	By:

Name:

Title:
	 	 
 

 
 

 
 

	 	   
	 
	 	 	 	 	 	 
	 	 	BORGWARNER DIVERSIFIED	 	 
	 	 	TRANSMISSION PRODUCTS
SERVICES INC.,
 as Grantor	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	 
 

	 	 
	 

	 	Name:
	 	 
 

	 	 
	 

	 	Title:
	 	 
 

	 	 
	 
	 	 	 	 	 	 
	 	 	BORGWARNER EMISSIONS SYSTEMS	 	 
	 	 	HOLDING INC., as Grantor	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	 
 

	 	 
	 

	 	Name:
	 	 
 

	 	 
	 

	 	Title:
	 	 
 

	 	 
	 
	 	 	 	 	 	 
	 	 	BORGWARNER EMISSIONS SYSTEMS INC., as	 	 
	 	 	Grantor	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	 
 

	 	 
	 

	 	Name:
	 	 
 

	 	 
	 

	 	Title:
	 	 
 

	 	 
	 
	 	 	 	 	 	 
	 	 	BORGWARNER EMISSIONS SYSTEMS OF	 	 
	 	 	MICHIGAN INC., as Grantor	 	 
	 
	 	 	 	 	 	 
	 

	 	By:

Name:
	 	 
 

 
 

	 	  
	 

	 	Title:
	 	 
 

	 	 






BorgWarner Inc.

Security Agreement

Signature Pages




 









 





	 	 	 	 	 	 	 
	 	 	BORGWARNER EUROPE INC., as Grantor	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	 
 

	 	 
	 

	 	Name:
	 	 
 

	 	 
	 

	 	Title:
	 	 
 

	 	 
	 
	 	 	 	 	 	 
	 	 	BORGWARNER HOLDING INC., as Grantor	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	 
 

	 	 
	 

	 	Name:
	 	 
 

	 	 
	 

	 	Title:
	 	 
 

	 	 
	 
	 	 	 	 	 	 
	 	 	BORGWARNER INVESTMENT HOLDING	 	 
	 	 	INC., as Grantor	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	 
 

	 	 
	 

	 	Name:
	 	 
 

	 	 
	 

	 	Title:
	 	 
 

	 	 
	 
	 	 	 	 	 	 
	 	 	BORGWARNER JAPAN INC., as Grantor	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	 
 

	 	 
	 

	 	Name:
	 	 
 

	 	 
	 

	 	Title:
	 	 
 

	 	 
	 
	 	 	 	 	 	 
	 	 	BORGWARNER MORSE TEC INC., as Grantor	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	 
 

	 	 
	 

	 	Name:
	 	 
 

	 	 
	 

	 	Title:
	 	 
 

	 	 
	 
	 	 	 	 	 	 
	 	 	BORGWARNER NW INC., as Grantor	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	 
 

	 	 
	 

	 	Name:
	 	 
 

	 	 
	 

	 	Title:
	 	 
 

	 	 
	 
	 	 	 	 	 	 
	 	 	BORGWARNER POWDERED METALS INC., as	 	 
	 	 	Grantor	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	 
 

	 	 
	 

	 	Name:
	 	 
 

	 	 
	 

	 	Title:
	 	 
 

	 	 






BorgWarner Inc.

Security Agreement

Signature Pages




 









 





	 	 	 	 	 	 	 
	 	 	BORGWARNER SOUTH ASIA INC., as Grantor	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	 
 

	 	 
	 

	 	Name:
	 	 
 

	 	 
	 

	 	Title:
	 	 
 

	 	 
	 
	 	 	 	 	 	 
	 	 	BORGWARNER THERMAL SYSTEMS INC., as	 	 
	 	 	Grantor	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	 
 

	 	 
	 

	 	Name:
	 	 
 

	 	 
	 

	 	Title:
	 	 
 

	 	 
	 
	 	 	 	 	 	 
	 	 	BORGWARNER THERMAL SYSTEMS OF	 	 
	 	 	MICHIGAN INC., as Grantor	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	 
 

	 	 
	 

	 	Name:
	 	 
 

	 	 
	 

	 	Title:
	 	 
 

	 	 
	 
	 	 	 	 	 	 
	 	 	BORGWARNER TORQTRANSFER SYSTEMS	 	 
	 	 	INC., as Grantor	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	 
 

	 	 
	 

	 	Name:
	 	 
 

	 	 
	 

	 	Title:
	 	 
 

	 	 
	 
	 	 	 	 	 	 
	 	 	BORGWARNER TRANSMISSION SYSTEMS	 	 
	 	 	INC., as Grantor	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	 
 

	 	 
	 

	 	Name:
	 	 
 

	 	 
	 

	 	Title:
	 	 
 

	 	 
	 
	 	 	 	 	 	 
	 	 	BORGWARNER TURBO SYSTEMS INC., as	 	 
	 	 	Grantor	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	 
 

	 	 
	 

	 	Name:
	 	 
 

	 	 
	 

	 	Title:
	 	 
 

	 	 
	 
	 	 	 	 	 	 
	 	 	BRONSON SPECIALTIES INC., as Grantor	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	 
 

	 	 
	 

	 	Name:
	 	 
 

	 	 
	 

	 	Title:
	 	 
 

	 	 






BorgWarner Inc.

Security Agreement

Signature Pages




 









 





	 	 	 	 	 	 	 
	 	 	BWA RECEIVABLES CORPORATION, as	 	 
	 	 	Grantor	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	 
 

	 	 
	 

	 	Name:
	 	 
 

	 	 
	 

	 	Title:
	 	 
 

	 	 
	 
	 	 	 	 	 	 
	 	 	BWA TURBO SYSTEMS HOLDING	 	 
	 	 	CORPORATION, as Grantor	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	 
 

	 	 
	 

	 	Name:
	 	 
 

	 	 
	 

	 	Title:
	 	 
 

	 	 
	 
	 	 	 	 	 	 
	 	 	KUHLMAN CORPORATION, as Grantor	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	 
 

	 	 
	 

	 	Name:
	 	 
 

	 	 
	 

	 	Title:
	 	 
 

	 	 






BorgWarner Inc.

Security Agreement

Signature Pages




 









 





	 	 	 	 	 	 	 
	 	 	ADMINISTRATIVE AGENT:	 	 
	 
	 	 	 	 	 	 
	 	 	BANK OF AMERICA, N.A., as Administrative	 	 
	 	 	Agent	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	 
 

	 	 
	 

	 	Name:
	 	 
 

	 	 
	 

	 	Title:
	 	 
 

	 	 






BorgWarner Inc.

Security Agreement

Signature Pages




 









 





EXHIBIT A

Form of Security Joinder Agreement




SECURITY JOINDER AGREEMENT




     THIS SECURITY JOINDER AGREEMENT (the “Security Joinder Agreement”), dated as of
                    , 20___is made by and between [New Subsidiary], a [                    ] [corporation] (the
“Joining Grantor”), and BANK OF AMERICA, N.A., in its capacity as Administrative Agent (the
“Administrative Agent”) under that certain Credit Agreement dated as of July 22, 2004,
among BorgWarner Inc., a Delaware corporation (the “Borrower”), the lenders party thereto
and JPMorgan Chase Bank, as administrative agent (as amended by that certain Amendment No. 1 and
Consent Agreement dated as of April 30, 2009, among the Borrowers, the Guarantors, the Lenders
party thereto and the Administrative Agent and as further amended, supplemented or restated from
time to time, the “Credit Agreement”), and under the Security Agreement dated as of June 1,
2009 by and among the Borrower, the Guarantors and the Administrative Agent (as amended,
supplemented or restated from time to time, the “Security Agreement”). All capitalized
terms not otherwise defined herein shall have the meanings given to such terms in the Credit
Agreement.



     WHEREAS, the Joining Grantor is a Subsidiary and required by the terms of the Credit Agreement
to become a “Guarantor” under the Credit Agreement and be joined as a party to the Security
Agreement as a Grantor; and



     WHEREAS, the Joining Grantor will materially benefit directly and indirectly from the credit
facilities made available and to be made available to the Borrower by the Lenders under the Credit
Agreement and the Secured Hedge Agreements and Secured Cash Management Agreements; and



     NOW, THEREFORE, the Joining Grantor hereby agrees as follows with the Administrative Agent,
for the benefit of the Secured Parties (as defined in the Security Agreement):



     1. Joinder. The Joining Grantor hereby irrevocably, absolutely and unconditionally
becomes a party to the Security Agreement as a Grantor and agrees to be bound by all the terms,
conditions, obligations, liabilities and undertakings of each Grantor or to which each Grantor is
subject thereunder, including without limitation the grant pursuant to Section 2 of the Security
Agreement of a security interest to the Administrative Agent for the benefit of the Secured Parties
in collateral assignment and pledge to the Administrative Agent of, the property and property
rights constituting Collateral (as defined in Section 2 of the Security Agreement) of such Grantor
or in which such Grantor has or may have or acquire an interest or the power to transfer rights
therein, whether now owned or existing or hereafter created, acquired or arising and wheresoever
located, as security for the payment and performance of the Secured Obligations (as defined in the
Security Agreement), all with the same force and effect as if the Joining Grantor were a signatory
to the Security Agreement.



     2. Affirmations. The Joining Grantor hereby acknowledges and reaffirms as of the date
hereof with respect to itself, its properties and its affairs each of the waivers,



 









 







representations, warranties, acknowledgements and certifications applicable to any Grantor
contained in the Security Agreement.



     3. Supplemental Schedules. Attached to this Security Joinder Agreement are duly
completed schedules (the “Supplemental Schedules”) supplementing as thereon indicated the
respective Schedules to the Security Agreement. The Joining Grantor represents and warrants that
the information contained on each of the Supplemental Schedules with respect to such Joining
Grantor and its properties and affairs is true, complete and accurate as of the date hereof.



     4. Severability. The provisions of this Security Joinder Agreement are independent of
and separable from each other. If any provision hereof shall for any reason be held invalid or
unenforceable, such invalidity or unenforceability shall not affect the validity or enforceability
of any other provision hereof, but this Security Joinder Agreement shall be construed as if such
invalid or unenforceable provision had never been contained herein.



     5. Counterparts. This Security Joinder Agreement may be executed in any number of
counterparts each of which when so executed and delivered shall be deemed an original, and it shall
not be necessary in making proof of this Security Joinder Agreement to produce or account for more
than one such counterpart executed by the Joining Grantor. Without limiting the foregoing
provisions of this Section 5, the provisions of Section 9.1(b) of the Credit Agreement
shall be applicable to this Security Joinder Agreement.



     6. Delivery. Joining Grantor hereby irrevocably waives notice of acceptance of this
Security Joinder Agreement and acknowledges that the Secured Obligations are and shall be deemed to
be incurred, and credit extensions under the Loan Documents made and maintained, in reliance on
this Security Joinder Agreement and the Grantor’s joinder as a party to the Security Agreement as
herein provided.



     7. Governing Law; Venue; WAIVER OF JURY TRIAL. The provisions of Section 28 of the
Security Agreement are hereby incorporated by reference as if fully set forth herein.



[Signature page follows]




 









 








     IN WITNESS WHEREOF, the Joining Grantor has duly executed and delivered this Security Joinder
Agreement as of the day and year first written above.



	 	 	 	 	 	 	 
	 	 	GRANTOR:	 	 
	 
	 	 	 	 	 	 
	 	 	[JOINING GRANTOR], as Grantor	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	 
 

	 	 
	 

	 	Name:
	 	 
 

	 	 
	 

	 	Title:
	 	 
 

	 	 
	 
	 	 	 	 	 	 
	 	 	ADMINISTRATIVE AGENT:	 	 
	 
	 	 	 	 	 	 
	 	 	BANK OF AMERICA, N.A., as Administrative	 	 
	 	 	Agent	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	 
 

	 	 
	 

	 	Name:
	 	 
 

	 	 
	 

	 	Title: