wwwsecurityagmt.htm


     
      EXHIBIT
        10.2

      
        

      

    

    
 

    SECURITY
      AGREEMENT

     

    This
      SECURITY AGREEMENT (this “Agreement”), dated as of May
      31, 2007, among Grantors listed on the signature pages hereof and those
      additional entities that hereafter become parties hereto by executing the form
      of Supplement attached hereto as Annex 1 (collectively, jointly and
      severally, the “Grantors” and each, individually, a “Grantor”),
      and WELLS FARGO FOOTHILL, INC., a California corporation, in
      its capacity as the arranger and administrative agent for the Lender Group
      and
      the Bank Product Provider (together with its successors and assigns in such
      capacity, the “Agent”).

     

    W  I
       T  N  E  S  S  E  T
 H:

     

    WHEREAS,
      pursuant to that certain Credit Agreement of even date herewith (as amended,
      restated, supplemented, or otherwise modified from time to time, including
      all
      schedules thereto, the “Credit Agreement”) among Teltronics, Inc., a
      Delaware corporation, as borrower (“Borrower”), the lenders party
      thereto, and Agent, the Lender Group has agreed to make certain financial
      accommodations available to Borrower from time to time pursuant to the terms
      and
      conditions thereof, and

     

    WHEREAS,
      Agent has agreed to act as agent for the benefit of the Lender Group and the
      Bank Product Provider in connection with the transactions contemplated by the
      Credit Agreement and this Agreement, and

     

    WHEREAS,
      in order to induce the Lender Group to enter into the Credit Agreement and
      the
      other Loan Documents and to induce the Lender Group to make financial
      accommodations to Borrower as provided for in the Credit Agreement, Grantors
      have agreed to grant a continuing security interest in and to the Collateral
      in
      order to secure the prompt and complete payment, observance and performance
      of,
      among other things, the Secured Obligations, and

     

    NOW,
      THEREFORE, for and in consideration of the recitals made above and
      other good and valuable consideration, the receipt, sufficiency and adequacy
      of
      which are hereby acknowledged, the parties hereto agree as follows:

     

    1.  Defined
      Terms. All capitalized terms used herein (including in the preamble and
      recitals hereof) without definition shall have the meanings ascribed thereto
      in
      the Credit Agreement.  Any terms used in this Agreement that are
      defined in the Code shall be construed and defined as set forth in the Code
      unless otherwise defined herein or in the Credit Agreement; provided,
however, that if the Code is used to define any term used herein and
      if
      such term is defined differently in different articles or sections of the Code,
      the definition of such term contained in Article 9 of the Code shall govern.
      In
      addition to those terms defined elsewhere in this Agreement, as used in this
      Agreement, the following terms shall have the following meanings:

     

    (a)  “Books”
      means books and records (including each Grantor’s Records indicating,
      summarizing, or evidencing such Grantor’s assets (including the Collateral) or
      liabilities, each Grantor’s Records relating to such Grantor’s business
      operations or financial condition, and each Grantor’s goods or General
      Intangibles related to such information).

     

    (b)  “Chattel
      Paper” means chattel paper (as that term is defined in the Code) and
      includes tangible chattel paper and electronic chattel paper.

     

    (c)  “Code”
      means the New York Uniform Commercial Code, as in effect from time to time;
      provided, however, that in the event that, by reason of mandatory
      provisions of law, any or all of the attachment, perfection, priority, or
      remedies with respect to Agent’s Lien in any Collateral is governed by the
      Uniform Commercial Code as enacted and in effect in a jurisdiction other than
      the State of New York, the term 

     

    
      
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    “Code”
      shall mean the Uniform Commercial Code as enacted and in effect in such other
      jurisdiction solely for purposes of the provisions thereof relating to such
      attachment, perfection, priority, or remedies.

     

    (d)  “Collateral”
      has the meaning specified therefor in Section 2.

     

    (e)  “Commercial
      Tort Claims” means commercial tort claims (as that term is defined in the
      Code), and includes those commercial tort claims listed on Schedule
      1.

     

    (f)  “Copyrights”
      means copyrights and copyright registrations, and also includes (i) the
      copyright registrations and recordings thereof and all applications in
      connection therewith listed on Schedule 2, (ii) all restorations,
      revisions, reissues, continuations, extensions and renewals thereof, (iii)
      all
      income, royalties, damages and payments now and hereafter due or payable under
      and with respect thereto, including payments under all licenses entered into
      in
      connection therewith and damages and payments for past or future infringements
      or dilutions thereof, (iv) the right to sue for past, present and future
      infringements and dilutions thereof, (v) the goodwill of each Grantor’s business
      symbolized by the foregoing or connected therewith, and (vi) all of each
      Grantor’s rights corresponding thereto throughout the world.

     

    (g)  “Copyright
      Security Agreement” means each Copyright Security Agreement among Grantors,
      or any of them, and Agent, for the benefit of the Lender Group and the Bank
      Product Provider, in substantially the form of Exhibit A, pursuant to
      which Grantors have granted to Agent, for the benefit of the Lender Group and
      the Bank Product Provider, a security interest in all their respective
      Copyrights.

     

    (h)  “Credit
      Agreement” has the meaning specified therefor in the recitals to this
      Agreement.

     

    (i)  “General
      Intangibles” means general intangibles (as that term is defined in the Code)
      and, in any event, includes payment intangibles, contract rights, rights to
      payment, rights arising under common law, statutes, or regulations, choses
      or
      things in action, goodwill (including the goodwill associated with any
      Trademark, Patent, or Copyright), Patents, Trademarks, Copyrights, URLs and
      domain names, industrial designs, other industrial or Intellectual Property
      or
      rights therein or applications therefor, whether under license or otherwise,
      programs, programming materials, blueprints, drawings, purchase orders, customer
      lists, monies due or recoverable from pension funds, route lists, rights to
      payment and other rights under any royalty or licensing agreements, including
      Intellectual Property Licenses, infringement claims, computer programs,
      information contained on computer disks or tapes, software, literature, reports,
      catalogs, pension plan refunds, pension plan refund claims, insurance premium
      rebates, tax refunds, and tax refund claims, interests in a partnership or
      limited liability company which do not constitute a security under Article
      8 of
      the Code, and any other personal property other than Commercial Tort Claims,
      money, Accounts, Chattel Paper, Deposit Accounts, goods, Investment Related
      Property, Negotiable Collateral, and oil, gas, or other minerals before
      extraction.

     

    (j)  “Grantor”
      and “Grantors” have the meanings specified therefor in the recitals to
      this Agreement.

     

    (k)  “Intellectual
      Property” means Patents, Copyrights, Trademarks, the goodwill associated
      with such Trademarks, trade secrets and customer lists, and Intellectual
      Property Licenses.

     

    (a)  “Intellectual
      Property Licenses” means rights under or interests in any patent, trademark,
      copyright or other intellectual property, including software license agreements
      (other than Shrink-Wrap Licenses) with any other party, whether the applicable
      Grantor is a licensee or licensor under any such license agreement, including
      the license agreements listed on Schedule 3, and the right to use
      the foregoing in connection with the enforcement of the Lender Group’s rights
      under the Loan Documents, including, the right to prepare for sale and sell
      any
      and all Inventory and Equipment now or hereafter owned by any Grantor and now
      or
      hereafter covered by such licenses.

     

    
      
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    (b)  “Intellectual
      Property Rights” means all of each Grantor’s rights, title and interest in
      and to Intellectual Property.

     

    (l)  “Investment
      Related Property” means (i) investment property (as that term is defined in
      the Code), and (ii) all of the following (regardless of whether classified
      as
      investment property under the Code):  all Pledged Interests, Pledged
      Operating Agreements, and Pledged Partnership Agreements.

     

    (m)  “Negotiable
      Collateral” means letters of credit, letter-of-credit rights, instruments,
      promissory notes, drafts, and documents.

     

    (c)  “Patents”
      means patents and patent applications, and also includes (i) the patents
      and patent applications listed on Schedule 4, (ii) all
      reissues, continuations, substitutions, improvements, divisionals,
      continuations-in-part, extensions, and renewals thereof, (iii) all income,
      royalties, damages and payments now and hereafter due or payable under and
      with
      respect thereto, including payments under all licenses entered into in
      connection therewith and damages and payments for past or future infringements
      or dilutions thereof, (iv) the right to sue for past, present and future
      infringements and dilutions thereof, and (v) all of each Grantor’s rights
      corresponding thereto throughout the world.

     

    (n)   “Patent
      Security Agreement” means each Patent Security Agreement among Grantors, or
      any of them, and Agent, for the benefit of the Lender Group and the Bank Product
      Provider, in substantially the form of Exhibit B, pursuant to which
      Grantors have granted to Agent, for the benefit of the Lender Group and the
      Bank
      Product Provider, a security interest in all their respective
      Patents.

     

    (o)  “Pledged
      Companies” means, each Person listed on Schedule 5 as a “Pledged
      Company”, together with each other Person, all or a portion of whose Stock, is
      acquired or otherwise owned by a Grantor after the Closing Date.

     

    (p)  “Pledged
      Interests” means all of each Grantor’s right, title and interest in and to
      all of the Stock now or hereafter owned by such Grantor, regardless of class
      or
      designation, including all substitutions therefor and replacements thereof,
      all
      proceeds thereof and all rights relating thereto, also including any
      certificates representing the Stock, the right to receive any certificates
      representing any of the Stock, and the right to require that such certificates
      be delivered to Agent together with undated powers or assignments of investment
      securities with respect thereto, duly endorsed in blank by such Grantor, all
      warrants, options, share appreciation rights and other rights, contractual
      or
      otherwise, in respect thereof, and the right to receive dividends, distributions
      of income, profits, surplus, or other compensation by way of income or
      liquidating distributions, in cash or in kind, and cash, instruments, and other
      property from time to time received, receivable, or otherwise distributed in
      respect of or in addition to, in substitution of, on account of, or in exchange
      for any or all of the foregoing.

     

    (q)  “Pledged
      Interests Addendum” means a Pledged Interests Addendum substantially in the
      form of Exhibit C to this Agreement.

     

    (r)  “Pledged
      Operating Agreements” means all of each Grantor’s rights, powers, and
      remedies under the limited liability company operating agreements of each of
      the
      Pledged Companies that are limited liability companies, if any.

     

    (s)  “Pledged
      Partnership Agreements” means all of each Grantor’s rights, powers, and
      remedies under the partnership agreements of each of the Pledged Companies
      that
      are partnerships, if any.

     

    (t)  “Proceeds”
      has the meaning specified therefor in Section 2.

     

    (u)  “Records”
      means information that is inscribed on a tangible medium or which is stored
      in
      an electronic or other medium and is retrievable in perceivable
      form.

     

    
      
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    (v)  “Secured
      Obligations” means each and all of the following: (a) all of the present and
      future obligations of Grantors arising from this Agreement, the Credit
      Agreement, or the other Loan Documents (including any Guaranty), (b) all Bank
      Product Obligations, and (c) all Obligations of Borrower, including, in the
      case
      of each of clauses (a), (b) and (c),  reasonable attorneys fees and
      expenses and any interest, fees, or expenses that accrue after the filing of
      an
      Insolvency Proceeding, regardless of whether allowed or allowable in whole
      or in
      part as a claim in any Insolvency Proceeding.

     

    (w)  “Security
      Interest” has the meaning specified therefor in Section
      2.

     

    (d)  “Shrink-Wrap
      License” means an Intellectual Property License for the use of generally
      commercially available software where the user agrees to its terms by opening
      the package of or downloading such software or similarly manifesting consent
      to
      the licensor’s standard terms.

     

    (e)  “Supporting
      Obligations” means supporting obligations (as such term is defined in the
      Code) , including letters of credit and guaranties issued in support of
      Accounts, Chattel Paper, documents, General Intangibles, instruments, or
      Investment Related Property.

     

    (f)  “Trademarks”
      means all registrations and applications for trademarks, trade names, and
      service marks, and also includes (i) the trade names, trademarks, trademark
      applications, service marks, and service mark applications listed on
Schedule 6, (ii) all modifications, reissues, continuations,
      extensions and renewals thereof, (iii) all income, royalties, damages and
      payments now and hereafter due or payable under and with respect thereto,
      including payments under all licenses entered into in connection therewith
      and
      damages and payments for past or future infringements or dilutions thereof,
      (iv) the right to sue for past, present and future infringements and
      dilutions thereof, (v) the goodwill of each Grantor’s business symbolized
      by the foregoing or connected therewith (vi) all trade secrets, proprietary
      or confidential information, technical information, procedures, formulae,
      quality control standards, designs, operating and training manuals, customer
      lists, and other General Intangibles with respect to the foregoing, and
      (vii) all of each Grantor’s rights corresponding thereto throughout the
      world.

     

    (x)   “Trademark
      Security Agreement” means each Trademark Security Agreement among Grantors,
      or any of them, and Agent, for the benefit of the Lender Group and the Bank
      Product Provider, in substantially the form of Exhibit D, pursuant to
      which Grantors have granted to Agent, for the benefit of the Lender Group and
      the Bank Product Provider, a security interest in all their respective
      Trademarks.

     

    (y)  “URL”
      means “uniform resource locator,” an internet web address.

     

    2.  Grant
      of Security.  Each Grantor hereby unconditionally grants, assigns,
      and pledges to Agent, for the benefit of the Lender Group and the Bank Product
      Provider, a continuing security interest (herein referred to as the “Security
      Interest”) in all personal property of such Grantor whether now owned or
      hereafter acquired or arising and wherever located, including such Grantor’s
      right, title, and interest in and to the following, whether now owned or
      hereafter acquired or arising and wherever located (the
“Collateral”):

     

    (a)  all
      of
      such Grantor’s Accounts;

     

    (b)  all
      of
      such Grantor’s Books;

     

    (c)  all
      of
      such Grantor’s Chattel Paper;

     

    (d)  all
      of
      such Grantor’s Deposit Accounts;

     

    (e)  all
      of
      such Grantor’s Equipment and fixtures;

     

    
      
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    (f)  all
      of
      such Grantor’s General Intangibles;

     

    (g)  all
      of
      such Grantor’s Inventory;

     

    (h)  all
      of
      such Grantor’s Investment Related Property;

     

    (i)  all
      of
      such Grantor’s Negotiable Collateral;

     

    (j)  all
      of
      such Grantor’s rights in respect of Supporting Obligations;

     

    (k)  all
      of
      such Grantor’s Commercial Tort Claims;

     

    (l)  all
      of
      such Grantor’s money, Cash Equivalents, or other assets of each such Grantor
      that now or hereafter come into the possession, custody, or control of Agent
      (or
      its agent or designee) or any other member of the Lender Group;

     

    (m)  all
      of
      the proceeds and products, whether tangible or intangible, of any of the
      foregoing, including proceeds of insurance or Commercial Tort Claims covering
      or
      relating to any or all of the foregoing, and any and all Accounts, Books,
      Chattel Paper, Deposit Accounts, Equipment, General Intangibles, Inventory,
      Investment Related Property, Negotiable Collateral, Supporting Obligations,
      Commercial Tort Claims, money, or other tangible or intangible property
      resulting from the sale, lease, license, exchange, collection, or other
      disposition of any of the foregoing, the proceeds of any award in condemnation
      with respect to any of the foregoing, any rebates or refunds, whether for taxes
      or otherwise, and all proceeds of any such proceeds, or any portion thereof
      or
      interest therein, and the proceeds thereof, and all proceeds of any loss of,
      damage to, or destruction of the above, whether insured or not insured, and,
      to
      the extent not otherwise included, any indemnity, warranty, or guaranty payable
      by reason of loss or damage to, or otherwise with respect to any of the
      foregoing (the “Proceeds”).  Without limiting the generality of
      the foregoing, the term “Proceeds” includes whatever is receivable or received
      when Investment Related Property or proceeds are sold, exchanged, collected,
      or
      otherwise disposed of, whether such disposition is voluntary or involuntary,
      and
      includes proceeds of any indemnity or guaranty payable to any Grantor from
      time
      to time with respect to any of the Investment Related Property.

     

    3.  Security
      for Obligations.  This Agreement and the Security Interest created
      hereby secures the payment and performance of the Secured Obligations, whether
      now existing or arising hereafter.  Without limiting the generality of
      the foregoing, this Agreement secures the payment of all amounts which
      constitute part of the Secured Obligations and would be owed by Grantors, or
      any
      of them, to Agent, the Lender Group, the Bank Product Provider or any of them,
      but for the fact that they are unenforceable or not allowable due to the
      existence of an Insolvency Proceeding involving any Grantor.

     

    4.  Grantors
      Remain Liable.

     

    (a)  Anything
      herein to the contrary notwithstanding, (i) each of the Grantors shall remain
      liable under the contracts and agreements included in the Collateral, including
      the Pledged Operating Agreements and the Pledged Partnership Agreements, to
      perform all of the duties and obligations thereunder to the same extent as
      if
      this Agreement had not been executed, (ii) the exercise by Agent or any other
      member of the Lender Group of any of the rights hereunder shall not release
      any
      Grantor from any of its duties or obligations under such contracts and
      agreements included in the Collateral, and (iii) none of the members of the
      Lender Group shall have any obligation or liability under such contracts and
      agreements included in the Collateral by reason of this Agreement, nor shall
      any
      of the members of the Lender Group be obligated to perform any of the
      obligations or duties of any Grantors thereunder or to take any action to
      collect or enforce any claim for payment assigned hereunder.  Until an
      Event of Default shall occur and be continuing, except as otherwise provided
      in
      this Agreement, the Credit Agreement, or any other Loan Document, Grantors
      shall
      have the right to possession and enjoyment of the Collateral for the purpose
      of
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    of
      their
      respective businesses, subject to and upon the terms hereof and of the Credit
      Agreement and the other Loan Documents.  Without limiting the
      generality of the foregoing, it is the intention of the parties hereto that
      record and beneficial ownership of the Pledged Interests, including all voting,
      consensual, and dividend or distribution rights (except as set forth in
      paragraph (b) below), shall remain with the applicable Grantor until the
      occurrence of an Event of Default and until Agent shall notify the applicable
      Grantor of Agent’s exercise of voting, consensual, or dividend rights with
      respect to the Pledged Interests pursuant to Section 15.

     

    (b)  Grantors
      shall be entitled to receive and retain any and all dividends or distributions
      paid in respect of the Stock of the Pledged Companies; provided,
however, that, except to the extent otherwise provided in the Credit
      Agreement, any and all:

     

    (i)  dividends
      and distributions paid or payable other than in cash in respect of, and any
      and
      all additional shares or instruments or other property received, receivable,
      or
      otherwise distributed in respect of, or in exchange for the Stock of the Pledged
      Companies;

     

    (ii)  dividends
      and distributions paid or payable in cash in respect of any Stock of the Pledged
      Companies in connection with a partial or total liquidation or dissolution,
      merger, consolidation of any Pledged Company, or any exchange of stock,
      conveyance of assets, or similar corporate reorganization;

     

    (iii)  cash
      paid
      with respect to, payable, or otherwise distributed on redemption of, or in
      exchange for, any Stock of the Pledged Companies, and

     

    (iv)  after
      the
      occurrence of an Event of Default, all dividends and distributions in respect
      of
      any Stock of the Pledged Companies (including cash dividends other than those
      described in subparagraphs (ii) and (iii) above),

     

    shall
      be
      forthwith delivered to Agent to hold as Collateral and shall, if received by
      Grantors, be received in trust for the benefit of Agent, for the ratable benefit
      of the Lender Group and the Bank Product Provider, be segregated from the other
      property or funds of Grantors, and be forthwith delivered to Agent as Collateral
      in the same form as so received (with any necessary endorsement), and, if deemed
      necessary by Agent, Grantors shall take such actions, including the actions
      described in Section 6(h), as Agent may require

     

    5.  Representations
      and Warranties.  Each Grantor hereby represents and warrants as
      follows:

     

    (a)  The
      exact
      legal name of each of the Grantors is set forth on the signature pages of this
      Agreement or a written notice provided to Agent pursuant to Section 6.5
      of the Credit Agreement.

     

    (b)  Schedule
      7 sets forth all Real Property owned by Grantors as of the Closing
      Date.

     

    (c)  Each
      Grantor is the sole legal and beneficial owner, or exclusive or non-exclusive
      licensee, of all Intellectual Property Rights that are material to the conduct
      of its business.  As of the Closing Date, (i) no Grantor has any
      ownership interest in, or title to, any Copyrights, Patents, or Trademarks
      that
      are registered or the subject of pending applications for registrations, except
      as set forth on Schedules 2, 4, and 6, respectively;
      (ii) no Grantor has any ownership interest in, or title to, any Intellectual
      Property Licenses (other than Shrink-Wrap Licenses), Copyrights, Patents or
      Trademarks that are material to its business and that are not registered or
      the
      subject of pending applications for registrations, except as set forth on
Schedules 2, 4, and 6; and (iii) no Grantor is a
      party to any material Intellectual Property Licenses that are material to such
      Grantor’s business, except as set forth on Schedule 3.  This
      Agreement is effective to create a valid and continuing Lien on each Grantor’s
      United States Copyrights, United States Patents and United States Trademarks,
      and all of its rights and interests in and to any Intellectual Property
      Licenses.  Upon the filing of the Copyright Security Agreement with
      the United States Copyright Office and filing of the Patent Security Agreement
      and the Trademark Security Agreement with the United States Patent and Trademark
      Office, and the filing of appropriate financing statements in the jurisdictions
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    perfect
      the Security Interest in and to each Grantor’s owned Patents, Trademarks, and
      Copyrights, to the extent perfectable by such filings and to the extent they
      arise and are enforceable in the United States, has been taken and such
      perfected Security Interest is enforceable as such as against any and all
      creditors of and purchasers from any Grantor.

     

    (d)  This
      Agreement creates a valid security interest in the Collateral of each Grantor,
      to the extent a security interest therein can be created under the Code,
      securing the payment of the Secured Obligations.  Except to the extent
      a security interest in the Collateral cannot be perfected by the filing of
      a
      financing statement under the Code, all filings and other actions necessary
      or
      desirable to perfect and protect such security interest have been duly taken
      or
      will have been taken upon the filing of financing statements listing each
      applicable Grantor, as a debtor, and Agent, as secured party, in the
      jurisdictions listed next to such Grantor’s name on Schedule
      8.  Upon the making of such filings, Agent shall have a first
      priority perfected security interest in the Collateral of each Grantor to the
      extent such security interest can be perfected by the filing of a financing
      statement.  Each Grantor has taken all action necessary to enable
      Agent to protect and perfect such security interest on each item of
      Collateral.

     

    (e)  (i)
      Except for the Security Interest created hereby, each Grantor is and will at
      all
      times be the sole holder of record and the legal and beneficial owner, free
      and
      clear of all Liens other than Permitted Liens, of the Pledged Interests
      indicated on Schedule 5 as being owned by such Grantor and, when acquired
      by such Grantor, any Pledged Interests acquired after the Closing Date; (ii)
      to
      the extent applicable, all of the Pledged Interests are duly authorized, validly
      issued, fully paid and nonassessable and the Pledged Interests constitute or
      will constitute the percentage of the issued and outstanding Stock of the
      Pledged Companies of such Grantor identified on Schedule 5 as
      supplemented or modified by any Pledged Interests Addendum or any Supplement
      to
      this Agreement; (iii) such Grantor has the right and requisite authority to
      pledge, the Investment Related Property pledged by such Grantor to Agent as
      provided herein; (iv) all actions necessary or desirable under the Code (to
      the extent the Code is applicable) to perfect, establish the first priority
      of,
      or otherwise protect, Agent’s Liens in the Investment Related Property, and the
      proceeds thereof, have been duly taken, (A) upon the execution and delivery
      of
      this Agreement; (B) upon the taking of possession by Agent (or its agent or
      designee) of any certificates constituting the Pledged Interests, to the extent
      such Pledged Interests are represented by certificates, together with undated
      powers, or other relevant document of transfer, endorsed in blank by the
      applicable Grantor; (C) upon the filing of financing statements in the
      applicable jurisdiction set forth on Schedule 8 for such Grantor with
      respect to the Pledged Interests of such Grantor that are not represented by
      certificates, and (D) with respect to any Securities Accounts, upon the delivery
      of Control Agreements with respect thereto; and (v) each Grantor has delivered
      to and deposited with Agent (or, with respect to any Pledged Interests created
      or obtained after the Closing Date, will deliver and deposit in accordance
      with
Sections 6(a) and 8) all certificates representing the Pledged
      Interests owned by such Grantor to the extent such Pledged Interests are
      represented by certificates, and undated powers, or other relevant document
      of
      transfer, endorsed in blank with respect to such certificates. None of the
      Pledged Interests of Borrower and Borrower’s Subsidiaries owned or held by such
      Grantor has been issued or transferred in violation of any securities
      registration, securities disclosure, or similar laws of any jurisdiction to
      which such issuance or transfer may be subject.

     

    (f)  No
      consent, approval, authorization, or other order or other action by, and no
      notice to or filing with, any Governmental Authority or any other Person is
      required (i) for the grant of a Security Interest by such Grantor in and to
      the
      Collateral pursuant to this Agreement or for the execution, delivery, or
      performance of this Agreement by such Grantor, or (ii) for the exercise by
      Agent
      of the voting or other rights provided for in this Agreement with respect to
      the
      Investment Related Property or the remedies in respect of the Collateral
      pursuant to this Agreement, except as may be required in connection with such
      disposition of Investment Related Property by laws affecting the offering and
      sale of securities generally.  No consent, approval, authorization, or
      other order or action by, and no notice to, any Person is required for the
      exercise by Agent of the voting or other rights provided for in this Agreement
      with respect to the Investment Related Property or the remedies in respect
      of
      the Collateral pursuant to this Agreement, except as may be required in
      connection with such disposition of Investment Related Property by laws
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    securities
      generally.  No Intellectual Property License to which any Grantor is a
      party requires any consent for such Grantor to grant the security interest
      granted hereunder in such Grantor’s right, title or interest in or to any such
      Intellectual Property License.

     

    (g)           Schedule
      9 attached hereto sets forth all motor vehicles owned by Grantors as of
      the
      Closing Date, by model, model year and vehicle identification number
      (“VIN”).

     

    (g)  Each
      Grantor has made all payments, filings and recordations necessary to protect
      and
      maintain its interest in such Grantor’s Intellectual Property Rights in the
      United States or any other jurisdiction that is material to the conduct of
      such
      Grantor’s business, including (i) making all necessary registration,
      maintenance, and renewal fee payments; and (ii) filing all necessary
      documents, including all applications for registration of Patents and Trademarks
      that are material to the conduct of such Grantor’s business and in accordance
      with Grantor’s sound and reasonable business judgment.

     

    (h)  Each
      Grantor has taken all actions reasonably necessary to protect the
      confidentiality of any trade secrets, the source code of all computer software
      programs and applications of which it is the owner and that are material to
      the
      conduct of its business, or other confidential information relating to the
      Intellectual Property Rights that are material to the conduct of its business,
      including (i) protecting the secrecy and confidentiality of its
      confidential information and trade secrets by having and enforcing a policy
      requiring all current and former employees, consultants, and contractors to
      execute appropriate confidentiality agreements; and (ii) taking all actions
      reasonably necessary to ensure that no trade secret falls or has fallen into
      the
      public domain.

     

    (i)  Each
      Grantor has and enforces a policy requiring all employees, consultants and
      contractors to execute appropriate assignment agreements, pursuant to which
      each
      such employee, consultant or contractor assigns to such Grantor all of its
      rights, including all Intellectual Property Rights, in and to all ideas,
      inventions, processes, works of authorship and other work products that relate
      to such Grantor’s business and that were conceived, created, authored or
      developed during the term of such employee’s, consultant’s or contractor’s
      employment or engagement by such Grantor. Other than as set forth in
Schedules 2, 3, 4 and 6, no past or present
      employee or contractor of any Grantor has any ownership interest, license,
      permission or other right in or to any Intellectual Property Rights that are
      material to the conduct of any such Grantor’s business, except that solely to
      the extent necessary for the conduct of their work for or on behalf of any
      Grantor, (i) employees of each Grantor may have permission to use
      Intellectual Property Rights and (ii) contractors may have permission to
      use or license rights in the Intellectual Property.

     

    (j)  No
      notice
      has been given and no claim has been made and is continuing or threatened that
      the use by any Grantor of any Intellectual Property Rights is invalid or
      unenforceable or that the use by such Grantor of any such Intellectual Property
      Rights does or may violate the rights of any Person.  To the best of
      each Grantor's knowledge, there is currently no infringement or unauthorized
      use
      of any item of Intellectual Property Rights contained on Schedules 2,
3, 4 or 6.

     

    6.  Covenants.  Each
      Grantor, jointly and severally, covenants and agrees with Agent that from and
      after the date of this Agreement and until the date of termination of this
      Agreement in accordance with Section 22 hereof:

     

    (a)  Possession
      of Collateral.  In the event that any Collateral, including
      Proceeds, is evidenced by or consists of Negotiable Collateral, Investment
      Related Property, or Chattel Paper, and if and to the extent that perfection
      or
      priority of Agent’s Security Interest is dependent on or enhanced by possession,
      the applicable Grantor, immediately upon the request of Agent and in accordance
      with Section 8, shall execute such other documents and instruments
      as shall be requested by Agent or, if applicable, endorse and deliver physical
      possession of such Negotiable Collateral, Investment Related Property, or
      Chattel Paper to Agent, together with such undated powers, or other relevant
      document of transfer, endorsed in blank as shall be requested by Agent except,
      with respect to Grantors, for checks that are received in the ordinary course
      of


     

     

    
      
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    business
      and that are deposited in a Cash Management Account in accordance with
Section 2.7 of the Credit Agreement;

     

    (b)  Chattel
      Paper.

     

    (i)  Each
      Grantor shall take all steps reasonably necessary to grant Agent control of
      all
      electronic Chattel Paper in accordance with the Code and all “transferable
      records” as that term is defined in Section 16 of the Uniform Electronic
      Transaction Act and Section 201 of the federal Electronic Signatures in Global
      and National Commerce Act as in effect in any relevant
      jurisdiction;

     

    (ii)  If
      any
      Grantor retains possession of any Chattel Paper or instruments (which retention
      of possession shall be subject to the extent permitted hereby and by the Credit
      Agreement), promptly upon the request of Agent, such Chattel Paper and
      instruments shall be marked with the following legend: “This writing and the
      obligations evidenced or secured hereby are subject to the Security Interest
      of
      Wells Fargo Foothill, Inc., as Agent for the benefit of the Lender Group and
      the
      Bank Product Provider”;

     

    (c)  Control
      Agreements.

     

    (i)  Except
      to
      the extent otherwise permitted by the Credit Agreement, each Grantor shall
      obtain an authenticated Control Agreement, from each bank maintaining a Deposit
      Account for such Grantor;

     

    (ii)  Except
      to
      the extent otherwise permitted by the Credit Agreement, each Grantor shall
      obtain authenticated Control Agreements, from each issuer of uncertificated
      securities, securities intermediary, or commodities intermediary issuing or
      holding any financial assets or commodities to or for any Grantor;

     

    (d)  Letter-of-Credit
      Rights.  Each Grantor that is or becomes the beneficiary of a
      letter of credit shall promptly (and in any event within 2 Business Days after
      becoming a beneficiary), notify Agent thereof and, upon the request by Agent,
      enter into a tri-party agreement with Agent and the issuer or confirmation
      bank
      with respect to letter-of-credit rights assigning such letter-of-credit rights
      to Agent and directing all payments thereunder to Agent’s Account, all in form
      and substance satisfactory to Agent;

     

    (e)  Commercial
      Tort Claims.  Each Grantor shall promptly (and in any event within
      2 Business Days of receipt thereof), notify Agent in writing upon incurring
      or
      otherwise obtaining a Commercial Tort Claim after the date hereof and, upon
      request of Agent, promptly amend Schedule 1 to this Agreement to describe
      such after-acquired Commercial Tort Claim in a manner that reasonably identifies
      such Commercial Tort Claim, and hereby authorizes the filing of additional
      financing statements or amendments to existing financing statements describing
      such Commercial Tort Claims, and agrees to do such other acts or things deemed
      necessary or desirable by Agent to give Agent a first priority, perfected
      security interest in any such Commercial Tort Claim;

     

    (f)  Government
      Contracts.  If any Account or Chattel Paper arises out of a
      contract or contracts with the United States of America or any department,
      agency, or instrumentality thereof, Grantors shall promptly (and in any event
      within 2 Business Days of the creation thereof) notify Agent thereof in writing
      and execute any instruments or take any steps reasonably required by Agent
      in
      order that all moneys due or to become due under such contract or contracts
      shall be assigned to Agent, for the benefit of the Lender Group and the Bank
      Product Provider, and shall provide written notice thereof under the Assignment
      of Claims Act or other applicable law;

     

    
      
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    (g)  Intellectual
      Property.

     

    (i)  Upon
      request of Agent, in order to facilitate filings with the United States Patent
      and Trademark Office and the United States Copyright Office, each Grantor shall
      execute and deliver to Agent one or more Copyright Security Agreements,
      Trademark Security Agreements, or Patent Security Agreements to further evidence
      Agent’s Lien on such Grantor’s United States Patents, United States Trademarks,
      or United States Copyrights, and the General Intangibles of such Grantor
      relating thereto or represented thereby;

     

    (ii)  Each
      Grantor shall have the duty, to the extent necessary or economically desirable
      in the operation of such Grantor’s business, (A) to promptly sue for
      infringement, misappropriation, or dilution and to recover any and all damages
      for such infringement, misappropriation, or dilution, (B) to prosecute
      diligently any trademark application or service mark application that is part
      of
      the Trademarks pending as of the date hereof or hereafter until the termination
      of this Agreement, (C) to prosecute diligently any patent application that
      is
      part of the Patents pending as of the date hereof or hereafter until the
      termination of this Agreement, and (D) to take all reasonable and necessary
      action to preserve and maintain all of such Grantor’s Trademarks, Patents,
      Copyrights, Intellectual Property Licenses, and its rights therein, including
      the filing of applications for renewal, affidavits of use, affidavits of
      non-contestability and opposition and interference and cancellation
      proceedings.  Grantors will not register with the United States
      Copyright Office any unregistered Copyrights (whether in existence on the
      Closing Date or thereafter acquired, arising, or developed) unless
      (i) Borrower provides Agent with written notice of the applicable Grantor’s
      intent to register such Copyrights not less than 30 days prior to the date
      of
      the proposed registration, and (ii) prior to such registration, the applicable
      Grantor executes and delivers to Agent a Copyright Security Agreement in the
      form of Exhibit A or such other documentation as Agent deems necessary in
      order to perfect and continue perfected Agent’s Liens on such Copyrights
      following such registration. Except as otherwise required in Schedule 5.19
      to
      the Credit Agreement, upon the occurrence of a Default or an Event of Default,
      any Grantor with an interest in any unregistered Copyright shall, upon Agent’s
      request, promptly file an application with the United States Copyright Office
      for such Copyright and shall execute and deliver to Agent a Copyright Security
      Agreement in the form of Exhibit A or such other documentation as Agent
      deems necessary in order to perfect and continue perfected Agent’s Liens on such
      Copyright following such registration.  Any expenses incurred in
      connection with the foregoing shall be borne by the appropriate Grantor. Each
      Grantor further agrees not to abandon any of its Trademark, Patent, Copyright,
      or Intellectual Property License that is necessary or economically desirable
      in
      the operation of such Grantor’s business;

     

    (iii)  Grantors
      acknowledge and agree that the Lender Group shall have no duties with respect
      to
      the Trademarks, Patents, Copyrights, or Intellectual Property
      Licenses.  Without limiting the generality of this Section
      6(g), Grantors acknowledge and agree that no member of the Lender Group
      shall be under any obligation to take any steps necessary to preserve rights
      in
      the Trademarks, Patents, Copyrights, or Intellectual Property Licenses against
      any other Person, but any member of the Lender Group may do so at its option
      from and after the occurrence and during the continuance of an Event of Default,
      and all expenses incurred in connection therewith (including reasonable fees
      and
      expenses of attorneys and other professionals) shall be for the sole account
      of
      Borrower and shall be chargeable to the Loan Account;

     

    (iv)  In
      no
      event shall any Grantor, either itself or through any agent, employee, licensee,
      or designee, file an application for the registration of any Patent, Trademark,
      or Copyright with the United States Patent and Trademark Office, the United
      States Copyright Office or any similar office or agency without giving Agent
      prior written notice thereof.  Promptly upon any such filing, each
      Grantor shall comply with Section 6(g)(i); and

     

    (v)  Each
      Grantor agrees to take all necessary steps, including making all necessary
      payments and filings in connection with registration, maintenance, and renewal
      of each Grantor’s Patents, Trademarks and Copyrights that are material to the
      conduct of each Grantor’s business in the United States Patent and Trademark
      Office, the United States Copyright Office, or any other appropriate government
      

     

     

    
      
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    agencies
      in foreign jurisdictions or in any court, as applicable, to maintain each such
      Intellectual Property Right.  Each Grantor hereby agrees to take
      corresponding steps with respect to each new or acquired Intellectual Property
      Right to which it or any of its Subsidiaries is now or later becomes entitled
      that is material to the conduct of its business.

     

    (h)  Investment
      Related Property.

     

    (i)  If
      any
      Grantor shall receive or become entitled to receive any Pledged Interests after
      the Closing Date, it shall promptly (and in any event within 2 Business Days
      of
      receipt thereof) deliver to Agent a duly executed Pledged Interests Addendum
      identifying such Pledged Interests;

     

    (ii)  All
      sums
      of money and property paid or distributed in respect of the Investment Related
      Property which are received by any Grantor shall be held by the Grantors in
      trust for the benefit of Agent segregated from such Grantor’s other property,
      and such Grantor shall deliver it forthwith to Agent’s in the exact form
      received (subject to Section 4(b));

     

    (iii)  Each
      Grantor shall promptly deliver to Agent a copy of each notice or other
      communication received by it in respect of any Pledged Interests;

     

    (iv)  No
      Grantor shall make or consent to any amendment or other modification or waiver
      with respect to any Pledged Interests, Pledged Operating Agreement, or Pledged
      Partnership Agreement, or enter into any agreement or permit to exist any
      restriction with respect to any Pledged Interests other than pursuant to the
      Loan Documents;

     

    (v)  Each
      Grantor agrees that it will cooperate with Agent in obtaining all necessary
      approvals and making all necessary filings under federal, state, local, or
      foreign law in connection with the Security Interest on the Investment Related
      Property or any sale or transfer thereof;

     

    (vi)  As
      to all
      limited liability company or partnership interests, issued under any Pledged
      Operating Agreement or Pledged Partnership Agreement, each Grantor hereby
      represents, warrants and covenants that the Pledged Interests issued pursuant
      to
      any such agreement (A) are not and shall not be dealt in or traded on securities
      exchanges or in securities markets, (B) do not and will not constitute
      investment company securities, and (C) are not and will not be held by such
      Grantor in a securities account.  In addition, none of the Pledged
      Operating Agreements, the Pledged Partnership Agreements, or any other
      agreements governing any of the Pledged Interests issued under any Pledged
      Operating Agreement or Pledged Partnership Agreement, provide or shall provide
      that such Pledged Interests are securities governed by Article 8 of the Uniform
      Commercial Code as in effect in any relevant jurisdiction;

     

    (i)  Real
      Property; Fixtures.  Each Grantor covenants and agrees that upon
      the acquisition of any fee interest in Real Property it will promptly (and
      in
      any event within 2 Business Days of acquisition) notify Agent of the acquisition
      of such Real Property and will grant to Agent, for the benefit of the Lender
      Group and the Bank Product Provider, a first priority Mortgage on each fee
      interest in Real Property now or hereafter owned by such Grantor and shall
      deliver such other documentation and opinions, in form and substance
      satisfactory to Agent, in connection with the grant of such Mortgage as Agent
      shall request in its Permitted Discretion, including title insurance policies,
      financing statements, fixture filings and environmental audits and such Grantor
      shall pay all recording costs, intangible taxes and other fees and costs
      (including reasonable attorneys fees and expenses) incurred in connection
      therewith.  Each Grantor acknowledges and agrees that, to the extent
      permitted by applicable law, all of the Collateral shall remain personal
      property regardless of the manner of its attachment or affixation to real
      property.

     

    (j)  Transfers
      and Other Liens.  Grantors shall not (i) sell, assign (by
      operation of law or otherwise) or otherwise dispose of, or grant any option
      with
      respect to, any of the Collateral, except expressly permitted by the Credit
      Agreement, or (ii) create or permit to exist any Lien upon or with respect
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    Collateral
      of any of Grantors, except for Permitted Liens.  The inclusion of
      Proceeds in the Collateral shall not be deemed to constitute Agent’s consent to
      any sale or other disposition of any of the Collateral except as expressly
      permitted in this Agreement or the other Loan Documents; and

     

    (k)  Other
      Actions as to Any and All Collateral.  Each Grantor shall promptly
      (and in any event within 2 Business Days of acquiring or obtaining such
      Collateral) notify Agent in writing upon (i) acquiring or otherwise obtaining
      any Collateral after the date hereof consisting of Trademarks, Patents,
      Copyrights, Intellectual Property Licenses, Investment Related Property, Chattel
      Paper (electronic, tangible or otherwise), documents (as defined in Article
      9
      of  the Code), promissory notes (as defined in the Code, or
      instruments (as defined in the Code) or (ii) any amount payable under or in
      connection with any of the Collateral being or becoming evidenced after the
      date
      hereof by any Chattel Paper, documents, promissory notes, or instruments and,
      in
      each such case upon the request of Agent, promptly execute such other documents
      and instruments, or if applicable, deliver such Chattel Paper, other documents,
      promissory notes, instruments, or certificates evidencing any Investment Related
      Property and do such other acts or things deemed necessary or desirable by
      Agent
      to protect Agent’s Security Interest therein; and

     

    (l)  Motor
      Vehicles.  Upon request of Agent, with respect to all motor
      vehicles owned by any Grantor, Grantor shall deliver to Agent, a certificate
      of
      title for all such motor vehicles and shall cause those title certificates
      to be
      filed (with the Agent’s Lien noted thereon) in the appropriate state motor
      vehicle filing office.

     

    (m)  Source
      Code.  Prior to the delivery of any software source code by any
      Grantor to any licensee, such Grantor shall require the applicable licensee
      to
      sign an appropriate non-disclosure agreement with respect to such source
      code.

     

    7.  Relation
      to Other Security Documents.  The provisions of this Agreement
      shall be read and construed with the other Loan Documents referred to below
      in
      the manner so indicated.

     

    (a)  Credit
      Agreement. In the event of any conflict between any provision in this
      Agreement and a provision in the Credit Agreement, such provision of the Credit
      Agreement shall control.

     

    (b)  Patent,
      Trademark, Copyright Security Agreements.  The provisions of the
      Copyright Security Agreements, Trademark Security Agreements, and Patent
      Security Agreements are supplemental to the provisions of this Agreement, and
      nothing contained in the Copyright Security Agreements, Trademark Security
      Agreements, or the Patent Security Agreements shall limit any of the rights
      or
      remedies of Agent hereunder.

     

    8.  Further
      Assurances.

     

    (a)  Each
      Grantor agrees that from time to time, at its own expense, such Grantor will
      promptly execute and deliver all further instruments and documents, and take
      all
      further action, that may be necessary or that Agent may reasonably request,
      in
      order to perfect and protect the Security Interest granted or purported to
      be
      granted hereby or to enable Agent to exercise and enforce its rights and
      remedies hereunder with respect to any of the Collateral.

     

    (b)  Each
      Grantor authorizes the filing by Agent financing or continuation statements,
      or
      amendments thereto, and such Grantor will execute and deliver to Agent such
      other instruments or notices, as may be necessary or as Agent may reasonably
      request, in order to perfect and preserve the Security Interest granted or
      purported to be granted hereby.

     

    (c)  Each
      Grantor authorizes Agent at any time and from time to time to file, transmit,
      or
      communicate, as applicable, financing statements and amendments (i) describing
      the Collateral as “all personal property of debtor” or “all assets of debtor” or
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    equal
      or
      lesser scope or with greater detail, or (iii) that contain any information
      required by part 5 of Article 9 of the Code for the sufficiency or filing office
      acceptance.  Each Grantor also hereby ratifies any and all financing
      statements or amendments previously filed by Agent in any
      jurisdiction.

     

    (d)  Each
      Grantor acknowledges that it is not authorized to file any financing statement
      or amendment or termination statement with respect to any financing statement
      filed in connection with this Agreement without the prior written consent of
      Agent, subject to such Grantor’s rights under Section 9-509(d)(2) of the
      Code.

     

    9.  Agent’s
      Right to Perform Contracts, Exercise Rights, etc.  Upon the
      occurrence and during the continuance of an Event of Default, Agent (or its
      designee) (a) may proceed to perform any and all of the obligations of any
      Grantor contained in any contract, lease, or other agreement and exercise any
      and all rights of any Grantor therein contained as fully as such Grantor itself
      could, (b) shall have the right to use any Grantor’s rights under Intellectual
      Property Licenses in connection with the enforcement of the Agent’s rights
      hereunder, including the right to prepare for sale and sell any and all
      Inventory and Equipment now or hereafter owned by any Grantor and now or
      hereafter covered by such licenses, and (c) shall have the right to request
      that
      any Stock that is pledged hereunder be registered in the name of Agent or any
      of
      its nominees.

     

    10.  Agent
      Appointed Attorney-in-Fact.  Each Grantor hereby irrevocably
      appoints Agent its attorney-in-fact, with full authority in the place and stead
      of such Grantor and in the name of such Grantor or otherwise, at such time
      as an
      Event of Default has occurred and is continuing under the Credit Agreement,
      to
      take any action and to execute any instrument which Agent may reasonably deem
      necessary or advisable to accomplish the purposes of this Agreement,
      including:

     

    (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 connection with the
      Accounts or any other Collateral of such Grantor;

     

    (b)  to
      receive and open all mail addressed to such Grantor and to notify postal
      authorities to change the address for the delivery of mail to such Grantor
      to
      that of Agent;

     

    (c)  to
      receive, endorse, and collect any drafts or other instruments, documents,
      Negotiable Collateral or Chattel Paper;

     

    (d)  to
      file
      any claims or take any action or institute any proceedings which Agent may
      deem
      necessary or desirable for the collection of any of the Collateral of such
      Grantor or otherwise to enforce the rights of Agent with respect to any of
      the
      Collateral;

     

    (e)  to
      repair, alter, or supply goods, if any, necessary to fulfill in whole or in
      part
      the purchase order of any Person obligated to such Grantor in respect of any
      Account of such Grantor;

     

    (f)  to
      use
      any labels, Patents, Trademarks, trade names, URLs, domain names, industrial
      designs, Copyrights, advertising matter or other industrial or intellectual
      property rights, in advertising for sale and selling Inventory and other
      Collateral and to collect any amounts due under Accounts, contracts or
      Negotiable Collateral of such Grantor; and

     

    (g)  Agent
      on
      behalf of the Lender Group and the Bank Product Provider shall have the right,
      but shall not be obligated, to bring suit in its own name to enforce the
      Trademarks, Patents, Copyrights and Intellectual Property Licenses and, if
      Agent
      shall commence any such suit, the appropriate Grantor shall, at the request
      of
      Agent, do any and all lawful acts and execute any and all proper documents
      reasonably required by Agent in aid of such enforcement.

     

    
      
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    To
      the
      extent permitted by law, each Grantor hereby ratifies all that such
      attorney-in-fact shall lawfully do or cause to be done by virtue
      hereof.  This power of attorney is coupled with an interest and shall
      be irrevocable until this Agreement is terminated.

     

    11.  Agent
      May Perform.  If any Grantor fails to perform any agreement
      contained herein, Agent may itself perform, or cause performance of, such
      agreement, and the reasonable expenses of Agent incurred in connection therewith
      shall be payable, jointly and severally, by Grantors.

     

    12.  Agent’s
      Duties.  The powers conferred on Agent hereunder are solely to
      protect Agent’s interest in the Collateral, for the benefit of the Lender Group
      and the Bank Product Provider, and shall not impose any duty upon Agent to
      exercise any such powers.  Except for the safe custody of any
      Collateral in its actual possession and the accounting for moneys actually
      received by it hereunder, Agent shall have no duty as to any Collateral or
      as to
      the taking of any necessary steps to preserve rights against prior parties
      or
      any other rights pertaining to any Collateral.  Agent shall be deemed
      to have exercised reasonable care in the custody and preservation of any
      Collateral in its actual possession if such Collateral is accorded treatment
      substantially equal to that which Agent accords its own property.

     

    13.  Collection
      of Accounts, General Intangibles and Negotiable Collateral.  At
      any time upon the occurrence and during the continuation of an Event of Default,
      Agent or Agent’s designee may (a) notify Account Debtors of any Grantor that
      such Grantor’s Accounts, General Intangibles, Chattel Paper or Negotiable
      Collateral have been assigned to Agent, for the benefit of the Lender Group
      and
      the Bank Product Provider, or that Agent has a security interest therein, and
      (b) collect Grantors’ Accounts, General Intangibles and Negotiable Collateral
      directly, and any collection costs and expenses shall constitute part of
      Grantors’ Secured Obligations under the Loan Documents.

     

    14.  Disposition
      of Pledged Interests by Agent.  None of the Pledged Interests
      existing as of the date of this Agreement are, and none of the Pledged Interests
      hereafter acquired on the date of acquisition thereof will be, registered or
      qualified under the various federal or state securities laws of the United
      States and disposition thereof after an Event of Default may be restricted
      to
      one or more private (instead of public) sales in view of the lack of such
      registration.  Each Grantor understands that in connection with such
      disposition, Agent may approach only a restricted number of potential purchasers
      and further understands that a sale under such circumstances may yield a lower
      price for the Pledged Interests than if the Pledged Interests were registered
      and qualified pursuant to federal and state securities laws and sold on the
      open
      market.  Each Grantor, therefore, agrees that:  (a) if Agent
      shall, pursuant to the terms of this Agreement, sell or cause the Pledged
      Interests or any portion thereof to be sold at a private sale, Agent shall
      have
      the right to rely upon the advice and opinion of any nationally recognized
      brokerage or investment firm (but shall not be obligated to seek such advice
      and
      the failure to do so shall not be considered in determining the commercial
      reasonableness of such action) as to the best manner in which to offer the
      Pledged Interest or any portion thereof for sale and as to the best price
      reasonably obtainable at the private sale thereof; and (b) such reliance shall
      be conclusive evidence that Agent has handled the disposition in a commercially
      reasonable manner.

     

    15.  Voting
      Rights.

     

    (a)  Upon
      the
      occurrence and during the continuation of an Event of Default, (i) Agent may,
      at
      its option, and with 2 Business Days prior notice (unless such Event of Default
      is an Event of Default specified in Section 7.4 or 7.5 of the
      Credit Agreement, in which case no such notice need be given) to any Grantor,
      and in addition to all rights and remedies available to Agent under any other
      agreement, at law, in equity, or otherwise, exercise all voting rights, and
      all
      other ownership or consensual rights in respect of the Pledged Interests owned
      by such Grantor, but under no circumstances is Agent obligated by the terms
      of
      this Agreement to exercise such rights, and (ii) if Agent duly exercises its
      right to vote any of such Pledged Interests, each Grantor hereby appoints Agent,
      such Grantor’s true and lawful attorney-in-fact and irrevocable proxy to vote
      such Pledged Interests in any manner Agent deems advisable for or against all
      matters submitted 

     

     

    
      
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    or
      which
      may be submitted to a vote of shareholders, partners or members, as the case
      may
      be.  The power-of-attorney granted hereby is coupled with an interest
      and shall be irrevocable.

     

    (b)  For
      so
      long as any Grantor shall have the right to vote the Pledged Interests owned
      by
      it, such Grantor covenants and agrees that it will not, without the prior
      written consent of Agent, vote or take any consensual action with respect to
      such Pledged Interests which would materially adversely affect the rights of
      Agent and the other members of the Lender Group, the value of the Pledged
      Interests or the rights and remedies of the Lenders under the Credit Agreement,
      any other Loan Document or any other instrument or agreement referred to
      therein.

     

    16.  Remedies.  Upon
      the occurrence and during the continuance of an Event of Default:

     

    (a)  Agent
      may
      exercise in respect of the Collateral, in addition to other rights and remedies
      provided for herein, in the other Loan Documents, or otherwise available to
      it,
      all the rights and remedies of a secured party on default under the Code or
      any
      other applicable law.  Without limiting the generality of the
      foregoing, each Grantor expressly agrees that, in any such event, Agent without
      demand of performance or other demand, advertisement or notice of any kind
      (except a notice specified below of time and place of public or private sale)
      to
      or upon any of Grantors or any other Person (all and each of which demands,
      advertisements and notices are hereby expressly waived to the maximum extent
      permitted by the Code or any other applicable law), may take immediate
      possession of all or any portion of the Collateral and (i) require Grantors
      to,
      and each Grantor hereby agrees that it will at its own expense and upon request
      of Agent forthwith, assemble all or part of the Collateral as directed by Agent
      and make it available to Agent at one or more locations where such Grantor
      regularly maintains Inventory, and (ii) without notice except as specified
      below, sell the Collateral or any part thereof in one or more parcels at public
      or private sale, at any of Agent’s offices or elsewhere, for cash, on credit,
      and upon such other terms as Agent may deem commercially
      reasonable.  Each Grantor agrees that, to the extent notice of sale
      shall be required by law, at least 10 days notice to any of Grantors of the
      time
      and place of any public sale or the time after which any private sale is to
      be
      made shall constitute reasonable notification and specifically such notice
      shall
      constitute a reasonable “authenticated notification of disposition” within the
      meaning of Section 9-611 of the Code.  Agent shall not be obligated to
      make any sale of Collateral regardless of notice of sale having been
      given.  Agent may adjourn any public or private sale from time to time
      by announcement at the time and place fixed therefor, and such sale may, without
      further notice, be made at the time and place to which it was so
      adjourned.

     

    (b)  Agent
      is
      hereby granted a license or other right to use, without liability for royalties
      or any other charge, each Grantor’s labels, Patents, Copyrights, rights of use
      of any name, trade secrets, trade names, Trademarks, service marks and
      advertising matter, URLs, domain names, industrial designs, other industrial
      or
      intellectual property or any property of a similar nature, whether owned by
      any
      of Grantors or with respect to which any of Grantors have rights under license,
      sublicense, or other agreements, as it pertains to the Collateral, in preparing
      for sale, advertising for sale and selling any Collateral, and each Grantor’s
      rights under all licenses and all franchise agreements shall inure to the
      benefit of Agent.

     

    (c)  Any
      cash
      held by Agent as Collateral and all cash proceeds received by Agent in respect
      of any sale of, collection from, or other realization upon all or any part
      of
      the Collateral shall be applied against the Secured Obligations in the order
      set
      forth in the Credit Agreement.  In the event the proceeds of
      Collateral are insufficient to satisfy all of the Secured Obligations in full,
      each Grantor shall remain jointly and severally liable for any such
      deficiency.

     

    (d)  Each
      Grantor hereby acknowledges that the Secured Obligations arose out of a
      commercial transaction, and agrees that if an Event of Default shall occur
      and
      be continuing Agent shall have the right to an immediate writ of possession
      without notice of a hearing.  Agent shall have the right to the
      appointment of a receiver for the properties and assets of each Grantor, and
      each Grantor hereby consents to such rights and such appointment and hereby
      waives any objection such Grantor may have thereto or the right to have a bond
      or other security posted by Agent.

     

     

    
      
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    17.  Remedies
      Cumulative.  Each right, power, and remedy of Agent as provided
      for in this Agreement or in the other Loan Documents or now or hereafter
      existing at law or in equity or by statute or otherwise shall be cumulative
      and
      concurrent and shall be in addition to every other right, power, or remedy
      provided for in this Agreement or in the other Loan Documents or now or
      hereafter existing at law or in equity or by statute or otherwise, and the
      exercise or beginning of the exercise by Agent, of any one or more of such
      rights, powers, or remedies shall not preclude the simultaneous or later
      exercise by Agent of any or all such other rights, powers, or
      remedies.

     

    18.  Marshaling.
      Agent  shall not be required to marshal any present or future
      collateral security (including but not limited to the Collateral) for, or other
      assurances of payment of, the Secured Obligations or any of them or to resort
      to
      such collateral security or other assurances of payment in any particular order,
      and all of its rights and remedies hereunder and in respect of such collateral
      security and other assurances of payment shall be cumulative and in addition
      to
      all other rights and remedies, however existing or arising.  To the
      extent that it lawfully may, each Grantor hereby agrees that it will not invoke
      any law relating to the marshaling of collateral which might cause delay in
      or
      impede the enforcement of Agent’s rights and remedies under this Agreement or
      under any other instrument creating or evidencing any of the Secured Obligations
      or under which any of the Secured Obligations is outstanding or by which any
      of
      the Secured Obligations is secured or payment thereof is otherwise assured,
      and,
      to the extent that it lawfully may, each Grantor hereby irrevocably waives
      the
      benefits of all such laws.

     

    19.  Indemnity
      and Expenses.

     

    (a)  Each
      Grantor agrees to indemnify Agent and the other members of the Lender Group
      from
      and against all claims, lawsuits and liabilities (including reasonable attorneys
      fees) arising out of or resulting from this Agreement (including enforcement
      of
      this Agreement) or any other Loan Document to which such Grantor is a party,
      except claims, losses or liabilities resulting from the gross negligence or
      willful misconduct of the party seeking indemnification as determined by a
      final
      non-appealable order of a court of competent jurisdiction.  This
      provision shall survive the termination of this Agreement and the Credit
      Agreement and the repayment of the Secured Obligations.

     

    (b)  Grantors,
      jointly and severally, shall, upon demand, pay to Agent (or Agent, may charge
      to
      the Loan Account) all the Lender Group Expenses which Agent may incur in
      connection with (i) the administration of this Agreement, (ii) the custody,
      preservation, use or operation of, or, upon an Event of Default, the sale of,
      collection from, or other realization upon, any of the Collateral in accordance
      with this Agreement and the other Loan Documents, (iii) the exercise or
      enforcement of any of the rights of Agent hereunder or (iv) the failure by
      any
      of Grantors to perform or observe any of the provisions hereof.

     

    20.  Merger,
      Amendments; Etc.  THIS AGREEMENT, TOGETHER WITH THE OTHER LOAN
      DOCUMENTS, REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE
      CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS
      OF THE PARTIES.  THERE ARE NO UNWRITTEN AGREEMENTS BETWEEN THE
      PARTIES.  No waiver of any provision of this Agreement, and no consent
      to any departure by any of Grantors herefrom, shall in any event be effective
      unless the same shall be in writing and signed by Agent, and then such waiver
      or
      consent shall be effective only in the specific instance and for the specific
      purpose for which given.  No amendment of any provision of this
      Agreement shall be effective unless the same shall be in writing and signed
      by
      Agent and each of Grantors to which such amendment applies.

     

    21.  Addresses
      for Notices.  All notices and other communications provided for
      hereunder shall be given in the form and manner and delivered to Agent at its
      address specified in the Credit Agreement, and to any of the Grantors at their
      respective addresses specified in the Credit Agreement or Guaranty, as
      applicable, or, as to any party, at such other address as shall be designated
      by
      such party in a written notice to the other party.

     

     

    
      
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    22.  Continuing
      Security Interest: Assignments under Credit Agreement.  This
      Agreement shall create a continuing security interest in the Collateral and
      shall (a) remain in full force and effect until the Obligations have been paid
      in full in cash in accordance with the provisions of the Credit Agreement and
      the Commitments have expired or have been terminated, (b) be binding upon each
      Grantor, and their respective successors and assigns, and (c) inure to the
      benefit of, and be enforceable by, Agent, and its successors, transferees and
      assigns.  Without limiting the generality of the foregoing clause (c),
      any the Lender may, in accordance with the provisions of the Credit Agreement,
      assign or otherwise transfer all or any portion of its rights and obligations
      under the Credit Agreement to any other Person, and such other Person shall
      thereupon become vested with all the benefits in respect thereof granted to
      such
      the Lender herein or otherwise.  Upon payment in full in cash of the
      Obligations in accordance with the provisions of the Credit Agreement and the
      expiration or termination of the Commitments, the Security Interest granted
      hereby shall terminate and all rights to the Collateral shall revert to Grantors
      or any other Person entitled thereto.  At such time, Agent will file,
      or authorize the filing of, appropriate termination statements or other
      documents to terminate such Security Interests.  Except as set forth,
      no transfer or renewal, extension, assignment, or termination of this Agreement
      or of the Credit Agreement, any other Loan Document, or any other instrument
      or
      document executed and delivered by any Grantor to Agent nor any additional
      Advances or other loans made by any Lender to Borrower, nor the taking of
      further security, nor the retaking or re-delivery of the Collateral to Grantors,
      or any of them, by Agent, nor any other act of the Lender Group or the Bank
      Product Provider, or any of them, shall release any of Grantors from any
      obligation, except a release or discharge executed in writing by Agent in
      accordance with the provisions of the Credit Agreement.  Agent shall
      not by any act, delay, omission or otherwise, be deemed to have waived any
      of
      its rights or remedies hereunder, unless such waiver is in writing and signed
      by
      Agent and then only to the extent therein set forth.  A waiver by
      Agent of any right or remedy on any occasion shall not be construed as a bar
      to
      the exercise of any such right or remedy which Agent would otherwise have had
      on
      any other occasion.

     

    23.  Governing
      Law.

     

    (a)  THE
      VALIDITY OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS (UNLESS EXPRESSLY
      PROVIDED TO THE CONTRARY IN ANOTHER LOAN DOCUMENT IN RESPECT OF SUCH OTHER
      LOAN
      DOCUMENT), THE CONSTRUCTION, INTERPRETATION, AND ENFORCEMENT HEREOF AND THEREOF,
      AND THE RIGHTS OF THE PARTIES HERETO AND THERETO WITH RESPECT TO ALL MATTERS
      ARISING HEREUNDER OR THEREUNDER OR RELATED HERETO OR THERETO SHALL BE DETERMINED
      UNDER, GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE
      OF
      NEW YORK.

     

    (b)  THE
      PARTIES AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING IN CONNECTION WITH THIS
      AGREEMENT AND THE OTHER LOAN DOCUMENTS SHALL BE TRIED AND LITIGATED ONLY IN
      THE
      STATE AND, TO THE EXTENT PERMITTED BY APPLICABLE LAW, FEDERAL COURTS LOCATED
      IN
      THE BOROUGH OF MANHATTAN, STATE OF NEW YORK; PROVIDED, HOWEVER,
      THAT ANY SUIT SEEKING ENFORCEMENT AGAINST ANY COLLATERAL OR OTHER PROPERTY
      MAY
      BE BROUGHT, AT AGENT’S OPTION, IN THE COURTS OF ANY JURISDICTION WHERE AGENT
      ELECTS TO BRING SUCH ACTION OR WHERE SUCH COLLATERAL OR OTHER PROPERTY MAY
      BE
      FOUND.  AGENT AND EACH GRANTOR WAIVE, TO THE EXTENT PERMITTED UNDER
      APPLICABLE LAW, ANY RIGHT EACH MAY HAVE TO ASSERT THE DOCTRINE OF
FORUMNONCONVENIENS OR TO OBJECT TO VENUE TO THE EXTENT ANY
      PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS SECTION
      23(b).

     

    (c)  TO
      THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW, AGENT AND EACH GRANTOR HEREBY
      WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION
      BASED UPON OR ARISING OUT OF THIS AGREEMENT OR ANY OF THE TRANSACTIONS
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    CONTRACT
      CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR
      STATUTORY CLAIMS.  AGENT AND EACH GRANTOR REPRESENT THAT EACH HAS
      REVIEWED THIS WAIVER AND EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL
      RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL.  IN THE EVENT OF
      LITIGATION, A COPY OF THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A
      TRIAL BY THE COURT.

     

    24.  New
      Subsidiaries.  Pursuant to Section 5.16 of the Credit
      Agreement, any new direct or indirect Subsidiary (whether by acquisition or
      creation) of any Grantor is required to enter into this Agreement by executing
      and delivering in favor of Agent a supplement to this Agreement in the form
      of
Annex 1.  Upon the execution and delivery of Annex 1 by
      such new Subsidiary, such Subsidiary shall become a Grantor hereunder with
      the
      same force and effect as if originally named as a Grantor herein.  The
      execution and delivery of any instrument adding an additional Grantor as a
      party
      to this Agreement shall not require the consent of any Grantor
      hereunder.  The rights and obligations of each Grantor hereunder shall
      remain in full force and effect notwithstanding the addition of any new Grantor
      hereunder.

     

    25.  Agent.  Each
      reference herein to any right granted to, benefit conferred upon or power
      exercisable by the “Agent” shall be a reference to Agent, for the benefit of the
      Lender Group and the Bank Product Provider.

     

    26.  Miscellaneous.

     

    (a)  This
      Agreement may be executed in any number of counterparts and by different parties
      on separate counterparts, each of which, when executed and delivered, shall
      be
      deemed to be an original, and all of which, when taken together, shall
      constitute but one and the same Agreement.  Delivery of an executed
      counterpart of this Agreement by telefacsimile or other electronic method of
      transmission shall be equally as effective as delivery of an original executed
      counterpart of this Agreement.  Any party delivering an executed
      counterpart of this Agreement by telefacsimile or other electronic method of
      transmission also shall deliver an original executed counterpart of this
      Agreement but the failure to deliver an original executed counterpart shall
      not
      affect the validity, enforceability, and binding effect of this
      Agreement.  The foregoing shall apply to each other Loan Document
mutatis mutandis.

     

    (b)  Any
      provision of this Agreement which is prohibited or unenforceable shall be
      ineffective to the extent of such prohibition or unenforceability without
      invalidating the remaining provisions hereof in that jurisdiction or affecting
      the validity or enforceability of such provision in any other
      jurisdiction.

     

    (c)  Headings
      used in this Agreement are for convenience only and shall not be used in
      connection with the interpretation of any provision hereof.

     

    (d)  The
      pronouns used herein shall include, when appropriate, either gender and both
      singular and plural, and the grammatical construction of sentences shall conform
      thereto.

     

    (e)  Unless
      the context of this Agreement or any other Loan Document clearly requires
      otherwise, references to the plural include the singular, references to the
      singular include the plural, the terms “includes” and  “including” are
      not limiting, and the term “or” has, except where otherwise indicated, the
      inclusive meaning represented by the phrase “and/or.”  The words
“hereof,” “herein,” “hereby,” “hereunder,” and similar terms in this Agreement
      or any other Loan Document refer to this Agreement or such other Loan Document,
      as the case may be, as a whole and not to any particular provision of this
      Agreement or such other Loan Document, as the case may be.  Section,
      subsection, clause, schedule, and exhibit references herein are to this
      Agreement unless otherwise specified.  Any reference in this Agreement
      or in any other Loan Document to any agreement, instrument, or document shall
      include all alterations, amendments, changes, extensions, modifications,
      renewals, replacements, substitutions, joinders, and supplements, thereto and
      thereof, as applicable (subject to any restrictions on such alterations,
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    renewals,
      replacements, substitutions, joinders, and supplements set forth
      herein).  Any reference herein or in any other Loan Document to the
      satisfaction or repayment in full of the Obligations shall mean the repayment
      in
      full in cash (or cash collateralization in accordance with the terms hereof)
      of
      all Obligations other than unasserted contingent indemnification Obligations
      and
      other than any Bank Product Obligations that, at such time, are allowed by
      the
      applicable Bank Product Provider to remain outstanding and that are not required
      by the provisions of the Credit Agreement to be repaid or cash
      collateralized.  Any reference herein to any Person shall be construed
      to include such Person’s successors and assigns.  Any requirement of a
      writing contained herein or in any other Loan Document shall be satisfied by
      the
      transmission of a Record and any Record so transmitted shall constitute a
      representation and warranty as to the accuracy and completeness of the
      information contained therein.

     

     

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    IN
      WITNESS WHEREOF, the undersigned parties hereto have executed this Agreement
      by
      and through their duly authorized officers, as of the day and year first above
      written.

     

     

    
      
        


        
          	 	
                  GRANTORS:

                   

                  TELTRONICS,
                    INC.,

                  a
                    Delaware corporation

                
	 	
                   

                   

                   

                
	 	
                  By:

                	
                  /s/
                    Ewen R. Cameron

                
	 	
                  Name:

                	
                  Ewen
                    R. Cameron

                
	 	
                  Title:

                	
                  President

                


        

         

        



      

    

     

     

     

     

    
 

    
      
              

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                  AGENT:

                   

                  WELLS
                    FARGO FOOTHILL, INC.,

                  a
                    California corporation, 

                  as
                    Agent and as a lender

                
	 	
                   

                   

                   

                
	 	
                  By:

                	
                  /s/
                    Alexander E. Hechler

                
	 	
                  Name:

                	
                  Alexander
                    E. Hechler

                
	 	
                  Title:

                	
                  Vice
                    President

                


        

        




       

       

       

       

       

       

       

       

       

      


    

    
      S-2

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