Document:

EXHIBIT 10.16

 

 

INTERCREDITOR AGREEMENT

 

This
INTERCREDITOR AGREEMENT, dated as of July 3, 2003 is entered into by and among
BANK OF AMERICA, N.A., as Senior Agent (as defined below), THE BANK OF NEW
YORK, as trustee and collateral agent under the Indenture referred to below,
and AMERICAN COLOR GRAPHICS, INC., a New York corporation (the “Borrower”).

 

WITNESSETH:

 

WHEREAS, the
Borrower, the financial institutions party to the Senior Credit Agreement
referred to below as lenders, Bank of America N.A., as administrative agent and
collateral agent for such lenders (in such capacity, the “Senior Agent”),
Morgan Senior Funding, Inc., as documentation agent for such lenders, and GECC
Capital Markets Group Inc., as syndication agent for such lenders, propose to enter
into a Credit Agreement, dated as of the date hereof (as such agreement may be
amended, restated, amended and restated, extended supplemented or otherwise
modified, from time to time at the option of the parties thereto and any other
agreements pursuant to which any of the indebtedness, commitments, obligations,
costs, expenses, fees, reimbursements, indemnities or other obligations payable
or owing thereunder may be refinanced, restructured, renewed, extended,
increased, refunded or replaced as any such other agreements may from time to
time at the option of the parties thereto be amended, restated, amended and
restated, supplemented, renewed or otherwise modified, being collectively
referred to herein the “Senior Credit Agreement”); and

 

WHEREAS, the
Borrower and The Bank of New York, as the trustee and the collateral agent (in
its capacity as collateral agent and any successor collateral agent thereunder,
the “Trustee”) under the Indenture referred to below, propose to enter into an
Indenture, dated as of July 3, 2003 (as such Indenture may be amended, amended
and restated, supplemented or otherwise modified, from time to time at the
option of the parties thereto, the “Indenture”) governing the rights and duties
of the Borrower under the 10% Senior Secured Notes due 2010 (the “Senior
Secured Notes”); and

 

WHEREAS, it is
a condition precedent to the effectiveness of the Senior Credit Agreement that
the Senior Agent (for itself and for the benefit of the Senior Lenders), the
Trustee (for itself and for the benefit of the trustee under the Indenture and
the Noteholders) and the Borrower enter into this Agreement;

 

NOW,
THEREFORE, in consideration of the foregoing, the mutual covenants and
obligations herein set forth and for other good and valuable consideration, the
adequacy and receipt of which are hereby acknowledged, and in reliance upon the
representations, warranties and covenants herein contained, the parties hereto,
intending to be legally bound, hereby agree as follows:

 

Section 1.  Definitions.  As used in this Agreement, the following
terms shall have the following meanings (such meanings to be equally applicable
to both the singular and the plural form of the terms indicated) and
capitalized terms defined in the Senior Credit Agreement used

 

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(but not otherwise defined)
herein shall have the meanings ascribed to them in the Senior Credit Agreement:

 

“Agreement”
shall mean this Agreement, as amended, supplemented or otherwise modified from
time to time in accordance with the terms hereof.

 

“Bankruptcy
Code” shall mean title 11 of the United States Code (11 U.S.C. 101 et
seq.), as amended from time to time and any successor statute.

 

“Common
Collateral” shall mean all of the assets of the Borrower or any of its
Subsidiaries whether real, personal or mixed, constituting both Senior Lender
Collateral and Noteholder Collateral.

 

“Comparable
Noteholder Collateral Document” means, in relation to any Common Collateral
subject to any Senior Lender Collateral Document, that Noteholder Collateral
Document which creates a security interest in the same Common Collateral,
granted by the Borrower or same Guarantor, as applicable.

 

“Discharge
of Senior Lender Claims” shall mean, except to the extent otherwise provided
in Section 5.6, payment in full of the principal of, interest and premium, if
any, on all indebtedness outstanding under the Senior Credit Agreement and any
other Future First-Lien Obligation or, with respect to Hedging Obligations or
letters of credit outstanding thereunder, delivery of cash collateral or
backstop letters of credit in respect thereof in compliance with the Senior
Credit Agreement or Future Other First-Lien Obligations, as applicable, in each
case after or concurrently with termination of all commitments to extend credit
thereunder, and payment in full of any other Senior Lender Claims that are due
and payable at or prior to the time such principal and interest are paid.

 

“Future
First-Lien Obligation” shall mean any First Priority Lien Obligation (as
defined in the Indenture) that is designated by the Borrower as a “First
Priority Lien Obligation” for purposes of the Indenture (other than the Senior
Credit Agreement referenced in the recitals hereto), provided that the Required
Lenders under any Senior Loan Documents then in effect have consented to such
designation.

 

“Future
Other First-Lien Obligations” shall mean all Obligations of the Borrower or
any of its Subsidiaries in respect of cash management services or Hedging
Obligations that are designated by the Borrower as “First Priority Lien
Obligations” for purposes of the Indenture (other than any Senior Lender Cash
Management Obligations and Senior Lender Hedging Obligations), provided that
the Required Lenders under any Senior Loan Documents then in effect have
consented to such designation.

 

“Guarantor”
means ACG Holdings, Inc. and each Subsidiary of the Borrower that is a
guarantor of the Noteholder Claims.

 

“Hedging
Obligations” means, with respect to any Person, the obligations of such
Person under (a) interest rate or currency swap agreements, interest rate or
currency cap agreements,

 

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interest rate or currency
collar agreements and (b) other agreements or arrangements designed to protect
such Person against fluctuations in interest rates and/or currency exchange
rates.

 

“Indebtedness”
means, with respect to any specified Person without duplication, any
indebtedness of such Person, whether or not contingent (a) in respect of borrowed
money; (b) evidenced by bonds, notes, debentures or other similar
instruments or letters of credit (or reimbursement agreements in respect
thereof); (c) in respect of banker’s acceptances; (d) representing
obligations in connection with Capital Leases; (e) representing the balance
deferred and unpaid of the purchase price of any property, except any such
balance that constitutes an accrued expense or trade payable, if and to the
extent any of the preceding items (other than letters of credit) would appear
as a liability upon a balance sheet of the specified Person prepared in
accordance with GAAP.  In addition, the
term “Indebtedness” includes all Indebtedness of other Persons secured by a
Lien on any asset of the specified Person (whether or not such Indebtedness is
assumed by the specified Person) to the extent of the fair market value of such
asset where the Indebtedness so secured is not the Indebtedness of such Person
and, to the extent not otherwise included, the guaranty by the specified Person
of the Indebtedness of any other Person. The amount of any Indebtedness
outstanding as of any date will be (i) the accreted value of the Indebtedness,
in the case of any Indebtedness issued with original issue discount; and (ii)
the principal amount of the Indebtedness, together with any interest on the
Indebtedness that is more than 30 days past due, in the case of any other
Indebtedness.

 

“Indenture”
shall have the meaning set forth in the recitals hereto.

 

“Insolvency
or Liquidation Proceeding” shall mean (a) any voluntary or involuntary case
or proceeding under the Bankruptcy Code with respect to the Borrower or any
Guarantor, (b) any other voluntary or involuntary insolvency, reorganization or
bankruptcy case or proceeding, or any receivership, liquidation, reorganization
or other similar case or proceeding with respect to the Borrower or any
Guarantor or with respect to any of their respective assets, (c) any
liquidation, dissolution, reorganization or winding up of the Borrower or any
Guarantor whether voluntary or involuntary and whether or not involving
insolvency or bankruptcy or (d) any assignment for the benefit of creditors or
any other marshalling of assets and liabilities of the Borrower or any
Guarantor.

 

“Lien”
shall mean any mortgage, deed of trust, pledge, hypothecation, assignment,
security interest, deposit arrangement, encumbrance, lien or preference
priority or other security agreement or other preferential arrangement
whatsoever, including, without limitation, any right of setoff, any conditional
sale or other title retention agreement, the interest of a lessor under a lease
or any financing lease having substantially the same economic effect as any of
the foregoing and the filing of any financing statement naming the owner of the
asset to which such Lien relates as debtor.

 

“Noteholder
Claims” shall mean all Obligations (contingent or otherwise) arising under
or with respect to the Noteholder Documents or any of them.

 

“Noteholder
Collateral” shall mean all of the assets of the Borrower or any Guarantor
whether real, personal or mixed, in which the Noteholders or the Trustee or any
of them now or hereafter holds a Lien as security for any Noteholder Claim.

 

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“Noteholder
Collateral Documents” shall mean the Noteholder Security Agreement, the
Noteholder Pledge Agreement, the Noteholder Mortgages, and any document or
instrument executed and delivered pursuant to any Noteholder Document at any
time or otherwise pursuant to which a Lien is granted by the Borrower or a
Guarantor to secure the Noteholder Claims or under which rights or remedies
with respect to any such Lien are governed, as the same may be amended,
renewed, restated, extended, supplemented or modified from time to time.

 

“Noteholder
Documents” shall mean the Indenture, the Notes (as defined in the
Indenture), the Noteholder Collateral Document, and any other related document
or instrument executed and delivered pursuant to any Noteholder Document at any
time or otherwise evidencing any Noteholder Claims, as the same may be amended,
renewed, restated, extended, supplemented or modified from time to time.

 

“Noteholder
Mortgages” shall mean a collective reference to each mortgage, deed of
trust and any other document or instrument under which any Lien on real
property owned by the Borrower or any Subsidiary is granted to secure the
Noteholder claims or under which rights or remedies with respect to any such
Liens are governed, as the same may be amended, renewed, restated, extended,
supplemented or modified.

 

“Noteholder
Pledge Agreement” shall mean the Pledge Agreement dated as of July 3, 2003
among the Borrower, the Guarantors and the Trustee, as the same may be amended,
renewed, extended, supplemented, restated or modified from time to time.

 

“Noteholder
Security Agreement” shall mean the Security Agreement, dated as of July 3,
2003, between the Borrower, the Guarantors and the Trustee, as the same may be
amended, renewed, extended, supplemented or modified from time to time.

 

“Noteholders”
shall mean the Persons holding Noteholder claims.

 

“Obligations”
shall mean any principal, interest, penalties, fees, indemnifications,
reimbursements, damages and other liabilities payable under the documentation
governing any Indebtedness (including any obligation to post cash collateral in
respect of letters of credit and any other obligations), or any obligation for
cash management services or Hedging Obligations.

 

“Person”
shall mean any person, individual, sole proprietorship, partnership, joint venture,
limited liability company, corporation, unincorporated organization,
association, institution, entity or other party, including, without limitation,
any government and any political subdivision, agency or instrumentality
thereof.

 

“Pledged
Collateral” shall mean the “Pledged Notes”, the “Pledged Bonds”, and the
“Pledged Stock” under, and as defined in, the Security Agreement and/or the
Pledge Agreement, as the case may be, cash and other items described in the
Blocked Account Agreements, the securities and other items described in the
Securities Account Control Agreement and any other property in the possession
of the Senior Agent (or its agents or bailees).

 

“Recovery”
shall have the meaning set forth in Section 6.5 hereof.

 

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“Required
Lenders” shall mean, with respect to any amendment or modification of the
Senior Credit Agreement, or any termination or waiver of any provision of the
Senior Credit Agreement, or any consent or departure by the Borrower therefrom,
those Senior Lenders, the approval of which is required to approve such
amendment or modification, termination or waiver or consent or departure.

 

“Securities
Account Control Agreement” means that certain Securities Account Control
Agreement dated as of July 3, 2003 by and among the Borrower, the Senior Agent
and Bank of America, N.A., as account holder, as the same may be amended,
renewed, extended, supplemented or modified from time to time.

 

“Senior
Agent” shall include, in addition to the Senior Agent referred to in the
recitals hereto, the then acting collateral agent for the Senior Lenders (or if
there is more than one agent, a majority of them) under the Senior Lender
Documents and any successor thereto exercising substantially the same rights
and powers, or if there is no acting Senior Agent under the Senior Credit
Agreement, the Required Lenders.

 

“Senior
Credit Agreement” shall have the meaning set forth in the recitals hereto;
provided that if at any time a Discharge of Senior Lender Claims occurs with
respect to the Senior Credit Agreement referenced in the recitals hereto
(without giving effect to Section 5.5), then, to the extent provided in Section
5.6, the term “Senior Credit Agreement” shall mean the Future First-Lien
Obligation designated by the Borrower in accordance with the terms of such
section.

 

“Senior
Lender Cash Management Obligations” means all Obligations (as defined in
the Senior Credit Agreement Lien or any Future First-Lien Obligation) of the
Borrower or any of its Subsidiaries in respect of cash management services.

 

“Senior
Lender Claims” shall mean (a) all Obligations outstanding (x) under the
Senior Credit Agreement or under one or more of the Senior Lender Documents or
(y) under any Future First-Lien Obligations, the Indebtedness under each of
which (i) is permitted by the Indenture and (ii) is designated by the Borrower
as “First Priority Lien Obligations” for purposes of the Indenture, (b) all
Senior Lender Hedging Obligations and Senior Lender Cash Management Obligations
and (c) all Future Other First-Lien Obligations.  Senior Lender Claims shall include all interest accrued or
accruing (or which would, absent the commencement of an Insolvency or
Liquidation Proceeding, accrue) after the commencement of an Insolvency or
Liquidation Proceeding in accordance with and at the rate specified in the
Senior Credit Agreement or other Future First-Lien Obligation whether or not
the claim for such interest is allowed as a claim in such Insolvency or
Liquidation Proceeding.  To the extent
any payment with respect to the Senior Lender Claims (whether by or on behalf
of any Borrower, as proceeds of security, enforcement of any right of setoff or
otherwise) is declared to be fraudulent or preferential in any respect, set
aside or required to be paid to a debtor in possession, trustee, receiver or
similar Person, then the obligation or part thereof originally intended to be
satisfied shall be deemed to be reinstated and outstanding as if such payment
had not occurred.  Notwithstanding
anything to the contrary contained in the first sentence of this definition,
any Obligation under the Senior Lender Documents or any Future First-Lien
Obligation (including, without limitation, any such

 

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Obligation in respect of cash
management services or Hedging Obligations) shall constitute a “Senior Lender
Claim” if the Senior Agent shall have received a representation from the
Borrower in the Senior Lender Documents evidencing such Obligation (or a
certificate from an authorized officer of the Borrower delivered in connection
with such Senior Lender Documents) that such Obligation constitutes a “First
Priority Lien Obligation”, under and as defined in the Indenture (whether or
not such Obligation was at any time determined not to have been permitted to be
incurred under the Indenture).

 

“Senior
Lender Collateral” shall mean all of the assets of ACG Holdings, Inc., the
Borrower or any of the Borrower’s Subsidiaries whether real, personal or mixed,
in which the Senior Lenders or the Senior Agent or any of them now or hereafter
holds a Lien as security for any Senior Lender Claim.

 

“Senior
Lender Collateral Documents” shall mean the Security Agreement, the Pledge
Agreement, the Mortgages and any Loan Document or other document or instrument
pursuant to which a Lien is granted securing the Senior Lender Claims, as the
same may be amended, renewed, restated, extended, supplemented or modified from
time to time.

 

“Senior
Lender Documents” shall mean the Senior Credit Agreement, the Guaranty, and
each of the other Loan Documents (including, without limitation, each document
or instrument evidencing a Senior Lender Hedging Obligation or Senior Lender
Cash Management Obligation), all documents and instruments evidencing any other
obligation under the Senior Credit Agreement or any Future First-Lien
Obligation or any Future Other First—Lien Obligations, and any other related
document or instrument executed or delivered pursuant to any Senior Lender
Document at any time or otherwise evidencing any Senior Lender Claims, as any
such document or instrument may from time to time be amended, renewed,
restated, extended, supplemented or otherwise modified.

 

“Senior
Lender Hedging Obligations” means Obligations (as defined in the Senior
Credit Agreement or any Future First-Lien Obligation) constituting Hedging
Obligations of the Borrower or any of its Subsidiaries.

 

“Senior
Lenders” shall mean the Persons holding Senior Lender Claims, including,
without limitation, the Senior Agent.

 

“Trustee”
shall include, in addition to the Trustee referred to in the recitals hereto,
the then acting collateral agent under the Indenture and any successor thereto
exercising substantially the same rights and powers, or if there is no acting collateral
agent under the Indenture, the Noteholders holding a majority in principal
amount of Noteholder Claims then outstanding.

 

“Uniform
Commercial Code” or “UCC” shall mean the Uniform Commercial Code of the
State of New York, as amended.

 

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Section 2.  Lien Priorities.

 

2.1           Subordination. 
Notwithstanding the date, manner or order of grant, attachment or
perfection of any Liens granted to the Trustee or the Noteholders on the Common
Collateral or of any Liens granted to the Senior Agent or the Senior Lenders on
the Common Collateral and notwithstanding any provision of the UCC, or any
applicable law or the Noteholder Documents or the Senior Lender Documents or
any other circumstance whatsoever, the Trustee, on behalf of itself, the
trustee under the Indenture and the Noteholders, hereby agrees that: (a) any
Lien on the Common Collateral securing the Senior Lender Claims now or
hereafter held by the Senior Agent or the Senior Lenders shall be senior and prior
to any Lien on the Common Collateral securing the Noteholder Claims; and (b)
any Lien on the Common Collateral now or hereafter held by the Trustee or the
Noteholders regardless of how acquired, whether by grant, statute, operation of
law, subrogation or otherwise, shall be junior and subordinate in all respects
to all Liens on the Common Collateral securing the Senior Lender Claims.  All Liens on the Common Collateral securing
the Senior Lender Claims shall be and remain senior to all Liens on the Common
Collateral securing the Noteholder Claims for all purposes, whether or not such
Liens securing the Senior Lender Claims are subordinated to any Lien securing
any other obligation of the Borrower or any Guarantor.

 

2.2           Prohibition on Contesting Liens.  Each of the Trustee, for itself and on behalf
of each Noteholder, and the Senior Agent, for itself and on behalf of each
Senior Lender, agrees that it shall not (and hereby waives any right to)
contest or support any other Person in contesting, in any proceeding
(including, without limitation, any Insolvency or Liquidation Proceeding), the
priority, validity or enforceability of a Lien held by the Senior Lenders in
the Senior Lender Collateral or by the Noteholders in the Common Collateral, as
the case may be.

 

2.3           No New Liens. 
So long as the Discharge of Senior Lender Claims has not occurred, (a)
the parties hereto agree that, after the date hereof, if the Trustee shall hold
any Lien on any assets of ACG Holdings, Inc. or any of its Subsidiaries
securing the Noteholder Claims that are not also subject to the first-priority
Lien of the Senior Agent under the Senior Lender Documents, the Trustee, upon
demand by the Senior Agent, will either release such Lien or assign it to the
Senior Agent as security for the Senior Lender Claims, (b) the parties hereto
agree that, after the date hereof, if the Senior Agent shall hold any Lien on
any assets of ACG Holdings, Inc. or any of its Subsidiaries securing the Senior
Lender Claims that are not also subject to the second-priority Lien of the
Trustee under the Noteholder Documents, the Borrower shall grant a
second-priority Lien on such assets to the Trustee as security for the
Noteholder Claims, and (c) the Borrower agrees not to grant any Lien on any of
its assets, or permit any Subsidiary of the Borrower to grant a Lien on any of
its assets, in favor of the Trustee or the Noteholders unless it, or such
Subsidiary, has granted a similar Lien on such assets in favor of the Senior
Agent or the Senior Lenders.

 

Section 3.  Enforcement.

 

3.1           Exercise of Remedies.

 

(a)           So long as the Discharge of Senior Lender Claims has not
occurred, whether or not any Insolvency or Liquidation Proceeding has been
commenced by or against any

 

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Borrower or Guarantor, (i) the
Trustee and the Noteholders will not exercise or seek to exercise any rights or
remedies (including setoff) with respect to any Common Collateral, institute
any action or proceeding with respect to such rights or remedies, including,
without limitation, any action of foreclosure, contest, protest or object to
any foreclosure proceeding or action brought by the Senior Agent or any Senior
Lender, the exercise of any right under any Blocked Account Agreement, landlord
waiver or bailee’s letter or similar agreement or arrangement to which the
Trustee or any Noteholder is a party, or any other exercise by any such party,
of any rights and remedies relating to the Common Collateral under the Senior
Lender Documents or otherwise, or object to the forbearance by the Senior
Lenders from bringing or pursuing any foreclosure proceeding or action or any
other exercise of any rights or remedies relating to the Common Collateral and
(ii) the Senior Agent and the Senior Lenders shall have the exclusive right to
enforce rights, exercise remedies (including, without limitation, setoff and
the right to credit bid their debt) and make determinations regarding release,
disposition, or restrictions with respect to the Common Collateral without any
consultation with or the consent of the Trustee or any Noteholder (and the
Trustee and Noteholders shall be deemed to have consented to any such
enforcement, exercise or determination); provided, however, (A) that in any
Insolvency or Liquidation Proceeding commenced by or against the Borrower or
any Guarantor, the Trustee may file a claim or statement of interest with
respect to the Noteholder Claims, and (B) the Trustee may take any action not
adverse to the Liens on the Common Collateral securing the Senior Lender Claims
in order to preserve or protect its rights in the Common Collateral. In
exercising rights and remedies with respect to the Common Collateral, the
Senior Agent and the Senior Lenders may enforce the provisions of the Senior
Lender Documents and exercise remedies thereunder, all in such order and in
such manner as they may determine in the exercise of their sole discretion.
Such exercise and enforcement shall include, without limitation, the rights of
an agent appointed by them to sell or otherwise dispose of Common Collateral
upon foreclosure, to incur expenses in connection with such sale or
disposition, and to exercise all the rights and remedies of a secured lender
under the Uniform Commercial Code of any applicable jurisdiction and of a
secured creditor under bankruptcy or similar laws of any applicable
jurisdiction.

 

(b)           The Trustee, on behalf of itself and the Noteholders,
agrees that it will not take or receive any Common Collateral or any proceeds
of Common Collateral in connection with the exercise of any right or remedy
(including setoff) with respect to any Common Collateral, unless and until the
Discharge of Senior Lender Claims has occurred. Without limiting the generality
of the foregoing, unless and until the Discharge of Senior Lender Claims has
occurred, except as expressly provided in the proviso in Section 3.1(a) (ii)
above, the sole right of the Trustee and the Noteholders with respect to the
Common Collateral is to hold a Lien on the Common Collateral pursuant to the Noteholder
Documents for the period and to the extent granted therein and to receive a
share of the proceeds thereof, if any, after the Discharge of the Senior Lender
Claims has occurred.

 

(c)           Subject to the proviso in Section 3.1(a) (ii) above, (a)
the Trustee, for itself or on behalf of the Noteholders, agrees that the
Trustee and the Noteholders will not take any action that would hinder any
exercise of remedies undertaken by the Senior Agent under the Senior Loan
Documents, including any sale, lease, exchange, transfer or other disposition
of the Common Collateral, whether by foreclosure or otherwise, and (b) the
Trustee, for itself and on

 

8

 

behalf of the Noteholders,
hereby waives any and all rights it or the Noteholders may have as a junior
lien creditor or otherwise to object to the manner in which the Senior Agent or
the Senior Lenders seek to enforce or collect the Senior Lender Claims or the
Liens granted in any of the Senior Lender Collateral.

 

3.2           Cooperation. 
Subject to the proviso in Section 3.1(a)(ii) above, the Trustee, on
behalf of itself and the Noteholders, agrees that, unless and until the
Discharge of Senior Lender Claims has occurred, it will not commence, or join
with any Person (other than the Senior Lenders and the Senior Agent upon the
request thereof) in commencing any enforcement, collection, execution, levy or
foreclosure action or proceeding with respect to any Lien held by it under any
of the Noteholder Documents or otherwise.

 

Section 4.  Payments.

 

4.1           Application of Proceeds.  As long as the Discharge of Senior Lender Claims has not
occurred, the cash proceeds of Common Collateral received in connection with
the sale of, or collection on, such Common Collateral upon the exercise of
remedies, shall be applied by the Senior Agent to the Senior Lender Claims in
such order as specified in the Senior Credit Agreement until Discharge of
Senior Lender Claims has occurred. Upon Discharge of the Senior Lender Claims,
the Senior Agent shall deliver to the Trustee any proceeds of Common Collateral
held by it in the same form as received, with any necessary endorsements or as
a court of competent jurisdiction may otherwise direct.

 

4.2           Payments Over. 
Any Common Collateral or proceeds thereof received by the Trustee or any
Noteholder in connection with the exercise of any right or remedy (including
setoff) relating to the Common Collateral in contravention of this Agreement
shall be segregated and held in trust and forthwith paid over to the Senior
Agent for the benefit of the Senior Lenders in the same form as received, with
any necessary endorsements or as a court of competent jurisdiction may
otherwise direct. The Senior Agent is hereby authorized to make any such
endorsements as agent for the Trustee or any such Noteholder.  This authorization is coupled with an
interest and is irrevocable.

 

Section 5.  Other Agreements.

 

5.1           Releases.

 

(a)           If in connection with:

 

(i)            the exercise of the
Senior Agent’s rights or remedies in respect of the Common Collateral provided
for in Section 3.1, including any sale, lease, exchange, transfer or other
disposition of such Common Collateral;

 

(ii)           any sale, lease,
exchange, transfer or other disposition of Common Collateral permitted under
the terms of the Senior Credit Agreement (whether or not an event of default
under, and as defined therein, has occurred and is continuing) and permitted or
not prohibited under Section 4.11 of the Indenture (Asset Sales); or

 

9

 

(iii)          any agreement
between the Senior Agent and the Borrower to release the Senior Agent’s Lien on
any portion of the Common Collateral or to release any Guarantor from its
obligations under its guaranty of the Senior Lender Claims, which release is not
otherwise prohibited by the terms of the Noteholder Documents;

 

the Senior
Agent, for itself or on behalf of any of the Senior Lenders, releases any of
its Liens on any part of the Common Collateral (or any Guarantor from its
obligations under its guaranty of the Senior Lender Claims), the Liens, if any,
of the Trustee, for itself or for the benefit of the Noteholders, on such
Common Collateral (and the obligations of such Guarantor under its guaranty of
the Noteholder Claims) shall be automatically, unconditionally and
simultaneously released and the Trustee, for itself or on behalf of any such
Noteholder, promptly shall execute and deliver to the Senior Agent or the
Borrower such termination statements, releases and other documents as the
Senior Agent or the Borrower may request to effectively confirm such release
provided, however, that if an Event of Default (as defined in the Indenture)
exists as of the date of Discharge of Senior Lender Claims, the Liens, if any,
of the Trustee for itself or for the benefit of the trustee under the Indenture
and the Noteholders on such Common Collateral (and the obligations of such
Guarantor under its guaranty of Noteholder Claims) shall not be released until
such Event of Default and all other Events of Default shall have been cured or
otherwise waived except to the extent such Common Collateral was disposed of in
order to repay the Senior Lender Claims.

 

(b)           The Trustee, for itself and on behalf of the Noteholders,
hereby irrevocably constitutes and appoints the Senior Agent and any officer or
agent of the Administrative Agent, with full power of substitution, as its true
and lawful attorney-in-fact with full irrevocable power and authority in the
place and stead of the Trustee or such holder or in the Senior Agent’s own
name, from time to time in the Senior Agent’s discretion, for the purpose of
carrying out the terms of this Section 5.1, to take any and all appropriate
action and to execute any and all documents and instruments which may be
necessary or desirable to accomplish the purposes of this Section 5.1,
including, without limitation, any financing statements, endorsements or other
instruments or transfer or release.

 

5.2           Insurance. 
Unless and until the Discharge of Senior Lender Claims has occurred, the
Senior Agent and the Senior Lenders shall have the sole and exclusive right,
subject to the rights of the Borrower under the Senior Lender Documents, to
adjust settlement for any insurance policy covering the Common Collateral in
the event of any loss thereunder and to approve any award granted in any
condemnation or similar proceeding affecting the Common Collateral.  Unless and until the Discharge of Senior
Lender Claims has occurred, all proceeds of any such policy and any such award
if in respect to the Common Collateral shall be paid to the Senior Agent for
the benefit of the Senior Lenders to the extent required under the Senior
Credit Agreement and thereafter to the Trustee for the benefit of the
Noteholders to the extent required under the applicable Noteholder

 

10

 

Documents and then to the owner
of the subject property or as a court of competent jurisdiction may otherwise
direct; provided, however, that from and after the Termination Date, all such
proceeds shall be paid to the Senior Agent for the benefit of the Senior
Lenders until the Discharge of Senior Lender Claims has occurred and thereafter
to the Trustee for the benefit of the Noteholders to the extent required under
the applicable Noteholder Documents and then to the owner of the subject
property or as a court of competent jurisdiction may otherwise direct.  If the Trustee or any Noteholder shall, at
any time, receive any proceeds of any such insurance policy or any such award
in contravention of this Agreement, it shall pay such proceeds over to the
Senior Agent in accordance with the terms of Section 4.2.

 

5.3           Amendments to Noteholder Collateral Documents.

 

(a)           Without the prior written consent of the Senior Agent and
the Required Lenders, no Noteholder Collateral Document may be amended,
supplemented or otherwise modified or entered into to the extent such
amendment, supplement or modification, or the terms of any new Noteholder
Collateral Document, would be inconsistent with any of the terms of the Senior
Lender Documents. The Trustee agrees that each Noteholder Collateral Document
shall include the following language:

 

“Notwithstanding anything herein to the contrary, the lien and security
interest granted to the Trustee pursuant to this Agreement and the exercise of
any right or remedy by the Trustee hereunder are subject to the provisions of
the Intercreditor Agreement, dated as of July 3, 2003 (the “Intercreditor
Agreement”) among Bank of America, N.A. as Senior Agent, and The Bank of New
York, as Trustee, and American Color Graphics, Inc.  In the event of any conflict between the terms of the
Intercreditor Agreement and this Agreement, the terms of the Intercreditor
Agreement shall govern.”

 

(b)           In the event the Senior Agent or the Senior Lenders enter
into any amendment, waiver or consent in respect of any of the Senior Lender
Collateral Documents for the purpose of adding to, or deleting from, or waiving
or consenting to any departures from any provisions of, any Senior Lender
Collateral Document or changing in any manner the rights of the Senior Agent,
the Senior Lenders, the Borrower or the Guarantors thereunder, then such
amendment, waiver or consent shall apply automatically to any comparable
provision of the Comparable Noteholder Collateral Document without the consent
of the Trustee or the Noteholders and without any action by the Trustee, the
Borrower or any Guarantor; provided, however, (A) that no such amendment,
waiver or consent shall have the effect of removing assets subject to the Lien
of the Noteholder Collateral Documents, except to the extent that a release of
such Lien is permitted by Section 5.1 and (B) notice of such amendment, waiver
or consent shall have been given to the Trustee.

 

5.4           Rights As Unsecured Creditors.  Notwithstanding anything to the contrary in
this Agreement, the Trustee and the Noteholders may exercise rights and
remedies as an unsecured creditor against the Borrower and its Subsidiaries in
accordance with the terms of the Noteholder Documents and applicable law.
Nothing in this Agreement shall prohibit the receipt by the Trustee or any
Noteholders of the required payments of interest and principal so long as such
receipt is not the direct or indirect result of the exercise by the Trustee or
any Noteholder of rights or remedies as a secured creditor or enforcement of
any Lien held by any of them in contravention of this Agreement. In the event
the Trustee or any Noteholder becomes a judgment lien creditor in respect of
Common Collateral as a result of its enforcement of its rights as an unsecured
creditor, such judgment lien shall be subordinated

 

11

 

to the Liens securing Senior
Lender Claims on the same basis as the other Liens securing the Noteholder
Claims are so subordinated to such Senior Lender Claims under this Agreement.
Nothing in this Agreement modifies any rights or remedies (x) the Senior Agent
or the Senior Lenders may have with respect to the Senior Lender Collateral or
(y) except as expressly set forth herein, the Trustee or the Noteholder may
have with respect to the Noteholder Collateral.

 

5.5           Bailee for Perfection.

 

(a)           The Senior Agent agrees to hold the Pledged Collateral
that is part of the Common Collateral in its possession or control (or in the
possession or control of its agents or bailees) as bailee for the Trustee and
any assignee solely for the purpose of perfecting the security interest granted
in such Pledged Collateral pursuant to the Noteholder Pledge Agreement and the
Noteholder Security Agreement, subject to the terms and conditions of this
Section 5.5.

 

(b)           Until the Discharge of Senior Lender Claims has occurred,
the Senior Agent shall be entitled to deal with the Pledged Collateral in
accordance with the terms of the Senior Lender Documents as if no bailee
arrangement with the Trustee existed. The rights of the Trustee shall at all
times be subject to the terms of this Agreement and to the Senior Agent’s
rights under the Senior Lender Documents.

 

(c)           The Senior Agent shall have no obligation whatsoever to
the Trustee or any Noteholder to assure that the Pledged Collateral is genuine
or owned by the Borrower or one of its Subsidiaries or to preserve rights or
benefits of any Person except as expressly set forth in this Section 5.5. The
duties or responsibilities of the Senior Agent under this Section 5.5 shall be
limited solely to holding the Pledged Collateral as bailee for the Trustee for
purposes of perfecting the Lien held by the Trustee.

 

(d)           Except as required by law, the Senior Agent shall not have
by reason of the Noteholder Pledge Agreement or this Agreement or any other
document a fiduciary relationship in respect of the Trustee or any Noteholder.

 

(e)           Upon the Discharge of Senior Lender Claims, the Senior
Agent shall deliver to the Trustee the Pledged Collateral together with any
necessary endorsements (or otherwise allow the Trustee to obtain control of
such Pledged Collateral) or as a court of competent jurisdiction may otherwise
direct.

 

5.6           When Discharge of Senior Lender Claims Deemed to Not
Have Occurred.  If at any time after
the Discharge of Senior Lender Claims has occurred the Borrower designates any
Future First-Lien Obligation to be the “Senior Lender Documents” hereunder,
then such Discharge of Senior Lender Claims shall automatically be deemed not
to have occurred for all purposes of this Agreement (other than with respect to
any actions taken prior to the date of such designation as a result of the
occurrence of such first Discharge of Senior Lender Claims), and such Future
First-Lien Obligation shall automatically be treated as the Senior Lender
Documents for all purposes of this Agreement, including without limitation for
purposes of the Lien priorities and rights in respect of Collateral set forth
herein. Upon receipt of notice of such designation (including the identity of
the new Senior Agent), the Trustee shall promptly deliver to the Senior Agent
the Pledged Collateral together with any necessary endorsements (or otherwise
allow such Senior Agent to obtain control of such Pledged Collateral).

 

12

 

Section 6.  Insolvency or Liquidation Proceedings.

 

6.1           Financing Issues. 
If any Borrower or Guarantor shall be subject to any Insolvency or
Liquidation Proceeding and the Senior Agent shall desire to permit the use of
cash collateral or to permit the Borrower to obtain financing under section 363
or section 364 of the Bankruptcy Code (“DIP Financing”), then the Trustee, on
behalf of itself and the Noteholders, agrees that it will raise no objection to
such use or DIP Financing and will not request adequate protection or any other
relief in connection therewith (except to the extent permitted by Section 6.3)
and, to the extent the Liens securing the Senior Lender Claims are subordinated
or pari passu with such DIP Financing, will subordinate its Liens in the Common
Collateral to such DIP Financing (and all Obligations relating thereto) on the
same basis as the other Liens securing the Noteholder Claims are so subordinated
to Senior Lender Claims under this Agreement.

 

6.2           Relief from the Automatic Stay.  Until the Discharge of Senior Lender Claims
has occurred, the Trustee, on behalf of itself and the Noteholders, agrees that
none of them shall seek relief from the automatic stay or any other stay in any
Insolvency or Liquidation Proceeding in respect of the Common Collateral,
without the prior written consent of the Senior Agent and the Required Lenders.

 

6.3           Adequate Protection.  The Trustee, on behalf of itself and the Noteholders, agrees that
none of them shall contest (or support any other Person contesting) (a) any
request by the Senior Agent or the Senior Lenders for adequate protection or
(b) any objection by the Senior Agent or the Senior Lenders to any motion, relief,
action or proceeding based on the Senior Agent or the Senior Lenders claiming a
lack of adequate protection. Notwithstanding the foregoing contained in this
Section 6.3, in any Insolvency or Liquidation Proceeding, (i) if the Senior
Lenders (or any subset thereof) are granted adequate protection in the form of
additional collateral in connection with any DIP Financing or use of its cash
collateral under section 363 or section 364 of the Bankruptcy Code, then the
Trustee, on behalf of itself or any of the Noteholders, may seek or request
adequate protection in the form of a replacement Lien on such additional
collateral, which Lien is subordinated to the Liens securing the Senior Lender
Claims and such DIP Financing (and all Obligations relating thereto) on the
same basis as the other Liens securing the Noteholder Claims are so
subordinated to the Senior Lender Claims under this Agreement, and (ii) in the
event the Trustee, on behalf of itself and the Noteholders, seeks or requests
adequate protection and such adequate protection is granted in the form of
additional collateral, then the Trustee, on behalf of itself or any of the
Noteholders, agrees that the Senior Agent shall also be granted a senior Lien
on such additional collateral as security for the Senior Lender Claims and any
such DIP Financing and that any Lien on such additional collateral securing the
Noteholder Claims shall be subordinated to the Liens on such collateral
securing the Senior Lender Claims and any such DIP Financing (and all Obligations
relating thereto) and any other Liens granted to the Senior Lenders as adequate
protection on the same basis as the other Liens securing the Noteholder Claims
are so subordinated to such Senior Lender Claims under this Agreement.

 

6.4           No Waiver. 
Nothing contained herein shall prohibit or in any way limit the Senior
Agent or any Senior Lender from objecting in any Insolvency or Liquidation
Proceeding or otherwise to any action taken by the Trustee or any of the
Noteholders, including, without

 

13

 

limitation, the seeking by the
Trustee or any Noteholder of adequate protection or the asserting by the
Trustee or any Noteholder of any of its rights and remedies under the
Noteholder Documents or otherwise.

 

6.5           Preference Issues. 
If any Senior Lender is required in any Insolvency or Liquidation
Proceeding or otherwise to turn over or otherwise pay to the estate of the
Borrower or any Guarantor any amount (a “Recovery”), then the Senior Lender
Claims shall be reinstated to the extent of such Recovery and the Senior
Lenders shall be entitled to a Discharge of Senior Lender Claims with respect
to all such recovered amounts. If this Agreement shall have been terminated
prior to such Recovery, this Agreement shall be reinstated in full force and
effect, and such prior termination shall not diminish, release, discharge,
impair or otherwise affect the obligations of the parties hereto from such date
of reinstatement.

 

Section 7.  Reliance; Waivers; etc.

 

7.1           Reliance. 
(a) The consent by the Senior Lenders to the execution and delivery of
the Noteholder Documents and the grant to the Trustee on behalf of the
Noteholders of a Lien on the Common Collateral and all loans and other
extensions of credit made or deemed made on and after the date hereof by the
Senior Lenders to the Borrower shall be deemed to have been given and made in
reliance upon this Agreement.  The
Trustee, on behalf of itself and the Noteholders, acknowledges that it and the
Noteholders have, independently and without reliance on the Senior Agent or any
Senior Lender, and based on documents and information deemed by them
appropriate, made their own credit analysis and decision to enter into the
Indenture, this Agreement and the transactions contemplated hereby and thereby
and they will continue to make their own credit decision in taking or not
taking any action under the Indenture or this Agreement.

 

(b)           The Senior Agent, on behalf of itself and Lenders,
acknowledges that it and the Lenders have, independently and without reliance
on the Trustee or any Noteholder, and based on documents and information deemed
by them appropriate, made their own credit analysis and decision to enter into
the Senior Loan Documents, this Agreement and the transactions contemplated
hereby and thereby and they will continue to make their own credit decision in
taking or not taking any action under the Senior Loan Documents or this
Agreement.

 

7.2           No Warranties or Liability.  (a) 
The Trustee, on behalf of itself and Noteholders, acknowledges and
agrees that each of the Senior Agent and the Senior Lenders have made no
express or implied representation or warranty, including, without limitation,
with respect to the execution, validity, legality, completeness, collectibility
or enforceability of any of the Senior Lender Documents.  The Senior Lenders will be entitled to
manage and supervise their respective loans and extensions of credit to the
Borrower in accordance with law and as they may otherwise, in their sole
discretion, deem appropriate, and the Senior Lenders may manage their loans and
extensions of credit without regard to any rights or interests that the Trustee
or any of the Noteholders have in the Common Collateral or otherwise, except as
otherwise provided in this Agreement. Neither the Senior Agent nor any Senior
Lender shall have any duty to the Trustee or any of the Noteholders to act or
refrain from acting in a manner which allows, or results in, the occurrence or
continuance of an event of default or default under any agreements

 

14

 

with the Borrower (including,
without limitation, the Noteholder Documents), regardless of any knowledge
thereof which they may have or be charged with.

 

(b)           The Senior Agent, on behalf of itself and Lenders,
acknowledges and agrees that each of the Trustee and the Noteholders have made
no express or implied representation or warranty, including, without
limitation, with respect to the execution, validity, legality, completeness,
collectibility or enforceability of any of the Noteholder Documents.

 

7.3           No Waiver of Lien Priorities.

 

(a)           No right of the Senior Lenders, the Senior Agent or any of
them to enforce any provision of this Agreement shall at any time in any way be
prejudiced or impaired by any act or failure to act on the part of the Borrower
or the Guarantors or by any act or failure to act by any Senior Lender or the
Senior Agent, or by any noncompliance by any Person with the terms, provisions
and covenants of this Agreement, any of the Senior Lender Documents or any of
the Noteholder Documents, regardless of any knowledge thereof which the Senior
Agent or the Senior Lenders, or any of them, may have or be otherwise charged
with;

 

(b)           Without in any way limiting the generality of the
foregoing paragraph (but subject to the rights of the Borrower and the
Guarantors under the Senior Lender Documents), the Senior Lenders, the Senior
Agent and any of them, may, at any time and from time to time, without the
consent of, or notice to, the Trustee or any Noteholder, without incurring any
liabilities to the Trustee or any Noteholder and without impairing or releasing
the lien priorities and other benefits provided in this Agreement (even if any
right of subrogation or other right or remedy of the Trustee or any Noteholder
is affected, impaired or extinguished thereby) do any one or more of the
following:

 

(i)            change the manner,
place or terms of payment or change or extend the time of payment of, or renew,
exchange, amend, increase or alter, the terms of any of the Senior Lender
Claims or any Lien in any Senior Lender Collateral or guaranty thereof or any
liability of the Borrower or any Guarantor, or any liability incurred directly
or indirectly in respect thereof (including, without limitation, any increase
in or extension of the Senior Lender Claims, without any restriction as to the
amount, tenor or terms of any such increase or extension) or otherwise amend,
renew, exchange, extend, modify or supplement in any manner any Liens held by the
Senior Lenders, the Senior Lender Claims or any of the Senior Lender Documents;

 

(ii)           sell, exchange,
release, surrender, realize upon, enforce or otherwise deal with in any manner
and in any order any part of the Senior Lender Collateral or any liability of
the Borrower or any Guarantor to the Senior Lenders or the Senior Agent, or any
liability incurred directly or indirectly in respect thereof;

 

(iii)          settle or
compromise any Senior Lender Claim or any other liability of the Borrower or
any Guarantor or any security therefor or any liability incurred directly or
indirectly in respect thereof and apply any sums by

 

15

 

whomsoever
paid and however realized to any liability (including, without limitation, the
Senior Lender Claims) in any manner or order; and

 

(iv)          exercise or delay in
or refrain from exercising any right or remedy against the Borrower or any
security or any Guarantor or any other Person, elect any remedy and otherwise
deal freely with the Borrower and the Senior Lender Collateral and any security
and any guarantor or any liability of the Borrower or any Guarantor to the
Senior Lenders or any liability incurred directly or indirectly in respect
thereof;

 

(c)           The Trustee, on behalf of itself and the Noteholders, also
agrees that the Senior Lenders and the Senior Agent shall have no liability to
the Trustee or any Noteholder, and the Trustee, on behalf of itself and the
Noteholders, hereby waives any claim against any Senior Lender or the Senior Agent,
arising out of any and all actions which the Senior Lenders or the Senior Agent
may take or permit or omit to take with respect to:  (i) the Senior Lender Documents, (ii) the collection of the
Senior Lender Claims or (iii) the foreclosure upon, or sale, liquidation or
other disposition of, the Senior Lender Collateral. The Trustee, on behalf of
itself and the Noteholders, agrees that the Senior Lenders and the Senior Agent
have no duty to them in respect of the maintenance or preservation of the Senior
Lender Collateral, the Senior Lender Claims or otherwise; and

 

(d)           The Trustee, on behalf of itself and the Noteholders,
agrees not to assert and hereby waives, to the fullest extent permitted by law,
any right to demand, request, plead or otherwise assert or otherwise claim the
benefit of, any marshalling, appraisal, valuation or other similar right that
may otherwise be available under applicable law or any other similar rights a
junior secured creditor may have under applicable law.

 

7.4           Obligations Unconditional.  All rights, interests, agreements and
obligations of the Senior Agent and the Senior Lenders and the Trustee and the
Noteholders, respectively, hereunder shall remain in full force and effect
irrespective of:

 

(a)           any lack of validity or enforceability of the Senior
Lender Documents or any Noteholder Documents;

 

(b)           any change in the time, manner or place of payment of, or
in any other terms of, all or any of the Senior Lender Claims or Noteholder
Claims, or any amendment or waiver or other modification, including, without
limitation, any increase in the amount thereof, whether by course of conduct or
otherwise, of the terms of the Senior Credit Agreement or any other Senior
Lender Document or of the terms of the Indenture or any other Noteholder
Document;

 

(c)           any exchange of any security interest in any Common
Collateral or any other collateral, or any amendment, waiver or other
modification, whether in writing or by course of conduct or otherwise, of all
or any of the Senior Lender Claims or Noteholder Claims or any guarantee
thereof;

 

16

 

(d)           the commencement of any Insolvency or Liquidation
Proceeding in respect of the Borrower or any Guarantor; or

 

(e)           any other circumstances which otherwise might constitute a
defense available to, or a discharge of, any Borrower or Guarantor in respect
of the Senior Lender Claims, or of the Trustee or any Noteholder in respect of
this Agreement.

 

Section 8.  Miscellaneous.

 

8.1           Conflicts. 
In the event of any conflict between the provisions of this Agreement
and the provisions of the Senior Lender Documents or the Noteholder Documents,
the provisions of this Agreement shall govern.

 

8.2           Continuing Nature of this Agreement.  This Agreement shall continue to be effective
until the Discharge of Senior Lender Claims shall have occurred. This is a
continuing agreement of lien subordination and the Senior Lenders may continue,
at any time and without notice to the Trustee or any Noteholder, to extend
credit and other financial accommodations and lend monies to or for the benefit
of the Borrower constituting Senior Lender Claims on the faith hereof. The
Trustee, on behalf of itself and the Noteholders, hereby waives any right it
may have under applicable law to revoke this Agreement or any of the provisions
of this Agreement. The terms of this Agreement shall survive, and shall
continue in full force and effect, in any Insolvency or Liquidation Proceeding.

 

8.3           Amendments; Waivers.  No amendment, modification or waiver of any of the provisions of
this Agreement by the Trustee or the Senior Agent shall be deemed to be made
unless the same shall be in writing signed on behalf of the party making the
same or its authorized agent and each waiver, if any, shall be a waiver only
with respect to the specific instance involved and shall in no way impair the
rights of the parties making such waiver or the obligations of the other
parties to such party in any other respect or at any other time. The Borrower
and Guarantors shall not have any right to amend, modify or waive any provision
of this Agreement without the consent of the Trustee or the Senior Agent, as
applicable, nor shall any consent or signed writing be required of any of them
to effect any amendment, modification or waiver of any provision of this
Agreement, except that no amendment, modification or waiver affecting any
obligation or right of the Borrower or any Guarantor hereunder shall be made
without the consent of the Borrower.

 

8.4           Information Concerning Financial Condition of the
Borrower and its Subsidiaries.  The
Senior Agent and the Senior Lenders, on the one hand, and the Trustee and the
Noteholders, on the other hand, shall each be responsible for keeping
themselves informed of (a) the financial condition of the Borrower and its
Subsidiaries and all endorsers and/or guarantors of the Noteholder Claims or
the Senior Lender Claims and (b) all other circumstances bearing upon the risk
of nonpayment of the Noteholder Claims or the Senior Lender Claims. The Senior Agent
and the Senior Lenders shall have no duty to advise the Trustee or any
Noteholder of information known to it or them regarding such condition or any
such circumstances or otherwise. In the event the Senior Agent or any of the
Senior Lenders, in its or their sole discretion, undertakes at any time or from
time to time to provide any such information to the Trustee or any Noteholder,
it or they shall be under no obligation (x) to provide any additional
information or to provide any

 

17

 

such information on any
subsequent occasion, (y) to undertake any investigation or (z) to disclose any
information which, pursuant to accepted or reasonable commercial finance
practices, such party wishes to maintain confidential.

 

8.5           Subrogation. 
The Trustee, on behalf of itself and the Noteholders, hereby waives any
rights of subrogation it may acquire as a result of any payment hereunder until
the Discharge of Senior Lender Claims has occurred.

 

8.6           Application of Payments.  All payments received by the Senior Lenders may be applied,
reversed and reapplied, in whole or in part, to such part of the Senior Lender
Claims as the Senior Lenders, in their sole discretion, deem appropriate.

 

8.7           Consent to Jurisdiction; Waivers.  The parties hereto consent to the
jurisdiction of any state or federal court located in New York, New York, and
consent that all service of process may be made by registered mail directed to
such party as provided in Section 8.8 below for such party. Service so made
shall be deemed to be completed three (3) days after the same shall be posted
as aforesaid. The parties hereto waive any objection to any action instituted
hereunder based on forum non conveniens, and any objection to the venue of any
action instituted hereunder. Each of the parties hereto waives any right it may
have to trial by jury in respect of any litigation based on, or arising out of,
under or in connection with this Agreement or any other Loan Document, or any
course of conduct, course of dealing, verbal or written statement or action of
any party hereto.

 

8.8           Notices. 
All notices to the Noteholders and the Senior Lenders permitted or
required under this Agreement may be sent to the Trustee and the Senior Agent,
respectively. Unless otherwise specifically provided herein, any notice or
other communication herein required or permitted to be given shall be in
writing and may be personally served, telecopied, electronically mailed (other
than notices to the Trustee) or sent by courier service or U.S. mail and shall
be deemed to have been given when delivered in person or by courier service,
upon receipt of a telecopy or electronic mail or four Business Days after
deposit in the U.S. mail (registered or certified, with postage prepaid and properly
addressed). For the purposes hereof, the addresses of the parties hereto shall
be as set forth below each party’s name on the signature pages hereto, or, as
to each party, at such other address as may be designated by such party in a
written notice to all of the other parties.

 

8.9           Further Assurances.  The Trustee, on behalf of itself and the Noteholders, agrees that
it shall take such further action and shall execute and deliver to the Senior
Agent and the Senior Lenders such additional documents and instruments (in
recordable form, if requested) as the Senior Agent or the Senior Lenders
may-reasonably request to effectuate the terms of and the lien priorities
contemplated by this Agreement.

 

8.10         Governing Law. 
This Agreement has been delivered and accepted at and shall be deemed to
have been made at New York, New York and shall be interpreted, and the rights
and liabilities of the parties bound hereby determined, in accordance with the
laws of the State of New York.

 

18

 

8.11         Binding on Successors and Assigns.  This Agreement shall be binding upon the
Senior Agent, the Senior Lenders, the Trustee, the Noteholders and their
respective permitted successors and assigns.

 

8.12         Specific Performance.  The Senior Agent may demand specific performance of this
Agreement. The Trustee, on behalf of itself and the Noteholders hereby
irrevocably waives any defense based on the adequacy of a remedy at law and any
other defense which might be asserted to bar the remedy of specific performance
in any action which may be brought by the Senior Agent.

 

8.13         Section Titles; Time Periods.  The section titles contained in this
Agreement are and shall be without substantive meaning or content of any kind
whatsoever and are not a part of this Agreement.  In the computation of time periods, unless otherwise specified,
the word “from” means “from and including” and each of the words “to” and
“until” means “to but excluding” and the word “through” means “to and
including”.

 

8.14         Counterparts. 
This Agreement may be executed in one or more counterparts, each of
which shall be an original and all of which shall together constitute one and
the same document.

 

8.15         Authorization. 
By its signature, each Person executing this Agreement on behalf of a
party hereto represents and warrants to the other parties hereto that it is
duly authorized to execute this Agreement.

 

8.16         No Third Party Beneficiaries.  This Agreement and the rights and benefits
hereof shall inure to the benefit of the Senior Agent and the Senior Lenders
and their respective successors and assigns and, to the extent applicable, the
Borrower, the Guarantors, the Trustee, the trustee under the Indenture and the
Noteholders and their respective permitted successors and assigns.  No other Person, shall have or be entitled
to assert rights or benefits hereunder. 
Notwithstanding anything to the contrary in this Agreement, the Borrower
shall cause the Guarantors to comply with the terms of this Agreement.

 

8.17         Effectiveness. 
This Agreement shall become effective when executed and delivered by the
parties hereto.  This Agreement shall be
effective both before and after the commencement of any Insolvency or
Liquidation Proceeding.  All references
to the Borrower or Guarantors shall include any Borrower or Guarantor as debtor
and debtor-in-possession and any receiver or trustee for the Borrower or any
Guarantor (as the case may be) in any Insolvency or Liquidation Proceeding.

 

8.18         Trustee. The
Trustee shall not be deemed to owe any fiduciary duty to the Senior Agent or
the Senior Lenders.  With respect to the Senior Lenders and the Senior
Agent, the Trustee undertakes to perform or to observe only those covenants and
obligations specifically set forth in this Agreement and no implied covenants
or obligations shall be read into this Agreement against the Trustee.   The Trustee hereby disclaims any
representation or warranty to the Senior Agent or Senior
Lenders concerning the perfection of the liens and security interests
granted hereunder or in the value of any of the Collateral.  The Senior Agent agrees that it will give
the Trustee prompt notice of the occurrence of the Discharge of the Senior
Lender Claims,

 

19

 

provided, however, the failure
to give such notice will not impair any rights of the Senior Agent hereunder or
the duties and obligations of the Trustee hereunder.  Notwithstanding the provisions of Section 8.8, any notice to the
Trustee will be effective only upon receipt.

 

20

 

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written above.

 

	
   

  	
  Senior Agent:

  
	
   

  	
   

  
	
   

  	
  BANK OF AMERICA, N.A.,  as
  Senior Agent

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Louis Alexander

  	
   

  
	
   

  	
  Name:

  	
   Louis Alexander

  	
   

  
	
   

  	
  Title:

  	
  SVP

  	
   

  
	
   

  	
   

  
	
   

  	
  Address:

  
	
   

  	
   

  
	
   

  	
  335 Madison Avenue

  
	
   

  	
  New York, NY 10017

  
	
   

  	
  Attention: Business Credit - Account Executive

  
	
   

  	
  Telecopy no.: (212) 503-7899

  
	
   

  	
  email address: louis.m.alexander@bankofamerica.com

  
	
   

  	
   

  
	
   

  	
  Trustee:

  
	
   

  	
   

  
	
   

  	
  THE BANK OF NEW YORK, as

  
	
   

  	
  Collateral Agent

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Robert Massimillo

  	
   

  
	
   

  	
  Name:

  	
   Robert Massimillo

  	
   

  
	
   

  	
  Title:

  	
   Vice President

  	
   

  
	
   

  	
   

  
	
   

  	
  Address:

  
	
   

  	
   

  
	
   

  	
  The Bank of New York

  
	
   

  	
  101 Barclay Street, Floor 8
  West

  
	
   

  	
  New York, NY  10286

  
	
   

  	
  Attention: Corporate Trust Administration

  
	
   

  	
  Telecopy no.: 212-815-5704

  
	
   

  	
   

  
	
   

  	
  AMERICAN COLOR GRAPHICS, INC.

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Patrick Kellick

  	
   

  
	
   

  	
  Name:

  	
   Patrick Kellick

  	
   

  
	
   

  	
  Title:

  	
   SVP/CFO

  	
   

  
	
   

  	
   

  
	
   

  	
  Address:

  
	
   

  	
   

  
	
   

  	
  100 Winner’s Circle

  
	
   

  	
  Brentwood, TN  37027

  
	
   

  	
  Attention: Patrick W. Kellick

  
	
   

  	
  Telecopy no.: (625) 377-0348

  
	
   

  	
  email address: 
  pat.kellick@amcg.com

  

 

 

21EXHIBIT 10.17

 

SECURITY
AGREEMENT

 

SECURITY
AGREEMENT, dated as of July 3, 2003, among AMERICAN COLOR GRAPHICS, INC, a New
York corporation (the “Company”), and ACG HOLDINGS, INC., a Delaware
corporation (the “Parent”; together with the Company and the other
Guarantors, the “Grantors” and each individually a “Grantor”),
and THE BANK OF NEW YORK, in its capacity as collateral agent (and any
successor collateral agent, the “Agent”) for the Holders (as defined
below).

 

W I T N E S S
E T H:

 

WHEREAS, pursuant
to that certain Indenture dated as of the date hereof by and among Company,
Parent and The Bank of New York (the “Trustee”) as from time to time
amended, restated, supplemented or otherwise modified (the “Indenture”),
the Company has authorized issuance from time to time of Senior Second Secured
Notes (the  “Notes”) which are
guaranteed by Parent and the other Guarantors;

 

WHEREAS, the Parent and the other Guarantors will receive substantial
direct and indirect benefits from the Indenture and the Notes issued thereunder
by its wholly-owned subsidiary, the Company;

 

WHEREAS, the
Grantors have agreed to grant a continuing second priority Lien on the
Collateral (as hereinafter defined) to secure the Obligations;

 

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

 

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

 

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

 

“Account Debtor”
means each Person obligated in any way on or in connection with an Account,
Chattel Paper or General Intangibles (including a payment intangible).

 

“Agent’s
Commercial Judgment” means the commercially reasonable judgment of the
Agent as to credit or, where applicable, other matters, in each case exercised
in good faith.

 

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

 

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

 

 

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

 

“Equipment”
means all of each Grantor’s now owned and hereafter acquired machinery,
equipment, furniture, furnishings, fixtures, and other tangible personal
property (except Inventory), including embedded software, aircraft, dies,
tools, jigs, molds and office equipment, as well as all of such types of
property leased by each Grantor and all of each Grantor’s rights and interests
with respect thereto under such leases (including, without limitation, options
to purchase); together with all present and future additions and accessions
thereto, replacements therefor, component and auxiliary parts and supplies used
or to be used in connection therewith, and all substitutes for any of the foregoing,
and all manuals, drawings, instructions, warranties and rights with respect
thereto; wherever any of the foregoing is located.

 

“General
Intangibles” means all of each Grantor’s now owned or hereafter acquired
general intangibles, choses in action and causes of action and all other
intangible personal property of each Grantor of every kind and nature (other
than Accounts), including, without limitation, all contract rights, payment
intangibles, Proprietary Rights, corporate or other business records,
inventions, designs, blueprints, plans, specifications, patents, patent
applications, trademarks, service marks, trade names, trade secrets, goodwill,
copyrights, computer software, customer lists, registrations, licenses,
franchises, tax refund claims, any funds which may become due to any Grantor in
connection with the termination of any employee benefit plan or any rights
thereto and any other amounts payable to any Grantor from any employee benefit
plan, rights and claims against carriers and shippers, rights to
indemnification, business interruption insurance and proceeds thereof,
property, casualty or any similar type of insurance and any proceeds thereof,
proceeds of insurance covering the lives of key employees on which any Grantor
is beneficiary, rights to receive dividends, distributions, cash, Instruments
and other property in respect of or in exchange for pledged equity interests or
Investment Property and any letter of credit, guarantee, claim, security
interest or other security held by or granted to each Grantor.

 

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

 

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

 

“Intercreditor
Agreement” means the Intercreditor Agreement dated as of July 3, 2003 among
the Company, the Agent and Bank of America, N.A. as Senior Agent, as amended,
renewed, restated, extended, supplemented or modified from time to time.

 

“Inventory”
means all of each Grantor’s now owned and hereafter acquired inventory, goods
and merchandise, wherever located, to be furnished under any contract of
service or held for sale or lease, all returned goods, raw materials,
work-in-process, finished goods (including embedded software), other materials
and supplies of any kind, nature or 

 

2

 

description which are used or consumed in each Grantor’s business or
used in connection with the packing, shipping, advertising, selling or
finishing of such goods, merchandise, and all documents of title or other
Documents representing them.

 

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

 

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

 

“Material
Adverse Effect” means (a) a material adverse effect upon the business,
assets, liabilities (actual or contingent), condition (financial or otherwise),
prospects or results of operations of (i) the Company or (ii) the Parent and
its Subsidiaries taken as a whole; (b) a material impairment of the ability of
the Company or any Guarantor to perform its obligations under the Indenture or
any Security Document to which it is a party; or (c) a material adverse effect
upon the legality validity, binding effect or enforceability against the
Company or any Guarantor of the Indenture or any Security Document to which it
is a party.

 

“Mortgage”
means, collectively (or individually as the context may indicate), each
mortgage or deed of trust delivered on the Closing Date or hereafter entered
into in connection with this Agreement to secure all Obligations now existing
or hereafter arising, as from time to time modified, amended, supplemented or
amended and restated.

 

“Obligations”
shall have the meaning set forth in the Intercreditor Agreement.

 

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

 

“Proprietary
Rights” means all of each Grantor’s now owned and hereafter arising or
acquired: licenses, franchises, permits, patents, patent rights, copyrights,
trademarks, works which are the subject matter of copyrights, trademarks,
service marks, trade names, trade styles, patent, trademark and service mark
applications, and all licenses, goodwill and rights related to any of the
foregoing, and all other rights under any of the foregoing, all extensions,
renewals, reissues, divisions, continuations, and continuations-in-part of any
of the foregoing, and all rights to sue for past, present and future
infringement of any of the foregoing.

 

“Required
Holders” means such Holder(s) as are entitled to take action or direct the
Trustee pursuant to the terms of the Indenture.

 

“Software”
means all “software” as such term is defined in the UCC, now owned or hereafter
acquired by each Grantor, other than software embedded in any category of
Goods, including all computer programs and all supporting information provided
in connection with a transaction related to any program.

 

3

 

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

 

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

 

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

 

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

 

2.             GRANT
OF LIEN.

 

(a)           As security for all Obligations, each
Grantor hereby grants to the Agent, for the benefit of the Agent, the Trustee
and the Holders, a continuing security interest in, lien on, assignment of and
right of set-off against, all of its property and assets (other than motor
vehicles and rolling stock), whether now owned or existing or hereafter
acquired or arising, regardless of where located, including the following:

 

(i)            all Accounts;

 

(ii)           all Inventory;

 

(iii)          all contract rights;

 

(iv)          all Chattel Paper;

 

(v)           all Documents;

 

(vi)          all Instruments (other than
Instruments subject to the Pledge Agreement);

 

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

 

(viii)        all General Intangibles (including
payment intangibles and Software);

 

(ix)           all Goods;

 

(x)            all Equipment;

 

(xi)           all Investment Property (other than
Instruments subject to the Pledge Agreement);

 

(xii)          all money, cash, cash equivalents,
securities and other property of any kind of such Grantor held or controlled
directly or indirectly by the Agent (other than Instruments subject to the
Pledge Agreement);

 

4

 

(xiii)         all of such Grantor’s Deposit Accounts,
credits, and balances with and other claims against any financial institution
with which such Grantor maintains deposits, including any Payment Accounts;

 

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

 

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

 

Anything herein to the contrary notwithstanding, the
Collateral shall not include any agreement with a third party existing on the
date hereof that prohibits the grant of a Lien on (but not merely the
assignment of or of any interest in) such agreement or any of the Grantor’s
rights thereunder without the consent of such party or under which a consent to
such grant is otherwise required, which consent has not been obtained, except
to the extent any such prohibition is made ineffective as a result of Section
9-401, 9-406(d), 9-407, 9-408, or 9-409 of the UCC; provided, however, that the
Collateral shall include (A) the Proceeds of the above to the extent such
Proceeds are otherwise included in the Collateral, and (B) all items excluded
pursuant to this sentence from and after the date on which the requisite
consent is obtained.

 

All of the foregoing, together with the Mortgaged
Property, all equity interests in Subsidiaries pledged to the Agent and all
other property of the Grantors in which the Agent, the Trustee or any Holder
may at any time be granted a Lien as collateral for the Obligations, is herein
collectively referred to as the “Collateral.”

 

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

 

3.             PERFECTION AND PROTECTION OF SECURITY INTEREST.

 

(a)           Each of the Grantors shall, at their
own expense, perform all steps requested by the Agent at any time to perfect,
maintain, protect, and enforce the Agent’s Liens, including:  (i) executing, delivering and/or filing
and recording of the Mortgages and executing and filing financing or continuation
statements, and amendments thereof, in form and substance reasonably
satisfactory to the Agent; (ii) delivering to the Agent warehouse receipts
covering any portion of the Collateral located in warehouses and for which
warehouse receipts are issued and certificates of title covering any portion of
the collateral for which certificates of title have been issued;
(iii) when an Event of Default has occurred and is continuing,
transferring Inventory to warehouses or other locations designated by the Agent;
(iv) placing notations on such Grantor’s books of account to disclose the
Agent’s security interest; and (v) taking such other steps as are deemed
necessary or desirable by the Agent to maintain and protect the Agent’s Liens;
provided that on the anniversary of the Closing Date and within 15 days after
the Agent’s request therefor, the Company shall furnish the Agent an Opinion of
Counsel pursuant to Section 11.04 of the Indenture, whether or not such Opinion
of Counsel is required by the TIA.  Each
Grantor agrees 

 

5

 

that a carbon, photographic, photostatic, or other
reproduction of this Security Agreement or of a financing statement is
sufficient as a financing statement.

 

(b)           Unless Agent shall otherwise consent
in writing (which consent may be revoked), each Grantor shall deliver to Agent
all Collateral consisting of negotiable Documents, certificated securities
(accompanied by stock papers executed in blank), Chattel Paper and Instruments
promptly after such Grantor receives the same.

 

(c)           If required by the terms of hereof
and not waived by Agent in writing (which waiver may be revoked), 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 such Grantor.

 

(d)           If any Grantor is or becomes the
beneficiary of a letter of credit such Grantor shall promptly notify Agent
thereof and enter into a tri–party agreement with Agent (or an agent or
bailee of Agent) and the issuer and/or confirmation bank with respect to
Letter-of-Credit Rights assigning such Letter-of-Credit Rights to Agent and
directing all payments thereunder to the Payment Account, all in form and
substance reasonably satisfactory to Agent.

 

(e)           Each Grantor shall take all steps
necessary to grant the Agent (or an agent or bailee of Agent) control of all
electronic chattel paper in accordance with the Code and all “transferable
records” as defined in the Uniform Electronic Transactions Act.

 

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

 

(g)           Each Grantor shall promptly notify
Agent of any commercial tort claim (as defined in the UCC) acquired by it and
unless otherwise consented by Agent, each Grantor shall enter into a supplement
to this Security Agreement, granting to Agent a Lien in such commercial tort
claim.

 

(h)           From time to time, each Grantor
shall, upon the Agent’s request, execute and deliver confirmatory written
instruments pledging to the Agent, for the ratable benefit of the Agent and the
Lenders, the Collateral, but any Grantor’s failure to do so shall not affect or
limit 

 

6

 

any security interest or any other rights of the Agent
or any Lender in and to the Collateral with respect to any Grantor.  So long as the Indenture is in effect and
until all Obligations have been fully satisfied, the Agent’s Liens shall
continue in full force and effect in all Collateral (whether or not deemed
eligible for the purpose of calculating the Availability or as the basis for
any advance, loan, extension of credit, or other financial accommodation).

 

(i)            No Reincorporation.  Without limiting the prohibitions on mergers
involving the Grantors contained in the Indenture, each Grantor shall not
reincorporate or reorganize itself under the laws of any jurisdiction other
than the jurisdiction in which it is incorporated or organized as of the date
hereof or change its type of entity as identified on Schedule II without
the prior written consent of Agent.

 

(j)            Terminations Amendments Not
Authorized.  Each Grantor
acknowledges that it is not authorized to file any financing statement or
amendment or termination statement with respect to any financing statement
without the prior written consent of Agent and agrees that it will not do so
without the prior written consent of Agent, subject to such Grantor’s rights
under Section 9-509(d)(2) of the UCC.

 

(k)           No Restriction on Payments to
Agent.  No Grantor shall enter into
any Contract that restricts or prohibits the grant of a security interest in
Accounts, Chattel Paper, Instruments or payment intangibles or the proceeds of
the foregoing to Agent.

 

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

 

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

 

6.             TITLE
TO, LIENS ON, AND SALE AND USE OF COLLATERAL.  Each Grantor represents and warrants to the
Agent, the Trustee and the Holders and agrees with the Agent, the Trustee and
the Holders that: (a) such Grantor has rights in and the power to transfer
all of the Collateral free and clear of all Liens whatsoever, except for
Permitted Liens; (b) the 

 

7

 

Agent’s Liens in the
Collateral will not be subject to any prior Lien except as set forth in the
Indenture; and (c) such Grantor will use, store, and maintain the
Collateral with all reasonable care and will use such Collateral for lawful
purposes only.

 

7.             APPRAISALS.  Company shall provide the Agent with
appraisals of the Collateral as Agent may from time to time reasonably request.

 

8.             ACCESS AND EXAMINATION.  The Grantors shall permit representatives
and independent contractors of Agent access to their properties and records
from time to time upon the reasonable request of Agent.

 

9.             COLLATERAL REPORTING.  Each Grantor shall provide the Agent with
the following documents at the following times in form satisfactory to the
Agent: (a) upon request, copies of invoices in connection with the Grantor’s
Accounts, customer statements, credit memos, remittance advices and reports,
deposit slips, shipping and delivery documents in connection with such
Grantor’s Accounts and for Inventory and Equipment acquired by such Grantor,
purchase orders and invoices; (b) upon request, a statement of the balance of
each of the Intercompany Accounts; (c) such other reports as to the
Collateral of such Grantor as the Agent shall in the Agent’s Commercial
Judgment request from time to time; and (d) with the delivery of each of
the foregoing, a certificate of such Grantor executed by an officer thereof
certifying as to the accuracy and completeness of the foregoing.  If either of the Grantor’s records or
reports of the Collateral of type required to be delivered hereunder are
prepared by an accounting service or other agent, such Grantor hereby
authorizes such service or agent to deliver such records, reports, and related
documents (but only to the extent necessary to satisfy the foregoing reporting
requirements) to the Agent, for distribution to the Trustee and the Holders.

 

10.          ACCOUNTS.  Each Grantor hereby represents and warrants
to the Agent, the Trustee and the Holders, with respect to such Grantor’s
Accounts, that each existing Account represents, and each future Account will
represent, a bona fide sale or lease and shipment of goods by such Grantor, or
rendition of services by such Grantor, in the ordinary course of such Grantor’s
business.

 

11.          COLLECTION OF ACCOUNTS; PAYMENTS.

 

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

 

8

 

Agent, and all funds in any Payment Account or other
account to which such collections are deposited shall be subject to the Agent’s
sole control and withdrawals by any Grantor shall not be permitted.  The Agent or the Agent’s designee may, at
any time after the occurrence of an Event of Default, notify Account Debtors
that the Accounts have been assigned to the Agent and of the Agent’s security
interest therein, and may collect them directly and charge the collection costs
and expenses to the Grantors.  So long
as an Event of Default has occurred and is continuing, each Grantor, at the
Agent’s request, shall execute and deliver to the Agent such documents as the
Agent shall require to grant the Agent access to any post office box in which
collections of Accounts are received.

 

(b)           If sales of Inventory are made or
services are rendered for cash, each Grantor shall immediately deliver to the
Agent or deposit into a Payment Account the cash which such Grantor receives.

 

12.          INVENTORY; PERPETUAL INVENTORY.

 

(a)           Each Grantor represents and warrants
to the Agent, the Trustee and the Holders and agrees with the Agent, the
Trustee and the Holders that all of the Inventory owned by such Grantor is and
will be held for sale or lease, or to be furnished in connection with the
rendition of services, in the ordinary course of such Grantor’s business, and
is and will be fit for such purposes. 
Each Grantor will keep its Inventory in good and marketable condition,
except for damaged or defective goods arising in the ordinary course of such
Grantor’s business.  No Grantor will,
without the prior written consent of the Agent, acquire or accept any Inventory
on consignment or approval.  Each
Grantor agrees that all Inventory produced by such Grantor in the United States
of America will be produced in accordance with the Federal Fair Labor Standards
Act of 1938, as amended, and all rules, regulations, and orders
thereunder.  Each Grantor will conduct a
physical count of the Inventory at least once per Fiscal Year, and after and
during the continuation of an Event of Default, at such other times as the
Agent requests.  Each Grantor will
maintain a perpetual inventory reporting system at all times, except with
respect to Inventory at its Shakopee, Minnesota plant at which it may continue
its current inventory reporting system. 
No Grantor will, without the Agent’s written consent, sell any Inventory
on a bill-and-hold, guaranteed sale, sale and return, sale on approval,
consignment, or other repurchase or return basis.

 

(b)           Each Grantor shall, at the Agent’s
request, designate the Agent as the consignee on all bills of lading and other
negotiable and non-negotiable documents.

 

13.          EQUIPMENT.

 

(a)           Each Grantor represents and warrants
to the Agent, the Trustee and the Holders and agrees with the Agent, the
Trustee and the Holders that all of the Equipment owned by such Grantor is and
will be used or held for use in such Grantor’s business, and is and will be fit
for such purposes.  Each Grantor shall
keep and maintain its Equipment in good operating condition and repair
(ordinary wear and tear excepted) and shall make all necessary replacements
thereof.

 

9

 

(b)           Each Grantor shall promptly inform
the Agent of any material additions to or deletions from the Equipment.  No Grantor shall permit any Equipment to
become a fixture with respect to real property or to become an accession with
respect to other personal property with respect to which real or personal
property the Agent does not have a Lien. 
No Grantor will, without the Agent’s prior written consent, alter or
remove any identifying symbol or number on any of such Grantor’s Equipment
constituting Collateral.

 

(c)           Except as permitted under the
Indenture, no Grantor shall, without the Agent’s prior written consent, sell,
license, lease as a lessor, or otherwise dispose of any of such Grantor’s
Equipment.

 

14.          LOAN
DOCUMENTS.  Each
Grantor represents and warrants to the Agent, the Trustee and the Holders that
as of the date hereof, except as disclosed in the Schedules thereto, the
representations and warranties related to such Grantor contained in the
Security Documents are true and correct as if such representation and warranty
were expressly set forth herein.

 

15.          DOCUMENTS, INSTRUMENTS, AND CHATTEL PAPER.  Each Grantor represents and warrants to the
Agent and the Lenders that (a) all Documents, Instruments, and Chattel Paper
describing, evidencing, or constituting Collateral, and all signatures and
endorsements thereon, are and will be complete, valid, and genuine in all
material respects, and (b) all goods evidenced by such Documents or Letter of
Credit Rights are and will be owned by such Grantor, free and clear of all
Liens other than Permitted Liens.  If
any Grantor retains possession of any Chattel Paper or Instruments over $25,000
with Agent’s consent, such Chattel Paper and Instruments shall be marked with
the following legend:  “This writing and
the obligations evidenced or served hereby are subject to the security interest
of The Bank of New York, as Agent, for the benefit of Agent, the Trustee and
certain Holders.”

 

16.          RIGHT TO CURE.  The Agent may, in its discretion, and shall,
at the direction of the Trustee (acting at the direction of the Required
Holders, pay any amount or do any act required of any Grantor hereunder or
under the Indenture or any other Security Document in order to preserve,
protect, maintain or enforce the Obligations, the Collateral or the Agent’s
Liens therein, and which any Grantor fails to pay or do, including payment of
any judgment against such Grantor, any insurance premium, any warehouse charge,
any finishing or processing charge, any landlord’s or bailee’s claim, and any
other Lien upon or with respect to the Collateral; provided, however, that the Agent shall be under no obligation
to take any action which in its sole discretion would subject the Agent to
personal or financial liability. 
Any payment made or other action taken by the Agent under this Section 16
shall be without prejudice to any right to assert an Event of Default
hereunder and to proceed thereafter as herein provided.

 

17.          POWER OF ATTORNEY.  Each Grantor hereby appoints the Agent and
the Agent’s designee as such Grantor’s attorney, with power:  (a) to endorse such Grantor’s name on
any checks, notes, acceptances, money orders, or other forms of payment or
security that come into the Agent’s or any Lender’s possession; (b) to sign
such Grantor’s name on any invoice, bill of lading, warehouse receipt or other
negotiable or non-negotiable Document constituting Collateral, on drafts
against customers, on assignments of Accounts, on notices of assignment,
financing statements and other public records and to file any such financing
statements by 

 

10

 

electronic means with or
without a signature as authorized or required by applicable law or filing
procedure; (c) so long as any Event of Default has occurred and is continuing,
to notify the post office authorities to change the address for delivery of
such Grantor’s mail to an address designated by the Agent and to receive, open
and dispose of all mail addressed to such Grantor; (d) so long as any Event of
Default has occurred and is continuing, to send requests for verification of
Accounts to customers or Account Debtors; (e) to complete in such
Grantor’s name or the Agent’s name, any order, sale or transaction, obtain the
necessary Documents in connection therewith, and collect the proceeds thereof;
(f) to clear Inventory through customs in such Grantor’s name, the Agent’s name
or the name of the Agent’s designee, and to sign and deliver to customs
officials powers of attorney in such Grantor’s name for such purpose; (g) to
the extent that such Grantor’s authorization given in Section 3(g) of this
Security Agreement is not sufficient, to file such financing statements with
respect to this Security Agreement, with or without such Grantor’s signature,
or to file a photocopy of this Security Agreement in substitution for a
financing statement, as the Agent may deem appropriate and to execute in such
Grantor’s name such financing statements and amendments thereto and
continuation statements which may require such Grantor’s signature; and
(h) to do all things necessary to carry out the Indenture and this
Security Agreement.  Each Grantor
ratifies and approves all acts of such attorney.  None of the Lenders or the Agent nor their attorneys will be
liable for any acts or omissions or for any error of judgment or mistake of
fact or law except for their willful misconduct.  This power, being coupled with an interest, is irrevocable until
the Indenture has been terminated and the Obligations have been fully
satisfied.

 

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

 

(a)           Each Holder hereby appoints The Bank
of New York to act as the Agent for such Person under this Security Agreement
and the other Security Documents.  Each
Holder hereby irrevocably authorizes the Agent to take such action on its
behalf under the provisions of this Security Agreement and the other Security
Documents and to exercise such powers and to perform such duties hereunder and
thereunder as are specifically delegated to or required of the Agent by the
terms hereof and thereof and such other powers as are reasonably incidental
thereto and the Agent shall hold all Collateral, charges and collections
received pursuant to this Security Agreement, for the ratable benefit of the
Holders.  The Agent may perform any of
its duties hereunder by or through its agents or employees.  As to any matters not expressly provided for
by this Security Agreement (including without limitation, collection of the
Notes) the Agent shall not be required to exercise any discretion or take any
action, but shall be required to act or to refrain from acting (and shall be
fully protected in so acting or refraining from acting) upon the instructions
of the Trustee or the Required Holders, and such instructions shall be binding;
provided, however, that the Agent shall not be required to take any action
which in the Agent’s reasonable discretion exposes it to liability or which is
contrary to this Security Agreement or the other Security Documents or
applicable law unless the Agent is furnished with an indemnification reasonably
acceptable to the Agent in its sole discretion with respect thereto and the
Agent shall not be responsible for any misconduct or negligence on the part of
any agents appointed with due care by the Agent.  The Agent shall have no duties or responsibilities except those
expressly set forth in this Security Agreement and the other Security
Documents.  The Agent shall not be under
any obligation to any Holder to ascertain or to inquire as to the observance or
performance of any of the agreements contained in, or conditions of, this
Security Agreement or any of the other Security Documents.  The Agent shall not have by reason of this 

 

11

 

Security Agreement a fiduciary relationship in respect
of any Holder; and nothing in this Security Agreement, expressed or implied, is
intended to or shall be so construed as to impose upon the Agent any
obligations in respect of this Security Agreement except as expressly set forth
herein.

 

(b)           The Grantors assume jointly and
severally all responsibility and liability arising from or relating to the use,
sale, license or other disposition of the Collateral.  The Obligations shall not be affected by any failure of the
Agent, the Trustee or any Holder to take any steps to perfect the Agent’s Liens
or to collect or realize upon the Collateral, nor shall loss of or damage to
the Collateral release any Grantor from any of the Obligations.  Following the occurrence and during the
continuation of an Event of Default, the Agent may (but shall not be required
to), and at the direction of the Required Holders shall, without notice to or
consent from any Grantor, sue upon or otherwise collect, extend the time for
payment of, modify or amend the terms of, compromise or settle for cash,
credit, or otherwise upon any terms, grant other indulgences, extensions,
renewals, compositions, or releases, and take or omit to take any other action
with respect to the Collateral, any security therefor, any agreement relating
thereto, any insurance applicable thereto, or any Person liable directly or
indirectly in connection with any of the foregoing, without discharging or
otherwise affecting the liability of any Grantor for the Obligations or under
the Indenture or any other agreement now or hereafter existing between the
Agent and/or the Trustee or any Holder and any Grantor.

 

(c)           It is expressly agreed by each
Grantor that, anything herein to the contrary notwithstanding, each Grantor
shall remain liable under each of its contracts and each of its licenses to
observe and perform all the conditions and obligations to be observed and
performed by it thereunder.  None of the
Agent, the Trustee nor any Holder shall have any obligation or liability under
any contract or license by reason of or arising out of this Security Agreement
or the granting herein of a Lien thereon or the receipt by Agent, the Trustee
or any Holder of any payment relating to any contract or license pursuant
hereto.  None of the Agent, the Trustee
nor any Holder shall be required or obligated in any manner to perform or
fulfill any of the obligations of any Grantor under or pursuant to any contract
or license, or to make any payment, or to make any inquiry as to the nature or
the sufficiency of any payment received by it or the sufficiency of any
performance by any party under any contract or license, or to present or file
any claims, or to take any action to collect or enforce any performance or the
payment of any amounts which may have been assigned to it or to which it may be
entitled at any time or times.

 

(d)           Agent may at any time after an Event
of Default has occurred and be continuing (or if any rights of set-off (other
than set-offs against an Account arising under the contract giving rise to the
same Account) or contra accounts may be asserted with respect to the
following), without prior notice to any Grantor, notify Account Debtors, and
other Persons obligated on the Collateral that Agent has a security interest
therein, and that payments shall be made directly to Agent, for itself and the
benefit of the Trustee and the Holders. 
Upon the request of Agent, each Grantor shall so notify Account Debtors
and other Persons obligated on Collateral. 
Once any such notice has been given to any Account Debtor or other
Person obligated on the Collateral, no Grantor shall give any contrary
instructions to such Account Debtor or other Person without Agent’s prior
written consent.

 

12

 

(e)           Agent may at any time in the name of
any Grantor, or if an Event of Default shall have occurred and be continuing,
in Agent’s own name communicate with Account Debtors, parties to Contracts and
obligors in respect of Instruments to verify with such Persons, to Agent’s
satisfaction, the existence, amount and terms of Accounts, payment intangibles,
Instruments or Chattel Paper.

 

19.          PATENT,
TRADEMARK AND COPYRIGHT COLLATERAL.

 

(a)           No Grantor has any interest in, or
title to, any Patent, Trademark or Copyright except as set forth in Schedule
III hereto.  This Security Agreement
is effective to create a valid and continuing Lien on and, upon filing of the
Copyright Security Agreement with the United States Copyright Office and filing
of the Patent and Trademark Agreements with the United States Patent and Trademark
Office, perfected Liens in favor of Agent on the Grantors’ patents, trademarks
and copyrights and such perfected Liens are enforceable as such as against any
and all creditors of and purchasers from the Grantors.  Upon filing of the Copyright Security Agreements
with the United States Copyright Office and filing of the Patent and Trademark
Agreements with the United States Patent and Trademark Office and the filing of
appropriate financing statements, all action necessary or desirable to protect
and perfect Agent’s Lien on the Grantors’ patents, trademarks or copyrights
shall have been duly taken.

 

(b)           Each Grantor shall notify Agent
immediately if it knows or has reason to know that any application or
registration relating to any patent, trademark or copyright (now or hereafter
existing) may become abandoned or dedicated, or of any material adverse
determination or development (including the institution of, or any such
determination or development in, any proceeding in the United States Patent and
Trademark Office, the United States Copyright Office or any court) regarding
such Grantor’s ownership of any patent, trademark or copyright, its right to
register the same, or to keep and maintain the same.

 

(c)           In no event shall any Grantor, either
directly 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, and, upon request of Agent, each Grantor shall execute and deliver any
and all Patent Security Agreements, Copyright Security Agreements or Trademark
Security Agreements as Agent may request to evidence Agent’s Lien on such
patent, trademark or copyright, and the General Intangibles of such Grantor
relating thereto or represented thereby.

 

(d)           Each Grantor shall take all actions
necessary or requested by Agent to maintain and pursue each application, to
obtain the relevant registration and to maintain the registration of each of
the patents, trademarks and copyrights (now or hereafter existing), including
the filing of applications for renewal, affidavits of use, affidavits of
noncontestability and opposition and interference and cancellation proceedings,
unless such Grantor shall determine that such patent, trademark or copyright is
not material to the conduct of its business.

 

(e)           In the event that any of the patent,
trademark or copyright Collateral is infringed upon, or misappropriated or
diluted by a third party, the Grantor whose property is so infringed upon, or
misappropriated or diluted shall notify Agent promptly after such Grantor 

 

13

 

learns thereof. 
Each Grantor shall, unless it shall reasonably determine that such
patent, trademark or copyright Collateral is not material to the conduct of its
business or operations or such infringement could not reasonably be expected to
have a Material Adverse Effect, promptly sue for infringement, misappropriation
or dilution and to recover any and all damages for such infringement,
misappropriation or dilution, and shall take such other actions as Agent shall
in the Agent’s Commercial Judgment deem appropriate under the circumstances to
protect such patent, trademark or copyright Collateral.

 

20.          COST AND
EXPENSES; INDEMNIFICATION.

 

(a)           The Grantors agrees to pay to the
Agent, for its benefit, on demand, all reasonable costs and expenses that Agent
pays or incurs in connection with the negotiation, preparation, administration,
enforcement, and termination of this Security Agreement or any of the other
Security Documents, including: (a) all reasonable fees, expenses and
disbursements of any law firm or other counsel engaged by the Agent; (b) costs
and expenses (including attorneys’ and paralegals’ fees and disbursements) for
any amendment, supplement, waiver, consent, or subsequent closing in connection
with the Security Documents and the transactions contemplated thereby; (c)
costs and expenses of lien and title searches and title insurance; (d) taxes,
fees and other charges for recording the Mortgages, filing financing statements
and continuations, and other actions to perfect, protect, and continue the
Agent’s Liens (including costs and expenses paid or incurred by the Agent in
connection with the consummation of this Security Agreement); (e) sums paid or
incurred to pay any amount or take any action required of the Grantors under
the Security Documents that the Grantors fail to pay or take; and (f) costs and
expenses of preserving and protecting the Collateral.  The foregoing shall not be construed to limit any other directly
contrary provisions of the Security Documents regarding costs and expenses to
be paid by any Grantor.

 

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

 

21.          LIMITATION
ON LIENS ON COLLATERAL. 
Each Grantor will not create, permit or suffer to exist, and will defend
the Collateral against, and take such other action as is necessary to remove,
any Lien on the Collateral except Permitted Liens, and will defend the 

 

14

 

right, title and interest
of Agent and the Holders in and to any of either of the Grantor’s rights under
the Collateral against the claims and demands of all Persons whomsoever.

 

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

 

23.          REMEDIES;
RIGHTS UPON DEFAULT.

 

(a)           In addition to all other rights and
remedies granted to it under this Security Agreement, the Indenture, the other
Security Documents and under any other instrument or agreement securing,
evidencing or relating to any of the Obligations, if any Event of Default shall
have occurred and be continuing, Agent may exercise all rights and remedies of
a secured party under the UCC.  Without
limiting the generality of the foregoing, each Grantor expressly agrees that in
any such event Agent, without demand of performance or other demand,
advertisement or notice of any kind (except the notice specified below of time
and place of public or private sale) to or upon such Grantor or any other
Person (all and each of which demands, advertisements and notices are hereby
expressly waived to the maximum extent permitted by the UCC and other
applicable law), may forthwith enter upon the premises of such Grantor where
any Collateral is located through self-help, without judicial process, without
first obtaining a final judgment or giving such Grantor or any other Person
notice and opportunity for a hearing on Agent’s claim or action and may
collect, receive, assemble, process, appropriate and realize upon the
Collateral, or any part thereof, and may forthwith sell, lease, license,
assign, give an option or options to purchase, or sell or otherwise dispose of
and deliver said Collateral (or contract to do so), or any part thereof, in one
or more parcels at a public or private sale or sales, at any exchange at such
prices as it may deem acceptable, for cash or on credit or for future delivery
without assumption of any credit risk. 
Agent, the Trustee or any Holder shall have the right upon any such
public sale or sales and, to the extent permitted by law, upon any such private
sale or sales, to purchase for the benefit of Agent, the Trustee and Holders,
the whole or any part of said Collateral so sold, free of any right or equity
of redemption, which equity of redemption each Grantor hereby releases.  Such sales may be adjourned and continued
from time to time with or without notice. 
Agent shall have the right to conduct such sales on the Grantors’
premises or elsewhere and shall have the right to use the Grantors’ premises
without charge for such time or times as Agent deems necessary or advisable.

 

(b)           Each Grantor further agrees, at
Agent’s request, to assemble the Collateral and make it available to Agent at a
place or places designated by Agent which are reasonably convenient to Agent
and Grantor, whether at such Grantor’s premises or elsewhere.  Until Agent is able to effect a sale, lease,
or other disposition of Collateral, Agent shall have the right to hold or use
Collateral, or any part thereof, to the extent that it deems appropriate for
the purpose of preserving Collateral or its value or for any other purpose
deemed appropriate by Agent.  Agent
shall have no obligation to any Grantor to maintain or preserve the rights of
such Grantor as against third parties with respect to Collateral while
Collateral is in the possession of Agent. 
Agent may, if it so elects, seek the appointment of a receiver or keeper
to take possession of Collateral and to enforce any of Agent’s remedies (for
the benefit of Agent, the Trustee and Holders), with respect to such
appointment without prior notice or hearing as to such 

 

15

 

appointment. 
Agent shall apply the net proceeds of any such collection, recovery,
receipt, appropriation, realization or sale to the Obligations as provided
herein and in the Indenture, and only after so paying over such net proceeds,
and after the payment by Agent of any other amount required by any provision of
law, need Agent account for the surplus, if any, to the applicable
Grantor.  To the maximum extent
permitted by applicable law, each Grantor waives all claims, damages, and
demands against Agent, the Trustee or any Holder arising out of the
repossession, retention or sale of the Collateral except such as determined by
a court of competent jurisdiction in a final nonappealable judgment to have
resulted primarily from the gross negligence or willful misconduct of Agent,
the Trustee or such Holder as finally determined by a court of competent
jurisdiction.  Each Grantor agrees that
ten (10) days prior written notice by Agent of the time and place of any public
sale or of the time after which a private sale may take place is reasonable
notification of such matters.  Each
Grantor shall remain liable for any deficiency if the proceeds of any sale or
disposition of the Collateral are insufficient to pay all Obligations,
including any attorneys’ fees or other out-of-pocket expenses actually incurred
by Agent, the Trustee or any Holder to collect such deficiency.

 

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

 

(d)           To the extent that applicable law
imposes duties on the Agent to exercise remedies in a commercially reasonable
manner, each Grantor acknowledges and agrees that it is not commercially
unreasonable for the Agent (a) to fail to incur expenses reasonably deemed
significant by the Agent to prepare Collateral for disposition or otherwise to
complete raw material or work in process into finished goods or other finished
products for disposition, (b) to fail to obtain third party consents for access
to Collateral to be disposed of, or to obtain or, if not required by other law,
to fail to obtain governmental or third party consents for the collection or
disposition of Collateral to be collected or disposed of, (c) to fail to
exercise collection remedies against Account Debtors or other Persons obligated
on Collateral or to remove Liens on or any adverse claims against Collateral,
(d) to exercise collection remedies against Account Debtors and other Persons
obligated on Collateral directly or through the use of collection agencies and
other collection specialists, (e) to advertise dispositions of Collateral
through publications or media of general circulation, whether or not the
Collateral is of a specialized nature, (f) to contact other Persons, whether or
not in the same business as such Grantor, for expressions of interest in
acquiring all or any portion of such Collateral, (g) to hire one or more
professional auctioneers to assist in the disposition of Collateral, whether or
not the Collateral is of a specialized nature, (h) to dispose of Collateral by
utilizing Internet sites that provide for the auction of assets of the types
included in the Collateral or that have the reasonable capacity of doing so, or
that match buyers and sellers of assets, (i) to dispose of assets in wholesale
rather than retail markets, (j) to disclaim disposition warranties, such as
title, possession or quiet enjoyment, (k) to purchase insurance or credit
enhancements to insure the Agent against risks of loss, collection or
disposition of Collateral or to provide to the Agent a guaranteed return from
the collection or disposition of Collateral, or (l) to the extent deemed
appropriate by the Agent, to obtain the services of other brokers, investment
bankers, consultants and other professionals to assist the Agent in the
collection or disposition of any of the Collateral.  Each Grantor acknowledges that the purpose of this Section 23(d)
is to provide non-exhaustive indications of what actions or omissions by the
Agent would not be commercially unreasonable in the Agent’s 

 

16

 

exercise of remedies against the Collateral and that
other actions or omissions by the Agent shall not be deemed commercially
unreasonable solely on account of not being indicated in this Section
23(d).  Without limitation upon the
foregoing, nothing contained in this Section 23(d) shall be construed to grant
any rights to any Grantor or to impose any duties on Agent that would not have
been granted or imposed by this Security Agreement or by applicable law in the
absence of this Section 23(d).

 

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

 

25.          LIMITATION
ON AGENT’S AND HOLDERS’ DUTY IN RESPECT OF COLLATERAL.  Agent, the Trustee and each Holder shall use
reasonable care with respect to the Collateral in its possession or under its
control.  None of Agent, the Trustee or
any Holder shall have any other duty as to any Collateral in its possession or
control or in the possession or control of any agent or nominee of Agent, the
Trustee or such Holder, or any income thereon or as to the preservation of
rights against prior parties or any other rights pertaining thereto.

 

26.          MISCELLANEOUS.

 

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

 

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

 

17

 

provided for in the Indenture; provided, however that notice to the
Agent shall be delivered to the following address or such other address as
notified by the Agent from time to time:

 

The Bank of New
York

101 Barclay Street

Floor 8 West

New York, New
York  10286

Attention:  Corporate Trust Administration

 

Fax:  212-815-5704

 

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

 

(c)           No Waiver; Cumulative Remedies.  Neither Agent, the Trustee nor any Holder
shall by any act, delay, omission or otherwise be deemed to have waived any of
its rights or remedies hereunder, and no waiver shall be valid unless in
writing, signed by Agent and then only to the extent therein set forth.  A waiver by Agent of any right or remedy
hereunder on any one occasion shall not be construed as a bar to any right or
remedy which Agent would otherwise have had on any future occasion.  No failure to exercise nor any delay in
exercising on the part of Agent, the Trustee or any Holder, any right, power or
privilege hereunder, shall operate as a waiver thereof, nor shall any single or
partial exercise of any right, power or privilege hereunder preclude any other
or future exercise thereof or the exercise of any other right, power or
privilege.  The rights and remedies
hereunder provided are cumulative and may be exercised singly or concurrently,
and are not exclusive of any rights and remedies provided by law.  None of the terms or provisions of this
Security Agreement may be waived, altered, modified or amended except by an
instrument in writing, duly executed by Agent and the Grantors.

 

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

 

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

 

18

 

(f)            Successors and Assigns.  This Security Agreement and all
obligations of the Grantors hereunder shall be binding upon the successors and
assigns of the Grantors (including any debtor-in-possession on behalf of any
Grantor) and shall, together with the rights and remedies of Agent, for the
benefit of Agent, the Trustee and Holders, hereunder, inure to the benefit of
Agent, the Trustee and Holders, all future holders of any instrument evidencing
any of the Obligations and their respective successors and assigns.  No sales of participations, other sales,
assignments, transfers or other dispositions of any agreement governing or
instrument evidencing the Obligations or any portion thereof or interest
therein shall in any manner affect the Lien granted to Agent, for the benefit
of Agent, the Trustee and Holders, hereunder. 
No Grantor may assign, sell, hypothecate or otherwise transfer any
interest in or obligation under this Security Agreement.

 

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

 

(h)           Governing Law.  EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN
ANY OF THE LOAN DOCUMENTS, IN ALL RESPECTS, INCLUDING ALL MATTERS OF
CONSTRUCTION, VALIDITY AND PERFORMANCE, THIS SECURITY AGREEMENT AND THE
OBLIGATIONS ARISING HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED
IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK AND ANY APPLICABLE LAWS
OF THE UNITED STATES OF AMERICA.  EACH
GRANTOR HEREBY CONSENTS AND AGREES THAT THE STATE OR FEDERAL COURTS LOCATED IN
NEW YORK COUNTY, CITY OF NEW YORK, SHALL HAVE EXCLUSIVE JURISDICTION TO HEAR
AND DETERMINE ANY CLAIMS OR DISPUTES BETWEEN ANY GRANTOR, AGENT, THE TRUSTEE
AND HOLDERS PERTAINING TO THIS SECURITY AGREEMENT OR ANY OF THE OTHER SECURITY
DOCUMENTS OR TO ANY MATTER ARISING OUT OF OR RELATING TO THIS SECURITY
AGREEMENT OR ANY OF THE OTHER SECURITY DOCUMENTS; PROVIDED, THAT AGENT,
THE TRUSTEE, HOLDERS AND THE GRANTORS ACKNOWLEDGE THAT ANY APPEALS FROM THOSE
COURTS MAY HAVE TO BE HEARD BY A COURT LOCATED OUTSIDE OF NEW YORK COUNTY, CITY
OF NEW YORK, AND, PROVIDED, FURTHER, NOTHING IN THIS SECURITY
AGREEMENT SHALL BE DEEMED OR OPERATE TO PRECLUDE AGENT FROM BRINGING SUIT OR
TAKING OTHER LEGAL ACTION IN ANY OTHER JURISDICTION TO REALIZE ON THE
COLLATERAL OR ANY OTHER SECURITY FOR THE OBLIGATIONS, OR TO ENFORCE A JUDGMENT
OR OTHER COURT ORDER IN FAVOR OF AGENT. 
EACH GRANTOR EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH
JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT, AND EACH
GRANTOR HEREBY WAIVES ANY OBJECTION WHICH IT MAY HAVE BASED UPON LACK OF
PERSONAL JURISDICTION, IMPROPER VENUE OR FORUM  NON  CONVENIENS
AND HEREBY CONSENTS TO THE GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF AS IS
DEEMED APPROPRIATE BY SUCH COURT.  EACH
GRANTOR HEREBY WAIVES PERSONAL SERVICE OF THE SUMMONS, COMPLAINT AND OTHER
PROCESS ISSUED IN ANY SUCH ACTION OR SUIT AND AGREES THAT 

 

19

 

SERVICE OF SUCH SUMMONS, COMPLAINTS AND OTHER PROCESS
MAY BE MADE BY REGISTERED OR CERTIFIED MAIL ADDRESSED TO SUCH GRANTOR AT THE
ADDRESS SET FORTH IN SECTION 12.02 OF THE INDENTURE (SUCH NOTICE TO THE
PARENT BEING DELIVERED TO THE PARENT IN CARE OF THE COMPANY AT THE COMPANY’S
ADDRESS SET FORTH IN SECTION 12.02 OF THE INDENTURE) AND THAT SERVICE SO MADE
SHALL BE DEEMED COMPLETED UPON THE EARLIER OF ACTUAL RECEIPT THEREOF OR THREE
(3) DAYS AFTER DEPOSIT IN THE U.S. MAILS, PROPER POSTAGE PREPAID.

 

(i)            Waiver of Jury Trial.  BECAUSE DISPUTES ARISING IN CONNECTION WITH
COMPLEX FINANCIAL TRANSACTIONS ARE MOST QUICKLY AND ECONOMICALLY RESOLVED BY AN
EXPERIENCED AND EXPERT PERSON AND THE PARTIES WISH APPLICABLE STATE AND FEDERAL
LAWS TO APPLY (RATHER THAN ARBITRATION RULES), THE PARTIES DESIRE THAT DISPUTES
ARISING HEREUNDER OR RELATING HERETO BE RESOLVED BY A JUDGE APPLYING SUCH
APPLICABLE LAWS.  THEREFORE, TO ACHIEVE
THE BEST COMBINATION OF THE BENEFITS OF THE JUDICIAL SYSTEM AND OF ARBITRATION,
THE PARTIES HERETO WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, SUIT OR
PROCEEDING BROUGHT TO RESOLVE ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT,
OR OTHERWISE, AMONG AGENT, LENDERS, AND GRANTORS ARISING OUT OF, CONNECTED
WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED IN CONNECTION
WITH, THIS SECURITY AGREEMENT OR ANY OF THE OTHER SECURITY DOCUMENTS OR THE
TRANSACTIONS RELATED HERETO OR THERETO.

 

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

 

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

 

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

 

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

 

(n)           Intercreditor Agreement.  Notwithstanding anything herein to the
contrary, the lien and security interest granted to the Agent pursuant to this
Security Agreement and the exercise of any right or remedy by the Agent
hereunder are subject to the provisions of 

 

20

 

the Intercreditor Agreement, dated as of July 3, 2003
(the “Intercreditor Agreement”) among Bank of America, N.A., as Senior Agent,
and The Bank of New York, as Trustee, and American Color Graphics, Inc.  In the event of any conflict between the
terms of the Intercreditor Agreement and this Security Agreement, the terms of
the Intercreditor Agreement shall govern.

 

(o)           Incorporation by Reference.  All of the rights, protections and
privileges granted to the Trustee under the Indenture are incorporated by
reference herein and shall inure to the benefit of the Agent herein.

 

21

 

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

 

	
   

  	
  AMERICAN
  COLOR GRAPHICS, INC.,

  as a Grantor

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   /s/ Patrick Kellick

  	
   

  
	
   

  	
  Name:

  	
  Patrick Kellick

  	
   

  
	
   

  	
  Title:

  	
   SVP/CFO

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  ACG
  HOLDINGS, INC., as a Grantor

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   /s/ Patrick
  Kellick

  	
   

  
	
   

  	
  Name:

  	
  Patrick Kellick

  	
   

  
	
   

  	
  Title:

  	
   SVP/CFO

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  THE
  BANK OF NEW YORK,
as Agent

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   /s/ Robert
  A. Massimillo

  	
   

  
	
   

  	
  Name:

  	
  Robert A. Massimillo

  	
   

  
	
   

  	
  Title:

  	
   Vice President

  	
   

  
						

 

22

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