Document:

Exhibit
10.1

 

INTERCREDITOR AGREEMENT

 

This INTERCREDITOR AGREEMENT, dated as of June 30, 2004 (this “Agreement”), is made by and between U.S.
BANK NATIONAL ASSOCIATION, in its capacity as trustee under the Indenture (as
defined below) and as secured party under the Security Agreement (as defined in
the Indenture) (together with its successors in such capacities, the “Trustee”), and TEXAS STATE BANK, as the
lender (the “Bank”) under the
Credit Agreement (as defined below).

 

RECITALS

 

WHEREAS, The Wornick Company, a Delaware corporation (the “Issuer”), the Guarantors (as defined in the
Indenture referred to below) and the Trustee entered into that certain
Indenture, dated as of the date hereof (as amended, restated, supplemented, or
otherwise modified from time to time, the “Indenture”),
whereby indebtedness was incurred by the Issuer, the repayment of which is
guaranteed by the Guarantors and secured by a continuing security interest in
and lien on substantially all of the assets of the Issuer and the Guarantors
(other than the Excluded Assets (defined therein)) (the “Collateral”);

 

WHEREAS, the Issuer, the Guarantors and the Bank entered into that
certain Loan Agreement, dated as of the date hereof (as amended, restated,
supplemented or otherwise modified from time to time, the  “Credit
Agreement”), whereby the Bank agreed, upon the terms and conditions
stated therein, to make loans and advances to, or to issue letters of credit
(or guaranties in respect thereof) for the account of the Issuer, the repayment
of which is secured by a continuing security interest in and lien on the
Collateral in accordance with the Credit Agreement and all other Loan Documents
(as defined in the Credit Agreement) (collectively, the “Credit Documents”);

 

WHEREAS, one of the conditions of the Credit Agreement is that the
security interest in the Collateral under the Credit Documents be senior in
priority to the security interest in the Collateral under the Indenture
Documents (defined below) in the manner and to the extent provided for in this
Agreement;

 

WHEREAS, the Trustee and the Bank desire to enter into this Agreement
concerning their respective rights with respect to the priority of their
respective security interests in the Collateral; and

 

WHEREAS, the terms of the Indenture permit the Issuer and the
Guarantors to enter into the Credit Agreement, and in connection therewith,
authorize and direct the Trustee to enter into an intercreditor agreement in
the form of this Agreement.

 

NOW, THEREFORE, the Parties hereby agree as follows:

 

ARTICLE I

DEFINITIONS

 

Section
1.1                                   Definitions.  In addition to the capitalized terms defined
above, as used in this Agreement, the following capitalized terms are used:

 

 

“Credit Facility Indebtedness” means all
present and future Obligations (as defined in the Credit Agreement), contingent
or otherwise, of the Issuer and the Guarantors to the Senior Creditor arising
under or pursuant to the Credit Documents, including, in each case, interest,
fees, and expenses accruing after the initiation of any Insolvency Proceeding
(irrespective of whether allowed as a claim in such proceeding), and also
including the secured claims of the Senior Creditor in respect of the
Collateral in any Insolvency Proceeding.

 

“Enforcement Action” means, with respect to
the Trustee or the Senior Creditor, (a) the commencement of any action, whether
judicial or otherwise, for the enforcement of such Party’s rights and remedies
as a secured creditor with respect to the Collateral, including the
commencement of any receivership or foreclosure proceedings against, or any
other sale of, collection on, or disposition of, any Collateral, or any
exercise of remedies with respect to the Collateral under the Indenture
Documents or the Credit Documents; (b) notifying any third-party account
debtors of the Issuer, any Guarantor or any of their respective subsidiaries to
make payment directly to such Party or to any of its agents or other Persons
acting on its behalf; or (c) following the commencement of an Insolvency
Proceeding against the Issuer or any Guarantor, exercising any rights afforded
to secured creditors in a case under the Bankruptcy Code that directly relates
to or directly affects any of the Collateral.

 

“Enforcement Event” means the occurrence and
continuance of an Event of Default.

 

“Enforcement Event Notice” has the meaning
set forth in Section 3.2(a).

 

“Entitled Party” has the meaning set forth
in Section 4.1(a).

 

“Event of Default” has the meaning set forth
in the Financing Documents.

 

“Expiry Date” has the meaning set forth in Section
3.2(b)(i).

 

“Financing Documents” means the Indenture
Documents and the Credit Documents.

 

“Fully Paid” means the payment in cash or
cash equivalents in full of all obligations (other than inchoate indemnity
obligations that survive payment in full) under the Credit Documents or the
Indenture Documents, as the case may be, and in the case of the Credit
Documents, at such time when there shall no longer be any obligation to make
loans or advances or issue letters of credit (or guaranties in respect thereof)
thereunder and there shall no longer be any letter of credit (or guaranty in
respect thereof) outstanding thereunder or such letter of credit (or guaranty
in respect thereof) shall have been fully cash collateralized (in accordance
with the provisions of the Credit Documents).

 

“Indenture Documents” means the Indenture,
the Notes, the Security Documents and the Registration Rights Agreement, and
such other agreements, instruments and certificates executed and delivered (or
issued) by the Issuer or the Guarantors pursuant to the Indenture, as any or
all of the same may be amended, restated, supplemented or otherwise modified
from time to time.

 

“Insolvency Proceeding” means any proceeding
for the purposes of dissolution, winding up, liquidation, arrangement or
reorganization of the Issuer, any Guarantor, or any other subsidiary of the
Issuer, or its successors or assigns, whether in bankruptcy, insolvency,
arrangement, reorganization or receivership proceedings, or upon an assignment
for the benefit of

 

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creditors or any other
marshaling of the assets and liabilities of the Issuer, any Guarantor, or any
other subsidiary of the Issuer, or its successors or assigns.

 

“Lien Priority” means, with respect to any
Lien in and to the Collateral, the order of priority of such Lien as specified
in Sections 2.1 and  2.2.

 

“Maximum Amount” means an aggregate amount
of Credit Facility Indebtedness incurred and outstanding at any time (plus any Refinancing Indebtedness incurred
to retire, defease, refinance, replace or refund such Indebtedness) of up to
the greater of (a) $15.0 million, plus
any Indebtedness owing to the Senior Creditor certified by the Issuer to the
Senior Creditor at the time of incurrence to be permitted under the Indenture
pursuant to clause (ii) of paragraph (g) or paragraph (h) of the definition of
“Permitted Indebtedness,” minus the
amount of any such Indebtedness certified by the Issuer to the Senior Creditor
to be (1) retired with the Net Cash Proceeds from any Asset Sale or Event of
Loss applied to permanently reduce the outstanding amounts or the commitments
with respect to such Indebtedness pursuant to Section 4.13 of the Indenture, or
(2) assumed by a transferee in an Asset Sale, and (b) the sum of (i) 85% of the
net book value of accounts receivable of the Issuer and the Subsidiaries, and
(ii) 65% of the net book value of inventory of the Issuer and the Subsidiaries,
in the case of each of clauses (b)(i) and (ii), as determined by the Issuer in
accordance with GAAP as of the date or dates of incurrence of such Indebtedness
under the Credit Agreement, and which Indebtedness is certified by the Issuer
to the Senior Creditor at the time of incurrence as permitted under the
Indenture, and including accounts receivable and inventory acquired with the
proceeds of the substantially concurrent incurrence of Indebtedness under the
Credit Agreement, plus in the
instance of either clause (a) or (b), all related interest, fees, indemnities,
costs and expenses.

 

“Notes” means the senior secured notes
issued under the Indenture.

 

“Party” means any signatory to this
Agreement.

 

“Secured Liability” means the Subordinated
Lien Indebtedness and the Credit Facility Indebtedness.

 

“Senior Creditor” means the Bank or, if
applicable, the administrative agent (or similar designation, if the Credit
Facility Indebtedness is syndicated among a group of lenders) under the Credit
Agreement.

 

“Subordinated Lien Indebtedness” means all
present and future obligations, contingent or otherwise, of the Issuer and the
Guarantors to the Trustee or the Holders arising under or pursuant to the
Indenture Documents, including, in each case, interest, fees and expenses
accruing after the initiation of any Insolvency Proceeding (irrespective of
whether allowed as a claim in such proceeding), and including the secured
claims of the Trustee or the Holders in respect of the Collateral in any
Insolvency Proceeding.

 

“Trigger Date” means the earlier of (i) the
date on which an event contemplated by clause (b) or (c) of the definition of
Trigger Event occurs, (ii) the date on which an Enforcement Event Notice is
delivered, and (iii) the final maturity date of the Credit Facility
Indebtedness (after giving effect to any extensions granted thereunder).

 

“Trigger Event” means:

 

(a)                      the occurrence of an Event of
Default,

 

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(b)                     the acceleration of the maturity
of the Credit Facility Indebtedness by the Senior Creditor pursuant to the
Credit Agreement, or

 

(c)                      the commencement of any action or
proceeding by the Senior Creditor, whether judicial or otherwise (but excluding
demands for payment or notices of default), for the enforcement of the Senior
Creditor’s rights and remedies under any of the Credit Documents, including (i)
commencement of any Enforcement Action against or any other sale of, collection
on or disposition of any Collateral, including any notification to third
parties to make payment directly to the Senior Creditor; (ii) exercise of any
right of set-off; (iii) commencement of any Insolvency Proceeding; and (iv)
commencement of any judicial action or proceeding against the Issuer or any
Guarantor to recover all or any part of the Credit Facility Indebtedness.

 

Section
1.2                                   Indenture
Definitions.  Undefined capitalized
terms have the meanings assigned to them in the Indenture.

 

Section
1.3                                   Miscellaneous.  All definitions herein (whether set forth
herein directly or by reference to definitions in other documents) shall be
equally applicable to both the singular and the plural forms of the terms
defined.  The words “hereof,” “herein”
or “hereunder” and words of similar import when used in this Agreement shall
refer to this Agreement as a whole and not to any particular provision of this
Agreement.  The term “including” (and
similar terms) means “including without limitation.”

 

ARTICLE II

LIEN PRIORITY

 

Section
2.1                                   Agreement
to Subordinate Liens.  The Trustee
hereby agrees that the Liens of the Trustee for the benefit of itself and the
Holders in and to the Collateral are and shall be subordinate in priority to
the Liens of the Senior Creditor in and to the Collateral securing the Credit
Facility Indebtedness up to, but not in excess of, the Maximum Amount; provided that, the rights of the Senior
Creditor under this Agreement shall be void and of no further force and effect
if, and only to the extent that, the Liens of the Senior Creditor in and to the
Collateral are avoided, disallowed, set aside or otherwise invalidated in any
action or proceeding by a court, tribunal or administrative agency of competent
jurisdiction.  The subordination of the
Liens of the Trustee for the benefit of itself and the Holders in and to the
Collateral in favor of the Senior Creditor provided for herein shall not be
deemed to (a) subordinate the Liens of the Trustee to the Liens of any other
Person, or (b) subordinate the Subordinated Lien Indebtedness to any
Indebtedness of the Issuer or any of the Guarantors, including the Credit
Facility Indebtedness.

 

Section
2.2                                   No
Contest; Excluded Assets.  Each
Party agrees that it will not attack or contest the validity, perfection,
priority or enforceability of the Liens of the other Party (and the Trustee
agrees that it will not contest the Senior Creditor’s good faith reliance on
any certification referenced in the definition of “Maximum Amount” made by the
Issuer to the Senior Creditor), or finance or urge any other Person to do so; provided that, either Party may enforce
its rights and privileges hereunder without being deemed to have violated this
provision.  Any provision contained in
this Agreement to the contrary notwithstanding, the terms and conditions of
this Agreement shall not apply to any property or assets (including property or
assets that do not constitute Collateral) that one Party has a Lien on and the
other Party does not.

 

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Section
2.3                                   Exercise
of Rights.

 

(a)                      The Trustee may exercise, and
nothing herein shall constitute a waiver of, any right it may have at law or in
equity to receive notice of, or to commence or join with any creditor in
commencing any Insolvency Proceeding; provided
that, the exercise of any such right by the Trustee shall be (i) subject to the
Lien Priority and the application of proceeds of Collateral under Section
3.4, and (ii) subject to the provisions of Sections 3.1 and 3.2.

 

(b)                     Notwithstanding any other
provision hereof, the Trustee may make such demands or file such claims as may
be necessary to prevent the waiver or bar of such claims under applicable
statutes of limitations or other statutes, court orders or rules of procedure.

 

Section
2.4                                   Priority
of Liens.  Irrespective of the order
of recording of mortgages, financing statements, security agreements or other
instruments, and irrespective of the descriptions of Collateral contained in
the Financing Documents, including any financing statements, the Parties agree
among themselves that their respective Liens in the Collateral shall be
governed by the Lien Priority, which shall be controlling in the event of any
conflict between this Agreement and any of the Financing Documents.

 

ARTICLE III

ACTIONS OF THE PARTIES

 

Section
3.1                                   Limitation
on Certain Actions.  Subject to Section
3.2, until the earlier of (a) the date on which all Credit Facility
Indebtedness is Fully Paid, and (b) the first date following the date on which
the Maximum Amount of Credit Facility Indebtedness is Fully Paid, the Trustee
will not, without the prior written consent of the Senior Creditor, take any
Enforcement Action.

 

Section
3.2                                   Standstill
Period.

 

(a)                      If an Enforcement Event with
respect to the Indenture Documents has occurred and is continuing, the Trustee,
on behalf of the Holders, will give the Senior Creditor written notice thereof
(an “Enforcement Event Notice”).

 

(b)                     The Trustee may, subject to the
Lien Priority and the application of all proceeds of the Collateral in
accordance with Section 3.4, take one or more Enforcement Actions so
long as:

 

(i)             (A) an Enforcement
Event is continuing for more than 45 consecutive days after the delivery of an
Enforcement Event Notice (the “Expiry Date”);
(B) the Senior Creditor has not, on or before the Expiry Date, commenced one or
more Enforcement Actions, and (C) the Issuer or the Guarantor against which the
Trustee’s proposed Enforcement Action is to be taken is not the subject of an
Insolvency Proceeding; or

 

(ii)          (A) the Senior Creditor
has commenced any Enforcement Action on or prior to the Expiry Date and, at any
time after the Expiry Date, is no longer pursuing any Enforcement Actions, (B)
no Insolvency Proceeding is pending against the Issuer or any Guarantor against
which the Trustee’s proposed Enforcement Action is to be taken, and
(C) the Enforcement

 

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Event that was the subject of, or existing on
the date of, the Enforcement Event Notice is then continuing.

 

(c)                      Except as expressly provided for
in this Agreement, nothing in this Agreement shall prevent the Parties hereto
from exercising any other remedy, or taking any other action, under any of the
Financing Documents.

 

Section
3.3                                   Foreclosure.  Any Party taking a permitted Enforcement
Action may enforce its Financing Documents independently as to the Issuer and
each Guarantor and independently of any other remedy or security such Party at
any time may have or hold in connection with the Secured Liabilities owing to
it, and it shall not be necessary for such Party to marshal assets in favor of
the other Party or any other Person or to proceed upon or against or exhaust
any other security or remedy before proceeding to enforce the Financing
Documents.  Each of the Trustee (for so
long as the Credit Facility Indebtedness is not Fully Paid) and the Senior
Creditor (for so long as the Trustee and the Holders are owed any Subordinated
Lien Indebtedness) expressly waives any right to require the other Party to
marshal assets in its favor or to proceed against any Collateral provided by
the Issuer or any Guarantor, or any other property, assets, or collateral provided
by the Issuer, any Guarantor, or any other Person, and agrees that the Party
taking such permitted Enforcement Action may proceed against the Issuer, any
Guarantor, any Collateral or other property, assets, or other collateral
provided by any of them or by any other Person, in such order as it shall
determine in its sole and absolute discretion. 
The foregoing notwithstanding: 
(a) with respect to the sale or other disposition of any Collateral, the
Party conducting such sale or other disposition agrees in favor of the other
Party that such sale or other disposition shall be conducted in a commercially
reasonable manner in accordance with any applicable law, including Article 9 of
the Uniform Commercial Code, and (b) the Senior Creditor agrees that, at such
time as all Credit Facility Indebtedness is Fully Paid, it shall thereupon
promptly cease all further Enforcement Actions.

 

Section
3.4                                   Distribution.  Each Party agrees that, upon any
distribution as a result of an Enforcement Action, or the receipt of any other
payment or distribution with respect to the Collateral, the proceeds thereof
shall be distributed in the order of, and in accordance with, the following
priorities:

 

(a)            FIRST:

 

(i)             if the Enforcement
Action is taken by the Senior Creditor, to the payment of all reasonable costs
and expenses, commissions and taxes of the Senior Creditor incurred in
connection with taking any such Enforcement Action or other realization,
including all reasonable expenses (including attorneys’ fees and expenses),
liabilities and advances made or incurred by the Senior Creditor in connection
therewith;

 

(ii)          if the Enforcement
Action is taken by the Trustee, to the payment of all reasonable costs and
expenses, commissions and taxes of the Trustee incurred in connection with
taking any such Enforcement Action or other realization, including all
reasonable expenses (including attorneys’ fees and expenses), liabilities and
advances made or incurred by the Trustee in connection therewith;

 

6

 

(b)                     SECOND, to the Senior Creditor,
until the earlier of (i) the Credit Facility Indebtedness being Fully Paid, and
(ii) the first time following the date at which the Maximum Amount of Credit
Facility Indebtedness is Fully Paid;

 

(c)                      THIRD, to the Trustee, until all
Subordinated Lien Indebtedness is Fully Paid;

 

(d)                     FOURTH, to the Senior Creditor
until all outstanding Credit Facility Indebtedness in excess of the Maximum
Amount is Fully Paid; and

 

(e)                      FIFTH, to the Issuer or the Guarantors,
as applicable, or as a court of competent jurisdiction may otherwise direct.

 

Section
3.5                                   Notice
of Certain Events.  Each Party
agrees that it will notify the other Party, in writing, (a) if it receives
actual notice of the occurrence of a Trigger Event or Enforcement Event, not
later than seven days after the date of any such occurrence, and (b) prior to
its first exercising any remedies with respect to any portion of the Collateral
in connection with one or more Events of Default, provided that, if all such Events of Default are cured or
waived, such notice under this clause (b) will be given on each other occasion
that remedies are first exercised with respect to one or more other Events of
Default.  Notwithstanding the foregoing,
(x) the Senior Creditor shall not be obligated to provide such prior written
notice if exigent circumstances require that it act immediately to preserve,
protect, or obtain possession or control over the Collateral; provided that, in such event the Senior
Creditor agrees to provide the Trustee with written notice as soon as
practicable following the Senior Creditor first exercising any remedies with
respect to the Collateral; and (y) no Party shall incur any liability to the
other under this Section 3.5  as
a result of the failure of such Party to provide any such notice so long as the
failure to so provide such notice was not the result of willful misconduct, bad
faith or gross negligence.

 

ARTICLE IV

ENFORCEMENT OF PRIORITIES

 

Section
4.1                                   In
Furtherance of Lien Priorities. 
Each Party agrees as follows:

 

(a)                      All payments or distributions of
or with respect to the Collateral that are received by any Party contrary to
the provisions of this Agreement shall be segregated from other funds and
property held by such Party and shall be held in trust for the Party entitled
thereto (the “Entitled Party”) in
accordance with the provisions of Section 3.4 and such Party shall
forthwith pay over such remaining proceeds to the Entitled Party in the same
form as so received (with any necessary endorsement) to be applied (in the case
of cash) or held as Collateral (in the case of noncash property or securities)
in accordance with the provisions hereof and the provisions of the applicable
Financing Documents.

 

(b)                     After the earlier of (i) the date
on which all Credit Facility Indebtedness is Fully Paid, and (ii) the first
date following the Trigger Date on which the Maximum Amount of Credit Facility
Indebtedness is Fully Paid, the Senior Creditor will promptly execute and
deliver all further instruments and documents, and take all further actions
that may be necessary, or that the Trustee may reasonably request, to permit
the Trustee to evidence the termination of the Lien Priority hereunder, or in
furtherance thereof; provided that,
(x) the Senior Creditor shall not be required to pay over any payment or
distribution, execute any

 

7

 

instruments or documents, or take any other action referred to in this Section
4.1(b) to the extent that such action would contravene any law, order or
other legal requirement, and in the event of a controversy or dispute, the
Senior Creditor may interplead any payment or distribution in any court of
competent jurisdiction; and (y) the Senior Creditor shall not incur any
liability to the Trustee for failure to provide any such further instruments
and documents or take any further acts, so long as the failure to provide any
such further instruments and documents or take any such further act was not the
result of malfeasance, willful misconduct or gross negligence.

 

(c)                      Each Party is hereby authorized
to demand specific performance of this Agreement, whether or not the Issuer or
any Guarantor shall have complied with any of the provisions hereof applicable
to it, at any time when either Party shall have failed to comply with the
provisions of this Agreement applicable to it. 
Each Party hereby irrevocably waives any defense based on the adequacy
of a remedy at law, which might be asserted as a bar to such remedy of specific
performance.

 

(d)                     This Agreement shall continue to
be effective or be reinstated, as the case may be, if at any time any payment
of any of the Secured Liabilities is, other than as a result of any intentional
fraud or gross negligence of the applicable Party, rescinded or must otherwise
be returned by the applicable Party upon the insolvency, bankruptcy or
reorganization of the Issuer or any Guarantor or otherwise, all as though such
payment had not been made.

 

Section
4.2                                   Perfection
of Possessory Security Interests. 
For the limited purpose of perfecting the security interests of the
Parties in those types or items of Collateral in which a security interest only
may be perfected by possession or control, each Party hereby appoints the other
as its representative for the limited purpose of possessing on its behalf any
such Collateral that may come into the possession or control of such other
Party from time to time, and each Party agrees to act as the other’s
representative for such limited purpose of perfecting the other’s security
interest by possession or control through a representative; provided that, neither Party shall incur
any liability to the other by virtue of acting as the other’s representative
hereunder.  In this regard, any Party
that is in possession or control of any such item of Collateral agrees that if
it elects to relinquish possession or control of such item of Collateral it
shall deliver possession or control thereof to the other Party; provided that, no Party shall be required
to deliver any such item of Collateral or take any other action referred to in
this Section 4.2 to the extent that such action would contravene any
law, order or other legal requirements, and in the event of a controversy or
dispute, such Party may interplead any item of Collateral in any court of
competent jurisdiction.

 

Section
4.3                                   Control
of Dispositions of Collateral and Effect thereof on Junior Liens.

 

(a)                      Each Party hereby agrees that any
collection, sale, or other disposition of Collateral (whether under the
applicable Uniform Commercial Code or otherwise) by the Senior Creditor shall
be free and clear of any Lien of the Trustee in such Collateral; provided that, the Trustee shall retain a
Lien (having the same priority as the Lien it previously had on the item of
Collateral that was collected, sold or otherwise disposed of) on the proceeds
of such collection, sale, or other disposition (except to the extent such
proceeds are applied to the Credit Facility Indebtedness in accordance with Section
3.4).

 

(b)                     To the extent reasonably requested
by the Senior Creditor, the Trustee will cooperate in providing any necessary
or appropriate releases to permit a collection,

 

8

 

sale, or other disposition of Collateral, as provided in Section
4.3(a), by the Senior Creditor therein free and clear of the Trustee’s
junior Lien.

 

ARTICLE V

MISCELLANEOUS

 

Section
5.1                                   Rights
of Subrogation.  The Trustee agrees
that no payment or distribution received by the Trustee on account of the
Subordinated Lien Indebtedness, which payment or distribution is applied
against the Subordinated Indebtedness and is paid over to the Senior Creditor
pursuant to Section 4.1, shall entitle the Trustee to exercise any
rights of subrogation in respect thereof until the earlier of (a) the date on
which all Credit Facility Indebtedness is Fully Paid, and (b) the date on which
the Maximum Amount of Credit Facility Indebtedness shall have been Fully Paid.

 

Section
5.2                                   Further
Assurances.  The Parties will, at
their own expense and at any time and from time to time, promptly execute and
deliver all further instruments and documents, and take all further reasonable
action (including the recordation of a subordination agreement in the
appropriate recorder’s office), that may be necessary or desirable, or that
either Party may reasonably request, to protect any right or interest granted
or purported to be granted hereby or to enable such Party to exercise and
enforce its rights and remedies hereunder; provided
that, no Party shall be required to pay over any payment or distribution,
execute any instruments or documents, or take any other action referred to in
this Section 5.2 to the extent that such action would contravene any
law, order or other legal requirement binding on such Party, and in the event
of a controversy or dispute, any Party may interplead any payment or
distribution in any court of competent jurisdiction, without further
responsibility in respect of such payment or distribution under this Section
5.2.

 

Section
5.3                                   Defenses
Similar to Suretyship Defenses.  All
rights, interests, agreements and obligations of each of the Parties under this
Agreement shall remain in full force and effect irrespective of:

 

(a)                      any change in the time, manner or
place of payment of, or in any other term of, all or any of the Secured
Liabilities, or any other amendment or waiver of or any consent to departure
from the Financing Documents; provided that,
this Section 5.3(a) shall not apply to, and the Trustee’s Liens on the Collateral
shall not be subordinated in priority by virtue of this Agreement to, the
Senior Creditor’s Liens thereon if and to the extent that the Credit Facility
Indebtedness is increased, without the express written consent of the Trustee,
to an amount in excess of the Maximum Amount;

 

(b)                     any exchange, release,
nonenforcement or nonperfection of any Party’s Liens with respect to any
Collateral, or any release, amendment or waiver of or consent to departure from
any guaranty, for all or any of the Secured Liabilities; or

 

(c)                      any failure by any Party to
marshal assets in favor of any other Party or any other Person or to proceed
upon or against or exhaust any security or remedy before proceeding to enforce
the Financing Documents.

 

Section
5.4                                   Amendments,
Etc.  No amendment or waiver of any
provision of this Agreement and no consent to any departure by any Party shall
be effective unless the same is

 

9

 

in writing and signed by each Party, and then such waiver or consent
shall be effective only in the specific instance and for the specific purpose
for which given.

 

Section
5.5                                   Addresses
for Notices.  All demands, notices
and other communications provided for hereunder shall be in writing, and if to
the Trustee, mailed, sent by facsimile or delivered to it at the following
address:

 

U.S. Bank National Association

60 Livingston Avenue

St. Paul, MN  55107

Facsimile:  (651) 495-8097

Attention:  Corporate Trust Department

 

and if to the Senior Creditor, mailed, sent by facsimile or delivered
to it at the following address:

 

Texas State Bank

3900 North 10th Street

McAllen, TX  78501

Facsimile:  (956) 926-7872

Attention:  Glen Roney

 

with copies to the Issuer, mailed, sent by facsimile or delivered to it
at the following addresses:

 

The Wornick Company

3900 North 10th Street, Suite 900

McAllen, TX  78501

Facsimile:  (958) 882-7816

Attention:  Chief Executive Officer

 

Veritas Capital Management II, L.L.C.

660 Madison Avenue

New York, New York  10022

Facsimile: 
(212) 688-9411

Attention: 
Robert B. McKeon

 

Schulte, Roth & Zabel LLP

919 Third Avenue

New York, New York  10022

Facsimile: 
(212) 593-5955

Attention: 
Benjamin M. Polk, Esq.

 

Winston & Strawn LLP

200 Park Avenue

New York, New York  10166

Facsimile: 
(212) 294-4700

Attention: 
David A. Sakowitz, Esq

 

or as to any Party at such other address designated by such Party in a
written notice to the other Party complying as to delivery with the terms of
this Section 5.5.  All such
demands, notices and other communications shall be effective:  (a) if mailed, two business days after
deposit in the mails, postage prepaid; (b) if sent by facsimile, when receipt
is acknowledged by the receiving facsimile equipment (or at the opening of the
next business day if receipt is after normal business hours); or (c) if by
other means, when delivered.

 

Section
5.6                                   No
Waiver of Remedies.  No failure on
the part of any Party to exercise, and no delay in exercising, any right
hereunder shall operate as a waiver thereof; nor shall any single or partial
exercise of any right hereunder preclude any other or further exercise thereof
or the exercise of any other right.  The
remedies herein provided are cumulative and not exclusive of any remedies
provided by law.

 

Section
5.7                                   Termination
of Agreement.  This Agreement shall
(x) be binding on the Parties and their successors and assigns; (y) inure to
the benefit of and be enforceable by the Parties and their respective
successors, transferees and assigns; and (z) terminate upon the Credit Facility
Indebtedness or the Subordinated Lien Indebtedness being Fully Paid; provided that, the obligations of the
Parties under Sections 4.1 and 5.2 shall survive this Agreement.

 

Section
5.8                                   Governing
Law; Entire Agreement.  This Agreement shall be governed by, and construed in
accordance with, the laws of the State of New York.  This Agreement constitutes the entire
agreement and understanding among the Parties with respect to

 

10

 

the subject matter hereof and supersedes any prior agreements, written
or oral, with respect thereto.

 

Section
5.9                                   Counterparts.  This Agreement may be executed in any number
of counterparts, and it is not necessary that the signatures of all Parties be
contained on any one counterpart hereof, each counterpart (including
counterparts delivered by facsimile) will be deemed to be an original, and all
together shall constitute one and the same document.

 

Section
5.10                            No
Third Party Beneficiary.  This
Agreement is solely for the benefit of the Parties (and their successors and
assigns) and the holders of the Secured Liabilities (including the lenders
under the Credit Agreement, the Senior Creditor, the Trustee and the
Holders).  No other Person (including the
Issuer, any Guarantor or any subsidiary or affiliate of the Issuer or any
Guarantor) shall be deemed to be a third party beneficiary of this Agreement or
shall have any rights to enforce any provisions hereof.

 

Section
5.11                            Headings.  The headings of the articles and sections of
this Agreement are inserted for purposes of convenience only and shall not be
construed to affect the meaning or construction of any of the provisions
hereof.

 

Section
5.12                            Severability.  If any of the provisions in this Agreement
shall, for any reason, be held invalid, illegal or unenforceable in any
respect, such invalidity, illegality or unenforceability shall not affect any
other provision of this Agreement and shall not invalidate the Lien Priority or
any other priority set forth in this Agreement.

 

Section
5.13                            Trustee
Status.  Notwithstanding any term
herein to the contrary, it is hereby expressly agreed and acknowledged that the
subordination and related agreements set forth herein by the Trustee are made
solely in its capacity as trustee and secured party under the Indenture
Documents and with respect to the Notes (and not in its individual commercial
capacity, except to the extent that it is or becomes a Holder).  The Trustee shall not have any duties,
obligations, or responsibilities to the Senior Creditor under this Agreement
except as expressly set forth herein. 
Nothing in this Agreement shall be construed to operate as a waiver by
the Trustee, with respect to the Issuer or any holder of any Subordinated Lien
Indebtedness, of the benefit of any exculpatory provisions, presumptions,
indemnities, protections, benefits, immunities or reliance rights contained in
the Indenture, and, by their acknowledgment hereof, the Issuer expressly agrees
that as between it and the Trustee, the Trustee shall have such benefit with
respect to all actions or omissions by the Trustee pursuant to this
Agreement.  For all purposes of this
Agreement, the Trustee may (a) rely in good faith, as to matters of fact, on
any representation of fact believed by Trustee to be true (without any duty of
investigation) and that is contained in a written certificate of any authorized
representative of the Issuer or of the Senior Creditor; (b) rely in good faith,
as to matters of law, on any advice received from its legal counsel or an
opinion of its counsel, counsel to the Issuer or counsel to the Senior
Creditor, and shall have no liability for any action or omission taken in
reliance thereon; and (c) assume in good faith (without any duty of
investigation), and rely upon, the genuineness, due authority, validity, and
accuracy of any certificate, instrument, notice, or other document believed by
it in good faith to be genuine and presented by the proper person.

 

[signature
page follows]

 

11

 

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

 

 

	
   

  	
  Senior Creditor:

  
	
   

  	
   

  	
   

  
	
   

  	
  TEXAS STATE BANK

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Douglas G. Bready

  	
   

  
	
   

  	
   

  	
  Name: 

  	
  Douglas G. Bready

  
	
   

  	
   

  	
  Title:

  	
  President

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Trustee:

  
	
   

  	
   

  	
   

  
	
   

  	
  U.S. BANK NATIONAL ASSOCIATION

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Richard H. Prokosch

  	
   

  
	
   

  	
   

  	
  Name:

  	
  Richard H. Prokosch

  
	
   

  	
   

  	
  Title:

  	
  Vice President

  
					

 

 

ACKNOWLEDGMENT

 

Each of the undersigned hereby acknowledges that (a) it has received a
copy of the foregoing Intercreditor Agreement and consents thereto, and agrees
to recognize all rights granted hereby to the parties thereto, and will not do
any act or perform any obligation which is not in accordance with the
agreements set forth in such Intercreditor Agreement, and (b) it is not an
intended beneficiary or third-party beneficiary under the Intercreditor
Agreement.

 

Dated as of June 30, 2004.

 

 

	
   

  	
  Issuer:

  
	
   

  	
   

  	
   

  
	
   

  	
  THE WORNICK COMPANY

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Robert B. McKeon

  	
   

  
	
   

  	
   

  	
  Name:

  	
  Robert B. McKeon

  
	
   

  	
   

  	
  Title:

  	
  Chairman of the Board

  
	
   

  	
   

  	
   

  
	
   

  	
  Guarantors:

  
	
   

  	
   

  	
   

  
	
   

  	
  RIGHT AWAY MANAGEMENT

  CORPORATION

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Robert B. McKeon

  	
   

  
	
   

  	
   

  	
  Name: 

  	
  Robert B. McKeon

  
	
   

  	
   

  	
  Title:

  	
  Chairman of the Board

  
	
   

  	
   

  	
   

  
	
   

  	
  THE WORNICK COMPANY RIGHT AWAY

  DIVISION

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Robert B. McKeon

  	
   

  
	
   

  	
   

  	
  Name: 

  	
  Robert B. McKeon

  
	
   

  	
   

  	
  Title:

  	
  Chairman of the Board

  
	
   

  	
   

  	
   

  
	
   

  	
  THE WORNICK COMPANY RIGHT AWAY

  DIVISION, L.P.

  
	
   

  	
  By:

  	
  Right Away Management Corporation,

  its general partner

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Robert B. McKeon

  	
   

  
	
   

  	
   

  	
  Name:

  	
  Robert B. McKeon

  
	
   

  	
   

  	
  Title:

  	
  Chairman of the Board

  
					

 

ACKNOWLEDGMENT

 

Each of the undersigned hereby acknowledges that (a) it has received a
copy of the foregoing Intercreditor Agreement and consents thereto, and agrees
to recognize all rights granted hereby to the parties thereto, and will not do
any act or perform any obligation which is not in accordance with the
agreements set forth in such Intercreditor Agreement, and (b) it is not an
intended beneficiary or third-party beneficiary under the Intercreditor
Agreement.

 

	
  Dated as of June 30, 2004.

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  THE ISSUER:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  THE WORNICK COMPANY

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By: 

  	
  /s/ Robert B. McKeon

  	
   

  
	
   

  	
   

  	
   

  	
  Name: Robert B. McKeon

  
	
   

  	
   

  	
   

  	
  Title:   Chairman of the Board

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  GUARANTORS:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  RIGHT AWAY
  MANAGEMENT CORPORATION

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ Robert B. McKeon

  	
   

  
	
   

  	
   

  	
   

  	
  Name: Robert B. McKeon

  
	
   

  	
   

  	
   

  	
  Title:   Chairman of the Board

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  THE WORNICK COMPANY
  RIGHT AWAY DIVISION

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ Robert B. McKeon

  	
   

  
	
   

  	
   

  	
   

  	
  Name: Robert B. McKeon

  
	
   

  	
   

  	
   

  	
  Title:   Chairman of the Board

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  THE WORNICK COMPANY
  RIGHT AWAY DIVISION, L.P.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  Right Away Management Corporation, its General Partner

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  By:

  	
  /s/ Robert B. McKeon

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  Name: Robert B. McKeon

  
	
   

  	
   

  	
   

  	
   

  	
  Title:   Chairman of the BoardExhibit 10.2

 

 

THE WORNICK COMPANY,

THE WORNICK COMPANY RIGHT AWAY DIVISION,

RIGHT AWAY MANAGEMENT CORPORATION, and

THE WORNICK COMPANY RIGHT AWAY DIVISION, L.P.

(as Grantors)

 

 

SECURITY AGREEMENT

 

Dated as of June 30, 2004

 

 

 

U.S. BANK NATIONAL ASSOCIATION

(as Collateral Agent)

 

 

 

TABLE OF CONTENTS

 

	
  SECTION 1

  	
  DEFINITIONS
  AND INTERPRETATION

  	
   

  
	
  1.1

  	
  Definitions

  	
  1

  
	
  1.2

  	
  Interpretation

  	
  1

  
	
   

  	
   

  	
  4

  
	
  SECTION 2

  	
  GRANT
  OF SECURITY, SECURED OBLIGATIONS, AND RELATED PROVISIONS

  	
  4

  
	
  2.1

  	
  Grant of Security

  	
  4

  
	
  2.2

  	
  Secured Obligations

  	
  5

  
	
  2.3

  	
  Continuing Liability Under Collateral

  	
  5

  
	
  2.4

  	
  Continuing Security Interest

  	
  5

  
	
   

  	
   

  	
   

  
	
  SECTION 3

  	
  REPRESENTATIONS
  AND WARRANTIES

  	
  5

  
	
  3.1

  	
  Title;
  Accurate Information

  	
  5

  
	
  3.2

  	
  Organizational Matters

  	
  5

  
	
  3.3

  	
  Authority
  and Enforceability

  	
  6

  
	
  3.4

  	
  Third-Party
  Authorizations and Approvals

  	
  6

  
	
  3.5

  	
  Attachment
  and Perfection

  	
  6

  
	
  3.6

  	
  No
  Encumbrances

  	
  6

  
	
  3.7

  	
  Accounts

  	
  6

  
	
  3.8

  	
  Deposit
  Accounts

  	
  7

  
	
  3.9

  	
  Investment
  Property.

  	
  7

  
	
  3.10

  	
  Intellectual
  Property

  	
  7

  
	
  3.11

  	
  Commercial Tort Claims

  	
  8

  
	
   

  	
   

  	
   

  
	
  SECTION 4

  	
  COVENANTS
  AND AGREEMENTS

  	
  8

  
	
  4.1

  	
  Encumbrances

  	
  8

  
	
  4.2

  	
  Use of Collateral

  	
  8

  
	
  4.3

  	
  Taxes and Claims

  	
  8

  
	
  4.4

  	
  Materially
  Adverse Changes

  	
  8

  
	
  4.5

  	
  Inventory

  	
  8

  
	
  4.6

  	
  Bailees;
  Landlords

  	
  8

  
	
  4.7

  	
  Accounts

  	
  9

  
	
  4.8

  	
  Limitations on Issuers of Pledged Capital
  Stock

  	
  9

  
	
  4.9

  	
  Deposit Accounts and Securities Accounts.

  	
  9

  
	
  4.10

  	
  After-Acquired
  Collateral

  	
  9

  
	
  4.11

  	
  Certain Proceeds

  	
  10

  
	
  4.12

  	
  Certain Non-U.S. Collateral

  	
  10

  
	
  4.13

  	
  Certificated Collateral

  	
  10

  
	
  4.14

  	
  Voting and Distributions

  	
  10

  
	
  4.15

  	
  Intellectual Property

  	
  11

  
	
  4.16

  	
  Commercial Tort Claims

  	
  11

  
	
  4.17

  	
  Insurance

  	
  11

  
	
  4.18

  	
  Additional Grantors

  	
  11

  
	
  4.19

  	
  Further Assurances

  	
  12

  
	
   

  	
   

  	
   

  
	
  SECTION 5

  	
  REMEDIES

  	
  12

  
	
  5.1

  	
  Generally

  	
  12

  
	
  5.2

  	
  Sale of Collateral

  	
  13

  

 

i

 

	
  5.3

  	
  Marshalling;
  Payments Set Aside

  	
  14

  
	
  5.4

  	
  Application of Proceeds

  	
  14

  
	
  5.5

  	
  Accounts

  	
  14

  
	
  5.6

  	
  Investment Property.

  	
  14

  
	
  5.7

  	
  Deposit Accounts

  	
  15

  
	
  5.8

  	
  Intellectual Property.

  	
  15

  
	
  5.9

  	
  Cash
  Proceeds

  	
  16

  
	
  5.10

  	
  Certain
  Rights Respecting Contracts

  	
  17

  
	
   

  	
   

  	
   

  
	
  SECTION 6

  	
  RIGHTS
  AND OBLIGATIONS OF COLLATERAL AGENT

  	
  17

  
	
  6.1

  	
  Appointment,
  Resignation and Removal

  	
  17

  
	
  6.2

  	
  Standard of Care; Collateral Agent May
  Perform

  	
  17

  
	
  6.3

  	
  Attorney-In-Fact

  	
  18

  
	
  6.4

  	
  Access;
  Right of Inspection

  	
  19

  
	
  6.5

  	
  Authorizations

  	
  19

  
	
  6.6

  	
  Expenses

  	
  19

  
	
  6.7

  	
  Indemnity

  	
  20

  
	
  6.8

  	
  Release of Collateral

  	
  20

  
	
   

  	
   

  	
   

  
	
  SECTION 7

  	
  MISCELLANEOUS

  	
  20

  
	
  7.1

  	
  Notices

  	
  20

  
	
  7.2

  	
  Amendment
  and Waivers

  	
  20

  
	
  7.3

  	
  No
  Waiver; Remedies Cumulative

  	
  20

  
	
  7.4

  	
  Successors
  and Assigns

  	
  21

  
	
  7.5

  	
  Independence
  of Covenants

  	
  21

  
	
  7.6

  	
  Survival of Representations, Warranties and Agreements

  	
  21

  
	
  7.7

  	
  Severability

  	
  21

  
	
  7.8

  	
  Governing
  Law

  	
  21

  
	
  7.9

  	
  Counterparts

  	
  21

  
	
  7.10

  	
  Effectiveness

  	
  21

  
	
  7.11

  	
  Entire Agreement

  	
  21

  
	
  7.12

  	
  Limitation on Collateral Agent’s Liability

  	
  21

  
	
  7.13

  	
  Rights and Obligations Subject to
  Intercreditor

  	
  22

  
	
   

  	
   

  	
   

  
	
  SCHEDULES

  	
   

  	
   

  
	
  3.2

  	
  Organizational Matters

  	
   

  
	
  3.5

  	
  UCC Filing Offices

  	
   

  
	
  3.8

  	
  Deposit Accounts

  	
   

  
	
  3.9

  	
  Investment Property

  	
   

  
	
  3.10

  	
  Intellectual Property

  	
   

  
	
  3.11

  	
  Commercial Tort Claims

  	
   

  
	
  7.1

  	
  Addresses for Notices; Contact Information

  	
   

  
	
   

  	
   

  	
   

  
	
  EXHIBITS

  	
   

  	
   

  
	
  A

  	
  Security
  Agreement Supplement

  	
   

  

 

ii

 

This SECURITY AGREEMENT, dated as of June 30, 2004 (this “Agreement”), is between The Wornick
Company, a Delaware corporation (“TWC”),
and the Subsidiaries of TWC listed on the signature pages hereto (the “Subsidiary Grantors”), and each Additional
Grantor that from time to time becomes a party by executing a Security
Agreement Supplement (together with TWC and the Subsidiary Grantors, the “Grantors”), and U.S. Bank National
Association, as collateral agent for the Secured Parties (in such capacity, the
“Collateral Agent”).

 

RECITALS

 

WHEREAS, reference is made to that certain Indenture, dated as of the
date hereof (as amended, restated, supplemented or otherwise modified from time
to time, the “Indenture”), by and
among the Grantors and U.S. Bank National Association, as trustee (in such
capacity, the “Trustee”) and
Collateral Agent; and

 

WHEREAS, in consideration of the extension of credit set forth in the
Indenture, each Grantor has agreed to secure all obligations under the
Indenture and the Notes issued in connection therewith.

 

NOW, THEREFORE, in consideration of the premises and the agreements,
provisions and covenants herein contained, each Grantor and the Collateral
Agent agree as follows, intending to be legally bound:

 

SECTION 1                                                       DEFINITIONS
AND INTERPRETATION

 

1.1                               Definitions.  Undefined capitalized terms used herein have
the meanings assigned to them in the Indenture, or, if not defined therein, in
the UCC.  The following terms have the meanings
assigned to them in Article 9 of the UCC: 
“Account,” “Account Debtor,” “Authenticate,” “Cash Proceeds,” “Chattel
Paper,” “Commercial Tort Claim,”
“Deposit Account,” “Document,” “Equipment,” “Fixtures,”
“General Intangible,” “Goods,” “Instruments,”
“Inventory,” “Letter-of-Credit Right,” “Proceeds,” “Record,” and “Supporting
Obligation.”

 

In addition to the foregoing terms and the terms defined in the
preamble and recitals hereto, in this Agreement:

 

“Additional Grantors” has
the meaning set forth in Section 4.18.

 

“Collateral” has the
meaning set forth in Section 2.1.

 

“Collateral Documents”
means this Agreement and all other instruments, documents and agreements
delivered by any of the parties to the Indenture Documents pursuant to this
Agreement or any other Indenture Document to grant or perfect a Lien in favor
of the Collateral Agent on any real, personal or mixed property of such party
as security for the Secured Obligations.

 

“Collateral Records” means
books, records, ledger cards, files, correspondence, customer lists,
blueprints, technical specifications, manuals, computer software, computer
printouts, tapes, disks and other electronic storage media and related data
processing software and similar items that at any time evidence or contain information
relating to any of the Collateral or are otherwise necessary or helpful in the
collection thereof or realization thereon.

 

 

“Collateral Support” means
all property (real or personal) assigned, hypothecated or otherwise securing
any Collateral and includes any security agreement or other agreement granting
a lien or security interest in such real or personal property.

 

“Copyrights” means all
United States, state and foreign copyrights, including copyrights in software
and databases, and all Mask Works (as defined under 17 U.S.C. 901 of the U.S.
Copyright Act), whether registered or unregistered, and, with respect to the
foregoing, (i) all registrations and applications therefor, (ii) all extensions
and renewals thereof, (iii) all rights corresponding thereto throughout the
world, (iv) all rights to sue for past, present and future infringements
thereof, (v) all licenses, claims, damages and proceeds of suit arising
therefrom, and (vi) all payments and rights to payments arising out of the
sale, lease, license, assignment, or other disposition thereof.

 

“Credit Agreement” means
the Loan Agreement, dated as of the date hereof, among the Grantors and Texas
State Bank, as amended, restated, refinanced, supplemented or otherwise
modified from time to time.

 

“Indemnitee” means any of
the Collateral Agent and its Affiliates’ officers, partners, directors,
trustees, employees and agents.

 

“Indenture Document” means
any of the Indenture, the Notes, the Collateral Agreements, and any other
agreement, document or instrument entered into or issued in connection with any
of the foregoing.

 

“Insurance” means (i) all
insurance policies covering any portion of the Collateral (regardless of
whether the Collateral Agent is the loss payee thereof) and (ii) any key man life
insurance policies.

 

“Intellectual Property”
means, collectively, any Grantor’s Copyrights, Patents, Trademarks, and Trade
Secrets, and any agreement granting any right in, to or under Copyrights,
Patents, Trademarks or Trade Secrets, where such Grantor is licensee or
licensor under such agreement.

 

“Intercreditor” means that
certain Intercreditor Agreement, dated as of the date hereof, among the
Collateral Agent and Texas State Bank (and acknowledged by the Grantors), as
amended, restated, supplemented or otherwise modified from time to time.

 

“Investment Property” has
the meaning assigned to the term “investment property” in Article 9 of the
UCC, and also means Instruments, Pledged Debt, and Pledged Capital Stock.

 

“IP Security Agreement”
means an IP Security Agreement, in form and substance reasonably satisfactory
to the Collateral Agent.

 

“Patents” means all United
States and foreign patents and certificates of invention, or similar industrial
property rights, (i) all applications therefore, (ii) all reissues, divisions,
continuations, continuations-in-part, extensions, renewals, and reexaminations
thereof, (ii) all rights corresponding thereto throughout the world, (ii) all
inventions and improvements described therein, (iv) all rights to sue for past,
present and future infringements thereof, (v) all licenses, claims, damages,
and proceeds of suit arising therefrom, and (v) all payments and rights to
payments arising out of the sale, lease, license, assignment, or other
disposition thereof.

 

2

 

“Pledged Debt” means, with
respect to any Grantor, Indebtedness for borrowed money owed to such Grantor,
whether or not evidenced by any instrument or promissory note, all monetary
obligations owing to such Grantor from any other Person, the Instruments
evidencing any of the foregoing, and all interest, cash, Instruments and other
property or proceeds from time to time received, receivable or otherwise
distributed in respect of or in exchange for any of the foregoing.

 

“Pledged Capital Stock”
means, with respect to any Grantor, the Capital Stock of any other Person owned
by such Grantor, and the certificates, if any, representing such Capital Stock
and any interest of such Grantor in the entries on the books of the Person
issuing such Capital Stock or on the books of any securities intermediary
pertaining to such Capital Stock, and all dividends, distributions, cash,
warrants, rights, options, instruments, securities and other property or
proceeds from time to time received, receivable or otherwise distributed in
respect of or in exchange for any such Capital Stock, and any other warrant,
right or option to acquire any of the foregoing.

 

“Secured Obligations” has
the meaning assigned to the term “Obligations” in the Indenture, and also means
all interest that, but for the filing of a petition in bankruptcy with respect
to any Grantor, would have accrued on any Obligation, whether or not a claim is
allowed against such Grantor for such interest in the related bankruptcy
proceeding).

 

“Secured Parties” means
the Trustee, the Collateral Agent, the Holders, and any future party to which
Secured Obligations are owed under the Indenture Documents.

 

“Security Agreement Supplement”
means a supplement to this agreement substantially in the form of Exhibit A,
whereby an Additional Grantor becomes a party hereto.

 

“Trade Secrets” means all
trade secrets and all other confidential or proprietary information and
know-how, whether or not reduced to a writing or other tangible form, including
with respect to the foregoing, (i) all documents and things embodying or
incorporating the foregoing, (ii) all rights to sue for past, present and
future infringement thereof, and (iii) all licenses, claims, damages, and
proceeds of suit arising therefrom, and (iv) all payments and rights to
payments arising out of the sale, lease, license, assignment, or other
dispositions thereof.

 

“Trademarks” means all
United States, state and foreign trademarks, service marks, certification
marks, collective marks, trade names, corporate names, d/b/as, business names,
fictitious business names, Internet domain names, trade styles, logos, other
source or business identifiers, designs and General Intangibles of a like
nature, rights of publicity and privacy pertaining to the names, likeness,
signature and biographical data of natural persons, and, with respect to the
foregoing, (i) all registrations and applications therefor, (ii) the goodwill
of the business symbolized thereby, (iii) all rights corresponding thereto
throughout the world, (iv) all rights to sue for past, present and future
infringement or dilution thereof or for any injury to goodwill, (v) all
licenses, claims, damages, and proceeds of suit arising therefrom, and (vi) all
payments and rights to payments arising out of the sale, lease, license
assignment or other disposition thereof.

 

“UCC” means the Uniform
Commercial Code as in effect from time to time in the State of New York; provided that, if by reason of mandatory
provisions of law, the perfection or the effect of perfection or nonperfection
of the security interest in any Collateral is governed by the Uniform
Commercial Code as in effect in a jurisdiction other than the State of New
York, “UCC”

 

3

 

also means the Uniform Commercial Code as in effect in such other
jurisdiction for purposes of the provisions hereof relating to such perfection
or effect of perfection or nonperfection.

 

1.2                               Interpretation.  Unless otherwise specifically provided, references
to “Sections,” “Exhibits” and “Schedules” are to sections, exhibits and
schedules, as the case may be, of this Agreement.  Section headings in this Agreement are included for
convenience only and do not constitute a part of this Agreement for any other
purpose or be given any substantive effect. 
Unless the context otherwise requires, defined terms may be used in the
singular or the plural.  The use of the
word “include” or any derivative thereof is not limiting or restrictive.  If any conflict or inconsistency exists
between this Agreement and the Indenture, the Indenture governs.  All references to provisions of the UCC
include all successor provisions under any subsequent version or amendment to
any Article of the UCC.

 

SECTION 2                                                       GRANT
OF SECURITY, SECURED OBLIGATIONS, AND RELATED PROVISIONS

 

2.1                               Grant of Security. 
Each Grantor hereby grants to the Collateral Agent for the benefit of
the Secured Parties a security interest in and continuing lien on all of such
Grantor’s right, title and interest in, to and under all personal property of
such Grantor (except for the Excluded Assets), including the following, in each
case whether now owned or existing or hereafter acquired or arising and
wherever located (collectively, the “Collateral”):

 

(i)                       all Accounts,

 

(ii)                    all Chattel
Paper,

 

(iii)                 all Commercial
Tort Claims,

 

(iv)                all Deposit
Accounts (and any money, cash or cash equivalents, checks or other property
credited thereto),

 

(v)                   all Documents,

 

(vi)                all General
Intangibles,

 

(vii)             all Goods (including
all Equipment, Fixtures, and Inventory),

 

(viii)          all Insurance,

 

(ix)                  all Investment
Property (including the Investment Property listed on Schedule 3.9),

 

(x)                     all
Intellectual Property (including the Intellectual Property listed on Schedule 3.10),

 

(xi)                  all
Letter-of-Credit Rights, and

 

(xii)               to the extent not
otherwise included above, all tangible and intangible personal property, and
all Collateral Records, Collateral

 

4

 

Support, Records, Supporting Obligations,
Proceeds, products, accessions, rents and profits of or relating to any of the
foregoing.

 

2.2                               Secured
Obligations.  This Agreement secures, and the Collateral
is collateral security for, the prompt and complete payment or performance in
full when due, whether at stated maturity, by required prepayment, declaration,
acceleration, demand or otherwise including the payment of amounts that would
become due but for the operation of the automatic stay under the Bankruptcy
Code, 11 U.S.C. §362(a) (and any successor provision thereof), of all the
Secured Obligations.

 

2.3                               Continuing
Liability Under Collateral.  Notwithstanding anything herein to the
contrary, (a) each Grantor remains liable for its obligations under the
Collateral and nothing contained herein is intended to or constitutes a
delegation of duties to the Collateral Agent or any Secured Party, (b) each
Grantor remains liable under each of the agreements to which it is a party
included in the Collateral, including any agreements relating to any Investment
Property, to perform all of the obligations undertaken by it thereunder in
accordance with and pursuant to the terms and provisions thereof, and neither
the Collateral Agent nor any Secured Party has any obligation or liability
under any of such agreements by reason of or arising out of this Agreement or
any other document related hereto, and neither the Collateral Agent nor any
Secured Party has any obligation to make any inquiry as to the nature or
sufficiency of any payment received by it or have any obligation to take any
action to collect or enforce any rights under any agreement included in the
Collateral, including any agreements relating to any Investment Property, and
(c) the exercise by the Collateral Agent of any of its rights hereunder will
not release any Grantor from any of its duties or obligations under the
contracts and agreements included in the Collateral.

 

2.4                               Continuing
Security Interest.  This Agreement creates a continuing security
interest in the Collateral and will remain in full force and effect until the
payment in full of all of the Secured Obligations, be binding on each Grantor,
its successors and assigns, and inure, together with the rights and remedies of
the Collateral Agent hereunder, to the benefit of the Collateral Agent and its
successors, transferees and assigns. 
Upon the payment in full of all of the Secured Obligations, the security
interest granted hereby will terminate and all rights to the Collateral will
revert and be deemed reassigned to the Grantors.  Upon any such termination, the Collateral Agent will, at the
Grantors’ request and expense, execute and deliver to Grantors such documents
as the Grantors will reasonably request to evidence such termination reversions
or reassignment, without recourse, representation, or warranty of any kind.

 

SECTION 3                                                       REPRESENTATIONS
AND WARRANTIES

 

Each Grantor hereby represents and warrants
as follows:

 

3.1                               Title; Accurate Information.  Each Grantor owns the Collateral purported
to be owned by it or otherwise has the rights it purports to have in each item
of Collateral and, as to all Collateral whether now existing or hereafter
acquired, will continue to own or have such rights in each item of Collateral,
in each case free and clear of all Liens, rights or claims of any Person, other
than Permitted Liens.  All information
supplied by or on behalf of any of the Grantors with respect to any of the
Collateral (in each case taken as a whole with respect to any particular
Collateral) is accurate and complete in all material respects.

 

3.2                               Organizational Matters.  Each Grantor is duly organized and validly
existing under the laws of the jurisdiction of its organization and has not
filed any certificates of

 

5

 

domestication, transfer or continuance in any other jurisdiction.  The full legal name of each Grantor is set
forth on Schedule 3.2, and such Grantor has not done in the last
five years, and does not do, business under any other name (including any
trade-name or fictitious business name) except for those names set forth on
such schedule.  Each Grantor has further
indicated on Schedule 3.2 the type of organization of such Grantor,
its mailing address, its jurisdiction of organization, and its organizational
identification number.  Except as
provided on Schedule 3.2, it has not changed its name or
jurisdiction of organization, or its corporate structure in any way (e.g., by merger, consolidation, change in
corporate form or otherwise) within the past five years.

 

3.3                               Authority and Enforceability.  Each Grantor has all requisite power and
authority to enter into this Agreement and to carry out its obligations
hereunder, and has duly executed and delivered this Agreement.  This Agreement and each other document,
statement, or instrument relating hereto, when executed and delivered by the
Grantors, will constitute legal, valid and binding obligations of each Grantor,
enforceable in accordance with their terms, subject to applicable bankruptcy,
insolvency, reorganization, moratorium or other laws affecting creditors’
rights generally and general principles of equity.

 

3.4                               Third-Party Authorizations and Approvals.  No authorization, approval or other action
by, and no notice to or filing, registration or recording with, any
governmental authority or regulatory body (in each case that has not been
obtained as of the date hereof) is required for either (i) the grant by each
Grantor of the Liens purported to be created in favor of the Collateral Agent
hereunder, or (ii) the exercise by the Collateral Agent of any rights or
remedies in respect of any Collateral (whether specifically granted or created
hereunder or created or provided for by applicable law), except for the filings
contemplated hereunder, as may be required in connection with the disposition
of any Investment Property, and as may be required under federal laws
pertaining to Intellectual Property.

 

3.5                               Attachment and Perfection.  This Agreement is effective to create a
valid and continuing security interest in all of the Collateral in favor of the
Collateral Agent for the benefit of the Secured Parties.  With respect to each Grantor, upon the
filing of all UCC financing statements describing the Collateral and naming
such Grantor as debtor and the Collateral Agent as secured party in the filing
offices set forth opposite such Grantor’s name on Schedule 3.5, the
security interests granted to the Collateral Agent hereunder will constitute
perfected Liens with respect to that portion of the Collateral on which a Lien
can be perfected by such methods, subject in the case of priority only to
Permitted Liens.

 

3.6                               No Encumbrances. 
No effective UCC financing statement, fixture filing or other instrument
similar in effect under any applicable law covering all or any part of the
Collateral is on file in any filing or recording office except for (x)
financing statements for which proper termination statements have been
delivered to the Collateral Agent and (y) financing statements, fixture filings
and other instruments similar in effect filed in connection with Permitted
Liens.

 

3.7                               Accounts. 
Each Account is the legal, valid and binding obligation of the Account
Debtor in respect thereof, representing an unsatisfied obligation of such
Account Debtor, is enforceable in accordance with its terms, to the knowledge
of the applicable Grantor, is not subject to any set-offs, defenses, taxes, or
counterclaims (except with respect to refunds, returns and allowances in the
ordinary course of business with respect to damaged merchandise), and is in compliance
in all material respects with all applicable laws, whether federal, state,
local or foreign.

 

6

 

3.8                               Deposit Accounts.  Schedule 3.8 sets forth under
the heading “Deposit Accounts” all of the Deposit Accounts in which the
Grantors have an interest and each Grantor listed thereunder is the sole
account holder of the Deposit Accounts listed next to its name.  No such Grantor has consented to or is
otherwise aware of, any Person (other than the Collateral Agent or Texas State
Bank (or its successor or assign)) having either sole dominion and control
(within the meaning of common law) or “control” (within the meaning of
Section 9-104 of the UCC) over, or any other interest in, any such Deposit
Account or any money or other property deposited therein.

 

3.9                               Investment Property.

 

(a)                      Pledged Capital Stock.  Schedule 3.9 sets forth under
the heading “Pledged Capital Stock” all of the Pledged Capital Stock owned by
the Grantors and such Pledged Capital Stock constitutes the percentage of
issued and outstanding Capital Stock of the respective issuers thereof
indicated on such schedule.  Each
Grantor listed thereunder is the record and beneficial owner of such Pledged
Capital Stock listed next to its name on such schedule, free and clear of all
Liens, rights or claims of any Person, other than Permitted Liens, and there
are no outstanding warrants, options or other rights to purchase, or
shareholder, voting trust or similar agreements outstanding with respect to, or
property that is convertible into, or that requires the issuance or sale of,
such Pledged Capital Stock.

 

(b)                     Pledged Debt.  Schedule 3.9 sets forth under
the heading “Pledged Debt” all of the Pledged Debt owned by the Grantors and
all of such Pledged Debt has been duly authorized, Authenticated or issued, and
delivered, is the legal, valid and binding obligation of the issuers thereof,
and is not in default, and Schedule 3.9 includes all of the issued
and outstanding intercompany Indebtedness evidenced by an Instrument or
certificated security of the respective issuers thereof owing to the Grantors.

 

(c)                      Securities Accounts.  Schedule 3.9 sets forth under
the heading “Securities Accounts,” all of the Securities Accounts in which any
Grantor has an interest.  Such Grantor
is the sole entitlement holder of each such Securities Account, and such
Grantor has not consented to, and is not otherwise aware of, any Person (other
than the Collateral Agent or Texas State Bank (or its successor or assign))
having “control” (within the meanings of Sections 8-106 and 9-106 of the UCC)
over, or any other interest in, any such Securities Account or any securities
or other property credited thereto.

 

3.10                        Intellectual Property.  Schedule 3.10 sets forth a true
and complete list of all United States, state and foreign registrations of and
applications for Patents, Trademarks, and Copyrights owned by each
Grantor.  With respect to each Grantor
listed on Schedule 3.10, such Grantor (i) is the sole and exclusive
owner of the entire right, title, and interest in and to all Intellectual
Property on Schedule 3.10, and (ii) owns or has the right to use
all other Intellectual Property used in the conduct of its business free and
clear of all Liens, claims, encumbrances, and material licenses granted by such
Grantor, in each case except for Permitted Liens and such licenses set forth on
Schedule 3.10.  To each
Grantor’s knowledge, the conduct of such Grantor’s business does not infringe
on any Trademark, Patent, Copyright, Trade Secret or other intellectual
property right of any third party; no claim is pending, or to such Grantor’s
knowledge, threatened or has been made that the conduct of such Grantor’s
business or the use of any Intellectual Property owned or used by such Grantor
violates the intellectual property rights of any third party.  There is no effective financing statement or
other document or instrument now executed, or on file or recorded in any public
office, granting a security interest in or otherwise encumbering any

 

7

 

part of the Intellectual Property owned by any Grantor, other than in
favor of the Collateral Agent or Texas State Bank (or its successor or assign).

 

3.11                        Commercial Tort Claims.  Schedule 3.11 sets forth all Commercial Tort Claims
of the Grantors.

 

SECTION 4                                                       COVENANTS
AND AGREEMENTS

 

Each Grantor hereby covenants and agrees as
follows:

 

4.1                               Encumbrances. 
Except for the security interest created by this Agreement, no Grantor
will create or suffer to exist any Lien on or with respect to any of the
Collateral, except Permitted Liens, and such Grantor will defend the Collateral
against all Persons at any time claiming any such interest therein.

 

4.2                               Use of Collateral. 
Except where any such actions, individually or in the aggregate, would
not have a material adverse effect on the Collateral as a whole, no Grantor
will produce, use or permit any Collateral to be used in violation of any
provision of this Agreement, or to be knowingly used unlawfully or in violation
of any applicable statute, regulation or ordinance or any policy of insurance
covering the Collateral.

 

4.3                               Taxes and Claims. 
Each Grantor will promptly pay when due all property and other taxes,
assessments and governmental charges or levies imposed on, and all claims
(including claims for labor, materials and supplies) against, the Collateral,
except to the extent the validity thereof is being contested in good faith; provided that, such Grantor will in any
event pay such taxes, assessments, charges, levies or claims not later than
five days prior to the date of any proposed sale under any judgment, writ or
warrant of attachment entered or filed against such Grantor or any of the
Collateral as a result of the failure to make such payment.

 

4.4                               Materially Adverse Changes.  Upon any Grantor or any officer of any
Grantor obtaining knowledge thereof, such Grantor will promptly notify the
Collateral Agent in writing of any event that may materially adversely affect
the value of the Collateral, the ability of any Grantor or the Collateral Agent
to dispose of the Collateral or any portion thereof, or the rights and remedies
of the Collateral Agent in relation thereto, including the levy of any legal
process against the Collateral or any portion thereof.  Subject to the Intercreditor, no Grantor
will take or permit any action that could impair the Collateral Agent’s rights
in the Collateral.  No Grantor will
sell, transfer or assign (by operation of law or otherwise) any Collateral
except as permitted under the Indenture and the Intercreditor.

 

4.5                               Inventory. 
Each applicable Grantor will keep correct and accurate records of its
Inventory as are customarily maintained under similar circumstances by Persons
of established reputation engaged in similar business, and in any event in
conformity with GAAP.

 

4.6                               Bailees; Landlords.  If material Equipment or Inventory is in
possession or control of any third party, including any warehouseman, bailee or
agent, the applicable Grantor will notify the third party of the Collateral
Agent’s security interest and will use commercially reasonable efforts to
obtain an Authenticated acknowledgment from such third party that it is holding
the Equipment and Inventory for the benefit of the Collateral Agent.  With respect to any material Collateral
located on real property that is not owned by any Grantor, the applicable
Grantor will use commercially reasonable efforts to obtain and deliver to the
Collateral Agent a landlord waiver in form and substance reasonably
satisfactory to the Collateral Agent.

 

8

 

4.7                               Accounts. 
Except as otherwise provided in this Section 4.7, each
Grantor will continue to collect all amounts due or to become due to such
Grantor under the Accounts and any Supporting Obligation and, in the exercise
of its reasonable business judgment, diligently exercise each material right it
may have under any Account, Supporting Obligation or Collateral Support.  Upon the occurrence and during the
continuance of an Event of Default, at such Grantor’s expense and in connection
with the foregoing collections and exercises, such Grantor will take such
action as the Collateral Agent may deem necessary or advisable.  Notwithstanding the foregoing, the
Collateral Agent will have the right at any time, subject to the Intercreditor,
to notify or require any Grantor to notify any Account Debtor of the Collateral
Agent’s security interest in the Accounts and any Supporting Obligation.

 

4.8                               Limitations
on Issuers of Pledged
Capital Stock.  Without the
prior written consent of the Collateral Agent, no Grantor will permit any
issuer of any Pledged Capital Stock to merge or consolidate, unless (i) such merger or consolidation is
permitted under the Indenture, (ii) such issuer creates a security interest
that is perfected by a filed financing statement (that is not effective solely
under Section 9-508 of the UCC) in collateral in which such new debtor has
or acquires rights, and (iii) all the outstanding Capital Stock of the
surviving or resulting Person that is owned by such Grantor (except any such
Capital Stock constituting Excluded Assets) is, upon such merger or
consolidation, pledged hereunder and no cash, securities or other property is
distributed in respect of the outstanding equity interests of any other
constituent Grantors.

 

4.9                               Deposit Accounts and Securities Accounts.

 

(a)                      With respect to any Investment
Property consisting of Securities Accounts or Securities Entitlements having a
value (with respect to each such account) in excess of $100,000, each Grantor
will, subject to the Intercreditor, cause the securities intermediary
maintaining such Securities Account or Securities Entitlement to enter into an
agreement reasonably acceptable to the Collateral Agent pursuant to which, upon
the occurrence and during the continuance of an Event of Default, it will agree
to comply with the Collateral Agent’s “entitlement orders” without further
consent by such Grantor or any other Person. 
With respect to each Deposit Account (subject to Section 4.9(b)),
such Grantor will, subject to the Intercreditor, cause the depositary
institution maintaining such account to enter into an agreement reasonably
acceptable to the Collateral Agent, pursuant to which, upon the occurrence and
during the continuance of an Event of Default, the Collateral Agent will have
“control” (within the meaning of Section 9-104 of the UCC) over such
Deposit Account.

 

(b)                     Deposit Accounts may be maintained
at any bank without having to obtain a control agreement as provided in the foregoing
Section 4.9(a) so long as the balances of such Deposit Accounts are
used exclusively for (i) petty cash needs, or (ii) employee payroll, employee
benefits, or taxes.  All control
agreements required pursuant to this Section 4.9 shall be effective
with respect to the applicable Deposit Accounts within 30 days after the date
hereof or after the date established, if later.

 

4.10                     After-Acquired Collateral.  Subject to the Intercreditor, if any Grantor
acquires rights in any Investment Property, Letter-of-Credit Rights or Deposit
Accounts after the date hereof, such Grantor will deliver to the Collateral
Agent a completed Security Agreement Supplement, together with all supplements
to schedules thereto, reflecting such newly acquired rights.  Notwithstanding the foregoing, it is
understood and agreed that the security interest of the Collateral Agent will
attach to all after-acquired property immediately upon any Grantor’s

 

9

 

acquisition of rights therein and will not be affected by the failure
of any Grantor to deliver a Security Agreement Supplement as required hereby.

 

4.11                        Certain Proceeds. 
Except as provided in the next sentence, in the event any Grantor
receives any dividends, interest or distributions on any Investment Property,
or any securities or other property upon the merger, consolidation, liquidation
or dissolution of any issuer of any such Proceeds, then (a) such dividends,
interest or distributions and securities or other property will be included in
the definition of Collateral without further action, and (b) subject to the
Intercreditor, such Grantor will immediately take all steps, if any, reasonably
necessary or advisable to ensure the validity, perfection, priority and, if
applicable, control of the Collateral Agent over such Proceeds (including
delivery thereof to the Collateral Agent) and pending any such action such
Grantor will be deemed to hold such dividends, interest, distributions,
securities or other property in trust for the benefit of the Collateral Agent
and will be segregated from all other property of such Grantor.  Notwithstanding the foregoing, so long as no
Event of Default will have occurred and be continuing, the Collateral Agent authorizes
each Grantor to retain all ordinary cash dividends and distributions paid in
the normal course of the business of the issuer and consistent with the past
practice of the issuer and all scheduled payments of principal and interest.

 

4.12                        Certain Non-U.S. Collateral.  If any issuer of any Investment Property is
located in a jurisdiction outside of the United States, the applicable Grantor
will, to the extent commercially reasonable as determined by the Collateral
Agent in consultation with such Grantor, take such additional actions, including
causing the issuer to register the grant of security hereunder on its books and
records or making such filings or recordings, in each case as may be necessary
or advisable, under the laws of such issuer’s jurisdiction to insure the
validity, perfection and priority of the security interest of the Collateral
Agent, subject to the Intercreditor. 
Upon the occurrence and continuation of an Event of Default, the
Collateral Agent will have the right, subject to the Intercreditor and without
notice to any Grantor, to transfer all or any portion of such Collateral to its
name or the name of its nominee or agent. 
In addition, the Collateral Agent will have the right at any time,
without notice to any Grantor, to exchange any certificates or instruments
representing any of such Collateral for certificates or instruments of smaller
or larger denominations.

 

4.13                        Certificated
Collateral.  With respect to any Collateral that is
represented by a certificate or that is an Instrument (other than any such
Collateral credited to a Securities Account) and subject to the Intercreditor,
the applicable Grantor will cause such certificate or instrument to be
delivered to the Collateral Agent, indorsed in blank by an “effective
indorsement” (as defined in Section 8-107 of the UCC), regardless of
whether such certificate constitutes a “certificated security” for purposes of
the UCC.  With respect to any such
Collateral that is an “uncertificated security” for purposes of the UCC (other
than any “uncertificated securities” credited to a Securities Account) and
subject to the Intercreditor, the applicable Grantor will cause the issuer of
such uncertificated security to either (i) register the Collateral Agent as the
registered owner thereof on the books and records of the issuer or (ii) execute
an agreement reasonably acceptable to the Collateral Agent, pursuant to which,
upon the occurrence and continuation of an Event of Default, such issuer agrees
to comply with the Collateral Agent’s instructions with respect to such
uncertificated security without further consent by such Grantor or any other
Person.

 

4.14                        Voting and
Distributions.  So long as no Event of Default has occurred
and is continuing, (a) except as otherwise provided under the covenants and
agreements relating to Investment Property in this Agreement or elsewhere
herein or in the Indenture, each Grantor

 

10

 

will be entitled to exercise or refrain from exercising its voting and
other consensual rights pertaining to such Collateral or any part thereof for
any purpose not inconsistent with the terms of this Agreement, the Indenture
and the Intercreditor; provided
that, no Grantor will exercise or refrain from exercising any such right if
such action would have a material adverse effect on the value of such
Collateral; and (b) the Collateral Agent will promptly execute and deliver (or
cause to be executed and delivered) to each Grantor all proxies and other
instruments as such Grantor may from time to time reasonably request for the
purpose of enabling such Grantor to exercise the voting and other consensual
rights when and to the extent that it is entitled to exercise pursuant to
clause (a) above.

 

4.15                        Intellectual
Property.  Each Grantor will promptly report to the
Collateral Agent all of the following: 
(i) the filing by such Grantor or on its behalf of any application to
register any Intellectual Property owned by such Grantor in whole or in part
with the United States Patent and Trademark Office, the United States Copyright
Office, or any foreign counterpart of the foregoing, (ii) the registration of
any Intellectual Property owned by such Grantor in whole or in part by any such
office, and (iii) the acquisition by such Grantor of any issued Patent, or
application or registration of any other Patent, Copyright, Trademark, or Trade
Secret.  In each event, such Grantor
will execute and deliver to the Collateral Agent a completed Security Agreement
Supplement, together with all supplements to schedules thereto, and, if
requested, signed counterparts of an IP Security Agreement, as applicable, or
any other agreement reasonably acceptable to the Collateral Agent having the
same operative effect, together with all supplements to the schedules thereto.

 

4.16                        Commercial Tort Claims.  With respect to all Commercial Tort Claims hereafter arising,
each Grantor will deliver to the Collateral Agent a completed Security
Agreement Supplement, together with all supplements to schedules thereto,
identifying such new Commercial Tort Claims.

 

4.17                        Insurance. 
Each Grantor will maintain, with financially sound and reputable
companies, insurance policies (i) insuring the Inventory and Equipment against
loss by fire, explosion, theft and such other casualties as may be reasonably
satisfactory to the Collateral Agent, and (ii) insuring such Grantor and the
Collateral Agent against liability for personal injury and property damage
relating to such Inventory and Equipment, such policies to be in such amounts
and covering such risks as is commercially reasonable and prudent with respect
to the business and properties of the Grantors and that are usually carried by
companies engaged in similar businesses and owning similar properties in the
same general areas in which the Grantors operate.  All such insurance shall (i) provide that no cancellation,
material reduction in amount or material change in coverage thereof will be
effective until at least 30 days after notice to the Collateral Agent thereof,
(ii) name the Collateral Agent as an additional insured party or loss payee, as
its interests may appear, and, (iii) if reasonably requested by the Collateral
Agent, include a breach of warranty clause.

 

4.18                        Additional
Grantors.  From time to time subsequent to the date
hereof, additional Persons may become parties hereto as additional grantors
(each, an “Additional Grantor”) by
executing a Security Agreement Supplement, together with all supplements to
schedules thereto.  Upon delivery of any
such Security Agreement Supplement to the Collateral Agent, notice of which is
hereby waived by each of the Grantors, each Additional Grantor will be a
grantor and will be as fully a party hereto as if such Additional Grantor were
an original signatory hereto.  Each
Grantor expressly agrees that its obligations arising hereunder will not be
affected or diminished by the addition or release of any other Grantor, nor by
any election of the Collateral Agent not to cause any subsidiary of any Grantor
to become an Additional Grantor.

 

11

 

This Agreement will be fully
effective as to any Grantor that is or becomes a party hereto regardless of
whether any other Person becomes or fails to become or ceases to be a Grantor.

 

4.19                        Further
Assurances.  Each Grantor agrees that from time to time,
at the expense of such Grantor, it will promptly Authenticate, execute and
deliver all further agreements, instruments, certificates and documents, and
take all further action, that may be necessary or desirable, or that the
Collateral Agent may reasonably request, to create or maintain the validity,
perfection or priority of and protect any security interest granted or
purported to be granted hereby or to enable the Collateral Agent to exercise
and enforce its rights and remedies hereunder with respect to any
Collateral.  Without limiting the
generality of the foregoing, each Grantor shall:

 

(a)                      file such financing or
continuation statements, or amendments thereto, and execute and deliver such
other agreements, instruments, endorsements, powers of attorney or notices, as
may be necessary or desirable, or as the Collateral Agent may reasonably
request, to perfect and preserve the security interests granted or purported to
be granted hereby;

 

(b)                     take all actions necessary to
ensure the recordation of appropriate evidence of the Liens and security
interest granted hereunder in Intellectual Property with any intellectual
property registry in which such Intellectual Property is registered or in which
an application for registration of such Intellectual Property is pending;

 

(c)                      at any reasonable time, upon
request by the Collateral Agent, allow inspection of the Collateral by the
Collateral Agent, or Persons designated by the Collateral Agent; and

 

(d)                     at the Collateral Agent’s
reasonable request, appear in and defend any action or proceeding that may
affect such Grantor’s title to or the Collateral Agent’s security interest in
all or any part of the Collateral.

 

SECTION 5                                                       REMEDIES

 

5.1                               Generally. 
If any Event of Default will have occurred and be continuing, the
Collateral Agent may exercise in respect of the Collateral, subject to the
Intercreditor and in addition to all other rights and remedies provided for
herein or otherwise available to it at law or in equity, all the rights and
remedies of the Collateral Agent on default under the UCC (whether or not the
UCC applies to the affected Collateral) to collect, enforce or satisfy any
Secured Obligations then owing, whether by acceleration or otherwise, and also
may pursue any of the following separately, successively or simultaneously:

 

(a)                      require any Grantor to, and each
Grantor hereby agrees that it will at its expense and promptly upon request of
the Collateral Agent, forthwith assemble all or part of the Collateral as
directed by the Collateral Agent and make it available to the Collateral Agent
at a place to be designated by the Collateral Agent that is reasonably
convenient to both parties;

 

(b)                     enter onto the property where any
Collateral is located and take possession thereof with or without judicial process;

 

(c)                      prior to the disposition of the
Collateral, store, process, repair or recondition the Collateral or otherwise
prepare the Collateral for disposition in any manner to the extent the
Collateral Agent deems appropriate; and

 

12

 

(d)                     without notice, except as
specified below or under the UCC, sell, assign, lease, license (on an exclusive
or nonexclusive basis, to the extent the Grantor has the lawful right to do
so), or otherwise dispose of the Collateral or any part thereof in one or more
parcels at public or private sale, at any of the Collateral Agent’s offices or
elsewhere, for cash, on credit or for future delivery, at such time or times
and at such price or prices and on such other terms as the Collateral Agent may
deem commercially reasonable.

 

5.2                               Sale of
Collateral.  The Collateral Agent or any Secured Party
may be the purchaser of any portion of the Collateral at any public or private
(to the extent that the portion of the Collateral being privately sold is of a
kind that is customarily sold on a recognized market or the subject of widely
distributed standard price quotations) sale in accordance with the UCC, and the
Collateral Agent, as collateral agent for and representative of the Secured Parties,
will be entitled, for the purpose of bidding and making settlement or payment
of the purchase price for all or any portion of the Collateral sold at any such
sale, to use and apply any of the Secured Obligations as a credit on account of
the purchase price for any Collateral payable by the Collateral Agent at such
sale.  Each purchaser at any such sale
will hold the property sold absolutely free from any claim or right on the part
of any Grantor, and each Grantor hereby waives (to the extent permitted by
applicable law) all rights of redemption, stay or appraisal that it now has or
may at any time in the future have under any rule of law or statute now
existing or hereafter enacted.  Each
Grantor agrees that, to the extent notice of sale will be required by law, at
least ten days notice to such Grantor of the time and place of any public sale
or the time after which any private sale is to be made will constitute
reasonable notification.  The Collateral
Agent will not be obligated to make any sale of Collateral regardless of notice
of sale having been given.  The
Collateral Agent may adjourn any public or private sale from time to time by
announcement at the time and place fixed therefor, and such sale may, without
further notice, be made at the time and place to which it was so
adjourned.  Each Grantor agrees that it
would not be commercially unreasonable for the Collateral Agent to dispose of
the Collateral or any portion thereof by using Internet sites that provide for
the auction of assets of the types included in the Collateral or that have the
reasonable capability of doing so, or that match buyers and sellers of
assets.  The Collateral Agent may sell
the Collateral without giving any warranties as to the Collateral, and may
specifically disclaim or modify any warranties of title or the like, which
procedure will not be considered to adversely effect the commercial
reasonableness of any sale of the Collateral. 
Each Grantor hereby waives any claims against the Collateral Agent
arising by reason of the fact that the price at which any Collateral may have
been sold at such a private sale was less than the price that might have been
obtained at a public sale, even if the Collateral Agent accepts the first offer
received and does not offer such Collateral to more than one offeree.  If the proceeds of any sale or other
disposition of the Collateral are insufficient to pay all the Secured
Obligations, each Grantor will be liable for the deficiency and the fees of any
attorneys employed by the Collateral Agent to collect such deficiency.  Each Grantor further agrees that a breach of
any of the covenants contained in this Section 5.2 will cause
irreparable injury to the Collateral Agent, that the Collateral Agent has no
adequate remedy at law in respect of such breach and, as a consequence, that
each and every covenant contained in this Section will be specifically
enforceable against such Grantor, and such Grantor hereby waives and agrees not
to assert any defenses against an action for specific performance of such
covenants except for a defense that no default has occurred giving rise to the
Secured Obligations becoming due and payable prior to their stated
maturities.  If the Collateral Agent
sells any of the Collateral on credit, the applicable Grantors will be credited
only with payments actually made by purchaser and received by the Collateral
Agent and applied to indebtedness of the purchaser.  In the event the purchaser fails to pay for the Collateral, the
Collateral Agent may resell the Collateral and the applicable Grantors will be
credited with proceeds of the sale. 
Nothing in this Section 5.2 will in any way alter the rights
of the Collateral Agent hereunder.

 

13

 

5.3                               Marshalling; Payments Set Aside.  Subject to the Intercreditor, the Collateral
Agent will have no obligation to marshall any assets in favor of any Grantor or
any other Person or against or in payment of any of the Secured Obligations.

 

5.4                               Application
of Proceeds.  Except as expressly provided elsewhere in
this Agreement or in the Intercreditor, all proceeds received by the Collateral
Agent in respect of any sale, collection from, or other realization on all or
any part of the Collateral shall be applied in full or in part by the
Collateral Agent against the Secured Obligations in the following order of
priority:  first, to the payment of all costs and expenses of such
sale, collection or other realization, including reasonable compensation to the
Collateral Agent and its agents and counsel, and all other expenses,
liabilities and advances made or incurred by the Collateral Agent in connection
therewith, and all amounts for which the Collateral Agent is entitled to
indemnification hereunder and all advances made by the Collateral Agent hereunder
for the account of the applicable Grantor, and to the payment of all costs and
expenses paid or incurred by the Collateral Agent in connection with the
exercise of any right or remedy hereunder or under any Indenture Document, all
in accordance with the terms hereof or thereof; second, to the extent of any excess of such proceeds, to the
payment of all other Secured Obligations for the ratable benefit of each
Secured Party; and third, to the
extent of any excess of such proceeds, to the payment to or upon the order of
such Grantor or to whosoever may be lawfully entitled to receive the same or as
a court of competent jurisdiction may direct.

 

5.5                               Accounts. 
Subject to the Intercreditor, at any time following the occurrence and
during the continuation of an Event of Default, the Collateral Agent may:  (a) direct the Account Debtors under any
Accounts to make payment of all amounts due or to become due to such Grantor
thereunder directly to the Collateral Agent, (b) notify, or require any Grantor
to notify, each Person maintaining a lockbox or similar arrangement to which
Account Debtors under any Accounts have been directed to make payment to remit
all amounts representing collections on checks and other payment items from
time to time sent to or deposited in such lockbox or other arrangement directly
to the Collateral Agent, or (c) enforce collection, at the Grantors’ expense,
of any such Accounts and to adjust, settle or compromise the amount or payment
thereof, in the same manner and to the same extent as any applicable Grantor
might have done.  If the Collateral
Agent notifies any Grantor that it has elected to collect the Accounts in
accordance with the preceding sentence, any payments of Accounts received by
such Grantor will be forthwith (and in any event within two Business Days)
deposited by such Grantor in the exact form received, duly indorsed by such
Grantor to the Collateral Agent if required, in a collateral account maintained
under the sole dominion and control of the Collateral Agent, and until so
turned over, all amounts and proceeds (including checks and other instruments)
received by such Grantor in respect of the Accounts, any Supporting Obligation
or Collateral Support will be received in trust for the benefit of the
Collateral Agent hereunder and will be segregated from other funds of such
Grantor and such Grantor will not adjust, settle or compromise the amount or
payment of any Account, or release wholly or partly any Account Debtor or
obligor thereof, or allow any credit or discount thereon.

 

5.6                               Investment
Property.

 

(a)                      Each Grantor recognizes that, by
reason of certain prohibitions contained in the Securities Act and applicable
state securities laws, the Collateral Agent may be compelled, with respect to
any sale of all or any part of the Investment Property conducted without prior
registration or qualification of such Investment Property under the Securities
Act or such state securities laws, to limit purchasers to those who will agree,
among other things, to acquire the Investment Related Property for their own
account, for investment and not with a

 

14

 

view to the distribution or resale thereof.  Each Grantor acknowledges that any such private sale may be at
prices and on terms less favorable than those obtainable through a public sale
without such restrictions (including a public offering made pursuant to a
registration statement under the Securities Act) and, notwithstanding such
circumstances, each Grantor agrees that any such private sale will be deemed to
have been made in a commercially reasonable manner and that the Collateral
Agent will have no obligation to engage in public sales and no obligation to
delay the sale of any Investment Property for the period of time necessary to
permit the issuer thereof to register it for a form of public sale requiring
registration under the Securities Act or under applicable state securities
laws, even if such issuer would, or should, agree to so register it.  If the Collateral Agent determines to exercise
its right to sell any of the Investment Property, upon written request, each
Grantor will and will use commercially reasonable efforts to cause each issuer
of any Pledged Capital Stock or Pledged Debt to be sold hereunder from time to
time to furnish to the Collateral Agent all such information as the Collateral
Agent may request to determine the number and nature of interest, shares or
other instruments included in the Investment Property that may be sold by the
Collateral Agent in exempt transactions under the Securities Act and the rules
and regulations of the SEC thereunder, as the same are from time to time in
effect.

 

(b)                 Upon the occurrence and during the
continuation of an Event of Default and subject to the Intercreditor, (i) all
rights of each Grantor to exercise or refrain from exercising the voting and
other consensual rights that it would otherwise be entitled to exercise
pursuant hereto will cease and all such rights will thereupon become vested in
the Collateral Agent, who will thereupon have the sole right to exercise such
voting and other consensual rights; (ii) all rights of each Grantor to receive
dividends and other distributions that it would otherwise be entitled to
receive pursuant hereto will cease and all such rights will thereupon become
vested in the Collateral Agent, who will thereupon have the sole right to
receive such dividends and other distributions; and (iii) to permit the
Collateral Agent to exercise the voting and other consensual rights that the
Grantors would otherwise be entitled to exercise pursuant hereto and to receive
all dividends and other distributions that the Grantors would otherwise be
entitled to receive, each Grantor will promptly execute and deliver (or cause
to be executed and delivered) to the Collateral Agent all proxies, dividend
payment orders and other instruments as the Collateral Agent may from time to
time reasonably request, and each Grantor acknowledges that the Collateral
Agent may utilize the power of attorney set forth in Section 6.3.

 

5.7                               Deposit Accounts.  Upon the occurrence and during the continuation of an Event of
Default and subject to the Intercreditor, the Collateral Agent will have the
right to apply the balance from any Deposit Account or instruct the bank at
which any Deposit Account is maintained to pay the balance of any Deposit
Account to or for the benefit of the Collateral Agent.

 

5.8                               Intellectual
Property.

 

(a)                      Upon the occurrence and during
the continuation of an Event of Default and subject to the Intercreditor:

 

(i)                       the Collateral
Agent will have the right (but not the obligation) to bring suit or otherwise
commence any action or proceeding in the name of any Grantor, the Collateral
Agent or otherwise, in the Collateral Agent’s sole discretion, to enforce any
Intellectual Property included in the Collateral, in which event, such Grantor
will, at the request of the Collateral Agent, do all lawful acts and execute
all documents reasonably required by the Collateral Agent in aid of such
enforcement, and such Grantor will promptly,

 

15

 

upon demand, reimburse and indemnify the
Collateral Agent as provided in Sections 6.6 and 6.7 in
connection therewith;

 

(ii)                    upon written
demand from the Collateral Agent, each Grantor will assign, convey or otherwise
transfer to the Collateral Agent or its designee all of such Grantor’s right,
title and interest in and to the Intellectual Property included in the
Collateral, and will execute and deliver to the Collateral Agent such documents
as are necessary to effectuate and record such assignment, conveyance, or
transfer of, or other evidence of foreclosure on, such Intellectual Property;

 

(iii)                 in the event of
any assignment, conveyance or other transfer of any of the Trademarks included
in the Collateral, the goodwill symbolized by any such Trademarks will be
included in such sale or transfer, and the applicable Grantor will supply to
the Collateral Agent or its designee such Grantor’s manufacturing, advertising,
and distribution know-how, and copies of records embodying such know-how,
relating to products and services theretofore sold under such Trademarks;

 

(iv)                each Grantor
agrees that an assignment, conveyance, or transfer of any Intellectual Property
included in the Collateral will be applied to reduce the Secured Obligations
outstanding only to the extent that the Collateral Agent receives cash proceeds
in respect of such assignment, conveyance, or other transfer of the
Intellectual Property; and

 

(v)                   the Collateral
Agent will have the right to notify, or require each Grantor to notify, any
obligors with respect to payments due or to become due to such Grantor in
respect of the Intellectual Property, of the existence of the security interest
created herein, to direct such obligors to make payment of all such amounts
directly to the Collateral Agent, and, upon such notification and at the
expense of such Grantor, to enforce collection of any such amounts and to
adjust, settle or compromise the amount of such payment, to the same extent as
such Grantor could have done.

 

(b)                     Solely for the purpose of enabling
the Collateral Agent to exercise rights and remedies under this Section 5.8,
at such time as the Collateral Agent will be lawfully entitled to exercise such
rights and remedies, each Grantor hereby grants to the Collateral Agent, to the
extent it has the lawful right to do so, an irrevocable, nonexclusive worldwide
license (exercisable without payment of royalty or other compensation to such
Grantor), to use, operate under, or sublicense any Intellectual Property now or
hereafter owned by such Grantor, subject, in the case of Trademarks, to the
maintenance by or on behalf of the Collateral Agent of quality standards with
respect to the products and services sold under such Trademarks at a level at
least substantially comparable to that prevailing at the time of Event of
Default.  The foregoing license grant to
the Collateral Agent is in addition to, and not in limitation of, the
Collateral Agent’s rights under Section 6.

 

5.9                               Cash Proceeds. 
In addition to the rights of the Collateral Agent specified in Section 5.5,
upon the occurrence and during the continuation of an Event of Default and
subject to the Intercreditor, Cash Proceeds will be held by such Grantor in
trust for the Collateral Agent, segregated from other funds of such Grantor,
and will, forthwith upon receipt by such Grantor, unless otherwise provided in Section 5.5
or in the Intercreditor, be turned over

 

16

 

to the Collateral Agent in the exact form received by such Grantor
(duly indorsed by such Grantor to the Collateral Agent, if required) and held
by the Collateral Agent in a designated collateral account.  Any Cash Proceeds received by the Collateral
Agent (whether from a Grantor or otherwise), if an Event of Default has
occurred and is continuing, may, in the sole discretion of the Collateral
Agent, (A) be held by the Collateral Agent for the ratable benefit of the
Secured Parties, as collateral security for the Secured Obligations (whether
matured or unmatured), or (B) then or at any time thereafter may be applied by
the Collateral Agent against the Secured Obligations then due and owing.

 

5.10                        Certain Rights Respecting Contracts.  Upon the occurrence and during the
continuation of an Event of Default and subject to the Intercreditor, the
Collateral Agent may assume any Grantor’s rights under any or all contracts of
such Grantor, it being in the Collateral Agent’s sole discretion whether to do
so and which Contracts are to be assumed. 
Without limiting the generality of the foregoing, in such event the
Collateral Agent may notify (or require the applicable Grantor to notify) other
parties to any such contract that it has assumed the applicable Grantor’s
rights thereunder, may perform and discharge any or all such Grantor’s
obligations thereunder, and, in the exercise of such rights, may pay any costs
and expenses and employ agents and legal counsel, all at the sole cost and
expense of the Grantors.  The Collateral
Agent will not be obligated to perform or discharge any obligation or duty to
be performed or discharged by any Grantor under any contract, and each Grantor
hereby agrees to indemnify the Collateral Agent, its nominee and each other
principal for, and hold each such Person harmless from, any and all liability
arising from such contracts, except to the extent that such liability results
from such Person’s gross negligence or willful misconduct.  Nothing herein shall be construed to place
responsibility for the control, care, management, or repair of any property to
which any Grantor has rights under the contracts on the Collateral Agent or
make it liable for any negligence in the management, operation, upkeep, repair
or control of such property.

 

SECTION 6                                                       RIGHTS
AND OBLIGATIONS OF COLLATERAL AGENT

 

6.1                               Appointment, Resignation and Removal.  The Collateral Agent has been appointed to
act as Collateral Agent hereunder by each Secured Party pursuant to the
Indenture.  The Collateral Agent will be
obligated, and will have the right hereunder, to make demands, to give notices,
to exercise or refrain from exercising any rights, and to take or refrain from
taking any action (including the release or substitution of Collateral), solely
in accordance with this Agreement, the Indenture and the Intercreditor.  The Collateral Agent may resign and a
successor Collateral Agent may be appointed in the manner provided in the
Indenture.  Upon the acceptance of any
appointment as Collateral Agent under the terms of the Indenture by a successor
Collateral Agent, that successor Collateral Agent will thereupon succeed to and
become vested with all the rights, powers, privileges and duties of the
retiring or removed Collateral Agent under this Agreement, and the retiring or
removed Collateral Agent under this Agreement will be discharged from its
duties and obligations hereunder.  After
any retiring or removed Collateral Agent’s resignation or removal, the
provisions of this Agreement will inure to its benefit as to any actions taken
or omitted to be taken by it under this Agreement while it was the Collateral
Agent hereunder.

 

6.2                               Standard of Care; Collateral Agent May Perform.  The powers conferred on the Collateral Agent
hereunder are solely to protect the Secured Parties’ interest and does not
impose any duty on it to exercise any such powers.  Except for the exercise of reasonable care in the custody of any
Collateral in its possession and the accounting for moneys actually received by
it hereunder, the Collateral Agent will have no duty as to any Collateral or as
to the taking of any necessary steps to preserve rights against prior parties,
subject to the

 

17

 

Intercreditor, or any other rights pertaining to any Collateral.  The Collateral Agent will be deemed to have
exercised reasonable care in the custody and preservation of Collateral in its
possession if such Collateral is accorded treatment substantially equal to that
which the Collateral Agent accords its own property.  Neither the Collateral Agent nor any of its directors, officers,
employees or agents will be liable for failure to demand, collect or realize on
all or any part of the Collateral or for any delay in doing so or will be under
any obligation to sell or otherwise dispose of any Collateral upon the request
of any Grantor or otherwise.  If any
Grantor fails to perform any agreement contained herein, the Collateral Agent
may itself perform, or cause performance of, such agreement, and the expenses of
the Collateral Agent incurred in connection therewith will be payable by each
Grantor pursuant to Section 6.6.

 

6.3                               Attorney-In-Fact. 
Each Grantor hereby irrevocably appoints the Collateral Agent (such
appointment being coupled with an interest), subject to the Intercreditor, as
such Grantor’s attorney-in-fact, with full authority in the place and stead of
such Grantor and in the name of such Grantor, the Collateral Agent or
otherwise, from time to time to take any action and to execute any instrument
reasonably necessary or advisable or that the Collateral Agent may deem
reasonably necessary or advisable to accomplish the purposes of this Agreement,
including the following:

 

(a)                      to prepare, sign, and file for
recordation in any Intellectual Property registry, appropriate evidence of the
lien and security interest granted herein in the Intellectual Property in the
name of such Grantor as assignor or pledgor;

 

(b)                     to take or cause to be taken all
actions necessary to perform or comply or cause performance or compliance with
the terms of this Agreement, including access to pay or discharge taxes or
Liens (other than Permitted Liens) levied or placed on or threatened against
the Collateral, any such payments made by the Collateral Agent to become part
of the Secured Obligations of such Grantor (Collateral Agent agrees to give
reasonable notice to such Grantor of such payments) to the Collateral Agent,
due and payable immediately without demand; and

 

(c)                      Upon the occurrence and during
the continuance of any Event of Default and subject to the Intercreditor:

 

(i)                       to obtain
and adjust insurance required to be maintained by such Grantor or paid to the
Collateral Agent pursuant to the Indenture Documents;

 

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

 

(iii)                 to receive,
endorse and collect any drafts or other Instruments, Documents and Chattel
Paper in connection with Section 6.3(b);

 

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

 

18

 

(v)                   to sell,
transfer, assign, lease, license, pledge, make any agreement with respect to or
otherwise deal with any of the Collateral as fully and completely as though the
Collateral Agent were the absolute owner thereof for all purposes, and to do,
at the Collateral Agent’s option and such Grantor’s expense, at any time or
from time-to-time, all acts and things reasonably necessary or advisable or
that the Collateral Agent reasonably deems necessary to protect, preserve, or realize
on the Collateral and the Collateral Agent’s security interest therein as fully
and effectively as such Grantor might do.

 

6.4                               Access; Right of Inspection.  The Collateral Agent will at all times upon
reasonable prior notice have full and free access during normal business hours
to all the books, correspondence and records of each Grantor, and the
Collateral Agent and its representatives may examine the same, take extracts
therefrom and make photocopies thereof, and each Grantor agrees to render to the
Collateral Agent, at such Grantor’s cost and expense, such clerical and other
assistance as may be reasonably requested with regard thereto.  The Collateral Agent and its representatives
will during normal business hours upon reasonable prior notice also have the
right to enter any premises of each Grantor and inspect any property of each
Grantor where any of such Grantor’s Collateral is located for the purpose of
inspecting the same, observing its use or otherwise protecting its interests
therein.

 

6.5                               Authorizations. 
Each Grantor hereby authorizes the Collateral Agent to take all steps
reasonably necessary or that it deems reasonably necessary to maintain and
preserve the Collateral, consistent with the Grantor’s obligations to do so
hereunder and under the Intercreditor, all at the Grantor’s expense.  Without limiting the foregoing, each Grantor
hereby authorizes the filing of any financing statements or continuation
statements, and amendments to financing statements, or any similar document in
any jurisdictions and with any filing offices as are necessary or advisable to
perfect the security interest granted to the Collateral Agent hereunder.  Such financing statements may describe the
Collateral in the same manner as described herein or may contain an indication
or description of collateral that describes such property in any other manner
as is necessary, advisable or prudent to ensure the perfection of the security
interest in the Collateral granted to the Collateral Agent hereunder, including
describing such property as “all assets” or “all personal property, whether now
owned or hereafter acquired.”  Each
Grantor will from time to time furnish to the Collateral Agent statements and
schedules further identifying and describing the Collateral and such other
reports in connection with the Collateral as the Collateral Agent may
reasonably request, all in reasonable detail.

 

6.6                               Expenses. 
Each Grantor will promptly pay to the Collateral Agent the amount of any
and all costs and expenses, including the reasonable fees and expenses of its
counsel and the fees and expenses of any experts and agents, that the
Collateral Agent may incur in connection with this Agreement, including all
costs and expenses relating to (a) any and all filings and other actions taken
to ensure the attachment, perfection and priority of, and the ability of the
Collateral Agent to enforce, the Collateral Agent’s security interest in the
Collateral; (b) any action, suit or other proceeding affecting the Collateral
or any part thereof commenced, in which action, suit or proceeding the
Collateral Agent is made a party or participates or in which the right to use
the Collateral or any part thereof is threatened, or in which it becomes
necessary or in the reasonable judgment of the Collateral Agent becomes
reasonably necessary to defend or uphold the Lien hereof (including any action,
suit or proceeding to establish or uphold the compliance of the Collateral with
any requirements of any governmental authority or law); (c) the collection of the
Secured Obligations; (d) the enforcement and administration hereof; (e) the
custody or preservation of, or the sale of, collection from, or other
realization on, any of the Collateral; (f) the exercise or enforcement of any
of the rights of the Collateral Agent or any

 

19

 

Secured Party hereunder; or (g) the failure by any Grantor to perform
or observe any of the provisions hereof. 
All amounts expended by the Collateral Agent and payable by any Grantor
under this Section 6.6 will be due upon demand (together with
interest thereon accruing at the applicable default rate during the period from
and including the date on which such funds were so expended to the date of
repayment) and will be part of the Secured Obligations.  Each Grantor’s obligations under this Section 6.6
will survive the termination hereof and the discharge of such Grantor’s other
obligations under this Agreement, the Indenture and the Notes.

 

6.7                               Indemnity. 
Each Grantor jointly and severally agrees to (a) defend (subject to
Indemnitees’ selection of counsel), indemnify, pay and hold harmless each
Indemnitee, from and against all claims, losses and liabilities in any way
relating to, growing out of or resulting from this Agreement and the transactions
contemplated hereby (including enforcement of this Agreement), except to the
extent such claims, losses or liabilities result from such Indemnitee’s gross
negligence or willful misconduct; and (b) to pay to the Collateral Agent
promptly following written demand the amount of all reasonable costs and
reasonable expenses, including the reasonable fees and expenses of its counsel
and of any experts and agents in accordance with the terms and conditions of
the Indenture.  The obligations of each
Grantor under this Section 6.7 will survive the termination of this
Agreement and the discharge of such Grantor’s other obligations under this
Agreement, the Indenture and Notes.

 

6.8                               Release of
Collateral.  Upon the payment in full of all Secured
Obligations (other than contingent indemnification obligations to the extent
any unsatisfied claims giving rise thereto have not been asserted), and in
connection with any sale or other disposition of any portion of the Collateral
permitted by the Indenture, the security interests granted hereunder in such
Collateral will terminate and all rights to such Collateral will revert to the
applicable Grantor (or other Person entitled thereto) in accordance with
Section 10.4 of the Indenture. 
Upon such termination, the Collateral Agent will, at the Grantors’
expense, execute and deliver to the applicable Grantor such documents as such
Grantor may reasonably request to evidence such termination and release of such
security interest.

 

SECTION 7                                                       MISCELLANEOUS

 

7.1                               Notices. 
Unless otherwise specifically provided herein, any notice or other
communication herein required or permitted to any Grantor shall be sent to such
Grantor’s address as set forth on Schedule 7.1.  Any notice or other communication herein
required or permitted to the Collateral Agent shall be sent to the Collateral
Agent’s address set forth in Section 12.2 of the Indenture.  Each notice hereunder shall be in writing
and may be personally served or sent by facsimile, United States mail or
courier service and will be deemed to have been given when delivered in person
or by courier service and signed for against receipt thereof, upon receipt of
facsimile, or three Business Days after depositing it in the United States mail
with postage prepaid and properly addressed; provided
that, no notice to the Collateral Agent will be effective until received by the
Collateral Agent.

 

7.2                               Amendment and Waivers.  No amendment, modification, termination or
waiver of any provision of this Agreement, or consent to any departure by any
Grantor therefrom, will in any event be effective without the written
concurrence of the Collateral Agent.

 

7.3                               No Waiver; Remedies Cumulative.  No failure or delay on the part of the
Collateral Agent in the exercise of any power, right or privilege hereunder or
under any other Indenture Document will impair such power, right or privilege
or be construed to be a waiver of any default or acquiescence therein, nor will
any single or partial exercise of any such power,

 

20

 

right or privilege preclude other or further exercise thereof or of any
other power, right or privilege.  All
rights, powers and remedies existing under this Agreement and the other
Indenture Documents are cumulative, and not exclusive of, any rights or
remedies otherwise available.  Any
forbearance or failure to exercise, and any delay in exercising, any right,
power or remedy hereunder will not impair any such right, power or remedy or be
construed to be a waiver thereof, nor will it preclude the further exercise of
any such right, power or remedy.

 

7.4                               Successors and Assigns.  This Agreement will be binding on the
parties hereto and their respective successors and assigns including all
persons who become bound as debtor to this Agreement.  No Grantor may, without the prior written consent of the
Collateral Agent, assign any right, duty or obligation hereunder.

 

7.5                               Independence of Covenants.  All covenants hereunder shall be given
independent effect so that if a particular action or condition is not permitted
by any of such covenants, the fact that it would be permitted by an exception
to, or would otherwise be within the limitations of, another covenant will not
avoid the occurrence of a Default or an Event of Default if such action is taken
or condition exists.

 

7.6                               Survival
of Representations,
Warranties and Agreements. 
All representations, warranties and agreements made herein will survive
the execution and delivery hereof. 
Notwithstanding anything herein or implied by law to the contrary, the
agreements of each Grantor set forth in Sections 6.6 and 6.7 will
survive the payment of the Secured Obligations and the termination hereof.

 

7.7                               Severability. 
If any provision in or obligation hereunder will be invalid, illegal or
unenforceable in any jurisdiction, the validity, legality and enforceability of
the remaining provisions or obligations, or of such provision or obligation in
any other jurisdiction, will not in any way be affected or impaired thereby.

 

7.8                               Governing Law. 
THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF NEW YORK.

 

7.9                               Counterparts. 
This Agreement may be executed in any number of counterparts, each of
which when so executed and delivered will be deemed an original, but all such
counterparts together will constitute but one and the same instrument.

 

7.10                        Effectiveness. 
This Agreement will become effective upon the execution of a counterpart
hereof by each of the parties and receipt by the Grantors and the Collateral
Agent of written or telephonic notification of such execution and authorization
of delivery thereof.

 

7.11                        Entire Agreement. 
This Agreement and the other Indenture Documents embody the entire
agreement and understanding between the Grantors and the Collateral Agent, and
supersede all prior agreements and understandings between such parties relating
to the subject matter hereof and thereof. 
Accordingly, the Indenture Documents may not be contradicted by evidence
of prior, contemporaneous or subsequent oral agreements of the parties.  There are no unwritten oral agreements
between the parties.

 

7.12                        Limitation
on Collateral Agent’s
Liability.  Notwithstanding
anything to the contrary contained herein, the Collateral Agent shall not be
responsible for filing any

 

21

 

financing or continuation statements or recording any documents or
instruments in any public office at any time or times or otherwise perfecting
or maintaining the perfection of any security interest in the Collateral, nor
shall the Collateral Agent be liable or responsible for any loss or diminution
in the value of any of the Collateral, by reason of the act or omission of any
carrier, forwarding agency or other agent or bailee selected by the Collateral
Agent in good faith.  The Collateral
Agent shall not be responsible for the existence, genuineness or value of any
of the Collateral or for the validity, perfection, priority or enforceability
of the Liens in any of the Collateral, whether impaired by operation of law or
by reason of any action or omission to act on its part hereunder, except to the
extent such action or omission constitutes gross negligence, bad faith or
willful misconduct on the part of the Collateral Agent.  Nor shall the Collateral Agent be
responsible for the validity or sufficiency of the Collateral or any agreement
or assignment contained therein, for the validity of the title of any Grantor
to the Collateral, for insuring the Collateral or for the payment of taxes,
charges, assessments or Liens on the Collateral or otherwise as to the
maintenance of the Collateral.

 

7.13                        Rights and
Obligations Subject to
Intercreditor.  All rights
and remedies provided herein to the Collateral Agent, and all obligations of
the Grantors hereunder, are subject to the applicable terms and provisions of
the Intercreditor.  So long as the
Intercreditor is effective, if any inconsistency exists or arises between the
terms hereof and the Intercreditor, the Intercreditor controls.

 

[signature
pages follow]

 

22

 

IN WITNESS WHEREOF, each Grantor and the
Collateral Agent have caused this Agreement to be duly executed and delivered
by their respective officers thereunto duly authorized as of the date first
written above.

 

 

	
   

  	
  GRANTORS:

  
	
   

  	
   

  	
   

  
	
   

  	
  THE WORNICK COMPANY

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Robert B. McKeon

  	
   

  
	
   

  	
   

  	
  Name:

  	
  Robert B. McKeon

  
	
   

  	
   

  	
  Title:

  	
  Robert B. McKeon

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  RIGHT AWAY MANAGEMENT

  CORPORATION

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Robert B. McKeon

  	
   

  
	
   

  	
   

  	
  Name:

  	
  Robert B. McKeon

  
	
   

  	
   

  	
  Title:

  	
  Robert B. McKeon

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  THE WORNICK COMPANY RIGHT AWAY

  DIVISION

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Robert B. McKeon

  	
   

  
	
   

  	
   

  	
  Name:

  	
  Robert B. McKeon

  
	
   

  	
   

  	
  Title:

  	
  Robert B. McKeon

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  THE WORNICK COMPANY RIGHT AWAY

  DIVISION, L.P.

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  Right Away Management Corporation,

  its general partner

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/

  	
   Robert B. McKeon

  	
   

  
	
   

  	
   

  	
   

  	
  Name:   Robert B. McKeon

  
	
   

  	
   

  	
   

  	
  Title:     Robert B. McKeon

  
						

 

 

	
   

  	
  THE COLLATERAL AGENT:

  
	
   

  	
   

  
	
   

  	
  U.S. BANK NATIONAL ASSOCIATION

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Richard H. Prokosch

  	
   

  
	
   

  	
   

  	
  Name: 

  	
  Richard H. Prokosch

  
	
   

  	
   

  	
  Title:

  	
  Vice President

  
					

 

 

EXHIBIT
A

 

[Form of]

SECURITY AGREEMENT SUPPLEMENT

 

This SECURITY AGREEMENT SUPPLEMENT, dated as of
[           ],
200[   ] (this “Supplement”),
is made by the Persons listed on the signature pages hereof (collectively, the
“[Additional] Grantors”) in favor
of U.S. Bank National Association, as collateral agent for the Secured Parties
(in such capacity, the “Collateral Agent”).  Undefined capitalized terms used in this
Agreement have the meanings assigned to them in that certain Security
Agreement, dated as of June [    ], 2004 (as amended,
restated, supplemented or otherwise modified from time to time, the “Security Agreement”), between The Wornick
Company, the other Grantors party thereto and the Collateral Agent.

 

Section 1.  Affirmation
and Grant of Security. 
Each [Additional] Grantor hereby [For
existing Grantors add: 
affirms its grant to the Collateral Agent for the benefit of the Secured
Parties set forth in the Security Agreement of, and] grants to the Collateral
Agent for the benefit of the Secured Parties, a security interest in and
continuing lien on all of such [Additional] Grantor’s right, title and interest
in, to and under the Collateral to secure the Secured Oligations.

 

Section 2.  Representation and Warranties.  Each [Additional] Grantor represents and
warrants that the attached schedules supplement the schedules to the Security
Agreement, and that each such supplemental schedule accurately and
completely sets forth all additional information required pursuant to the
Security Agreement, and such Grantor hereby agrees that such supplemental
schedules constitutes part of the schedules to the Security Agreement.

 

[The following bracketed section is for
Additional Grantors only:]

 

[Section 3.  Additional Grantor Provisions.  Pursuant to Section 4.18 of the
Security Agreement, each Additional Grantor hereby:

 

(a)                                  agrees that by the
execution and delivery hereof, such Additional Grantor becomes a Grantor under
the Security Agreement and agrees to be bound by all of the terms thereof as if
it were an original signatory thereto, and all of the property pledged hereby
shall be deemed to be part of the Collateral and hereafter subject to each of
the terms and conditions of the Security Agreement;

 

(b)                                 represents and
warrants that, except as set forth on the schedules hereto, each of the
representations and warranties set forth in the Security Agreement and
applicable to such Additional Grantor is true and correct both before and after
giving effect to this Supplement, except to the extent that any such representation
and warranty relates solely to any earlier date, in which case such
representation and warranty is true and correct as of such earlier date;

 

(c)                                  agrees that from time
to time, at such Additional Grantor’s expense, it will promptly Authenticate,
execute and deliver all further agreements, instruments, certificates and
documents, and take all further action, that may be necessary or desireable, or
that the Collateral Agent may reasonably request, to create or maintain the
validity, perfection or priority of and protect any security interest granted
or purported to be granted hereby or to enable the Collateral Agent to exercise
and enforce its rights and remedies hereunder with respect to any Collateral;
and

 

A-1

 

(d)                                 agrees that any notice
or other communication herein required or permitted to be given shall be given
in accordance with Section 7.1 of the Security Agreement, and all for
purposes thereof, the notice address of the undersigned shall be the address as
set forth on the applicable schedule hereto.]

 

Section [3][4].  Miscellaneous.  Each [Additional] Grantor agrees that
neither this Supplement nor any term hereof may be changed, waived, discharged
or terminated, except by an instrument in writing signed by the party
(including, if applicable, any party required to evidence its consent to or
acceptance of this Supplement) against whom enforcement of such change, waiver,
discharge or termination is sought.  If
any provision in or obligation hereunder will be invalid, illegal or
unenforceable in any jurisdiction, the validity, legality and enforceability of
the remaining provisions or obligations, or of such provision or obligation in
any other jurisdiction, will not in any way be affected or impaired
thereby.  This Supplement may be
executed in any number of counterparts, each of which when so executed shall be
deemed to be an original and all of which taken together shall constitute one
and the same agreement.

 

Section [4][5].  Governing Law.  THIS SUPPLEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.

 

IN WITNESS WHEREOF, each [Additional] Grantor has caused this
Supplement to be duly executed and delivered by its officer thereunto duly
authorized as of the date first above written.

 

	
   

  	
  [Name of Subsidiary],

  as a[n Additional] Grantor

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Acknowledged and Accepted:

  
	
   

  	
   

  
	
   

  	
  U.S. BANK NATIONAL ASSOCIATION,

  as Collateral Agent

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  
					

 

A-2

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