Document:

Exhibit 10.4

 

PENHALL COMPANY

 

PENHALL INVESTMENTS, INC.

 

BOB MACK COMPANY

 

CAPITOL DRILLING SUPPLIES, INC.

 

PENHALL LEASING

 

(“GUARANTORS”)

 

AND

 

DEUTSCHE BANK TRUST COMPANY AMERICAS,

AS AGENT

 

 

GUARANTY AGREEMENT

 

 

 

TABLE OF CONTENTS

 

	
  1.

  	
  DEFINITIONS

  	
   

  
	
   

  	
   

  	
   

  
	
  2.

  	
  THE
  GUARANTY

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  2.1

  	
  Guaranty of Guaranteed Obligations

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  2.2

  	
  Demand by Agent or Lenders

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  2.3

  	
  Enforcement of Guaranty

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  2.4

  	
  Waiver

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  2.5

  	
  Benefit of Guaranty

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  2.6

  	
  Modification of Guaranteed Obligations, Etc.

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  2.7

  	
  Reinstatement

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  2.8

  	
  Deferral of Subrogation, Etc.

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  2.9

  	
  Election of Remedies

  	
   

  
	
   

  	
   

  	
   

  
	
  3.

  	
  DELIVERIES

  	
   

  
	
   

  	
   

  	
   

  
	
  4.

  	
  REPRESENTATIONS AND WARRANTIES

  	
   

  
	
   

  	
   

  	
   

  
	
  5.

  	
  COVENANTS

  	
   

  
	
   

  	
   

  	
   

  
	
  6.

  	
  FURTHER
  ASSURANCES

  	
   

  
	
   

  	
   

  	
   

  
	
  7.

  	
  PAYMENTS FREE AND CLEAR OF TAXES

  	
   

  
	
   

  	
   

  	
   

  
	
  8.

  	
  RIGHT
  OF SET-OFF

  	
   

  
	
   

  	
   

  	
   

  
	
  9.

  	
  SUBORDINATION OF INTERCOMPANY DEBT

  	
   

  
	
   

  	
   

  	
   

  
	
  10.

  	
  OTHER
  TERMS

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  10.1

  	
  Entire Agreement

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  10.2

  	
  Headings

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  10.3

  	
  Severability

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  10.4

  	
  Notices

  	
   

  

 

i

 

	
   

  	
  10.5

  	
  Successors and Assigns

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  10.6

  	
  No Waiver; Cumulative Remedies; Amendments

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  10.7

  	
  Termination

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  10.8

  	
  Counterparts; Effectiveness

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  10.9

  	
  Consent to Jurisdiction

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  10.10

  	
  Waiver of Jury Trial

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  10.11

  	
  Limitation

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  10.12

  	
  Intercreditor Arrangement

  	
   

  

 

ii

 

SUBSIDIARY GUARANTY

 

THIS
SUBSIDIARY GUARANTY, dated as of November 1, 2005 (this “Guaranty”) by
and among PENHALL COMPANY, a California corporation, PENHALL INVESTMENTS, INC.,
a California corporation, BOB MACK CO, INC., a California corporation, CAPITOL
DRILLING SUPPLIES, INC., an Indiana corporation, PENHALL LEASING, L.L.C., a
California single member limited liability company (collectively, the “Guarantors”),
and DEUTSCHE BANK TRUST COMPANY AMERICAS, a Delaware corporation, as Agent (in
such capacity, “Agent”) for itself and the lenders from time to
time party to the Credit Agreement as defined below (“Lenders”).

 

WHEREAS:

 

(A)          Pursuant
to that certain Second Lien Term Loan Agreement dated as of the date hereof
(including all annexes, exhibits and schedules thereto, and as from time to
time amended, restated, supplemented or otherwise modified, the “Credit
Agreement”) by and among PENHALL INTERNATIONAL CORP., an Arizona
corporation (“Borrower”), the financial institutions party thereto from
time to time as Lenders, and Deutsche Bank Trust Company Americas as Agent and
Deutsche Bank Securities Inc. as Lead Arranger and Book Runner, pursuant to
which, among other things, Lenders have agreed to make a certain credit
facility available to Borrower upon the terms and subject to the conditions
specified in the Credit Agreement;

 

(B)          Borrower
wishes to borrow certain Loans;

 

(C)          Guarantors
will benefit from the making of the Loans as provided for in the Credit
Agreement; and

 

(D)          in
order to induce Lenders to make the Loans as provided for in the Credit
Agreement, each Guarantor has agreed to guarantee payment of the Obligations;

 

NOW,
THEREFORE, in consideration of the premises and the
covenants hereinafter contained, and to induce Lenders to make the Loans to be
made and incurred by Lenders under the Credit Agreement, it is agreed as follows:

 

1.                                      DEFINITIONS

 

Capitalized
terms used herein shall have the meanings assigned to them in the Credit
Agreement and Annex A thereto, unless otherwise defined herein.

 

References to
this “Guaranty” shall mean this Guaranty, including all amendments,
modifications and supplements and any annexes, exhibits and schedules to any of
the foregoing, and shall refer to this Guaranty as the same may be in effect at
the time such reference becomes operative.

 

 

2.                                      THE GUARANTY

 

2.1                               Guaranty
of Guaranteed Obligations

 

Each Guarantor
hereby, jointly and severally, absolutely, unconditionally and irrevocably
guarantees to Agent for the ratable benefit of the Lenders and their respective
successors, endorsees, transferees and assigns, the prompt payment (whether at
stated maturity, by acceleration or otherwise) and performance of the
Obligations (collectively, the “Guaranteed Obligations”).  Each Guarantor agrees that this Guaranty is a
guaranty of payment and performance and not of collection, and that its
obligations under this Guaranty shall be primary, absolute and unconditional,
irrespective of, and unaffected by:

 

(a)           the
genuineness, validity, regularity, enforceability or any future amendment of,
or change in, this Guaranty, any other Loan Document or any other agreement,
document or instrument to which any Credit Party is or may become a party;

 

(b)           the
absence of any action to enforce this Guaranty or any other Loan Document or
the waiver or consent by Agent and/or Lenders with respect to any of the provisions
thereof;

 

(c)           the
existence, value or condition of, or failure to perfect Agent’s Lien against,
any Collateral for the Guaranteed Obligations or any action, or the absence of
any action, by Agent in respect thereof (including, without limitation, the
release of any such security);

 

(d)           the
insolvency of any Credit Party; or

 

(e)           any
other action or circumstances which might otherwise constitute a legal or
equitable discharge or defense of a surety or guarantor,

 

it being
agreed by each Guarantor that its obligations under this Guaranty shall not be
discharged until the payment in full in cash of the Obligations.  Each Guarantor shall be regarded, and shall
be in the same position, as principal debtor with respect to the Guaranteed
Obligations.  Each Guarantor agrees that
any notice or directive given at any time to Agent which is inconsistent with
the waiver in the immediately preceding sentence shall be null and void and may
be ignored by Agent and Lenders and, in addition, may not be pleaded or
introduced as evidence in any litigation relating to this Guaranty for the
reason that such pleading or introduction would be at variance with the written
terms of this Guaranty, unless Agent and Lenders have specifically agreed
otherwise in writing.  It is agreed among
Guarantors, Agent and Lenders that the foregoing waivers are of the essence of
the transaction contemplated by the Loan Documents and that, but for this
Guaranty and such waivers, Agent and Lenders would decline to enter into the Credit
Agreement.

 

2.2                               Demand
by Agent or Lenders

 

In addition to
the terms of the Guaranty set forth in Section 2.1 hereof, and in
no manner imposing any limitation on such terms, it is expressly understood and
agreed that, if, at

 

2

 

any time, the outstanding principal amount of
the Guaranteed Obligations under the Credit Agreement (including all accrued
interest thereon) is declared to be immediately due and payable, then
Guarantors shall without demand, pay to the holders of the Guaranteed Obligations
the entire outstanding Guaranteed Obligations due and owing to such
holders.  Payment by the Guarantors shall
be made to Agent in immediately available funds to an account, designated by
Agent or at the address set forth herein for the giving of notice to Agent or
at any other address that may be specified in writing from time to time by
Agent, and shall be credited and applied to the Guaranteed Obligations.

 

2.3                               Enforcement
of Guaranty

 

In no event
shall Agent have any obligation (although it is entitled, at its option) to
proceed against the Borrower or any other Credit Party or any Collateral
pledged to secure Guaranteed Obligations before seeking satisfaction from
Guarantors, and Agent may proceed, prior or subsequent to, or simultaneously
with, the enforcement of Agent’s rights hereunder, subject to the terms of the
Intercreditor Agreement, to exercise any right or remedy which it may have
against any Collateral, as a result of any Lien it may have as security for all
or any portion of the Guaranteed Obligations.

 

2.4                               Waiver

 

In addition to
the waivers contained in Section 2.1 hereof, each Guarantor waives
and agrees that it shall not at any time insist upon, plead or in any manner
whatsoever claim or take the benefit or advantage of, any appraisal, valuation,
stay, extension, marshaling of assets or redemption laws, or exemption, whether
now or at any time hereafter in force, which may delay, prevent or otherwise
affect the performance by each Guarantor of its Guaranteed Obligations under,
or the enforcement by Agent or Lenders of, this Guaranty.  Each Guarantor hereby waives diligence,
presentment and demand (whether for non-payment or protest or of acceptance,
maturity, extension of time, change in nature or form of the Guaranteed
Obligations, acceptance of further security, release of further security,
composition or agreement arrived at as to the amount of, or the terms of, the
Guaranteed Obligations, notice of adverse change in the Borrower’s financial condition
or any other fact which might increase the risk to Guarantors) with
respect to any of the Guaranteed Obligations or all other demands whatsoever
and, to the fullest extent permitted by law, waives the benefit of all
provisions of law which are or might be in conflict with the terms of this
Guaranty.  Each Guarantor represents,
warrants and agrees that, as of the date of this Guaranty, its obligations under
this Guaranty are not subject to any offsets or defenses against Agent or
Lenders or any Credit Party of any kind. 
Each Guarantor further agrees that its obligations under this Guaranty
shall not be subject to any counterclaims, offsets or defenses against Agent or
any Lender or against any Credit Party of any kind which may arise in the
future, except as may be provided or permitted by the Credit Agreement.

 

2.5                               Benefit
of Guaranty

 

The provisions
of this Guaranty are for the benefit of Agent and Lenders and their respective
successors, transferees, endorsees and assigns, and nothing herein contained
shall impair, as between any Credit Party and Agent or Lenders, the obligations
of any Credit Party under the Loan Documents. 
In the event all or any part of the Guaranteed Obligations are transferred,

 

3

 

indorsed or assigned by Agent or any Lender
to any Person or Persons, any reference to “Agent” or “Lender”
herein shall be deemed to refer equally to such Person or Persons.

 

2.6                               Modification
of Guaranteed Obligations, Etc

 

Each Guarantor
hereby acknowledges and agrees that Agent and Lenders may at any time or from
time to time, with or without the consent of, or notice to Guarantors:

 

(a)           change
or extend the manner, place or terms of payment of, or renew or alter all or
any portion of, the Guaranteed Obligations;

 

(b)           take
any action under or in respect of the Loan Documents in the exercise of any
remedy, power or privilege contained therein or available to it at law, equity
or otherwise, or waive or refrain from exercising any such remedies, powers or
privileges;

 

(c)           amend
or modify, in any manner whatsoever, the Loan Documents;

 

(d)           extend
or waive the time for any Credit Party’s performance of, or compliance with,
any term, covenant or agreement on its part to be performed or observed under
the Loan Documents, or waive such performance or compliance or consent to a
failure of, or departure from, such performance or compliance;

 

(e)           subject
to the Intercreditor Agreement, take and hold Collateral for the payment of the
Guaranteed Obligations guaranteed hereby or sell, exchange, release, dispose
of, or otherwise deal with, any property pledged, mortgaged or conveyed, or in
which Agent or Lenders have been granted a Lien, to secure any Obligations;

 

(f)            release
anyone who may be liable in any manner for the payment of any amounts owed by
Guarantors or any Credit Party to Agent or any Lender;

 

(g)           modify
or terminate the terms of any intercreditor or subordination agreement pursuant
to which claims of other creditors of Guarantors or any Credit Party are subordinated
to the claims of Agent and Lenders; and/or

 

(h)           apply
any sums by whomever paid or however realized to any amounts owing by Guarantors
or any Credit Party to Agent or any Lender in such manner as Agent or any
Lender shall determine in its discretion,

 

and Agent and
Lenders shall not incur any liability to Guarantors as a result thereof, and no
such action shall impair or release the Guaranteed Obligations of Guarantors under
this Guaranty.

 

2.7                               Reinstatement

 

This Guaranty
shall remain in full force and effect and continue to be effective should any
petition be filed by or against any Credit Party or Guarantor for liquidation
or reorganization, should any Credit Party or Guarantor become insolvent or
make an assignment for the benefit of creditors or should a receiver or trustee
be appointed for all or any significant part of such Credit Party’s or
Guarantor’s assets, and shall continue to be effective or be reinstated, as

 

4

 

the case may be, if at any time payment and
performance of the Guaranteed Obligations, or any part thereof, is, pursuant to
applicable law, rescinded or reduced in amount, or must otherwise be restored
or returned by Agent or any Lender, whether as a “voidable preference”, “fraudulent
conveyance”, or otherwise, all as though such payment or performance had not
been made.  In the event that any
payment, or any part thereof, is rescinded, reduced, restored or returned, the
Guaranteed Obligations shall be reinstated and deemed reduced only by such
amount paid and not so rescinded, reduced, restored or returned.

 

2.8                               Deferral
of Subrogation, Etc.

 

Notwithstanding
anything to the contrary in this Guaranty, or in any other Loan Document, each Guarantor
hereby:

 

(a)           expressly
and irrevocably waives, on behalf of itself and its successors and assigns
(including any surety) until the Maturity Date or the payment in full of
the Obligations, any and all rights at law or in equity to subrogation, to
reimbursement, to exoneration, to contribution, to indemnification, to set off
or to any other rights that could accrue to a surety against a principal, to each
Guarantor against a principal, to each Guarantor against a maker or obligor, to
an accommodation party against the party accommodated, to a holder or transferee
against a maker, or to the holder of any claim against any Person, and which any
Guarantor may have or hereafter acquire against any Credit Party in connection
with or as a result of such Guarantor’s execution, delivery and/or performance
of this Guaranty, or any other documents relating to the Obligations to which any
Guarantor is a party or otherwise; and

 

(b)           acknowledges
and agrees that this waiver is intended to benefit Agent and Lenders and shall
not limit or otherwise effect each Guarantor’s liability hereunder or the
enforceability of this Guaranty, and that Agent, Lenders and their respective
successors and assigns are intended third party beneficiaries of the waivers
and agreements set forth in this Section 2.8 and their rights under
this Section 2.8 shall survive payment in full of the Guaranteed
Obligations.  The foregoing waiver shall
not be deemed to limit or prohibit the payment of indebtedness or other
obligations of Guarantors to any Credit Party or other Person which is incurred
in the ordinary course of business and which is otherwise permitted under the Credit
Agreement or this Guaranty.

 

2.9                               Election
of Remedies

 

Subject to the
Intercreditor Agreement, if Agent may, under applicable law, proceed to realize
benefits under any of the Loan Documents giving Agent or Lenders a Lien upon
any Collateral owned by any Credit Party, either by judicial foreclosure or by
non-judicial sale or enforcement, Agent may, at its sole option, determine
which of such remedies or rights it may pursue without affecting any of such
rights and remedies under this Guaranty. 
If, in the exercise of any of its rights and remedies, Agent shall
forfeit any of its rights or remedies, including its right to enter a
deficiency judgment against any Credit Party, whether because of any applicable
laws pertaining to “election of remedies” or the like, each Guarantor hereby
consents to such action by Agent and waives any claim based upon such action,
even if such action by Agent shall result in a full or partial loss of any
rights of subrogation which such Guarantor might otherwise

 

5

 

have had but for such action by Agent.  Any election of remedies which results in the
denial or impairment of the right of Agent to seek a deficiency judgment
against any Credit Party shall not impair any Guarantor’s obligation to pay the
full amount of the Guaranteed Obligations. 
In the event Agent shall bid at any foreclosure or trustee’s sale or at
any private sale permitted by law or the Loan Documents, Agent may bid all or
less than the amount of the Guaranteed Obligations and the amount of such bid
need not be paid by Agent but shall be credited against the Guaranteed
Obligations.  The amount of the
successful bid at any such sale shall be conclusively deemed to be the fair
market value of the collateral and the difference between such bid amount and
the remaining balance of the Guaranteed Obligations shall be conclusively
deemed to be the amount of the Guaranteed Obligations guaranteed under this Guaranty,
notwithstanding that any present or future law or court decision or ruling may
have the effect of reducing the amount of any deficiency claim to which Agent
and Lenders might otherwise be entitled but for such bidding at any such sale.

 

3.                                      DELIVERIES

 

In a form
satisfactory to Agent, each Guarantor shall deliver to Agent (with sufficient
copies for each Lender), concurrently with the execution of this Guaranty and
the Credit Agreement, the Loan Documents and other instruments, certificates
and documents as are required to be delivered by each Guarantor to Agent under
the Credit Agreement, to the extent not otherwise delivered thereunder.

 

4.                                      REPRESENTATIONS AND WARRANTIES

 

To induce
Lenders to make the Loans under the Credit Agreement, each Guarantor makes and
agrees to comply with the representations and warranties as to such Guarantor contained
in the Credit Agreement, each of which is incorporated herein by reference, and
all of which shall be deemed to be made on the date of each borrowing by the
Borrower under the Credit Agreement on and as of the date of such borrowing as
though made hereunder on and as of such date.

 

5.                                      COVENANTS

 

Each Guarantor
covenants and agrees that, so long as any part of the Guaranteed Obligations
shall remain unpaid, such Guarantor will perform and observe, and cause each of
its Subsidiaries to perform and observe, all of the terms, covenants and
agreements set forth in the Loan Documents on its or their part to be performed
or observed or that the Borrower has agreed to cause such Guarantor or such
Subsidiaries to perform or observe.

 

6.                                      FURTHER ASSURANCES

 

Each Guarantor
agrees, upon the written request of Agent or any Lender, to execute and deliver
to Agent or such Lender, from time to time, any additional instruments or
documents reasonably considered necessary by Agent or such Lender to cause this
Guaranty to be, become or remain valid and effective in accordance with its
terms.

 

6

 

7.                                      PAYMENTS FREE AND CLEAR OF TAXES

 

Any and all
payments by any Guarantor under this Guaranty or any other Loan Document shall
be made, in accordance with the terms of the Credit Agreement, free and clear
of and without deduction for any and all present or future Taxes.

 

8.                                      RIGHT OF SET-OFF

 

Subject to the
Intercreditor Agreement, upon (a) the occurrence and during the
continuance of any Event of Default and (b) the occurrence of an
acceleration pursuant to the provisions of Section 6.2, Agent and
each Lender and each of their respective Affiliates is hereby authorized at any
time and from time to time, to the fullest extent permitted by law, to set off
and apply any and all deposits (general or special, time or demand, provisional
or final) at any time held and other indebtedness at any time owing by Agent,
such Lender or such Affiliate to or for the credit or the account of any
Guarantor against any and all of the Obligations of such Guarantor now or
hereafter existing under the Loan Documents, irrespective of whether Agent or
such Lender shall have made any demand under this Guaranty or any other Loan
Document and although such Obligations may be unmatured.  Agent and each Lender agrees promptly to
notify such Guarantor after any such set-off and application; provided, however,
that the failure to give such notice shall not affect the validity of such
set-off and application.  The rights of
Agent and each Lender and their respective Affiliates under this Section are
in addition to other rights and remedies (including, without limitation, other
rights of set-off) that Agent, such Lender and their respective Affiliates may
have.

 

9.                                      SUBORDINATION OF INTERCOMPANY DEBT

 

Each Guarantor
hereby consents to the subordination provisions of Intercompany Debt provided
in Section 9.22 of the Credit Agreement.

 

10.                               OTHER TERMS

 

10.1        Entire Agreement

 

This Guaranty,
the Credit Agreement, the Notes and the other Loan Documents embody the entire
agreement among the parties hereto and supersede all prior commitments,
agreements, representations, and understandings, whether oral or written,
relating to the subject matter hereof, and may not be contradicted or varied by
evidence of prior, contemporaneous, or subsequent oral agreements or
discussions of the parties hereto.

 

10.2        Headings

 

Section and
subsection headings are included herein for convenience of reference only
and shall not constitute a part of this Guaranty for any other purposes or be
given substantive effect.

 

7

 

10.3        Severability

 

The
invalidity, illegality, or unenforceability in any jurisdiction of any
provision of this Guaranty shall not affect or impair the remaining provisions
of this Guaranty.

 

10.4        Notices

 

Any notice or
other communication required shall be in writing addressed to the respective
party as set forth below and may be personally served, telecopied, sent by
overnight courier service or U.S. mail and shall be deemed to have been
given:  (a) if delivered in person,
when delivered; (b) if delivered by fax, on the date of transmission if
transmitted on a Business Day before 4:00 p.m. New York Time; (c) if delivered by overnight courier, one (1) Business
Day after delivery to the courier properly addressed; or (d) if delivered
by U.S. mail, four (4) Business Days after deposit with postage prepaid
and properly addressed.

 

Notices shall
be addressed as follows:

 

(a)           If
to Agent, at:

 

Deutsche Bank Trust Company Americas

Global Credit Products

Leveraged Loan Portfolio

60 Wall Street, NYC60-1104

New York, NY 10005-2858

Attention:  Omayra Laucella

Telephone No.:  (212) 250-6106

Telecopier No.:  (212) 797-5690

 

with copies to:

 

Cahill Gordon & Reindel LLP

80 Pine St.

New York, NY  10005

Attention:  William M. Hartnett, Esq.

Facsimile:  (212) 269-5420

Telephone No.:  (212) 701-3847

 

(b)           If
to any Lender, at the address of such Lender specified in the Credit Agreement;

 

(c)           If
to any Guarantor at:

 

c/o Penhall Company

1801 W. Penhall Way

Anaheim, California 92801

Attention:  Chief Financial
Officer

 

8

 

Telephone No.:  (714) 578-3211

Telecopier No.:  (714) 778-5638

 

10.5        Successors and
Assigns

 

This Guaranty
and all obligations of each Guarantor hereunder shall be binding upon the
successors and assigns of each Guarantor (including a debtor-in-possession on
behalf of each Guarantor) and shall, together with the rights and remedies
of Agent, for itself and for the benefit of Lenders, hereunder, inure to the
benefit of Agent and Lenders, all future holders of any instrument evidencing
any of the Obligations and their respective successors and assigns.  No sales of participations, other sales,
assignments, transfers or other dispositions of any agreement governing or
instrument evidencing the Obligations or any portion thereof or interest
therein shall in any manner affect the rights of Agent and Lenders
hereunder.  Each Guarantor may not
assign, sell, hypothecate or otherwise transfer any interest in or obligation
under this Guaranty.

 

10.6        No Waiver;
Cumulative Remedies; Amendments

 

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

 

10.7        Termination

 

This Guaranty
is a continuing guaranty and shall remain in full force and effect until the
payment in full in cash of the Obligations. 
Upon the earlier of the Maturity Date and the payment in full of the
Obligations, Agent shall deliver to Guarantors such documents as Guarantors may
reasonably request to evidence such termination.

 

10.8        Counterparts;
Effectiveness

 

This Guaranty and
any amendments, waivers, consents or supplements may be executed in any number
of counterparts and by different parties hereto in separate counterparts, each
of which when so executed and delivered shall be deemed an original, but all of
which counterparts together shall constitute but one in the same
instrument.  This Guaranty shall become
effective upon the execution of a counterpart hereof by each of the parties
hereto.

 

9

 

10.9        Consent to
Jurisdiction

 

(a)           THIS
GUARANTY AND THE OBLIGATIONS ARISING HEREUNDER SHALL BE GOVERNED BY AND SHALL
BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE INTERNATIONAL LAWS OF THE
STATE OF NEW YORK WITHOUT REGARD TO CONFLICTS OF LAW PRINCIPLES WHICH SHALL BE
DEEMED NOT TO INCLUDE SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS
LAW.

 

(b)           EACH
GUARANTOR HEREBY CONSENTS TO THE JURISDICTION OF ANY STATE OR FEDERAL COURT
LOCATED WITHIN NEW YORK COUNTY, STATE OF NEW YORK AND IRREVOCABLY AGREES THAT,
SUBJECT TO AGENT’S ELECTION, ALL ACTIONS OR PROCEEDINGS ARISING OUT OF OR
RELATING TO THIS GUARANTY OR ANY OF THE
OTHER LOAN DOCUMENTS SHALL BE LITIGATED IN SUCH COURTS.  EACH GUARANTOR EXPRESSLY SUBMITS AND CONSENTS
TO THE JURISDICTION OF THE AFORESAID COURTS AND WAIVE ANY DEFENSE OF FORUM NON
CONVENIENS.  EACH GUARANTOR HEREBY WAIVES
PERSONAL SERVICE OF ANY AND ALL PROCESS AND AGREES THAT ALL SUCH SERVICE OF
PROCESS MAY BE MADE UPON EACH GUARANTOR
BY CERTIFIED OR REGISTERED MAIL, RETURN RECEIPT REQUESTED, ADDRESSED TO SUCH GUARANTOR,
AT THE ADDRESS SET FORTH IN THIS AGREEMENT AND SERVICE SO
MADE SHALL BE COMPLETE TEN (10) DAYS AFTER THE SAME HAS BEEN POSTED.  IN ANY
LITIGATION, TRIAL, ARBITRATION OR OTHER DISPUTE RESOLUTION PROCEEDING RELATING
TO THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS, ALL DIRECTORS, OFFICERS,
EMPLOYEES AND AGENTS OF SUCH GUARANTOR
OR ANY OF ITS AFFILIATES SHALL BE DEEMED TO BE EMPLOYEES OR MANAGING AGENTS OF SUCH
GUARANTOR FOR PURPOSES OF ALL APPLICABLE
LAW OR COURT RULES REGARDING THE PRODUCTION OF WITNESSES BY NOTICE FOR
TESTIMONY (WHETHER IN A DEPOSITION, AT TRIAL OR OTHERWISE).  EACH GUARANTOR AGREES THAT AGENT’S OR ANY
LENDER’S COUNSEL IN ANY SUCH DISPUTE RESOLUTION PROCEEDING MAY EXAMINE ANY
OF THESE INDIVIDUALS AS IF UNDER CROSS-EXAMINATION AND THAT ANY DISCOVERY
DEPOSITION OF ANY OF THEM MAY BE USED IN THAT PROCEEDING AS IF IT WERE AN
EVIDENCE DEPOSITION.  EACH GUARANTOR IN
ANY EVENT WILL USE ALL COMMERCIALLY REASONABLE EFFORTS TO PRODUCE IN ANY SUCH
DISPUTE RESOLUTION PROCEEDING, AT THE TIME AND IN THE MANNER REQUESTED BY AGENT
OR ANY LENDER, ALL PERSONS, DOCUMENTS (WHETHER IN TANGIBLE, ELECTRONIC OR OTHER
FORM) OR OTHER THINGS UNDER THEIR CONTROL AND RELATING TO THE DISPUTE.

 

10.10      Waiver of Jury Trial

 

EACH GUARANTOR HEREBY WAIVES ITS RIGHT TO A JURY TRIAL OF
ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS GUARANTY AND THE
OTHER LOAN DOCUMENTS.  EACH GUARANTOR ACKNOWLEDGES THAT THIS
WAIVER IS A MATERIAL INDUCEMENT TO ENTER

 

10

 

INTO A BUSINESS RELATIONSHIP, THAT AGENT HAS
RELIED ON THE WAIVER IN ENTERING INTO THIS GUARANTY AND THE OTHER LOAN
DOCUMENTS AND WILL CONTINUE TO RELY ON THE WAIVER IN THEIR RELATED FUTURE
DEALINGS.  EACH GUARANTOR WARRANTS AND REPRESENTS THAT SUCH GUARANTOR HAS HAD
THE OPPORTUNITY OF REVIEWING THIS JURY WAIVER WITH LEGAL COUNSEL, AND THAT SUCH
GUARANTOR KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS.

 

10.11      Limitation

 

Notwithstanding
any provision herein contained to the contrary, Guarantors’ liability under this Guaranty shall be limited to an amount not to
exceed as of any date of determination the amount that could be claimed by
Agent and Lenders from Guarantors under this Guaranty without rendering such
claim voidable or avoidable under Section 548 of Chapter 11 of the
Bankruptcy Code or under any applicable state Uniform Fraudulent Transfer Act,
Uniform Fraudulent Conveyance Act or similar statute or common law.

 

10.12      Intercreditor
Arrangement

 

Notwithstanding
anything herein to the contrary, each Guarantor acknowledges that the lien and
security interest granted to the Agent pursuant to the Collateral Documents and
the exercise of any right or remedy by the Agent thereunder are subject to the
provisions of the Intercreditor Agreement. 
In the event of any conflict between the terms of the Intercreditor Agreement
and the terms of the Loan Documents, the terms of the Intercreditor Agreement
shall govern and control

 

[SIGNATURE PAGE FOLLOWS]

 

11

 

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

 

	
   

  	
  PENHALL
  COMPANY,

  
	
   

  	
  as Guarantor

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Jeffrey
  E. Platt

  
	
   

  	
   

  	
  Name:
  Jeffrey E. Platt

  
	
   

  	
   

  	
  Title: Vice
  President

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  PENHALL
  INVESTMENTS, INC.,

  
	
   

  	
  as Guarantor

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Jeffrey
  E. Platt

  
	
   

  	
   

  	
  Name:
  Jeffrey E. Platt

  
	
   

  	
   

  	
  Title: Vice
  President

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  BOB MACK
  COMPANY,

  
	
   

  	
  as Guarantor

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Jeffrey
  E. Platt

  
	
   

  	
   

  	
  Name:
  Jeffrey E. Platt

  
	
   

  	
   

  	
  Title: Vice
  President

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  CAPITOL
  DRILLING SUPPLIES, INC.,

  
	
   

  	
  as Guarantor

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Jeffrey
  E. Platt

  
	
   

  	
   

  	
  Name:
  Jeffrey E. Platt

  
	
   

  	
   

  	
  Title: Vice
  President

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  PENHALL
  LEASING,

  
	
   

  	
  as Guarantor

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Jeffrey
  E. Platt

  
	
   

  	
   

  	
  Name:
  Jeffrey E. Platt

  
	
   

  	
   

  	
  Title: Vice
  President

  

 

[SIGNATURE PAGE TO PENHALL GUARANTY]

 

 

	
   

  	
  DEUTSCHE
  BANK TRUST COMPANY AMERICAS,

  
	
   

  	
  as Agent

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Omayra
  Laucella

  
	
   

  	
   

  	
  Name: Omayra
  Laucella

  
	
   

  	
   

  	
  Title: Vice
  President

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Evelyn
  Lazala

  
	
   

  	
   

  	
  Name: Evelyn
  Lazala

  
	
   

  	
   

  	
  Title: Vice
  President

  

 

2Exhibit 10.5

 

PENHALL
INTERNATIONAL CORP.,

 

PENHALL
COMPANY,

 

BOB MACK CO.,
INC.,

 

PENHALL
LEASING, L.L.C.,

 

CAPITOL
DRILLING SUPPLIES, INC.

 

AND

 

PENHALL
INVESTMENTS, INC.

 

(referred to
herein individually as “GRANTOR” and collectively as “GRANTORS”)

 

AND

 

DEUTSCHE BANK
TRUST COMPANY AMERICAS,

AS AGENT

 

 

SECURITY
AGREEMENT

 

 

 

TABLE OF
CONTENTS

 

	
  1.

  	
  DEFINED TERMS

  	
   

  
	
   

  	
   

  	
   

  
	
  2.

  	
  GRANT OF LIEN

  	
   

  
	
   

  	
   

  	
   

  
	
  3.

  	
  AGENT’S AND LENDERS’ RIGHTS: LIMITATIONS ON
  AGENT’S AND LENDERS’ OBLIGATIONS

  	
   

  
	
   

  	
   

  	
   

  
	
  4.

  	
  REPRESENTATIONS AND WARRANTIES

  	
   

  
	
   

  	
   

  	
   

  
	
  5.

  	
  COVENANTS

  	
   

  
	
   

  	
   

  	
   

  
	
  6.

  	
  BANK ACCOUNTS; COLLECTION OF ACCOUNTS AND
  PAYMENTS

  	
   

  
	
   

  	
   

  	
   

  
	
  7.

  	
  AGENT’S APPOINTMENT AS ATTORNEY-IN-FACT

  	
   

  
	
   

  	
   

  	
   

  
	
  8.

  	
  REMEDIES; RIGHTS UPON DEFAULT

  	
   

  
	
   

  	
   

  	
   

  
	
  9.

  	
  GRANT OF LICENSE TO USE INTELLECTUAL
  PROPERTY COLLATERAL

  	
   

  
	
   

  	
   

  	
   

  
	
  10.

  	
  LIMITATION ON AGENT’S AND LENDERS’ DUTY IN
  RESPECT OF COLLATERAL

  	
   

  
	
   

  	
   

  	
   

  
	
  11.

  	
  REINSTATEMENT

  	
   

  
	
   

  	
   

  	
   

  
	
  12.

  	
  SURETYSHIP WAIVERS BY GRANTOR; OBLIGATIONS
  ABSOLUTE

  	
   

  
	
   

  	
   

  	
   

  
	
  13.

  	
  EXPENSES AND ATTORNEY’S FEES

  	
   

  
	
   

  	
   

  	
   

  
	
  14.

  	
  NOTICES

  	
   

  
	
   

  	
   

  	
   

  
	
  15.

  	
  SEVERABILITY

  	
   

  
	
   

  	
   

  	
   

  
	
  16.

  	
  NO WAIVER, CUMULATIVE REMEDIES

  	
   

  
	
   

  	
   

  	
   

  
	
  17.

  	
  LIMITATION BY LAW

  	
   

  
	
   

  	
   

  	
   

  
	
  18.

  	
  TERMINATION OF THIS AGREEMENT

  	
   

  
	
   

  	
   

  	
   

  
	
  19.

  	
  SUCCESSORS AND ASSIGNS

  	
   

  
	
   

  	
   

  	
   

  
	
  20.

  	
  COUNTERPARTS

  	
   

  
	
   

  	
   

  	
   

  
	
  21.

  	
  GOVERNING LAW

  	
   

  
	
   

  	
   

  	
   

  
	
  22.

  	
  WAIVER OF JURY TRIAL

  	
   

  

 

i

 

	
  23.

  	
  HEADINGS

  	
   

  
	
   

  	
   

  	
   

  
	
  24.

  	
  NO STRICT CONSTRUCTION

  	
   

  
	
   

  	
   

  	
   

  
	
  25.

  	
  ADVICE OF COUNSEL

  	
   

  
	
   

  	
   

  	
   

  
	
  26.

  	
  BENEFIT OF LENDERS

  	
   

  

 

ii

 

SECURITY
AGREEMENT

 

THIS SECURITY
AGREEMENT, dated as of November 1, 2005 (this “Agreement”), by and
among PENHALL INTERNATIONAL CORP., an Arizona corporation (“Borrower”),
PENHALL COMPANY, a California corporation (“Penhall”), PENHALL LEASING,
L.L.C., a California limited liability company (“Penhall Leasing”), CAPITOL
DRILLING SUPPLIES, INC., an Indiana corporation (“Capitol”), BOB MACK
CO., INC., a California corporation (“Bob Mack”) and PENHALL
INVESTMENTS, INC., a California corporation (“Penhall Investments”, and
together with Penhall, Penhall Leasing, Capitol, Bob Mack and Penhall
Investments, each a “Subsidiary” and collectively the “Subsidiaries”,
and together with Borrower, each referred to herein individually as “Grantor”
and collectively as “Grantors”), and DEUTSCHE BANK TRUST COMPANY
AMERICAS, in its capacity as Agent (in such capacity, “Agent”) for
itself and Lenders from time to time party to the Credit Agreement as defined
below (“Lenders”).

 

WHEREAS:

 

(A)          Pursuant to that certain Second Lien Term Loan Agreement
dated as of the date hereof (including all annexes, exhibits and schedules
thereto, and as from time to time amended, restated, supplemented or otherwise
modified, the “Credit Agreement”) by and among Borrower, Agent and
Lenders, the Lenders have agreed to make available to Borrower, upon the terms
and conditions thereof, a certain second lien term loan facility;

 

(B)          Each Grantor has entered into an Amended and Restated
Credit Agreement dated as of the date hereof (including all annexes, exhibits
and schedules thereto, and as from time to time may be amended, restated,
supplemented or otherwise modified and in effect from time to time, the “First
Lien Credit Agreement”) by and among Borrower, Penhall, Bob Mack, Penhall
Leasing, Penhall Investments, Capitol, the financial institutions party thereto
from time to time as Lenders (“First Lien Lenders”) and General Electric
Capital Corporation, as agent (in such capacity, together with any successors
and assigns, the “First Lien Agent”);

 

(C)          Each Grantor has granted to the First Lien Agent, for the
benefit of itself and the First Lien Lenders, a first-priority security
interest in the Collateral (it being understood that the relative rights and
priorities of the First Lien Lenders and Lenders in respect of the Collateral
are governed by the Intercreditor Agreement, dated as of November 1, 2005
(as amended, modified and/or supplemented from time to time, the “Intercreditor
Agreement”), among the First Lien Agent, the Agent and certain other
persons party or that may become party thereto from time to time);

 

(D)          Each of the Subsidiaries is entering into the Subsidiary
Guaranty concurrently with the execution of this Agreement for the purpose of
guaranteeing all of the Guaranteed Obligations (as defined in the Subsidiary
Guaranty);

 

(E)           Borrower wishes to borrow certain Loans (as such term is
defined in the Credit Agreement); and

 

 

(F)           In order to induce Lenders to make the Loans (as defined
in the Credit Agreement) to be made and incurred by Lenders as provided for in
the Credit Agreement, each Grantor has agreed to grant a continuing Lien on the
Collateral (as hereinafter defined) to secure the Obligations (as defined in
the Credit Agreement).

 

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

 

1.                                      DEFINED TERMS

 

(a)           All
capitalized terms used but not otherwise defined herein have the meanings given
to them in the Credit Agreement or in Annex A thereto.  All other terms contained in this Agreement,
unless the context indicates otherwise, have the meanings provided for by the
Code to the extent the same are used or defined therein.

 

(b)           “Uniform
Commercial Code jurisdiction” means any jurisdiction that has adopted all
or substantially all of Article 9 as contained in the 2000 Official Text
of the Uniform Commercial Code, as recommended by the National Conference of
Commissioners on Uniform State Laws and the American Law Institute, together
with any subsequent amendments or modifications to the Official Text.

 

2.                                      GRANT OF LIEN

 

(a)           To
secure the prompt and complete payment, performance and observance of all of
the Obligations and all renewals, extensions, restructurings and refinancings
thereof, and all obligations, liabilities, and indebtedness of Grantors arising
under this Agreement, each Grantor hereby grants, assigns, conveys, mortgages,
pledges, hypothecates and transfers to Agent, for itself and the benefit of
Lenders, a Lien upon all of its right, title and interest in, to and under all
personal property and other assets, whether now owned by or owing to, or
hereafter acquired by or arising in favor of such Grantor (including under any
trade names, styles or derivations thereof), and whether owned or consigned by
or to, or leased from or to, such Grantor, and regardless of where located (all
of which being hereinafter collectively referred to as the “Collateral”),
including:

 

   (i)         all Accounts;

 

  (ii)         all Chattel Paper;

 

 (iii)         all Documents;

 

 (iv)         all General Intangibles (including all
Payment Intangibles trademarks, patents, copyrights, other intellectual
property and licenses thereof, payment intangibles and Software; provided
that trademark licenses in which such Grantor is the licensee shall not be
considered Collateral if prohibited by the instrument governing the trademark
license);

 

2

 

   (v)        all Goods (including Inventory,
Equipment and Fixtures);

 

  (vi)        all Instruments;

 

 (vii)        all Investment Property;

 

(viii)        all
Deposit Accounts and Commodity Accounts of such Grantor, including all blocked
accounts and all other bank accounts and all deposits therein;

 

  (ix)        all money, cash or Cash Equivalents of
such Grantor;

 

   (x)        all Supporting Obligations and
Letter-of-Credit Rights of such Grantor; and

 

  (xi)        to the extent not otherwise included,
all Proceeds, tort claims, insurance claims and other rights to payments not
otherwise included in the foregoing and products of the foregoing and all
accessions to, substitutions and replacements for, and income, benefits, rents
and profits of, each of the foregoing and, to the extent related to any of the
foregoing, all books, correspondence, credit files, records, invoices, and
other papers (including without limitation all tapes, cards, computer runs and
other papers and documents in the possession or under the control of such Grantor
or any computer bureau or service company from time to time acting for such
Grantor);

 

provided, however, that notwithstanding
the foregoing, the foregoing grant of a security interest in Equipment that is
subject to any prohibition that is in effect on the Closing Date on granting a
security interest in such Equipment to Agent and binding on the Grantor that
owns such Equipment shall be postponed and no security interest shall be
granted under this Agreement in such Equipment unless and until such prohibition
ceases to be binding on such Grantor, and upon such prohibition ceasing to be
binding on such Grantor, Agent shall automatically have a security interest in
such Equipment and all Proceeds thereof. 
In the event such prohibition ceases to be binding on a Grantor such
Grantor shall immediately notify Agent and shall take all steps as may be
necessary to perfect such Lien of Agent within 20 Business Days (or such longer
period as may be consented to by Agent) following such prohibition ceasing to
be effective.

 

(b)           In
addition, to secure the prompt and complete payment, performance and observance
of the Obligations, all renewals, extensions, restructurings and refinancings
thereof and all obligations, liabilities and indebtedness of Grantors arising under
this Agreement, and in order to induce Agent and Lenders as aforesaid, each
Grantor hereby grants to Agent, for itself and the benefit of Lenders, a right
of setoff against the property of such Grantor held by Agent or any Lender,
consisting of property described above in Section 2(a) now or
hereafter in the possession or custody of or in transit to Agent or any Lender,
for any purpose, including safekeeping, collection or pledge, for the account
of such Grantor, or as to which such Grantor may have any right or power.

 

(c)           Notwithstanding
anything herein to the contrary, the lien and security interest granted to the
Agent pursuant to this Agreement shall be a second priority lien on 

 

3

 

and security interest in the Collateral (second only to the lien
securing the First Lien Loan Obligations (as defined in the Intercreditor
Agreement)) and the exercise of any right or remedy by the Agent hereunder,
including, without limitation, under Section 8 hereof, is subject to the
provisions of the Intercreditor Agreement. 
In addition, this Agreement shall be subject in all other respects to
the terms and provisions of the Intercreditor Agreement.  In the event of any conflict between the
terms of the Intercreditor Agreement and this Agreement, the terms of the
Intercreditor Agreement shall govern. 
Notwithstanding anything herein to the contrary, prior to the First Lien
Loan Termination Date (as defined in the Intercreditor Agreement), the
requirements of this Agreement to endorse or deliver Collateral to the Agent
shall be deemed satisfied by endorsement or delivery of such Collateral to the
First Lien Agent and any endorsement or delivery to the First Lien Agent shall
be deemed an endorsement or delivery to the Agent for all purposes hereunder.

 

3.                                      AGENT’S AND LENDERS’ RIGHTS:  LIMITATIONS
ON AGENT’S AND LENDERS’ OBLIGATIONS

 

(a)           It
is expressly agreed by each Grantor that, anything herein or in any other Loan
Document to the contrary notwithstanding, each Grantor shall remain liable
under each of its respective Contractual Obligations, including all Licenses,
to observe and perform all the conditions and obligations to be observed and
performed by it thereunder.  Neither
Agent nor any Lender shall have any obligation or liability under any
Contractual Obligation by reason of or arising out of this Agreement or any
other Loan Document or the granting herein of a Lien thereon or the receipt by
Agent or any Lender of any payment relating to any Contractual Obligation pursuant
hereto.  Neither Agent nor any Lender
shall be required or obligated in any manner to perform or fulfill any of the
obligations of any Grantor under or pursuant to any Contractual Obligation, or
to make any payment, or to make any inquiry as to the nature or the sufficiency
of any payment received by it or the sufficiency of any performance by any
party under any Contractual Obligation, or to present or file any claims, or to
take any action to collect or enforce any performance or the payment of any amounts
which may have been assigned to it or to which it may be entitled at any time
or times.

 

(b)           Agent
may at any time after an Event of Default has occurred and is continuing (or if
any rights of set-off (other than set-offs against an Account arising under the
Contract giving rise to the same Account) or contra accounts may be asserted
with respect to the following), without prior notice to any Grantor, notify
each Grantor’s Account Debtors and all other Persons obligated on any of the
Collateral that Agent has a security interest therein, and that payments shall
be made directly to Agent, for itself and the benefit of Lenders.  Upon the request of Agent, each Grantor shall
so notify its Account Debtors and other Persons obligated on the
Collateral.  Once any such notice has
been given to any Account Debtor or other Person obligated on the Collateral,
none of the Grantors shall give any contrary instructions to such Account
Debtor or other Person without Agent’s prior written consent.

 

4

 

(c)           Agent
may at any time in Agent’s own name, in the name of a nominee of Agent or in
the name of any Grantor communicate (by mail, telephone, facsimile or
otherwise) with Account Debtors, parties to Contractual Obligations and
obligors in respect of Instruments to verify with such Persons, to Agent’s
satisfaction, the existence, amount, terms of, and any other matter relating
to, Accounts, Instruments, Chattel Paper and/or payment intangibles; provided,
that if no Event of Default has occurred and is continuing, Agent shall only
use a nominee name for such communication. 
If an Event of Default shall have occurred and be continuing, each
Grantor, at its own expense, shall cause the independent certified public accountants
then engaged by such Grantor to prepare and deliver to Agent and each Lender at
any time and from time to time promptly upon Agent’s request the following
reports with respect to such Grantor: (i) a reconciliation of all Accounts;
(ii) an aging of all Accounts; (iii) trial balances; and (iv) a
test verification of such Accounts as Agent may request.  Each Grantor, at its own expense, shall
deliver to Agent the results of each physical verification, if any, which such
Grantor may in its discretion have made, or caused any other Person to have
made on its behalf, of all or any portion of its Inventory.

 

4.                                      REPRESENTATIONS AND WARRANTIES

 

Each Grantor,
jointly and severally, represents and warrants that:

 

(a)           Each
Grantor has rights in and the power to transfer each item of the Collateral
upon which it purports to grant a Lien hereunder free and clear of any and all
Liens other than Permitted Encumbrances.

 

(b)           No
effective security agreement, financing statement, equivalent security or Lien
instrument or continuation statement covering all or any part of the Collateral
(other than those instruments and statements Agent is authorized to terminate
and release in full upon the initial funding of the Loans) is on file or of
record in any public office, except such as may have been filed (i) by any
Grantor in favor of Agent pursuant to this Agreement or the other Loan
Documents and (ii) in connection with any other Permitted Encumbrances.

 

(c)           This
Agreement is effective to create a valid and continuing Lien on and, upon the
filing of the appropriate financing statements in the filing offices listed on Schedule I
hereto or the entering into of three-party control agreements, as applicable, a
perfected Lien in favor of Agent, for itself and the benefit of Lenders, on the
Collateral with respect to which a Lien may be perfected by filing pursuant to
the Code.  Such Lien is prior to all
other Liens, except Permitted Encumbrances that would be prior to Liens in
favor of Agent for the benefit of Agent and Lenders as a matter of law, and is
enforceable as such as against any and all creditors of and purchasers from any
Grantor (other than purchasers and lessees of Inventory in the ordinary course
of business and non-exclusive licensees of General Intangibles in the ordinary course
of business).  Except as set forth in Sections 4(g) and
4(h) hereof, action by each of the Grantors necessary to protect
and perfect such Lien on each item of the Collateral has been duly taken.

 

5

 

(d)           Schedule II
hereto lists all Instruments, Documents, Letter of Credit Rights and Chattel
Paper (including any Intercompany Notes but excluding written lease agreements
governing Short-Term Rentals) of each Grantor as of the date hereof.  All actions by each Grantor necessary to
protect and perfect the Lien of Agent on each item set forth on Schedule II,
subject to Section 2(c), (including the legending of all Chattel
Paper (excluding written lease agreements governing Short-Term Rentals) as
required by Section 5(b) hereof) have been duly taken.  The Lien of Agent, for the benefit of Agent
and Lenders, on the Collateral listed on Schedule II hereto is
prior to all other Liens, except Permitted Encumbrances that would be prior to
the Liens in favor of Agent as a matter of law, and is enforceable as such
against any and all creditors of and purchasers from each Grantor.

 

(e)           Each
Grantor’s name as it appears in official filings in the state of its
incorporation or other organization, all prior names of each Grantor, as they
appeared from time to time in official filings in the state of its
incorporation or other organization, the type of entity of each Grantor
(including corporation, partnership, limited partnership or limited liability
company), organizational identification number issued by each Grantor’s state
of incorporation or organization or a statement that no such number has been
issued, each Grantor’s state of organization or incorporation, the mailing
address of each Grantor as of the date hereof, the location of each Grantor’s
chief executive office, principal place of business, other offices, all
warehouses and premises where Collateral is stored or located, and the
locations of each Grantor’s books and records concerning the Collateral are set
forth on Schedule IIIA, Schedule IIIB, Schedule IIIC,
Schedule IIID, Schedule IIIE and Schedule IIIF,
respectively, hereto, as the same may be amended in accordance with Section 5(k)
hereof.  Each Grantor is a registered
organization and has only one state of incorporation or organization.

 

(f)            With
respect to the Accounts, except as specifically disclosed to Agent or as
otherwise permitted pursuant to the Credit Agreement, (i) they represent
bona fide sales of Inventory or rendering of services to Account Debtors in the
ordinary course of each Grantor’s business and are not evidenced by a judgment,
Instrument or Chattel Paper; (ii) except as disclosed to Agent or as to
which there would not be a Material Adverse Effect, there are no set-offs,
claims or disputes existing or asserted with respect thereto and none of the
Grantors has made any agreement with any of its Account Debtors for any
extension of time for the payment thereof, any compromise or settlement for
less than the full amount thereof, any release of any of its Account Debtors
from liability therefor, or any deduction therefrom except a discount or
allowance allowed by any Grantor in the ordinary course of its business for
prompt payment and disclosed to Agent; (iii) to each Grantor’s knowledge,
there are no facts, events or occurrences which in any way impair the validity
or enforceability thereof or could reasonably be expected to reduce the amount
payable thereunder to the extent that there would be a Material Adverse Effect
as shown on such Grantor’s books and records and any invoices, statements or
other collateral report delivered to Agent and Lenders with respect thereto; (iv) none
of the Grantors has received any notice of proceedings or actions which are
threatened or pending against any of its Account Debtors which might result in
any adverse change in such Account Debtor’s financial condition and which would
have a Material Adverse Effect 

 

6

 

on any of the Grantors; (v) none of the Grantors has knowledge
that any of its Account Debtors is unable generally to pay its debts as they
become due, which inability would result in a Material Adverse Effect on
Grantors; and (vi) they constitute the legally valid and binding
obligation of the applicable Account Debtors. 
Further, with respect to the Accounts, (x) the amounts shown on all
invoices, statements or other collateral reports which may be delivered to
Agent with respect thereto are actually owing to such Grantor as indicated
thereon and are not in any way contingent, except for such contingencies as may
exist under trade custom and practice and (y)  to each Grantor’s
knowledge, all of its Account Debtors have the capacity to contract.

 

(g)           With
respect to any parts and supplies and Equipment constituting vehicles used by a
Grantor in the ordinary course of business (“Rental Equipment”), (i) such
Rental Equipment is located at one of the applicable Grantor’s locations set
forth on Schedule IIIA, Schedule IIIB, Schedule IIIC,
Schedule IIID, Schedule IIIE and Schedule IIIF,
hereto, as applicable, (unless, at any time, such Rental Equipment is being
used at a construction or similar site or such Rental Equipment is located at
the residence of the driver authorized to drive the Rental Equipment, (ii) such
Rental Equipment (A) is covered by a certificate of title on which the
interest of the Agent (subject to the terms of the Intercreditor Agreement and
applicable law and 90 day period (unless otherwise extended by Agent) for
Rental Equipment owned on the Closing Date) has been noted, free and clear of
all Liens except those in favor of Agent and Lenders, and Permitted
Encumbrances of the type described in clauses (a), (d), (e), (g) or (m) of
the definition of such term, and (B) is equipped with a global positioning
tracking device (that is permanently affixed to such motor vehicle) that
enables such Grantor to determine at all times the movement and location of
such motor vehicle), (iii) no Rental Equipment, with an aggregate value in
excess of $250,000, is now, or shall at any time or times hereafter be stored
at any other location without prior notice to Agent, and the applicable Grantor
will concurrently therewith obtain, to the extent required by the Credit
Agreement, bailee, landlord and mortgagee agreements, (iv) each Grantor
has good, indefeasible and merchantable title to its Rental Equipment and such
Rental Equipment is not subject to any Lien or security interest or document
whatsoever except for the Lien granted to Agent, for the benefit of Agent and Lenders,
and except for Permitted Encumbrances, (v) except as specifically
disclosed to Agent, such Rental Equipment is of good and merchantable quality,
free from any defects, ordinary wear and tear excepted, (vi) such Rental
Equipment is not subject to any licensing, patent, royalty, trademark, trade
name or copyright agreements with any third parties that would require any
consent of any third party upon sale or other disposition of that Rental
Equipment or the payment of any monies to any third party upon such sale or
other disposition, and (vi) the sale or other disposition of such Rental
Equipment by Agent following an Event of Default shall not require the consent
of any Person and shall not constitute a breach or default under any contract
or agreement to which any Grantor is a party or to which such property is
subject.

 

(h)           Schedule IVA
sets forth under the name of each Grantor a complete and correct list of all
issued Patents, registered Trademarks and registered Copyrights, and pending
applications for the foregoing owned by such Grantor on the date hereof; and
all registrations listed in Schedule IVA are in full force and
effect.  This Agreement is effective 

 

7

 

to create a valid and continuing Lien on and, upon filing of
appropriate financing statements in the filing offices listed on Schedule I
hereto and of the Copyright Security Agreements with the United States
Copyright Office and filing of the Patent Security Agreements and the Trademark
Security Agreements with the United States Patent and Trademark Office,
perfected Liens in favor of Agent on each Grantor’s Patents, Trademarks and
Copyrights and such perfected Liens are enforceable as such as against any and
all creditors of and purchasers from any Grantor.  Upon filing of the Copyright Security
Agreements with the United States Copyright Office and filing of the Patent
Security Agreements and the Trademark Security Agreements with the United States
Patent and Trademark Office and the filing of appropriate financing statements
listed on Schedule I hereto, all action necessary to protect and
perfect Agent’s Lien on each Grantor’s Patents, Trademarks or Copyrights shall
have been duly taken.

 

Schedule IVB
sets forth a complete and correct list of all material licenses and other
material agreements included in the Intellectual Property on the date hereof.

 

(i)            All
titled motor vehicles owned by each Grantor as of the Closing Date are listed
under the name of such Grantor on Schedule VA hereto, by make,
model, model year and vehicle identification number (“VIN”).  Each Grantor, with respect to all titled
vehicles now owned, shall take such actions as required by the Credit Agreement
and Intercreditor Agreement.  Each Grantor,
with respect to any titled vehicles acquired after the date hereof, shall
within 20 days of such acquisition (or such longer period as may be consented
to be Agent) note Agent’s Lien on all motor vehicle title certificates or take
such other action as may be reasonably requested by Agent to perfect Agent’s
security interest in the titled vehicles, provided that prior to the
First Lien Loan Termination Date, each Grantor will only be required to take
such other actions as provided for in the Intercreditor Agreement,

 

5.                                      COVENANTS

 

Without
limiting any Grantor’s covenants and agreements contained in the Credit
Agreement and other Loan Documents, each Grantor covenants and agrees with
Agent, for the benefit of Agent and Lenders, that from and after the date of
this Agreement and until the Termination Date:

 

(a)           Further
Assurances; Pledge of Instruments; Chattel Paper.

 

(i)         At
any time and from time to time, upon the written request of Agent and at the
sole expense of such Grantor, such Grantor shall promptly and duly execute and
deliver any and all such further instruments and documents and take such
further actions as Agent may reasonably request to obtain the full benefits of
this Agreement and of the rights and powers herein granted, including (A) using
reasonable efforts to secure all consents and approvals necessary or
appropriate for the assignment to or for the benefit of Agent of any
Contractual Obligation, including any License, held by such Grantor and to
enforce the security interests granted hereunder; and (B) filing any financing
or continuation statements under the Code with respect to the Liens granted
hereunder or under any 

 

8

 

other Loan Document as to those jurisdictions that are not Uniform
Commercial Code jurisdictions.

 

(ii)        In
the event that any Grantor acquires any Equipment and in connection therewith
grants a security interest in such Equipment to any Person providing purchase
money financing to such Grantor for such Equipment and such security interest
and financing does not contravene any provision of the Credit Agreement and
prohibits the Lien of Agent therein, Agent, at the request of such Grantor
shall release its security interest in such Equipment or shall subordinate such
Lien (as required by such Person) and shall at the cost and expense of such
Grantor execute such documents as may be necessary to release such Lien of
record; provided, however, that upon any such prohibition ceasing
to be binding on such Grantor, the Lien of Agent in such Equipment shall automatically
be reinstated and such Grantor shall immediately notify Agent and shall take
all steps as may be necessary to perfect such Lien of Agent within twenty (20)
Business Days (or such longer period as may be consented to by Agent) following
such prohibition ceasing to be effective. 
On each Business Day following the Closing Date each Grantor shall,
until such Grantor shall have complied with Section 4(i) and this Section 5(a)(ii) as
to all vehicles covered by a certificate of title and owned by such Grantor on
the Closing Date, submit to Agent a list indicating each vehicle for which a
certificate of title and application to note the Lien of Agent (or First Lien
Agent, as the case may be) was submitted to the applicable motor vehicle office
on the immediately preceding Business Day and indicating for each such vehicle
its state of registration, net book value, Appraised Net Orderly Liquidation
Value, VIN and date of such submission and attaching to such list a copy of
evidence of each such submission.

 

(iii)       Unless
Agent shall otherwise consent in writing (which consent may be revoked), such
Grantor shall deliver (A) if prior to the First Lien Loan Termination
Date, to the First Lien Agent and (B) any time after the First Lien Loan
Termination Date, to Agent, all Collateral consisting of negotiable Chattel
Paper, Documents, certificated securities, and Instruments (including
Intercompany Notes but excluding written lease agreements governing Short-Term
Rentals) (in each case, accompanied by stock powers, allonges or other
instruments of transfer executed in blank) promptly after such Credit Party
receives the same.  Upon acquiring any
negotiable Documents, certificated securities, Chattel Paper or Instruments
(including any Intercompany Notes but excluding written lease agreements
governing Short-Term Rentals), in each case in excess of $250,000, such Grantor
will provide prompt written notice thereof to Agent.

 

(iv)       Such
Grantor shall, in accordance with the terms of the Credit Agreement, obtain
waivers or subordinations of Liens from landlords, bailees and mortgagees, and
such Grantor shall in all instances obtain signed acknowledgements of Agent’s
Liens from bailees having possession of such Grantor’s Goods that they hold for
the benefit of Agent.

 

(v)        To
the extent required by Agent, such Grantor shall obtain authenticated control
letters in form and substance reasonably satisfactory to Agent from each issuer
of uncertificated securities, securities intermediary, or commodities
intermediary issuing or 

 

9

 

holding any financial assets or commodities to or for such
Grantor.  Agent shall not terminate such
Grantor’s access to any such financial assets or commodities except during the
continuation of an Event of Default.

 

(vi)       As
required by Section 6 of this Agreement, and in accordance with Section 2.9
of the Credit Agreement, such Grantor shall obtain a Bank Agency and Control
Agreement with each bank or financial institution holding a Deposit Account for
such Grantor.

 

(vii)      If
such Grantor is or becomes the beneficiary of a letter of credit with an
individual value in excess of $1,000,000 or with an aggregate value of
$5,000,000, such Grantor shall promptly, and in any event within two (2) Business
Days after becoming a beneficiary, notify Agent thereof and shall use
commercially reasonably efforts to enter into a control agreement with Agent
and the issuer and/or confirmation bank and First Lien Agent, if prior to the
First Lien Loan Termination Date, with respect to Letter-of-Credit Rights
assigning such Letter-of-Credit Rights to Agent and First Lien Agent, if prior
to the First Lien Loan Termination Date, and directing all payments thereunder
to First Lien Agent’s account for so long as First Lien Agent is the
controlling secured party under the control agreement and upon receipt by the
issuer and/or confirmation bank that First Lien Agent is no longer the
controlling party, to the Agent’s account, all in form and substance reasonably
satisfactory to Agent.

 

(viii)     Such
Grantor shall take all steps necessary to grant Agent control of all electronic
Chattel Paper in accordance with the Code and all “transferable records” as
defined in each of the Uniform Electronic Transactions Act and the Electronic
Signatures in Global and National Commerce Act; provided that prior to
the First Lien Loan Termination Date, the requirements of this clause (viii) shall
be deemed satisfied by granting control of such electronic Chattel Paper to the
First Lien Agent.

 

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

 

10

 

(x)        Such
Grantor shall promptly, and in any event within two (2) Business Days
after the same is acquired by it, notify Agent of any Commercial Tort Claim (as
defined in the Code) with an individual value in excess of $1,000,000 or with
an aggregate value in excess of $5,000,000 acquired by it and unless otherwise
consented by Agent in writing (which consent may be revoked), such Grantor
shall enter into a supplement to this Agreement, granting to Agent a Lien in
such commercial tort claim.

 

(b)        Maintenance
of Records.  Such Grantor shall keep
and maintain, at its own cost and expense, satisfactory and complete records of
the Collateral, including a record of any and all payments received and any and
all credits granted with respect to the Collateral and all other dealings with
the Collateral.  Such Grantor shall mark
its books and records pertaining to the Collateral to evidence this Agreement and
the Liens granted hereby.  If any Grantor
retains possession of any Chattel Paper or Instruments (including Intercompany
Notes but excluding written lease agreements governing Short-Term Rentals) with
(a) any time before the First Lien Loan Termination Date, the First Lien
Agent’s consent, or (b) any time after the First Lien Loan Termination
Date, Agent’s consent, such Chattel Paper and Instruments (including
Intercompany Notes but excluding written lease agreements governing Short-Term
Rentals) shall be marked with the following legend: (x) if before the First
Lien Loan Termination Date, “This writing and the obligations evidenced or
secured hereby are subject to the separate security interests of (a) General
Electric Capital Corporation, as First Lien Agent, for the benefit of First
Lien Agent and the first lien lenders and (b) Deutsche Bank Trust Company
Americas, as Second Lien Agent, for the benefit of Second Lien Agent and
certain Lenders,” or (y) if after the First Lien Loan Termination Date, “This
writing and the obligations evidenced or secured hereby are subject to the
security interest of Deutsche Bank Trust Company Americas, as Agent, for the
benefit of Agent and certain Lenders.”

 

(c)        Covenants
Regarding Patent, Trademark and Copyright Collateral.

 

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

 

(ii)      In
no event shall such Grantor, either directly or through any agent, employee,
licensee or designee, file an application for the registration of any Patent,
Trademark or Copyright with the United States Patent and Trademark Office, the
United States Copyright Office or any similar office or agency without giving
Agent prior written notice thereof, and, upon request of Agent, such Grantor
shall execute and deliver any and all Patent Security Agreements, Copyright
Security Agreements or Trademark Security Agreements as Agent may reasonably
request to evidence Agent’s Lien on such Patent, 

 

11

 

Trademark or Copyright, and the General Intangibles of such Grantor
relating thereto or represented thereby.

 

(iii)       Such
Grantor shall take all actions necessary or reasonably requested by Agent to
maintain and pursue (and not abandon) each application, to obtain the relevant
registration and to maintain the registration of each of the Patents,
Trademarks and Copyrights (now or hereafter existing), including the filing of
applications for renewal, affidavits of use, affidavits of noncontestability
and opposition and interference and cancellation proceedings, unless such
Grantor shall determine that such Patent, Trademark or Copyright is not
material to the conduct of its business.

 

(iv)       In
the event Grantor learns that any of the Patent, Trademark or Copyright Collateral
is infringed upon, or misappropriated or diluted by a third party, each Grantor
shall comply with Section 5(a)(ix) of this Agreement.  Such Grantor shall, unless it shall
reasonably determine that such infringement, misappropriation or dilution of Patent,
Trademark or Copyright Collateral is not material to the conduct of its
business or operations, promptly sue for infringement, misappropriation or
dilution and to recover any and all damages for such infringement,
misappropriation or dilution, and shall take such other actions as Agent shall
deem appropriate under the circumstances to protect such Patent, Trademark or
Copyright Collateral.

 

(d)        Indemnification.  In any suit, proceeding or action brought by
Agent or any Lender relating to any Collateral for any sum owing with respect
thereto or to enforce any rights or claims with respect thereto, such Grantor
will save, indemnify and keep Agent and Lenders harmless from and against all
expense (including reasonable attorneys’ fees and expenses), loss or damage
suffered by reason of any defense, set-off, counterclaim, recoupment or
reduction of liability whatsoever of its Account Debtors or other Person
obligated on the Collateral, arising out of a breach by such Grantor of any
obligation thereunder or arising out of any other agreement, indebtedness or
liability at any time owing to, or in favor of, such obligor or its successors
from such Grantor, except in the case of Agent or any Lender, to the extent
such expense, loss, or damage is attributable solely to the gross negligence or
willful misconduct of Agent or such Lender as finally determined by a court of
competent jurisdiction.  All such
obligations of each Grantor shall be and remain enforceable against and only
against such Grantor and shall not be enforceable against Agent or any Lender.

 

(e)        Compliance
with Terms of Accounts, etc.  In all
material respects, such Grantor will perform and comply with all obligations in
respect of the Collateral and all other agreements to which it is a party or by
which it is bound relating to the Collateral.

 

(f)        Limitation
on Liens on Collateral.  Such Grantor
will not create, permit or suffer to exist, and will defend the Collateral
against, and take such other action as is necessary to remove, any Lien on any
of the Collateral except Permitted Encumbrances, and will defend the right,
title and interest of Agent and Lenders in and to any of such Grantor’s rights
under the Collateral against the claims and demands of all Persons whomsoever,
except claims pursuant to Permitted Encumbrances.

 

12

 

(g)        Limitations
on Disposition.  Such Grantor will
not sell, license, lease, transfer or otherwise dispose of any of the
Collateral, or attempt or contract to do so except as permitted by this
Agreement or the Credit Agreement.

 

(h)        Further
Identification of Collateral.  Such
Grantor will, if so requested by Agent, furnish to Agent, as often as Agent
reasonably requests, statements and schedules further identifying and describing
the Collateral and such other reports in connection with the Collateral as
Agent may reasonably request, all in such detail as Agent may reasonably
specify.  Grantor shall promptly notify
Agent in writing upon acquiring any interest hereafter in property that is of a
type where a security interest or Lien must be or may be registered, recorded
or filed under, or notice thereof given under, any federal statute or
regulation and that is not already covered by this Agreement.

 

(i)         Notices.  Such Grantor will advise Agent promptly, in
reasonable detail (i) of any Lien (other than Permitted Encumbrances) or
claim made or asserted against any of the Collateral, and (ii) of the
occurrence of any other event which could reasonably be expected to have a
Material Adverse Effect on the aggregate value of the Collateral or on the
Liens created hereunder or under any other Loan Document.

 

(j)         Good
Standing Certificates.  If and
whenever requested by Agent, such Grantor shall provide to Agent a certificate
of good standing from its state of incorporation or organization.

 

(k)        Organizational/Collateral
Location Changes, No Reincorporation. 
Such Grantor will give Agent at least thirty (30) days prior written
notice of any change required to be made to Schedule IIIA, Schedule IIIB,
Schedule IIIC, Schedule IIID or Schedule IIIE.  Without limiting the prohibitions on mergers
involving any Grantor as contained in the Credit Agreement, none of the
Grantors shall reincorporate or reorganize itself under the laws of any
jurisdiction other than the jurisdiction in which it is incorporated or
organized as of the date hereof without the prior written consent of Agent.

 

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

 

(m)      Authorized
Terminations.  Agent will promptly
deliver to such Grantor for filing or authorize such Grantor to prepare and
file termination statements and releases in accordance with Section 9.21
of the Credit Agreement.

 

(n)        Joinder
of Additional Guarantors.  The
Grantors shall cause each Subsidiary of the Borrower which, from time to time,
after the date hereof shall be required to pledge any assets to the Agent for
the benefit of the Agent and the Lenders pursuant to the provisions of the
Credit Agreement, (a) to execute and deliver to the Agent (i) a
Joinder Agreement substantially in the form of Exhibit 1 hereto
within thirty (30) days of the date on which it was acquired or created and (ii) a
Perfection Certificate, in each case, 

 

13

 

within thirty (30) days of the date on which it was acquired or created
or (b) in the case of a Subsidiary organized outside of the United States
required to pledge any assets to the Agent, to execute and deliver to the Agent
such documentation as the Agent shall reasonably request and, in each case with
respect to clauses (a) and (b) above, upon such execution and
delivery, such Subsidiary shall constitute a “Grantor” for all purposes
hereunder with the same force and effect as if originally named as a Grantor
herein.  The execution and delivery of
such Joinder Agreement shall not require the consent of any Grantor
hereunder.  The rights and obligations of
each Grantor hereunder shall remain in full force and effect notwithstanding
the addition of any new Grantor as a party to this Agreement.

 

6.                                      BANK ACCOUNTS; COLLECTION OF ACCOUNTS AND PAYMENTS

 

Each Grantor
shall enter into a bank agency and control agreement (“Bank Agency and
Control Agreement”), in a form reasonably acceptable to Agent, with each
financial institution with which each Grantor maintains from time to time any
Deposit Account (other than Excluded Accounts). 
Each Bank Agency and Control Agreement shall provide, among other
things, that (a)  all items of payment deposited in each Deposit Account
subject thereto shall be held by the applicable financial institution as Agent
or bailee-in-possession for Agent, on behalf of itself and Lenders, (b) the
financial institution executing such agreement has no rights of offset or recoupment
of any other claim against any Deposit Account subject thereto, as the case may
be, other than for payment of its services and other charges directly related
to the administration of each such Deposit Account and for returned checks or
other items of payment, and (c) to the extent provided below, the
financial institution will transfer all amounts held or deposited from time to
time in any such Deposit Account as Agent may so direct.  Each Grantor hereby grants to Agent, for the
benefit of Agent and Lenders, a continuing lien upon, and security interest in,
all such Deposit Accounts and all funds at any time paid, deposited, credited
or held in such Deposit Accounts (whether for collection, provisionally or
otherwise) or otherwise in the possession of such financial institutions, and
each such financial institution shall act as Agent’s agent in connection
therewith.  No Grantor shall establish
any Deposit Account with any financial institution unless prior thereto Agent
and such Grantor shall have entered into a Bank Agency and Control Agreement reasonably
satisfactory to Agent with such financial institution and, prior to the First
Lien Loan Termination Date, First Lien Agent.

 

7.                                      AGENT’S APPOINTMENT AS ATTORNEY-IN-FACT

 

On the Closing
Date each Grantor shall execute and deliver to Agent a power of attorney (the “Power
of Attorney”) substantially in the form attached hereto as Exhibit A.  The power of attorney granted pursuant to the
Power of Attorney is a power coupled with an interest and shall be irrevocable
until the Maturity Date or the payment in full of the Obligations.  The powers conferred on Agent, for the
benefit of Agent and Lenders, under the Power of Attorney are solely to protect
Agent’s interests (for the benefit of Agent and Lenders) in the Collateral and
shall not impose any duty upon Agent or any Lender to exercise any such
powers.  Agent agrees that (a) except
for the powers granted in clause (h) of the Power of Attorney, it shall
not exercise any power or authority granted under the Power of Attorney unless
an Event of Default has occurred and is continuing, and (b) Agent shall
account for any moneys received by Agent in respect 

 

14

 

of any foreclosure on or disposition of
Collateral pursuant to the Power of Attorney provided that none of Agent nor
any Lender shall have any duty as to any Collateral, and Agent and Lenders
shall be accountable only for amounts they actually receive as a result of the
exercise of such powers.  NONE OF AGENT,
LENDERS OR THEIR RESPECTIVE AFFILIATES, OFFICERS, DIRECTORS, EMPLOYEES, AGENTS
OR REPRESENTATIVES SHALL BE RESPONSIBLE TO ANY GRANTOR FOR ANY ACT OR FAILURE
TO ACT UNDER ANY POWER OF ATTORNEY OR OTHERWISE, EXCEPT IN RESPECT OF DAMAGES
ATTRIBUTABLE SOLELY TO THEIR OWN GROSS NEGLIGENCE OR WILLFUL MISCONDUCT AS
FINALLY DETERMINED BY A COURT OF COMPETENT JURISDICTION, NOR FOR ANY PUNITIVE,
EXEMPLARY, INDIRECT OR CONSEQUENTIAL DAMAGES.

 

8.                                      REMEDIES; RIGHTS UPON DEFAULT

 

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

 

Subject in all
cases to the Intercreditor Agreement, if any Event of Default shall have
occurred and be continuing, each Grantor further agrees, at Agent’s request, to
assemble the Collateral and make it available to Agent at a place or places
designated by Agent which are reasonably convenient to Agent and such Grantor,
whether at such Grantor’s premises or elsewhere.  

 

15

 

Without limiting the foregoing, Agent shall
also have the right to require that each Grantor store and keep any Collateral
pending further action by Agent, and while Collateral is so stored or kept,
provide such guards and maintenance services as shall be necessary to protect
the same and to preserve and maintain Collateral in good condition.  Until Agent is able to effect a sale, lease,
license or other disposition of Collateral, Agent shall have the right to hold
or use Collateral, or any part thereof, to the extent that it deems appropriate
for the purpose of preserving Collateral or its value or for any other purpose
deemed appropriate by Agent.  Agent shall
not have any obligation to any Grantor to maintain or preserve the rights of
any Grantor as against third parties with respect to Collateral while Collateral
is in the possession of Agent.  Agent
may, if it so elects, seek the appointment of a receiver or keeper to take
possession of Collateral and to enforce any of Agent’s remedies (for the
benefit of Agent and Lenders), with respect to such appointment without prior
notice or hearing as to such appointment. 
Agent shall apply the net proceeds of any such collection, recovery,
receipt, appropriation, realization or sale to the Obligations as provided in
the Credit Agreement, and only after so paying over such net proceeds, and
after the payment by Agent of any other amount required by any provision of
law, need Agent account for the surplus, if any, to any Grantor.  To the maximum extent permitted by applicable
law, each Grantor waives all claims, damages, and demands against Agent or any
Lender arising out of the repossession, retention or sale of the Collateral
except such as arise solely out of the gross negligence or willful misconduct
of Agent or such Lender as finally determined by a court of competent
jurisdiction.  Each Grantor agrees that
ten (10) days prior notice by Agent of the time and place of any public
sale or of the time after which a private sale may take place is reasonable
notification of such matters. 
Notwithstanding any such notice of sale, Agent shall not be obligated to
make any sale of Collateral.  In
connection with any sale, lease, license or other disposition of Collateral,
Agent may disclaim any warranties that might arise in connection therewith and
Agent shall have no obligation to provide any warranties at such time.  Each Grantor shall remain liable for any
deficiency if the proceeds of any sale or disposition of the Collateral are
insufficient to pay all Obligations, including any attorneys’ fees or other
expenses incurred by Agent or any Lender to collect such deficiency.

 

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

 

(c)           To
the extent that applicable law imposes duties on Agent to exercise remedies in
a commercially reasonable manner, each Grantor acknowledges and agrees that it
is not commercially unreasonable for Agent (i) to fail to incur expenses
reasonably deemed significant by Agent to prepare Collateral for disposition or
otherwise to complete raw material or work in process into finished goods or
other finished products for disposition, (ii) if not required by other
law, to fail to obtain governmental or third party consents for the collection
or disposition of Collateral to be collected or disposed of, (iii) to fail
to exercise collection remedies against Account Debtors or other Persons
obligated on Collateral or to remove Liens on or any adverse claims against
Collateral, (iv) to exercise collection remedies against Account Debtors
and other Persons obligated on Collateral directly or through the use of
collection agencies and other collection specialists, (v) to advertise
dispositions of Collateral through publications or media of general
circulation, whether or not the Collateral is of a specialized nature, (vi) to
contact other 

 

16

 

Persons, whether or not in the same business as any Grantor, for
expressions of interest in acquiring all or any portion of such Collateral, (vii) to
hire one or more professional auctioneers to assist in the disposition of
Collateral, whether or not the Collateral is of a specialized nature, (viii) to
dispose of Collateral by utilizing internet sites that provide for the auction
of assets of the types included in the Collateral or that have the reasonable
capacity of doing so, or that match buyers and sellers of assets, (ix) to
dispose of assets in wholesale rather than retail markets, (x) to disclaim
disposition warranties, such as title, possession or quiet enjoyment,
(xi) to purchase insurance or credit enhancements to insure Agent against
risks of loss, collection or disposition of Collateral or to provide to Agent a
guaranteed return from the collection or disposition of Collateral, or
(xii) to the extent deemed appropriate by Agent, to obtain the services of
other brokers, investment bankers, consultants and other professionals to
assist Agent in the collection or disposition of any of the Collateral.  Each Grantor acknowledges that the purpose of
this Section 8(c) is to provide non-exhaustive indications of
what actions or omissions by Agent would be commercially reasonable in Agent’s
exercise of remedies against the Collateral and that other actions or omissions
by Agent shall not be deemed commercially unreasonable solely on account of not
being indicated in this Section 8(c).  Without limitation upon the foregoing,
nothing contained in this Section 8(c) shall be construed to
grant any rights to any Grantor or to impose any duties on Agent that would not
have been granted or imposed by this Agreement or by applicable law in the
absence of this Section 8(c).

 

(d)           Neither
Agent nor any Lender shall be required to make any demand upon, or pursue or
exhaust any of their rights or remedies against, any Grantor, any other
obligor, guarantor, pledgor or any other Person with respect to the payment of
the Obligations or to pursue or exhaust any of their rights or remedies with
respect to any Collateral therefor or any direct or indirect guarantee
thereof.  Neither Agent nor any Lender
shall be required to marshal the Collateral or any guarantee of the Obligations
or to resort to the Collateral or any such guarantee in any particular order,
and all of its and their rights hereunder or under any other Loan Document
shall be cumulative.  To the extent it
may lawfully do so, each Grantor absolutely and irrevocably waives and
relinquishes the benefit and advantage of, and covenants not to assert against
Agent or any Lender, any valuation, stay, appraisement, extension, redemption
or similar laws and any and all rights or defenses it may have as a surety now
or hereafter existing which, but for this provision, might be applicable to the
sale of any Collateral made under the judgment, order or decree of any court,
or privately under the power of sale conferred by this Agreement, or otherwise.

 

9.                                      GRANT OF LICENSE TO USE INTELLECTUAL PROPERTY COLLATERAL

 

For the
purpose of enabling Agent to exercise rights and remedies under Section 8
hereof (including, without limiting the terms of Section 8 hereof,
in order to take possession of, hold, preserve, process, assemble, prepare for
sale, market for sale, sell or otherwise dispose of Collateral) at such time as
Agent shall be lawfully entitled to exercise such rights and remedies, subject
to the terms of the Intercreditor Agreement, each Grantor hereby grants to
Agent, for the benefit of Agent and Lenders, an irrevocable, nonexclusive
license (exercisable without payment of royalty or other compensation to such
Grantor) to use, license or sublicense any Intellectual 

 

17

 

Property now owned or hereafter acquired by
such Grantor, and wherever the same may be located, and including in such
license access to all media in which any of the licensed items may be recorded
or stored and to all computer software and programs used for the compilation or
printout thereof and an irrevocable license (exercisable without payment of
rent or other compensation to such Grantor) to use and occupy all real estate
owned or leased by such Grantor; provided, however, that if and
to the extent that the grant of license to Agent would result in a violation of
any agreements relating to the Intellectual Property or the real estate or
cause any such agreement to be void or voidable, the license granted hereunder
shall be deemed limited to only such license or rights as Grantors may be
authorized to give without consent under such agreements without breaching or
voiding such agreements.

 

10.                               LIMITATION ON AGENT’S AND LENDERS’ DUTY IN RESPECT OF COLLATERAL

 

Agent and each
Lender shall use reasonable care with respect to the Collateral in its
possession or under its control.  Neither
Agent nor any Lender shall have any other duty as to any Collateral in its
possession or control or in the possession or control of any agent or nominee
of Agent or such Lender, or any income thereon or as to the preservation of
rights against prior parties or any other rights pertaining thereto.  Agent shall not be liable or responsible for
any loss or damage to any of the Collateral, or for any diminution in the value
thereof, by reason of the act or omission of any warehousemen, carrier,
forwarding agency, consignee or other agent or bailee selected by Agent in good
faith.

 

11.                               REINSTATEMENT

 

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

 

12.                               SURETYSHIP WAIVERS BY GRANTOR; OBLIGATIONS ABSOLUTE

 

(a)           Except
as expressly provided herein, each Grantor waives demand, notice, protest,
notice of acceptance of this Agreement, notice of loans made, credit extended,
collateral received or delivered or other action taken in reliance hereon and all
other demands and notices of any description thereof, all in such manner and at
such time or times as Agent may deem advisable. 
Agent shall have no duty as to the collection or protection of the
Collateral or any income thereon, nor as to the preservation of rights against
prior parties, nor as to the preservation of any rights pertaining thereto
beyond the safe custody thereof.

 

18

 

(b)           All
rights of Agent hereunder, the Security Interests and all obligations of each
Grantor hereunder shall be absolute and unconditional irrespective of (i) any
lack of validity or enforceability of the Credit Agreement, any other Loan
Document, any agreement with respect to any of the Obligations or any other
agreement or instrument relating to any of the foregoing, (ii) any change
in the time, manner or place of payment of, or in any other term of, all or any
of the Obligations, or any other amendment or waiver of or any consent to any
departure from the Credit Agreement, any other Loan Document, or any other
agreement or instrument, (iii) any exchange, release or non-perfection of
any Lien on other collateral, or any release or amendment or waiver of or
consent under or departure from or any acceptance of partial payment thereon
and or settlement, compromise or adjustment of any Obligation or of any
guarantee, securing or guaranteeing all or any of the Obligations, or (iv) any
other circumstance that might otherwise constitute a defense available to, or a
discharge of, such Grantor in respect of the Obligations or this Agreement.

 

13.                               EXPENSES AND ATTORNEY’S FEES

 

Without
limiting any Grantor’s obligations under the Credit Agreement or the other Loan
Documents, Grantors agree, jointly and severally, to promptly pay all fees, costs
and expenses (including reasonable attorneys’ fees and expenses and allocated
costs of internal legal staff) incurred in connection with (a) protecting,
storing, warehousing, appraising, insuring, handling, maintaining and shipping
the Collateral, (b) creating, perfecting, maintaining and enforcing Agent’s
Liens and (c) collecting, enforcing, retaking, holding, preparing for
disposition, processing and disposing of Collateral.

 

14.                               NOTICES

 

Any notice or
other communication required shall be in writing addressed to the respective
party as set forth below and may be personally served, telecopied, sent by
overnight courier service or U.S. mail and shall be deemed to have been given: (a) if
delivered in person, when delivered; (b) if delivered by fax, on the date
of transmission if transmitted on a Business Day before 4:00 p.m. New York
Time; (c) if delivered by overnight courier, one (1) Business Day
after delivery to the courier properly addressed; or (d) if delivered by
U.S. mail, four (4) Business Days after deposit with postage prepaid and
properly addressed.

 

Notices shall
be addressed as follows:

 

If to any
Grantor:                                                                                               c/o
PENHALL COMPANY

1801 W. Penhall Way

Anaheim, California 92801

Attn: Chief Financial Officer

Fax No.: (714) 778-5638

 

19

 

With a copy
to:                                                                                                            DECHERT
LLP

2929 Arch Street

Philadelphia, Pennsylvania 19104

Attn: Gary L. Green, Esq.

Fax No.: (215) 994-2222

 

If to Agent:                                                                                                                                 DEUTSCHE
BANK TRUST COMPANY

AMERICAS

Global Credit Products

Leveraged Loan Portfolio

60 Wall Street, NYC60-1104

New York, NY 10005-2858

Attn: Omayra Laucella

Fax: (212) 797-5690

 

With a copy
to:                                                                                                            CAHILL
GORDON & REINDEL LLP

80 Pine Street

New York, NY 10005

Attn: William M. Hartnett

 

15.                               SEVERABILITY

 

The
invalidity, illegality, or unenforceability in any jurisdiction of any
provision under the Loan Documents shall not affect or impair the remaining
provisions in the Loan Documents.

 

16.                               NO WAIVER, CUMULATIVE  REMEDIES

 

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

 

17.                               LIMITATION BY LAW

 

All rights,
remedies and powers provided in this Agreement may be exercised only to the
extent that the exercise thereof does not violate any applicable provision of
law, and all the provisions of this Agreement are intended to be subject to all
applicable mandatory provisions 

 

20

 

of law that may be controlling and to be
limited to the extent necessary so that they shall not render this Agreement
invalid, unenforceable, in whole or in part, or not entitled to be recorded,
registered or filed under the provisions of any applicable law.

 

18.                               TERMINATION OF THIS AGREEMENT

 

Subject to Section 11
hereof, this Agreement shall terminate when all Obligations have been paid in
full in cash.  Following the termination
of this agreement, Agent shall, upon reasonable request, and at the sole cost
and expense of Grantors, execute such termination statements and other releases
(in form and substance reasonably satisfactory to Agent) with respect to
security granted hereunder, and Agent shall at such time transfer any
Instrument or Chattel Paper or other item of Collateral delivered to the Agent
hereunder to the Grantors, without recourse and without representation of
warranty.

 

19.                               SUCCESSORS AND ASSIGNS

 

This Agreement
and all obligations of each Grantor hereunder shall be binding upon the
successors and permitted assigns of such Grantor (including any
debtor-in-possession on behalf of such Grantor) and shall, together with the
rights and remedies of Agent, for the benefit of Agent and Lenders, hereunder,
inure to the benefit of Agent and Lenders, all future holders of any instrument
evidencing any of the Obligations and their respective successors and permitted
assigns except that Grantors may not assign any of their rights or obligations
hereunder without the written consent of all Lenders which assignment without
such consent shall be void.  No sales of
participations, other sales, assignments, transfers or other dispositions of
any agreement governing or instrument evidencing the Obligations or any portion
thereof or interest therein shall in any manner impair the Lien granted to
Agent, for the benefit of Agent and Lenders, hereunder.

 

20.                               COUNTERPARTS

 

This Agreement
and any amendments, waivers, consents or supplements may be executed in any
number of counterparts and by different parties hereto in separate counterparts,
each of which when so executed and delivered shall be deemed an original, but
all of which counterparts together shall constitute but one in the same
instrument.  This Agreement shall become
effective upon the execution of a counterpart hereof by each of the parties
hereto.

 

21.                               GOVERNING LAW

 

(a)           THIS
SECURITY AGREEMENT AND THE OBLIGATIONS ARISING HEREUNDER SHALL BE GOVERNED BY,
AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE
STATE OF NEW YORK WITHOUT REGARD TO CONFLICTS OF LAW PRINCIPLES WHICH SHALL BE
DEEMED NOT TO INCLUDE SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS
LAW.

 

(b)           EACH
GRANTOR HEREBY CONSENTS TO THE JURISDICTION OF ANY STATE OR FEDERAL COURT
LOCATED WITHIN NEW YORK COUNTY, 

 

21

 

STATE OF NEW YORK AND IRREVOCABLY AGREES THAT, SUBJECT TO AGENT’S
ELECTION, ALL ACTIONS OR PROCEEDINGS ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR THE OTHER LOAN DOCUMENTS SHALL BE LITIGATED IN SUCH COURTS.  EACH GRANTOR EXPRESSLY SUBMITS AND CONSENTS
TO THE JURISDICTION OF THE AFORESAID COURTS AND WAIVES ANY DEFENSE OF FORUM NON
CONVENIENS.  EACH GRANTOR HEREBY WAIVES
PERSONAL SERVICE OF ANY AND ALL PROCESS AND AGREES THAT ALL SUCH SERVICE OF
PROCESS MAY BE MADE UPON SUCH GRANTOR BY CERTIFIED OR REGISTERED MAIL,
RETURN RECEIPT REQUESTED, ADDRESSED TO SUCH GRANTOR, AT THE ADDRESS SET FORTH
IN THIS AGREEMENT AND SERVICE SO MADE SHALL BE COMPLETE TEN (10) DAYS
AFTER THE SAME HAS BEEN POSTED.  IN ANY
LITIGATION, TRIAL, ARBITRATION OR OTHER DISPUTE RESOLUTION PROCEEDING RELATING
TO THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS, ALL DIRECTORS, OFFICERS,
EMPLOYEES AND AGENTS OF GRANTORS, CREDIT PARTIES OR ANY OF THEIR AFFILIATES
SHALL BE DEEMED TO BE EMPLOYEES OR MANAGING AGENTS OF GRANTORS OR SUCH CREDIT
PARTIES FOR PURPOSES OF ALL APPLICABLE LAW OR COURT RULES REGARDING THE
PRODUCTION OF WITNESSES BY NOTICE FOR TESTIMONY (WHETHER IN A DEPOSITION, AT
TRIAL OR OTHERWISE).  GRANTORS AND CREDIT
PARTIES AGREE THAT AGENT’S OR ANY LENDER’S COUNSEL IN ANY SUCH DISPUTE
RESOLUTION PROCEEDING MAY EXAMINE ANY OF THESE INDIVIDUALS AS IF UNDER CROSS
EXAMINATION AND THAT ANY DISCOVERY DEPOSITION OF ANY OF THEM MAY BE USED
IN THAT PROCEEDING AS IF IT WERE AN EVIDENCE DEPOSITION.  GRANTORS AND CREDIT PARTIES IN ANY EVENT WILL
USE ALL COMMERCIALLY REASONABLE EFFORTS TO PRODUCE IN ANY SUCH DISPUTE
RESOLUTION PROCEEDING, AT THE TIME AND IN THE MANNER REQUESTED BY AGENT OR ANY
LENDER, ALL PERSONS, DOCUMENTS (WHETHER IN TANGIBLE, ELECTRONIC OR OTHER FORM)
OR OTHER THINGS UNDER THEIR CONTROL AND RELATING TO THE DISPUTE.

 

22.                               WAIVER OF JURY TRIAL

 

EACH GRANTOR
HEREBY WAIVES ITS RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED
UPON OR ARISING OUT OF THIS SECURITY AGREEMENT AND THE OTHER LOAN
DOCUMENTS.  EACH GRANTOR ACKNOWLEDGES
THAT THIS WAIVER IS A MATERIAL INDUCEMENT TO ENTER INTO A BUSINESS
RELATIONSHIP, AND THAT AGENT HAS RELIED ON THE WAIVER IN ENTERING INTO THIS
SECURITY AGREEMENT AND THE OTHER LOAN DOCUMENTS AND WILL CONTINUE TO RELY ON
THE WAIVER IN THEIR RELATED FUTURE DEALINGS. 
EACH GRANTOR WARRANTS AND REPRESENTS THAT SUCH GRANTOR HAS HAD THE
OPPORTUNITY OF REVIEWING THIS JURY WAIVER WITH LEGAL COUNSEL, AND THAT SUCH
GRANTOR KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS.

 

22

 

23.                               HEADINGS

 

Section and
subsection headings are included herein for convenience of reference only
and shall not constitute a part of this Agreement for any other purposes or be
given substantive effect.

 

24.                               NO STRICT CONSTRUCTION

 

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

 

25.                               ADVICE OF COUNSEL

 

Each of the
parties represents to each other party hereto that it has discussed this
Agreement and, specifically, the provisions of Section 21 and Section 22,
with its counsel.

 

26.                               BENEFIT OF LENDERS

 

All Liens
granted or contemplated hereby shall be for the benefit of Agent and Lenders,
and all proceeds or payments realized from Collateral in accordance herewith
shall be applied to the Obligations in accordance with the terms of the Credit
Agreement and the Intercreditor Agreement.

 

[SIGNATURE
PAGE FOLLOWS]

 

23

 

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

 

	
   

  	
  PENHALL
  COMPANY,

  
	
   

  	
  as a
  Grantor

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Jeffrey
  E. Platt

  
	
   

  	
   

  	
  Name:
  Jeffrey E. Platt

  
	
   

  	
   

  	
  Title: Vice
  President

  
	
   

  	
   

  
	
   

  	
  BOB MACK
  CO., INC.,

  
	
   

  	
  as a
  Grantor

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Jeffrey
  E. Platt

  
	
   

  	
   

  	
  Name:
  Jeffrey E. Platt

  
	
   

  	
   

  	
  Title: Vice
  President

  
	
   

  	
   

  
	
   

  	
  PENHALL
  LEASING, L.L.C.,

  
	
   

  	
  as a
  Grantor

  
	
   

  	
  BY:

  	
  PENHALL
  COMPANY,

  
	
   

  	
   

  	
  its sole
  member

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Jeffrey
  E. Platt

  
	
   

  	
   

  	
  Name:
  Jeffrey E. Platt

  
	
   

  	
   

  	
  Title: Vice
  President

  
	
   

  	
   

  
	
   

  	
  CAPITOL
  DRILLING SUPPLIES, INC.,

  
	
   

  	
  as a
  Grantor

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Jeffrey
  E. Platt

  
	
   

  	
   

  	
  Name:
  Jeffrey E. Platt

  
	
   

  	
   

  	
  Title: Vice
  President

  
	
   

  	
   

  
	
   

  	
  PENHALL
  INTERNATIONAL CORP.,

  
	
   

  	
  as a
  Grantor

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Jeffrey
  E. Platt

  
	
   

  	
   

  	
  Name:
  Jeffrey E. Platt

  
	
   

  	
   

  	
  Title: Vice
  President

  
	
   

  	
   

  	
   

  
	
   

  	
  PENHALL
  INVESTMENTS, INC.,

  
	
   

  	
  as a
  Grantor

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Jeffrey
  E. Platt

  
	
   

  	
   

  	
  Name:
  Jeffrey E. Platt

  
	
   

  	
   

  	
  Title: Vice
  President

  
				

 

(SIGNATURE PAGE TO PENHALL SECURITY AGREEMENT)

 

 

	
   

  	
  DEUSTCHE
  BANK TRUST COMPANY

  AMERICAS, as Agent

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Omayra
  Laucella

  
	
   

  	
   

  	
  Name: Omayra
  Laucella

  
	
   

  	
   

  	
  Title: Vice
  President

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Evelyn
  Lazala

  
	
   

  	
   

  	
  Name: Evelyn
  Lazala

  
	
   

  	
   

  	
  Title: Vice
  President

  

 

(SIGNATURE PAGE TO PENHALL SECURITY AGREEMENT)

 

 

POWER OF
ATTORNEY

 

This Power of
Attorney is executed and delivered by each of Penhall Company, Bob Mack Co., Inc.,
Capitol Drilling Supplies, Inc., Penhall Leasing, L.L.C., Penhall
International Corp. and Penhall Investments, Inc. (referred to herein
individually as “Grantor” and collectively as “Grantors”) to Deutsche
Bank Trust Company Americas (hereinafter referred to as “Attorney”), as
Agent for the benefit of Agent and Lenders, under a Second Lien Term Loan
Agreement and a Security Agreement, both dated as November 1, 2005 and
other related documents (the “Loan Documents”).  No person to whom this Power of Attorney is
presented, as authority for Attorney to take any action or actions contemplated
hereby, shall be required to inquire into or seek confirmation from any Grantor
as to the authority of Attorney to take any action described below, or as to the
existence of or fulfillment of any condition to this Power of Attorney, which
is intended to grant to Attorney unconditionally the authority to take and
perform the actions contemplated herein, and each Grantor irrevocably waives
any right to commence any suit or action, in law or equity, against any person
or entity which acts in reliance upon or acknowledges the authority granted
under this Power of Attorney.  The power
of attorney granted hereby is coupled with an interest, and may not be revoked
or canceled by any Grantor without Attorney’s written consent.

 

Subject to the
terms of the Intercreditor Agreement, each Grantor hereby irrevocably
constitutes and appoints Attorney (and all officers, employees or agents
designated by Attorney), with full power of substitution, as such Grantor’s
true and lawful attorney-in-fact with full irrevocable power and authority in
the place and stead of such Grantor and in the name of such Grantor or in its
own name, from time to time in Attorney’s discretion, to take any and all
appropriate action and to execute and deliver any and all documents and
instruments which may be necessary or desirable to accomplish the purposes of
the Loan Documents upon the occurrence and during the continuance of an Event
of Default as defined and described in the Loan Documents.  Without limiting the generality of the
foregoing, each Grantor hereby grants to Attorney the power and right, on
behalf of such Grantor, without notice to or assent by any Grantor, and at any
time after the First Lien Loan Termination Date (as defined in the Security
Agreement) to do the following upon the occurrence and during the continuance
of an Event of Default:  (a) change
the mailing address of such Grantor, open a post office box on behalf of such
Grantor, open mail for such Grantor, and ask, demand, collect, give
acquittances and receipts for, take possession of, endorse any invoices,
freight or express bills, bills of lading, storage or warehouse receipts,
drafts against debtors, assignments, verifications, and notices in connection
with any property of such Grantor; (b) effect any repairs to any asset of
such Grantor, or continue or obtain any insurance and pay all or any part of
the premiums therefor and costs thereof, and make, settle and adjust all claims
under such policies of insurance, and make all determinations and decisions
with respect to such policies; (c) pay or discharge any taxes, liens,
security interests, or other encumbrances levied or placed on or threatened
against such Grantor or its property; (d) defend any suit, action or
proceeding brought against such Grantor if such Grantor does not defend such
suit, action or proceeding or if Attorney believes that such Grantor is not
pursuing such defense in a manner that will maximize the recovery to Attorney,
and settle, compromise or adjust any suit, action, or proceeding described
above and, in connection therewith, give such discharges or releases as
Attorney may deem appropriate; (e) file or prosecute any claim,
litigation, suit or proceeding in any court of competent jurisdiction or before
any arbitrator, or take any other action otherwise deemed appropriate by
Attorney for the purpose of collecting any 

 

 

and all such moneys due to such Grantor
whenever payable and to enforce any other right in respect of such Grantor’s
property; (f) cause the certified public accountants then engaged by such
Grantor to prepare and deliver to Attorney at any time and from time to time,
promptly upon Attorney’s request, the following reports:  (1) a reconciliation of all accounts, (2) an
aging of all accounts, (3) trial balances, (4) test verifications of
such accounts as Attorney may request, and (5) the results of each
physical verification of inventory; (g) communicate in its own name with
any party to any Contract with regard to the assignment of the right, title and
interest of such Grantor in and under the Contracts and other matters relating
thereto; (h) to file such financing statements with respect to the
Security Agreement, with or without such Grantor’s signature, or to file a
photocopy of the Security Agreement in substitution for a financing statement,
as Agent may deem appropriate and to execute in such Grantor’s name such
financing statements and amendments thereto and continuation statements which
may require such Grantor’s signature; (i) execute, in connection with any
sale provided for in any Loan Document, any endorsements, assignments or other
instruments of conveyance or transfer with respect to any collateral subject to
the Loan Documents and to otherwise direct such sale or resale; (j) exercise
the rights of such Grantor with respect to the obligation of all account
debtors to make payment or otherwise render performance to such Grantor; (k)
exercise the rights of such Grantor to, and take any and all actions that
Attorney deems appropriate to realize the benefit of, any intellectual
property; and (l) assert any claims such Grantor may have, from time to time,
against any other party to any contract to which such Grantor is a party and to
otherwise exercise any right or remedy of such Grantor thereunder, all as
though Attorney were the absolute owner of the property of such Grantor for all
purposes, and to do, at Attorney’s option and such Grantor’s expense, at any
time or from time to time, all acts and other things that Attorney reasonably
deems necessary to perfect, preserve, or realize upon such Grantor’s property
or assets and Attorney’s Liens thereon, all as fully and effectively as such
Grantor might do.  Each Grantor hereby
ratifies, to the extent permitted by law, all that said Attorney shall lawfully
do or cause to be done by virtue hereof.

 

2

 

IN WITNESS
WHEREOF, this Power of Attorney is executed by each Grantor pursuant to the
authority of its board of directors on this [        ]
day of November, 2005.

 

	
   

  	
  PENHALL
  COMPANY

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Jeffrey
  E. Platt

  
	
   

  	
   

  	
  Name:
  Jeffrey E. Platt

  
	
   

  	
   

  	
  Title: Vice
  President

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  BOB MACK
  CO., INC.

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Jeffrey
  E. Platt

  
	
   

  	
   

  	
  Name:
  Jeffrey E. Platt

  
	
   

  	
   

  	
  Title: Vice
  President

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  CAPITOL
  DRILLING SUPPLIES INC.

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Jeffrey
  E. Platt

  
	
   

  	
   

  	
  Name:
  Jeffrey E. Platt

  
	
   

  	
   

  	
  Title: Vice
  President

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  PENHALL
  LEASING, L.L.C.

  
	
   

  	
  BY:

  	
  PENHALL
  COMPANY, its sole

  member

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Jeffrey
  E. Platt

  
	
   

  	
   

  	
  Name:
  Jeffrey E. Platt

  
	
   

  	
   

  	
  Title: Vice
  President

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  PENHALL
  INTERNATIONAL CORP.

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Jeffrey
  E. Platt

  
	
   

  	
   

  	
  Name:
  Jeffrey E. Platt

  
	
   

  	
   

  	
  Title: Vice
  President

  

 

 

	
   

  	
  PENHALL
  INVESTMENTS, INC.

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Jeffrey
  E. Platt

  
	
   

  	
   

  	
  Name:
  Jeffrey E. Platt

  
	
   

  	
   

  	
  Title: Vice
  President

  

 

 

NOTARY
PUBLIC CERTIFICATE

 

On this 31st day of October,
2005, Jeffrey E. Platt who is personally known to me appeared before me in
his/her capacity as the Vice President of Penhall Company and executed on behalf
of Penhall Company the Power of Attorney in favor of Deutsche Bank Trust
Company Americas to which this Certificate is attached.

 

	
   

  	
  /s/ Kathleen O. Hall

  
	
   

  	
  Notary Public

  

 

 

NOTARY
PUBLIC CERTIFICATE

 

On this 31st day of October,
2005, Jeffrey E. Platt who is personally known to me appeared before me in
his/her capacity as the Vice President of Bob Mack Co., Inc. and executed
on behalf of Bob Mack Co., Inc. the Power of Attorney in favor of Deutsche
Bank Trust Company Americas to which this Certificate is attached.

 

	
   

  	
  /s/ Kathleen O. Hall

  
	
   

  	
  Notary Public

  

 

 

NOTARY
PUBLIC CERTIFICATE

 

On this 31st day of October,
2005, Jeffrey E. Platt who is personally known to me appeared before me in
his/her capacity as the Vice President of Penhall Leasing, L.L.C. and executed
on behalf of Penhall Leasing, L.L.C. the Power of Attorney in favor of Deutsche
Bank Trust Company Americas to which this Certificate is attached.

 

	
   

  	
  /s/ Kathleen O. Hall

  
	
   

  	
  Notary Public

  

 

 

NOTARY
PUBLIC CERTIFICATE

 

On this 31st day of October,
2005, Jeffrey E. Platt who is personally known to me appeared before me in
his/her capacity as the Vice President of Capitol Drilling Supplies, Inc.
and executed on behalf of Capitol Drilling Supplies, Inc. the Power of
Attorney in favor of Deutsche Bank Trust Company Americas to which this
Certificate is attached.

 

	
   

  	
  /s/ Kathleen O. Hall

  
	
   

  	
  Notary Public

  

 

 

NOTARY
PUBLIC CERTIFICATE

 

On this 31st day of October,
2005, Jeffrey E. Platt who is personally known to me appeared before me in
his/her capacity as the Vice President of Penhall International Corp. and
executed on behalf of Penhall International Corp. the Power of Attorney in favor
of Deutsche Bank Trust Company Americas to which this Certificate is attached.

 

	
   

  	
  /s/ Kathleen O. Hall

  
	
   

  	
  Notary Public

  

 

 

NOTARY
PUBLIC CERTIFICATE

 

On this 31st day of October,
2005, Jeffrey E. Platt who is personally known to me appeared before me in
his/her capacity as the Vice President of Penhall Investments, Inc. and
executed on behalf of Penhall Investments, Inc. the Power of Attorney in
favor of Deutsche Bank Trust Company Americas to which this Certificate is
attached.

 

	
   

  	
  /s/ Kathleen O. Hall

  
	
   

  	
  Notary Public

  

 

 

EXHIBIT 1

 

[Form of]

 

JOINDER AGREEMENT

 

[Name of New Pledgor]

[Address of New Pledgor]

 

[Date]

 

 

 

 

 

Ladies and Gentlemen:

 

Reference is
made to the Security Agreement (as amended, amended and restated, supplemented
or otherwise modified from time to time, the “Security Agreement;”
capitalized terms used but not otherwise defined herein shall have the meanings
assigned to such terms in the Security Agreement), dated as of
[                    ],
made by [                         ],
a
[                         ]
(the “Borrower”), the Guarantors party thereto and DEUTSCHE BANK TRUST
COMPANY AMERICAS, as agent (in such capacity and together with any successors
in such capacity, the “Agent”).

 

This Joinder
Agreement supplements the Security Agreement and is delivered by the
undersigned,
[                         ]
(the “New Grantor”), pursuant to Section 5(n) of the
Security Agreement.  The New Grantor
hereby agrees to be bound as a Grantor party to the Security Agreement by all
of the terms, covenants and conditions set forth in the Security Agreement to
the same extent that it would have been bound if it had been a signatory to the
Security Agreement on the date of the Security Agreement.  The New Grantor also hereby agrees to be
bound as a party by all of the terms, covenants and conditions applicable to it
set forth in Sections 2, 3 and 4 of the Credit Agreement
to the same extent that it would have been bound if it had been a signatory to
the Credit Agreement on the execution date of the Credit Agreement.  Without limiting the generality of the
foregoing, the New Grantor hereby grants and pledges to the Agent, as
collateral security for the full, prompt and complete payment and performance
when due (whether at stated maturity, by acceleration or otherwise) of the Obligations,
a Lien on and security interest in, all of its right, title and interest in, to
and under the Collateral and expressly assumes all obligations and liabilities
of a Grantor under the Credit Agreement, Security Agreement and Intercreditor
Agreement.  The New Grantor hereby makes
each of the representations and warranties and agrees to each of the covenants
applicable to the Grantors contained in the Security Agreement and Section 5
of the Credit Agreement.

 

 

Annexed hereto
are supplements to each of the schedules to the Security Agreement and the
Credit Agreement, as applicable, with respect to the New Grantor.  Such supplements shall be deemed to be part
of the Security Agreement or the Credit Agreement, as applicable.

 

This Joinder
Agreement and any amendments, waivers, consents or supplements hereto may be
executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed and delivered shall be
deemed to be an original, but all such counterparts together shall constitute
one and the same agreement.

 

THIS JOINDER
AGREEMENT SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.

 

 

IN WITNESS
WHEREOF, the New Pledgor has caused this Joinder Agreement to be executed and
delivered by its duly authorized officer as of the date first above written.

 

	
   

  	
   

  	
    [NEW
  PLEDGOR]

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  
	
   

  	
   

  
	
  AGREED TO AND ACCEPTED:

  	
   

  
	
   

  	
   

  
	
  DEUTSCHE BANK TRUST COMPANY AMERICAS,

  	
   

  
	
   as Collateral Agent

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  [Schedules to be attached]

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00092-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00092-of-00352.parquet"}]]