Document:

Exhibit 10.2

 

EXECUTION
COPY

 

 

AMENDED AND RESTATED

DOMESTIC SECURITY AGREEMENT

 

dated as of

 

May 21, 2008,

 

among

 

INDALEX HOLDINGS FINANCE, INC.,

 

INDALEX HOLDING CORP.,

 

THE SUBSIDIARY PARTIES IDENTIFIED HEREIN

 

and

 

JPMORGAN CHASE BANK, N.A.,

as Administrative Agent

 

 

 

TABLE OF CONTENTS

 

	
  ARTICLE I

  	
   

  
	
   

  	
   

  
	
  Definitions

  	
   

  
	
   

  	
   

  
	
  SECTION 1.01. Credit Agreement

  	
  1

  
	
  SECTION 1.02. Other Defined Terms

  	
  2

  
	
   

  	
   

  
	
  ARTICLE
  II

  	
   

  
	
   

  	
   

  
	
  Pledge of
  Securities

  	
   

  
	
   

  	
   

  
	
  SECTION 2.01. Pledge

  	
  6

  
	
  SECTION 2.02. Delivery of the Pledged Collateral

  	
  6

  
	
  SECTION 2.03. Representations, Warranties and
  Covenants

  	
  7

  
	
  SECTION 2.04. Certification of Limited Liability
  Company and Limited Partnership Interests

  	
  8

  
	
  SECTION 2.05. Registration in Nominee Name;
  Denominations

  	
  8

  
	
  SECTION 2.06. Voting Rights; Dividends and Interest

  	
  9

  
	
   

  	
   

  
	
  ARTICLE
  III

  	
   

  
	
   

  	
   

  
	
  Security
  Interests in Personal Property

  	
   

  
	
   

  	
   

  
	
  SECTION 3.01. Security Interest

  	
  11

  
	
  SECTION 3.02. Representations and Warranties

  	
  13

  
	
  SECTION 3.03. Covenants

  	
  15

  
	
  SECTION 3.04. Other Actions

  	
  19

  
	
  SECTION 3.05. Covenants Regarding Patent, Trademark
  and Copyright Collateral

  	
  22

  
	
  SECTION 3.06. Deposit Accounts and Receivables
  Accounts

  	
  24

  
	
   

  	
   

  
	
  ARTICLE
  IV

  	
   

  
	
   

  	
   

  
	
  Remedies

  	
   

  
	
   

  	
   

  
	
  SECTION 4.01. Remedies Upon Default

  	
  25

  
	
  SECTION 4.02. Application of Proceeds

  	
  27

  
	
  SECTION 4.03. Grant of License to Use Intellectual
  Property

  	
  28

  
	
  SECTION 4.04. Securities Act

  	
  28

  
	
  SECTION 4.05. Registration

  	
  29

  
	
  SECTION 4.06. Other Actions

  	
  29

  

 

 

	
  ARTICLE V

  	
   

  
	
   

  	
   

  
	
  Indemnity,
  Subrogation and Subordination

  	
   

  
	
   

  	
   

  
	
  SECTION 5.01. Indemnity and Subrogation

  	
  30

  
	
  SECTION 5.02. Contribution and Subrogation

  	
  30

  
	
  SECTION 5.03. Subordination

  	
  30

  
	
   

  	
   

  
	
  ARTICLE
  VI

  	
   

  
	
   

  	
   

  
	
  Miscellaneous

  	
   

  
	
   

  	
   

  
	
  SECTION 6.01. Notices

  	
  30

  
	
  SECTION 6.02. Waivers; Amendment

  	
  31

  
	
  SECTION 6.03. Administrative Agent’s Fees and
  Expenses; Indemnification

  	
  31

  
	
  SECTION 6.04. Successors and Assigns

  	
  32

  
	
  SECTION 6.05. Survival of Agreement

  	
  32

  
	
  SECTION 6.06. Counterparts; Effectiveness; Several
  Agreement; Maximum Liability

  	
  32

  
	
  SECTION 6.07. Severability

  	
  33

  
	
  SECTION 6.08. Compromises and Collection of Collateral

  	
  33

  
	
  SECTION 6.09. Governing Law; Jurisdiction; Consent to
  Service of Process

  	
  34

  
	
  SECTION 6.10. WAIVER OF JURY TRIAL

  	
  34

  
	
  SECTION 6.11. Headings

  	
  35

  
	
  SECTION 6.12. Security Interest Absolute

  	
  35

  
	
  SECTION 6.13. Termination or Release

  	
  35

  
	
  SECTION 6.14. Additional Subsidiaries

  	
  36

  
	
  SECTION 6.15. Administrative Agent Appointed
  Attorney-in-Fact

  	
  36

  
	
  SECTION 6.16. Intercreditor Agreement

  	
  37

  
	
  SECTION 6.17. Reaffirmation

  	
  37

  
	
  SECTION 6.18. Effect of Restatement

  	
  37

  

 

 

	
  Schedules

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Schedule
  I

  	
   

  	
  Subsidiary
  Parties

  
	
  Schedule
  II

  	
   

  	
  Pledged
  Stock; Debt Securities

  
	
  Schedule
  III

  	
   

  	
  Intellectual
  Property

  
	
  Schedule
  IV

  	
   

  	
  Commercial
  Tort Claims

  
	
  Schedule
  V

  	
   

  	
  Deposit
  Accounts

  
	
  Schedule
  VI

  	
   

  	
  Reaffirmed
  Security Documents

  
	
   

  	
   

  	
   

  
	
  Exhibits

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Exhibit A

  	
   

  	
  Form of
  Supplement

  

 

 

AMENDED AND RESTATED DOMESTIC SECURITY AGREEMENT
dated as of May 21, 2008 (as it may be amended or modified from time to
time in accordance with the terms hereof, this “Agreement”), among
INDALEX HOLDINGS FINANCE, INC., a Delaware corporation (“Holdings”),
INDALEX HOLDING CORP., a Delaware corporation and a wholly-owned subsidiary of
Holdings (the “Parent Borrower”),
the Subsidiary Parties identified herein and JPMORGAN CHASE BANK, N.A., a
national banking association, as Administrative Agent (the “Administrative
Agent”).

 

Reference is made to (a) the Amended and
Restated Credit Agreement dated as of May 21, 2008 (as amended,
supplemented or otherwise modified from time to time, the “Credit Agreement”), among
Holdings, the Parent Borrower, the Canadian Subsidiary Borrower, the Lenders from
time to time party thereto and the Administrative Agent and (b) the
Domestic Security Agreement dated as of February 2, 2006 (the “Original
Domestic Security Agreement”), among Holdings, the Parent Borrower, the
Subsidiary Parties identified therein and the Administrative Agent.  The Parent Borrower, the Guarantors and the
Administrative Agent desire to amend and restate the Original Domestic Security
Agreement in the form hereof to, among other things, reaffirm their obligations
under the Original Domestic Security Agreement and to make certain amendments
thereto.  The Lenders have agreed to
amend and restate the Original Credit Agreement (as such term is defined in the
Credit Agreement) and to extend credit to the Borrowers subject to the terms
and conditions set forth in the Credit Agreement.  The consent to such amendments and the
obligations of the Lenders to extend such credit are conditioned upon, among
other things, the execution and delivery of this Agreement.  Holdings and the Subsidiary Parties are
affiliates of the Parent Borrower, will derive substantial benefits from the
extension of credit to the Borrowers pursuant to the Credit Agreement and are
willing to execute and deliver this Agreement in order to induce the Lenders to
extend such credit.  Accordingly, in
consideration of the foregoing and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties
hereto agree as follows:

 

ARTICLE I

 

Definitions

 

SECTION 1.01.  Credit Agreement.  (a)  Capitalized terms used in this
Agreement and not otherwise defined herein have the meanings specified in the
Credit Agreement.  All terms defined in
the New York UCC (as defined herein) and not defined in this Agreement have the
meanings specified therein; the term “instrument” shall have the meaning
specified in Article 9 of the New York UCC.

 

(b)  The rules of construction
specified in Section 1.03 of the Credit Agreement also apply to this
Agreement.

 

 

SECTION 1.02.  Other Defined Terms.  As used in this Agreement, the following
terms have the meanings specified below:

 

“Account Debtor” means any
Person who is or who may become obligated to any Grantor under, with respect to
or on account of an Account.

 

“Agreement” has the meaning assigned
to such term in the preamble to this Agreement.

 

“Article 9
Collateral” has the meaning assigned to such term in Section 3.01.

 

“Collateral” means Article 9
Collateral and Pledged Collateral.

 

“Collateral
Access Agreement” means any landlord waiver or other agreement
between the Administrative Agent and any third party (including any bailee,
consignee, customs broker, or other similar Person) in possession of any
Collateral or any landlord of any Grantor for any real property where any
Collateral is located, as such landlord waiver or other agreement may be
amended, restated or otherwise modified from time to time.

 

“Collateral
Report” means any certificate (including any Borrowing Base Certificate),
report or other document delivered by any Grantor to the Administrative Agent
or any Lender with respect to the Collateral pursuant to any Loan Document.

 

“Copyright
License” means any written agreement, now or hereafter in effect, granting any
right to any third party under any copyright now or hereafter owned by any Grantor
or that such Grantor otherwise has the right to license, or granting any right
to any Grantor under any copyright now or hereafter owned by any third party,
and all rights of such Grantor under any such agreement.

 

“Copyrights” means all of
the following now owned or hereafter acquired by any Grantor:  (a) all copyright rights in any work
subject to the copyright laws of the United States or any other country,
whether as author, assignee, transferee or otherwise, and (b) all
registrations and applications for registration of any such copyright in the
United States or any other country, including registrations, recordings,
supplemental registrations and pending applications for registration in the
United States Copyright Office, including those listed on Schedule III.

 

“Credit
Agreement” has the meaning assigned to such term in the
preliminary statement of this Agreement.

 

“Deposit
Account Control Agreement” means an agreement, in form and substance
satisfactory to the Administrative Agent, among any Grantor, a banking
institution holding such Grantor’s funds and the Administrative Agent with
respect to control of all deposits and balances held in a Deposit Account
maintained by such Grantor with such banking institution.

 

2

 

“Exclusive Liens” means, collectively,
(a) Liens of the type described in paragraphs (c), (d), (e), (g), (k), (o) and
(t) of Section 6.02 of the Credit Agreement, as in effect on the
Restatement Effective Date, and (b) Liens on cash and cash equivalents of
the type described in paragraphs (c), (d) and (g) of the definition
of the term “Permitted Encumbrances” set forth in the Credit Agreement, as in
effect on the Restatement Effective Date, provided that such Liens apply
exclusively to such cash and cash equivalents; provided, further,
in each case under clauses (a) and (b) above, that such Liens
are permitted under the Credit Agreement.

 

“Federal
Securities Laws” has the meaning assigned to such term in Section 4.04.

 

“First Activation Period” shall have
the meaning assigned to such term in Section 3.06(c).

 

“First Activation Period Notice” shall
have the meaning assigned to such term in Section 3.06(c).

 

“General
Intangibles” means all choses in action and causes of action
and all other intangible personal property of every kind and nature (other than
Accounts) now owned or hereafter acquired by any Grantor and all other “general
intangibles”, as defined in the New York UCC (other than Accounts), including
corporate or other business records, indemnification claims, contract rights
(including rights under leases, whether entered into as lessor or lessee, Swap
Agreements and other agreements), Intellectual Property, goodwill,
registrations, franchises, tax refund claims and any letter of credit,
guarantee, claim, security interest or other security held by or granted to any
Grantor to secure payment by an Account Debtor of any of the Accounts.

 

“Grantors” means
Holdings, the Parent Borrower and the Subsidiary Parties.

 

“Intellectual
Property” means all intellectual and similar property of
every kind and nature now owned or hereafter acquired by any Grantor, including
inventions, designs, Patents, Copyrights, Licenses, Trademarks, trade secrets,
confidential or proprietary technical and business information, know-how,
show-how or other data or information, software and databases and all
embodiments or fixations thereof and related documentation, registrations and
franchises, and all additions, improvements and accessions to, and books and records
describing or used in connection with, any of the foregoing.

 

“License” means any
Patent License, Trademark License, Copyright License or other license or
sublicense agreement to which any Grantor is a party, including those listed on
Schedule III.

 

 “New York UCC” means the
Uniform Commercial Code as from time to time in effect in the State of New
York.

 

3

 

“Original Domestic Security Agreement”
has the meaning assigned to such term in the preliminary statement of this
Agreement.

 

“Patent License” means any
written agreement, now or hereafter in effect, granting to any third party any
right to make, use or sell any invention on which a Patent, now or hereafter
owned by any Grantor or that any Grantor otherwise has the right to license, is
in existence, or granting to any Grantor any right to make, use or sell any
invention on which a Patent, now or hereafter owned by any third party, is in
existence, and all rights of any Grantor under any such agreement.

 

“Patents” means all of
the following now owned or hereafter acquired by any Grantor:  (a) all letters patent of the United
States or the equivalent thereof in any other country, all registrations and
recordings thereof, and all applications for letters patent of the United
States or the equivalent thereof in any other country, including registrations,
recordings and pending applications in the United States Patent and Trademark
Office or any similar offices in any other country, including those listed on Schedule III,
and (b) all reissues, continuations, divisions, continuations-in-part,
renewals or extensions thereof, and the inventions disclosed or claimed
therein, including the right to make, use and/or sell the inventions disclosed
or claimed therein.

 

“Pledged
Collateral” has the meaning assigned to such term in Section 2.01.

 

“Pledged Debt
Securities” has the meaning assigned to such term in Section 2.01.

 

“Pledged
Securities” means any promissory notes, stock certificates or
other securities now or hereafter included in the Pledged Collateral, including
all certificates, instruments or other documents representing or evidencing any
Pledged Collateral.

 

“Pledged Stock” has the
meaning assigned to such term in Section 2.01.

 

“Receivables” means the Accounts,
Documents, Investment Property and any other rights or claims to receive money
that are General Intangibles.

 

“Receivables Account” shall have the
meaning assigned to such term in Section 3.06(a)(i).

 

“Receivables Account Bank” shall have
the meaning assigned to such term in Section 3.06(c).

 

“Receivables Account Control Agreement”
means an agreement, in form and substance satisfactory to the Administrative
Agent, among any Grantor, a banking institution holding such Grantor’s funds
and the Administrative Agent with respect to control of all deposits and
balances held in a Receivables Account maintained by such Grantor with such
banking institution.

 

4

 

“Restatement
Effective Date” means May 21, 2008.

 

“Second Activation Period Notice”
shall have the meaning assigned to such term in Section 3.06(c).

 

“Secured
Parties” means (a) the Lenders, (b) the Administrative Agent, (c) the
Issuing Bank, (d) each counterparty to any Swap Agreement with a Loan
Party, the obligations under which constitute Swap Obligations that are Secured
Obligations, (e) each provider of any Banking Service, the liabilities in
respect of which constitute Banking Services Obligations that are Secured
Obligations, (f) the beneficiaries of each indemnification obligation
undertaken by any Loan Party under any Loan Document and (g) the
successors and permitted assigns of each of the foregoing.

 

“Security
Interest” has the meaning assigned to such term in Section 3.01.

 

“Short Form Security
Agreement” has the meaning assigned to such term in Section 3.02(b).

 

“Sub-Agent” means a
financial institution that has delivered to the Administrative Agent an
executed Receivables Account Control Agreement.

 

“Subsidiary
Parties” means (a) the Domestic Subsidiary Loan Parties identified on
Schedule I and (b) each other Domestic Subsidiary Loan Party that
becomes a party to this Agreement as a Subsidiary Party after the Restatement
Effective Date.

 

“Termination Period” shall have the
meaning assigned to such term in Section 3.06(c).

 

“Termination Period Notice” shall have
the meaning assigned to such term in Section 3.06(c).

 

“Trademark
License” means any written agreement, now or hereafter in effect, granting to
any third party any right to use any Trademark now or hereafter owned by any
Grantor or that any Grantor otherwise has the right to license, or granting to
any Grantor any right to use any Trademark now or hereafter owned by any third
party, and all rights of any Grantor under any such agreement.

 

“Trademarks” means all of
the following now owned or hereafter acquired by any Grantor:  (a) all trademarks, service marks, trade
names, corporate names, company names, business names, fictitious business
names, trade styles, trade dress, logos, other source or business identifiers,
designs and general intangibles of like nature, now existing or hereafter
adopted or acquired, all registrations and recordings thereof, and all
registration and recording applications filed in connection therewith,
including registrations and registration applications in the United States
Patent and Trademark Office or any similar offices in any State of the United
States or any other country or any political subdivision thereof, and all
extensions or renewals thereof, including those listed on Schedule III, (b) all
goodwill associated therewith or symbolized thereby and (c) all other
assets, rights and interests that uniquely reflect or embody such goodwill.

 

5

 

ARTICLE II

 

Pledge of Securities

 

SECTION 2.01.  Pledge.  As security for the payment or performance,
as the case may be, in full of the Secured Obligations, each Grantor hereby
assigns and pledges to the Administrative Agent, its successors and permitted
assigns, for the benefit of the Secured Parties, and hereby grants to the
Administrative Agent, its successors and permitted assigns, for the benefit of
the Secured Parties, a security interest in all of such Grantor’s right, title
and interest in, to and under (a) (i) the Equity Interests owned by
it as of the Restatement Effective Date and listed opposite the name of such
Grantor on Schedule II, (ii) any Equity Interests obtained in the
future by such Grantor and (iii) the certificates representing all such
Equity Interests (the “Pledged Stock”), provided that the Pledged
Stock shall not include more than 65% (or such greater percentage that, due to
a change in applicable law after the date hereof, (A) could not reasonably
be expected to cause the undistributed earnings of such Foreign Subsidiary as
determined for U.S. Federal income tax purposes to be treated as a deemed
dividend to such Foreign Subsidiary’s U.S. parent and (B) could not
reasonably be expected to cause any material adverse tax consequences) of the
issued and outstanding Equity Interests entitled to vote (within the meaning of
Treas. Reg. Section 1.956-2(c)(2) or any successor regulation) of any
Foreign Subsidiary, (b)(i) the debt securities owned by it as of the
Restatement Effective Date and listed opposite the name of such Grantor on
Schedule II, (ii) any debt securities in the future issued to such
Grantor and (iii) the promissory notes and any other instruments
evidencing such debt securities (the “Pledged Debt Securities”), (c) all
other property that may be delivered to and held by the Administrative Agent
pursuant to the terms of this Section 2.01, (d) subject to Section 2.06,
all payments of principal or interest, dividends, cash, instruments and other
property from time to time received, receivable or otherwise distributed in
respect of, in exchange for or upon the conversion of, and all other Proceeds
received in respect of, the securities referred to in clauses (a) and
(b) above, (e) subject to Section 2.06, all rights and privileges
of such Grantor with respect to the securities and other property referred to
in clauses (a), (b), (c) and (d) above, and (f) all
Proceeds of any of the foregoing (the items referred to in clauses (a) through
(f) above being collectively referred to as the “Pledged Collateral”).

 

TO HAVE AND TO HOLD the Pledged Collateral,
together with all right, title, interest, powers, privileges and preferences
pertaining or incidental thereto, unto the Administrative Agent, its successors
and assigns, for the benefit of the Secured Parties, forever; subject, however, to the terms, covenants
and conditions hereinafter set forth.

 

SECTION 2.02.  Delivery of the Pledged Collateral.  (a)  Each Grantor agrees promptly to
deliver or cause to be delivered to the Administrative Agent any and all
Pledged Securities.

 

(b)  Each Grantor will cause any
Indebtedness for borrowed money (i) in the case of Indebtedness owed to
such Grantor by any Person other than a Loan Party in principal amount in
excess of $100,000, and (ii) in the case of Indebtedness owed to such
Grantor by any Loan Party in any principal amount, to be evidenced by a duly
executed 

 

6

 

promissory note that is pledged and delivered to the Administrative
Agent pursuant to the terms hereof.

 

(c)  Upon the delivery thereof to the
Administrative Agent by any Loan Party, (i) any Pledged Securities shall
be accompanied by stock powers duly executed in blank or other instruments of
transfer satisfactory to the Administrative Agent and by such other instruments
and documents as the Administrative Agent may reasonably request and (ii) all
other property comprising part of the Pledged Collateral shall be accompanied
by proper instruments of assignment duly executed by the applicable Grantor and
such other instruments or documents as the Administrative Agent may reasonably
request.  Each delivery of Pledged
Securities shall be accompanied by a schedule describing the securities, which
schedule shall be attached hereto as Schedule II and made a part hereof, provided that failure to attach
any such schedule hereto shall not affect the validity of such pledge of such
Pledged Securities.  Each schedule so
delivered shall supplement any prior schedules so delivered.

 

SECTION 2.03.  Representations, Warranties and Covenants.  The Grantors jointly and severally represent,
warrant and covenant to and with the Administrative Agent, for the benefit of
the Secured Parties, that:

 

(a) Schedule II
correctly sets forth the percentage of the issued and outstanding units of each
class of the Equity Interests of the issuer thereof represented by the Pledged
Stock issued by Holdings, the Parent Borrower or any Subsidiary and includes
all Equity Interests, debt securities and promissory notes required to be
pledged hereunder;

 

(b) in
the case of Pledged Stock and Pledged Debt Securities issued by Holdings, the
Parent Borrower or any Subsidiary, such Pledged Stock and Pledged Debt
Securities have been duly and validly authorized and issued by the issuers
thereof and (i) in the case of Pledged Stock, are fully paid and
nonassessable and (ii) in the case of Pledged Debt Securities, are legal,
valid and binding obligations of the issuers thereof, subject to applicable
bankruptcy, insolvency, reorganization, moratorium or other laws affecting
creditors’ rights generally and subject to general principles of equity,
regardless of whether considered in a proceeding in equity or at law;

 

(c) except
for the security interests granted hereunder, each of the Grantors (i) is
and, subject to any transfers made in compliance with the Credit Agreement,
will continue to be the direct owner, beneficially and of record, of the
Pledged Securities indicated on Schedule II as owned by such Grantor, (ii) holds
the same free and clear of all Liens, other than Liens created by this
Agreement, Permitted Encumbrances, Liens permitted by Section 6.02(u) of
the Credit Agreement and transfers made in compliance with the Credit
Agreement, (iii) will make no assignment, pledge, hypothecation or
transfer of, or create or permit to exist any security interest in or other
Lien on, the Pledged Collateral, other than Liens created by this Agreement,
Permitted Encumbrances, Liens permitted by Section 6.02(u) of the
Credit Agreement and transfers made in compliance with

 

7

 

the Credit Agreement, and (iv) will
defend its title or interest thereto or therein against any and all Liens
(other than the Lien created by this Agreement and Permitted Encumbrances),
however arising, of all Persons whomsoever;

 

(d) in
the case of Pledged Collateral issued by Holdings, the Parent Borrower or any
Subsidiary, except for restrictions and limitations imposed by the Loan
Documents or securities laws generally, such Pledged Collateral is and will
continue to be freely transferable and assignable, and none of such Pledged
Collateral is or will be subject to any option, right of first refusal,
shareholders agreement, charter or by-law provisions or contractual restriction
of any nature that might prohibit, impair, delay or otherwise affect the pledge
of such Pledged Collateral hereunder, the sale or disposition thereof pursuant
hereto or the exercise by the Administrative Agent of rights and remedies
hereunder;

 

(e) each
of the Grantors has the power and authority to pledge the Pledged Collateral
pledged by it hereunder in the manner hereby done or contemplated;

 

(f) no
consent or approval of any Governmental Authority, any securities exchange or
any other Person was or is necessary to ensure the validity of the pledge of
any Pledged Collateral issued by Holdings, the Parent Borrower or any
Subsidiary effected hereby (other than such as have been obtained and are in
full force and effect); and

 

(g) by
virtue of the execution and delivery by the Grantors of this Agreement, when
any Pledged Securities are delivered to the Administrative Agent in accordance
with this Agreement, the Administrative Agent will obtain a legal, valid and
perfected Lien upon and security interest in such Pledged Securities as
security for the payment and performance of the Secured Obligations, prior to
any other Lien on any Pledged Securities other than Permitted Encumbrances that
have priority as a matter of law.

 

SECTION 2.04.  Certification of Limited Liability Company
and Limited Partnership Interests. 
Each interest in any limited liability company or limited partnership,
in each case controlled by any Grantor and pledged hereunder shall be
represented by a certificate, shall be a “security” within the meaning of Article 8
of the New York UCC and shall be governed by Article 8 of the New York
UCC.

 

SECTION 2.05.  Registration in Nominee Name;
Denominations.  The Administrative
Agent, on behalf of the Secured Parties, shall have the right (in its sole and
absolute discretion) to hold the Pledged Securities in its own name as pledgee,
the name of its nominee (as pledgee or as sub-agent) or the name of the
applicable Grantor, endorsed or assigned in blank or in favor of the
Administrative Agent.  Each Grantor will
promptly give to the Administrative Agent copies of any material notices or
other material communications received by it with respect to Pledged Securities
registered in the name of such Grantor. 
Upon the occurrence and during the continuation of an Event of Default,
the Administrative Agent shall at all times have the right to exchange the

 

8

 

certificates representing Pledged Securities for certificates of
smaller or larger denominations for any purpose consistent with this Agreement.

 

SECTION 2.06.  Voting Rights; Dividends and Interest.  (a)  Unless and until an Event of
Default shall have occurred and be continuing and the Administrative Agent
shall have notified the Grantors that their rights under this Section 2.06
are being suspended:

 

(i) Each
Grantor shall be entitled to exercise any and all voting and/or other
consensual rights and powers inuring to an owner of Pledged Securities or any
part thereof for any purpose not inconsistent with the terms of this Agreement,
the Credit Agreement and the other Loan Documents, provided that such rights and powers shall not be exercised
in any manner that could materially and adversely affect the rights inuring to
a holder of any Pledged Securities or the rights and remedies of any of the
Administrative Agent or the other Secured Parties under this Agreement or the
Credit Agreement or any other Loan Document or the ability of the Secured
Parties to exercise the same.

 

(ii) The
Administrative Agent shall execute and deliver to each Grantor, or cause to be
executed and delivered to such Grantor, all such proxies, powers of attorney
and other instruments as such Grantor may reasonably request for the purpose of
enabling such Grantor to exercise the voting and/or consensual rights and
powers it is entitled to exercise pursuant to subparagraph (i) above
(including for the purpose of reinstating any such rights and powers after the
cure or waiver of any Event of Default).

 

(iii) Each
Grantor shall be entitled to receive and retain any and all dividends,
interest, principal and other distributions paid on or distributed in respect
of the Pledged Securities to the extent and only to the extent that such
dividends, interest, principal and other distributions are permitted by, and
otherwise paid or distributed in accordance with, the terms and conditions of
the Credit Agreement, the other Loan Documents and applicable laws, provided that any noncash
dividends, interest, principal or other distributions that would constitute
Pledged Stock or Pledged Debt Securities, whether resulting from a subdivision,
combination or reclassification of the outstanding Equity Interests of the
issuer of any Pledged Securities or received in exchange for Pledged Securities
or any part thereof, or in redemption thereof, or as a result of any merger,
consolidation, acquisition or other exchange of assets to which such issuer may
be a party or otherwise, shall be and become part of the Pledged Collateral,
and, if received by any Grantor, shall not be commingled by such Grantor with
any of its other funds or property but shall be held separate and apart
therefrom, shall be held in trust for the benefit of the Administrative Agent
and shall be forthwith delivered to the Administrative Agent in the same form
as so received (with any necessary endorsement).

 

(b)  Upon the occurrence and during the
continuance of an Event of Default, after the Administrative Agent shall have
notified the Grantors of the suspension 

 

9

 

of their rights under paragraph (a)(iii) of this Section 2.06,
then all rights of any Grantor to dividends, interest, principal or other
distributions that such Grantor is authorized to receive pursuant to
paragraph (a)(iii) of this Section 2.06 shall cease, and all
such rights shall thereupon become vested in the Administrative Agent, which
shall have the sole and exclusive right and authority to receive and retain
such dividends, interest, principal or other distributions.  All dividends, interest, principal or other
distributions received by any Grantor contrary to the provisions of this Section 2.06
shall be held in trust for the benefit of the Administrative Agent, shall be
segregated from other property or funds of such Grantor and shall be forthwith
delivered to the Administrative Agent upon demand in the same form as so
received (with any necessary endorsement). 
Any and all money and other property paid over to or received by the
Administrative Agent pursuant to the provisions of this paragraph (b) shall
be retained by the Administrative Agent in an account to be established by the
Administrative Agent upon receipt of such money or other property and shall be
applied in accordance with the provisions of Section 4.02.  After all Events of Default have been cured
or waived and the Parent Borrower has delivered to the Administrative Agent a
certificate to that effect, the Administrative Agent shall promptly repay to
each Grantor (without interest) all dividends, interest, principal or other
distributions that such Grantor would otherwise be permitted to retain pursuant
to the terms of paragraph (a)(iii) of this Section 2.06 and that
remain in such account.

 

(c)  Upon the occurrence and during the
continuance of an Event of Default, but after the Administrative Agent shall
have notified the Grantors of the suspension of their rights under paragraph
(a)(i) of this Section 2.06, all rights of any Grantor to exercise
the voting and consensual rights and powers it is entitled to exercise pursuant
to paragraph (a)(i) of this Section 2.06 and the obligations of
the Administrative Agent under paragraph (a)(ii) of this Section 2.06
shall cease, and all such rights shall thereupon become vested in the
Administrative Agent, which shall have the sole and exclusive right and
authority to exercise such voting and consensual rights and powers, provided that, unless otherwise
directed by the Required Lenders, the Administrative Agent shall have the right
from time to time following and during the continuance of an Event of Default
to permit the Grantors to exercise such rights.

 

(d)  Any notice given by the
Administrative Agent to the Grantors suspending their rights under
paragraph (a) of this Section 2.06 (i) may be given by
telephone if promptly confirmed in writing, (ii) may be given to one or
more of the Grantors at the same or different times and (iii) may suspend
the rights of the Grantors under paragraph (a)(i) or paragraph (a)(iii) in
part without suspending all such rights (as specified by the Administrative
Agent in its sole and absolute discretion) and without waiving or otherwise
affecting the Administrative Agent’s rights to give additional notices from
time to time suspending other rights so long as an Event of Default has
occurred and is continuing.

 

10

 

ARTICLE III

 

Security Interests in Personal Property

 

SECTION 3.01.  Security Interest.  (a)  As security for the payment or
performance, as the case may be, in full of the Secured Obligations, each
Grantor hereby assigns and pledges to the Administrative Agent, its successors
and permitted assigns, for the benefit of the Secured Parties, and hereby
grants to the Administrative Agent, its successors and permitted assigns, for
the benefit of the Secured Parties, a security interest (the “Security
Interest”) in, all right, title or interest in or to any and all of the
following assets and properties now owned or at any time hereafter acquired by
such Grantor or in which such Grantor now has or at any time in the future may
acquire any right, title or interest (collectively, the  “Article 9 Collateral”):

 

	
  (i)

  	
   

  	
  all Accounts;

  
	
   

  	
   

  	
   

  
	
  (ii)

  	
   

  	
  all Chattel Paper;

  
	
   

  	
   

  	
   

  
	
  (iii)

  	
   

  	
  all cash and Deposit Accounts;

  
	
   

  	
   

  	
   

  
	
  (iv)

  	
   

  	
  all Documents;

  
	
   

  	
   

  	
   

  
	
  (v)

  	
   

  	
  all Equipment;

  
	
   

  	
   

  	
   

  
	
  (vi)

  	
   

  	
  all General Intangibles;

  
	
   

  	
   

  	
   

  
	
  (vii)

  	
   

  	
  all Instruments;

  
	
   

  	
   

  	
   

  
	
  (viii)

  	
   

  	
  all Inventory;

  
	
   

  	
   

  	
   

  
	
  (ix)

  	
   

  	
  all Investment Property;

  
	
   

  	
   

  	
   

  
	
  (x)

  	
   

  	
  all Letter-of-Credit Rights;

  
	
   

  	
   

  	
   

  
	
  (xi)

  	
   

  	
  all Commercial Tort Claims specified on Schedule IV hereto;

  
	
   

  	
   

  	
   

  
	
  (xii)

  	
   

  	
  all books and records pertaining to the Article 9 Collateral;
  and

  
	
   

  	
   

  	
   

  
	
  (xiii)

  	
   

  	
  to the extent not otherwise included, all Proceeds and products of
  any and all of the foregoing and all 

  

collateral security and
guarantees given by any Person with respect to any of the foregoing;

 

provided, however,
that notwithstanding the foregoing, this Agreement shall not constitute a grant
of security interest in more than 65% (or such greater percentage that, due to
a change in applicable law after the date hereof, (A) could not reasonably
be expected to cause the undistributed earnings of such Foreign Subsidiary as
determined for U.S. Federal income tax purposes to be treated as a deemed
dividend to such Foreign Subsidiary’s U.S. parent and (B) could not
reasonably be expected to cause any material 

 

11

 

adverse tax consequences) of the issued and
outstanding Equity Interests entitled to vote (within the meaning of Treas.
Reg. Section 1.956-2(c)(2) or any successor regulation) of any
Foreign Subsidiary.

 

(b)  Each Grantor hereby irrevocably
authorizes the Administrative Agent at any time and from time to time to file
in any relevant jurisdiction any initial financing statements (including
fixture filings) with respect to the Article 9 Collateral or any part
thereof and amendments thereto and continuations thereof that (i) indicate
the Collateral as all assets of such Grantor or words of similar effect as
being of an equal or lesser scope or with greater detail and (ii) contain
the information required by Article 9 of the Uniform Commercial Code of
each applicable jurisdiction for the filing of any financing statement or
amendment, including (A) whether such Grantor is an organization, the type
of organization and any organizational identification number issued to such
Grantor and (B) in the case of a financing statement filed as a fixture
filing or covering Article 9 Collateral constituting minerals or the like
to be extracted or timber to be cut, a sufficient description of the real property
to which such Article 9 Collateral relates.  Each Grantor agrees to provide such
information to the Administrative Agent promptly upon request.

 

Each Grantor also ratifies its authorization
for the Administrative Agent to file in any relevant jurisdiction any initial
financing statements or amendments thereto if filed prior to the date hereof.

 

The Administrative Agent is further
authorized to file with the United States Patent and Trademark Office or the
United States Copyright Office (or any successor office or any similar office
in any other country) such documents as may be necessary or advisable for the
purpose of perfecting, confirming, continuing, enforcing or protecting the
Security Interest granted by each Grantor, without the signature of any
Grantor, and naming any Grantor or the Grantors as debtors and the
Administrative Agent as secured party.

 

(c)  The Security Interest is granted as
security only and shall not subject the Administrative Agent or any other
Secured Party to, or in any way alter or modify, any obligation or liability of
any Grantor with respect to or arising out of the Article 9 Collateral.

 

(d)  Notwithstanding anything herein to
the contrary,(i) in no event shall the Security Interest granted hereunder
attach to (x) any license, contract or agreement to which a Grantor is a
party or any of its rights or interests thereunder if and for so long as the
grant of such Security Interest shall constitute or result in (A) the
unenforceability of any right of the Grantor therein, (B) a breach or
termination pursuant to the terms of, or a default under, any such license,
contract or agreement (other than to the extent any such term would be rendered
ineffective pursuant to Sections 9-406, 9-407, 9-408
or 9-409 of the New York UCC or any other applicable law or
principles of equity) or (C) the violation of any law applicable to such
Grantor, (y) any property or asset of any Grantor that is subject to an
Exclusive Lien but only if and for so long as the grant of such Security
Interest shall constitute or result in a default or event of default under the
agreement governing the Indebtedness or other obligation secured by such
Exclusive 

 

12

 

Lien or (z) any intent-to-use trademark application to the extent
that granting a Security Interest therein is deemed to void, invalidate, cancel
or abandon such intent-to-use trademark application; provided, however,
that, in the case of each of clauses (x), (y) and (z) above, such
Security Interest shall attach immediately at such time as the conditions
specified therein for non-attachment of the Security Interest granted hereunder
shall be remedied or shall cease to exist and, to the extent severable, shall
attach immediately to such portion of such license, contract, agreement,
property or asset (including any proceeds of any of the foregoing) as would not
result in any of the consequences set forth in clause (x) or (z), or meet
the conditions set forth in clause (y), as applicable, and (ii) the term “Article 9
Collateral” shall not include any asset of any Grantor to which the Security
Interest has not (but only for so long as it has not) attached pursuant to this
paragraph (d).

 

SECTION 3.02.  Representations and Warranties.  The Grantors jointly and severally represent
and warrant to the Administrative Agent and the Secured Parties that:

 

(a)  Each Grantor has rights in or title
to the Article 9 Collateral with respect to which it has purported to
grant a Security Interest hereunder and has full power and authority to grant
to the Administrative Agent, for the benefit of the Secured Parties, the
Security Interest in such Article 9 Collateral pursuant hereto and to
execute, deliver and perform its obligations in accordance with the terms of
this Agreement, without the consent or approval of any other Person other than
any consent or approval that has been obtained.

 

(b)  The Domestic Perfection Certificate
has been duly prepared, completed and executed and the information set forth
therein, including the exact legal name of each Grantor, is correct and
complete as of the Restatement Effective Date. 
The Uniform Commercial Code financing statements (including fixture
filings, as applicable) or other appropriate filings, recordings or
registrations prepared by the Administrative Agent based upon the information
provided to the Administrative Agent in the Domestic Perfection Certificate for
filing in each governmental, municipal or other office specified in
Schedule 2 to the Domestic Perfection Certificate (or specified by notice
from the Parent Borrower to the Administrative Agent after the Restatement
Effective Date in the case of filings, recordings or registrations required by Section 5.11
of the Credit Agreement or Section 3.03 hereof), are all the filings, recordings
and registrations (other than filings required to be made in the United States
Patent and Trademark Office and the United States Copyright Office in order to
perfect the Security Interest in Article 9 Collateral consisting of United
States Patents, Trademarks and Copyrights) that are necessary to publish notice
of and protect the validity of and to establish a legal, valid and perfected
security interest in favor of the Administrative Agent (for the benefit of the
Secured Parties) in respect of all Article 9 Collateral in which the
Security Interest may be perfected by filing, recording or registration in the
United States (or any political subdivision thereof) and its territories and
possessions, and no further or subsequent filing, refiling, recording,
rerecording, registration or reregistration is necessary in any such
jurisdiction, except as provided under applicable law with respect to the
filing of continuation statements.  Each
Grantor shall ensure that a fully executed agreement in a 

 

13

 

form reasonably satisfactory to the Administrative Agent (a “Short Form Security
Agreement”) that contains a description of all Article 9 Collateral
consisting of the applicable type of Intellectual Property shall have been
received by the Administrative Agent (i) within three months after the
execution of this Agreement with respect to United States Patents and United
States registered Trademarks (and Trademarks for which the United States
registration applications are pending) for recording by the United States
Patent and Trademark Office pursuant to 35 U.S.C. § 261,
15 U.S.C. § 1060 and the regulations thereunder and (ii) within
one month after the execution of this Agreement with respect to United States
registered Copyrights for recording by the United States Copyright Office
pursuant to 17 U.S.C. § 205 and the regulations thereunder, in
each case, to protect the validity of and to establish a legal, valid and
perfected security interest in favor of the Administrative Agent (for the
benefit of the Secured Parties) in respect of all Article 9 Collateral
consisting of Patents, Trademarks and Copyrights in which a security interest
may be perfected by filing, recording or registration in the United States (or
any political subdivision thereof) and its territories and possessions and no
further or subsequent filing, refiling, recording, rerecording, registration or
reregistration is necessary (other than such actions as are necessary to
perfect the Security Interest with respect to any Article 9 Collateral
consisting of Patents, Trademarks and Copyrights (or registration or
application for registration thereof) acquired or developed after the date
hereof).

 

(c)  The Security Interest constitutes (i) a
legal and valid security interest in all the Article 9 Collateral securing
the payment and performance of the Secured Obligations, (ii) subject to
the filings described in Section 3.02(b), a perfected security interest in
all Article 9 Collateral in which a security interest may be perfected by
filing, recording or registering a financing statement or analogous document in
the United States (or any political subdivision thereof) and its territories
and possessions pursuant to the Uniform Commercial Code and (iii) a security
interest that shall be perfected in all Article 9 Collateral in which a
security interest may be perfected upon the receipt of an executed Short Form Security
Agreement from the applicable Grantor and the recording of such Short Form Security
Agreement by the Administrative Agent with the United States Patent and
Trademark Office or the United States Copyright Office, as applicable, within
the three-month period (commencing as of the date hereof) pursuant to
35 U.S.C. § 261 or 15 U.S.C. § 1060 or the one-month period
(commencing as of the date hereof) pursuant to 17 U.S.C. § 205.  The Security Interest is and shall be prior
to any other Lien on any of the Article 9 Collateral, other than Permitted
Encumbrances that have priority as a matter of law and Liens described in
clause (a) of the definition of the term “Exclusive Liens” (subject to the
proviso to such definition).

 

(d)  The Article 9 Collateral is
owned by the Grantors free and clear of any Lien, except for Liens expressly
permitted pursuant to Section 6.02 of the Credit Agreement.  None of the Grantors has filed or consented
to the filing of (i) any financing statement or analogous document under
the Uniform Commercial Code or any other applicable laws covering any Article 9
Collateral, (ii) any assignment in which any Grantor assigns any
Collateral or any security agreement or similar instrument covering any Article 9
Collateral with the United States Patent and Trademark Office or the United
States Copyright Office or (iii) any assignment in which any Grantor
assigns any 

 

14

 

Article 9 Collateral or any security agreement or similar
instrument covering any Article 9 Collateral with any foreign
governmental, municipal or other office, which financing statement or analogous
document, assignment, security agreement or similar instrument is still in
effect, except, in each case, for Liens expressly permitted pursuant to Section 6.02
of the Credit Agreement.

 

(e)  As of the date of any such
delivery, the names of the obligors, amounts owing, due dates and other
information with respect to the Accounts and Chattel Paper are and will be
correctly stated in all material respects in all invoices and the Collateral
Reports most-recently delivered to the Administrative Agent with respect
thereto furnished to the Administrative Agent by such Grantor from time to
time.  As of the time when each Account
or each item of Chattel Paper arises, the Grantor shall be deemed to have
represented and warranted that such Account or Chattel Paper, as the case may
be, are genuine.

 

(f)  With respect to any Inventory of
any Grantor scheduled or listed on the most recent Collateral Report, (i) such
Inventory (other than Inventory in transit, Inventory that is being processed
or used as a sample offsite and Inventory that is the subject of a consignment)
is located at one of the Grantors’ locations set forth in Section 2 of the
Domestic Perfection Certificate, (ii) no material amount of Inventory
(other than Inventory in transit, Inventory that is being processed or used as
a sample offsite and Inventory that is the subject of a consignment) is now, or
shall at any time or times hereafter be, stored at any other location except as
permitted by Section 3.04(g), (iii) each Grantor has good,
indefeasible and merchantable title to its Inventory and such Inventory is not
subject to any Lien or security interest or document whatsoever except for the
Lien granted to the Administrative Agent, for the benefit of the Administrative
Agent and Lenders, and except for Liens permitted under Section 6.02 of
the Credit Agreement, (iv) no material portion of such Inventory is
subject to any licensing, patent, royalty, trademark, trade name or copyright
agreements with any third parties which would require any consent of any third
party upon sale or disposition of that Inventory or the payment of any monies
to any third party upon such sale or other disposition, (v) such Inventory
has been produced in accordance with the Federal Fair Labor Standards Act of
1938, as amended, and all rules, regulations and orders thereunder and (vi) the
completion of manufacture, sale or other disposition of such Inventory by the
Administrative 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 the applicable Grantor is a party or to which
such Inventory is subject.

 

SECTION 3.03.  Covenants.  (a)  
Each Grantor agrees promptly to notify the Administrative Agent in
writing of any change in (i) its legal name, (ii) the location of its
chief executive office, its principal place of business, any office in which it
maintains books or records relating to Article 9 Collateral owned by it or
any office or facility at which Article 9 owned by it is located
(including the establishment of any such new office or facility), (iii) its
identity or type of organization or corporate structure, (iv) its Federal
Taxpayer Identification Number or organizational identification number or (v) its
jurisdiction of organization.  Each
Grantor agrees to promptly provide the Administrative Agent with certified
organizational documents reflecting any of the changes described in 

 

15

 

the first sentence of this paragraph. 
Each Grantor agrees not to effect or permit any change referred to in
the preceding sentence unless all filings have been made under the Uniform
Commercial Code or otherwise that are required in order for the Administrative Agent
to continue at all times following such change to have a valid, legal and
perfected first priority security interest in all the Article 9
Collateral.

 

(b)  Each Grantor agrees to maintain, at
its own cost and expense, records with respect to the Article 9 Collateral
owned by it in accordance with such prudent and standard practices used in
industries that are the same as or similar to those in which such Grantor is
engaged, but in any event to include accounting records that are complete in
all material respects and indicate all payments and proceeds received with
respect to any part of the Article 9 Collateral, and, at such time or
times as the Administrative Agent may reasonably request, promptly to prepare
and deliver to the Administrative Agent a duly certified schedule or schedules
in form and detail satisfactory to the Administrative Agent showing the
identity, amount and location of any and all Article 9 Collateral.

 

(c)  At the time of delivery of
financial statements pursuant to Section 5.01(a) of the Credit
Agreement, the Parent Borrower shall deliver to the Administrative Agent a
certificate executed by a Financial Officer (i) setting forth the
information required by the Domestic Perfection Certificate or confirming that
there has been no change in such information since the date of the Domestic
Perfection Certificate delivered on the Restatement Effective Date or the date
of the certificate most recently delivered pursuant to this Section 3.03(c),
as applicable, and (ii) certifying that all Uniform Commercial Code
financing statements (including fixture filings, as the case may be) or other
appropriate filings, recordings or registrations, including all refilings,
rerecordings and reregistrations, containing a description of the Collateral have
been filed of record in each governmental, municipal or other appropriate
office in each jurisdiction identified pursuant to clause (a) of this
Section 3.03 to the extent necessary to protect or perfect the Security
Interest for a period of not less than 18 months after the date of such
certificate (except as noted therein with respect to any continuation
statements to be filed within such period). 
Each certificate delivered pursuant to this Section 3.03(c) shall
identify in the format of Schedule III all Intellectual Property of any
Grantor in existence on the date thereof and not then listed on such Schedules
or previously so identified to the Administrative Agent.

 

(d)  Each Grantor shall, at its own
expense, take any and all commercially reasonable actions necessary to defend
title to the Article 9 Collateral against all Persons and to defend the
Security Interest of the Administrative Agent in the Article 9 Collateral
and the priority thereof, in each case, against any Lien not expressly
permitted pursuant to Section 6.02 of the Credit Agreement.

 

(e)  Subject to any specific limitation
contained herein, each Grantor agrees, at its own expense, to execute,
acknowledge, deliver and cause to be duly filed all such further instruments
and documents and take all such actions as the Administrative Agent may from
time to time reasonably request to better assure, preserve, protect and perfect
the Security Interest and the rights and remedies created hereby, including the
payment of any fees and taxes required in connection with the execution and
delivery of 

 

16

 

this Agreement, the granting of the Security Interest and the filing of
any financing statements (including fixture filings) or other documents in
connection herewith or therewith.  If any
amount payable under or in connection with any of the Article 9 Collateral
shall be or become evidenced by any promissory note or other instrument,
subject to Section 3.04, such note or instrument shall be immediately pledged
and delivered to the Administrative Agent, duly endorsed in a manner
satisfactory to the Administrative Agent.

 

Without limiting the generality of the
foregoing, each Grantor hereby authorizes the Administrative Agent, with prompt
notice thereof to the Grantors, to supplement this Agreement by supplementing
Schedule III or adding additional schedules hereto to specifically
identify any asset or item that may constitute Copyrights, Licenses, Patents or
Trademarks, provided
that any Grantor shall have the right, exercisable within 10 days after it
has been notified by the Administrative Agent of the specific identification of
such Collateral, to advise the Administrative Agent in writing of any
inaccuracy of the representations and warranties made by such Grantor hereunder
with respect to such Collateral.  Each
Grantor agrees that it will use its best efforts to take such action as shall
be necessary in order that all representations and warranties hereunder shall be
true and correct with respect to such Collateral within 30 days after the
date it has been notified by the Administrative Agent of the specific
identification of such Collateral.

 

(f)  At its option, the Administrative
Agent may discharge past due taxes, assessments, charges, fees, Liens, security
interests or other encumbrances at any time levied or placed on the Article 9
Collateral and not permitted pursuant to Section 6.02 of the Credit
Agreement, and may pay for the maintenance and preservation of the Article 9
Collateral to the extent any Grantor fails to do so as required by the Credit
Agreement or this Agreement, and each Grantor jointly and severally agrees to
reimburse the Administrative Agent on demand for any payment made or any
expense incurred by the Administrative Agent pursuant to the foregoing
authorization, provided
that nothing in this paragraph shall be interpreted as excusing any Grantor
from the performance of, or imposing any obligation on the Administrative Agent
or any Secured Party to cure or perform, any covenants or other promises of any
Grantor with respect to taxes, assessments, charges, fees, Liens, security
interests or other encumbrances and maintenance as set forth herein or in the
other Loan Documents.

 

(g)  If at any time any Grantor shall
take a security interest in any property of an Account Debtor or any other
Person with a fair market value in excess of $100,000 to secure payment and
performance of an Account, such Grantor shall promptly assign such security
interest to the Administrative Agent. 
Such assignment need not be filed of public record unless necessary to
continue the perfected status of the security interest against creditors of and
transferees from the Account Debtor or other Person granting the security
interest.

 

(h)  Each Grantor shall remain liable to
observe and perform all the conditions and obligations to be observed and
performed by it under each contract, agreement or instrument relating to the Article 9
Collateral, all in accordance with the 

 

17

 

terms and conditions thereof, and each Grantor jointly and severally
agrees to indemnify and hold harmless the Administrative Agent and the Secured
Parties from and against any and all liability for such performance.

 

(i)  None of the Grantors shall make or
permit to be made an assignment, pledge or hypothecation of the Article 9
Collateral or shall grant any other Lien in respect of the Article 9
Collateral, except as permitted by the Credit Agreement.  None of the Grantors shall make or permit to
be made any transfer of the Article 9 Collateral and each Grantor shall
remain at all times in possession of the Article 9 Collateral owned by it
(other than Inventory in transit, Inventory that is being processed or used as
a sample offsite, Inventory that is the subject of a consignment, Article 9
Collateral in possession of the Administrative Agent, office and
telecommunications equipment loaned to employees and, for so long as such Article 9
Collateral remains deposited in such accounts, Article 9 Collateral
deposited in the accounts listed on Schedule V hereto), except that unless
and until the Administrative Agent shall notify the Grantors that an Event of
Default shall have occurred and be continuing and that during the continuance
thereof the Grantors shall not sell, convey, lease, assign, transfer or
otherwise dispose of any Article 9 Collateral, the Grantors may use,
transfer and dispose of the Article 9 Collateral in any lawful manner not
inconsistent with the provisions of this Agreement, the Credit Agreement or any
other Loan Document.

 

(j)  Each Grantor irrevocably makes,
constitutes and appoints the Administrative Agent (and all officers, employees
or agents designated by the Administrative Agent) as such Grantor’s true and
lawful agent (and attorney-in-fact) for the purpose, upon the occurrence and
during the continuance of an Event of Default, of making, settling and
adjusting claims in respect of Article 9 Collateral under policies of
insurance, endorsing the name of such Grantor on any check, draft, instrument
or other item of payment for the proceeds of such policies of insurance and for
making all determinations and decisions with respect thereto.  In the event that any Grantor at any time or
times shall fail to obtain or maintain any of the policies of insurance
required under the Credit Agreement or to pay any premium in whole or part
relating thereto, the Administrative Agent may, without waiving or releasing
any obligation or liability of the Grantors hereunder or any Event of Default,
in its sole discretion, obtain and maintain such policies of insurance and pay
such premium and take any other actions with respect thereto as the
Administrative Agent deems advisable. 
All sums disbursed by the Administrative Agent in connection with this
paragraph, including reasonable attorneys’ fees, court costs, expenses and
other charges relating thereto, shall be payable, upon demand, by the Grantors
to the Administrative Agent and shall be additional Obligations secured hereby.

 

(k)  No Grantor will make or agree to
make any discount, credit, rebate or other reduction in the original amount
owing on a Receivable or accept in satisfaction of a Receivable less than the
original amount thereof, except that, prior to the occurrence of an Event of
Default, any Grantor may reduce the amount of Accounts arising from the sale of
Inventory in the ordinary course of business. 
Except as otherwise provided in this Agreement, each Grantor will
collect and enforce, at such Grantor’s sole expense, all amounts due or hereafter
due to such Grantor under the Receivables to the extent such 

 

18

 

collection or enforcement is commercially warranted.  Each Grantor will deliver to the
Administrative Agent immediately upon its request after the occurrence and
during the continuation of an Event of Default duplicate invoices with respect
to each of its Accounts bearing such language of assignment as the
Administrative Agent shall specify.  Each
Grantor shall send the Administrative Agent a copy of any credit memorandum in
excess of $100,000 as soon as issued, and the Parent Borrower shall promptly
report each credit memorandum and each of the facts required to be disclosed to
the Administrative Agent in accordance with this clause (k) on the
Borrowing Base Certificates submitted by it.

 

(l)  In the event any Account Debtor
returns Inventory to any Grantor when an Event of Default has occurred and is
continuing, such Grantor, upon the request of the Administrative Agent, shall (i) hold
the returned Inventory in trust for the Administrative Agent, (ii) segregate
all returned Inventory from all its other property, (iii) dispose of the
returned Inventory solely according to the Administrative Agent’s written
instructions and (iv) not issue any credits or allowances with respect
thereto without the Administrative Agent’s prior written consent.

 

SECTION 3.04.  Other Actions.  In order to further ensure the attachment,
perfection and priority of, and the ability of the Administrative Agent to enforce,
the Security Interest, each Grantor agrees, in each case at such Grantor’s own
expense, to take the following actions with respect to the following Article 9
Collateral:

 

(a) Instruments.  If any Grantor shall at any time hold or
acquire any Instrument (other than items deposited for collection) evidencing
an amount in excess of $100,000, such Grantor shall forthwith endorse, assign
and deliver the same to the Administrative Agent, accompanied by such
instruments of transfer or assignment duly executed in blank as the
Administrative Agent may from time to time reasonably request.

 

(b) Deposit
Accounts.  Schedule V identifies each
Deposit Account of each Grantor as of the Restatement Effective Date.  For each Deposit Account that any Grantor at
any time opens or maintains, the applicable Grantor shall provide to the
Administrative Agent a Deposit Account Control Agreement duly executed on
behalf of each financial institution holding a Deposit Account of such Grantor
as set forth in Section 3.06, (x) in the case of each Deposit Account
set forth on Schedule V, on or prior to the date that is 30 days after the
Restatement Effective Date (or such later date as is acceptable to the
Administrative Agent in its sole discretion; it being understood and agreed
that any Deposit Account Control Agreement in effect immediately prior to the
Restatement Effective Date for any such Deposit Account shall satisfy the
requirements of this clause (x) in respect of such Deposit Account), and (y) in
the case of each Deposit Account opened after the Restatement Effective Date,
on the date such Deposit Account is opened, provided that the
Administrative Agent may, in its sole discretion, defer delivery of any such
Deposit Account Control Agreement required to be delivered hereunder, establish
a Reserve with respect to any Deposit Account for which the Administrative
Agent has not received such Deposit Account Control Agreement 

 

19

 

or require any Grantor to
open and maintain a new Deposit Account with a financial institution subject to
a Deposit Account Control Agreement.  The
provisions of this clause (b) will not apply to (i) any Deposit
Account for which any Grantor, the depositary bank and the Administrative Agent
have entered into a cash collateral agreement specially negotiated among such
Grantor, the depositary bank and the Administrative Agent for the specific
purpose set forth therein, (ii) any Deposit Account for which the
Administrative Agent is the depositary and (iii) any Deposit Account
specifically and exclusively used for payroll, payroll taxes or other employee
wage or benefit payments to or for the benefit of the applicable Grantor’s
employees.

 

(c) Investment
Property.  Except to the extent
otherwise provided in Article II, if any Grantor shall at any time hold or
acquire any certificated securities with a value in excess of $100,000, such
Grantor shall forthwith endorse, assign and deliver the same to the
Administrative Agent, accompanied by such instruments of transfer or assignment
duly executed in blank as the Administrative Agent may from time to time
specify.  If any securities now or
hereafter acquired by any Grantor are uncertificated and are issued to such
Grantor or its nominee directly by the issuer thereof, such Grantor shall
immediately notify the Administrative Agent thereof and, at the Administrative
Agent’s reasonable request and option, pursuant to an agreement in form and
substance reasonably satisfactory to the Administrative Agent, either (i) cause
the issuer to agree to comply with instructions from the Administrative Agent
as to such securities, without further consent of any Grantor or such nominee,
or (ii) arrange for the Administrative Agent to become the registered
owner of the securities or (iii) take appropriate steps under applicable
foreign law to effectuate perfection. 
Other than investment property held by any Grantor or its nominee
through a securities intermediary or commodities intermediary that is subject
to a lien described in clause (d) of the definition of the term “Permitted
Encumbrances” in the Credit Agreement or in connection with any hedging
agreement permitted under the Credit Agreement, if any securities with a value
in excess of $100,000, whether certificated or uncertificated, or other
investment property now or hereafter acquired by any Grantor are held by such
Grantor or its nominee through a securities intermediary or commodity
intermediary, such Grantor shall immediately notify the Administrative Agent
thereof and, at the Administrative Agent’s request and option, pursuant to an
agreement in form and substance reasonably satisfactory to the Administrative
Agent, either (i) cause such securities intermediary or (as the case may
be) commodity intermediary to agree to comply with entitlement orders or other
instructions from the Administrative Agent to such securities intermediary as
to such security entitlements, or (as the case may be) to apply any value
distributed on account of any commodity contract as directed by the
Administrative Agent to such commodity intermediary, in each case without
further consent of any Grantor or such nominee, or (ii) in the case of
financial assets or other Investment Property held through a securities
intermediary, arrange for the Administrative Agent to become the entitlement
holder with respect to such investment property, with the Grantor being
permitted, only with the consent of the Administrative Agent, to 

 

20

 

exercise rights to withdraw
or otherwise deal with such investment property.  The Administrative Agent agrees with each of
the Grantors that the Administrative Agent shall not give any such entitlement
orders or instructions or directions to any such issuer, securities
intermediary or commodity intermediary, and shall not withhold its consent to
the exercise of any withdrawal or dealing rights by any Grantor, unless an
Event of Default has occurred and is continuing, or, after giving effect to any
such investment and withdrawal rights would occur.  The provisions of this paragraph shall not
apply to any financial assets credited to a securities account for which the
Administrative Agent is the securities intermediary.

 

(d) Electronic
Chattel Paper and Transferable Records. 
If any Grantor at any time holds or acquires an interest in any
electronic chattel paper or any “transferable record,” as that term is defined
in Section 201 of the Federal Electronic Signatures in Global and National
Commerce Act, or in Section 16 of the Uniform Electronic Transactions Act
as in effect in any relevant jurisdiction evidencing an amount in excess of
$100,000, such Grantor shall promptly notify the Administrative Agent thereof
and, at the request of the Administrative Agent, shall take such action as the
Administrative Agent may reasonably request to vest in the Administrative Agent
control under New York UCC Section 9-105 of such electronic chattel
paper or control under Section 201 of the Federal Electronic Signatures in
Global and National Commerce Act or, as the case may be, Section 16 of the
Uniform Electronic Transactions Act, as so in effect in such jurisdiction, of
such transferable record.  The
Administrative Agent agrees with such Grantor that the Administrative Agent
will arrange, pursuant to procedures reasonably satisfactory to the
Administrative Agent and so long as such procedures will not result in the
Administrative Agent’s loss of control, for the Grantor to make alterations to
the electronic chattel paper or transferable record permitted under UCC Section 9-105
or, as the case may be, Section 201 of the Federal Electronic Signatures
in Global and National Commerce Act or Section 16 of the Uniform
Electronic Transactions Act for a party in control to allow alterations without
loss of control, unless an Event of Default has occurred and is continuing or
would occur after taking into account any action by such Grantor with respect
to such electronic chattel paper or transferable record.

 

(e) Letter-of-Credit
Rights.  If any Grantor is at any
time a beneficiary under a letter of credit with a face amount in excess of
$100,000, now or hereafter issued in favor of such Grantor, such Grantor shall
promptly notify the Administrative Agent thereof and, at the request and option
of the Administrative Agent, such Grantor shall, pursuant to an agreement in
form and substance reasonably satisfactory to the Administrative Agent, either (i) arrange
for the issuer and any confirmer of such letter of credit to consent to an
assignment to the Administrative Agent of the proceeds of any drawing under the
letter of credit or (ii) arrange for the Administrative Agent to become
the transferee beneficiary of the letter of credit, with the Administrative
Agent agreeing, in each case, that the proceeds of any drawing under the letter
of credit are to be paid to the applicable Grantor unless an Event of Default
has occurred or is continuing.

 

21

 

(f) Commercial
Tort Claims.  If any Grantor shall at
any time hold or acquire (i) a filed Commercial Tort Claim, or (ii) to
the knowledge of any Responsible Officer, an unfiled Commercial Tort Claim, in
each case in an amount reasonably estimated to exceed $500,000, the Grantor
shall promptly notify the Administrative Agent thereof in a writing signed by
such Grantor including a summary description of such claim and grant to the
Administrative Agent in such writing a security interest therein and in the proceeds
thereof, all upon the terms of this Agreement, with such writing to be in form
and substance reasonably satisfactory to the Administrative Agent.

 

(g) Collateral
Access Agreements.  Each Grantor
shall use or shall have used prior to the date hereof commercially reasonable
efforts to obtain a Collateral Access Agreement from the lessor of each leased
property, mortgagee of each owned property or bailee or consignee with respect
to each warehouse, processor and converter facility and any other location
where Collateral is stored or located, which agreement shall be reasonably
satisfactory in form and substance to the Administrative Agent.

 

(h) Federal,
State or Municipal Claims.  Each
Grantor shall promptly notify the Administrative Agent of any Collateral which
constitutes a claim in excess of $100,000 against the United States government
or any state or local government or any instrumentality or agency thereof, the
assignment of which claim is restricted by U.S. Federal, state or municipal
law.

 

SECTION 3.05.  Covenants Regarding Patent, Trademark and
Copyright Collateral.  (a)  Each
Grantor agrees that it (i) will not do any act or omit to do any act (and
will exercise commercially reasonable efforts to prevent its licensees from
doing any act or omitting to do any act), whereby any Patent that is material
to the conduct of such Grantor’s business may become invalidated or dedicated
to the public, and (ii) shall continue to mark any products covered by a
Patent with the relevant patent number as necessary and sufficient to establish
and preserve its maximum rights under applicable patent laws.

 

(b)  Each Grantor (either itself or
through its licensees or its sublicensees) will, for each Trademark material to
the conduct of such Grantor’s business, (i) maintain such Trademark in
full force free from any claim of abandonment or invalidity for non-use, (ii) maintain
the quality of products and services offered under such Trademark, (iii) display
such Trademark with notice of Federal or foreign registration to the extent
necessary and sufficient to establish and preserve its maximum rights under
applicable law and (iv) not knowingly use or knowingly permit the use of
such Trademark in violation of any third party rights.

 

(c)  Each Grantor (either itself or through
its licensees or sublicensees) will, for each work covered by a material
Copyright, continue to publish, reproduce, display, adopt and distribute the
work with appropriate copyright notice as necessary and sufficient to establish
and preserve its maximum rights under applicable copyright laws.

 

22

 

(d)  Each Grantor shall notify the
Administrative Agent promptly if it knows that any Patent, Trademark or
Copyright material to the conduct of its business may become abandoned, lost or
dedicated to the public, or of any materially adverse determination or material
development (including the institution of, or any such determination or
material development in, any proceeding in the United States Patent and
Trademark Office, United States Copyright Office or any court or similar office
of any country) regarding such Grantor’s ownership of any such Patent,
Trademark or Copyright, its right to register the same, or its right to keep
and maintain the same.

 

(e)  In no event shall any Grantor,
either itself or through any agent, employee, licensee or designee, file an
application for any Patent, Trademark or Copyright (or for the registration of
any Trademark or Copyright) with the United States Patent and Trademark Office,
United States Copyright Office or any office or agency in any political
subdivision of the United States or in any other country or any political
subdivision thereof, unless it promptly informs the Administrative Agent,
provides to the Administrative Agent a revised Schedule III to supplement this
Agreement and, upon request of the Administrative Agent, executes and delivers
any and all agreements, instruments, documents and papers as the Administrative
Agent may reasonably request to evidence the Administrative Agent’s security
interest in such Patent, Trademark or Copyright, and each Grantor hereby
appoints the Administrative Agent as its attorney-in-fact to execute and file
such writings for the foregoing purposes, all acts of such attorney being
hereby ratified and confirmed; such power, being coupled with an interest, is
irrevocable.

 

(f)  Each Grantor will take all
necessary steps that are consistent with the practice in any proceeding before
the United States Patent and Trademark Office, United States Copyright Office
or any office or agency in any political subdivision of the United States or in
any other country or any political subdivision thereof, to maintain and pursue
each material application relating to the Patents, Trademarks and/or Copyrights
(and to obtain the relevant grant or registration) and to maintain each issued
Patent and each registration of the Trademarks and Copyrights that is material
to the conduct of any Grantor’s business, including timely filings of
applications for renewal, affidavits of use, affidavits of incontestability and
payment of maintenance fees, and, if consistent with good business judgment, to
initiate opposition, interference and cancelation proceedings against third
parties.

 

(g)  In the event that any Grantor
becomes aware that any Article 9 Collateral consisting of a Patent,
Trademark or Copyright material to the conduct of any Grantor’s business has
been or is about to be infringed, misappropriated or diluted by a third party
in any material respect, such Grantor promptly shall notify the Administrative
Agent and shall, if consistent with good business judgment, promptly sue for
infringement, misappropriation or dilution and to recover any and all damages
for such infringement, misappropriation or dilution, and take such other
actions as are appropriate under the circumstances to protect such Article 9
Collateral.

 

(h)  Upon the occurrence and during the
continuance of an Event of Default, each Grantor shall use its best efforts to
obtain all requisite consents or approvals 

 

23

 

by the licensor of each Copyright License, Patent License or Trademark
License to effect the assignment of all such Grantor’s right, title and
interest thereunder to the Administrative Agent or its designee.

 

SECTION 3.06.  Deposit Accounts and Receivables Accounts.

 

(a)  Collection of Receivables.  (i) On or before the Restatement
Effective Date, each Grantor shall execute and deliver to the Administrative
Agent a Receivables Account Control Agreement for each Deposit Account it
maintains into which all cash, checks or other similar payments relating to or
constituting payments made in respect of Receivables and Inventory will be
deposited (each, a “Receivables Account”), which Receivables Accounts
are identified as such on Schedule V (it being understood and agreed that any
Receivables Account Control Agreement in effect immediately prior to the
Restatement Effective Date for any such Receivables Account shall satisfy the
requirements of this paragraph (i) in respect of such Receivables
Account).  After the Restatement
Effective Date, each Grantor will comply with the terms of clause (b) of
this Section.

 

(ii) Each
Grantor shall direct all of its Account Debtors to forward payments directly to
Receivables Accounts subject to Receivables Account Control Agreements.  If any Grantor should refuse or neglect to
notify any Account Debtor to forward payments directly to a Receivables Account
subject to a Receivables Account Control Agreement after notice from the
Administrative Agent, the Administrative Agent shall be entitled to make such
notification directly to such Account Debtor. 
If notwithstanding the foregoing instructions, any Grantor receives any
proceeds of any Receivables or Inventory, such Grantor shall receive such
payments as the Administrative Agent’s trustee, and shall immediately deposit
all cash, checks or other similar payments related to or constituting payments
made in respect of Receivables received by it to a Receivables Account.

 

(b)  New Receivables Accounts and
Deposit Accounts.  Before any Grantor
opens or replaces any Receivables Account or any other Deposit Account, such
Grantor shall (i) obtain the Administrative Agent’s consent in writing to
the opening of such Deposit Account or Receivables Account and (ii) cause
each bank or financial institution in which it seeks to open (A) a Deposit
Account to enter into a Deposit Account Control Agreement with the
Administrative Agent in order to give the Administrative Agent Control of such
Deposit Account or (B) a Receivables Account to enter into a Receivables
Account Agreement with the Administrative Agent in order to give the
Administrative Agent Control of the Receivables Account.  In the case of Deposit Accounts or Receivables
Accounts maintained with Lenders, the terms of such letter shall be subject to
the provisions of the Credit Agreement regarding set-offs.

 

(c)  Activation Periods.  Pursuant to each Receivables Account Control
Agreement, all amounts deposited in each Receivables Account shall be in the
control of the Administrative Agent.  The
applicable Grantor may operate and transact business through its Receivables
Account in its normal fashion, including making withdrawals, 

 

24

 

provided that (i) if, at any time, Availability falls
below $20,000,000, the Administrative Agent shall (A) send a notice (the “First
Activation Period Notice”) to each bank where any Grantor maintains a
Receivables Account (each, a “Receivables Account Bank”) that commences
a period (the “First Activation Period”) during which the applicable
Receivables Account Bank shall cease complying with any instructions originated
by the applicable Grantor and shall comply with instructions originated by the
Administrative Agent directing disposition of funds, without further consent of
the applicable Borrower and (B) apply (and allocate) the funds in each
Receivables Account pursuant to Section 2.10(b) of the Credit
Agreement, (ii) if, during the First Activation Period, Availability
exceeds $35,000,000 for a period of 60 consecutive days, the Administrative
Agent shall send a notice to each Receivables Account Bank (the “Termination
Notice”) that terminates the First Activation Period and commences a period
(the “Termination Period”) in which the Parent Borrower may transact
business through each Receivables Account in its normal fashion, including
making withdrawals from each Receivables Account, and (iii) if, at any
point during the Termination Period, Availability falls below $20,000,000, the
Administrative Agent shall send a notice to each Receivables Account Bank (the “Second
Activation Period Notice”) that the applicable Receivables Account Bank
shall cease complying with any instructions originated by the applicable
Grantor and shall comply with instructions originated by the Administrative
Agent directing disposition of funds, without further consent of the applicable
Borrower.

 

ARTICLE IV

 

Remedies

 

SECTION 4.01.  Remedies Upon Default.  Upon the occurrence and during the
continuance of an Event of Default, each Grantor agrees to deliver each item of
Collateral to the Administrative Agent on demand, and it is agreed that the
Administrative Agent shall have the right to take any of or all the following
actions at the same or different times:  (a) with
respect to any Article 9 Collateral consisting of Intellectual Property,
on demand, to cause the Security Interest to become an assignment, transfer and
conveyance of any of or all such Article 9 Collateral by the applicable
Grantors to the Administrative Agent, or to license or sublicense, whether
general, special or otherwise, and whether on an exclusive or nonexclusive
basis, any such Article 9 Collateral throughout the world on such terms
and conditions and in such manner as the Administrative Agent shall determine
(other than in violation of any applicable laws or regulations or then-existing
licensing arrangements to the extent that waivers cannot be obtained), and (b) with
or without legal process and with or without prior notice or demand for
performance, to take possession of the Article 9 Collateral and without
liability for trespass to enter any premises where the Article 9
Collateral may be located for the purpose of taking possession of or removing
the Article 9 Collateral and, generally, to exercise any and all rights
afforded to a secured party under the Uniform Commercial Code or other
applicable law (including giving notice of sole control or any other
instruction under any Deposit Account Control Agreement, any Receivables
Account Control Agreement or any other control agreement with any securities
intermediary and take any action therein with respect to such Collateral).  Without limiting the generality of the
foregoing, each Grantor agrees that the Administrative 

 

25

 

Agent shall have the right, subject to the mandatory requirements of
applicable law, to sell or otherwise dispose of all or any part of the
Collateral at a public or private sale or at any broker’s board or on any
securities exchange, for cash, upon credit or for future delivery as the
Administrative Agent shall deem appropriate. 
The Administrative Agent shall be authorized at any such sale of
securities (if it deems it advisable to do so) to restrict the prospective
bidders or purchasers to Persons who will represent and agree that they are
purchasing the Collateral for their own account for investment and not with a
view to the distribution or sale thereof, and upon consummation of any such
sale the Administrative Agent shall have the right to assign, transfer and
deliver to the purchaser or purchasers thereof the Collateral so sold.  Each such purchaser at any such sale of
Collateral shall hold the property sold absolutely, free from any claim or
right on the part of any Grantor, and each Grantor hereby waives (to the extent
permitted by law) all rights of redemption, stay and appraisal which such
Grantor now has or may at any time in the future have under any rule of
law or statute now existing or hereafter enacted.

 

The Administrative Agent shall give the
applicable Grantors 10 days’ written notice (which each Grantor agrees is
reasonable notice within the meaning of Section 9-611 of the New York
UCC or its equivalent in other jurisdictions) of the Administrative Agent’s
intention to make any sale of Collateral. 
Such notice, in the case of a public sale, shall state the time and
place for such sale and, in the case of a sale at a broker’s board or on a
securities exchange, shall state the board or exchange at which such sale is to
be made and the day on which the Collateral, or portion thereof, will first be
offered for sale at such board or exchange. 
Any such public sale shall be held at such time or times within ordinary
business hours and at such place or places as the Administrative Agent may fix
and state in the notice (if any) of such sale. 
At any such sale, the Collateral, or portion thereof, to be sold may be
sold in one lot as an entirety or in separate parcels, as the Administrative
Agent may (in its sole and absolute discretion) determine.  The Administrative Agent shall not be
obligated to make any sale of any Collateral if it shall determine not to do
so, regardless of the fact that notice of sale of such Collateral shall have
been given.  The Administrative Agent
may, without notice or publication, adjourn any public or private sale or cause
the same to be adjourned from time to time by announcement at the time and place
fixed for sale, and such sale may, without further notice, be made at the time
and place to which the same was so adjourned. 
In case any sale of all or any part of the Collateral is made on credit
or for future delivery, the Collateral so sold may be retained by the
Administrative Agent until the sale price is paid by the purchaser or
purchasers thereof, but the Administrative Agent shall not incur any liability
in case any such purchaser or purchasers shall fail to take up and pay for the
Collateral so sold and, in case of any such failure, such Collateral may be
sold again upon like notice.  At any
public (or, to the extent permitted by law, private) sale made pursuant to this
Agreement, any Secured Party may bid for or purchase, free (to the extent permitted
by law) from any right of redemption, stay, valuation or appraisal on the part
of any Grantor (all said rights being also hereby waived and released to the
extent permitted by law), the Collateral or any part thereof offered for sale
and may make payment on account thereof by using any claim then due and payable
to such Secured Party from any Grantor as a credit against the purchase price,
and such Secured Party may, upon compliance with the terms of sale, hold,
retain and dispose of such property without further accountability to any Grantor
therefor.  For purposes hereof, a written

 

26

 

agreement to purchase the
Collateral or any portion thereof shall be treated as a sale thereof; the
Administrative Agent shall be free to carry out such sale pursuant to such
agreement and no Grantor shall be entitled to the return of the Collateral or
any portion thereof subject thereto, notwithstanding the fact that after the
Administrative Agent shall have entered into such an agreement all Events of
Default shall have been remedied and the Secured Obligations paid in full.  As an alternative to exercising the power of
sale herein conferred upon it, the Administrative Agent may proceed by a suit
or suits at law or in equity to foreclose this Agreement and to sell the
Collateral or any portion thereof pursuant to a judgment or decree of a court
or courts having competent jurisdiction or pursuant to a proceeding by a
court-appointed receiver.  Any sale
pursuant to the provisions of this Section 4.01 shall be deemed to conform
to the commercially reasonable standards as provided in Section 9-610(b) of
the New York UCC or its equivalent in other jurisdictions.

 

SECTION 4.02.  Application of Proceeds.  The Administrative Agent shall apply the
proceeds of any collection or sale of Collateral, including any Collateral
consisting of cash, as follows:

 

FIRST, to the payment
of all costs and expenses incurred by the Administrative Agent in connection
with such collection or sale or otherwise in connection with this Agreement,
any other Loan Document or any of the Secured Obligations, including all court
costs and the fees and expenses of its agents and legal counsel, the repayment
of all advances made by the Administrative Agent hereunder or under any other
Loan Document on behalf of any Grantor and any other costs or expenses incurred
in connection with the exercise of any right or remedy hereunder or under any
other Loan Document;

 

SECOND, to the payment
in full of the Secured Obligations (other than the U.S. Term Obligations) (the
amounts so applied to be distributed among the Secured Parties pro  rata
in accordance with the amounts of the Secured Obligations (other than the U.S.
Term Obligations) owed to them on the date of any such distribution);

 

THIRD, to the payment
in full of the U.S. Term Obligations (the amounts so applied to be distributed
among the Secured Parties pro rata in accordance with the amounts of the U.S.
Term Obligations owed to them on the date of any such distribution); and

 

FOURTH, to the
Grantors, their successors or assigns, or as a court of competent jurisdiction
may otherwise direct.

 

The Administrative Agent shall have absolute
discretion as to the time of application of any such proceeds, moneys or
balances in accordance with this Agreement and Section 9.24 of the Credit
Agreement.  Upon any sale of Collateral
by the Administrative Agent (including pursuant to a power of sale granted by
statute or under a judicial proceeding), the receipt of the Administrative Agent
or of the officer making the sale shall be a sufficient discharge to the
purchaser or purchasers of the Collateral so sold and such 

 

27

 

purchaser or purchasers shall not be
obligated to see to the application of any part of the purchase money paid over
to the Administrative Agent or such officer or be answerable in any way for the
misapplication thereof.

 

SECTION 4.03.  Grant of License to Use Intellectual
Property.  For the purpose of
enabling the Administrative Agent to exercise rights and remedies under this
Agreement at such time as the Administrative Agent shall be lawfully entitled
to exercise such rights and remedies, each Grantor hereby grants to the
Administrative Agent an irrevocable, nonexclusive license (exercisable without payment
of royalty or other compensation to the Grantors) to use, license or sublicense
any of the Article 9 Collateral consisting of Intellectual Property now
owned or hereafter acquired by such Grantor, and wherever the same may be
located, and including in such license reasonable 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.  The use of such license by the Administrative
Agent may be exercised, at the option of the Administrative Agent, upon the
occurrence and during the continuation of an Event of Default, provided
that any license, sublicense or other transaction entered into by the
Administrative Agent in accordance herewith shall be binding upon the Grantors
notwithstanding any subsequent cure of an Event of Default.

 

SECTION 4.04.  Securities Act.  In view of the position of the Grantors in
relation to the Pledged Collateral, or because of other current or future
circumstances, a question may arise under the Securities Act of 1933, as now or
hereafter in effect, or any similar statute hereafter enacted analogous in
purpose or effect (such Act and any such similar statute as from time to time
in effect being called the “Federal Securities Laws”) with respect to
any disposition of the Pledged Collateral permitted hereunder.  Each Grantor understands that compliance with
the Federal Securities Laws might very strictly limit the course of conduct of
the Administrative Agent if the Administrative Agent were to attempt to dispose
of all or any part of the Pledged Collateral, and might also limit the extent
to which or the manner in which any subsequent transferee of any Pledged
Collateral could dispose of the same. 
Similarly, there may be other legal restrictions or limitations
affecting the Administrative Agent in any attempt to dispose of all or part of
the Pledged Collateral under applicable “blue sky” or other state securities
laws or similar laws analogous in purpose or effect.  Each Grantor recognizes that in light of such
restrictions and limitations the Administrative Agent may, with respect to any
sale of the Pledged Collateral, limit the purchasers to those who will agree,
among other things, to acquire such Pledged Collateral for their own account,
for investment, and not with a view to the distribution or resale thereof.  Each Grantor acknowledges and agrees that in
light of such restrictions and limitations, the Administrative Agent, in its
sole and absolute discretion (a) may proceed to make such a sale whether
or not a registration statement for the purpose of registering such Pledged
Collateral or part thereof shall have been filed under the Federal Securities
Laws and (b) may approach and negotiate with a single potential purchaser
to effect such sale.  Each Grantor
acknowledges and agrees that any such sale might result in prices and other
terms less favorable to the seller than if such sale were a public sale without
such restrictions.  In the event of any
such sale, the Administrative Agent shall incur no responsibility or liability
for selling all or any part of the Pledged Collateral at a price that the
Administrative Agent, in its sole and absolute 

 

28

 

discretion, may in good faith deem reasonable under the circumstances,
notwithstanding the possibility that a substantially higher price might have
been realized if the sale were deferred until after registration as aforesaid
or if more than a single purchaser were approached.  The provisions of this Section 4.04 will
apply notwithstanding the existence of a public or private market upon which
the quotations or sales prices may exceed substantially the price at which the
Administrative Agent sells.

 

SECTION 4.05.  Registration.  Each Grantor agrees that, upon the occurrence
and during the continuance of an Event of Default, if for any reason the
Administrative Agent desires to sell any of the Pledged Collateral at a public
sale, it will, at any time and from time to time, upon the written request of
the Administrative Agent, use its best efforts to take or to cause the issuer
of such Pledged Collateral to take such action and prepare, distribute and/or
file such documents, as are required or advisable in the reasonable opinion of
counsel for the Administrative Agent to permit the public sale of such Pledged
Collateral.  Each Grantor further agrees
to indemnify, defend and hold harmless (in the manner and to the extent
provided by Section 9.03 of the Credit Agreement) the Administrative
Agent, each other Secured Party, any underwriter and their respective officers,
directors, affiliates and controlling persons from and against all loss,
liability, expenses, costs of counsel (including, without limitation,
reasonable fees and expenses of legal counsel to the Administrative Agent), and
claims (including the costs of investigation) that they may incur insofar as
such loss, liability, expense or claim directly or indirectly arises out of or
is based upon any alleged untrue statement of a material fact contained in any
prospectus (or any amendment or supplement thereto) or in any notification or
offering circular, or directly or indirectly arises out of or is based upon any
alleged omission to state a material fact required to be stated therein or
necessary to make the statements in any thereof not misleading, except insofar
as the same may have been caused by any untrue statement or omission based upon
information furnished in writing to such Grantor or the issuer of such Pledged
Collateral by the Administrative Agent or any other Secured Party expressly for
use therein.  Each Grantor further
agrees, upon such written request referred to above, to use its best efforts to
qualify, file or register, or cause the issuer of such Pledged Collateral to
qualify, file or register, any of the Pledged Collateral under the “blue sky”
or other securities laws of such states as may be requested by the
Administrative Agent and keep effective, or cause to be kept effective, all
such qualifications, filings or registrations. 
Each Grantor will bear all costs and expenses of carrying out its
obligations under this Section 4.05. 
Each Grantor acknowledges that there is no adequate remedy at law for
failure by it to comply with the provisions of this Section 4.05 and that
such failure would not be adequately compensable in damages, and therefore
agrees that its agreements contained in this Section 4.05 may be
specifically enforced.

 

SECTION 4.06.  Other Actions.  After the occurrence of an Event of Default,
each Grantor will, at its own expense, cause the independent certified public
accountants then engaged by such Grantor to prepare and deliver to the
Administrative Agent and each Lender, at any time and from time to time,
promptly upon the request of the Administrative Agent, the following reports
with respect to such Grantor:  (a) a
reconciliation of all Accounts; (b) an aging of such Accounts; (c) trial
balances in respect of such Accounts; and (d) a test verification of such
Accounts.

 

29

 

ARTICLE V

 

Indemnity, Subrogation and Subordination

 

SECTION 5.01.  Indemnity and Subrogation.  The Parent Borrower agrees that in the event
any assets of any Grantor shall be sold pursuant to this Agreement or any other
Collateral Document to satisfy in whole or in part an obligation owed to any
Secured Party, the Parent Borrower shall indemnify such Grantor in an amount
equal to the greater of the book value or the fair market value of the assets
so sold.

 

SECTION 5.02.  Contribution and Subrogation.  Each Grantor (a “Contributing Party”)
agrees (subject to Section 5.03) that, in the event a payment shall be
made by any other Grantor hereunder in respect of any Secured Obligation or
assets of any other Grantor shall be sold pursuant to any Collateral Document
to satisfy any Secured Obligation owed to any Secured Party and such other
Grantor (the “Claiming Party”) shall not have been fully indemnified by
the Borrowers as provided in Section 5.01, the Contributing Party shall indemnify
the Claiming Party in an amount equal to the such Contributing Party’s Domestic
Applicable Percentage (as such term is defined in Section 10.10(a) of
the Credit Agreement) of such payment or the greater of the book value or the
fair market value of such assets, as the case may be.  Any Contributing Party making any payment to
a Claiming Party pursuant to this Section 5.02 shall be subrogated to the
rights of such Claiming Party under Section 5.01 to the extent of such
payment.  Nothing in this provision shall
affect any Grantor’s several liability for the entire amount of the Secured
Obligations (up to such Grantor’s Maximum Liability).

 

SECTION 5.03.  Subordination.  (a)  Notwithstanding any provision of
this Agreement to the contrary, all rights of the Grantors under
Sections 5.01 and 5.02 and all other rights of indemnity, contribution or
subrogation under applicable law or otherwise shall be fully subordinated to
the indefeasible payment in full in cash of the Secured Obligations.  No failure on the part of any Grantor to make
the payments required by Sections 5.01 and 5.02 (or any other payments
required under applicable law or otherwise) shall in any respect limit the
obligations and liabilities of any Grantor with respect to its obligations hereunder,
and each Grantor shall remain liable for the full amount of the obligations of
such Grantor hereunder.

 

(b)  Each Grantor hereby agrees that all
Indebtedness and other monetary obligations owed by it to any other Grantor or
any other Subsidiary shall be fully subordinated to the indefeasible payment in
full in cash of the Secured Obligations.

 

ARTICLE VI

 

Miscellaneous

 

SECTION 6.01.  Notices.  All communications and notices hereunder
shall (except as otherwise expressly permitted herein) be in writing and given
as provided in Section 9.01 of the Credit Agreement.  All communications and notices hereunder to 

 

30

 

any Subsidiary Party shall be given to it in care of the Parent
Borrower as provided in Section 9.01 of the Credit Agreement.

 

SECTION 6.02.  Waivers; Amendment.  (a)  No failure or delay by the
Administrative Agent, the Issuing Bank or any Lender in exercising any right or
power hereunder or under any other Loan Document shall operate as a waiver
thereof, nor shall any single or partial exercise of any such right or power,
or any abandonment or discontinuance of steps to enforce such a right or power,
preclude any other or further exercise thereof or the exercise of any other
right or power.  The rights and remedies
of the Administrative Agent, the Issuing Bank and the Lenders hereunder and
under the other Loan Documents are cumulative and are not exclusive of any
rights or remedies that they would otherwise have.  No waiver of any provision of this Agreement
or consent to any departure by any Grantor herefrom shall in any event be
effective unless the same shall be permitted by paragraph (b) of this
Section 6.02, and then such waiver or consent shall be effective only in
the specific instance and for the purpose for which given.  Without limiting the generality of the
foregoing, the making of a Loan, the acceptance and purchase of a B/A or the
issuance, amendment, renewal or extension of a Letter of Credit shall not be
construed as a waiver of any Default, regardless of whether the Administrative
Agent, any Lender or the Issuing Bank may have had notice or knowledge of such
Default at the time.  No notice or demand
on any Grantor in any case shall entitle any Grantor to any other or further
notice or demand in similar or other circumstances.

 

(b)  Neither this Agreement nor any
provision hereof may be waived, amended or modified except pursuant to an
agreement or agreements in writing entered into by the Administrative Agent and
the Grantor or Grantors with respect to which such waiver, amendment or
modification is to apply, subject to any consent required in accordance with Section 9.02
of the Credit Agreement.

 

SECTION 6.03.  Administrative Agent’s Fees and Expenses;
Indemnification.  (a)  The parties
hereto agree that the Administrative Agent shall be entitled to reimbursement
of its expenses incurred hereunder as provided in Section 9.03 of the
Credit Agreement.

 

(b)  Without limitation of its
indemnification obligations under the other Loan Documents, each Grantor
jointly and severally agrees to indemnify the Administrative Agent and the
other Indemnitees against, and hold each Indemnitee harmless from, any and all
losses, claims, damages, penalties, liabilities and related expenses, including
the reasonable fees, charges and disbursements of one counsel for the
Indemnitees (in addition to one local counsel in each relevant jurisdiction,
including Canadian local counsel), except in the case where there is a
divergent or conflicting interest between the Administrative Agent and the
Lenders, in which case there shall be one separate counsel for the
Administrative Agent, on the one hand, and the Lenders as a group, on the other
hand, incurred by or asserted against any Indemnitee arising out of, in connection
with, or as a result of, the execution, delivery or performance of this
Agreement or any actual or prospective claim, litigation, investigation or
proceeding relating to any of the foregoing agreements or instruments
contemplated hereby, or to the 

 

31

 

Collateral (including any such claim, litigation, investigation or
proceeding brought by or on behalf of any Grantor or any Related Party of a
Grantor), whether based on contract, tort or any theory, regardless of whether
or not any Indemnitee is a party thereto, provided that such indemnity shall not, as to any
Indemnitee, be available to the extent that such losses, claims, damages,
penalties, liabilities or related expenses are determined by a court of
competent jurisdiction by final judgment to have resulted from the gross
negligence, bad faith or wilful misconduct of such Indemnitee or any of its
Related Parties.

 

(c)  Any such amounts payable as
provided hereunder shall be additional Secured Obligations secured hereby and
by the other Security Documents.  The
provisions of this Section 6.03 shall remain operative and in full force
and effect regardless of the termination of this Agreement or any other Loan
Document, the consummation of the transactions contemplated hereby, the
repayment of any of the Secured Obligations, the invalidity or unenforceability
of any term or provision of this Agreement or any other Loan Document, or any
investigation made by or on behalf of the Administrative Agent or any other
Secured Party.  All amounts due under
this Section 6.03 shall be payable on written demand therefor.

 

SECTION 6.04.  Successors and Assigns.  Whenever in this Agreement any of the parties
hereto is referred to, such reference shall be deemed to include the permitted
successors and assigns of such party; and all covenants, promises and
agreements by or on behalf of any Grantor or the Administrative Agent that are
contained in this Agreement shall bind and inure to the benefit of their
respective successors and assigns.

 

SECTION 6.05.  Survival of Agreement.  All covenants, agreements, representations
and warranties made by the Grantors in the Loan Documents and in the
certificates or other instruments prepared or delivered in connection with or
pursuant to this Agreement or any other Loan Document shall be considered to
have been relied upon by the Lenders and shall survive the execution and
delivery of the Loan Documents and the making of any Loans, the acceptance and
purchase of any B/As and issuance, amendment, renewal or extension of any
Letters of Credit, regardless of any investigation made by any Lender or on its
behalf and notwithstanding that the Administrative Agent, the Issuing Bank or
any Lender may have had notice or knowledge of any Default or incorrect
representation or warranty at the time any credit is extended under the Credit
Agreement, and shall continue in full force and effect as long as the principal
of or any accrued interest on any Loan, the face amount of any B/A or any fee
or any other amount payable under any Loan Document is outstanding and unpaid
or any Letter of Credit is outstanding and so long as the Commitments have not
expired or terminated.

 

SECTION 6.06.  Counterparts; Effectiveness; Several
Agreement; Maximum Liability.  This
Agreement may be executed in counterparts, each of which shall constitute an
original but all of which when taken together shall constitute a single
contract.  Delivery of an executed
signature page to this Agreement by facsimile transmission shall be as
effective as delivery of a manually signed counterpart of this Agreement.  This Agreement shall become effective as to
any Grantor when a counterpart 

 

32

 

hereof executed on behalf of such Grantor shall have been delivered to
the Administrative Agent and a counterpart hereof shall have been executed on
behalf of the Administrative Agent, and thereafter shall be binding upon such
Grantor and the Administrative Agent and their respective permitted successors
and assigns, and shall inure to the benefit of such Grantor, the Administrative
Agent and the other Secured Parties and their respective successors and
assigns, except that no Grantor shall have the right to assign or transfer its
rights or obligations hereunder or any interest herein or in the Collateral
(and any such assignment or transfer shall be void) except as expressly
contemplated by this Agreement or the Credit Agreement.  This Agreement shall be construed as a
separate agreement with respect to each Grantor and may be amended, modified,
supplemented, waived or released with respect to any Grantor without the
approval of any other Grantor and without affecting the obligations of any
other Grantor hereunder.  In any action
or proceeding involving any state, provincial or foreign corporate law, or any
federal, state, provincial or foreign bankruptcy, insolvency, reorganization or
other law affecting the rights of creditors generally, if the obligations of
any Grantor under this Agreement would otherwise be held or determined to be
avoidable, invalid or unenforceable on account of the amount of such Grantor’s
liability under this Agreement, then, notwithstanding any other provision of
this Agreement to the contrary, the amount of such liability shall, without any
further action by the Grantors or the Administrative Agent, be automatically
limited and reduced to such Grantor’s Maximum Liability.  This Section 6.06 with respect to the
Maximum Liability of each Grantor is intended solely to preserve the rights of
the Administrative Agent and the Lenders to the maximum extent not subject to
avoidance under applicable law, and no Grantor nor any other person or entity
shall have any right or claim under this Section 6.06 with respect to such
Maximum Liability, except to the extent necessary so that the obligations of
any Grantor hereunder shall not be rendered voidable under applicable law.  Each
Grantor agrees that the Secured Obligations may at any time and from time to
time exceed the Maximum Liability of each Grantor without impairing this
Agreement or affecting the rights and remedies of the Administrative Agent and
the Lenders hereunder, provided that nothing in this sentence shall be
construed to increase any Grantor’s obligations hereunder beyond its Maximum
Liability.

 

SECTION 6.07.  Severability.  Any provision of this Agreement held to be
invalid, illegal or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such invalidity, illegality or
unenforceability without affecting the validity, legality and enforceability of
the remaining provisions hereof; and the invalidity of a particular provision
in a particular jurisdiction shall not invalidate such provision in any other
jurisdiction.  The parties shall endeavor
in good-faith negotiations to replace the invalid, illegal or unenforceable
provisions with valid provisions the economic effect of which comes as close as
possible to that of the invalid, illegal or unenforceable provisions.

 

SECTION 6.08.  Compromises and Collection of Collateral.  The Grantors and the Administrative Agent
recognize that set-offs, counterclaims, defenses and other claims may be
asserted by obligors with respect to certain of the Receivables, that certain
of the Receivables may be or become uncollectible in whole or in part and that
the expense and probability of success in litigating a disputed Receivable may
exceed the 

 

33

 

amount that reasonably may be expected to be recovered with respect to
a Receivable.  In view of the foregoing,
each Grantor agrees that the Administrative Agent may, at any time and from
time to time, if an Event of Default has occurred and is continuing, compromise
with the obligor on any Receivable, accept in full payment of any Receivable
such amount as the Administrative Agent in its sole discretion shall determine
or abandon any Receivable, and any such action by the Administrative Agent
shall be commercially reasonable so long as the Administrative Agent acts in
good faith based on information known to it at the time it takes any such
action.

 

SECTION 6.09.  Governing Law; Jurisdiction; Consent to
Service of Process.  (a)  This
Agreement shall be governed by and construed in accordance with the laws of the
State of New York.

 

(b)  Each Grantor hereby irrevocably and
unconditionally submits, for itself and its property, to the nonexclusive
jurisdiction of any U.S. Federal or New York State court sitting in New York,
New York in any action or proceeding arising out of or relating to this
Agreement, or for recognition or enforcement of any judgment, and each of the
parties hereto hereby irrevocably and unconditionally agrees that all claims in
respect of any such action or proceeding may be heard and determined in such
New York State or, to the extent permitted by law, in such Federal
court.  Each of the parties hereto agrees
that a final judgment in any such action or proceeding shall be conclusive and
may be enforced in other jurisdictions by suit on the judgment or in any other
manner provided by law.  Nothing in this
Agreement or any other Loan Document shall affect any right that the
Administrative Agent, the Issuing Bank or any Lender may otherwise have to
bring any action or proceeding relating to this Agreement or any other Loan
Document against any Grantor or its properties in the courts of any
jurisdiction.

 

(c)  Each Grantor hereby irrevocably and
unconditionally waives, to the fullest extent it may legally and effectively do
so, any objection which it may now or hereafter have to the laying of venue of
any suit, action or proceeding arising out of or relating to this Agreement or
any other Loan Document in any court referred to in paragraph (b) of this Section 6.09.  Each of the parties hereto hereby irrevocably
waives, to the fullest extent permitted by law, the defense of an inconvenient
forum to the maintenance of such action or proceeding in any such court.

 

(d)  Each party to this Agreement
irrevocably consents to service of process in the manner provided for notices
in Section 6.01.  Nothing in this
Agreement or any other Loan Document will affect the right of any party to this
Agreement to serve process in any other manner permitted by law.

 

SECTION 6.10.  WAIVER OF JURY TRIAL.  EACH PARTY HERETO HEREBY WAIVES, TO THE
FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A
TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR
RELATING TO THIS AGREEMENT, ANY OTHER LOAN DOCUMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY OR THEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER
THEORY).  EACH PARTY HERETO 

 

34

 

(A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY
OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY
WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND
(B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO
ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS
IN THIS SECTION 6.10.

 

SECTION 6.11.  Headings.  Article and Section headings and
the Table of Contents used herein are for convenience of reference only, are
not part of this Agreement and are not to affect the construction of, or to be
taken into consideration in interpreting, this Agreement.

 

SECTION 6.12.  Security Interest Absolute.  All rights of the Administrative Agent
hereunder, the Security Interest, the grant of a security interest in the
Pledged Collateral and all obligations of each Grantor hereunder shall be
absolute and unconditional irrespective of (a) any lack of validity or
enforceability of the Credit Agreement, any other Loan Document, any agreement
with respect to any of the Secured Obligations or any other agreement or instrument
relating to any of the foregoing, (b) any change in the time, manner or
place of payment of, or in any other term of, all or any of the Secured
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, (c) 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 any guarantee, securing or guaranteeing all or
any of the Secured Obligations, or (d) any other circumstance that might
otherwise constitute a defense available to, or a discharge of, any Grantor in
respect of the Secured Obligations or this Agreement.

 

SECTION 6.13.  Termination or Release.  (a)  This Agreement, the Security
Interest and all other security interests granted hereby shall terminate when
all the Obligations have been paid in full and the Lenders have no further
commitment to lend under the Credit Agreement, the Total L/C Exposure has been
reduced to zero and the Issuing Bank has no further obligations to issue
Letters of Credit under the Credit Agreement.

 

(b)  A Subsidiary Party shall
automatically be released from its obligations hereunder and the Security
Interest in the Collateral of such Subsidiary Party shall be automatically
released upon the consummation of any transaction permitted by the Credit
Agreement as a result of which such Subsidiary Party ceases to be a Domestic
Subsidiary Loan Party, provided
that the Lenders shall have consented to such transaction (to the extent
required by the Credit Agreement) and the terms of such consent did not provide
otherwise.

 

(c)  Upon any sale or other transfer by
any Grantor of any Collateral that is permitted under the Credit Agreement, or
upon the effectiveness of any written consent to the release of the security
interest granted hereby in any Collateral pursuant to 

 

35

 

Section 9.02 of the Credit Agreement, the security interest in such
Collateral shall be automatically released.

 

(d)  In connection with any termination
or release pursuant to paragraph (a), (b) or (c) above, the
Administrative Agent shall execute and deliver to any Grantor, at such Grantor’s
expense, all documents that such Grantor shall reasonably request to evidence
such termination or release.  Any
execution and delivery of documents pursuant to this Section 6.13 shall be
without recourse to or warranty by the Administrative Agent.

 

SECTION 6.14.  Additional Subsidiaries.  Pursuant to Section 5.11 of the Credit
Agreement, each Domestic Subsidiary Loan Party that was not in existence or not
a Domestic Subsidiary Loan Party on the Restatement Effective Date is required
to enter into this Agreement as a Subsidiary Party upon becoming such a
Domestic Subsidiary Loan Party.  Upon
execution and delivery by the Administrative Agent and a Domestic Subsidiary
Loan Party of an instrument in the form of Exhibit A hereto, such Domestic
Subsidiary Loan Party shall become a Subsidiary Party hereunder with the same
force and effect as if originally named as a Subsidiary Party herein.  The execution and delivery of any such
instrument shall not require the consent of any other Grantor hereunder.  The rights and obligations of each Grantor
hereunder shall remain in full force and effect notwithstanding the addition of
any Domestic Subsidiary Loan Party as a party to this Agreement.

 

SECTION 6.15.  Administrative Agent Appointed
Attorney-in-Fact.  Each Grantor
hereby appoints the Administrative Agent the attorney-in-fact of such Grantor
for the purpose of carrying out the provisions of this Agreement and taking any
action and executing any instrument that the Administrative Agent may deem
necessary or advisable to accomplish the purposes hereof, which appointment is
irrevocable until the payment in full of the Obligations and coupled with an
interest.  Without limiting the
generality of the foregoing, the Administrative Agent shall have the right, upon
the occurrence and during the continuance of an Event of Default, with full
power of substitution either in the Administrative Agent’s name or in the name
of such Grantor (a) to receive, endorse, assign and/or deliver any and all
notes, acceptances, checks, drafts, money orders or other evidences of payment
relating to the Collateral or any part thereof, (b) to demand, collect,
receive payment of, give receipt for and give discharges and releases of all or
any of the Collateral, (c) to sign the name of any Grantor on any invoice
or bill of lading relating to any of the Collateral, (d) to send
verifications of Receivables to any Account Debtor, (e) to commence and
prosecute any and all suits, actions or proceedings at law or in equity in any
court of competent jurisdiction to collect or otherwise realize on all or any
of the Collateral or to enforce any rights in respect of any Collateral, (f) to
settle, compromise, compound, adjust or defend any actions, suits or
proceedings relating to all or any of the Collateral, (g) to notify, or to
require any Grantor to notify, Account Debtors to make payment directly to the
Administrative Agent, and (h) to use, sell, assign, transfer, pledge, make
any agreement with respect to or otherwise deal with all or any of the
Collateral, and to do all other acts and things necessary to carry out the
purposes of this Agreement, as fully and completely as though the
Administrative Agent were the absolute owner of the Collateral for all
purposes, provided that nothing 

 

36

 

herein contained shall be construed as requiring or obligating the
Administrative Agent to make any commitment or to make any inquiry as to the
nature or sufficiency of any payment received by the Administrative Agent, or
to present or file any claim or notice, or to take any action with respect to
the Collateral or any part thereof or the moneys due or to become due in
respect thereof or any property covered thereby.  The Administrative Agent and the other
Secured Parties shall be accountable only for amounts actually received as a
result of the exercise of the powers granted to them herein, and neither they
nor their officers, directors, employees or agents shall be responsible to any
Grantor for any act or failure to act hereunder, except for their own gross
negligence, bad faith or wilful misconduct.

 

SECTION 6.16.  Intercreditor Agreement.  Notwithstanding anything herein to the
contrary, the Lien and security interest granted to the Administrative Agent
pursuant to this Agreement and the exercise of any right of remedy by the
Administrative Agent hereunder are subject to the 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.

 

SECTION 6.17.  Reaffirmation.  Each of the Grantors hereby consents to the
Credit Agreement and the transactions contemplated thereby and hereby confirms
its guarantees, pledges, grants of security interests and other agreements, as
applicable, under each of the agreements to which it is party set forth on
Schedule VI attached hereto and agrees that notwithstanding the effectiveness
of the Credit Agreement and the consummation of the transactions contemplated
thereby, such guarantees, pledges, grants of security interests and other
agreements shall continue to be in full force and effect and shall accrue to
the benefit of the Lenders under the Credit Agreement.

 

SECTION 6.18.  Effect of Restatement.  This Agreement shall supersede the Original
Domestic Security Agreement from and after the Restatement Effective Date.  On and after the Restatement Effective Date,
all obligations of each Grantor and Guarantor under the Original Domestic
Security Agreement shall become obligations of such Grantor or Guarantor, as
applicable, hereunder, and the provisions of the Original Domestic Security
Agreement shall be superseded by the provisions hereof.

 

[Signature
Pages Follow]

 

37

 

IN
WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the
day and year first above written.

 

	
   

  	
  INDALEX
  HOLDINGS FINANCE, INC.,

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  by

  
	
   

  	
   

  	
   

  	
  /s/
  Patrick Lawlor

  
	
   

  	
   

  	
   

  	
  Name:
  Patrick Lawlor

  
	
   

  	
   

  	
   

  	
  Title:
  Secretary, Treasurer & Chief

  Financial Officer

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  INDALEX
  HOLDING CORP.,

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  by

  
	
   

  	
   

  	
   

  	
  /s/
  Patrick Lawlor

  
	
   

  	
   

  	
   

  	
  Name:
  Patrick Lawlor

  
	
   

  	
   

  	
   

  	
  Title:
  Secretary, Treasurer & Chief

  Financial Officer

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  INDALEX
  INC.,

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  by

  
	
   

  	
   

  	
   

  	
  /s/
  Patrick Lawlor

  
	
   

  	
   

  	
   

  	
  Name:
  Patrick Lawlor

  
	
   

  	
   

  	
   

  	
  Title:
  Secretary, Treasurer & Chief 

  Financial Officer

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  CARADON
  LEBANON, INC.,

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  by

  
	
   

  	
   

  	
   

  	
  /s/
  Patrick Lawlor

  
	
   

  	
   

  	
   

  	
  Name:
  Patrick Lawlor

  
	
   

  	
   

  	
   

  	
  Title:
  Secretary, Treasurer & Chief 

  Financial Officer

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  DOLTON
  ALUMINUM COMPANY, INC.,

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  by

  
	
   

  	
   

  	
   

  	
  /s/
  Patrick Lawlor

  
	
   

  	
   

  	
   

  	
  Name:
  Patrick Lawlor

  
	
   

  	
   

  	
   

  	
  Title:
  Secretary, Treasurer & Chief 

  Financial Officer

  

 

38

 

	
   

  	
  JPMORGAN
  CHASE BANK, N.A., AS

  ADMINISTRATIVE AGENT,

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  by

  
	
   

  	
   

  	
   

  	
  /s/
  Linda M. Meyer

  
	
   

  	
   

  	
   

  	
  Name:
  Linda M. Meyer

  
	
   

  	
   

  	
   

  	
  Title:
  Vice President

  

 

39Exhibit 10.16

 

SETTLEMENT AGREEMENT

 

THIS AGREEMENT, dated as of May 21,
2008 (the “Agreement”), is by and among SILICON STORAGE TECHNOLOGY, INC., a California corporation
(the “Company”), and the other
persons and entities that are signatories hereto (collectively, the “Riley Group,” and each,
individually, a “member” of the Riley Group)
which presently are or may be deemed to be members of a “group” with respect to
the common stock of the Company, no par value per share (the “Common Stock”), pursuant to Rule 13d-5
promulgated by the Securities and Exchange Commission (the “SEC”) under the Securities Exchange
Act of 1934, as amended (the “Exchange Act”).

 

WHEREAS, the Riley Group is the
beneficial owner of 5,761,748 shares of Common Stock and in addition possesses
shared voting and dispositive power over 509,876 shares of Common Stock, over
which beneficial ownership is disclaimed;

 

WHEREAS, on April 11, 2008,
the Riley Investment Partners Master Fund L.P. delivered to the Company a “Notice
of Intention to Nominate Persons for Election as Directors” (the “Nomination Letter”) and on April 10,
2008, the Riley Group filed a preliminary proxy statement (the “Riley Proxy Statement”) on Schedule
14A with the SEC  announcing its intent
to solicit proxies for the election of its own opposition slate of nominees
(the “Proxy Solicitation”) for
election to the Company’s board of directors (the “Board”)
at the 2008 annual meeting of shareholders of the Company (the “2008 Annual Meeting”); and

 

WHEREAS, the Company and the
members of the Riley Group have determined that the interests of the Company
and its shareholders would be best served at this time by, among other things,
avoiding the Proxy Solicitation and the expense and disruption that may result
therefrom.

 

NOW, THEREFORE, in consideration
of the foregoing premises and the mutual covenants and agreements contained
herein, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto, intending to
be legally bound hereby, agree as follows:

 

1.             Representations
and Warranties of the Company.

 

The Company hereby represents and warrants to the
Riley Group that:

 

(a)           this
Agreement has been duly authorized, executed and delivered by the Company, and
is a valid and binding obligation of the Company, enforceable against the
Company in accordance with its terms, except as enforcement thereof may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium,
fraudulent conveyance or similar laws generally affecting the rights of
creditors and subject to general equity principles;

 

(b)           neither
the execution of this Agreement nor the consummation of any of the transactions
contemplated hereby nor the fulfillment of the terms hereof, in each case in
accordance with the terms hereof, will conflict with, or result in a breach or
violation of, or result in the imposition of any lien, charge or encumbrance
upon any property or assets of the Company or any of its subsidiaries pursuant
to the terms of, any indenture, contract, lease, 

 

 

mortgage, deed of trust,
note agreement, loan agreement or other agreement, obligation, condition,
covenant or instrument to which the Company or any of its subsidiaries is a
party or bound or to which its or their property is subject;

 

(c)           the
execution and delivery by the Company of this Agreement and the performance by
the Company of its obligations hereunder do not and will not violate the
Articles of Incorporation of the Company, as amended, the Bylaws of the
Company, as amended, or any policy, procedure, charter or code of the Company;
and

 

(d)           the
execution and delivery by the Company of this Agreement and the performance by
the Company of its obligations hereunder do not and will not

 

(i)            violate
in any material respect any law, rule, regulation or order of any court or
other agency of government that is applicable to the Company; or

 

(ii)           have
a material adverse effect on the enforceability of this Agreement.

 

2.             Representations
and Warranties of the Riley Group.

 

Each member of the Riley
Group represents and warrants to the Company:

 

(a)           this
Agreement has been duly authorized, executed and delivered by each member, and
is a valid and binding obligation of each member, enforceable against each
member in accordance with its terms, except as enforcement thereof may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium,
fraudulent conveyance or similar laws generally affecting the rights of
creditors and subject to general equity principles;

 

(b)           the
execution and delivery by each member of this Agreement and the performance by
each member of its obligations hereunder do not and will not violate, any
governing partnership agreement, membership agreement and/or any other
governing instruments of such member, or any policy, procedure, charter or code
of such member; and

 

(c)           the
execution and delivery by each member of this Agreement and the performance by
each member of its obligations hereunder do not and will not

 

(i)            violate
in any material respect any law, rule, regulation or order of any court or
other agency of government that is applicable to such member; or

 

(ii)           have
a material adverse effect on the enforceability of this Agreement.

 

(d)           Bryant
R. Riley (the “Riley Director) is “independent”
as “independence” is defined by the listing standards of The NASDAQ Stock
Market LLC.

 

 

(e)           The Riley Group is the beneficial owner
of, in the aggregate, more than five percent (5%) of the outstanding Common
Stock, as of the date hereof, and such ownership is set forth on Exhibit B hereto.

 

3.             Covenants
of the Company and the Riley Group.

 

(a)           The
Company shall include Mr. Riley in the Board’s slate of nominees for
election as a director of the Company at the 2008 Annual Meeting and use its
reasonable best efforts to cause the election of Mr. Riley at the 2008
Annual Meeting including, without limitation, recommending that the Company’s
shareholders vote in favor of the election of Mr. Riley at the 2008 Annual
Meeting and voting the shares of Common Stock represented by all proxies
granted by shareholders in connection with the solicitation of proxies by the
Board of Directors in connection with such meeting in favor of Mr. Riley,
except for such proxies that specifically indicate a vote to withhold authority
with respect to Mr. Riley.  Neither
the Board nor the Company shall take any position, make any statements or take
any action inconsistent with such recommendation.

 

(b)           Upon election,
the Board of Directors will appoint Mr. Riley to the Compensation
Committee and the Nominating and Corporate Governance Committee of the Board of
Directors for the duration of Mr. Riley’s service on the Board of
Directors; provided Mr. Riley is then
qualified to serve on such committees under applicable legal requirements and
listing standards.  If at such time as Mr. Riley
is not so qualified he may be removed from such committee by the Board of
Directors.  Based solely upon information
provided by, and representations from, Mr. Riley, the Company believes
that Mr. Riley is qualified to serve on such committees under applicable
legal requirements and listing standards.

 

(c)           The Nominating and Corporate Governance
Committee will use its reasonable best efforts to find, and the Board shall use
its reasonable best efforts to appoint one additional member to the Board of
Directors as promptly as practicable.  Mr. Riley may submit names of
candidates for consideration by the Nominating and Corporate Governance
Committee for such additional member to the Board of Directors.  However, only candidates that have been
reviewed and unanimously approved by the Nominating and Corporate Governance
Committee will be considered by the Board of Directors.  All members of
the Nominating and Corporate Governance Committee shall be integrally involved
in all material aspects of the search for such new director.  The Riley Group acknowledges that Egon
Zehnder International, a third-party recruiting firm, has been retained by the
Nominating and Corporate Governance Committee to assist in such search and agrees
not to object to the retention of such firm. 
After the appointment of the additional member contemplated above, all
subsequent nominees will only require a majority of the Nominating and
Corporate Governance Committee to be eligible for consideration by the
Board.  Pursuant to Section 19 of the Company’s Bylaws, the authorized
number of directors of the Company shall not be less than a minimum of five (5) nor
more than a maximum of seven (7).  Any
shareholder proposal to increase the size of the Board of Directors above seven
(7) members shall require the approval of a majority of the members of the
Board of Directors and the approval of the Riley Director.

 

(d)           The
Riley Group agrees to vote in favor of the Board’s slate of nominees for
election as directors of the Company at the 2008 Annual Meeting and all future
annual 

 

 

meetings of the Shareholders of the Company; provided that such slate includes the Riley Director and the
Riley Director consents to be on such slate. 
The Riley Group further agrees to vote in favor of the proposals
submitted by the Board at the 2008 Annual Meeting and all future annual
meetings of the shareholders of the Company; provided
that the Riley Director is on the slate of directors for such meeting and the
Riley Director consents to be on such slate and provided
further that the Riley Director has voted in favor of such proposal
as a member of the Board. 
Notwithstanding anything in this Agreement to the contrary, this Section 3(d) shall
terminate on the first date that the Riley Director ceases to be a director on
the Board.

 

(e)           The
Riley Director, upon election to the Board, will serve as an integral  member of the Board and be governed by the
same protections and obligations regarding confidentiality, conflicts of interests,
fiduciary duties, trading and disclosure policies and other governance
guidelines, and shall have the same rights and benefits, including (but not
limited  to) with respect to insurance,
indemnification, compensation and fees, as are applicable to all independent
directors of the Company.

 

(f)            Immediately
prior to the issuance of the press release contemplated in Section 6
hereof, the Riley Group shall, subject to Section 16 hereof: (i) irrevocably
withdraw the Nomination Letter and shall terminate the pending proxy contest
with respect to the election of directors at the 2008 Annual Meeting and (ii) file
a Schedule 13D/A notifying the SEC of the termination of the proxy
solicitation.  The Riley Group shall make
all necessary filings with the SEC to accomplish such withdrawal and
termination and at its own expense.

 

(g)           In
the event Mr. Riley shall resign prior to the expiration of his term, then
the Riley Group shall have the right to nominate a replacement to serve the
remainder of Mr. Riley’s term.  The
Riley Group hereby agrees that such nominee shall be “independent” as “independence”
is defined by the listing standards of The NASDAQ Stock Market LLC.  In addition, such nominee shall provide all
information required of shareholder nominees as set forth in the Company’s
proxy statements filed with the SEC and such further information as reasonably
requested by the Nominating and Corporate Governance Committee to determine the
qualifications and independence of such nominee.  The appointment of such nominee shall be
subject to the approval of the Board of Directors.  All references in this Agreement to the Riley
Director shall also be deemed to mean such person as may be appointed a member
of the Board of Directors pursuant to this Section 3(g).

 

4.             Standstill
Period.

 

(a)           Each
member of the Riley Group agrees that until at least June 30, 2009 and for
such continuous time thereafter as the Riley Director remains a member of the
Board (such period, the “Standstill Period”),
without the prior written consent of the Board specifically expressed in a
written resolution adopted by a majority vote of the entire Board, neither it
nor any of its Affiliates (as such term is defined below) under its control or
direction will directly or indirectly:

 

(i)            effect
or seek to effect (including, without limitation, by entering into any
discussions, negotiations, agreements or understandings), offer or propose to
effect, or cause or participate in, or in way knowingly assist or facilitate
any other person to effect or seek, 

 

 

offer or propose to
effect any (x) tender offer or exchange offer, merger, acquisition or
other business combination involving the Company or any of its subsidiaries; (y) any
form of business combination or acquisition or other transaction relating to a
material amount of assets or securities of the Company or any of its
subsidiaries or (z) any form of restructuring, recapitalization or similar
transaction with respect to the Company or any of its subsidiaries;

 

(ii)           acquire,
offer or propose to acquire any voting securities (or beneficial ownership
thereof), or rights or options to acquire any voting securities (or beneficial
ownership thereof) of the Company if after any such case, immediately after the
taking of such action the Riley Group, together with its respective Affiliates,
would in the aggregate, beneficially own more that 9.9% of the then outstanding
Common Stock;

 

(iii)         engage
in any solicitation of proxies or consents to vote any voting securities of the
Company in opposition to the recommendation of the Board with respect to any
matter, including the election of directors;

 

(iv)          knowingly
seek to influence any person with respect to the voting of any securities of
the Company in opposition to the recommendation of the Board with respect to
any matter, including but not limited to the election of members of the Board
of Directors, unless requested to do so by the Company;

 

(v)            otherwise
act, alone or in concert with others, to knowingly seek to control or influence
the management or the policies of the Company;

 

(vi)          otherwise
act, alone or in concert with others, to seek to control the Board or initiate
or take any action to obtain representation on the Board, or seek the removal
of any director from the Board, except as permitted expressly by this
Agreement;

 

(vii)         take
any action to seek to amend any provision of the Company’s Amended and Restated
Articles of Incorporation or Amended and Restated Bylaws except as may be
approved by the Board;

 

(viii)        grant
any proxy rights with respect to the Common Stock to any person not designated
by the Company, except for Riley Investment Management LLC and only where it
shares voting power pursuant to arrangements that exist on the date of this
Agreement or agreements substantially similar to such existing arrangements;

 

(ix)          call
or seek to have called any meeting of the shareholders of the Company;

 

(x)           propose
any matter for submission to a vote of the shareholders of the Company;

 

(xi)          execute
any written consents, waiver or demand with respect to the Common Stock;

 

(xii)         unless
required by law, make or issue or cause to be made or issued any public
disclosure, announcement or statement (including without limitation the filing 

 

 

of any document with the
SEC or any other governmental agency or any disclosure to any journalist,
member of the media or securities analyst) (x) in support of any proxy
solicitation other than a proxy solicitation by the Company, (y) concerning
any matter described in (i) through (x) above, or (z) negatively
commenting upon the Company, including the Company’s management, Board of
Directors, strategy, business, or corporate activities.

 

(xiii)       enter
into any agreements with any third party with respect to any of the foregoing,
except, in each case, as contemplated by this Agreement.

 

The provisions of this Section 4 shall not limit in any respect: (1) the
actions of any director of the Company in his or her capacity as such,
recognizing that such actions are subject to such director’s fiduciary duties
to the Company and its shareholders or (2) statements that may be made in
research reports of B. Riley & Co., LLC that address the semiconductor
industry in general or that are specific to the Company and related client
communications, so long as the Riley Director has not directed, prepared,
reviewed or otherwise participated in the preparation of such research
report.  The provisions of this Section 4
above shall not limit in any respect the ability of the Riley Director to
instruct or advise the investment clients over which he possesses sole or
shared voting power to vote against the recommendation of the Board to the
shareholders, if the Riley Director, himself or herself, voted against such
recommendation as a member of the Board. 
Notwithstanding the above, in no event shall such exceptions to this Section 4
constitute a waiver of the confidentiality provisions of Section 5 hereof.

 

(b)           As
used in this Agreement, the term “Affiliate”
shall have the respective meanings set forth in Rule 12b-2 promulgated by
the SEC under the Exchange Act; the terms “beneficial owner”
and “beneficial ownership” shall have the
respective meanings as set forth in Rule 13d-3 promulgated by the SEC
under the Exchange Act; and the terms “person” or “persons” shall mean any
individual, corporation (including not-for-profit), general or limited
partnership, limited liability company, joint venture, estate, trust,
association, organization or other entity of any kind or nature.

 

5.             Confidentiality.

 

The members of the Riley Group (each, a “Recipient”) each acknowledge the
confidential and proprietary nature of the Confidential Information (as defined
below) and agree that the Confidential Information:

 

(a)           will
be kept confidential by Recipient and Recipient’s Representatives (as defined
below);

 

(b)           will
not be disclosed by Recipient (except to other Recipients and their Affiliates
and such person’s Representatives to the extent contemplated by this Agreement)
or by Recipient’s Representatives to any person except with the specific prior
written consent of the Company or except as expressly otherwise permitted by
this Agreement; and

 

(c)           will
not be used for any purpose except as explicitly set forth in this Agreement.

 

It is understood and agreed that:

 

 

(a)           Recipient
may disclose Confidential Information only to those of Recipient’s
Representatives who are informed by Recipient of the confidential nature of the
Confidential Information and the obligations of this Agreement;

 

(b)           Recipient
shall be responsible for the breach of the provisions of this Section 5 by
Recipient’s Representatives; and

 

(c)           the
provisions of this Section 5 shall not apply to any director of the
Company in his or her capacity as such.  As used in this Agreement, the
term “Confidential Information”
means and includes any and all of the information concerning the business and
affairs of the Company that may hereafter be disclosed to Recipient by the
Company or by the directors, officers, employees, agents, consultants, advisors
or other representatives, including legal counsel, accountants and financial
advisors (“Representatives”) of the
Company; provided that “Confidential Information”
shall not include information that:

 

(i)            was
in or enters the public domain or was or becomes generally available to the
public other than as a result of disclosure by Recipient or any Representative
thereof;

 

(ii)           was
independently acquired by Recipient or its Representatives without violating
any of the obligations of Recipient or its Representatives under this
Agreement, or under any other contractual, legal, fiduciary or binding
obligation of Recipient or its Representatives with or to the Company, or was
available, or becomes available, to Recipient or its Representatives on a
nonconfidential basis other than as a result of its disclosure to Recipient by
the Company or any Representative of the Company, but only if to the knowledge
of Recipient the source of such information is not bound by a confidentiality
agreement with the Company or is not otherwise prohibited from transmitting the
information to Recipient or Recipient’s Representatives by a contractual,
legal, fiduciary or other binding obligation with or to the Company; or

 

(iii)         was
independently developed by Recipient or its Representatives.

 

The Company acknowledges that no member of the
Riley Group or its Affiliates or Representatives thereof shall be deemed to be
in possession of Confidential Information solely by reason of receipt of such
Confidential Information by the Riley Director.  The members of the Riley
Group acknowledge that they, as well as their Representatives, are aware that
the United States securities laws prohibit any person who has material
non-public information about a company from trading in the securities of the
company, including but not limited to purchasing or selling securities of such
company, and establishing hedge positions through option trading or otherwise,
or from communicating such information to any other person under circumstances
in which it is reasonably foreseeable that such person is likely to purchase or
sell such securities.  The members of the
Riley Group covenant and represent that they have established policies and
procedures designed to ensure compliance with United States securities laws
regarding the trading in the securities of a company while any such member,
including the Riley Director, is in possession of material non-public
information and covenants that each member will follow such policies and
procedures.

 

 

6.             Public
Announcement.

 

The Riley Group and the Company shall announce this
Agreement and the material terms hereof within two (2) business days of
the date hereof by means of a joint press release in the form attached as Exhibit A hereto.

 

7.             Disclosure.

 

The Riley Group acknowledges that this Agreement shall
be filed with the SEC within four (4) business days of execution on a
Current Report on Form 8-K.  The
Company shall provide the Riley Group with a copy of such Current Report in
advance of such filing for review.  The
Company shall also provide the Riley Group with a copy of the proposed proxy
statement for the 2008 Annual Meeting in advance of the filing of the proxy
statement with the SEC.  Such proxy
statement will also contain a description of this Agreement.

 

8.             Specific
Performance.

 

Each member of the Riley Group, on the one hand, and
the Company, on the other hand, acknowledges and agrees that irreparable injury
to the other party hereto would occur in the event any of the provisions of
this Agreement were not performed in accordance with their specific terms or
were otherwise breached and that such injury would not be adequately
compensable in damages.  It is
accordingly agreed that the members of the Riley Group or any of them, on the
one hand, and the Company, on the other hand (the “Moving
Party”), shall each be entitled to specific enforcement of, and
injunctive relief to prevent any violation of, the terms hereof, and the other
party hereto will not take action, directly or indirectly, in opposition to the
Moving Party seeking such relief on the grounds that any other remedy or relief
is available at law or in equity.

 

9.             Jurisdiction;
Applicable Law.

 

Each of the parties hereto:

 

(a)           consents
to submit itself to the personal jurisdiction of federal or state courts of the
State of California in the event any dispute arises out of this Agreement or
the transactions contemplated by this Agreement,

 

(b)           agrees
that it shall not attempt to deny or defeat such personal jurisdiction by
motion or other request for leave from any such court,

 

(c)           agrees
that it shall not bring any action relating to this Agreement or the
transactions contemplated by this Agreement in any court other than federal or
state courts of the State of California, and each of the parties irrevocably
waives the right to trial by jury,

 

(d)           agrees
to waive any bonding requirement under any applicable law, in the case any
other party seeks to enforce the terms by way of equitable relief and

 

 

(e)           irrevocably consents to service of
process by first class certified mail, return receipt requested, postage
prepaid, to the address of such party’s principal place of business or as
otherwise provided by applicable law.  THIS AGREEMENT SHALL BE GOVERNED IN ALL RESPECTS, INCLUDING VALIDITY,
INTERPRETATION AND EFFECT, BY THE LAWS OF THE STATE OF CALIFORNIA APPLICABLE TO
CONTRACTS EXECUTED AND TO BE PERFORMED WHOLLY WITHIN SUCH STATE WITHOUT GIVING
EFFECT TO THE CHOICE OF LAW PRINCIPLES OF SUCH STATE.

 

10.          Third Party Beneficiaries.

 

Nothing contained in this Agreement shall create any
rights in, or be deemed to have been executed for the benefit of any person or
entity that is not a party hereto or a successor or permitted assignee of such
party.

 

11.          Entire
Agreement; Amendment and Waiver;

 

This Agreement contains the entire understanding of
the parties hereto with respect to its subject matter.  There are no restrictions, agreements,
promises, representations, warranties, covenants or undertakings between the
parties other than those expressly set forth herein.  This Agreement may be amended only by a
written instrument duly executed by the parties hereto, or their respective
successors or assigns.  No failure on the
part of any party to exercise, and no delay in exercising, any right, power or
remedy hereunder shall operate as a waiver thereof, nor shall any single or
partial exercise of such right, power or remedy by such party preclude any
other or further exercise thereof or the exercise of any other right, power or
remedy.  All remedies hereunder are
cumulative and are not exclusive of any other remedies provided by law.

 

12.          Successors
and Assigns.

 

The terms and conditions of this Agreement shall be
binding upon, inure to the benefit of, and be enforceable by the parties hereto
and their respective successors, heirs, executors, legal representatives, and
assigns; provided, however, that no party may assign, delegate or otherwise
transfer any of its obligations under this Agreement without the prior written
consent of the other parties hereto.

 

13.          Notices.

 

All notices, consents, requests, instructions,
approvals and other communications provided for herein and all legal process in
regard hereto shall be in writing and delivered by overnight courier or
facsimile or electronic mail and shall be deemed duly given on the date of
delivery.  All notices hereunder shall be
delivered as set forth below, or pursuant to such other instructions as may be
designated in writing by the party to receive such notice:

 

 

	
  If to the Company:

  	
  Silicon Storage
  Technology, Inc.

  	
   

  
	
   

  	
  1171 Sonora Court

  	
   

  
	
   

  	
  Sunnyvale, California
  94086

  	
   

  
	
   

  	
  Attention:

  	
  Bing Yeh

  
	
   

  	
   

  	
  President and Chief
  Executive Officer

  
	
   

  	
  Facsimile No. 
  (408) 735-9036

  	
   

  
	
   

  	
   

  	
   

  
	
  With a copy to:

  	
  Cooley Godward Kronish
  LLP

  	
   

  
	
   

  	
  5 Palo Alto Square

  	
   

  
	
   

  	
  3000 El Camino Real

  	
   

  
	
   

  	
  Palo Alto, California
  94306

  	
   

  
	
   

  	
  Attention: 

  	
  Mark P.
  Tanoury, Esq.

  
	
   

  	
   

  	
  John T.
  McKenna, Esq.

  
	
   

  	
  Facsimile
  No. (650) 849-7400

  	
   

  
	
   

  	
   

  	
   

  
	
  If to the Riley Group:

  	
  Riley Investment
  Management LLC

  	
   

  
	
   

  	
  1110 Santa Monica
  Boulevard

  	
   

  
	
   

  	
  Suite 810

  	
   

  
	
   

  	
  Los Angeles, California
  90025

  	
   

  
	
   

  	
  Attention:  Bryant Riley

  	
   

  
	
   

  	
  Facsimile No:
  (310)  966-1096

  	
   

  
					

 

14.          Severability.

 

If any term, provision, covenant or restriction of
this Agreement is held by a court of competent jurisdiction to be invalid, void
or unenforceable, the remainder of the terms, provisions, covenants and
restrictions of this Agreement shall remain in full force and effect and shall
in no way be affected, impaired or invalidated and the parties shall use their
best efforts to agree upon and substitute a valid and enforceable term,
provision, covenant or restriction for any of such that is held invalid, void
or unenforceable by a court of competent jurisdiction.

 

15.          Counterparts.

 

This Agreement may be executed in two or more counterparts
which together shall constitute a single agreement.

 

16.          Termination

 

The provisions of this Agreement may be terminated by
the non-breaching party in the event of a material breach by any party of any
of the terms of this Agreement; provided, however,
that the non-breaching party shall first provide written notice to the
breaching party of the facts and circumstances giving rise to such breach,
after which the breaching party shall have five (5) business days from
receipt of such notice to cure such breach. 
If the Company’s definitive proxy statement is not filed with the SEC on
or prior to June 1, 2008 with the Riley Director as a nominee and the 2008
Annual Meeting is not held by July 1, 2008 then this Agreement shall be
terminated and the Nomination Letter shall be deemed to have not been 

 

 

withdrawn.  Section 4 hereof shall automatically
terminate on such date that is after June 30, 2009, that the Riley
Director is not a member of the Board. 
Any termination of this Agreement as provided herein will be without
prejudice to the rights of any party arising out of the breach by any other
party of any provision of this Agreement. 
Sections 1 and 2, and 5 through 16 shall survive any such termination.

 

[REMAINDER OF THIS PAGE LEFT
BLANK INTENTIONALLY]

 

 

IN WITNESS WHEREOF, this
Agreement has been duly executed and delivered by the duly authorized
signatories of the parties as of the date hereof.

 

	
  SILICON 
  STORAGE TECHNOLOGY, INC.  

  	
   

  	
  RILEY INVESTMENT PARTNERS MASTER

  FUND, L.P.

  
	
   

  	
   

  	
   

  
	
  /S/ BING YEH

  	
   

  	
  By:

  	
  Riley Investment Management LLC,

  its General Partner

  
	
  Bing Yeh

  	
   

  
	
  President, Chief Executive Officer and

  	
   

  	
   

  
	
  Chairman of the Board

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  /S/ BRYANT R. RILEY

  
	
   

  	
   

  	
  Bryant R. Riley, Managing Member

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  RILEY INVESTMENT MANAGEMENT LLC

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  /S/ BRYANT R. RILEY

  
	
   

  	
   

  	
  Bryant R. Riley, Managing Member

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  B. RILEY & CO. RETIREMENT TRUST

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  /S/ BRYANT R. RILEY

  
	
   

  	
   

  	
  Bryant R. Riley, Trustee

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  B. RILEY & CO., LLC

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  /S/ BRYANT R. RILEY

  
	
   

  	
   

  	
  Bryant R. Riley, Chairman

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  BRYANT R. RILEY

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  /S/ BRYANT R. RILEY

  

 

 

Exhibit A

Form of Press Release

 

	
  

  	
   

  	
  Silicon Storage Technology, Inc.

   

  

 

	
   

  	
   

  	
  News Release

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  For More Information Contact:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Leslie Green

  
	
   

  	
   

  	
  Green Communications Consulting, LLC

  
	
   

  	
   

  	
  (650) 312-9060

  

 

SST Nominates Bryant R. Riley for Election to its Board of
Directors;

Annual Meeting to be Held June 27, 2008

 

SUNNYVALE, Calif., May 23, 2008
— SST (Silicon Storage Technology, Inc.) (NASDAQ: SSTI), a leader in flash
memory technology, today announced that pursuant to a settlement agreement with
entities and persons affiliated with Riley Investment Management, LLC, it will
include Bryant R. Riley, on management’s slate of directors for election at the
company’s annual meeting of shareholders to be held on June 27, 2008.  If elected by the company’s shareholders,
Riley will join the Board at the annual meeting and will be appointed to the
Nominating and Corporate Governance Committee and the Compensation Committee.  Pursuant to the settlement agreement, Riley
Investment Management, LLC and related affiliates will withdraw their proposed
slate of directors for election at the annual meeting of shareholders.

 

“I appreciate the opportunity
to join the Board of SST,” said Bryant R. Riley.  “Over the last few days, I have met the
independent directors and feel confident that we can work together to enhance
value for shareholders. As part of the Nominating Committee, I have numerous
candidates that I believe would be a strong fit for the Board and I will be
actively involved in this process.  I
look forward to working closely together with the other directors to find a
strong fit for the benefit of the company, its shareholders and customers.”

 

“We are pleased to nominate
Bryant to the Board of Directors,” said Bing Yeh, president and CEO of
SST.  “SST is executing on a strategy of
diversification that we believe will allow for better growth opportunities for
our company and more return for our shareholders. We look forward to drawing
upon Bryant’s experience and expertise as we continue to build upon the strong
foundation we have laid.”

 

-More-

 

About
Silicon Storage Technology, Inc.

 

Headquartered in Sunnyvale, California, SST designs, manufactures and
markets a diversified range of memory and non-memory products for high volume
applications in the digital consumer, networking, wireless communications and
Internet computing markets.  Leveraging
its proprietary, patented SuperFlash technology, SST is a leading provider of
nonvolatile memory solutions with product families that include various
densities of high functionality flash memory components and flash mass storage
products.  The Company also offers its
SuperFlash technology for embedded applications through its broad network of
world-class manufacturing partners and technology licensees, including TSMC,
which offers it under its trademark Emb-FLASH. 
SST’s non-memory products include NAND controller-based products, smart
card ICs and modules, flash microcontrollers and radio frequency ICs and
modules.  Further information on SST can
be found on the Company’s Web site at http://www.sst.com.

 

Forward-Looking
Statements

 

Except for the historical information contained herein, this news
release contains forward-looking statements regarding memory and non-memory
market conditions, SST’s future financial performance, the performance of new
products, growth opportunities, SST’s licensing business, SST’s ability to
diversify its business, the transition of SST’s products to smaller geometrics,
SST’s ability to bring new products to market and shareholder returns, all of
which involve risks and uncertainties. 
These risks may include timely development, acceptance and pricing of
new products, the terms, conditions and revenue recognition issues associated
with licensees’ royalty payments, the impact of competitive products and
pricing, and general economic conditions as they affect SST’s customers, as
well as other risks detailed from time to time in the SST’s  SEC reports, including the Annual Report on
Form 10-K for the year ended December 31, 2007 and Quarterly Report on Form
10-Q for the quarter ended March 31, 2008. These forward-looking statements are
not guarantees of future performance and speak only as of the date hereof, and,
except as required by law, SST disclaims any obligation to update these
forward-looking statements to reflect future events or circumstances.

 

For more information about SST and the company’s comprehensive list of
product offerings, please call 1-888/SST-CHIP. 
Information can also be requested via email to literature@sst.com or
through SST’s Web site at http://www.sst.com. 
SST’s head office is located at 1171 Sonora Court, Sunnyvale, Calif.;
telephone: 408/735-9110; fax: 408/735-9036.

 

2

 

The SST logo and SuperFlash are registered
trademarks of Silicon Storage Technology, Inc. All other trademarks or
registered trademarks are the property of their respective holders.

 

###

 

3

 

Exhibit B

 

Beneficial Ownership of Riley
Group

 

	
  Riley Investment Partners Master Fund, L.P.

  	
   

  	
  594,526

  	
   

  
	
  Riley Investment Management LLC*

  	
   

  	
  4,984,874

  	
   

  
	
  B. Riley & Co., LLC

  	
   

  	
  718,874

  	
   

  
	
  B. Riley & Co. Retirement Trust

  	
   

  	
  50,000

  	
   

  
	
  Bryant Riley*

  	
   

  	
  5,761,748

  	
   

  

 

*Excludes 509,876 shares held by an investment
advisory account of Riley Investment Management LLC, with respect to which
beneficial ownership is disclaimed.

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