Document:

Exhibit
10.2

 

EXECUTION COPY

 

GUARANTEE AND
COLLATERAL AGREEMENT

 

 

made by

 

 

PROTECTION
ONE, INC.

 

and

 

PROTECTION ONE
ALARM MONITORING, INC.

 

 

and certain of
its Subsidiaries

 

 

in favor of

 

 

BEAR STEARNS
CORPORATE LENDING INC.,

as Administrative Agent

 

 

Dated as of April 18, 2005

 

 

TABLE
OF CONTENTS

 

	
  SECTION 1. DEFINED TERMS

  
	
  1.1.

  	
   

  	
  Definitions

  
	
  1.2.

  	
   

  	
  Other Definitional Provisions

  
	
   

  	
   

  	
   

  
	
  SECTION 2. GUARANTEE

  
	
  2.1.

  	
   

  	
  Guarantee

  
	
  2.2.

  	
   

  	
  Reimbursement, Contribution and Subrogation

  
	
  2.3.

  	
   

  	
  Amendments, etc. with respect to the
  Borrower Obligations

  
	
  2.4.

  	
   

  	
  Guarantee Absolute and Unconditional

  
	
  2.5.

  	
   

  	
  Reinstatement

  
	
  2.6.

  	
   

  	
  Payments

  
	
   

  	
   

  	
   

  
	
  SECTION 3. GRANT OF SECURITY INTEREST

  
	
   

  	
   

  	
   

  
	
  SECTION 4. REPRESENTATIONS AND WARRANTIES

  
	
  4.1.

  	
   

  	
  Representations in Credit Agreement

  
	
  4.2.

  	
   

  	
  Title;
  No Other Liens

  
	
  4.3.

  	
   

  	
  Perfected First Priority Liens

  
	
  4.4.

  	
   

  	
  Jurisdiction of Organization; Chief
  Executive Office

  
	
  4.5.

  	
   

  	
  Inventory and Equipment

  
	
  4.6.

  	
   

  	
  Farm Products

  
	
  4.7.

  	
   

  	
  Investment Property

  
	
  4.8.

  	
   

  	
  Receivables

  
	
  4.9.

  	
   

  	
  Material Contracts

  
	
  4.10.

  	
   

  	
  Intellectual Property

  
	
   

  	
   

  	
   

  
	
  SECTION 5. COVENANTS 

  
	
  5.1.

  	
   

  	
  Covenants in Credit Agreement

  
	
  5.2.

  	
   

  	
  Delivery and Control of Instruments,
  Certificated Securities, Chattel Paper, Negotiable Documents, Investment
  Property and Letter of Credit Rights

  
	
  5.3.

  	
   

  	
  Maintenance of Insurance

  
	
  5.4.

  	
   

  	
  Payment of Obligations

  
	
  5.5.

  	
   

  	
  Maintenance of Perfected Security Interest;
  Further Documentation

  
	
  5.6.

  	
   

  	
  Changes in Locations, Name, etc.

  
	
  5.7.

  	
   

  	
  Notices

  
	
  5.8.

  	
   

  	
  Investment Property

  
	
  5.9.

  	
   

  	
  Receivables

  
	
  5.10.

  	
   

  	
  Intellectual Property

  
	
   

  	
   

  	
   

  
	
  SECTION 6. REMEDIAL PROVISIONS

  
	
  6.1.

  	
   

  	
  Certain Matters Relating to Receivables

  
	
  6.2.

  	
   

  	
  Communications with Obligors; Grantors
  Remain Liable

  
	
  6.3.

  	
   

  	
  Pledged Stock

  
	
  6.4.

  	
   

  	
  Proceeds to be Turned Over to
  Administrative Agent

  
	
  6.5.

  	
   

  	
  Application of Proceeds

  
	
  6.6.

  	
   

  	
  Code
  and Other Remedies

  
	
  6.7.

  	
   

  	
  Registration Rights

  

 

i

 

	
  6.8.

  	
   

  	
  Deficiency

  
	
   

  	
   

  	
   

  
	
  SECTION 7. THE ADMINISTRATIVE AGENT

  
	
  7.1.

  	
   

  	
  Administrative Agent’s Appointment as
  Attorney-in-Fact, etc.

  
	
  7.2.

  	
   

  	
  Duty
  of Administrative Agent

  
	
  7.3.

  	
   

  	
  Financing
  Statements

  
	
  7.4.

  	
   

  	
  Authority, Immunities and Indemnities of Administrative Agent

  
	
   

  	
   

  	
   

  
	
  SECTION 8. MISCELLANEOUS

  
	
  8.1.

  	
   

  	
  Amendments
  in Writing

  
	
  8.2.

  	
   

  	
  Notices

  
	
  8.3.

  	
   

  	
  No Waiver by Course of Conduct; Cumulative Remedies

  
	
  8.4.

  	
   

  	
  Enforcement Expenses; Indemnification

  
	
  8.5.

  	
   

  	
  Successors and Assigns

  
	
  8.6.

  	
   

  	
  Set-Off

  
	
  8.7.

  	
   

  	
  Counterparts

  
	
  8.8.

  	
   

  	
  Severability

  
	
  8.9.

  	
   

  	
  Section Headings

  
	
  8.10.

  	
   

  	
  Integration

  
	
  8.11.

  	
   

  	
  GOVERNING LAW

  
	
  8.12.

  	
   

  	
  Submission To Jurisdiction; Waivers

  
	
  8.13.

  	
   

  	
  Acknowledgements

  
	
  8.14.

  	
   

  	
  Additional Grantors

  
	
  8.15.

  	
   

  	
  Releases

  
	
  8.16.

  	
   

  	
  WAIVER OF JURY TRIAL

  
	
   

  	
   

  	
   

  
	
  ANNEXES

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Annex I

  	
  Assumption Agreement

  
	
  Annex II

  	
  Acknowledgement and Consent

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  SCHEDULES

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Schedule 1

  	
   

  	
  Notice Addresses

  
	
  Schedule 2

  	
   

  	
  Investment Property

  
	
  Schedule 3

  	
   

  	
  Jurisdictions of Organization and Chief
  Executive Offices

  
	
  Schedule 4

  	
   

  	
  Filings and Other Actions required for
  Perfection

  
	
  Schedule 5

  	
   

  	
  Inventory and Equipment Locations

  
	
  Schedule 6

  	
   

  	
  Controlled Investment Property and Accounts

  
	
  Schedule 7

  	
   

  	
  Intellectual Property

  
	
  Schedule 8

  	
   

  	
  Commercial Tort Claims

  
							

 

ii

 

GUARANTEE AND COLLATERAL AGREEMENT, dated as
of April 18, 2005, made by each of the signatories hereto (together with
any other entity that may become a party hereto as provided herein, the “Grantors”),
in favor of BEAR
STEARNS CORPORATE LENDING INC., as Administrative Agent (in such
capacity, and together with its successors in such capacity the “Administrative
Agent”) for the banks, financial institutions and other entities (the “Lenders”)
from time to time party to the Credit Agreement, dated as of April 18,
2005 (as amended, supplemented or otherwise modified from time to time, the “Credit
Agreement”), among PROTECTION ONE,
INC., a Delaware corporation (“Holdings”), PROTECTION ONE ALARM MONITORING, INC.,
a Delaware corporation (the “Borrower”), the several banks, financial
institutions and other entities from time to time parties to the Credit
Agreement (the “Lenders”), BEAR,
STEARNS & CO. INC. and LEHMAN
BROTHERS INC., as joint lead arrangers and joint bookrunners (in such
capacity, the “Lead Arrangers”), LEHMAN
COMMERCIAL PAPER INC., as syndication agent (in such capacity, the “Syndication
Agent”), HARRIS NESBITT FINANCING, INC., LASALLE BANK NATIONAL ASSOCIATION,
and U.S. BANK NATIONAL ASSOCIATION, as co-documentation agents (in such
capacity, and together with its successors in such capacity, the “Co-Documentation
Agents”), and the Administrative Agent for the benefit of the Secured
Parties (as defined herein).

 

RECITALS

 

A.            Pursuant to the Credit Agreement, the
Lenders have severally agreed to make extensions of credit to the Borrower upon
the terms and subject to the conditions set forth therein.

 

B.            The
Borrower is a member of an affiliated group of companies that includes each
other Grantor.

 

C.            The
proceeds of the extensions of credit under the Credit Agreement will be used in
part to enable the Borrower to make valuable transfers to one or more of the
other Grantors in connection with the operation of their respective businesses.

 

D.            The
Borrower and the other Grantors are engaged in related businesses, and each
Grantor will derive substantial direct and indirect benefit from the making of
the extensions of credit under the Credit Agreement.

 

E.             It
is a condition precedent to the obligation of the Lenders to make their
respective extensions of credit to the Borrower under the Credit Agreement that
the Grantors shall have executed and delivered this Agreement to the
Administrative Agent for the benefit of the Secured Parties.

 

NOW, THEREFORE, in consideration of the
premises and to induce the Agents and the Lenders to enter into the Credit
Agreement, to induce the Lenders to make their respective extensions of credit
to the Borrower thereunder, to induce the Qualified Counterparties to enter
into Specified Hedge Agreements and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, each Grantor hereby
agrees with the Administrative Agent, for the benefit of the Secured Parties,
as follows:

 

 

SECTION 1. DEFINED TERMS

 

1.1.                              Definitions.

 

(a)           Unless otherwise defined herein,
terms defined in the Credit Agreement and used herein shall have the meanings
given to them in the Credit Agreement, and the following terms are used herein
as defined in the New York UCC (and if defined in more than one Article of the
New York UCC, shall have the meaning given in Article 9 thereof): Accounts,
Certificated Security, Chattel Paper, Commercial Tort Claims, Commodity
Contract, Commodity Intermediary, Documents, Electronic Chattel Paper, Equipment,
Farm Products, Fixtures, General Intangibles, Goods, Instruments, Inventory,
Letter-of-Credit Rights, Money, Negotiable Document, Securities Account,
Securities Entitlement, Supporting Obligations, Tangible Chattel Paper and
Uncertificated Security.

 

(b)           The following terms shall have the
following meanings:

 

“Agreement”:
this Guarantee and Collateral Agreement, as the same may be amended,
supplemented or otherwise modified from time to time.

 

 “Borrower Credit Agreement Obligations”:
the unpaid principal of and interest on the Loans and Reimbursement Obligations
and all other obligations and liabilities of the Borrower to any Agent, Lender
or Indemnitee, whether direct or indirect, absolute or contingent, due or to
become due or now existing or hereafter incurred, which may arise under, out
of, or in connection with, the Credit Agreement, this Agreement or the other
Loan Documents, any Letter of Credit or any other document made, delivered or
given in connection therewith or pursuant thereto, in each case whether on
account of principal, interest, reimbursement obligations, fees, indemnities,
costs, expenses or otherwise (including interest accruing at the then
applicable rate provided in the Credit Agreement after the maturity of the
Loans and Reimbursement Obligations and interest accruing at the then
applicable rate provided in the Credit Agreement after the commencement of any
bankruptcy case or insolvency, reorganization, liquidation or like proceeding
relating to the Borrower, whether or not a claim for post-filing or
post-petition interest is allowed in such proceeding and all expense
reimbursement and indemnity obligations arising or incurred as provided in the
Loan Documents after the commencement of any such case or proceeding, whether
or not a claim for such obligations is allowed in such case or proceeding).

 

“Borrower
Hedge Agreement Obligations”: all obligations and liabilities of the
Borrower to any Qualified Counterparty, whether direct or indirect, absolute or
contingent, due or to become due or now existing or hereafter incurred, which
may arise under, out of, or in connection with, any Specified Hedge Agreement
or any other document made, delivered or given in connection therewith or
pursuant thereto, in each case whether on account of principal, interest,
reimbursement obligations, fees, indemnities, costs, expenses or otherwise (including
interest accruing at the then applicable rate provided in such Specified Hedge
Agreement after the maturity of the obligations thereof and interest accruing
at the then applicable rate provided in any Specified Hedge Agreement after the
commencement of any bankruptcy case or insolvency, reorganization or like proceeding
relating to the Borrower, whether or not a claim for post-filing or
post-petition interest is allowed in such proceeding and all fees and
disbursements of counsel to the Qualified Counterparty that are required to be
paid by the Borrower pursuant to the terms of any Specified Hedge Agreement).

 

“Borrower
Obligations”: the Borrower Credit Agreement Obligations and the Borrower
Hedge Agreement Obligations.

 

“Collateral”:
as defined in Section 3.

 

2

 

“Collateral
Account”: any collateral account established by the Administrative Agent as
provided in Section 6.1 or 6.4.

 

“Copyrights”:
(i) all copyrights arising under the laws of the United States, any other
country or group of countries or any political subdivision of any of the
foregoing, whether registered or unregistered and whether published or
unpublished (including those listed on Schedule 7), all registrations and
recordings thereof, and all applications in connection therewith, including all
registrations, recordings and applications in the United States Copyright
Office, and (ii) the right to obtain all renewals thereof.

 

“Copyright
Licenses”: all agreements (whether or not in writing) naming any Grantor as
licensor or licensee (including those listed in Schedule 7), granting any right
under any Copyright, including the grant of rights to manufacture, distribute,
exploit and sell materials derived from any Copyright.

 

“Deposit
Account”: as defined in the Uniform Commercial Code of any applicable
jurisdiction and, in any event, including any demand, time, savings, passbook
or like account maintained with a depositary institution.

 

“Foreign
Subsidiary Voting Stock”: the voting Capital Stock of any Foreign
Subsidiary.

 

“Guarantor
Obligations”: with respect to any Guarantor, all obligations and
liabilities of such Guarantor which may arise under or in connection with this
Agreement (including Section 2) or any other Loan Document to which such
Guarantor is a party, in each case whether on account of guarantee obligations,
reimbursement obligations, fees, indemnities, costs, expenses or otherwise
(including all expense reimbursement and indemnity obligations arising or
incurred as provided in the Loan Documents after the commencement of any
bankruptcy case or insolvency, reorganization, liquidation or like proceeding,
whether or not a claim for such obligations is allowed in such case or
proceeding)

 

“Guarantors”:
the collective reference to each Grantor other than the Borrower.

 

“Intellectual
Property”: the collective reference to all rights, priorities and privileges
relating to intellectual property, whether arising under United States,
multinational or foreign laws or otherwise, including all Copyrights, Copyright
Licenses, Patents, Patent Licenses, Trademarks and Trademark Licenses, and all
rights to sue at law or in equity for any infringement or other impairment
thereof, including the right to receive all Proceeds and damages therefrom.

 

“Intercompany
Note”: any promissory note evidencing loans or other obligations owing to any
Grantor by any Group Member.

 

“Investment
Property”: the collective reference to (i) all “investment property” as
such term is defined in Section 9-102(a)(49) of the New York UCC (other than
any Foreign Subsidiary Voting Stock excluded from the definition of “Pledged
Stock”) and (ii) whether or not constituting “investment property” as so
defined, all Pledged Notes and all Pledged Stock.

 

“Issuers”:
the collective reference to each issuer of any Investment Property purported to
be pledged hereunder.

 

“Material
Contract”: an agreement the cancellation or termination (other than expiration
by its own terms) of which would reasonably be expected to have a Material
Adverse Effect.

 

3

 

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

 

“Obligations”:
(i) in the case of the Borrower, the Borrower Obligations, and (ii) in the case
of each Guarantor, its Guarantor Obligations.

 

“Organizational
Documents”: as to any entity, the charter, certificate of incorporation or
formation, bylaws, operating agreement, partnership agreement, or other similar
governing documentation thereof.

 

“Patents”:
(i) all letters patent of the United States, any other country or group of
countries or any political subdivision of any of the foregoing, all reissues
and extensions thereof and all goodwill associated therewith (including those
listed on Schedule 7), (ii) all applications for letters patent of the United
States or any other country and all divisions, continuations and
continuations-in-part thereof (including those listed on Schedule 7) and (iii)
all rights to obtain any reissues or extensions of the foregoing.

 

“Patent
License”: all agreements (whether or not in writing) providing for the
grant by or to any Grantor of any right to manufacture, use or sell any
invention covered in whole or in part by a Patent (including those listed on
Schedule 7).

 

“Pledged
Notes”: all Intercompany Notes at any time issued to any Grantor (including
those listed on Schedule 2) and all other promissory notes at any time issued
to or owned, held or acquired by any Grantor (including those listed on
Schedule 2), except promissory notes issued in connection with extensions of
trade credit by any Grantor in the ordinary course of business.

 

“Pledged
Stock”: all shares, stock certificates, options, interests or rights of any
nature whatsoever in respect of the Capital Stock of any Person at any time issued
or granted to or owned, held or acquired by any Grantor; provided that
in no event shall more than 65% of the total outstanding Capital Stock of any
Foreign Subsidiary be subject to the security interests granted hereby.

 

“Proceeds”:
all “proceeds” as such term is defined in Section 9-102(a)(64) of the New York
UCC, including, in any event, all dividends, returns of capital and other
distributions from Investment Property and all collections thereon and payments
with respect thereto.

 

“Receivable”:
any right to payment for goods sold or leased or for services rendered, whether
or not such right is evidenced by an Instrument or Chattel Paper and whether or
not it has been earned by performance (including all Accounts).

 

“Secured
Parties”: the Agents, the Lenders and Indemnitees and, with respect to any
Specified Hedge Agreement the Qualified Counterparty party thereto, and each of
their respective successors and transferees.

 

“Securities
Act”: the Securities Act of 1933, as amended.

 

“Trademarks”:
(i) all trademarks, trade names, corporate names, company names, business
names, fictitious business names, trade styles, service marks, logos and other
source or business identifiers, and all goodwill associated therewith, now
existing or hereafter adopted or acquired, all registrations and recordings
thereof, and all applications in connection therewith, whether in the United
States Patent and Trademark Office or in any similar office or agency of the
United States, any State thereof or any other country or group of countries or
any political subdivision of any of the foregoing, or

 

4

 

otherwise, and
all common-law rights related thereto (including those listed on Schedule 7),
and (ii) the right to obtain all renewals thereof.

 

“Trademark
License”: any agreement (whether or not in writing) providing for the grant
by or to any Grantor of any right to use any Trademark (including those listed
on Schedule 7).

 

“UETA”:
the Uniform Electronic Transaction Act, as in effect in the applicable
jurisdiction.

 

1.2.          Other
Definitional Provisions.

 

(a)           As used herein and in any certificate
or other document made or delivered pursuant hereto, (i) accounting terms
relating to any Group Member not defined in Section 1.1 and accounting terms
partly defined in Section 1.1, to the extent not defined, shall have the
respective meanings given to them under GAAP, (ii) the words “include”, “includes”
and “including” shall be deemed to be followed by the phrase “without
limitation”, (iii) the word “incur” shall be construed to mean incur, create,
issue, assume, become liable in respect of or suffer to exist (and the words “incurred”
and “incurrence” shall have correlative meanings), (iv) the words “asset” and “property”
shall be construed to have the same meaning and effect and to refer to any and
all tangible and intangible assets and properties of every type and nature, and
(v) references to agreements or other Contractual Obligations shall,
unless otherwise specified, be deemed to refer to such agreements or
Contractual Obligations as amended, supplemented, restated or otherwise modified
from time to time (subject to any applicable restrictions hereunder).

 

(b)           The words “hereof,” “herein”, “hereto”
and “hereunder” and words of similar import when used in this Agreement shall
refer to this Agreement as a whole and not to any particular provision of this
Agreement, and Section and Schedule references are to this Agreement unless
otherwise specified.

 

(c)           The meanings given to terms defined
herein shall be equally applicable to both the singular and plural forms of
such terms.

 

(d)           Where the context requires, terms
relating to the Collateral or any part thereof, when used in relation to a
Grantor, shall refer to such Grantor’s Collateral or the relevant part thereof.

 

(e)           The expressions “payment in full,” “paid
in full” and any other similar terms or phrases when used herein with respect
to any Obligation shall mean the payment in full of such Obligation in cash in
immediately available funds.

 

SECTION 2. GUARANTEE

 

2.1.                              Guarantee.

 

(a)           Each of the Guarantors hereby,
jointly and severally, unconditionally and irrevocably, guarantees to the
Administrative Agent, for the benefit of the Secured Parties, the prompt and
complete payment and performance by the Borrower when due (whether at the
stated maturity, by acceleration or otherwise) of each and all of the Borrower
Obligations.

 

5

 

(b)           Each Guarantor shall be liable under
its guarantee set forth in Section 2.1(a), without any limitation as to amount,
for all present and future Borrower Obligations, including specifically all
future increases in the outstanding amount of the Loans or Reimbursement
Obligations and other future increases in the Borrower Obligations, whether or
not any such increase is committed, contemplated or provided for by the Loan
Documents on the date hereof; provided, for the benefit solely of
creditors and representatives of creditors of each Guarantor and not for the
benefit of such Guarantor or the holders of any equity interest in such
Guarantor, enforcement of such guarantee against such Guarantor will be limited
as necessary to limit the recovery under such guarantee to the maximum amount
which may be recovered without causing such enforcement or recovery to
constitute a fraudulent transfer or fraudulent conveyance under any applicable
federal or state fraudulent transfer or fraudulent conveyance law (giving
effect, to the fullest extent permitted by law, to the reimbursement and
contribution rights set forth in Section 2.2).

 

(c)           The guarantee contained in this
Section 2.1 (i) shall remain in full force and effect until all the
Borrower Obligations and the obligations of each Guarantor under the guarantee
contained in this Section 2.1 have been paid in full (other than contingent
indemnity obligations for which no claim has been made), no Letter of Credit is
outstanding and all commitments to extend credit under the Loan Documents have terminated,
notwithstanding that from time to time during the term of the Credit Agreement
the Borrower may be free from any Borrower Obligations, and (ii) shall survive
the repayment of the Loans and Reimbursement Obligations, the termination of
commitments to extend credit under the Loan Documents, and the release of the
Collateral and remain enforceable as to all Borrower Obligations that survive
such repayment, termination and release.

 

(d)           No payment made by the Borrower, any
of the Guarantors, any other guarantor or any other Person or received or
collected by any Secured Party from the Borrower, any of the Guarantors, any
other guarantor or any other Person by virtue of any action or proceeding or
any set-off or appropriation or application at any time or from time to time in
reduction of or in payment of the Borrower Obligations shall be deemed to
modify, reduce, release or otherwise affect the liability of any Guarantor
hereunder in respect of any other Borrower Obligations then outstanding or
thereafter incurred.

 

2.2.                              Reimbursement,
Contribution and Subrogation.   In case any
payment is made on account of the Borrower Obligations by any Grantor or is
received or collected on account of the Borrower Obligations from any Grantor
or its property:

 

(a)           If such payment is made by the
Borrower or from its property, the Borrower shall not be entitled (i) to
demand or enforce reimbursement or contribution in respect of such payment from
any other Grantor or (ii) to be subrogated to any claim, interest, right
or remedy of any Secured Party against any other Person, including any other
Grantor or its property until all of the Borrower Obligations are paid in full
(other than contingent indemnity obligations for which no claim has been made).

 

(b)           If such payment is made by Holdings
or from its property or if any payment is made by Holdings or from its property
in satisfaction of the reimbursement right of any Subsidiary Guarantor set
forth in Section 2.2(c), such payment shall constitute a contribution by
Holdings to the common equity capital of the Borrower and Holdings shall not be
entitled (i) to demand or enforce reimbursement or contribution in respect of
such payment from any other Grantor or (ii) to be subrogated to any claim,
interest, right or remedy of any Secured Party against any other Person,
including any other Grantor or its property until all of the Borrower Obligations
are paid in full (other than contingent indemnity obligations for which no
claim has been made).

 

(c)           If such payment is made by a Subsidiary
Guarantor or from its property, such Subsidiary Guarantor shall be entitled,
subject to and upon payment in full of all outstanding Obligations

 

6

 

(other than contingent
indemnity obligations for which no claim has been made), discharge of all
Letters of Credit and termination of all commitments to extend credit under the
Loan Documents, (i) to demand and enforce reimbursement for the full
amount of such payment from the Borrower and from Holdings and (ii) to
demand and enforce contribution in respect of such payment from each other Subsidiary
Guarantor which has not paid its fair share of such payment, as necessary to
ensure that (after giving effect to any enforcement of reimbursement rights
provided hereby) each Subsidiary Guarantor pays its fair share of the
unreimbursed portion of such payment. For this purpose, the fair share of each Subsidiary
Guarantor as to any unreimbursed payment shall be determined based on an
equitable apportionment of such unreimbursed payment among all Subsidiary Guarantors
based on the relative value of their assets (net of their liabilities, other
than Obligations) and any other equitable considerations deemed appropriate by
the court.

 

(d)           If and whenever any right of
reimbursement or contribution becomes enforceable by any Subsidiary Guarantor against
any other Grantor under Section 2.2(c), such Subsidiary Guarantor shall be
entitled, subject to and upon payment in full of all outstanding Obligations
(other than contingent indemnity obligations for which no claim has been made),
discharge of all Letters of Credit and termination of all commitments to extend
credit under the Loan Documents to be subrogated (equally and ratably with all
other Subsidiary Guarantors entitled to reimbursement or contribution from any
other Grantor under Section 2.2(c)) to any security interest that may then be
held by the Administrative Agent upon any Collateral granted to it in this
Agreement. Such right of subrogation shall be enforceable solely against the
Grantors, and not against the Secured Parties, and neither the Administrative
Agent nor any other Secured Party shall have any duty whatsoever to warrant,
ensure or protect any such right of subrogation or to obtain, perfect,
maintain, hold, enforce or retain any Collateral for any purpose related to any
such right of subrogation. If subrogation is demanded in writing by any
Grantor, then (subject to and upon payment in full of all outstanding Obligations
(other than contingent indemnity obligations for which no claim has been made),
discharge of all Letters of Credit and termination of all commitments to extend
credit under the Loan Documents) the Administrative Agent shall deliver to the
Grantors making such demand, or to a representative of such Grantors or of the
Grantors generally, an instrument satisfactory to the Administrative Agent
transferring, on a quitclaim basis without any recourse, representation,
warranty or obligation whatsoever, whatever security interest the
Administrative Agent then may hold in whatever Collateral may then exist that
was not previously released or disposed of by the Administrative Agent.

 

(e)           All rights and claims arising under
this Section 2.2 or based upon or relating to any other right of reimbursement,
indemnification, contribution or subrogation that may at any time arise or
exist in favor of any Grantor as to any payment on account of the Obligations
made by it or received or collected from its property shall be fully
subordinated in all respects to the prior payment in full of all of the
Obligations (other than contingent indemnity obligations for which no claim has
been made). Until payment in full of the Obligations (other than contingent
indemnity obligations for which no claim has been made), discharge of all
Letters of Credit and termination of all commitments to extend credit under the
Loan Documents, no Grantor shall demand or receive any collateral security,
payment or distribution whatsoever (whether in cash, property or securities or
otherwise) on account of any such right or claim. If any such payment or
distribution is made or becomes available to any Grantor in any bankruptcy case
or receivership, insolvency or liquidation proceeding, such payment or
distribution shall be delivered by the person making such payment or
distribution directly to the Administrative Agent, for application to the
payment of the Obligations. If any such payment or distribution is received by
any Grantor, it shall be held by such Grantor for the benefit of the Secured
Parties, and shall forthwith be transferred and delivered by such Grantor to
the Administrative Agent, in the exact form received and, if necessary, duly
endorsed.

 

7

 

(f)            The obligations of the Grantors
under the Loan Documents, including their liability for the Obligations and the
enforceability of the security interests granted thereby, are not contingent
upon the validity, legality, enforceability, collectibility or sufficiency of
any right of reimbursement, contribution or subrogation arising under this
Section 2.2. The invalidity, insufficiency, unenforceability or uncollectibility
of any such right shall not in any respect diminish, affect or impair any such
obligation or any other claim, interest, right or remedy at any time held by
any Secured Party against any Grantor or its property. The Secured Parties make
no representations or warranties in respect of any such right and shall have no
duty to assure, protect, enforce or ensure any such right or otherwise relating
to any such right.

 

(g)           Each Grantor reserves any and all
other rights of reimbursement, contribution or subrogation at any time
available to it as against any other Grantor, but (i) the exercise and
enforcement of such rights shall be subject to this Section 2.2 and (ii)
neither the Administrative Agent nor any other Secured Party shall ever have
any duty or liability whatsoever in respect of any such right.

 

2.3.                              Amendments,
etc. with respect to the Borrower Obligations.      Each Guarantor shall remain obligated
hereunder notwithstanding that, without any reservation of rights against any
Guarantor and without notice to or further assent by any Guarantor, any demand
for payment of any of the Borrower Obligations made by any Secured Party may be
rescinded by such Secured Party and any of the Borrower Obligations continued,
and the Borrower Obligations, or the liability of any other Person upon or for
any part thereof, or any collateral security or guarantee therefor or right of
offset with respect thereto, may, from time to time, in whole or in part, be
renewed, extended, amended, modified, accelerated, compromised, waived, surrendered
or released by any Secured Party, and the Credit Agreement and the other Loan
Documents and any other documents executed and delivered in connection
therewith may be amended, modified, supplemented or terminated, in whole or in
part, in accordance with the terms of the Credit Agreement, and any collateral
security, guarantee or right of offset at any time held by any Secured Party
for the payment of the Borrower Obligations may be sold, exchanged, waived,
surrendered or released. No Secured Party shall have any obligation to protect,
secure, perfect or insure any Lien at any time held by it as security for the
Borrower Obligations or for the guarantee contained in this Section 2 or any
property subject thereto.

 

2.4.                              Guarantee Absolute and
Unconditional.    Each Guarantor waives to the extent
permitted by applicable law any and all notice of the creation, renewal,
extension or accrual of any of the Borrower Obligations and notice of or proof
of reliance by any Secured Party upon the guarantee contained in this Section 2
or acceptance of the guarantee contained in this Section 2. The Borrower
Obligations, and each of them, shall conclusively be deemed to have been
created, contracted or incurred, or renewed, extended, amended or waived, in
reliance upon the guarantee contained in this Section 2. All dealings
between the Borrower and any of the Guarantors, on the one hand, and the
Secured Parties, on the other hand, likewise shall be conclusively presumed to
have been had or consummated in reliance upon the guarantee contained in this
Section 2. Each Guarantor waives to the extent permitted by applicable law diligence,
presentment, protest, demand for payment and notice of default or nonpayment to
or upon the Borrower or any of the Guarantors with respect to the Borrower
Obligations. Each Guarantor understands and agrees that the guarantee contained
in this Section 2 shall be construed as a continuing, absolute and
unconditional guarantee of payment without regard to (a) the validity or
enforceability of the Credit Agreement or any other Loan Document, any of the
Borrower Obligations or any other collateral security therefor or guarantee or
right of offset with respect thereto at any time or from time to time held by
any Secured Party, (b) any defense, set-off or counterclaim (other than a
defense of payment or performance) which may at any time be available to or be
asserted by the Borrower or any other Person against any Secured Party, or (c) any
other circumstance whatsoever (with or without notice to or knowledge of the
Borrower or such Guarantor) which constitutes, or might be construed to
constitute, an equitable or legal discharge of the Borrower for the Borrower
Obligations or of such

 

8

 

Guarantor
under the guarantee contained in this Section 2, in bankruptcy or in any other
instance. When making any demand hereunder or otherwise pursuing its rights and
remedies hereunder against any Guarantor, any Secured Party may, but shall be
under no obligation to, make a similar demand on or otherwise pursue such
rights and remedies as it may have against the Borrower, any other Guarantor or
any other Person or against any collateral security or guarantee for the
Borrower Obligations or any right of offset with respect thereto, and any
failure by any Secured Party to make any such demand, to pursue such other
rights or remedies or to collect any payments from the Borrower, any other
Guarantor or any other Person or to realize upon any such collateral security
or guarantee or to exercise any such right of offset, or any release of the
Borrower, any other Guarantor or any other Person or any such collateral
security, guarantee or right of offset, shall not relieve any Guarantor of any
obligation or liability hereunder, and shall not impair or affect the rights
and remedies, whether express, implied or available as a matter of law, of any
Secured Party against any Guarantor. For the purposes hereof ”demand”
shall include the commencement and continuance of any legal proceedings.

 

2.5.          Reinstatement.    The
guarantee contained in this Section 2 shall be reinstated and shall remain in
all respects enforceable to the extent that, at any time, (a)  any payment
of any of the Borrower Obligations is set aside, avoided or rescinded or must
otherwise be restored or returned by any Secured Party upon the insolvency,
bankruptcy, dissolution, liquidation or reorganization of the Borrower or any
Guarantor, or upon or as a result of the appointment of a receiver, intervenor
or conservator of, or trustee or similar officer for, the Borrower or any
Guarantor or any substantial part of its property, or otherwise, in whole or in
part, or (b) any Secured Party gives value pursuant to any good faith
settlement of any claim that any such payment should be set aside, avoided,
rescinded, restored or returned, and in each case such reinstatement and
enforceability shall be effective as fully as if such payment had not been
made.

 

2.6.          Payments.    Each
Guarantor hereby agrees to pay all amounts payable by it under this
Section 2 to the Administrative Agent without set-off or counterclaim in
Dollars in immediately available funds at the Funding Office specified in the
Credit Agreement.

 

SECTION 3. GRANT OF SECURITY INTEREST

 

Each Grantor hereby grants to the
Administrative Agent, for the benefit of the Secured Parties, a security
interest in all property 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 “Collateral”),
as collateral security for the prompt and complete payment and performance when
due (whether at the stated maturity, by acceleration or otherwise) of such
Grantor’s Obligations including:

 

(a)           all Accounts;

 

(b)           all Chattel Paper;

 

(c)           all Documents;

 

(d)           all Equipment (whether or not
constituting Fixtures);

 

(e)           all General Intangibles;

 

(f)            all Instruments;

 

(g)           all Intellectual Property

 

9

 

(h)           all Inventory;

 

(i)            all Investment Property;

 

(j)            all Letter-of-Credit Rights;

 

(k)           all Money;

 

(l)            all Commercial Tort Claims
identified on Schedule 8 hereto;

 

(m)          all Capital Stock, Goods, insurance
and other property not otherwise described above;

 

(n)           all books and records (regardless of
medium); and

 

(o)           all Supporting Obligations and
products of any and all of the foregoing and all Guarantee Obligations, Liens
and claims supporting, securing or in any respect relating to any of the
foregoing;

 

provided,
that (i) this Agreement shall not constitute a grant of a security
interest in any property to the extent that and for as long as such grant of a
security interest (A) is prohibited by any Requirement of Law, (B) requires
a filing with or consent from any Governmental Authority pursuant to any Requirement
of Law that has not been made or obtained, or (C) constitutes a breach or
default under or results in the termination of, or requires any consent not
obtained under, any lease, license or agreement, except to the extent that such
Requirement of Law or provisions of any such lease, license or agreement is
ineffective under applicable law or would be ineffective under Sections 9-406,
9-407, 9-408 or 9-409 of the New York UCC to prevent the attachment of the
security interest granted hereunder; and (ii) the security interest granted
hereby (A) shall attach at all times to all Proceeds of such property,
(B) shall attach to such property immediately and automatically (without
need for any further grant or act) at such time as the condition described in
clause (i) ceases to exist and (C) to the extent severable shall
in any event attach to all rights in respect of such property that are not
subject to the condition described in clause (i).

 

SECTION 4. REPRESENTATIONS AND WARRANTIES

 

To induce the Agents and the Lenders to enter
into the Credit Agreement and to induce the Lenders to make their respective
extensions of credit to the Borrower thereunder, each Grantor hereby represents
and warrants to each Agent and Lender that:

 

4.1.          Representations in Credit
Agreement.    In the case of each Guarantor, the
representations and warranties set forth in Section 5 of the Credit Agreement
as they relate to such Guarantor or to the Loan Documents to which such
Guarantor is a party, each of which is hereby incorporated herein by reference,
are true and correct in all material respects, and each Agent and each Lender
shall be entitled to rely on each of them as if they were fully set forth
herein; provided that each reference in each such representation and
warranty to the Borrower’s knowledge shall, for the purposes of this Section
4.1(a), be deemed to be a reference to such Guarantor’s knowledge.

 

4.2.          Title; No Other
Liens.    Except for the security interest granted to
the Administrative Agent for the benefit of the Secured Parties pursuant to
this Agreement and the other Liens permitted to exist on the Collateral by the
Credit Agreement, such Grantor owns each item of Collateral granted by it free
and clear of any and all Liens or claims of others. No financing statement or
other public notice with respect to all or any part of the Collateral is on
file or of record in any public

 

10

 

office,
except such as have been filed in favor of the Administrative Agent, for the benefit
of the Secured Parties, pursuant to this Agreement or as are permitted by the
Credit Agreement.

 

4.3.          Perfected First
Priority Liens.

 

(a)           Upon completion of the filings and
other actions specified on Schedule 4 (which, in the case of all filings
and other documents referred to on said Schedule, have been delivered to the
Administrative Agent in completed and, where required, duly executed form) and
the payment of all applicable fees, the security interests granted in Section 3
will constitute valid perfected security interests in all of the Collateral which
can be perfected by filing (except Intellectual Property which is not United
States Intellectual Property) in favor of the Administrative Agent, for the
benefit of the Secured Parties, as collateral security for such Grantor’s
Obligations, enforceable in accordance with the terms hereof against all
creditors of such Grantor and any Persons purporting to purchase any such
Collateral from such Grantor and is and will be prior to all other Liens on
such Collateral except for Liens permitted by the Credit Agreement. Without
limiting the foregoing, each Grantor
has taken all actions necessary or desirable to (or, in the case of Deposit
Accounts only, will have taken all such actions on or prior to the tenth
Business Day following the Closing Date): (i) establish the Administrative
Agent’s “control” (within the meanings of Sections 8-106 and 9-106 of the
UCC) over the Investment Property constituting Certificated Securities, Uncertificated
Securities, Securities Accounts, Securities Entitlements or Commodity Accounts
each as listed on Schedule 6, (ii) establish the Administrative Agent’s “control”
(within the meaning of Section 9-104 of the UCC) over Deposit Accounts listed
on Schedule 6 (in the case of each of clauses (i) and (ii), except to the
extent the Administrative Agent’s consent has been otherwise granted), (iii) establish
the Administrative Agent’s “control” (within the meaning of Section 9-107
of the UCC) over all Letter of Credit Rights, (iv) establish the
Administrative Agent’s control (within the meaning of Section 9-105 of the UCC)
over all Electronic Chattel Paper and (v) establish the Administrative
Agent’s “control” (within the meaning of Section 16 of the Uniform Electronic
Transaction Act as in effect in the applicable jurisdiction “UETA”) over all “transferable
records” (as defined in UETA).

 

(b)           No authorization, approval or other
action by, and no notice to or filing with, any Governmental Authority or
regulatory body is required for either (i) the pledge or grant by any Grantor
of the security interests purported to be granted to the Administrative Agent herein
or (ii) the exercise or enforcement by Administrative Agent of any rights
or remedies in respect of any Collateral granted or set forth or referred to
herein or provided for by applicable law, except (A) filings and actions
specified on Schedule 4 and (B) as may be required, in connection with the
disposition of any Investment Property, by laws generally affecting the
offering and sale of securities.

 

(c)           Except for any consents that have
been obtained and remain in full force and effect or consents the absence of
which could not reasonably be expected to have a Material Adverse Effect, no
consent of any Person (including any party to any Contractual Obligation or the
holder of any claim against, or interest in, any Group Member) is necessary in
connection with the creation, perfection or first priority status of the
security interest granted hereby in any Capital Stock or Investment Property or
any other Collateral or the exercise by the Administrative Agent of the voting
or other rights provided for in this Agreement or the exercise or enforcement
by Administrative Agent of any rights or remedies in respect of any Collateral.

 

(d)           Each Grantor consents to the grant by
each other Grantor of the security interests granted hereby and the transfer of
any Capital Stock or Investment Property to the Administrative Agent or its
designee following an Event of Default and to the substitution of the
Administrative Agent or its designee or the purchaser upon any foreclosure sale
as the holder and beneficial owner of the interest represented thereby.

 

11

 

4.4.          Jurisdiction of
Organization; Chief Executive Office.     On the date hereof, such Grantor’s exact
legal name, jurisdiction of organization, identification number from the
jurisdiction of organization (if any), and the location of such Grantor’s chief
executive office or sole place of business or principal residence, as the case
may be, are specified on Schedule 3 Such Grantor is organized solely under the
law of the jurisdiction so specified and has not filed any certificates of
domestication, transfer or continuance in any other jurisdiction. Except as
otherwise indicated on Schedule 3, the jurisdiction of such Grantor’s
organization or formation is required to maintain a public record showing the
Grantor to have been organized or formed. Except as specified on Schedule 3,
such Grantor has not changed its name, jurisdiction of organization, chief
executive office or sole place of business or its corporate structure in any
way (e.g. by merger, consolidation, change in corporate form or otherwise)
within the past five years and has not
within the last five years become bound (whether as a result of merger or
otherwise) as grantor under a security agreement entered into by another
person, which has not heretofore been terminated. Such Grantor has
furnished to the Administrative Agent its Organizational Documents as in effect
as of a date which is recent to the date hereof.

 

4.5.          Inventory and
Equipment.

 

(a)           On the date hereof, the Inventory and
the Equipment in excess of $50,000 (other than mobile goods and equipment out
for repair) are kept at the locations listed on Schedule 5.

 

(b)           All Inventory now or hereafter
produced by any Grantor included in the Collateral has been and will be
produced in compliance with the requirements of the Fair Labor Standards Act,
as amended.

 

4.6.          Farm Products.    None
of the Collateral constitutes, or is the Proceeds of, Farm Products.

 

4.7.                              Investment Property.

 

(a)           The shares of Pledged Stock pledged
by such Grantor hereunder constitute all the issued and outstanding shares of
all classes of the Capital Stock of each Issuer owned by such Grantor or, in
the case of Capital Stock of Foreign Subsidiaries, if less, 65% of the
outstanding Capital Stock of each relevant Issuer.

 

(b)           All the shares of the Pledged Stock
have been duly and validly issued and are fully paid and nonassessable (to the
extent applicable).

 

(c)           Each of the Pledged Notes constitutes
the legal, valid and binding obligation of the obligor with respect thereto,
enforceable in accordance with its terms, subject to the effects of bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium and other similar
laws relating to or affecting creditors’ rights generally and general equitable
principles (whether considered in a proceeding in equity or at law).

 

(d)           Such Grantor is the record and
beneficial owner of, and has good and marketable title to, the Investment
Property pledged by it hereunder, free of any and all Liens other than liens
arising as a matter of law that do not detract from the value thereof in any
material respect, or options in favor of, or claims of, any other Person,
except the security interest created by this Agreement.

 

(e)           The Organizational Documents
applicable to each interest in any partnership or limited liability company included
in the Collateral expressly provide that they are securities governed by
Article 8 of the Uniform Commercial Code.

 

12

 

4.8.                              Receivables.

 

(a)           No amount payable to such Grantor
under or in connection with any Receivable is evidenced by any Instrument or
Tangible Chattel Paper which has not been delivered to the Administrative Agent
or constitutes Electronic Chattel Paper that has not been subjected to the “control”
(within the meaning of Section 9-105 of the New York UCC) of the Administrative
Agent.

 

(b)           None of the obligors on any
Receivables in excess of $50,000 in the aggregate is a Governmental Authority.

 

(c)           The amounts represented by such
Grantor to the Lenders from time to time as owing to such Grantor in respect of
the Receivables will at such times be accurate.

 

4.9.                              Material Contracts.

 

(a)           As of the day hereof, no Material
Contract prohibits assignment or encumbrance by such Grantor or requires, or
purports to require, consent of, or notice to, any party (other than such
Grantor) to any Material Contract in connection with the execution, delivery
and performance of this Agreement, including the exercise of remedies by the
Administrative Agent with respect to such Material Contract, except for
consents that have been obtained and notices that have been given.

 

(b)           Each Material Contract is in full
force and effect and constitutes a valid and legally enforceable obligation of
the Grantor party thereto and (to the best of such Grantor’s knowledge) each
other party thereto, subject to the effects of bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and other similar laws
relating to or affecting creditors’ rights generally, general equitable
principles (whether considered in a proceeding in equity or at law) and an
implied covenant of good faith and fair dealing.

 

4.10.                        Intellectual
Property.

 

(a)           Schedule 7 lists all Intellectual
Property owned by such Grantor in its own name on the date hereof.

 

(b)           On the date hereof, to such Grantor’s
actual knowledge, all material Intellectual Property of such Grantor described
on Schedule 7 is valid, subsisting, unexpired and enforceable, has not been
abandoned and does not infringe the intellectual property rights of any other
Person.

 

(c)           Except as set forth in Schedule 7, on
the date hereof, (i) none of the material Intellectual Property is the subject
of any licensing or franchise agreement pursuant to which such Grantor is the
licensor or franchisor and (ii) there are no other material agreements, obligations,
orders or judgments to which such Grantor is subject which affect the use of
any Intellectual Property owned by such Grantor.

 

(d)           The rights of such Grantor in or to
the Intellectual Property owned by such Grantor do not conflict with or
infringe upon the rights of any third party to such Grantor’s actual knowledge,
and no claim has been asserted that the use of such material Intellectual
Property does or may infringe upon the rights of any third party, in either
case, which conflict or infringement would reasonably be expected to have a
Material Adverse Effect. There is currently no infringement or unauthorized use
of

 

13

 

any item of Intellectual
Property owned by such Grantor that, either individually or in the aggregate, would
reasonably be expected to have a Material Adverse Effect.

 

(e)           No holding, decision or judgment has
been rendered by any Governmental Authority which would limit, cancel or
question the validity of, or such Grantor’s rights in, any material Intellectual
Property in any respect that would reasonably be expected to have a Material
Adverse Effect. Such Grantor is not aware of any uses of any item of
Intellectual Property owned by such Grantor that could reasonably be expected
to lead to such item becoming invalid or unenforceable including unauthorized
uses by third parties and uses which would reasonably be expected to damage the
goodwill of the business associated with any of the Trademarks owned by such
Grantor and Trademark Licenses, which uses, either individually or in the
aggregate, could reasonably be expected to have a Material Adverse Effect.

 

(f)            No action or proceeding is pending,
or, to the knowledge of such Grantor, threatened, on the date hereof (1) seeking to limit, cancel or question the
validity of any material Intellectual Property or such Grantor’s ownership
interest therein, or (2) which, if adversely
determined, would have a Material Adverse Effect on the value of any
Intellectual Property.

 

(g)           Such Grantor has made all filings and
recordations necessary to adequately protect its interest in its United States
Intellectual Property and material non-United States Intellectual Property owned
by such Grantor including recordation of its interests in the Patents and Trademarks
owned by such Grantor with the United States Patent and Trademark Office and in
corresponding national and international patent offices, and recordation of any
of its interests in the Copyrights owned by such Grantor with the United States
Copyright Office and in international copyright offices.

 

SECTION 5. COVENANTS

 

Each Grantor covenants and agrees with the Secured
Parties that, from and after the date of this Agreement until the Collateral is
released pursuant to Section 8.15(a):

 

5.1.                              Covenants
in Credit Agreement.    Such Grantor shall comply
with the covenants in the Credit Agreement pertaining to actions to be taken, or
not taken, by such Grantor.

 

5.2.          Delivery and
Control of Instruments, Certificated Securities, Chattel Paper, Negotiable
Documents, Investment Property and Letter of
Credit Rights.

 

(a)           If any of the Collateral is or shall
become evidenced or represented by any Instrument, Certificated Security,
Negotiable Document or Tangible Chattel Paper, such Instrument (other than checks
received in the ordinary course of business), Certificated Security, Negotiable
Documents or Tangible Chattel Paper shall be immediately delivered to the
Administrative Agent, duly indorsed in a manner reasonably satisfactory to the
Administrative Agent, to be held as Collateral pursuant to this Agreement, and
all such property owned by such Grantor as of the Closing Date shall be so delivered
on the Closing Date.

 

(b)           If any of the Collateral is or shall
become “Electronic Chattel Paper” such Grantor shall ensure that (i) a single
authoritative copy exists which is unique, identifiable, and unalterable
(except as provided in clauses (iii), (iv) and (v) of this paragraph), (ii)
such authoritative copy identifies the Administrative Agent as the assignee and
is communicated to and maintained by the Administrative Agent or its designee,
(iii) copies or revisions that add or change the assignee of the authoritative
copy can only be made with the participation of the Administrative Agent, (iv)
each copy of the authoritative copy and any copy of a copy is readily
identifiable as a copy and not the authoritative

 

14

 

copy and (v) any revision of
the authoritative copy is readily identifiable as an authorized or unauthorized
revision.

 

(c)           If any of the Collateral is or shall
become evidenced or represented by an Uncertificated Security with a value in
excess of $50,000, such Grantor shall use commercially reasonable efforts to cause
the issuer thereof either (i) to register the Administrative Agent as the
registered owner of such Uncertificated Security, upon original issue or
registration of transfer or (ii) to agree in writing with such Grantor and the
Administrative Agent that such Issuer will comply with instructions with
respect to such Uncertificated Security originated by the Administrative Agent
without further consent of such Grantor, such agreement to be in form and
substance satisfactory to the Administrative Agent.

 

(d)           Such Grantor shall maintain
Securities Entitlements, Securities Accounts and Deposit Accounts (other than such
Securities Entitlements, Securities Accounts and Deposit Accounts which at no
time have a balance of more than $100,000 in the aggregate during two or more
consecutive Business Days) only with financial institutions that have agreed to
comply with entitlement orders and instructions issued or originated by the
Administrative Agent without further consent of such Grantor, such agreement to
be in form and substance satisfactory to the Administrative Agent.

 

(e)           If any of the Collateral is or shall
become evidenced or represented by a Commodity Contract, such Grantor shall
cause the Commodity Intermediary with respect to such Commodity Contract to
agree in writing with such Grantor and the Administrative Agent that such
Commodity Intermediary will apply any value distributed on account of such
Commodity Contract as directed by the Administrative Agent without further
consent of such Grantor, such agreement to be in form and substance satisfactory
to the Administrative Agent.

 

(f)            In addition to and not in lieu of
the foregoing, if any Issuer of any Investment Property is organized under the
law of, or has its chief executive office in, a jurisdiction outside of the
United States, each Grantor shall use
commercially reasonable efforts to cause the Issuer to register the pledge on
its books and records, as may be necessary under the laws of such jurisdiction
to insure the validity, perfection and priority of the security interest of the
Administrative Agent.

 

(g)           In the case of any material Letter-of-Credit
Rights, each Grantor shall obtain the consent of the issuer thereof and any
nominated person thereon to the assignment of the Proceeds of the related
letter of credit in accordance with Section 5-114(c) of the New York UCC, pursuant
to an agreement in form and substance reasonably satisfactory to the
Administrative Agent.

 

5.3.                              Maintenance
of Insurance.

 

(a)           Such Grantor will maintain, with
financially sound and reputable companies, insurance policies (i) insuring the Collateral
against loss by fire, explosion, theft or other risks as may be required by the
Credit Agreement and (ii) naming the
Secured Parties as additional insureds under liability insurance policies to
the extent reasonably requested by the Administrative Agent.

 

(b)           All such insurance shall (i) provide
that no cancellation, material reduction in amount or material change in
coverage thereof shall be effective until at least 30 days after receipt by the
Administrative Agent of written notice thereof and (ii) name the Administrative Agent as insured party or loss
payee in respect of property and business interruption insurance. All proceeds
of business interruption insurance received by the Administrative Agent shall
be released by the Administrative Agent to the Borrower for account of the
Grantor entitled thereto, unless (i) an Event of Default has occurred and is
continuing or (ii) otherwise provided in the Credit Agreement.

 

15

 

(c)           The Borrower shall deliver to the
Administrative Agent a certificate of insurance or other evidence of the
insurance required under the Credit Agreement substantially concurrently with
the delivery by the Borrower to the Administrative Agent of its audited
financial statements for each fiscal year.

 

5.4.          Payment of Obligations.     Except as could not reasonably be expected
to cause a Material Adverse Effect, such Grantor will pay and discharge or
otherwise satisfy at or before maturity or before they become delinquent, as
the case may be, all taxes, assessments and governmental charges or levies
imposed upon the Collateral or in respect of income or profits therefrom, as
well as all claims of any kind (including claims for labor, materials and
supplies) against or with respect to the Collateral, except that no such charge
need be paid if the amount or validity thereof is currently being contested in
good faith by appropriate proceedings, reserves in conformity with GAAP with
respect thereto have been provided on the books of such Grantor and such
proceedings could not reasonably be expected to result in the sale, forfeiture
or loss of any material portion of the Collateral or any interest therein.

 

5.5.                              Maintenance
of Perfected Security Interest; Further Documentation.

 

(a)           Such Grantor shall maintain the
security interest created by this Agreement as a perfected security interest
having at least the priority described in Section 4.3 and shall defend such
security interest against the claims and demands of all Persons whomsoever,
subject to the rights of such Grantor under the Loan Documents to dispose of
the Collateral.

 

(b)           Such Grantor will furnish to the
Administrative Agent from time to time statements and schedules further
identifying and describing the assets and property of such Grantor in
reasonable detail as the Administrative Agent may reasonably request.

 

(c)           At any time and from time to time,
upon the written request of the Administrative Agent, and at the sole expense
of such Grantor, such Grantor will promptly and duly execute and deliver, and
have recorded, such further instruments and documents and take such further
actions as the Administrative Agent may reasonably request for the purpose of creating,
perfecting, ensuring the priority of, protecting or enforcing the
Administrative Agent’s security interest in the Collateral or otherwise
conferring or preserving the full benefits of this Agreement and of the interests,
rights and powers herein granted.

 

5.6.                              Changes in Locations,
Name, etc.     Such Grantor will not,
except upon 15 days’ prior written notice to the Administrative Agent and
delivery to the Administrative Agent of (a) all additional executed
financing statements and other documents reasonably requested by the
Administrative Agent to maintain the validity, perfection and priority of the
security interests provided for herein and (b) if applicable, a written
supplement to Schedule 5 showing any additional location at which Inventory or
Equipment shall be kept:

 

(i)            change its
jurisdiction of organization or the location of its chief executive office or
sole place of business or principal residence from that referred to in Section
4.4;

 

(ii)           change its name; or

 

(iii)          permit any of the
Inventory or Equipment in excess of $50,000 (other than mobile goods and
equipment out for repair) to be kept at a location other than those listed on
Schedule 5.

 

16

 

5.7.                              Notices. Such Grantor will advise the Administrative
Agent and the Lenders promptly, in reasonable detail, of:

 

(a)           any Lien (other than
security interests created hereby or Liens permitted under the Credit
Agreement) on any of the Collateral which would adversely affect the ability of
the Administrative Agent to exercise any of its remedies hereunder; and

 

(b)           the occurrence of
any other event which could reasonably be expected to have a material adverse
effect on the aggregate value of the Collateral or on the security interests
created hereby.

 

5.8.                              Investment Property.

 

(a)           If such Grantor shall become entitled
to receive or shall receive any stock certificate (including any certificate
representing a stock dividend or a distribution in connection with any
reclassification, increase or reduction of capital or any certificate issued in
connection with any reorganization), option or rights in respect of the Capital
Stock of any Issuer, whether in addition to, in substitution of, as a
conversion of, or in exchange for, any shares of the Pledged Stock, or
otherwise in respect thereof, such Grantor shall accept the same for the
benefit of the Secured Parties, and deliver the same forthwith to the
Administrative Agent in the exact form received, duly indorsed by such Grantor
to the Administrative Agent, if required, together with an undated stock power (or
other instrument of transfer) covering such certificate duly executed in blank
by such Grantor and with, if the Administrative Agent so requests, signature
guaranteed, to be held by the Administrative Agent, subject to the terms
hereof, as additional collateral security for the Obligations. Except as
otherwise expressly permitted under the Credit Agreement, any sums paid upon or
in respect of the Investment Property upon the liquidation or dissolution of
any Issuer shall be paid over to the Administrative Agent to be held by it
hereunder as additional collateral security for the Obligations, and in case
any distribution of capital shall be made on or in respect of the Investment
Property or any property shall be distributed upon or with respect to the Investment
Property pursuant to the recapitalization or reclassification of the capital of
any Issuer or pursuant to the reorganization thereof, the property so
distributed shall, unless otherwise subject to a perfected security interest in
favor of the Administrative Agent, be delivered to the Administrative Agent to
be held by it hereunder as additional collateral security for the Obligations. If
any sums of money or property so paid or distributed in respect of the
Investment Property shall be received by such Grantor, such Grantor shall,
until such money or property is paid or delivered to the Administrative Agent,
hold such money or property in trust for the Secured Parties, segregated from
other funds of such Grantor, as additional collateral security for the
Obligations.

 

(b)           Except as otherwise expressly permitted
under the Credit Agreement, without the prior written consent of the
Administrative Agent, such Grantor will not (i) vote to enable, or take any
other action to permit, any Issuer to issue any stock or other equity
securities of any nature or to issue any other securities convertible into or
granting the right to purchase or exchange for any stock or other equity
securities of any nature of any Issuer, (ii)
sell, assign, transfer, exchange, or otherwise dispose of, or grant any option
with respect to, the Investment Property or Proceeds thereof (except pursuant
to a transaction expressly permitted by the Credit Agreement), (iii) create,
incur or permit to exist any Lien or option in favor of, or any claim of any
Person with respect to, any of the Investment Property or Proceeds thereof, or
any interest therein, except for the security interests created by this
Agreement or (iv) enter into any agreement or undertaking restricting the right
or ability of such Grantor or the Administrative Agent to sell, assign or
transfer any of the Investment Property or Proceeds thereof (unless such
restriction is permitted by the Credit Agreement).

 

17

 

(c)           In the case of each Grantor which is
an Issuer, such Issuer agrees that (i) it
will be bound by the terms of this Agreement relating to the Investment
Property issued by it and will comply with such terms insofar as such terms are
applicable to it, (ii) it will notify the
Administrative Agent promptly in writing of the occurrence of any of the events
described in Section 5.8(a) with respect to the Investment Property issued by
it and (iii) it will take all
actions required or reasonably requested by the Administrative Agent to enable
or permit each Grantor to comply with Sections 6.3(c) and 6.7 as to all Investment
Property issued by it.

 

5.9.                              Receivables.

 

(a)           Other than in the ordinary course of
business consistent with its past practice, such Grantor will not (i) grant any extension of the time of payment
of any Receivable, (ii) compromise or settle any Receivable for less than the
full amount thereof, (iii) release,
wholly or partially, any Person liable for the payment of any Receivable, (iv)
allow any credit or discount whatsoever on any Receivable or (v) amend, supplement or modify any Receivable
in any manner that could materially adversely affect the value thereof.

 

(b)           Such Grantor will deliver to the
Administrative Agent a copy of each material demand, notice or document
received by it that questions or calls into doubt the validity or
enforceability of more than 5% of the aggregate amount of the then outstanding
Receivables.

 

5.10.                        Intellectual
Property.

 

(a)           Such Grantor (either itself or
through licensees) will (i) continue to use each material Trademark on each and
every trademark class of goods applicable to its current line as reflected in
its current catalogs, brochures and price lists in order to maintain such
Trademark in full force free from any claim of abandonment for non-use, (ii)
maintain as in the past the quality of products and services offered under such
Trademark, (iii) use such Trademark with the appropriate notice of registration
and all other notices and legends required by applicable Requirements of Law, (iv) not adopt or use any mark which is
confusingly similar or a colorable imitation of such Trademark unless the
Administrative Agent, for the benefit of the Secured Parties, shall obtain a
perfected security interest in such mark pursuant to this Agreement, and (v)
not (and not permit any licensee or sublicensee thereof to) do any act or
knowingly omit to do any act whereby such Trademark may become invalidated or
impaired in any way.

 

(b)           Such Grantor (either itself or
through licensees) will not do any act, or omit to do any act, whereby any
material Patent may become forfeited, abandoned or dedicated to the public.

 

(c)           Such Grantor (either itself or
through licensees) (i) will employ each material Copyright and (ii) will not
(and will not permit any licensee or sublicensee thereof to) do any act or
knowingly omit to do any act whereby any material portion of the material Copyrights
may become invalidated or otherwise impaired. Such Grantor will not (either
itself or through licensees) do any act whereby any material portion of the material
Copyrights may fall into the public domain.

 

(d)           Such Grantor (either itself or
through licensees) will not do any act that knowingly uses any material
Intellectual Property to infringe the intellectual property rights of any other
Person.

 

(e)           Such Grantor will promptly notify the
Administrative Agent if it knows, or has reason to know, that any application
or registration relating to any material Intellectual Property may become
forfeited, abandoned or dedicated to the public, or of any adverse determination
or development

 

18

 

(including the institution of,
or any such determination or development in, any proceeding in the United
States Patent and Trademark Office, the United States Copyright Office or any
court or tribunal in any country) regarding such Grantor’s ownership of, or the
validity of, any material Intellectual Property or such Grantor’s right to
register the same or to own and maintain the same.

 

(f)            Whenever such Grantor, either by
itself or through any agent, employee, licensee or designee, shall file an
application for the registration of any Intellectual Property with the United
States Patent and Trademark Office, the United States Copyright Office or any
similar office or agency in any other country or any political subdivision
thereof, such Grantor shall report such filing to the Administrative Agent
within five Business Days after the last day of the fiscal quarter in which
such filing occurs. Upon request of the Administrative Agent, such Grantor
shall execute and deliver, and have recorded, any and all agreements,
instruments, documents, and papers as the Administrative Agent may request to
evidence the Agents’ and the Lenders’ security interest in any Copyright,
Patent or Trademark and the goodwill and general intangibles of such Grantor
relating thereto or represented thereby.

 

(g)           Such Grantor will take all reasonable
and necessary steps, including in any proceeding before the United States
Patent and Trademark Office, the United States Copyright Office or any similar
office or agency in any other country or group of countries or any political
subdivision of any of the foregoing, to maintain and pursue each application
(and to obtain the relevant registration) and to maintain each registration of
the material Intellectual Property, including filing of applications for
renewal, affidavits of use and affidavits of incontestability.

 

(h)           In the event that any material
Intellectual Property is infringed, misappropriated or diluted by a third
party, such Grantor shall (i) take such actions as such Grantor shall
reasonably deem appropriate under the circumstances to protect such
Intellectual Property and (ii) if such Intellectual Property is of material
economic value, promptly notify the Administrative Agent after it learns
thereof and sue for infringement, misappropriation or dilution, to seek
injunctive relief where appropriate and to recover any and all damages for such
infringement, misappropriation or dilution.

 

(i)            Such Grantor agrees to execute an
Intellectual Property Security Agreement with respect to its Intellectual
Property in substantially the form of Annex III in order to record the security
interest granted herein to the Administrative Agent for the benefit of the
Secured Parties with the United States Patent and Trademark Office, the United
States Copyright Office or other applicable Governmental Authority. With
respect to registered Intellectual Property acquired by such Grantor after the
Closing Date, such Grantor agrees to provide the Administrative Agent with all
documents necessary to record the security interest of the Administrative Agent
in such after acquired Intellectual Property within forty-five days of the last
day of the fiscal quarter in which such registered Intellectual Property was
acquired.

 

5.11.        Commercial Tort
Claims. Each Grantor shall update Schedule 8 such that all Commercial Tort
Claims claiming at least $100,000 in damages then in litigation or in connection
with which any filing or document has been made or delivered, are promptly
listed thereon.

 

SECTION 6. REMEDIAL
PROVISIONS

 

6.1.                              Certain
Matters Relating to Receivables.

 

(a)           After the occurrence and during the
continuance of a Default or an Event of Default and after prior notice of such
action to each applicable Grantor, the Administrative Agent shall have the
right to verify the Receivables in any manner and through any medium that it
reasonably considers advisable, and each Grantor shall furnish all such
assistance and information as the

 

19

 

Administrative Agent may
require in connection with such test verifications. At any time and from time
to time (but no more than once per calendar year unless a default or Event of
Default has occurred and is continuing), upon the Administrative Agent’s
request and at the expense of the relevant Grantor, such Grantor shall cause
independent public accountants or others reasonably satisfactory to the
Administrative Agent to furnish to the Administrative Agent reports showing
reconciliations, aging and verifications of, and trial balances for, the
Receivables.

 

(b)           The Administrative Agent hereby
authorizes each Grantor to collect such Grantor’s Receivables, and the Administrative
Agent may curtail or terminate said authority at any time after the occurrence
and during the continuance of an Event of Default. If required by the
Administrative Agent at any time after the occurrence and during the
continuance of an Event of Default, any payments of Receivables, when collected
by any Grantor, (i) shall be forthwith
(and, in any event, within two Business Days) deposited by such Grantor in the
exact form received, duly indorsed by such Grantor to the Administrative Agent
if required, in a Collateral Account maintained under the sole dominion and
control of the Administrative Agent, subject to withdrawal by the
Administrative Agent for the account of the Secured Parties only as provided in
Section 6.5, and (ii) until so turned
over, shall be held by such Grantor for the Administrative Agent and the
Secured Parties, segregated from other funds of such Grantor. Each such deposit
of Proceeds of Receivables shall be accompanied by a report identifying in
reasonable detail the nature and source of the payments included in the
deposit.

 

(c)           At the Administrative Agent’s request,
each Grantor shall deliver to the Administrative Agent all original and other
documents evidencing, and relating to, the agreements and transactions which
gave rise to the Receivables, including all original orders, invoices and
shipping receipts.

 

6.2.                              Communications
with Obligors; Grantors Remain Liable.

 

(a)           The Administrative Agent in its own
name or in the name of others may at any time after the occurrence and during
the continuance of an Event of Default and after prior notice of such action to
each applicable Guarantor communicate with obligors under the Receivables to
verify with them to the Administrative Agent’s satisfaction the existence, amount
and terms of any Receivables.

 

(b)           Upon request of the Administrative
Agent at any time after the occurrence and during the continuance of an Event
of Default, each Grantor shall notify obligors on the Receivables that the
Receivables have been assigned to the Administrative Agent for the benefit of
the Secured Parties and that payments in respect thereof shall be made directly
to the Administrative Agent.

 

(c)           Anything herein to the contrary
notwithstanding, each Grantor shall remain liable under each of the Receivables
to observe and perform all the conditions and obligations to be observed and
performed by it thereunder, all in accordance with the terms of any agreement
giving rise thereto. No Secured Party shall have any obligation or liability
under any Receivable (or any agreement giving rise thereto) by reason of or
arising out of this Agreement or the receipt by any Secured Party of any
payment relating thereto, nor shall any Secured Party be obligated in any
manner to perform any of the obligations of any Grantor under or pursuant to
any Receivable (or any agreement giving rise thereto), to make any payment, to
make any inquiry as to the nature or the sufficiency of any payment received by
it or as to the sufficiency of any performance by any party thereunder, to
present or file any claim, to take any action to enforce any performance or to
collect the payment of any amounts which may have been assigned to it or to
which it may be entitled at any time or times.

 

20

6.3.                              Pledged Stock.

 

(a)                                  Unless an Event of
Default has occurred and is continuing and the Administrative Agent has given
notice to the relevant Grantor of the Administrative Agent’s intent to exercise
its rights pursuant to Section 6.3(b), each Grantor may receive all cash
dividends paid in respect of the Pledged Stock and all payments made in respect
of the Pledged Notes, in each case paid in the normal course of business of the
relevant Issuer and consistent with past practice, to the extent permitted in
the Credit Agreement, and may exercise all voting and corporate or other
organizational rights with respect to Investment Property; provided,
that no vote shall be cast or corporate or other organizational right exercised
or other action taken which would materially adversely affect the rights of the
Agent in such Collateral or affect the validity, perfection or priority of
Administrative Agent’s security interest in such Collateral or be inconsistent
with or result in any violation of any provision of any Loan Document.

 

(b)                                 If an Event of Default
shall occur and be continuing and the Administrative Agent shall give notice of
its intent to exercise such rights to the relevant Grantor or Grantors,
(i) the Administrative Agent shall have the right to receive any and all
cash dividends, payments or other Proceeds paid in respect of the Investment
Property and make application thereof to the Obligations in the order set forth
in Section 6.5, and (ii) any or all of the Investment Property shall be
registered in the name of the Administrative Agent or its nominee, and the
Administrative Agent or its nominee may thereafter exercise (A) all
voting, corporate and other rights pertaining to such Investment Property at
any meeting of shareholders of the relevant Issuer or Issuers or otherwise and
(B) any and all rights of conversion, exchange and subscription and any
other rights, privileges or options pertaining to such Investment Property as
if it were the absolute owner thereof (including the right to exchange at its
discretion any and all of the Investment Property upon the merger,
consolidation, reorganization, recapitalization or other fundamental change in
the corporate or other organizational structure of any Issuer, or upon the
exercise by any Grantor or the Administrative Agent of any right, privilege or
option pertaining to such Investment Property, and in connection therewith, the
right to deposit and deliver any and all of the Investment Property with any
committee, depositary, transfer agent, registrar or other designated agency
upon such terms and conditions as the Administrative Agent may determine), all
without liability except to account for property actually received by it, but
the Administrative Agent shall have no duty to any Grantor to exercise any such
right, privilege or option and shall not be responsible for any failure to do
so or delay in so doing.

 

(c)                                  Each Grantor hereby
authorizes and instructs each Issuer of any Investment Property pledged by such
Grantor hereunder to (i) comply with any instruction received by it from the
Administrative Agent in writing that (A) states that an Event of Default
has occurred and is continuing and (B) is otherwise in accordance with the
terms of this Agreement, without any other or further instructions from such
Grantor, and each Grantor agrees that each Issuer shall be fully protected in
so complying, and (ii) unless otherwise
expressly permitted hereby, pay any dividends or other payments with respect to
the Investment Property directly to the Administrative Agent.

 

6.4.                              Proceeds to be Turned
Over to Administrative Agent.    In
addition to the rights of the Agents and the Lenders specified in Section 6.1
with respect to payments of Receivables, if an Event of Default shall occur and
be continuing and the Administrative Agent has given notice of its intent to
exercise such rights, all Proceeds received by any Grantor consisting of cash,
checks and Cash Equivalents shall be held by such Grantor for the benefit of the
Secured Parties, segregated from other funds of such Grantor, and shall,
forthwith upon receipt by such Grantor, be turned over to the Administrative
Agent in the exact form received by such Grantor (duly indorsed by such Grantor
to the Administrative Agent, if required). 
All Proceeds received by the Administrative Agent hereunder shall be
held by the Administrative Agent in a Collateral Account maintained under its
sole dominion and control.  All Proceeds
while held by the Administrative Agent in a Collateral Account (or by such
Grantor for the

 

21

 

benefit of the Administrative Agent and the other Secured Parties)
shall continue to be held as collateral security for all the Obligations and
shall not constitute payment thereof until applied as provided in Section 6.5.

 

6.5.                              Application
of Proceeds.            If
and whenever any Event of Default has occurred and is continuing, the
Administrative Agent may apply all or any part of Proceeds constituting
Collateral, whether or not held in any Collateral Account, in payment of the
Obligations in such order as may be required by the Credit Agreement and
otherwise as the Administrative Agent may elect.  Any balance of such Proceeds remaining after
the Obligations have been paid in full (other than contingent indemnity obligations
for which no claim has been made), all Letters of Credit are discharged and all
commitments to extend credit under the Loan Documents have terminated shall be
paid over to the Borrower or to whomsoever may be lawfully entitled to receive
the same.

 

6.6.                              Code
and Other Remedies.   If an Event of Default
shall occur and be continuing, the Administrative Agent may exercise, in
addition to all other rights and remedies granted to it in this Agreement and
in any other Loan Document, all rights and remedies of a secured party under
the New York UCC or any other applicable law or in equity.  Without limiting the generality of the
foregoing, the Administrative Agent, without demand of performance or other
demand, presentment, protest, advertisement or notice of any kind (except any
notice required by law referred to below) to or upon any Grantor or any other
Person (all and each of which demands, defenses, advertisements and notices are
hereby waived), may in such circumstances forthwith collect, receive, appropriate
and realize upon the Collateral, or any part thereof, and/or may forthwith
sell, lease, assign, give option or options to purchase, or otherwise dispose
of and deliver the Collateral or any part thereof (or contract to do any of the
foregoing), in one or more parcels at public or private sale or sales, at any
exchange, broker’s board or office of any Secured Party or elsewhere upon such
terms and conditions as it may deem advisable and at such prices as it may deem
best, for cash or on credit or for future delivery without assumption of any
credit risk.  Any Secured Party shall
have the right upon any such public sale or sales, and, to the extent permitted
by law, upon any such private sale or sales, to purchase the whole or any part
of the Collateral so sold, free of any right or equity of redemption in any
Grantor, which right or equity is hereby waived and released.  Each Grantor further agrees, at the
Administrative Agent’s request, to assemble the Collateral and make it
available to the Administrative Agent at places which the Administrative Agent
shall reasonably select, whether at such Grantor’s premises or elsewhere.  The Administrative Agent shall apply the net
proceeds of any action taken by it pursuant to this Section 6.6, after
deducting all reasonable costs and expenses of every kind incurred in
connection therewith or incidental to the care or safekeeping of any of the
Collateral or in any way relating to the Collateral or the rights of the
Administrative Agent and the other Secured Parties hereunder, including reasonable
attorneys’ fees and disbursements, to the payment in whole or in part of the
Obligations, in such order as the Administrative Agent may elect, and only
after such application and after the payment by the Administrative Agent of any
other amount required by any provision of law, including Section 9-615(a)(3)
of the New York UCC, need the Administrative Agent account for the surplus, if
any, to any Grantor.  To the extent
permitted by applicable law, each Grantor waives all claims, damages and
demands it may acquire against any Secured Party arising out of the exercise of
any rights hereunder.  If any notice of a
proposed sale or other disposition of Collateral is required by law, such
notice shall be deemed reasonable and proper if given at least 10 days before
such sale or other disposition.

 

6.7.                              Registration Rights.

 

(a)                                  If the Administrative
Agent shall determine to exercise its right to sell any or all of the Pledged
Stock pursuant to Section 6.6, and if in the opinion of the Administrative
Agent it is necessary or advisable to have the Pledged Stock, or that portion
thereof to be sold, registered under the provisions of the Securities Act, the
relevant Grantor will use commercially reasonable efforts to cause

 

22

 

the Issuer thereof to (i) execute
and deliver, and cause the directors and officers of such Issuer to execute and
deliver, all such instruments and documents, and do or cause to be done all
such other acts as may be, in the opinion of the Administrative Agent,
necessary or advisable to register the Pledged Stock, or that portion thereof
to be sold, under the provisions of the Securities Act, (ii) use its best
efforts to cause the registration statement relating thereto to become
effective and to remain effective for a period of one year from the date of the
first public offering of the Pledged Stock, or that portion thereof to be sold,
and (iii) make all amendments thereto
and/or to the related prospectus which, in the opinion of the Administrative
Agent, are necessary or advisable, all in conformity with the requirements of
the Securities Act and the rules and regulations of the Securities and Exchange
Commission applicable thereto.  Each
Grantor agrees to use commercially reasonable efforts to cause such Issuer to
comply with the provisions of the securities or “Blue Sky” laws of any and all
jurisdictions which the Administrative Agent shall designate and to make
available to its security holders, as soon as practicable, an earnings
statement (which need not be audited) which will satisfy the provisions of Section 11(a)
of the Securities Act.

 

(b)                                 Each Grantor
recognizes that the Administrative Agent may be unable to effect a public sale
of any or all the Pledged Stock, by reason of certain prohibitions contained in
the Securities Act and applicable state securities laws or otherwise, and may
be compelled to resort to one or more private sales thereof to a restricted
group of purchasers which will be obliged to agree, among other things, to
acquire such securities for their own account for investment and not with a
view to the distribution or resale thereof. 
Each Grantor acknowledges and agrees that any such private sale may result
in prices and other terms less favorable than if such sale were a public sale
and, notwithstanding such circumstances, agrees that any such private sale
shall be deemed to have been made in a commercially reasonable manner.  The Administrative Agent shall be under no
obligation to delay a sale of any of the Pledged Stock for the period of time
necessary to permit the Issuer thereof to register such securities for public
sale under the Securities Act, or under applicable state securities laws, even
if such Issuer would agree to do so.

 

(c)                                  Each Grantor agrees
to use its best efforts to do or cause to be done all such other acts as may be
necessary to make such sale or sales of all or any portion of the Pledged Stock
pursuant to this Section 6.7 valid and binding and in compliance with any
and all other applicable Requirements of Law. 
Each Grantor further agrees that a breach of any of the covenants
contained in this Section 6.7 will cause irreparable injury to the Secured
Parties, that the Secured Parties have no adequate remedy at law in respect of
such breach and, as a consequence, that each and every covenant contained in
this Section 6.7 shall be specifically enforceable against such Grantor,
and such Grantor hereby waives and agrees not to assert any defenses against an
action for specific performance of such covenants except for a defense that no
Event of Default has occurred under the Credit Agreement.

 

6.8.                              Deficiency.    Each
Grantor shall remain liable for any deficiency if the proceeds of any sale or
other disposition of the Collateral are insufficient to pay its Obligations and
the fees and disbursements of any attorneys employed by the Administrative
Agent or any Lender to collect such deficiency.

 

SECTION 7.  THE ADMINISTRATIVE AGENT

 

7.1.                              Administrative
Agent’s Appointment as Attorney-in-Fact, etc.

 

(a)                                  Each Grantor hereby
irrevocably constitutes and appoints the Administrative Agent and any officer
or agent thereof, with full power of substitution, as its true and lawful
attorney-in-fact with full irrevocable power and authority in the place and
stead of such Grantor and in the name of such Grantor or in its own name, for
the purpose of carrying out the terms of this Agreement, to take any and all
appropriate action and to execute any and all documents and instruments which
may be necessary

 

23

 

or desirable to accomplish the purposes of this Agreement, and, without
limiting the generality of the foregoing, each Grantor hereby gives the
Administrative Agent the power and right, on behalf of such Grantor, without
notice to or assent by such Grantor, to do any or all of the following:

 

(i)                                     in the name of
such Grantor or its own name, or otherwise, take possession of and indorse and
collect any checks, drafts, notes, acceptances or other instruments for the
payment of moneys due under any Receivable or with respect to any other
Collateral and file any claim or take any other action or proceeding in any
court of law or equity or otherwise deemed appropriate by the Administrative
Agent for the purpose of collecting any and all such moneys due under any
Receivable or with respect to any other Collateral whenever payable;

 

(ii)                                  in the case of any
Intellectual Property, execute and deliver, and have recorded, any and all
agreements, instruments, documents and papers as the Administrative Agent may
request to evidence the Secured Parties’ security interest in such Intellectual
Property and the goodwill and general intangibles of such Grantor relating
thereto or represented thereby;

 

(iii)                               pay or discharge taxes
and Liens levied or placed on or threatened against the Collateral, effect any
repairs or any insurance called for by the terms of this Agreement and pay all
or any part of the premiums therefor and the costs thereof;

 

(iv)                              execute, in connection
with any sale provided for in Section 6.6 or 6.7, any endorsements,
assignments or other instruments of conveyance or transfer with respect to the
Collateral; and

 

(v)                                 (A) direct any party
liable for any payment under any of the Collateral to make payment of any and
all moneys due or to become due thereunder directly to the Administrative Agent
or as the Administrative Agent shall direct; (B) ask
or demand for, collect, and receive payment of and receipt for, any and all
moneys, claims and other amounts due or to become due at any time in respect of
or arising out of any Collateral; (C) sign and indorse any invoices,
freight or express bills, bills of lading, storage or warehouse receipts,
drafts against debtors, assignments, verifications, notices and other documents
in connection with any of the Collateral; (D) commence and prosecute any
suits, actions or proceedings at law or in equity in any court of competent
jurisdiction to collect the Collateral or any portion thereof and to enforce
any other right in respect of any Collateral; (E) defend any suit, action
or proceeding brought against such Grantor with respect to any Collateral; (F) settle,
compromise or adjust any such suit, action or proceeding and, in connection
therewith, give such discharges or releases as the Administrative Agent may
deem appropriate; (G) assign any Copyright, Patent or Trademark (along
with the goodwill of the business to which any such Copyright, Patent or
Trademark pertains), throughout the world for such term or terms, on such
conditions, and in such manner, as the Administrative Agent shall in its sole
discretion determine; and (H) generally, sell, transfer, pledge and make
any agreement with respect to or otherwise deal with any of the Collateral as
fully and completely as though the Administrative Agent were the absolute owner
thereof for all purposes, and do, at the Administrative Agent’s option and such
Grantor’s expense, at any time, or from time to time, all acts and things which
the Administrative Agent deems necessary to protect, preserve or realize upon
the Collateral and the Secured Parties’ security interests therein and to
effect the intent of this Agreement, all as fully and effectively as such
Grantor might do.

 

The Administrative
Agent agrees that it will not exercise any rights under the power of attorney
provided for in this Section 7.1(a) unless an Event of Default has occurred
and is continuing.

 

24

 

(b)                                 If any Grantor fails
to perform or comply with any of its agreements contained herein, the
Administrative Agent, at its option, but without any obligation so to do, may
perform or comply with, or cause performance or compliance with, such
agreement.

 

(c)                                  The reasonable
out-of-pocket expenses of the Administrative Agent incurred in connection with
actions undertaken as provided in this Section 7.1, together with interest
thereon at a rate per annum equal to the rate per annum at which interest would
then be payable on past due Revolving Loans that are Base Rate Loans under the
Credit Agreement, from the date of payment by the Administrative Agent to the
date reimbursed by the relevant Grantor, shall be payable by such Grantor to
the Administrative Agent on demand.

 

(d)                                 Each Grantor hereby
ratifies all that said attorneys shall lawfully do or cause to be done by
virtue hereof.  All powers,
authorizations and agencies contained in this Agreement are coupled with an
interest and are irrevocable until this Agreement is terminated and all
security interests created hereby are released.

 

7.2.                              Duty
of Administrative Agent.    The
Administrative Agent’s sole duty with respect to the custody, safekeeping and
physical preservation of the Collateral in its possession, under Section 9-207
of the New York UCC or otherwise, shall be to deal with it in the same manner
as the Administrative Agent deals with similar property for its own
account.  Neither the Administrative
Agent, any other Secured Party nor any of their respective officers, directors,
employees or agents shall be liable for failure to demand, collect or realize
upon any of the Collateral or for any delay in doing so or shall be under any
obligation to sell or otherwise dispose of any Collateral upon the request of
any Grantor or any other Person or to take any other action whatsoever with
regard to the Collateral or any part thereof. 
The powers conferred on the Secured Parties hereunder are solely to
protect the Secured Parties’ interests in the Collateral and shall not impose
any duty upon any Secured Parties to exercise any such powers.  Each Secured Party shall be accountable only
for amounts that it actually receives as a result of the exercise of such
powers, and neither it nor any of its 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 or willful misconduct.

 

7.3.                              Financing Statements.    Pursuant
to any applicable law, each Grantor authorizes the Administrative Agent to file
or record financing statements and other filing or recording documents or
instruments with respect to the Collateral on behalf of such Grantor in such
form and in such offices as the Administrative Agent determines appropriate to
perfect the security interests of the Administrative Agent under this
Agreement.  Each Grantor authorizes the
Administrative Agent to use the collateral description “all personal property” or
similar language in any such financing statements.  Each Grantor hereby ratifies and authorizes
the filing by the Administrative Agent of any financing statement with respect
to the Collateral made prior to the date hereof.

 

7.4.                              Authority,
Immunities and Indemnities of Administrative Agent.    Each
Grantor acknowledges, and, by acceptance of the benefits hereof, each Secured
Party agrees, that the rights and responsibilities of the Administrative Agent
under this Agreement with respect to any action taken by the Administrative
Agent or the exercise or non-exercise by the Administrative Agent of any
option, voting right, request, judgment or other right or remedy provided for
herein or resulting or arising out of this Agreement shall, as among the
Secured Parties, be governed by the Credit Agreement and that the Administrative
Agent shall have, in respect thereof, all rights, remedies, immunities and
indemnities granted to it in the Credit Agreement.  By acceptance of the benefits hereof, each
Secured Party that is not a Lender agrees to be bound by the provisions of the
Credit Agreement applicable to the Administrative Agent, including Article 10
thereof, as fully as if such Secured Party were a Lender.  The Administrative Agent shall be
conclusively presumed to be acting as agent for the Secured Parties with full
and valid

 

25

 

authority so to act or refrain from acting, and no
Grantor shall be under any obligation, or entitlement, to make any inquiry
respecting such authority.

 

SECTION 8.  MISCELLANEOUS

 

8.1.                              Amendments
in Writing.             None of
the terms or provisions of this Agreement may be waived, amended, supplemented
or otherwise modified except in accordance with Section 11.1 of the Credit
Agreement.

 

8.2.                              Notices.    All notices, requests and
demands to or upon the Administrative Agent or any Grantor hereunder shall be
effected in the manner provided for in Section 11.2 of the Credit
Agreement; provided that any such notice, request or demand to or upon
any Guarantor shall be addressed to such Guarantor at its notice address set
forth on Schedule 1.

 

8.3.                              No
Waiver by Course of Conduct; Cumulative Remedies.     No
Secured Party shall by any act (except by a written instrument pursuant to Section 8.1),
delay, indulgence, omission or otherwise be deemed to have waived any right or
remedy hereunder or to have acquiesced in any Default or Event of Default.  No failure to exercise, nor any delay in
exercising, on the part of any Secured Party, any right, power or privilege
hereunder shall operate as a waiver thereof. 
No single or partial exercise of any right, power or privilege hereunder
shall preclude any other or further exercise thereof or the exercise of any
other right, power or privilege.  A
waiver by any Secured Party of any right or remedy hereunder on any one
occasion shall not be construed as a bar to any right or remedy which such Secured
Party would otherwise have on any future occasion.  The rights and remedies herein provided are
cumulative, may be exercised singly or concurrently and are not exclusive of
any other rights or remedies provided by law.

 

8.4.                              Enforcement Expenses;
Indemnification.

 

(a)                                  Each Guarantor agrees
to pay, or reimburse each Secured Party for, all costs and expenses incurred in
collecting against such Guarantor under the guarantee contained in Section 2
or otherwise enforcing or preserving any rights under this Agreement and the
other Loan Documents to which such Guarantor is a party, including the fees and
disbursements of counsel (including the allocated fees and expenses of in-house
counsel) to each Lender and of counsel to the Administrative Agent.

 

(b)                                 Each Guarantor agrees
to pay, and to save the Secured Parties harmless from, any and all liabilities
with respect to, or resulting from any delay in paying, any and all stamp,
excise, sales or other taxes which may be payable or determined to be payable
with respect to any of the Collateral or in connection with any of the
transactions contemplated by this Agreement.

 

(c)                                  Each Guarantor agrees
to pay, and to save the Secured Parties harmless from, any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements of any kind or nature whatsoever with respect to the
execution, delivery, enforcement, performance and administration of this
Agreement on the terms set forth in Section 11.5 of the Credit Agreement.

 

(d)                                 The agreements in this
Section shall survive repayment of the Obligations and all other amounts
payable under the Credit Agreement and the other Loan Documents.

 

8.5.                              Successors
and Assigns.         This
Agreement shall be binding upon the successors and assigns of each Grantor and
shall inure to the benefit of the Secured Parties and their successors and permitted
assigns; provided that no Grantor may assign, transfer or delegate any
of its rights or

 

26

 

obligations under this Agreement without the prior written consent of
the Administrative Agent and, unless so consented to, each such assignment,
transfer or delegation by any Grantor shall be void.

 

8.6.                              Set-Off.       In addition to any rights
and remedies of the Secured Parties provided by law, each Grantor hereby
irrevocably authorizes the Administrative Agent and the other Secured Parties upon
the occurrence and during the continuance of an Event of Default, without
notice to such Grantor or any other Grantor, any such notice being expressly
waived by each Grantor to the extent permitted by applicable law, upon any amount
becoming due and payable by Holdings, the Borrower or any other Grantor under
any Loan Document (whether at stated maturity, by acceleration or otherwise),
to set-off and appropriate and apply against such amount any and all deposits
(general or special, time or demand, provisional or final, other than payroll
accounts, tax withholding accounts and trust accounts), in any currency, and
any other credits, indebtedness or claims, in any currency, in each case
whether direct or indirect, absolute or contingent, matured or unmatured, at
any time held or owing by such Secured Party to or for the credit or the
account of such Grantor.  Each Secured
Party shall notify such Grantor promptly of any such set-off and the
application made by such Secured Party of the proceeds thereof, provided
that the failure to give such notice shall not affect the validity of such
set-off and application.

 

8.7.                              Counterparts.    This
Agreement may be executed by one or more of the parties to this Agreement on
any number of separate counterparts (including by telecopy), and all of said
counterparts taken together shall be deemed to constitute one and the same
instrument.

 

8.8.                              Severability.    Any
provision of this Agreement which is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining provisions
hereof, and any such prohibition or unenforceability in any jurisdiction shall
not invalidate or render unenforceable such provision in any other
jurisdiction.

 

8.9.                              Section Headings.    The
Section headings used in this Agreement are for convenience of reference
only and are not to affect the construction hereof or be taken into
consideration in the interpretation hereof.

 

8.10.                        Integration.    This
Agreement and the other Loan Documents represent the agreement of the Grantors
and the Secured Parties with respect to the subject matter hereof and thereof,
and there are no promises, undertakings, representations or warranties by any
Secured Party relative to the subject matter hereof and thereof not expressly
set forth or referred to herein or in the other Loan Documents.

 

8.11.                        GOVERNING LAW.   THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED
AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.

 

8.12.                        Submission
To Jurisdiction; Waivers.    Each Grantor
hereby irrevocably and unconditionally:

 

(a)                                  submits for itself
and its property in any legal action or proceeding relating to this Agreement or
any other Loan Document to which it is a party, or for recognition and
enforcement of any judgment in respect thereof, to the non-exclusive general
jurisdiction of the Courts of the State of New York, the courts of the
United States of America for the Southern District of New York, and
appellate courts from any thereof;

 

27

 

(b)                                 consents that any such
action or proceeding may be brought in such courts and waives any objection
that it may now or hereafter have to the venue of any such action or proceeding
in any such court or that such action or proceeding was brought in an
inconvenient court and agrees not to plead or claim the same;

 

(c)                                  agrees that service
of process in any such action or proceeding may be effected by mailing a copy
thereof by registered or certified mail (or any substantially similar form of
mail), postage prepaid, to such Grantor at its address referred to in Section 8.2
or at such other address of which the Administrative Agent shall have been
notified pursuant thereto;

 

(d)                                 agrees that nothing
herein shall affect the right to effect service of process in any other manner
permitted by law or shall limit the right to sue in any other jurisdiction; and

 

(e)                                  waives, to the
maximum extent not prohibited by law, any right it may have to claim or recover
in any legal action or proceeding referred to in this Section 8.12 any
special, exemplary, punitive or consequential damages.

 

8.13.                        Acknowledgements.     Each
Grantor hereby acknowledges that:

 

(a)                                  it has been advised
by counsel in the negotiation, execution and delivery of this Agreement and the
other Loan Documents to which it is a party;

 

(b)                                 no Secured Party has any fiduciary relationship
with or duty to any Grantor arising out of or in connection with this Agreement
or any of the other Loan Documents, and the relationship between the Grantors,
on the one hand, and the Secured Parties, on the other hand, in connection
herewith or therewith is solely that of debtor and creditor; and

 

(c)                                  no joint venture is
created hereby or by the other Loan Documents or otherwise exists by virtue of
the transactions contemplated hereby among the Secured Parties or among the
Grantors and the Secured Parties.

 

8.14.                        Additional Grantors.     Each
Domestic Subsidiary of the Borrower that is required to become a party to this Agreement
pursuant to Section 7.10 of the Credit Agreement shall become a Grantor and
Guarantor for all purposes of this Agreement upon execution and delivery by
such Subsidiary of an Assumption Agreement in the form of Annex 1 hereto.

 

8.15.                        Releases.

 

(a)                                  At such time as the
Loans, the Reimbursement Obligations and all other Obligations (other than
contingent surviving indemnity obligations in respect of which no claim or
demand has been made and Borrower Hedge Agreement Obligations) have been paid
in full, all commitments to extend credit under the Loan Documents have terminated
and all Letters of Credit have been discharged, the Collateral shall be
released from the Liens created hereby, and this Agreement and all obligations
(other than those expressly stated to survive such termination) of the
Administrative Agent and each Grantor hereunder shall terminate, all without
delivery of any instrument or performance of any act by any party, and all
rights to the Collateral shall revert to the Grantors.  At the request and sole expense of any
Grantor following any such termination, the Administrative Agent shall deliver
to such Grantor any Collateral held by the Administrative Agent hereunder and
execute and deliver to such Grantor such documents (in form and substance
satisfactory to the Administrative Agent) as such Grantor may reasonably request
to evidence such termination.

 

28

 

(b)                                 If any of the
Collateral is sold, transferred or otherwise disposed of by any Grantor in a
transaction permitted by the Credit Agreement, then the Administrative Agent,
at the request and sole expense of such Grantor, shall execute and deliver to
such Grantor all releases or other documents reasonably necessary or desirable
for the release of such Collateral (not including Proceeds thereof) from the
security interests created hereby.  At
the request and sole expense of the Borrower, a Subsidiary Guarantor shall be
released from its obligations hereunder in the event that all the Capital Stock
of such Subsidiary Guarantor shall be sold, transferred or otherwise disposed
of in a transaction permitted by the Credit Agreement; provided that the
Borrower shall have delivered to the Administrative Agent, at least ten
Business Days prior to the date of the proposed release, a written request for
release identifying the relevant Subsidiary Guarantor and the terms of the sale
or other disposition in reasonable detail, including the price thereof and any
expenses in connection therewith, together with a certification by the Borrower
stating that such transaction is in compliance with the Credit Agreement and
the other Loan Documents.

 

8.16.                        WAIVER OF JURY TRIAL.  EACH GRANTOR AND, BY
ACCEPTANCE OF THE BENEFITS HEREOF, THE ADMINISTRATIVE AGENT AND EACH OTHER
SECURED PARTY, HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES TRIAL BY JURY IN
ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER LOAN
DOCUMENT AND FOR ANY COUNTERCLAIM THEREIN.

 

 

29

 

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

 

 

	
   

  	
  PROTECTION ONE, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   /s/
  Richard Ginsburg

  	
   

  
	
   

  	
  Title:  President and CEO

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  PROTECTION ONE ALARM MONITORING, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   /s/
  Richard Ginsburg

  	
   

  
	
   

  	
  Title:  President and CEO

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  NETWORK MULTIFAMILY SECURITY

  CORPORATION

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   /s/
  Steve Williams

  	
   

  
	
   

  	
  Title:  President

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  SECURITY MONITORING SERVICES, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   /s/
  Richard Ginsburg

  	
   

  
	
   

  	
  Title:  President and CEO

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  PROTECTION ONE ALARM MONITORING OF

  MASS, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   /s/
  Richard Ginsburg

  	
   

  
	
   

  	
  Title:  President and CEO

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  PROTECTION ONE SYSTEMS, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   /s/
  Richard Ginsburg

  	
   

  
	
   

  	
  Title:  President and CEO

  

 

 

	
   

  	
  PROTECTION ONE DATA SERVICES, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   /s/ Richard
  Ginsburg

  	
   

  
	
   

  	
  Title:  Richard Ginsburg

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  BEARSTEARNS
  CORPORATE

  
	
   

  	
  LENDING
  INC., as

  
	
   

  	
  Administrative
  Agent

  
	
   

  	
   

  
	
   

  	
  By:

  	
   /s/ R.
  Bram Smith

  	
   

  
	
   

  	
  Title:  VP

  

 

 

Annex I
 to

Guarantee and Collateral Agreement

 

ASSUMPTION
AGREEMENT (this “Assumption Agreement”), dated as of                                 ,
200  , made by                                                             ,
a                             
(the “Additional Grantor”), in favor of Bear Stearns Corporate Lending
Inc, as administrative agent (in such capacity, the “Administrative Agent”)
for the banks and other financial institutions (the “Lenders”) parties
to the Credit Agreement referred to below for the benefit of the Secured
Parties, as defined in the Guarantee and Collateral Agreement referred to below.  All capitalized terms not defined herein
shall have the meaning ascribed to them in such Credit Agreement.

 

RECITALS

 

A.                                   Protection
One Alarm Monitoring, Inc., (the “Borrower”), the Lenders and the
Administrative Agent have entered into a Credit Agreement, dated as of April       ,
2005 (as amended, supplemented or otherwise modified from time to time, the “Credit
Agreement”).

 

B.                                     In
connection with the Credit Agreement, the Borrower and certain of its
Affiliates (other than the Additional Grantor) have entered into the Guarantee
and Collateral Agreement, dated as of April       ,
2005  (as amended, supplemented or
otherwise modified from time to time, the “Guarantee and Collateral
Agreement”) in favor of the Administrative Agent for the benefit of the Secured
Parties.

 

C.                                     The
Credit Agreement requires the Additional Grantor to become a party to the
Guarantee and Collateral Agreement; and

 

D.                                    The
Additional Grantor has agreed to execute and deliver this Assumption Agreement
in order to become a party to the Guarantee and Collateral Agreement.

 

NOW,
THEREFORE, IT IS AGREED:

 

1.  Guarantee and Collateral Agreement.  By executing and delivering this Assumption
Agreement, the Additional Grantor, as provided in Section 8.14 of the
Guarantee and Collateral Agreement, hereby becomes a party to the Guarantee and
Collateral Agreement as a Grantor and Guarantor thereunder with the same force
and effect as if originally named therein as a Grantor and Guarantor and,
without limiting the generality of the foregoing, hereby expressly guarantees
the Borrower Obligations as set forth in Section 2 thereof, grants the
Administrative Agent, for the benefit of the Secured Parties, a security
interest in its Property as set forth in Section 3 thereof, and assumes
all other obligations and liabilities of a Grantor and Guarantor set forth
therein.  The information set forth in
Annex 1-A hereto is hereby added to the information set forth in Schedules                         *
to the Guarantee and Collateral Agreement. 
The Additional Grantor hereby represents and warrants that each of the
representations and warranties contained in Section 4 of the Guarantee and
Collateral Agreement is true and correct on and as the date hereof (after
giving effect to this Assumption Agreement) as if made on and as of such date.

 

2.  GOVERNING
LAW.  THIS ASSUMPTION AGREEMENT SHALL
BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE

 

* Refer to each Schedule which needs to be supplemented.

 

 

LAW OF THE STATE OF NEW YORK.  THE PROVISIONS OF SECTIONS 8.1, 8.3,
8.4, 8.5, 8.7, 8.8, 8.9, 8.10, 8.12, 8.13 AND 8.16 OF THE GUARANTEE AND
COLLATERAL AGREEMENT SHALL APPLY WITH LIKE EFFECT TO THIS ASSUMPTION AGREEMENT,
AS FULLY AS IF SET FORTH AT LENGTH HEREIN.

 

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

 

	
   

  	
  [ADDITIONAL GRANTOR]

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  

 

 

Annex II

to

Guarantee and Collateral Agreement

 

ACKNOWLEDGEMENT
AND CONSENT

 

The
undersigned hereby acknowledges receipt of a copy of the Guarantee and
Collateral Agreement dated as of April 18, 2005 (the “Agreement”),
made by the Grantors parties thereto for the benefit of Bear Stearns Corporate
Lending Inc., as Administrative Agent for the benefit of the Secured Parties
referred to (and as defined) therein. 
The undersigned agrees for the benefit of the Secured Parties as
follows:

 

1.                                       The
undersigned will be bound by the terms of the Agreement and will comply with
such terms insofar as such terms are applicable to the undersigned.

 

2.                                       The
undersigned will notify the Administrative Agent promptly in writing of the
occurrence of any of the events described in Section 5.8(a) of the
Agreement.

 

3.                                       The
terms of Sections 6.3(a) and 6.7 of the Agreement shall apply to it with
respect to all actions that may be required of it pursuant to Section 6.3(a)
or 6.7 of the Agreement.

 

 

	
   

  	
  [NAME OF ISSUER]

  
	
   

  	
   

  
	
   

  	
  By

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  	
   

  
	
   

  	
  Address for Notices:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Fax:Exhibit 10.3

 

 

PROTECTION ONE ALARM MONITORING, INC.,

as Issuer,

and

THE GUARANTORS LISTED

ON THE SIGNATURE PAGES HERETO,

as Guarantors

 

8 1/8% SENIOR SUBORDINATED NOTES DUE 2009

 

 

SUPPLEMENTAL INDENTURE

Dated as of April 18, 2005

 

TO

 

INDENTURE

Dated as of December 21, 1998

 

 

THE BANK OF NEW YORK,

as Trustee

 

 

 

SUPPLEMENTAL INDENTURE (this “Supplemental Indenture”),
dated as of April 18, 2005 among Protection One Systems, Inc., a Delaware
corporation, Protection One Data Services, Inc., a Delaware corporation,
Security Monitoring Services, Inc., a Florida corporation, Protection One Alarm
Monitoring of Mass, Inc., a Massachusetts corporation (each a “Guaranteeing
Subsidiary” and a subsidiary of Protection One Alarm Monitoring, Inc. (the “Company”)),
the Company, the other Guarantors (as defined in the Indenture referred to
herein) and The Bank of New York, as trustee under the Indenture referred to
herein (the “Trustee”).

 

W I T N E S S E T H

 

WHEREAS, the Company has heretofore executed and
delivered to the Trustee an indenture (the “Indenture”), dated as of December 21,
1998 providing for the issuance of its 8 1/8% Senior Subordinated Notes due
2009 (the “Notes”); and

 

WHEREAS, the Indenture provides that under certain
circumstances each Guaranteeing Subsidiary shall execute and deliver to the
Trustee a supplemental indenture pursuant to which such Guaranteeing Subsidiary
shall unconditionally guarantee all of the Company’s Obligations under the
Notes and the Indenture on the terms and conditions set forth herein (the “Note
Guarantee”); and

 

WHEREAS, pursuant to Section 9.01
of the Indenture, the Trustee is authorized to execute and deliver this
Supplemental Indenture.

 

NOW THEREFORE, in consideration of the foregoing and
for other good and valuable consideration, the receipt of which is hereby
acknowledged, each Guaranteeing Subsidiary and the Trustee mutually covenant
and agree for the equal and ratable benefit of the Holders of the Notes as
follows:

 

1.                                       CAPITALIZED
TERMS.  Capitalized terms used herein
without definition shall have the meanings assigned to them in the Indenture.

 

2.                                       AGREEMENT
TO GUARANTEE.  Each Guaranteeing
Subsidiary hereby agrees as follows:

 

(a)                                  Along
with all Guarantors named in the Indenture, to jointly and severally Guarantee
to each Holder of a Note authenticated and delivered by the Trustee and to the
Trustee and its successors and assigns, the Notes or the obligations of the
Company hereunder or thereunder, that:

 

(i)                                     the
due and punctual payment of the principal of, premium, if any, and interest and
Additional Interest, if any, on each Note, when and as the same shall become
due and payable, whether at maturity, by acceleration, redemption or otherwise,
the due and punctual payment of interest and Additional Interest, if any, on
the overdue principal and premium, if any, and Additional Interest, if

 

2

 

any,
on the Notes, to the extent lawful, and the due and punctual performance of all
other obligations of the Company to the Holders or the Trustee, all in
accordance with the terms of such Note and this Indenture; and

 

(ii)                                  in
the case of any extension of time of payment or renewal of any Notes or any of
such other obligations, that the same will be promptly paid in full when due or
performed in accordance with the terms of the extension or renewal, at
maturity, by acceleration or otherwise.

 

(b)                                 The
obligations hereunder shall be unconditional, irrespective of the validity,
regularity or enforceability of the Notes or the Indenture, the absence of any
action to enforce the same, any waiver or consent by any Holder of the Notes
with respect to any provisions hereof or thereof, the recovery of any judgment
against the Company, any action to enforce the same or any other circumstance
which might otherwise constitute a legal or equitable discharge or defense of a
guarantor.

 

(c)                                  The
following is hereby waived: diligence, presentment, demand of payment, filing
of claims with a court in the event of insolvency or bankruptcy of the Company,
any right to require a proceeding first against the Company, protest, notice
and all demands whatsoever.

 

(d)                                 This
Note Guarantee shall not be discharged except by complete performance of the
obligations contained in the Notes and the Indenture, and each Guaranteeing
Subsidiary accepts all obligations of a Guarantor under the Indenture.

 

(e)                                  If
any Holder or the Trustee is required by any court or otherwise to return to
the Company, the Guarantors, or any Custodian, Trustee, liquidator or other
similar official acting in relation to either the Company or the Guarantors,
any amount paid by either to the Trustee or such Holder, this Note Guarantee,
to the extent theretofore discharged, shall be reinstated in full force and
effect.

 

(f)                                    Each
Guaranteeing Subsidiary shall not be entitled to any right of subrogation in
relation to the Holders in respect of any obligations guaranteed hereby until
payment in full of all obligations guaranteed hereby.

 

(g)                                 As
between the Guarantors, on the one hand, and the Holders and the Trustee, on
the other hand, (x) the maturity of the obligations guaranteed hereby may be
accelerated as provided in Article 6 of the Indenture for the purposes of
this Note Guarantee, notwithstanding any stay, injunction or other prohibition
preventing such acceleration in respect of the obligations guaranteed hereby,
and (y) in the event of any declaration of acceleration of such obligations as
provided in Article 6 of the Indenture, such obligations (whether or not
due and payable) shall forthwith become due and payable by the Guarantors for
the purpose of this Note Guarantee.

 

(h)                                 The
Guarantors shall have the right to seek contribution from any non-paying
Guarantor so long as the exercise of such right does not impair the rights of
the Holders under the Guarantee.

 

3

 

(i)                                     Pursuant
to Section 10.02 of the Indenture, after giving effect to any maximum
amount and any other contingent and fixed liabilities that are relevant under
any applicable Bankruptcy or fraudulent conveyance laws, and after giving
effect to any collections from, rights to receive contribution from or payments
made by or on behalf of any other Guarantor in respect of the obligations of
such other Guarantor under Article 10 of the Indenture, this new Note
Guarantee shall be limited to the maximum amount permissible such that the
obligations of such Guarantor under this Note Guarantee will not constitute a
fraudulent transfer or conveyance.

 

3.                                       EXECUTION
AND DELIVERY.  Each Guaranteeing
Subsidiary agrees that the Note Guarantees shall remain in full force and
effect notwithstanding any failure to endorse on each Note a notation of such
Note Guarantee.

 

4.                                       GUARANTEEING
SUBSIDIARY MAY CONSOLIDATE, ETC. ON CERTAIN TERMS.

 

(a)                                  Nothing
contained in this Supplemental Indenture shall prevent any consolidation or
merger of any Guaranteeing Subsidiary with or into the Company or another
Guarantor or shall prevent any sale or conveyance of the property of any
Guaranteeing Subsidiary, as an entirety or substantially as an entirety, to the
Company or the Guarantor.  Upon any such
consolidation, merger, sale or conveyance, the Note Guarantee given by such
Guaranteeing Subsidiary shall no longer have any force or effect.

 

(b)                                 Nothing
contained in this Supplemental Indenture shall prevent any consolidation or
merger of any Guaranteeing Subsidiary with or into a Person (provided such
Person is a corporation, partnership or trust) other than the Company or
another Guarantor or shall prevent any sale or conveyance of the property of
any Guaranteeing Subsidiary as an entirety or substantially as an entirety to
any such Person (whether or not an Affiliate of the Guarantor).  Upon the sale or disposition of any
Guaranteeing Subsidiary (or all or substantially all of its assets) to a Person
which is not a Subsidiary of the Company, which is otherwise in compliance with
this Supplemental Indenture, such Guaranteeing Subsidiary shall be deemed
released from all its obligations under this Supplemental Indenture and its
Note Guarantee and such Note Guarantee shall terminate; PROVIDED, HOWEVER, that
any such termination shall occur only to the extent that all obligations of
such Guaranteeing Subsidiary under all its guarantees of, and under all of its
pledges of assets or other security interests which secure, Indebtedness of the
Company shall also terminate upon such release, sale or transfer.

 

(c)                                  The
Trustee shall, at the Company’s expense, deliver an appropriate instrument
evidencing such release upon receipt of a request by the Company accompanied by
an Officers’ Certificate certifying as to the compliance with this Section 4.  If such Guaranteeing Subsidiary is not so
released it remains liable for the full amount of principal of and interest on
the Notes as provided in this the Supplemental Indenture.

 

5.                                       NO
RECOURSE AGAINST OTHERS.  No past,
present or future director, officer, employee, incorporator, stockholder or
agent of any Guaranteeing Subsidiary, as such,

 

4

 

shall
have any liability for any obligations of the Company or any Guaranteeing
Subsidiary under the Notes, any Note Guarantees, the Indenture or this
Supplemental Indenture or for any claim based on, in respect of, or by reason
of, such obligations or their creation. 
Each Holder of the Notes by accepting a Note waives and releases all
such liability.  The waiver and release
are part of the consideration for issuance of the Notes.

 

6.                                       NEW
YORK LAW TO GOVERN.  THE LAW OF THE STATE
OF NEW YORK SHALL GOVERN AND BE USED TO CONSTRUE THIS SUPPLEMENTAL INDENTURE
BUT WITHOUT GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE
EXTENT THAT THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE
REQUIRED THEREBY.

 

7.                                       COUNTERPARTS.
The parties may sign any number of copies of this Supplemental Indenture.  Each signed copy shall be an original, but
all of them together represent the same agreement.

 

8.                                       EFFECT
OF HEADINGS.  The Section headings
herein are for convenience only and shall not affect the construction hereof.

 

9.                                       THE
TRUSTEE.  The Trustee shall not be
responsible in any manner whatsoever for or in respect of the validity or
sufficiency of this Supplemental Indenture or for or in respect of the recitals
contained herein, all of which recitals are made solely by each Guaranteeing
Subsidiary and the Company.

 

IN WITNESS WHEREOF, the parties hereto have caused
this Supplemental Indenture to be duly executed and attested, all as of the
date first above written.

 

5

 

	
   

  	
  PROTECTION
  ONE ALARM

  MONITORING, INC.

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Richard Ginsburg

  	
   

  
	
   

  	
  Name:
  Richard Ginsburg

  
	
   

  	
  Title:
  President and CEO

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  PROTECTION
  ONE, INC.

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Richard Ginsburg

  	
   

  
	
   

  	
  Name:
  Richard Ginsburg

  
	
   

  	
  Title:
  President and CEO

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  NETWORK
  MULTIFAMILY SECURITY

  CORPORATION

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Steve Williams

  	
   

  
	
   

  	
  Name:
  Steve Williams

  
	
   

  	
  Title:
  President

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  PROTECTION
  ONE SYSTEMS, INC.

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Richard Ginsburg

  	
   

  
	
   

  	
  Name:
  Richard Ginsburg

  
	
   

  	
  Title:
  President

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  PROTECTION
  ONE DATA SERVICES,

  INC.

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Richard Ginsburg

  	
   

  
	
   

  	
  Name:
  Richard Ginsburg

  
	
   

  	
  Title:
  President

  
	
   

  	
   

  
	
   

  	
   

  
	
  [Sig Page to
  Supp Indenture]

  
												

 

6

 

	
   

  	
  SECURITY
  MONITORING SERVICES,

  INC.

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Illegible

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  PROTECTION
  ONE ALARM

  MONITORING OF MASS, INC.

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Richard Ginsburg

  	
   

  
	
   

  	
  Name:
  Richard Ginsburg

  
	
   

  	
  Title:
  President

  
						

 

7

 

	
   

  	
  THE
  BANK OF NEW YORK,

  
	
   

  	
  as
  Trustee

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Melonee Young

  	
   

  
	
   

  	
  Name:
  Melonee Young

  
	
   

  	
  Title:
  Agent

  

 

8

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