Document:

Exhibit 4.3

 

SECURITY AGREEMENT

This SECURITY AGREEMENT (this “Agreement”) is made as of February 1, 2008, by the Grantor listed on the signature pages hereof “Grantor”), and PRIVATE EQUITY MANAGEMENT GROUP, INC., a Nevada corporation, in its capacity as administrative agent for the Lender Group (together with its successors, “Agent”).

W I T N E S S E T H:

WHEREAS, pursuant to that certain Second Lien Credit Agreement of even date herewith (as amended, restated, supplemented or otherwise modified from time to time, including all schedules thereto, the “Credit Agreement”) among BAKERS FOOTWEAR GROUP, INC., a Missouri corporation ("Borrower"), the lenders party thereto as “Lenders” (“Lenders”), and Agent, the Lender Group is willing to make available to Borrower a secured credit facility of $10,000,000 from time to time pursuant to the terms and conditions thereof, and 

WHEREAS, Agent has agreed to act as agent for the benefit of the Lender Group in connection with the transactions contemplated by this Agreement, and

WHEREAS, in order to induce the Lender Group to enter into the Credit Agreement and the other Loan Documents and to induce the Lender Group to make financial accommodations to Borrower as provided for in the Credit Agreement, Grantor has agreed to grant a continuing security interest in and to the Collateral in order to secure the prompt and complete payment, observance and performance of, among other things, (a) the obligations of Grantor arising from this Agreement, the Credit Agreement, and the other Loan Documents (excluding the Registration Rights Agreement and the Warrants) and (b) all Obligations of Borrower (including, without limitation, any interest, fees or expenses that accrue after the filing of an Insolvency Proceeding, regardless of whether allowed or allowable in whole or in part as a claim in any Insolvency Proceeding), plus reasonable attorneys fees and expenses if the
obligations represented thereunder are collected by law, through an attorney-at-law, or under advice therefrom (clauses (a) and (b) being hereinafter referred to as the “Secured Obligations”), by the granting of the security interests contemplated by this Agreement, and

NOW, THEREFORE, for and in consideration of the recitals made above and other good and valuable consideration, the receipt, sufficiency and adequacy of which are hereby acknowledged, the parties hereto agree as follows:

1.         Defined Terms. All capitalized terms used herein (including, without limitation, in the preamble and recitals hereof) without definition shall have the meanings ascribed thereto in the Credit Agreement.  Any terms used in this Agreement that are defined in the Code shall be construed and defined as set forth in the Code unless otherwise defined herein or in the Credit Agreement; provided, however, that to the extent that the Code is used to define any term herein and such term is defined differently in different Articles of the Code, the definition of such term contained in Article 9 of the Code shall govern.  In addition to those terms defined elsewhere in this Agreement, as used in this
Agreement, the following terms shall have the following meanings:

 (a)        “Accounts” means accounts (as that term is defined in the Code).

 (b)        “Code” means the California Uniform Commercial Code, as in effect from time to time; provided, however, that in the event that, by reason of mandatory provisions of law, any or all of the attachment, perfection, priority, or remedies with respect to Agent’s Lien on any Collateral is governed by the Uniform Commercial Code as enacted and in effect in a jurisdiction other than the State of California, the term “Code” shall mean the Uniform Commercial Code as enacted and in effect in such other jurisdiction solely for purposes of the provisions thereof relating to such attachment, perfection, priority, or remedies.

(c)        “Copyrights” means all right, title and interest in and to copyrights in works of authorship of any kind, and all registration applications, registrations and recordings thereof in the Office of the United States Register of Copyrights, Library of Congress, or in any similar office or agency of any country or political 

 

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subdivision thereof throughout the world, whether now owned or hereafter acquired, including, but not limited to, those described in Schedule A to the Copyright Security Agreement annexed  hereto and made a part hereof, together with all extensions, renewals, reversionary rights, and corrections thereof and all licenses thereof or pertaining thereto.

(d)        “Copyright Security Agreement” means each Copyright Security Agreement between Grantor and Agent, for the benefit of the Lender Group, in substantially the form of Exhibit B attached hereto, pursuant to which Grantor has granted to Agent, for the benefit of the Lender Group, a security interest in all of its Copyrights.

(e)        “Deposit Account” means deposit account (as that term is defined in the Code).

(f)        “Equipment” means equipment (as that term is defined in the Code).

(g)        “General Intangibles” means general intangibles (as that term is defined in the Code and, in any event, including, without limitation, payment intangibles, contract rights, rights to payment, rights arising under common law, statutes, or regulations, choses or things in action, goodwill (including the goodwill associated with any Trademark, Patent, or Copyright), Patents, Trademarks, Copyrights, URLs and domain names, industrial designs, other industrial or intellectual property or rights therein or applications therefor, whether under license or otherwise, programs, programming materials, blueprints, drawings, purchase orders, customer lists, monies due or recoverable from pension funds, route lists, rights to payment and other rights under any royalty or licensing agreements,
including intellectual property licenses, infringement claims, computer programs, information contained on computer disks or tapes, software, literature, reports, catalogs, pension plan refunds, pension plan refund claims, insurance premium rebates, tax refunds, and tax refund claims, uncertificated securities, and any other personal property other than commercial tort claims, money, Accounts, Chattel Paper, Deposit Accounts, goods, Investment Related Property, Negotiable Collateral, and oil, gas, or other minerals before extraction).

(h)        “Intellectual Property Collateral” means the Copyrights, the Patents and the Trademarks.

(i)        “Inventory” means inventory (as that term is defined in the Code).

(j)        “Investment Related Property” means (i) investment property (as that term is defined in the Code), and (ii) all of the following regardless of whether classified as investment property under the Code:  all Pledged Interests, Pledged Operating Agreements, and Pledged Partnership Agreements.

(k)        “Patents” means all right, title and interest in and to all inventions and letters patent and registration applications therefor, and all registrations and recordings thereof, including, without limitation, registration applications, registrations and recordings in the United States Patent and Trademark Office or in any similar office or agency of the United States or any state thereof, or in any similar office or agency of any country or political subdivision thereof throughout the world, whether now owned or hereafter acquired, including, but not limited to, those described in Schedule A to the Patent Security Agreement annexed hereto and made a part hereof, together with all re-examinations, reissues, continuations,
continuations-in-part, divisions, improvements and extensions thereof and all licenses thereof or pertaining thereto and all licenses of patent rights now in effect or hereafter entered into and the rights to make, use and sell, and all other rights with respect to, the inventions disclosed or claimed therein, all inventions, designs, proprietary or technical information, know-how, other data or information, software, databases, all embodiments or fixations thereof and related documentation, all information having value in connection with the business relating thereto and all other trade secret rights not described above.

(l)        “Patent Security Agreement” means each Patent Security Agreement between Grantor and Agent, for the benefit of the Lender Group, in substantially the form of Exhibit C attached hereto, pursuant to which Grantor has granted to Agent, for the benefit of the Lender Group, a security interest in all of its Patents.

(m)       “Pledged Companies” means, each Person listed on Schedule 1 hereto as a “Pledged Company”, together with each other Person, all or a portion of whose Stock, is acquired or otherwise owned by Grantor after the Closing Date.

 

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(n)        “Pledged Interests” means all of Grantor’s right, title and interest in and to all of the Stock now or hereafter owned by Grantor, regardless of class or designation, including, without limitation, in each of the Pledged Companies, and all substitutions therefor and replacements thereof, all proceeds thereof and all rights relating thereto, including, without limitation, any certificates representing the Stock, the right to request after the occurrence and during the continuation of an Event of Default that such Stock be registered in the name of Agent or any of its nominees, the right to receive any certificates representing any of the Stock and the right to require that such certificates be delivered to Agent together with undated powers or assignments of investment securities
with respect thereto, duly endorsed in blank by Grantor, all warrants, options, share appreciation rights and other rights, contractual or otherwise, in respect thereof and of all dividends, distributions of income, profits, surplus, or other compensation by way of income or liquidating distributions, in cash or in kind, and cash, instruments, and other property from time to time received, receivable, or otherwise distributed in respect of or in addition to, in substitution of, on account of, or in exchange for any or all of the foregoing.

(o)        “Pledged Interests Addendum” means a Pledged Interests Addendum substantially in the form of Exhibit D to this Agreement.

(p)        “Pledged Operating Agreements” means all of Grantor’s rights, powers, and remedies under the limited liability company operating agreements of the Pledged Companies that are limited liability companies.

(q)        “Pledged Partnership Agreements” means all of Grantor’s rights, powers, and remedies under the partnership agreements of each of the Pledged Companies that are partnerships.

(r)        “Records” means information that is inscribed on a tangible medium or which is stored in an electronic or other medium and is retrievable in perceivable form.

(s)        “Securities Accounts” means securities accounts (as that term is defined in the Code).

(t)        “Trademarks” means all right, title and interest in and to trademarks, trade names, trade styles, service marks, logos, emblems, prints and labels, all elements of package or trade dress of goods, and all general intangibles of like nature, now existing or hereafter adopted or acquired, together with the goodwill of the business connected with the use thereof and symbolized thereby, and all registration applications, registrations and recordings thereof, including, without limitation, registration applications, registrations and recordings in the United States Patent and Trademark Office or in any similar office or agency of the United States or in any office of the Secretary of State (or equivalent) of any state thereof, or in any similar office or agency of any country or
political subdivision thereof throughout the world, whether now owned or hereafter acquired, including, but not limited to, those described in Schedule A to the Trademark Security Agreement and made a part hereof, together with all extensions, renewals and corrections thereof and all licenses thereof or pertaining thereto.

(u)        “Trademark Security Agreement” means each Trademark Security Agreement between Grantor and Agent, for the benefit of the Lender Group, in substantially the form of Exhibit E attached hereto, pursuant to which Grantor has granted to Agent, for the benefit of the Lender Group, a security interest in all of its Trademarks.

(v)        “URL” means “uniform recourse locator,” an internet web address.

2.         Grant of Security.  Grantor hereby unconditionally grants, assigns and pledges to Agent, for the benefit of the Lender Group, a continuing security interest in all personal property of Grantor, whether now owned or hereafter acquired or arising and wherever located (hereinafter referred to as the "Security Interest"), including, without limitation, Grantor’s right, title, and interest in and to the following, whether now owned or hereafter acquired or arising and wherever located (the “Collateral”):

(a)        all of Grantor’s Accounts;

 

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(b)        all of Grantor’s books and records (including all of its Records indicating, summarizing, or evidencing its assets (including the Collateral) or liabilities, all of its Records relating to its business operations or financial condition, and all of its goods or General Intangibles related to such information) (“Books”);

(c)        all of Grantor’s chattel paper (as that term is defined in the Code) and, in any event, including, without limitation, tangible chattel paper and electronic chattel paper (“Chattel Paper”);

(d)        all of Grantor’s interest with respect to any Deposit Account;

(e)        all of Grantor’s Equipment and fixtures;

(f)        all of Grantor’s General Intangibles;

(g)        all of Grantor's Intellectual Property Collateral;

(h)        all of Grantor’s Inventory;

(i)        all of Grantor’s Investment Related Property;

(j)        all of Grantor’s letters of credit, letter of credit rights, instruments, promissory notes, drafts, and documents (as such terms may be defined in the Code) (“Negotiable Collateral”);

(k)        all of Grantor’s rights in respect of supporting obligations (as such term is defined in the Code), including letters of credit and guaranties issued in support of Accounts, Chattel Paper, documents, General Intangibles, instruments, or Investment Related Property (“Supporting Obligations”);

(l)        all of Grantor’s interest with respect to any commercial tort claims (as that term is defined in the Code), including, without limitation those commercial tort claims listed on Schedule 2 attached hereto (“Commercial Tort Claims”);

(m)       all of Grantor’s money, Cash Equivalents, or other assets of each Grantor that now or hereafter come into the possession, custody, or control of Agent or any other member of the Lender Group or the Bank Product Provider; and

(n)        all of the proceeds and products, whether tangible or intangible, of any of the foregoing, including proceeds of insurance or commercial tort claims covering or relating to any or all of the foregoing, and any and all Accounts, Books, Chattel Paper, Deposit Accounts, Equipment, General Intangibles, Inventory, Investment Related Property, Negotiable Collateral, Supporting Obligations, money, or other tangible or intangible property resulting from the sale, lease, license, exchange, collection, or other disposition of any of the foregoing, the proceeds of any award in condemnation with respect to any of the property of Grantor, any rebates or refunds, whether for taxes or otherwise, and all proceeds of any such proceeds, or any portion thereof or interest therein, and the proceeds thereof, and all proceeds of any loss of, damage to, or
destruction of the above, whether insured or not insured, and, to the extent not otherwise included, any indemnity, warranty, or guaranty payable by reason of loss or damage to, or otherwise with respect to any of the foregoing Collateral (the “Proceeds”).  Without limiting the generality of the foregoing, the term "Proceeds" includes whatever is receivable or received when Investment Related Property or proceeds are sold, exchanged, collected, or otherwise disposed of, whether such disposition is voluntary or involuntary, and includes, without limitation, proceeds of any indemnity or guaranty payable to Grantor or Agent from time to time with respect to any of the Investment Related Property.

Notwithstanding anything herein to the contrary, in no event shall the Collateral include or the security interest granted under this Section 2 hereof attach to any lease, license, contract, property rights or agreement to which Grantor is a party or any of its rights or interests thereunder if and for so long as the grant of such security interest shall constitute or result in (i) the abandonment, invalidation or unenforceability of any material right, title or interest of Grantor therein or (ii) in a breach or termination pursuant to the terms of, or a default under, any such lease, license, contract property rights or agreement (other than to the extent that any such term would be rendered 

 

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ineffective pursuant to Sections 9-406, 9-407, 9-408 or 9-409 of the Code (or any successor provision or provisions) of any relevant jurisdiction or any other applicable law (including the Bankruptcy Code) or principles of equity) ("Excluded Property"), provided, however that the Collateral shall include and such security interest shall attach immediately (x) at such time as the condition causing such abandonment, invalidation or unenforceability shall be remedied and to the extent severable, shall attach immediately to any portion of such lease, license, contract, property rights or agreement that does not result in any of the consequences specified in (i) or (ii) above; and (y) to any proceeds of Excluded Property.

3.         Security for Secured Obligations.  This Agreement and the Security Interest created hereby secures the payment and performance of all the Secured Obligations, whether now existing or arising hereafter.  Without limiting the generality of the foregoing, this Agreement secures the payment of all amounts which constitute part of the Obligations owed by Borrower to Agent, the Lender Group or any of them. 

4.         Grantor Remains Liable.  Anything herein to the contrary notwithstanding, (a) Grantor shall remain liable under the contracts and agreements included in the Collateral, including, without limitation, the Pledged Operating Agreements and the Pledged Partnership Agreements, to perform all of the duties and obligations thereunder to the same extent as if this Agreement had not been executed, (b) the exercise by Agent or any other member of the Lender Group of any of the rights hereunder shall not release Grantor from any of its duties or obligations under such contracts and agreements included in the Collateral, and (c) none of the members of the Lender Group shall have any obligation or liability under such contracts and agreements included in the Collateral by reason of this Agreement,
nor shall any of the members of the Lender Group be obligated to perform any of the obligations or duties of Grantor thereunder or to take any action to collect or enforce any claim for payment assigned hereunder.  Until an Event of Default shall occur and be continuing, except as otherwise provided in this Agreement, the Credit Agreement, or other Loan Documents, Grantor shall have the right to possession and enjoyment of the Collateral for the purpose of conducting the ordinary course of its business, subject to and upon the terms hereof and of the Credit Agreement and the other Loan Documents.  Without limiting the generality of the foregoing, it is the intention of the parties hereto that record and beneficial ownership of the Pledged Interests, including, without limitation, all voting, consensual, and dividend rights, shall remain in Grantor until the occurrence of an Event of Default and until Agent shall notify Grantor of Agent's exercise of voting, consensual, and/or dividend
rights with respect to the Pledged Interests pursuant to Section 15 hereof.  

5.         Representations and Warranties.  Grantor hereby represents and warrants as follows, which representations and warranties shall be continuing until the Secured Obligations are paid in full and the Commitments terminated:

(a)        The exact legal name of Grantor is set forth on the signature pages of this Agreement or a written notice provided to Agent pursuant to Section 6.5 of the Credit Agreement.

(b)        Schedule 3 attached hereto sets forth all Real Property owned by Grantor as of the Closing Date.  

(c)        As of the date hereof, Grantor has no Trademarks, Patents or Copyrights registered, or which are the subject of any pending application, in the United States Patent and Trademark Office, or any similar office of the United States or in any office of the Secretary of State (or equivalent) of any state thereof, or the United States Register of Copyrights, or in any similar office or agency of any country or political subdivision thereof throughout the world, other than those identified in Schedule A to each of the Copyright Security Agreement, the Patent Security Agreement and the Trademark Security Agreement.  The registrations of the Trademarks are valid and subsisting and in full force and effect.  Grantor has not granted a license or otherwise agreed to allow any third party to use any
Trademark (except as disclosed to Agent in writing on or prior to the date of this Agreement).  The Patents are valid and subsisting and in full force and effect and have not been adjudged or, to Grantor's knowledge, claimed invalid or unenforceable in whole or in part (except for Permitted Liens).  Grantor has not granted a license or otherwise agreed to allow any third party to use any Patent (except as disclosed to Agent in writing on or prior to the date of this Agreement).  None of the Patents has been abandoned or dedicated.

(d)        This Agreement creates a security interest in the Collateral of Grantor, to the extent a security interest therein can be created under the Code, securing the payment of the Secured Obligations.  Upon: (i) 

 

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the filing of financing statements listing Grantor, as a debtor, and Agent, as secured party, in the jurisdictions listed next to such Grantor’s name on Schedule 4 attached hereto; and (ii) the recording in the US Copyright Office and the US Patent and Trademark Office of a notice of Agent's security interest in pertinent Intellectual Property, Agent shall have a first priority perfected security interest in the Collateral (subject only to Permitted Liens) of Grantor to the extent such security interest can be perfected by the filing of a financing statement or recordation in the US Copyright Office or the US Patent and Trademark Office.

(e)        Except for the Security Interest created hereby, Grantor is and will at all times be the sole holder of record and the legal and beneficial owner, free and clear of all Liens other than Permitted Liens, of the Pledged Interests indicated on Schedule 1 as being owned by Grantor and, when acquired by Grantor, any Pledged Interests acquired after the Closing Date; (ii) all of the Pledged Interests are duly authorized, validly issued, fully paid and nonassessable and the Pledged Interests constitute or will constitute the percentage of the issued and outstanding equity interests of the Pledged Companies of Grantor identified on Schedule 1 hereto as supplemented or modified by any Pledged Interests Addendum or any Supplement to this Agreement; (ii)
Grantor has the right and requisite authority to pledge the Investment Related Property pledged by Grantor to Agent as provided herein; (iii) all actions necessary or desirable to perfect or establish the first priority of Agent’s Liens in the Investment Related Property (subject to Permitted Liens), and the proceeds thereof, have been duly taken, (A) upon the execution and delivery of this Agreement; (B) upon the taking of possession by Agent of any certificates constituting the Pledged Interests, to the extent such Pledged Interests are represented by certificates, together with undated powers endorsed in blank by Grantor; (C) upon the filing of financing statements in the applicable jurisdiction set forth on Schedule 4 attached hereto for Grantor with respect to the Pledged Interests of Grantor that are not represented by certificates, and (D) with respect to any Securities Accounts, upon the delivery of Control Agreements with
respect thereto; and (iv) Grantor has delivered to and deposited with Agent (or, with respect to any Pledged Interests created after the Closing Date, will deliver and deposit in accordance with Sections 6 and 8 hereof) all certificates representing the Pledged Interests owned by Grantor to the extent such Pledged Interests are represented by certificates, and undated powers endorsed in blank with respect to such certificates.

(f)        Other than execution and delivery of the Subordination Agreements, the filing of financing statements, Mortgages and the security agreements attached hereto as Exhibits B, C and E and any requirement under applicable law to register Stock and the other consents and filings identified on Schedule 4.9(c) to the Credit Agreement, to the best of Grantor’s knowledge, no consent, approval, authorization, or other order or other action by, and no notice to or filing with, any Governmental Authority or any other Person is required (i) for the grant of a Security Interest by Grantor in and to the Collateral pursuant to this Agreement or for the execution,
delivery, or performance of this Agreement by Grantor, or (ii) for the exercise by Agent of the voting or other rights provided for in this Agreement with respect to the Investment Related Property or the remedies in respect of the Collateral pursuant to this Agreement, except (x) as may be required in connection with such disposition of Investment Related Property by laws affecting the offering and sale of securities generally; and (y) for consents and approvals that have been obtained and that are still in force and effect.

6.         Covenants.  Grantor covenants and agrees with Agent and the Lender Group that from and after the date of this Agreement and until the date of termination of this Agreement in accordance with Section 22 hereof:

(a)        Possession of Collateral.  In the event that any Collateral, including proceeds, is evidenced by or consists of Negotiable Collateral, Investment Related Property, or Chattel Paper, and if and to the extent that perfection or priority of Agent's Security Interest is dependent on or enhanced by possession, Grantor, to the extent required by the Subordination Agreements, promptly upon the request of Agent and in accordance with Section 8 hereof, shall execute such other documents as shall be reasonably requested by Agent or, if applicable, endorse and deliver physical possession of such Negotiable Collateral, Investment Related Property, or Chattel Paper to Agent, together with such undated powers endorsed in blank as shall be requested by Agent;

 

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(b)        Chattel Paper.  

 (i)      Upon the request of Agent, Grantor shall take all steps reasonably necessary to grant Agent control of all electronic Chattel Paper in accordance with the Code and all “transferable records” as that term is defined in Section 16 of the Uniform Electronic Transaction Act and Section 201 of the federal Electronic Signatures in Global and National Commerce Act as in effect in any relevant jurisdiction; 

(ii)     If Grantor retains possession of any Chattel Paper or instruments (which retention of possession shall be subject to the extent permitted hereby and by the Credit Agreement), promptly upon the request of Agent, and to the extent the same is practicable, such Chattel Paper and instruments shall be marked with the following legend: “This writing and the obligations evidenced or secured hereby are subject to the Security Interest of Private Equity Management Group INC., as Agent for the benefit of the Lender Group”;

(c)        Control Agreements.  

 (i)      To the extent required by the Credit Agreement and permitted by the Subordination Agreements, Grantor shall obtain an authenticated Control Agreement, from each bank holding a Deposit Account for Grantor;

(ii)     To the extent required by the Credit Agreement and permitted by the Subordination Agreements, Grantor shall obtain authenticated Control Agreements, from each issuer of uncertificated securities, securities intermediary, or commodities intermediary issuing or holding any financial assets or commodities to or for Grantor; 

(d)        Letter of Credit Rights.  Subject to the rights of the Senior Lender, if Grantor is or becomes the beneficiary of a letter of credit in excess of $100,000, Grantor shall promptly (and in any event within 5 Business Days after becoming a beneficiary), notify Agent thereof and, upon the request by Agent, use commercially reasonable efforts to enter into a tri-party agreement with Agent and the issuer and/or confirmation bank with respect to letter-of-credit rights (as that term is defined in the Code) assigning such letter-of-credit rights to Agent and directing all payments thereunder to Agent’s Account, all in form and substance satisfactory to Agent;

(e)        Commercial Tort Claims.  Grantor shall promptly (and in any event within 5 Business Days of receipt thereof), notify Agent in writing upon incurring or otherwise obtaining a Commercial Tort Claim after the date hereof against any third party in an amount exceeding $100,000 and, upon request of Agent, promptly amend Schedule 2 to this Agreement, authorize the filing of additional or amendments to existing financing statements and do such other acts or things deemed reasonably necessary or desirable by Agent to give Agent a security interest in any such Commercial Tort Claim;

(f)        Investment Related Property.  

 (i)      If Grantor shall receive or become entitled to receive any Pledged Interests after the Closing Date, it shall promptly (and in any event within 5 Business Days of receipt thereof) deliver to Agent a duly executed Pledged Interests Addendum identifying such Pledged Interests;

(ii)     Grantor agrees that it will cooperate with Agent in obtaining all necessary approvals and making all necessary filings under federal, state, local, or foreign law in connection with the Security Interest on the Investment Related Property or any sale or transfer thereof;

(iii)    As to all limited liability company or partnership interests issued under any Pledged Operating Agreement or Pledged Partnership Agreement, Grantor hereby represents, warrants and covenants that the Pledged Interests issued pursuant to such agreement (A) are not and shall not be dealt in or traded on securities exchanges or in securities markets, (B) do not and will not constitute investment company securities, and (C) are not and will not be held by such Pledgor in a securities account.  In addition, none of the Pledged Operating Agreements, the Pledged Partnership Agreements, or any other agreements governing any of the Pledged Interests issued under any Pledged Operating Agreement or Pledged Partnership Agreement, provide or shall 

 

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provide that such Pledged Interests are securities governed by Article 8 of the Uniform Commercial Code as in effect in any relevant jurisdiction;

(g)        Real Property; Fixtures.  Grantor covenants and agrees that upon the acquisition of any fee interest in Real Property it will promptly (and in any event within 10 Business Days of acquisition) notify Agent of the acquisition of such Real Property and will grant to Agent, for the benefit of the Lender Group, a Mortgage (subject to existing Liens) on each fee interest in Real Property now or hereafter owned by Grantor and shall deliver such other documentation and opinions, in form and substance reasonably satisfactory to Agent, in connection with the grant of such Mortgage as Agent shall request in its Permitted Discretion, including, without limitation, title insurance policies, financing statements, fixture filings and environmental audits and Grantor shall pay all recording costs, intangible
taxes and other fees and costs (including reasonable attorneys fees and expenses) incurred in connection therewith.  Grantor acknowledges and agrees that, to the extent permitted by applicable law, all of the Collateral shall remain personal property regardless of the manner of its attachment or affixation to real property.

(h)        Transfers and Other Liens.  Grantor shall not (i) sell, assign (by operation of law or otherwise) or otherwise dispose of, or grant any option with respect to, any of the Collateral, except as expressly permitted by the Credit Agreement, or (ii) create or permit to exist any Lien upon or with respect to the Collateral of  Grantor, except for Permitted Liens.  The inclusion of Proceeds in the Collateral shall not be deemed to constitute Agent’s consent to any sale or other disposition of any of the Collateral except as expressly permitted in this Agreement or the other Loan Documents.

(i)        Other Actions as to Any and All Collateral.  Grantor shall promptly (and in any event within 5 Business Days of acquiring or obtaining such Collateral) notify Agent in writing upon acquiring or otherwise obtaining any Collateral after the date hereof consisting of Investment Related Property, Chattel Paper (electronic, tangible or otherwise), documents (as defined in the Code), or instruments (as defined in the Code) and, upon the request of Agent and in accordance with Section 8 hereof, promptly execute such other documents, or if applicable, deliver such Chattel Paper, other documents or certificates evidencing any Investment Related Property in accordance with Section 6 hereof and do such other
acts or things deemed reasonably necessary or desirable by Agent to protect Agent’s Security Interest therein.

(j)        Intellectual Property Collateral.  

 (i)      Grantor (either itself or through its licensees) will place appropriate notice of Copyright on all copies embodying material copyrighted works covered by the Copyright which are publicly distributed, and Grantor will not (and will not permit any licensee thereof to) do any act or knowingly omit to do any act whereby any Copyright may become invalidated or dedicated to the public domain.  Grantor will continue to use standards of quality in the manufacture of products sold under the Trademarks that are at least equal to those standards in effect as of the date of this Agreement.  Grantor (either itself or through its licensees) will continue to use the Trademarks on its current lines of goods as reflected in its current catalogs, brochures and price lists in order to maintain the Trademarks in full force and effect, in the ordinary course of
business, and Grantor will not (or will permit any licensee thereof to) do any act or knowingly omit to do any act whereby any Trademark may become invalidated.  Grantor will not do any act, or omit to do any act, or permit any licensee thereof to do any act whereby any Patent may become abandoned or dedicated.

(ii)     Grantor will promptly perform all acts and execute all documents, including, without limitation, grants of security in forms acceptable to Agent and suitable for recording with (i) the United States Patent and Trademark Office and the United States Register of Copyrights, and (ii) the appropriate offices and agencies of foreign jurisdictions reasonably requested by Agent at any time to evidence, perfect, maintain, record or enforce the Agent's security interest in the Intellectual Property Collateral or otherwise in furtherance of the provisions of this Agreement.  Grantor hereby authorizes Agent to execute and file one or more financing statements (and any similar documents) or copies thereof or of this Agreement with respect to the Intellectual Property Collateral (with a copy sent to Administrative Borrower).

(iii)    In the event that Grantor, either itself or through any subsidiary, affiliate, agent, employee, licensee or designee, shall file an application for the issuance of any Patent or registration of any Trademark with the United States Patent and Trademark Office, or any similar office of the United States or in any 

 

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office of the Secretary of State (or equivalent) of any state thereof, or for the registration of any Copyright with the United States Register of Copyrights, or for the registration of any Patent, Trademark or Copyright in any similar office or agency of any country or political subdivision thereof throughout the world, or shall obtain issuance of any Patent or registration of any Trademark or Copyright previously applied for, or shall adopt, acquire or obtain rights to any new trademark, patent application or work for which a copyright application has been or is expected to be filed, or become entitled to the benefit of any patent application or any patent or any part thereof for reissue, re-examination, continuation, continuation-in-part, division, improvement or extension, Grantor shall (i) inform Agent of any such event or action in periodic reports which Borrower shall deliver to Agent annually by
each anniversary date of this Agreement, and (ii) execute and deliver any and all assignments, agreements, instruments, documents and papers as are necessary or appropriate or as Agent may reasonably request to evidence the Agent's security interest in such Trademark, Patent or Copyright and the goodwill and general intangibles of Grantor relating thereto or represented thereby.  Effective only upon the occurrence and during the continuation of an Event of Default, Grantor hereby constitutes Agent, or Agent's agent, its attorney-in-fact to execute and file all such writings for the foregoing purposes, all acts of such attorney being hereby ratified and confirmed; such power being coupled with an interest is irrevocable until the Secured Obligations are indefeasibly paid in full and the Commitments terminated.  Grantor authorizes the amendment of the schedules hereto to include any future Intellectual Property Collateral registrations or applications which may be acquired or made by
Grantor.

(iv)    Grantor has the authority, right and power to enter into this Agreement and to perform its terms and to grant the security interest herein granted, and has not entered and will not enter into any oral or written agreements which would prevent Grantor from complying with the terms hereof, provided, however, Grantor may enter into or maintain in effect such non-exclusive license agreements with respect to the Intellectual Property Collateral as Grantor believes in its reasonable business judgment are in the best interest of Grantor's business, so long as any such license agreement does not prohibit the assignment thereof to Agent, for the benefit of the Lender Group.  The Intellectual Property Collateral is not now, and at all times will not be, subject to any Liens (other than Permitted Liens); provided,
however, Grantor may enter into such non-exclusive license agreements with respect to the Intellectual Property Collateral as Grantor believes in its reasonable business judgment are in the best interest of Grantor's business, so long as any such license agreement does not prohibit the assignment thereof to Agent, for the benefit of the Lender Group.  To the best knowledge of Grantor, none of the Intellectual Property Collateral is subject to any claims of any other party.

(v)     Except for Permitted Liens, or to the extent that Agent upon prior written notice from Grantor, shall consent in writing, Grantor will not assign, sell, mortgage, lease, transfer, pledge, hypothecate, grant a security interest in or lien upon, grant an exclusive license, or otherwise dispose of any of the Intellectual Property Collateral, and nothing in this Agreement shall be deemed a consent by Agent to any such action except as expressly permitted herein.  

(vi)    Grantor will take commercially reasonable steps in any proceeding before the United States Patent and Trademark Office, United States Register of Copyrights or similar office or agency of the United States or any office of the Secretary of State (or equivalent) of any state thereof, or in any similar office or agency of any country or political subdivision thereof throughout the world, to maintain each registration application and registration of the Intellectual Property Collateral, including, without limitation, filing of renewals, extensions, affidavits of use and incontestability, and opposition, interference and cancellation proceedings.  Grantor shall notify Agent promptly in writing if any registration application or registration relating to any Intellectual Property Collateral may become abandoned or dedicated or subject to an adverse final
determination in any proceeding in the United States Patent and Trademark Office or United States Register of Copyrights or in any similar office or agency of any country or political subdivision thereof throughout the world or in any court regarding Grantor's ownership of such Intellectual Property Collateral, its right to register same, or to keep or maintain the validity of same.

(vii)   In the event that Grantor acquires actual knowledge that any Trademark, Patent or Copyright is infringed, misappropriated or diluted by a third party, Grantor shall promptly sue for infringement, misappropriation and/or dilution and to obtain injunctive relief and recover damages therefor, unless Grantor shall determine in its reasonable business judgment that such suit is not in the best interest of Grantor's business, and Grantor shall take such other actions reasonably required to protect such Trademark, Patent or Copyright as Grantor shall deem appropriate in its reasonable business judgment under the circumstances.  Upon the occurrence and 

 

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during the continuation of an Event of Default, Agent shall have the right, but in no way shall be obligated, to bring suit in its own name to enforce the Trademarks, Patents and Copyrights and any licenses thereunder, in which event Grantor shall, at the request of Agent, do any and all lawful acts requested by Agent and execute any and all documents required by Agent to aid such enforcement, and Grantor shall, upon demand, promptly reimburse and indemnify Agent for all costs and expenses incurred in such enforcement.

(viii)  Notwithstanding any provision of the Loan Documents to the contrary, Grantor shall not be obligated to acquire, maintain, or protect any Intellectual Property Collateral in the event Grantor determines, in its reasonable business judgment and notifies Agent in writing, that such collateral is no longer necessary or desirable in the conduct of its business.

7.         Relation to Other Loan Documents.  The provisions of this Agreement shall be read and construed with the other Loan Documents referred to below in the manner so indicated.  In the event of any conflict between any provision in this Agreement and a provision in the Credit Agreement, such provision of the Credit Agreement shall control.

8.         Further Assurances.  

 (a)        Grantor agrees that from time to time, at its own expense, Grantor will promptly execute and deliver all further instruments and documents, and take all further action, that may be reasonably necessary or that Agent may reasonably request, in order to perfect and protect any Security Interest granted or purported to be granted hereby or to enable Agent to exercise and enforce its rights and remedies hereunder with respect to any of the Collateral.

(b)        Grantor authorizes the filing of such financing or continuation statements, or amendments thereto, and Grantor will execute and deliver to Agent such other instruments or notices, as may be necessary or as Agent may reasonably request, in order to perfect and preserve the Security Interest granted or purported to be granted hereby.  

(c)        Grantor authorizes Agent to file, transmit, or communicate, as applicable, financing statements and amendments describing the Collateral as “all personal property of debtor” or “all assets of debtor” or words of similar effect, in order to perfect Agent’s security interest in the Collateral without Grantor’s signature.  Grantor also hereby ratifies its authorization for Agent to have filed in any jurisdiction any financing statements filed prior to the date hereof. 

(d)        Grantor acknowledges that it is not authorized to file any financing statement or amendment or termination statement with respect to any financing statement filed in connection with this Agreement without the prior written consent of Agent, subject to Grantor's rights under Section 9-509(d)(2) of the Code.

9.         Agent's Right to Perform Contracts.  Upon the occurrence and during the continuation of an Event of Default, Agent (or its designee) may proceed to perform any and all of the obligations of any Grantor contained in any contract, lease, or other agreement and exercise any and all rights of Grantor therein contained as fully as Grantor itself could.  

10.       Agent Appointed Attorney-in-Fact.  Grantor hereby irrevocably appoints Agent its attorney-in-fact, with full authority in the place and stead of Grantor and in the name of Grantor or otherwise, to take any action and to execute any instrument which Agent may reasonably deem necessary or advisable to accomplish the purposes of this Agreement, without notice to Grantor, including, without limitation:

(a)        at such time as an Event of Default has occurred and is continuing under the Credit Agreement, to ask, demand, collect, sue for, recover, compromise, receive and give acquittance and receipts for moneys due and to become due under or in connection with the Accounts or any other Collateral of Grantor;

 

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(b)        at such time as an Event of Default has occurred and is continuing under the Credit Agreement, to receive and open all mail addressed to such Grantor and to notify postal authorities to change the address for the delivery of mail to Grantor to that of Agent;

(c)        at such time as an Event of Default has occurred and is continuing under the Credit Agreement, to receive, indorse, and collect any drafts or other instruments, documents, Negotiable Collateral or Chattel Paper;

(d)        at such time as an Event of Default has occurred and is continuing under the Credit Agreement, to file any claims or take any action or institute any proceedings which Agent may deem reasonably necessary or desirable for the collection of any of the Collateral of Grantor or otherwise to enforce the rights of Agent with respect to any of the Collateral;

(e)        at such time as an Event of Default has occurred and is continuing under the Credit Agreement, to repair, alter, or supply goods, if any, necessary to fulfill in whole or in part the purchase order of any Person obligated to Grantor in respect of any Account of Grantor; 

(f)        at such time as an Event of Default has occurred and is continuing under the Credit Agreement, to use any labels, Patents, Trademarks, trade names, URLs, domain names, industrial designs, Copyrights, advertising matter or other industrial or intellectual property rights, in advertising for sale and selling Inventory and other Collateral and to collect any amounts due under Accounts, contracts or Negotiable Collateral of Grantor; and

(g)        at such time as an Event of Default has occurred and is continuing under the Credit Agreement, Agent on behalf of the Lender Group shall have the right, but shall not be obligated, to bring suit in its own name to enforce the Trademarks, Patents, Copyrights and any intellectual property licenses included within the Collateral and, if Agent shall commence any such suit, Grantor shall, at the request of Agent, do any and all lawful acts and execute any and all proper documents reasonably required by Agent in aid of such enforcement.  

To the extent permitted by law, Grantor hereby ratifies all that such attorney-in-fact shall lawfully do or cause to be done by virtue hereof.  This power of attorney is coupled with an interest and shall be irrevocable until this Agreement is terminated.  

11.       Agent May Perform.  If Grantor fails to perform any agreement contained herein, Agent may, following the occurrence and during the continuation of an Event of Default, itself perform, or cause performance of, such agreement, and the reasonable expenses of Agent incurred in connection therewith shall be payable by Grantor.

12.       Agent’s Duties.  The powers conferred on Agent hereunder are solely to protect Agent's interest in the Collateral, for the benefit of the Lender Group, and shall not impose any duty upon Agent to exercise any such powers.  Except for the safe custody of any Collateral in its actual possession and the accounting for moneys actually received by it hereunder, Agent shall have no duty as to any Collateral or as to the taking of any necessary steps to preserve rights against prior parties or any other rights pertaining to any Collateral.  Agent shall be deemed to have exercised reasonable care in the custody and preservation of any Collateral in its actual possession if such Collateral is accorded treatment substantially equal to that which Agent accords its own property.  

13.       Collection of Accounts, General Intangibles and Negotiable Collateral; Control Agreements.  At any time upon the occurrence and during the continuation of an Event of Default, Agent or Agent’s designee may (a) notify Account Debtors of Grantor that the Accounts, General Intangibles, Chattel Paper or Negotiable Collateral have been assigned to Agent, for the benefit of the Lender Group, or that Agent has a security interest therein, and (b) collect the Accounts, General Intangibles and Negotiable Collateral directly, and any collection costs and expenses shall constitute part of Grantor's Secured Obligations under the Loan Documents.  With respect to each Control Agreement delivered pursuant to Section 6(c), at any time upon the occurrence and
during the continuation of an Event of Default, Agent shall be entitled to give any bank or securities intermediary holding the relevant deposit or securities account instructions as to the withdrawal or disposition of funds or assets held therein, all 

 

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without further consent of Grantor; provided that Agent agrees it shall not give any bank or securities intermediary such instructions unless an Event of Default has occurred and is continuing.

14.       Disposition of Pledged Interests by Agent.  None of the Pledged Interests existing as of the date of this Agreement are, and none of the Pledged Interests hereafter acquired on the date of acquisition thereof will be, registered or qualified under the various federal or state securities laws of the United States and disposition thereof after an Event of Default may be restricted to one or more private (instead of public) sales in view of the lack of such registration.  Grantor understands that in connection with such disposition, Agent may approach only a restricted number of potential purchasers and further understands that a sale under such circumstances may yield a lower price for the Pledged Interests than if the Pledged Interests were registered and qualified pursuant to federal and state
securities laws and sold on the open market.  Grantor, therefore, agrees that:  (a) if Agent shall, pursuant to the terms of this Agreement, sell or cause the Pledged Interests or any portion thereof to be sold at a private sale, Agent shall have the right to rely upon the advice and opinion of any nationally recognized brokerage or investment firm (but shall not be obligated to seek such advice and the failure to do so shall not be considered in determining the commercial reasonableness of such action) as to the best manner in which to offer the Pledged Interest for sale and as to the best price reasonably obtainable at the private sale thereof; and (b) such reliance shall be conclusive evidence that Agent has handled the disposition in a commercially reasonable manner.

15.         Voting Rights.

 (a)        Upon the occurrence and during the continuation of an Event of Default, (i) Agent may, at its option, and with 5 Business Days prior notice to Grantor, and in addition to all rights and remedies available to Agent under any other agreement, at law, in equity, or otherwise, exercise all voting rights, and all other ownership or consensual rights in respect of the Pledged Interests owned by Grantor, but under no circumstances is Agent obligated by the terms of this Agreement to exercise such rights, and (ii) if Agent duly exercises its right to vote any of such Pledged Interests, Grantor hereby appoints Agent, Grantor's true and lawful attorney-in-fact and IRREVOCABLE PROXY to vote such Pledged Interests in any manner Agent deems advisable for or against all matters submitted or which may be submitted to a vote of shareholders, partners or
members, as the case may be.  The power-of-attorney granted hereby is coupled with an interest and shall be irrevocable.

(b)        For so long as Grantor shall have the right to vote the Pledged Interests owned by it, Grantor covenants and agrees that it will not, without the prior written consent of Agent, vote or take any consensual action with respect to such Pledged Interests which would materially adversely affect the rights of Agent and the other members of the Lender Group or the value of the Pledged Interests.

16.         Remedies.  Upon the occurrence and during the continuation of an Event of Default:

 (a)        Agent may exercise in respect of the Collateral, in addition to other rights and remedies provided for herein, in the other Loan Documents, or otherwise available to it, all the rights and remedies of a secured party on default under the Code or any other applicable law.  Without limiting the generality of the foregoing, Grantor expressly agrees that, in any such event, Agent without demand of performance or other demand, advertisement or notice of any kind (except a notice specified below of time and place of public or private sale) to or upon Grantor or any other Person (all and each of which demands, advertisements and notices are hereby expressly waived to the maximum extent permitted by the Code or any other applicable law), may take immediate possession of all or any portion of the Collateral and (i) require Grantor to, and Grantor
hereby agrees that it will at its own expense and upon request of Agent forthwith, assemble all or part of the Collateral as directed by Agent and make it available to Agent at one or more locations which are reasonably convenient to Grantor, and (ii) without notice except as specified below, sell the Collateral or any part thereof in one or more parcels at public or private sale, at any of Agent’s offices or elsewhere, for cash, on credit, and upon such other terms as Agent may deem commercially reasonable.  Grantor agrees that, to the extent notice of sale shall be required by law, at least 10 days notice to Grantor of the time and place of any public sale or the time after which any private sale is to be made shall constitute reasonable notification and specifically such notice shall constitute a reasonable “authenticated notification of disposition” within the meaning of Section 9-611 of the Code.  Agent shall not be obligated to make any sale of Collateral
regardless of notice of sale having been given.  Agent may adjourn any public or private sale from time to time by announcement at the time and place fixed therefor, and such sale may, without further notice, be made at the time and place to which it was so adjourned.

 

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(b)        Agent is hereby granted a non-exclusive license or other right to use, without liability for royalties or any other charge, Grantor’s labels, Patents, Copyrights, rights of use of any name, trade secrets, trade names, Trademarks, service marks and advertising matter, URLs, domain names, industrial designs, other industrial or intellectual property or any property of a similar nature, whether owned by Grantor or with respect to which Grantor has rights under license, sublicense, or other agreements, as it pertains to the Collateral, in preparing for sale, advertising for sale and selling any Collateral, and Grantor’s rights under all licenses and all franchise agreements shall inure to the benefit of Agent.

(c)        Any cash held by Agent as Collateral and all cash proceeds received by Agent in respect of any sale of, collection from, or other realization upon all or any part of the Collateral shall be applied against the Secured Obligations in the order set forth in the Credit Agreement.   In the event the proceeds of Collateral are insufficient to satisfy all of the Secured Obligations in full, Grantor shall remain jointly and severally liable for any such deficiency.

(d)        Grantor hereby acknowledges that the Secured Obligations arose out of a commercial transaction, and agrees that if an Event of Default shall occur and be continuing Agent shall have the right to an immediate writ of possession without notice of a hearing.  Agent shall have the right to the appointment of a receiver for the properties and assets of Grantor, and Grantor hereby consents to such rights and such appointment and hereby waives, to the fullest extent permitted by law, any objection such Grantors may have thereto or the right to have a bond or other security posted by Agent.

17.       Remedies Cumulative.  (a) Each right, power, and remedy of Agent as provided for in this Agreement or in the other Loan Documents or now or hereafter existing at law or in equity or by statute or otherwise shall be cumulative and concurrent and shall be in addition to every other right, power, or remedy provided for in this Agreement or in the other Loan Documents or now or hereafter existing at law or in equity or by statute or otherwise (each a “Remedy” and collectively, the “Remedies”), and the exercise or beginning of the exercise by Agent, of any one or more of such rights, powers, or remedies shall not preclude the simultaneous or later exercise by Agent of any or all such other rights, powers, or remedies, and (b) Agent’s exercise of any Remedy in each and every
instance is subject to the terms of the Subordination Agreements.

18.       Marshaling.  Agent  shall not be required to marshal any present or future collateral security (including but not limited to the Collateral) for, or other assurances of payment of, the Secured Obligations or any of them or to resort to such collateral security or other assurances of payment in any particular order, and all of its rights and remedies hereunder and in respect of such collateral security and other assurances of payment shall be cumulative and in addition to all other rights and remedies, however existing or arising.  To the extent that it lawfully may, Grantor hereby agrees that it will not invoke any law relating to the marshaling of collateral which might cause delay in or impede the enforcement of Agent's rights and remedies under this Agreement or under any other instrument creating
or evidencing any of the Secured Obligations or under which any of the Secured Obligations is outstanding or by which any of the Secured Obligations is secured or payment thereof is otherwise assured, and, to the extent that it lawfully may, Grantor hereby irrevocably waives the benefits of all such laws.

19.         Indemnity and Expenses.  

 (a)        Grantor agrees to indemnify Agent and the other members of the Lender Group from and against all claims, lawsuits and liabilities (including reasonable attorneys fees) growing out of or resulting from this Agreement (including, without limitation, enforcement of this Agreement) or any other Loan Document to which Grantor is a party, except claims, losses or liabilities resulting from the gross negligence or willful misconduct of the party seeking indemnification as determined by a final non-appealable order of a court of competent jurisdiction.  This provision shall survive the termination of this Agreement and the Credit Agreement and the repayment of the Secured Obligations.

(b)        Grantor, shall, upon demand, pay to Agent (or Agent, may charge to the Loan Account) all the Lender Group Expenses which Agent may incur in connection with (i) the administration of this Agreement, (ii) the custody, preservation, use or operation of, or, upon an Event of Default, the sale of, collection from, or other realization upon, any of the Collateral in accordance with this Agreement and the other Loan Documents, (iii) the 

 

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exercise or enforcement of any of the rights of Agent hereunder or (iv) the failure by Grantor to perform or observe any of the provisions hereof.

20.       Merger, Amendments; Etc.  THIS WRITTEN AGREEMENT, TOGETHER WITH THE OTHER LOAN DOCUMENTS, REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.  THERE ARE NO UNWRITTEN AGREEMENTS BETWEEN THE PARTIES.  No waiver of any provision of this Agreement, and no consent to any departure by Grantor herefrom, shall in any event be effective unless the same shall be in writing and signed by Agent, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given.  No amendment of any provision of this Agreement shall be effective unless the same shall be in writing and signed by Agent and Grantor to which such amendment applies.

21.       Addresses for Notices.  All notices and other communications provided for hereunder shall be given in the form and manner and delivered to Agent at its address specified in the Credit Agreement, and to Grantor at its address specified in the Credit Agreement or, as to any party, at such other address as shall be designated by such party in a written notice to the other party.

22.       Continuing Security Interest: Assignments under Credit Agreement.  This Agreement shall create a continuing security interest in the Collateral and shall (a) remain in full force and effect until the Obligations have been paid in full in cash in accordance with the provisions of the Credit Agreement and the Commitments have expired or have been terminated, (b) be binding upon Grantor and its successors and assigns, and (c) inure to the benefit of, and be enforceable by, Agent, and its successors, transferees and assigns.  Without limiting the generality of the foregoing clause (c), any Lender may, in accordance with the provisions of the Credit Agreement, assign or otherwise transfer all or any portion of its rights and obligations under the Credit Agreement to any other Person, and such other
Person shall thereupon become vested with all the benefits in respect thereof granted to such Lender herein or otherwise.  Upon payment in full in cash of the Obligations in accordance with the provisions of the Credit Agreement and the expiration or termination of the Commitments, the Security Interest granted hereby shall terminate and all rights to the Collateral shall revert to Grantor or any other Person entitled thereto.  At such time, Agent will authorize the filing of appropriate termination statements to terminate such Security Interests.  No transfer or renewal, extension, assignment, or termination of this Agreement or of the Credit Agreement, any other Loan Document, or any other instrument or document executed and delivered by any Grantor to Agent nor any additional Loans made by any of the Lender Group to Borrower, nor the taking of further security, nor the retaking or re-delivery of the Collateral to Grantor, by Agent, nor any other act of the Lender Group, or any of
them, shall release Grantor from any obligation, except a release or discharge executed in writing by Agent in accordance with the provisions of the Credit Agreement.  Agent shall not by any act, delay, omission or otherwise, be deemed to have waived any of its rights or remedies hereunder, unless such waiver is in writing and signed by Agent and then only to the extent therein set forth.  A waiver by Agent of any right or remedy on any occasion shall not be construed as a bar to the exercise of any such right or remedy which Agent would otherwise have had on any other occasion.

23.         Governing Law.

 (a)        THE VALIDITY OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS (UNLESS EXPRESSLY PROVIDED TO THE CONTRARY IN ANOTHER LOAN DOCUMENT IN RESPECT OF SUCH OTHER LOAN DOCUMENT), THE CONSTRUCTION, INTERPRETATION, AND ENFORCEMENT HEREOF AND THEREOF, AND THE RIGHTS OF THE PARTIES HERETO AND THERETO WITH RESPECT TO ALL MATTERS ARISING HEREUNDER OR THEREUNDER OR RELATED HERETO OR THERETO SHALL BE DETERMINED UNDER, GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA WITHOUT REGARD TO ITS CONFLICTS OF LAWS RULES.

(b)        TO THE MAXIMUM EXTENT PERMITTED BY LAW, THE PARTIES AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING IN CONNECTION WITH THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS SHALL BE TRIED AND LITIGATED ONLY IN THE STATE OF CALIFORNIA AND, TO THE EXTENT PERMITTED BY APPLICABLE LAW, FEDERAL COURTS LOCATED IN THE COUNTY OF LOS ANGELES, STATE OF CALIFORNIA; PROVIDED, HOWEVER, THAT 

 

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ANY SUIT SEEKING ENFORCEMENT AGAINST ANY COLLATERAL OR OTHER PROPERTY MAY BE BROUGHT, AT AGENT’S OPTION, IN THE COURTS OF ANY JURISDICTION WHERE AGENT ELECTS TO BRING SUCH ACTION OR WHERE SUCH COLLATERAL OR OTHER PROPERTY MAY BE FOUND.  GRANTOR AND EACH MEMBER OF THE LENDER GROUP WAIVE, TO THE EXTENT PERMITTED UNDER APPLICABLE LAW, ANY RIGHT EACH MAY HAVE TO ASSERT THE DOCTRINE OF FORUM NON CONVENIENS OR TO OBJECT TO VENUE TO THE EXTENT ANY PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS SECTION 23(b).

(c)        TO THE MAXIMUM EXTENT PERMITTED BY LAW, GRANTOR AND EACH MEMBER OF THE LENDER GROUP HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS.  GRANTOR AND EACH MEMBER OF THE LENDER GROUP REPRESENT THAT EACH HAS REVIEWED THIS WAIVER AND EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL.  IN THE EVENT OF LITIGATION, A COPY OF THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.

(d)        Subsidiaries.  Pursuant to Section 5.18 of the Credit Agreement, any new direct or indirect Subsidiary (whether by acquisition or creation) of Parent is required to enter into this Agreement by executing and delivering in favor of Agent an instrument in the form of Annex 1 attached hereto.  Upon the execution and delivery of Annex 1 by such new Subsidiary, such Subsidiary shall become a Grantor hereunder with the same force and effect as if originally named as a Grantor herein.  The execution and delivery of any instrument adding an additional Grantor as a party to this Agreement shall not require the consent of any Grantor hereunder.  The rights and
obligations of each Grantor hereunder are joint and several and shall remain in full force and effect notwithstanding the addition of any new Grantor hereunder.

24.       Agent.  Each reference herein to any right granted to, benefit conferred upon or power exercisable by the “Agent” shall be a reference to Agent, for the benefit of the Lender Group.

25.         Miscellaneous.

 (a)        This Agreement may be executed in any number of counterparts and by different parties on separate counterparts, each of which, when executed and delivered, shall be deemed to be an original, and all of which, when taken together, shall constitute but one and the same Agreement.  Delivery of an executed counterpart of this Agreement by telefacsimile or other electronic method of transmission shall be equally as effective as delivery of an original executed counterpart of this Agreement.  Any party delivering an executed counterpart of this Agreement by telefacsimile or other electronic method of transmission also shall deliver an original executed counterpart of this Agreement but the failure to deliver an original executed counterpart shall not affect the validity, enforceability, and binding effect of this Agreement.  The foregoing shall
apply to each other Loan Document mutatis mutandis.

(b)        Any provision of this Agreement which is prohibited or unenforceable shall be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof in that jurisdiction or affecting the validity or enforceability of such provision in any other jurisdiction.

(c)        Headings used in this Agreement are for convenience only and shall not be used in connection with the interpretation of any provision hereof.

(d)        The pronouns used herein shall include, when appropriate, either gender and both singular and plural, and the grammatical construction of sentences shall conform thereto.

(e)        The representation, warranties and covenants of each Grantor hereunder are joint and several.

 

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(f)        All exhibits and schedules hereto are incorporated into this Agreement.

26.         Subordination Agreements.  Notwithstanding anything set forth herein to the contrary, all undertakings and obligations of Borrower hereunder, and all rights, privileges, undertakings and obligations of the Agent and the Lender Group hereunder are subject to the terms, conditions and covenants set forth in the Subordination Agreements.

 

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IN WITNESS WHEREOF, the undersigned parties hereto have executed this Agreement by and through their duly authorized officers, as of the day and year first above written.

 

	
            GRANTOR:
 	
            BAKERS FOOTWEAR GROUP, INC.
 
	
             
 	
             
 	
             
 
	
             
 	
            By:
 	
            /s/ Peter A. Edison
 
	
             
 	
            Name:
 	
            Peter A. Edison
 
	
             
 	
            Title:
 	
            Chairman, CEO, President
 
	
             
 	
             
 	
             
 
	
             
 	
             
 	
             
 
	
            AGENT:
 	
            PRIVATE EQUITY MANAGEMENT GROUP, INC., as Agent
 
	
             
 	
             
 	
             
 
	
             
 	
            By:
 	
            /s/ Danny Pang
 
	
             
 	
            Name:
 	
            Danny Pang
 
	
             
 	
            Title:
 	
            Chairman, CEO
 

 

 

 

 

 

 

 

 

[Signature Page to the Security Agreement]

       
       

       

 

[Schedule 1 - Pledged Companies; Schedule 2 - Commercial Tort Claims; Schedule 3 - Real Property; Schedule 4 - Financing Statements have been omitted.  The registrant undertakes to furnish supplementally a copy of such schedules upon request.]

 

 

 

 

       
       

       

 

ANNEX 1 TO SECURITY AGREEMENT

FORM OF SUPPLEMENT

Supplement No. ____ (this “Supplement”) dated as of ______________, 200__, to the Security Agreement of even date herewith (as amended, restated, supplemented or otherwise modified from time to time, the “Security Agreement”) by each of the parties listed on the signature pages thereto and those additional entities that thereafter become parties thereto (collectively, jointly and severally, “Grantors” and each individually “Grantor”) and PRIVATE EQUITY MANAGEMENT GROUP, INC., in its capacity as Agent for the Lender Group  (together with the successors, “Agent”).

W I T N E S S E T H:

WHEREAS, pursuant to that certain Second Lien Credit Agreement dated as of February 1, 2008 (as amended, restated, supplemented or otherwise modified from time to time, including all schedules thereto, the “Credit Agreement”) among Bakers Footwear Group, Inc., a Missouri corporation ("Borrower"), the lenders party thereto as “Lenders” (“Lenders”), and Agent, the Lender Group is willing to make certain financial accommodations available to Borrower from time to time pursuant to the terms and conditions thereof; and

WHEREAS, capitalized terms used herein and not otherwise defined herein shall have the meanings assigned to such terms in the Security Agreement and/or the Credit Agreement; and

WHEREAS, one or more Grantors has entered into the Security Agreement in order to induce the Lender Group to make certain financial accommodations to Borrower; and

WHEREAS, pursuant to Section 5.18 of the Credit Agreement, new direct or indirect Subsidiaries of Borrower must execute and deliver certain Loan Documents, including the Security Agreement, and the execution of the Security Agreement by the undersigned new Grantor or Grantors (collectively, the “New Grantors”) may be accomplished by the execution of this Supplement in favor of Agent, for the benefit of the Lender Group;

NOW, THEREFORE, for and in consideration of the foregoing and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, each New Grantor hereby agrees as follows:

1.         In accordance with Section 23(d) of the Security Agreement, each New Grantor, by its signature below, becomes a “Grantor” under the Security Agreement with the same force and effect as if originally named therein as a “Grantor” and each New Grantor hereby (a) agrees to all of the terms and provisions of the Security Agreement applicable to it as a “Grantor” thereunder and (b) represents and warrants that the representations and warranties made by it as a “Grantor” thereunder are true and correct on and as of the date hereof.  In furtherance of the foregoing, each New Grantor, as security for the payment and performance in full of the Secured Obligations, does hereby grant, assign, and pledge to Agent, for the benefit of the
Lender Group, a security interest in and to all assets of such New Grantor including, without limitation, all property of the type described in Section 2 of the Security Agreement to secure the full and prompt payment of the Secured Obligations, including, without limitation, any interest thereon, plus reasonable attorneys' fees and expenses if the Secured Obligations represented by the Security Agreement are collected by law, through an attorney-at-law, or under advice therefrom.  Each reference to a “Grantor” in the Security Agreement shall be deemed to include each New Grantor.  The Security Agreement is incorporated herein by reference.  

2.         Each New Grantor represents and warrants to Agent and the Lender Group that this Supplement has been duly executed and delivered by such New Grantor and constitutes its legal, valid and binding obligation, enforceable against it in accordance with its terms, except as enforceability thereof may be limited by bankruptcy, insolvency, reorganization, fraudulent transfer, moratorium or other similar laws affecting creditors’ rights generally and general principles of equity (regardless of whether such enforceability is considered in a proceeding at law or in equity).  

 

       
       

       

 

3.         This Supplement may be executed in multiple counterparts, each of which shall be deemed to be an original, but all such separate counterparts shall together constitute but one and the same instrument.  Delivery of a counterpart hereof by facsimile transmission or by e-mail transmission shall be as effective as delivery of a manually executed counterpart hereof.

4.         Except as expressly supplemented hereby, the Security Agreement shall remain in full force and effect.

5.         This Supplement shall be construed in accordance with and governed by the laws of the State of California without regard to its conflicts of laws rules.  

[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]

 

       
       

       

 

IN WITNESS WHEREOF, each New Grantor and Agent have duly executed this Supplement to the Security Agreement as of the day and year first above written.

	
            NEW GRANTORS:
 	
            [Name of New Grantor]
 
	
             
 	
             
 	
             
 
	
             
 	
            By:
 	
             
 
	
             
 	
            Name:
 	
             
 
	
             
 	
            Title:
 	
             
 
	
             
 	
             
 	
             
 
	
             
 	
             
 	
             
 
	
             
 	
            [Name of New Grantor]
 
	
             
 	
             
 	
             
 
	
             
 	
            By:
 	
             
 
	
             
 	
            Name:
 	
             
 
	
             
 	
            Title:
 	
             
 
	
             
 	
             
 	
             
 
	
            AGENT:
 	
            PRIVATE EQUITY MANAGEMENT GROUP, INC.
 
	
             
 	
             
 	
             
 
	
             
 	
            By:
 	
             
 
	
             
 	
            Name:
 	
             
 
	
             
 	
            Title:
 	
             
 

 

Schedule 4

 

       
       

       

 

EXHIBIT A

[INTENTIONALLY OMITTED]

 

Exhibit A

 

       
       

       

 

EXHIBIT B

COPYRIGHT SECURITY AGREEMENT

Bakers Footwear Group, Inc., a Missouri corporation ("Grantor"), for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, grants to Private Equity Management Group, Inc., a Nevada corporation, as agent for and representative of (in such capacity herein called "Secured Party") the financial institutions ("Lenders") party to that certain Second Lien Credit Agreement, entered into by and among the Grantor, Agent, and Lenders, dated as of February 1, 2008 ( the "Credit Agreement"), a continuing security interest in the following property.

(i)        Each work of authorship of any kind, copyright, copyright registration and recording, and copyright application listed on Schedule A hereto; and

(ii)        All proceeds of the foregoing, including without limitation any claim by Grantor against third parties for damages (to the extent not effectively prohibited by an applicable and legally enforceable license agreement) by reason of past, present or future infringement of any copyright registration and recording listed in Schedule A hereto, together with the right to sue for and collect said damages;

to secure performance of all Obligations of Grantor under the Credit Agreement and that certain Security Agreement, dated as of February 1, 2008, by and between Grantor and Secured Party (the "Agreement").

Grantor does hereby further acknowledge and affirm that the rights and remedies of Secured Party with respect to the security interest in the works of authorship, copyrights, copyright registrations and recordings, and copyright applications made and granted hereby are more fully set forth in the Agreement, the terms and provisions of which are incorporated by reference herein as if fully set forth herein.

All terms defined in the Agreement, whether by reference or otherwise, when used herein, shall have their respective meanings set forth therein, unless the context requires otherwise.

B-1

 

       
       

       

 

IN WITNESS WHEREOF, Grantor has caused this Copyright Security Agreement to be duly executed as of _____________ ___, 200__.

	
             
 	
            GRANTOR:
 

BAKERS FOOTWEAR GROUP, INC.

 

	
             
 	
            By: ____________________________
 

	
             
 	
            Name: __________________________
 

	
             
 	
            Title: ___________________________
 

 

ACCEPTED BY SECURED PARTY:

PRIVATE EQUITY MANAGEMENT GROUP, INC., 

as Agent

 

	
             
 	
            By: ____________________________
 

	
             
 	
            Name: __________________________
 

	
             
 	
            Title: ___________________________
 

 

 

 

 

 

 

[Signature Page to the Copyright Security Agreement]

 

       
       

       

 

[Schedule A to the Copyright Security Agreement has been omitted.  The registrant undertakes to furnish supplementally a copy of such schedule upon request.]

 

 

B-3

 

       
       

       

 

EXHIBIT C

PATENT SECURITY AGREEMENT

Bakers Footwear Group, Inc., a Missouri corporation ("Grantor"), for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, grants to Private Equity Management Group, Inc., a Nevada corporation, as agent for and representative of (in such capacity herein called "Secured Party") the financial institutions ("Lenders") party to that certain Second Lien Credit Agreement, entered into by and among the Grantor, Agent, and Lenders, dated as of February 1, 2008 ( the "Credit Agreement"), a continuing security interest in the following property:

 (i)         Each patent presently owned and listed on Schedule A hereto; and

 (ii)        All proceeds of the foregoing, including without limitation any claim by Grantor against third parties for damages (to the extent not effectively prohibited by an applicable and legally enforceable license agreement) by reason of past, present or future infringement of any patent now owned or hereafter owned by Grantor, in each case together with the right to sue for and collect said damages:

to secure performance of all Obligations of Grantor under the Creditor Agreement and as set out in that certain Security Agreement dated as of February 1, 2008, by and between Grantor and Secured Party (the "Agreement").

Grantor does hereby further acknowledge and affirm that the rights and remedies of Secured Party with respect to the security interest in the works of authorship, patents, patent registrations and recordings made and granted hereby are more fully set forth in the Agreement, the terms and provisions of which are incorporated by reference herein as if fully set forth herein.

All terms defined in the Agreement, whether by reference or otherwise, when used herein, shall have their respective meanings set forth therein, unless the context requires otherwise.

 

       
       

       

 

IN WITNESS WHEREOF, Grantor has caused this Patent Security Agreement to be duly executed as of _________ ___, 200__.

	
             
 	
            GRANTOR:
 

BAKERS FOOTWEAR GROUP, INC.

	
             
 	
            By: ____________________________
 

	
             
 	
            Name: __________________________
 

	
             
 	
            Title: ___________________________
 

 

ACCEPTED BY SECURED PARTY:

PRIVATE EQUITY MANAGEMENT GROUP, INC.,

as Agent

 

	
             
 	
            By: ____________________________
 

	
             
 	
            Name: __________________________
 

	
             
 	
            Title: ___________________________
 

 

 

 

 

 

 

 

[Signature Page to the Patent Security Agreement]

 

       
       

       

 

[Schedule A to the Patent Security Agreement has been omitted.  The registrant undertakes to furnish supplementally a copy of such schedule upon request.]

 

       
       

       

 

EXHIBIT D

 

Annex 1 to Pledge and Security Agreement

 

PLEDGED INTERESTS ADDENDUM

 

This Pledged Interests Addendum, dated as of _________ ___, 20___, is delivered pursuant to Section 6 of the Security Agreement referred to below.  The undersigned hereby agrees that this Pledged Interests Addendum may be attached to that certain Security Agreement, dated as of February 1, 2008 (as amended, restated, supplemented or otherwise modified from time to time, the “Security Agreement”), made by the undersigned to Private Equity Management Group, Inc., as Agent.  Initially capitalized terms used but not defined herein shall have the meaning ascribed to such terms in the Security Agreement and/or the Credit Agreement.  The undersigned hereby agrees that the additional interests listed on this Pledged Interests Addendum as set forth below shall be and become part of the Pledged Interests pledged by the undersigned to the
Agent in the Security Agreement and any pledged company set forth on this Pledged Interests Addendum as set forth below shall be and become a "Pledged Company" under the Security Agreement, each with the same force and effect as if originally named therein.

The undersigned hereby certifies that the representations and warranties set forth in Section 5 of the Security Agreement of the undersigned are true and correct as to the Pledged Interests listed herein on and as of the date hereof.

	
             
 	
            BAKERS FOOTWEAR GROUP, INC.
 

	
             
 	
            By: ____________________________
 

	
             
 	
            Title: ___________________________
 

 

	
            Name of Pledgor
  	
            Name  of Pledged Company
  	
            Number  of Shares/Units
  	
            Class of Interests
  	
            Percentage  of Class Owned
  	
            Certificate Nos.
  
	
             
 	
             
 	
             
 	
             
 	
             
 	
             
 
	
             
 	
             
 	
             
 	
             
 	
             
 	
             
 

 

D-1

 

       
       

       

 

EXHIBIT E

TRADEMARK SECURITY AGREEMENT

Bakers Footwear Group, Inc., a Missouri corporation ("Grantor"), for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, grants to Private Equity Management Group, Inc., a Nevada corporation, as agent for and representative of (in such capacity herein called "Secured Party") the financial institutions ("Lenders") party to that certain Second Lien Credit Agreement, entered into by and among the Grantor, Agent, and Lenders, dated as of February 1, 2008 ( the "Credit Agreement"), a continuing security interest in the following property:

(i)        Each trademark, trademark registration and trademark application listed on Schedule A hereto, and all of the goodwill of the business connected with the use of, and symbolized by, each such trademark, trademark registration and trademark application; and

(ii)        All proceeds of the foregoing, including without limitation any claim by Grantor against third parties for damages (to the extent not effectively prohibited by an applicable and legally enforceable license agreement) by reason of past, present or future infringement of any trademark or trademark registration listed in Schedule A hereto or by reason of injury to the goodwill associated with any such trademark or trademark registration or trademark license, in each case together with the right to sue for and collect said damages;

to secure performance of all Obligations of Grantor under the Credit Agreement and as set out in that certain Security Agreement dated as of February 1, 2008 by and between Grantor and Secured Party (the "Agreement").

Grantor does hereby further acknowledge and affirm that the rights and remedies of Secured Party with respect to the security interest in the works of authorship, trademarks, trademark registrations and recordings, and trademark applications made and granted hereby are more fully set forth in the Agreement, the terms and provisions of which are incorporated by reference herein as if fully set forth herein.

All terms defined in the Agreement, whether by reference or otherwise, when used herein, shall have their respective meanings set forth therein, unless the context requires otherwise.

 

E-1

 

       
       

       

 

IN WITNESS WHEREOF, Grantor has caused this Trademark Security Agreement to be duly executed as of ___________ ___, 200__.

	
             
 	
            GRANTOR:
 

BAKERS FOOTWEAR GROUP, INC.

	
             
 	
            By: ____________________________
 

	
             
 	
            Name: __________________________
 

	
             
 	
            Title: ___________________________
 

 

ACCEPTED BY SECURED PARTY:

 

PRIVATE EQUITY MANAGEMENT GROUP, INC.,

as Agent

 

	
             
 	
            By: ____________________________
 

	
             
 	
            Name: __________________________
 

	
             
 	
            Title: ___________________________
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

[Signature Page to the Trademark Security Agreement]

 

       
       

       

 

[Schedule A to the Trademark Security Agreement has been omitted.  The registrant undertakes to furnish supplementally a copy of such schedule upon request.]Exhibit 4.4

 

SUBORDINATION AGREEMENT

 

Preliminary Statement

This Subordination Agreement (this “Agreement”) is made as of February 1, 2008 by and among Bakers Footwear Group, Inc. (the “Company”), Private Equity Management Group, Inc., as agent for certain Lenders described below (the “Subordinated Creditor”) and Bank of America, N. A. (“Senior Lender”) (the Subordinated Creditor and the Senior Lender, collectively, the “Creditors”).  The Company and Senior Lender are parties to the Second Amended and Restated Loan and Security Agreement dated as of August 31, 2006 (as amended, restated, modified and/or supplemented from time to time, the “Loan Agreement”).  Capitalized terms used herein and not otherwise defined shall have the same meanings ascribed to them in the Loan Agreement.

Pursuant to the Loan Agreement, the Senior Lender has agreed, subject to the terms and conditions set forth therein, to make certain revolving credit loans, advances and other financial accommodations to or for the benefit of the Company (collectively, the “Loans”).  The Subordinated Creditor wishes to lend, and the Company wishes to borrow, $7,500,000.00 pursuant to the terms of that certain Second Lien Credit Agreement of even date herewith, by and among the Company, the Subordinated Creditor, as administrative agent, and the Lenders party thereto, a copy of which is attached hereto as Exhibit 1 (the “Subordinated Loan Agreement”);

The Company has requested that the Senior Lender consent to, and the Senior Lender has agreed to consent to, the borrowing by the Company under the Subordinated Loan Agreement contingent upon, among other things, the execution and delivery by Subordinated Creditor and the Company of this Agreement.

NOW THEREFORE, FOR VALUABLE CONSIDERATION, the receipt and sufficiency of which are hereby acknowledged, and in consideration of the willingness of the Senior Lender to consent to the borrowing by the Company under the Subordinated Loan Agreement, the Company and the Subordinated Creditor, jointly and severally, agree with the Senior Lender as follows:

1.         Subordination of Debt.   Subordinated Creditor hereby subordinates the Indebtedness of the Company evidenced by the Subordinated Loan Agreement (the “Subordinated Indebtedness”), to any and all Indebtedness now or hereafter owing by the Company to the Senior Lender, including, without limitation, the Liabilities under the Loan Agreement, whether direct or indirect, absolute or contingent, joint or several, due or not due, primary or secondary, liquidated or unliquidated, including principal, interest, charges, fees, costs, indemnities and reasonable expenses, however evidenced, and whether as principal, surety, endorser, guarantor or otherwise, whether now existing or hereafter arising, whether arising before, during
or after the initial or any renewal term of the Loan Agreement and whether arising before, during or after the commencement of any Insolvency Proceeding with respect to the Company (and including the payment of any principal, interest, fees, cost, expenses and other amounts (including default rate interest) which would accrue and become due but for the commencement of such Insolvency Proceeding whether or not such amounts are allowed or allowable in whole or in part in any such Insolvency Proceeding (collectively, the “Senior Indebtedness”) and agrees that the Subordinated Indebtedness shall be junior (x) in right of payment to the Senior Indebtedness in an aggregate amount 

 

-1-

 

 

equal to (i) the principal sum of $40,000,000 plus (ii) all interest, charges, fees, costs, indemnities and expenses (including amounts which would accrue and become due but for the commencement of such Insolvency Proceeding whether or not such amounts are allowed or allowable in whole or in part in any such Insolvency Proceeding) owed on account of the Senior Indebtedness and (y) in exercise of remedies to the Senior Indebtedness.

	
            2.
 	
            Encumbrances.  
 

	
             
  	
            (a)
 	
            Priorities of Encumbrances.  Each Creditor hereby acknowledges that the other has been granted Encumbrances upon the Collateral to secure the Senior Indebtedness and the Subordinated Indebtedness, respectively.  The priorities of the Encumbrances provided in this Section 2(a) shall not be altered or otherwise affected by any amendment, modification, supplement, extension, renewal, restatement, replacement or refinancing of any of the Senior Indebtedness or the Subordinated Indebtedness, nor by any action or inaction which any Creditor may take or fail to take in respect of the Collateral.  The Encumbrances of the Senior Lender on the Collateral are and shall be senior and prior in right to the Encumbrances of the Subordinated Creditor on the Collateral until
such time as the Senior Indebtedness has been Paid in Full, and such Encumbrances of the Subordinated Creditor on the Collateral are and shall be junior and subordinate to the Encumbrances of the Senior Lender until such time as the Senior Indebtedness has been Paid in Full.  As used herein, “Paid in Full” or “Payment in Full” shall mean, with respect to the Senior Indebtedness, that:  (a) all of such Senior Indebtedness (other than contingent indemnification obligations for which no underlying claim has been asserted) have been indefeasibly paid, performed or discharged in full in cash, (b) no Person has any further right to obtain any loans, letters of credit or other extensions of credit under the documents relating to such Senior Indebtedness and (c) any and all letters of credit or similar instruments issued under such documents have been expired or cancelled and
returned (or backed by stand-by letters of credit or cash collateralized) in accordance with the terms of such documents.
 

	
             
  	
            (b)
 	
            No Alteration of Priorities.  The priorities set forth in this Agreement are applicable irrespective of the order or time of attachment, or the order, time or manner of perfection, or the order or time of filing or recordation of any document or instrument, or other method of perfecting an Encumbrance in favor of either Creditor in any Collateral, and notwithstanding any conflicting terms or conditions which may be contained in any of the Loan Documents or the Subordinated Loan Agreement.
 

	
             
  	
            (c)
 	
            Perfection; Contesting Encumbrances.  Each Creditor shall be solely responsible for perfecting and maintaining the perfection of its Encumbrance upon the Collateral in which such Creditor has been granted an Encumbrance.  The foregoing provisions of this Agreement are intended solely to govern the respective Encumbrance priorities as among the Creditors and shall not impose on any Creditor any obligations in respect of the disposition of proceeds of any Collateral that would conflict with prior perfected claims therein in favor of any other Person or any order or decree of any court or governmental authority or any applicable law.  The Subordinated Creditor agrees that it will not institute or join in any contest of the validity, perfection, priority or enforceability of the Encumbrances of the Senior
Lender in the Collateral or the enforceability of the Senior 
 

 

-2-

 

 

Indebtedness.  The Senior Lender agrees that it will not institute or join in any contest of the validity, perfection, priority or enforceability of the Encumbrances of the Subordinated Creditor in the Collateral or the enforceability of the Subordinated Indebtedness.

	
             
  	
            (d)
 	
            Proceeds of Collateral.  Any and all amounts or Collateral or proceeds thereof received by the Subordinated Creditor including, without limitation, any such Collateral constituting proceeds, or any payment or distribution, that may be received by any Subordinated Creditor (a) in connection with the exercise of any Enforcement Action with respect to the Collateral, (b) in connection with any insurance policy claim or any condemnation award (or deed in lieu of condemnation), (c) from the collection or other disposition of, or realization on, the Collateral, whether or not pursuant to an Insolvency Proceeding (d) in any Insolvency Proceeding or (e) in violation of this Agreement, shall be segregated and held in trust and promptly paid over to the Senior Lender, in the same form as received, with any
necessary endorsements, and the Subordinated Creditor hereby authorizes the Senior Lender to make any such endorsements as agent for the Subordinated Credit (which authorization, being coupled with an interest, is irrevocable).  All Collateral and proceeds thereof received by the Senior Lender shall be applied to the Senior Indebtedness in accordance with the provisions of the Loan Agreement.
 

	
             
  	
            (e)
 	
            Release of Collateral Upon Release Event.  The Subordinated Creditor shall at any time in connection with any Release Event:  upon the request of the Senior Lender with respect to the Collateral subject to such Release Event, (a) release or otherwise terminate its Encumbrances on such Collateral, (b) promptly deliver such terminations of financing statements, partial lien releases, mortgage satisfactions and discharges, endorsements, assignments or other instruments of transfer, termination or release (collectively, “Release Documents”) and take such further actions as the Senior Lender shall reasonably require in order to release and/or terminate such Subordinated Creditor’s Encumbrances on the Collateral subject to such Release
Event, and (c) be deemed to have consented under the Subordinated Loan Agreement to such Release Event free and clear of the Subordinated Creditor’s security interest (it being understood that the Subordinated Creditor shall still, subject to the terms of this Agreement, have a security interest with respect to the proceeds of such Collateral) and to have waived the provisions of the Subordinated Loan Agreement to the extent necessary to permit such transaction; provided that the Senior Lender shall promptly apply such proceeds from such Release Event to the Senior Indebtedness in accordance with the provisions of the Loan Agreement.  As used herein, the term “Release Event” means (a) any disposition of Collateral permitted under the Loan Agreement, (b) any other disposition of Collateral of the Company permitted by the Senior Lender, (c) the taking of any Enforcement
Action by the Senior Lender against all or any portion of the Collateral (including a disposition conducted by the Company with the consent of the Senior Lender) or (d) after the occurrence and during the continuance of an Insolvency Proceeding by or against the Company, the entry of an order of the Bankruptcy Court pursuant to Section 363 of the Bankruptcy Code authorizing the sale of all or any portion of the Collateral.
 

	
             
  	
            (f)
 	
            Power of Attorney.  The Subordinated Creditor hereby irrevocably constitutes and appoints the Senior Lender and any officer of the Senior Lender, with full power of 
 

 

-3-

 

 

substitution, as its true and lawful attorney-in-fact with full irrevocable power and authority in the place and stead of the Subordinated Creditor and in the name of the Subordinated Creditor or in the Senior Lender’s own name, from time to time in the Senior Lender’s discretion, for the purpose of carrying out the terms of Section 2(e) hereof (such appointment to become effective five (5) Business Days following the Senior Lender’s request to the Subordinated Creditor to take action with respect to a Release Event as set forth in Section 2(e) hereof and the Subordinated Creditor’s failure to take such action), to take any and all appropriate action and to execute any and all documents and instruments which may be necessary or desirable to accomplish the purposes of such Section,
including any Release Documents, and, in addition, to take any and all other appropriate and commercially reasonable action for the purpose of carrying out the terms of such Section, such power of attorney being coupled with an interest and irrevocable.  The Subordinated Creditor hereby ratifies all that said attorneys shall lawfully do or cause to be done pursuant to the power of attorney granted in this Section 2(f).  No Person to whom this power of attorney is presented, as authority for the Senior Lender to take any action or actions contemplated hereby, shall be required to inquire into or seek confirmation from Subordinated Creditor as to the authority of the Senior Lender to take any action described herein, or as to the existence of or fulfillment of any condition to this power of attorney, which is intended to grant to the Senior Lender the authority to take and perform the actions contemplated herein.  Subordinated Creditor
irrevocably waives any right to commence any suit or action, in law or equity, against any Person which acts in reliance upon or acknowledges the authority granted under this power of attorney.

	
             
  	
            (g)
 	
            New Encumbrances.   So long as the Senior Indebtedness has not been Paid in Full, the Subordinated Creditor agrees that no additional Encumbrances shall be granted or permitted on any asset of the Company to secure any Subordinated Indebtedness unless, subject to the terms of this Agreement, immediately after giving effect to such grant or concurrently therewith, a senior and prior Encumbrance shall be granted on such asset to secure the Senior Indebtedness (unless and to the extent the grant of such Encumbrance is otherwise waived in writing by the Senior Lender).  To the extent that the foregoing provisions are not complied with for any reason, without limiting any other rights and remedies available to the Senior Lender, the Subordinated Creditor agrees that any amounts received by or distributed to
it pursuant to or as a result of Encumbrances granted in contravention of this Section 2(g) shall be subject to the terms of this Agreement.
 

As used in this Section 2 and elsewhere in this Agreement, the term “Enforcement Action” shall mean (a) the acceleration of all or any portion of the Senior Indebtedness or Subordinated Indebtedness, as applicable; (b) the commencement of or joinder in any involuntary proceeding against the Company or any of its Subsidiaries under any bankruptcy, reorganization, readjustment of debt, arrangement of debt, receivership, liquidation or insolvency law or statute of any federal or state government; (c) the commencement of any action or proceeding against the Company or any of its Subsidiaries to enforce payment of all or any part of the Senior Indebtedness or Subordinated Indebtedness, as applicable or the taking of any other actions against the Company or its Subsidiaries permitted under the
Loan Documents or the Subordinated Loan Agreement, as applicable, and/or under applicable law, and/or the reduction of such claims to a judgment against the Company, (d) any 

 

-4-

 

 

action by any Creditor to foreclose on the Encumbrance of such Person in any Collateral, (e) any action by any Creditor to take possession of, or sell or otherwise realize upon, or to exercise any other rights or remedies with respect to, any Collateral, including any disposition after the occurrence of a default of any Collateral by the Company with the consent of, or at the direction of, such Creditor, or (f) the taking of any other actions by a Creditor against any Collateral, including (other than for purposes of perfection) the taking of control or possession of, or the exercise of any right of setoff with respect to, any Collateral.

	
            3.
 	
            Payments.
 

	
             
  	
            (a)
 	
            Subject to Section 3(b) below, until such time as the Senior Indebtedness is Paid in Full, the Subordinated Creditor shall be entitled to receive and retain only (i) those regularly scheduled payments (without acceleration) of principal and interest on the Subordinated Indebtedness (the “Scheduled Subordinated Indebtedness Payments”), to the extent and in the manner set forth in the Subordinated Loan Agreement as in effect on the date hereof, and (ii) so long as the Payment Conditions are satisfied, prepayments of the Subordinated Indebtedness.
 

	
             
  	
            (b)
 	
            Notwithstanding the provisions of Section 3(a) above, the Company and the Subordinated Creditor covenant to and agree with the Senior Lender that upon the occurrence of a default or Event of Default under the Loan Agreement (collectively, a “Default”), and so long as, in the case of a default, such default remains uncured, and in the case of an Event of Default, such Event of Default has not been waived by the Senior Lender, the Subordinated Creditor’s right to receive and retain the Scheduled Subordinated Indebtedness Payments and any prepayments (and any other payments) under the Subordinated Loan Agreement shall immediately cease.  Subject to Section 3(c) below, the Subordinated Creditor agrees not to demand, accept or
receive any payment or prepayment in respect of the Subordinated Indebtedness after the occurrence of a Default which remains uncured or which the Senior Lender has not waived, as applicable, including, without limitation, any payment received through the exercise of any right of setoff, counterclaim, cross-claim or otherwise, or any collateral therefor, provided that Subordinated Creditor may exercise those remedies set forth in Section 11 below.  Without limiting the foregoing, the Company agrees that, subject to Section 3(c) below, no amount shall be paid in respect of the Subordinated Indebtedness, whether in cash, property, securities or otherwise, by the Company to the Subordinated Creditor after the occurrence of a Default which remains uncured or which the Senior Lender has not waived, as applicable, without the prior written consent of the Senior Lender.
 

	
             
  	
            (c)
 	
            Notwithstanding the foregoing provisions of Section 3(b), the Company may resume and the Subordinated Creditor may accept Scheduled Subordinated Indebtedness Payments (including any Scheduled Subordinated Indebtedness Payments which accrue during any such time when the payment of such Scheduled Subordinated Indebtedness Payments is prohibited pursuant to Section 3(b) above) and prepayments of the Subordinated Indebtedness, provided that the Company may only make and the Subordinated Creditor may only accept any payments which accrue during any such time when the payment of such Scheduled Subordinated Indebtedness Payments is prohibited pursuant to Section 3(b) above if the Payment Conditions are met.  No Default shall be deemed to have been 
 

 

-5-

 

 

cured or waived for purposes of this Section 3(c) unless and until the Company and the Subordinated Creditor shall have received a written waiver or notice of cure thereof from the Senior Lender.  The Company and/or the Senior Lender shall give the Subordinated Creditor prompt notice of the occurrence of any Default and of any cure, waiver or other termination thereof as provided in Section 16(a) hereof.

	
             
  	
            (d)
 	
            In the event that notwithstanding the provisions of the Loan Agreement and this Agreement, the Company shall make any payment to Subordinated Creditor on account of the Subordinated Indebtedness not expressly authorized hereby, such payment shall be held in trust by Subordinated Creditor, for the benefit of the Senior Lender, and shall be paid over immediately (without necessity of demand) to the Senior Lender for application in accordance with the Loan Agreement to the payment of all Senior Indebtedness remaining due and payable until the same shall have been Paid in Full, after giving effect to any concurrent payment or distribution to the holders of such Senior Indebtedness.  In the event of the failure of Subordinated Creditor to endorse any instrument for the payment of money so received by Subordinated Creditor on account of
the Subordinated Indebtedness, the Senior Lender is irrevocably appointed attorney-in-fact for Subordinated Creditor with full power to make such endorsement and with full power of substitution.
 

	
             
  	
            (e)
 	
            For the purposes of this Section 3, “Payment Conditions” shall mean (a) (i) no Default exists or would arise from the making of such payment or prepayment, and (ii) after giving effect to such payment or prepayment, Availability on a pro forma basis for the 12 months following such payments is equal to or greater than $3,500,000, or (b) the Senior Debt has been Paid in Full
 

	
            4.
 	
            Enforcement of Security.
 

	
             
  	
            (a)
 	
            Management of Collateral.  Subject to the other terms and conditions of this Agreement, the Senior Lender shall have the exclusive right to manage, perform and enforce the terms of the Loan Documents with respect to the Collateral, to exercise and enforce all privileges and rights thereunder according to its sole discretion and the exercise of its sole business judgment, including the exclusive right to take or retake control or possession of the Collateral and to hold, prepare for sale, process, dispose of, or liquidate the Collateral and to incur expenses in connection with such disposition and to exercise all the rights and remedies of a secured lender under the Uniform Commercial Code of any applicable jurisdiction (the “UCC”).  In
conducting any public or private sale under the UCC, the Senior Lender shall give the Subordinated Creditor such notice (a “UCC Notice”) of such sale as may be required by the applicable UCC; provided, however, that ten (10) days’ notice shall be deemed to be commercially reasonable notice.  Except as specifically provided in Section 11 below, notwithstanding any rights or remedies available to Subordinated Creditor under the Subordinated Loan Agreement, applicable law or otherwise, Subordinated Creditor shall not, directly or indirectly, take any Enforcement Action.
 

	
             
  	
            (b)
 	
            Collateral In Possession.
 

 

-6-

 

 

	
             
  	
            (i)
 	
            In the event that the Senior Lender takes possession of or has “control” (as such term is used in the UCC as in effect in each applicable jurisdiction) over any Collateral for purposes of perfecting its Encumbrance therein, the Senior Lender shall be deemed to be holding such Collateral as representative for the Creditors, including the Subordinated Creditor, solely for purposes of perfection of its Encumbrance under the UCC; provided that the Senior Lender shall not have any duty or liability to protect or preserve any rights pertaining to any of the Collateral for the Subordinated Creditor.  Promptly following the date on which the Senior Indebtedness is Paid in Full, the Senior Lender shall, upon the request of the Subordinated Creditor, deliver the remainder of the
Collateral, if any, in its possession to the designee of the Subordinated Creditor (except as may otherwise be required by applicable law or court order).
 

	
             
  	
            (ii)
 	
            In the event that the Subordinated Creditor takes possession of or has “control” (as such term is used in the UCC as in effect in each applicable jurisdiction) over any Collateral for purposes of perfecting its Encumbrance therein, Subordinated Creditor shall be deemed to be holding such Collateral as representative for the Creditors, including the Senior Lender, solely for purposes of perfection of its Encumbrance under the UCC; provided that Subordinated Creditor shall not have any duty or liability to protect or preserve any rights pertaining to any of the Collateral for the Senior Lender.  The Subordinated Creditor shall, upon the request of the Senior Lender, promptly deliver any Collateral in its possession to the designee of the Senior Lender (except as may otherwise
be required by applicable law or court order).
 

	
             
  	
            (iii)
 	
            In connection with this Agreement, the Senior Lender shall use commercially reasonable efforts to cause Bank of America, N.A., in its capacity as a depository bank where accounts of the Company are located (in such capacity, the “Bank”), to enter into a deposit account control agreement with the Senior Lender and the Subordinated Creditor, which agreement shall be subject to the terms and provisions hereof and shall provide that upon the Payment in Full of the Senior Indebtedness, the Bank shall thereafter follow the instructions of the Subordinated Creditor with respect to the Collateral consisting of deposit accounts and proceeds thereof in the possession of the Bank.
 

	
             
  	
            (iv)
 	
            It is understood and agreed that this Section 4 is intended solely to assure continuous perfection of the Encumbrances granted under the applicable Loan Documents and Subordinated Loan Agreement, and nothing in this Section 4 shall be deemed or construed as altering the priorities or obligations set forth elsewhere in this Agreement.  The duties of each party under this Section 4 shall be mechanical and administrative in nature, and no party shall have, or be deemed to have, by reason of this Agreement or otherwise a fiduciary relationship in respect of the other party.
 

	
             
  	
            (c)
 	
            Insurance and Condemnation Awards.  So long as the Senior Indebtedness has not been Paid in Full, the Senior Lender shall have the exclusive right to settle and adjust claims in respect of Collateral under policies of insurance and to approve any award granted in any 
 

 

-7-

 

 

condemnation or similar proceeding, or any deed in lieu of condemnation, in respect of the Collateral.  Subject to the terms of the Subordinated Loan Agreement, after the Senior Indebtedness has been Paid in Full, the Subordinated Creditor shall have the exclusive right to settle and adjust claims in respect of Collateral under policies of insurance and to approve any award granted in condemnation or similar proceeding, or any deed in lieu of condemnation, in respect of the Collateral.

	
            5.
 	
            Bankruptcy, Insolvency, etc.
 

	
             
  	
            (a)
 	
            In the event of an insolvency, bankruptcy, receivership, liquidation, reorganization or other similar proceedings relative to the Company or to its assets, or in the event of any proceedings for voluntary liquidation, dissolution or other winding up of the Company, whether or not involving insolvency or bankruptcy (any such proceeding referenced above being referred to herein as an “Insolvency Proceeding”), so long as any Senior Indebtedness is outstanding and has not been Paid in Full, the Senior Lender shall be entitled in any such Insolvency Proceedings to receive Payment in Full in cash of all Senior Indebtedness before the Subordinated Creditor is entitled in such Insolvency Proceedings to receive any payment on account of the Subordinated Indebtedness, other than any
payment consisting solely of any securities of the Company issued in connection with an Insolvency Proceeding, the payment of which securities is junior or otherwise subordinated, at least to the same extent provided in this Agreement, to the payment of any and all of the Senior Indebtedness (collectively, “Subordinated Securities”), and to that end in any such Insolvency Proceedings, so long as any Senior Indebtedness remains outstanding, any payment or distribution of any kind or character, whether in cash or in other property (other than Subordinated Securities), to which Subordinated Creditor would be entitled on account of the Subordinated Indebtedness but for the provisions hereof, shall be delivered to the Senior Lender to the extent necessary to make payment in full in cash of all Senior Indebtedness remaining unpaid, after giving effect to any concurrent payment or distribution to the holders of Senior
Indebtedness.
 

	
             
  	
            (b)
 	
            Upon the commencement of an Insolvency Proceeding, the Subordinated Creditor shall be deemed, as security for the Senior Indebtedness and in order to effectuate the subordination set forth above, to have assigned the Subordinated Indebtedness to the Senior Lender and granted to the Senior Lender as of the date of the commencement of such Insolvency Proceeding the right to collect all payments and distributions of any kind and description (other than Subordinated Securities), whether in cash or other property, paid or payable in respect of any claims or demands of the Subordinated Creditor against the Company arising from the Subordinated Indebtedness.  Upon the commencement of an Insolvency Proceeding, Subordinated Creditor shall also be deemed to have granted to the Senior Lender the full right (but not the obligation), in its
own name or in its name as attorney in fact for the Subordinated Creditor, to collect and enforce claims and demands of such Subordinated Creditor arising from the Subordinated Indebtedness by suit, proof of claim in bankruptcy or other liquidation, reorganization or Insolvency Proceedings or otherwise.  The Subordinated Creditor by its execution of this Agreement also hereby grants to the Senior Lender the exclusive right to vote any and all claims of Subordinated Creditor in any Insolvency Proceedings involving the Company with respect to the election of a trustee or similar official.  The Subordinated Creditor shall be entitled to (i) 
 

 

-8-

 

 

vote any and all claims of the Subordinated Creditor in any such Insolvency Proceeding with respect to any proposed plan of reorganization of the Company, and (ii) object to any proposed plan of reorganization of the Company to which the Subordinated Creditor would have the right to object in any Insolvency Proceeding; provided that, in each case, the Subordinated Creditor will not be entitled to exercise any such right if the result thereof could reasonably be expected to materially and adversely affect the rights and remedies of any of the Senior Lender under this Agreement, the Loan Agreement or any other Loan Document or the ability of the Senior Lender to exercise the same.

	
            6.
 	
            Subordinated Creditor Purchase Option.
 

	
             
  	
            (a)
 	
            Purchase Notice.  Upon the earlier of: (a) the taking of any Enforcement Action (as defined in Section 2 hereof) by the Senior Lender (other than the exercise of control over the Company’s deposit or securities accounts or notification to any account debtor of the Company to direct funds in any manner), but prior to delivery to the Subordinated Creditor of written notice of the rescission or annulment of any Enforcement Action, (b) the commencement of an Insolvency Proceeding or (c) the occurrence of an Event of Default pursuant to either Section 10.10 (Business Failure) or Section 10.13 (Indictment - Forfeiture) of the Loan Agreement (each, a “Purchase Event”), within ten (10) Business Days of
the occurrence of the first such Purchase Event, the Subordinated Creditor shall have the option, but not the obligation, to purchase from the Senior Lender all, but not less than all, of the Senior Indebtedness owing to the Senior Lender and assume all, but not less than all, of the then existing funding commitments under the Loan Documents by delivery of written notice (the “Purchase Notice”) from the Subordinated Creditor to the Senior Lender no later than ten (10) Business Days after the occurrence of such Purchase Event.  A Purchase Notice, once delivered, shall be irrevocable.  In the event the Subordinated Creditor fails to deliver a Purchase Notice within ten (10) Business Days after the first occurrence of any Purchase Event, the Senior Lender shall have no further obligations under this Section 6 with respect to such or any
other Purchase Event and may take any further actions in its discretion in accordance with the Loan Documents and this Agreement.
 

	
             
  	
            (b)
 	
            Purchase Option Closing.  On the date specified by the Subordinated Creditor in the Purchase Notice (which shall not be less than three (3) Business Days nor more than five (5) Business Days, after the receipt by the Senior Lender of the Purchase Notice), the Senior Lender shall sell to the Subordinated Creditor, and the Subordinated Creditor shall purchase from the Senior Lender, all, but not less than all, of the Senior Indebtedness, and the Senior Lender shall assign to the Subordinated Creditor, and the Subordinated Creditor shall assume from the Senior Lender all, but not less than all, of the then existing funding commitments under the Loan Documents.
 

	
             
  	
            (c)
 	
            Purchase Price.  Such purchase and sale shall be made by execution and delivery by the Creditors of an assignment agreement in form and substance satisfactory to the Senior Lender.  Upon the date of such purchase and sale, the Subordinated Creditor shall (a) pay to the Senior Lender as the purchase price therefor the full amount of all the Senior Indebtedness then outstanding and unpaid (including principal, interest (including default rate interest), fees, costs, and expenses, including reasonable attorneys’ fees and legal 
 

 

-9-

 

 

expenses, and cash collateral for indemnities), (b) (i) furnish cash collateral to the Senior Lender with respect to all outstanding L/C’s, in an amount equal to 105% of the aggregate Stated Amounts of such L/C’s or (ii) provide one or more back to back letters of credit in an aggregate amount equal to 105% of the aggregate Stated Amount of the L/C’s, and (c) agree to reimburse the Senior Lender for any loss, cost, damage or expense (including reasonable attorneys’ fees and legal expenses) in connection with any checks or other payments provisionally credited to the Senior Indebtedness, and/or as to which the Senior Lender has not yet received final payment.  Such purchase price and cash collateral shall be remitted by wire transfer of immediately available funds to such bank account of the Senior Lender as the
Senior Lender may designate in writing to the Subordinated Creditor for such purpose.  Interest shall be calculated to but excluding the Business Day on which such purchase and sale shall occur if the amounts so paid by the Subordinated Creditor to the bank account designated by the Senior Lender are received in such bank account prior to 1:00 p.m., Eastern time and interest shall be calculated to and including such Business Day if the amounts so paid by the Subordinated Creditor to the bank account designated by the Senior Lender are received in such bank account later than 1:00 p.m., Eastern time.

	
             
  	
            (d)
 	
            Nature of Sale.  Such purchase and sale shall be expressly made without representation or warranty of any kind by the Senior Lender as to the Senior Indebtedness or otherwise and without recourse to the Senior Lender, except for representations and warranties as to the following:  (a) that the Senior Lender owns the Senior Indebtedness free and clear of any Encumbrances and (b) the Senior Lender has the full right and power to assign the Senior Indebtedness and such assignment has been duly authorized by all necessary corporate action by the Senior Lender.
 

7.         Obligations Absolute.  The provisions of this Agreement are for the purpose of defining the relative rights of the Senior Lender on the one hand and the Subordinated Creditor on the other hand with respect to the enforcement of rights and remedies and priority of payment of the Senior Indebtedness and the Subordinated Indebtedness.  Nothing herein shall impair, as between the Company and the Subordinated Creditor, the obligations of the Company, which are unconditional and absolute, to pay to the holder thereof the principal and interest thereon and any other liabilities encompassed in the Subordinated Indebtedness, all in accordance with their respective terms, subject to the prior payment in full in cash of the Senior Indebtedness.

8.         Subordination Not Affected.  Without the necessity of any reservation of rights against or any notice to or further assent by Subordinated Creditor, (i) any demand for payment of any Senior Indebtedness made by the Senior Lender may be rescinded in whole or in part by the Senior Lender, (ii) the Senior Lender may exercise or refrain from exercising any rights and/or remedies against the Company and others, if any, liable under the Senior Indebtedness, and (iii) the Senior Indebtedness and any agreement or instrument evidencing, securing, or otherwise relating to the Senior Indebtedness (including without limitation, the Loan Agreement and the other Loan Documents), or any collateral security therefor or guaranty thereof or other right of any nature with respect thereto, may
be amended, extended, modified, continued, accelerated, compromised, waived, surrendered or released by the Senior Lender, in any manner the Senior Lender deems in its best interests, all without impairing, abridging, releasing or affecting in any manner the subordination of the Subordinated Indebtedness to the Senior Indebtedness provided for herein.  Without limiting the foregoing, the Subordinated Creditor waives any 

 

-10-

 

 

and all notice of the creation, amendment, restatement, extension, acceleration, compromise, continuation, waiver, surrender, release or modification of any nature of the Senior Indebtedness, the Loan Agreement or the other Loan Documents, and notice of or proof of reliance by the Senior Lender upon the subordination provided for herein.  The Senior Indebtedness shall conclusively be deemed to have been created, contracted and incurred in reliance upon the provisions of this Agreement.

9.         Warranties, Representations, Covenants and Acknowledgments of the Subordinated Creditor.

	
             
  	
            (a)
 	
            Subordinated Creditor represents to the Senior Lender that all Indebtedness of the Company to the Subordinated Creditor is evidenced by the Subordinated Loan Agreement.  Subordinated Creditor further represents that said Indebtedness has not heretofore been assigned, pledged to, or subordinated in favor of, any other Person.
 

	
             
  	
            (b)
 	
            Subordinated Creditor hereby covenants and agrees that it will not amend or permit amendment of the terms of its Subordinated Debenture or any other agreement, document or instrument hereafter evidencing any Subordinated Indebtedness, without the prior written consent of the Senior Lender, if such amendment would: (i) increase the principal amount of the Subordinated Indebtedness; (ii) increase the rate of interest accruing on the Subordinated Indebtedness; (iii) accelerate in any manner the dates upon which any principal or interest payment on the Subordinated Indebtedness is due (other than with respect to the forgiveness of any of the Subordinated Indebtedness); (iv) take any additional collateral for the Subordinated Indebtedness; (v) add or change in a manner adverse to the Company or the Senior Lender any covenant, agreement
or event of default under the Subordinated Loan Agreement; or (vi) except as set forth in the Subordinated Loan Agreement (as in effect on the date hereof) and the documents executed in connection therewith, give to the Subordinated Creditor the right to purchase, or to cause the Company to issue, equity interests in the Company.  Notwithstanding anything to the contrary contained herein, Subordinated Creditor shall, at any time without the prior written consent of or notice to the Senior Lender, be entitled to convert Subordinated Indebtedness into equity of the Borrower as provided in the Subordinated Loan Documents and the documents executed in connection therewith, or to forgive part or all of the Subordinated Indebtedness.
 

	
             
  	
            (c)
 	
            The execution, delivery and performance of this Agreement has been duly authorized by all necessary corporate, partnership or other action on the part of the Subordinated Creditor, and this Agreement constitutes a valid and binding obligation of the Subordinated Creditor, enforceable against it in accordance with its terms.
 

	
             
  	
            (d)
 	
            Subordinated Creditor covenants and agrees that it will not assign, pledge, sell, transfer or otherwise dispose of any of the Subordinated Indebtedness or interests therein, whether through assignment or participation or otherwise, except to a Person who first becomes a party hereto and accepts without qualification all obligations of the Subordinated Creditor hereunder.
 

 

-11-

 

 

	
             
  	
            (e)
 	
            Subordinated Creditor acknowledges and agrees that this Agreement is a “subordination agreement” within the meaning of Section 510(a) of the United States Bankruptcy Code, 11 U.S.C. §510(a).
 

10.       Validity and Enforceability of Encumbrances Securing Senior Indebtedness; Cooperation with Senior Lender.

	
             
  	
            (a)
 	
            Without limiting the provisions of Section 2 hereof, (i) the Subordinated Creditor will not in any Insolvency Proceeding or other event described in Section 5 or otherwise, challenge, oppose or contest (or join in any challenge, opposition or contest by any third party, or encourage any third party to challenge, oppose or contest) the Senior Indebtedness or the perfection, superiority, priority, validity or enforceability of any security interest or lien granted to the Senior Lender pursuant to the Loan Agreement, the Security Documents or other Loan Documents, nor will Subordinated Creditor challenge the validity or enforceability of such Loan Agreement, Security Documents or other Loan Documents, or any provision thereof, and (ii) the
Senior Lender will not in any Insolvency Proceeding or other event described in Section 5 or otherwise, challenge, oppose or contest (or join in any challenge, opposition or contest by any third party, or encourage any third party to challenge, oppose or contest) the Subordinated Indebtedness or the perfection, superiority, priority, validity or enforceability of any security interest or lien granted to the Subordinated Creditor pursuant to the Subordinated Loan Agreement, or any documents executed in connection therewith, nor will Senior Lender challenge the validity or enforceability of such Subordinated Loan Agreement, or any documents executed in connection therewith, or any provision thereof.  Each party hereby acknowledges that the provisions of this Agreement are intended to be enforceable at all times, whether before or after any Insolvency Proceeding or other event described in Section 5 of this Agreement.  The Subordinated Creditor hereby waives any right to require the Senior Lender to marshal the Collateral.
 

	
             
  	
            (b)
 	
            Without limiting the foregoing, Subordinated Creditor will not challenge or oppose (or join with any party challenging or opposing) or take any action whatsoever to impair the exercise by the Senior Lender of the rights and remedies granted to the Senior Lender in the Loan Documents; provided, however, that the Subordinated Creditor shall have the right, but not the obligation, to cure a Default under the Senior Indebtedness at any time during the period provided for the Company to cure such Default under the Loan Documents; provided further, however, that the failure by the Senior Lender to give the Subordinated Creditor notice of such Default as provided in Section 16(a) hereof shall not affect or limit the Senior Lender’s rights
hereunder or under the Loan Agreement.  In the event that such Default shall be so cured, the rights of the Senior Lender in respect of such Default shall cease until the occurrence of any other Default.
 

	
            11.
 	
            Limitations on Remedies.  
 

	
             
  	
            (a)
 	
            Upon the occurrence of  any default or event of default (a “Subordinated Default”) in respect of the Subordinated Indebtedness, Subordinated Creditor shall not exercise any Enforcement Action for a period (the “Standstill Period”), commencing on the date of receipt by the Senior Lender from the Subordinated Creditor of written notice (a “Default 
 

 

-12-

 

 

Notice”) of such Subordinated Default and ending on the earlier to occur of (i) 120 days after receipt by Senior Lender of such Default Notice and (ii) an Insolvency Proceeding; provided that in the event that as of any day during such 120 day period the Subordinated Default that was the subject of the Default Notice shall no longer be continuing, then the Standstill Period shall be deemed not to have commenced, and provided further that such 120 day period shall be tolled (x) for any period during which the Senior Lender or the Subordinated Creditor are stayed by an Insolvency Proceeding or an order issued by a court of competent jurisdiction from taking any Enforcement Action and (y) for any period during which the
Subordinated Creditor has otherwise agreed to forbear from exercising its rights with respect to such Subordinated Default.  

	
             
  	
            (b)
 	
            Notwithstanding the provisions of Section 11(a) above:
 

	
             
  	
            (i)
 	
            During any Standstill Period, the Subordinated Creditor shall accept any cure of the applicable Subordinated Default(s) proffered by Senior Lender which restores the Subordinated Creditor to the position it would have been but for such default or event of default; and
 

	
             
  	
            (ii)
 	
            If the applicable Subordinated Default has occurred under the Subordinated Indebtedness solely as a result of a cross-default to the Senior Indebtedness, then:
 

	
             
  	
            (A)
 	
            If Senior Lender shall waive such default under the Senior Indebtedness, or amend the Senior Indebtedness with the effect that such default no longer exists, such waiver or amendment shall be deemed effective under the Subordinated Indebtedness as well and the applicable Subordinated Default shall be deemed to no longer exist;
 

	
             
  	
            (B)
 	
            Notwithstanding the expiration of the applicable Standstill Period, the Subordinated Creditor shall not be permitted to take any Enforcement Action with respect to the Subordinated Indebtedness if the Senior Indebtedness has been accelerated; and
 

	
             
  	
            (C)
 	
            Notwithstanding the expiration of the Standstill Period, in no event shall the Subordinated Creditor exercise or continue to exercise any such Enforcement Action if the Senior Lender shall have commenced an Enforcement Action, including, without limitation, any of the following: the solicitation of bids from third parties to conduct the liquidation of all or any portion of the Collateral, the engagement or retention of sales brokers, marketing agents, investment bankers, accountants, auctioneers or other third parties for the purpose of valuing, marketing, promoting or selling all or any portion of the Collateral, the notification of account debtors to make payments to the Senior Lender or its agents, the initiation of any action to take possession of all or any portion of the Collateral or the commencement of any legal
proceedings or actions against or with respect to the foreclosure and sale of all or any portion of the Collateral), or diligently attempting in good faith to vacate any stay 
 

 

-13-

 

 

prohibiting an Enforcement Action with respect to all or any portion of the Collateral.

	
             
  	
            (c)
 	
            Nothing contained in this Section 9 shall limit or impair the obligations and agreements of the Subordinated Creditors set forth in any other Section of this Agreement.
 

12.       Assignments and Appointments.  The Subordinated Creditor, for itself and its successors and assigns, hereby irrevocably authorizes and directs the Senior Lender, and any trustee or debtor in possession in bankruptcy, receiver, custodian or assignee for the benefit of creditors of the Company, whether in voluntary or involuntary liquidation, dissolution or reorganization, on his or its behalf, to take such action as may be necessary or appropriate to effectuate the subordination provided for in this Agreement and irrevocably appoints the Senior Lender and any such trustee, receiver, custodian or assignee, attorney-in-fact for such purpose with full powers of substitution and revocation.

13.       No Impairment.  No right of the Senior Lender to enforce subordination as herein provided shall at any time or in any way be affected or impaired by any failure to act on the part of the Company, or by any non-compliance by the Company with any of the terms, provisions and covenants of the agreement, documents and instruments evidencing the Subordinated Indebtedness, regardless of any knowledge thereof that the Senior Lender may have or be otherwise charged with, or by any action which the Senior Lender may take or refrain from taking with respect to the Senior Indebtedness or the Subordinated Indebtedness.

14.       Further Assurances.  In order to carry out the terms and intent of this Subordination Agreement more effectively, each Creditor will take all actions and execute all further documents and instruments reasonably necessary or convenient to preserve for the other party the benefits of this Agreement.

15.       Waivers, etc.  No action which the Senior Lender, or the Company with the consent of the Senior Lender, may take or refrain from taking with respect to any Senior Indebtedness, or any promissory note or notes representing the same, or any collateral therefor, including any waiver or release thereof (or any waiver of any provision thereof or default of any agreement or agreements (including guaranties) in connection therewith, shall affect this Agreement or the rights of the Senior Lender or the obligations of the Subordinated Creditor hereunder.  No waiver shall be deemed to be made by the Senior Lender of any of its rights hereunder unless the same shall be in writing and then only with respect to the specific instance involved, and shall in no way impair or offset the rights of the
Senior Lender or the obligations of the Subordinated Creditor in any other respect or at any other time.

	
            16.
 	
            Notices.
 

	
             
  	
            (a)
 	
            By the Senior Lender to the Subordinated Creditor. The Senior Lender shall provide the Subordinated Creditor with notice of any Default simultaneously with giving notice to the Company, provided that any failure by the Senior Lender to give such notice shall not affect or limit the Senior Lender’s rights hereunder.
 

	
             
  	
            (b)
 	
            By the Subordinated Creditor to the Senior Lender.  The Subordinated Creditor shall provide the Senior Lender with notice of any Subordinated Default relating to any Subordinated Indebtedness simultaneously with giving notice to the Company.
 

 

-14-

 

 

	
             
  	
            (c)
 	
            By the Company to the Senior Lender.  The Company shall provide the Senior Lender with copies of all notices of any Subordinated Default received by it from the Subordinated Creditor immediately upon its receipt thereof.
 

	
             
  	
            (d)
 	
            By the Company to the Subordinated Creditor.  The Company shall provide the Subordinated Creditor with copies of all notices of any Default given by it to the Senior Lender or received by it from the Senior Lender immediately upon its delivery or receipt thereof.
 

	
             
  	
            (e)
 	
            Method.  Except as otherwise provided herein, all demands or notices hereunder shall be in writing and shall be deemed to have been sufficiently given or served for all purposes hereof if personally delivered or mailed or transmitted by telecopy if the sender on the same day sends a confirming copy of such communication by a recognized overnight delivery services (charges prepaid), recognized overnight delivery services (charges prepaid) or first class mail, postage prepaid, to them at their respective addresses as set forth on the signature pages hereto and incorporated herein by reference, or at such other address as the party to whom such notice is directed may have designated in writing to the other party hereto. A notice shall be deemed to have been given upon the earlier to occur of (i) three (3)
days after the date on which it is deposited in the U.S. mails or (ii) receipt by the party to whom such notice is directed.
 

17.       Miscellaneous.  This Agreement shall be binding upon and shall inure to the benefit of the Creditors and their respective heirs, legal representatives, successors and assigns (including without limitation any transferee or refinancing lender of any Senior Indebtedness).  The Senior Lender may assign this Agreement or its rights thereunder without the consent of the Subordinated Creditor or the Company.  This Agreement may be executed in any number of counterparts and by the different parties hereto on separate counterparts, each of which when so executed and delivered shall be an original, but all of the counterparts shall together constitute and the same instrument.

18.       Governing Law, Jurisdiction, Waiver of Jury Trial. This Agreement, including the validity hereof and the rights and obligations of the parties hereunder, shall be construed in accordance with and governed by the internal laws of the Commonwealth of Massachusetts (without regard to conflicts of law principles).  The Subordinated Creditor, to the extent that the Subordinated Creditor may lawfully do so, hereby consents to service of process, and to be sued, in the Commonwealth of Massachusetts and consents to the jurisdiction of the courts of the Commonwealth of Massachusetts and the United States District Court for the District of Massachusetts, as well as to the jurisdiction of all courts to which an appeal may be taken from such courts, for the purpose of any suit, action or other
proceeding arising out of any of the Subordinated Creditor’s obligations hereunder or with respect to the transactions contemplated hereby, and expressly waives any and all objections as to venue in any such courts.  The Subordinated Creditor further agrees that a summons and complaint commencing an action or proceeding in any of such courts shall be properly served and confer personal jurisdiction if served personally or by certified mail at the address set forth below under the signature of the Subordinated Creditor or as otherwise provided under the laws of the Commonwealth of Massachusetts. EACH OF THE COMPANY AND THE SUBORDINATED CREDITOR IRREVOCABLY WAIVES ALL RIGHT TO A TRIAL BY JURY IN ANY SUIT, ACTION, OR OTHER PROCEEDING HEREAFTER INSTITUTED BY OR AGAINST IT IN RESPECT OF ITS OBLIGATIONS HEREUNDER OR THE TRANSACTIONS CONTEMPLATED HEREBY.

 

-15-

 

 

19.       Acknowledgment by Company. The Company covenants and agrees not to make any distribution or payment to any Subordinated Creditor in violation of the terms of this Agreement.

20.       Legends.  The Subordinated Creditor covenants and agrees that until all Senior Indebtedness is Paid in Full in cash, the Subordinated Loan Agreement and each promissory note or other instrument evidencing Subordinated Indebtedness and each security agreement relating to the Subordinated Indebtedness shall bear at all times, in a conspicuous manner, the following legend:

“This Subordinated Loan Agreement and the indebtedness evidenced hereby are subordinate, in the manner and to the extent set forth in that Subordination Agreement (as amended, supplemented or otherwise modified from time to time, the “Subordination Agreement”) dated as of February 1, 2008 between and among Bakers Footwear Group, Inc. (the “Company”), Private Equity Management Group, Inc., as agent for certain lenders (the “Subordinated Creditor”) and the Senior Lender named therein, to indebtedness owed by the Company to the Senior Lender, and the holder of this Subordinated Indebtedness, by its acceptance hereof, shall be bound by the provisions of the Subordination Agreement.”

 

 

-16-

 

 

This Agreement is executed as a sealed instrument as of the 1st of February, 2008.

COMPANY

BAKERS FOOTWEAR GROUP, INC.

By: /s/ Peter Edison                

Name: Peter Edison

Title: Chief Executive Officer

Address: 2815 Scott Avenue

St. Louis, Missouri 63103

Telephone: 314-621-0699

Telecopier: : 314-641-0390

 

SUBORDINATED CREDITOR

PRIVATE EQUITY MANAGEMENT GROUP, INC., as Agent

By: /s/ Danny Pang                

Name: Danny Pang                 

Title: Chairman, CEO             

Address: One Park Plaza, Suite 550

Irvine, California 92614

Telephone: (949)757-0977

Telecopier: (949)757-0978

 

 

 

SENIOR LENDER

BANK OF AMERICA, N. A.

By: /s/ David Storer                

Name: David Storer

Title: Vice President

Address: 100 Federal Street, 9th Floor

Boston, Massachusetts 02110

Telephone: 617-434-1359

Telecopier: 617-434-4339

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00136-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00136-of-00352.parquet"}]]