Document:

Exhibit
10.2

 

PLEDGE AND SECURITY AGREEMENT

 

THIS
PLEDGE AND SECURITY AGREEMENT (as it may be amended or modified from time to
time, the “Security Agreement”) is entered into as of September 30,
2010, by and between Supreme Industries, Inc., a Delaware corporation (“Grantor”),
and JPMorgan Chase Bank, N.A., a national banking institution (the “Lender”).

 

PRELIMINARY STATEMENT

 

The
Grantor, Supreme Indiana Operations, Inc., Supreme Mid-Atlantic
Corporation, Supreme Truck Bodies of California, Inc., Supreme Corporation
of Texas, Supreme Northwest, L.L.C., the other Loan Parties and the Lender are
entering into an Amended and Restated Credit Agreement dated as of September 30,
2010 (as it may be amended or modified from time to time, the “Credit
Agreement”).

 

The
Grantor has agreed to guarantee the Guaranteed Obligations pursuant to Article IX
of the Credit Agreement (the “Guaranty”).

 

The
Grantor is entering into this Security Agreement in order to induce the Lender
to enter into and extend credit to the Grantor under the Credit Agreement and
to secure the Secured Obligations and the Guaranteed Obligations.

 

ACCORDINGLY,
the Grantor and the Lender, hereby agree as follows:

 

ARTICLE I

DEFINITIONS

 

1.1.         Terms Defined in Credit Agreement.  Terms used in this Agreement which are
defined in the Credit Agreement and are not otherwise defined in this Security
Agreement shall have the same meanings in this Security Agreement as are
ascribed to such terms in the Credit Agreement.

 

1.2.         Terms Defined in UCC. 
Terms defined in the UCC which are not otherwise defined in this
Security Agreement are used herein as defined in the UCC.

 

1.3.         Definitions of Certain Terms Used Herein.  As used in this Security Agreement, in
addition to the terms defined in the Preliminary Statement, the following terms
shall have the following meanings:

 

“Accounts”
shall have the meaning set forth in Chapter 9.1 of the UCC.

 

“Article”
means a numbered article of this Security Agreement, unless another document is
specifically referenced.

 

“Chattel
Paper” shall have the meaning set forth in Chapter 9.1 of the UCC.

 

“Closing
Date” means the date of the Credit Agreement.

 

“Collateral”
shall have the meaning set forth in Article II.

 

“Collateral
Access Agreement” means any landlord waiver or other agreement, in form and
substance reasonably satisfactory to the Lender, between the Lender and any
third party (including any bailee, consignee, customs broker, warehouseman or
other similar Person) in possession of any Collateral 

 

 

or
any landlord of any Loan Party for any real property where any Collateral is
located, as such landlord waiver or other agreement may be amended, restated,
or otherwise modified from time to time.

 

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

 

“Commercial
Tort Claims” shall have the meaning set forth in Section 9.1-102 of
Chapter 9.1 of the UCC.

 

“Control”
shall have the meaning set forth in Chapter 8.1 or, if applicable, in
Section 9.1-104, 9.1-105, 9.1-106 or 9.1-107 of Article 9.1 of the
UCC.

 

“Copyrights”
means, with respect to any Person, all of such Person’s right, title, and
interest in and to the following:  (a) all
copyrights, rights and interests in copyrights, works protectable by copyright,
copyright registrations, and copyright applications; (b) all renewals of
any of the foregoing; (c) all income, royalties, damages, and payments now
or hereafter due and/or payable under any of the foregoing, including, without
limitation, damages or payments for past or future infringements for any of the
foregoing; (d) the right to sue for past, present, and future
infringements of any of the foregoing; and (e) all rights corresponding to
any of the foregoing throughout the world.

 

“Default”
means any event or condition which, subject to any applicable cure periods,
constitutes an Event of Default or which upon notice, lapse of time or both
would, unless cured or waived, becomes an Event of Default.

 

“Deposit
Account Control Agreement” means an agreement, in form and substance
reasonably satisfactory to the Lender, among any Loan Party, a banking
institution holding such Loan Party’s funds, and the Lender with respect to collection
and control of all deposits and balances held in a deposit account maintained
by any Loan Party with such banking institution.

 

“Deposit
Accounts” shall have the meaning set forth in Chapter 9.1 of the UCC.

 

“Documents”
shall have the meaning set forth in Chapter 9.1 of the UCC.

 

“Equipment”
shall have the meaning set forth in Chapter 9.1 of the UCC.

 

“Event
of Default” means an event described in Section 5.1.

 

“Excluded Investments” means (i) all
treasury stock of the Grantor, and (ii) 35% of the issued and outstanding
Equity Interests entitled to vote (within the meaning of Treas. Reg. Section 1.956-2(c)(2))
in each foreign Subsidiary directly owned by the Grantor.

 

“Exhibit”
refers to a specific exhibit to this Security Agreement, unless another
document is specifically referenced.

 

“Fixtures”
shall have the meaning set forth in Chapter 9.1 of the UCC.

 

“General
Intangibles” shall have the meaning set forth in Chapter 9.1 of the
UCC.

 

“Goods”
shall have the meaning set forth in Chapter 9.1 of the UCC.

 

 

“Guaranteed
Obligations” means all of the Grantor’s obligations, liabilities and
indebtedness to the Lenders arising from, pursuant to or by virtue of its
Guaranty pursuant to Section IX of the Credit Agreement.

 

“Grantor
Obligations” means the Guaranteed Obligations and the Secured Obligations,
collectively.

 

“Instruments”
shall have the meaning set forth in Chapter 9.1 of the UCC.

 

“Inventory”
shall have the meaning set forth in Chapter 9.1 of the UCC.

 

“Investment
Property” shall have the meaning set forth in Chapter 9.1 of the UCC.

 

“Letter-of-Credit
Rights” shall have the meaning set forth in Chapter 9.1 of the UCC.

 

“Licenses”
means, with respect to any Person, all of such Person’s right, title, and
interest in and to (a) any and all licensing agreements or similar
arrangements in and to its Patents, Copyrights, or Trademarks, (b) all
income, royalties, damages, claims, and payments now or hereafter due or
payable under and with respect thereto, including, without limitation, damages
and payments for past and future breaches thereof, and (c) all rights to
sue for past, present, and future breaches thereof.

 

“Patents”
means, with respect to any Person, all of such Person’s right, title, and
interest in and to:  (a) any and all
patents and patent applications; (b) all inventions and improvements
described and claimed therein; (c) all reissues, divisions, continuations,
renewals, extensions, and continuations-in-part thereof; (d) all income,
royalties, damages, claims, and payments now or hereafter due or payable under
and with respect thereto, including, without limitation, damages and payments
for past and future infringements thereof; (e) all rights to sue for past,
present, and future infringements thereof; and (f) all rights
corresponding to any of the foregoing throughout the world.

 

“Permitted
Liens” means liens permitted by Section 6.02 of the Credit Agreement.

 

“Pledged
Collateral” means all Instruments, Securities and other Investment Property
of the Grantor, whether or not physically delivered to the Lender pursuant to
this Security Agreement.

 

“Receivables”
means the Accounts, Chattel Paper, Documents, Investment Property, Instruments
and any other rights or claims to receive money which are General Intangibles
or which are otherwise included as Collateral.

 

“Section”
means a numbered section of this Security Agreement, unless another document is
specifically referenced.

 

“Security”
has the meaning set forth in Chapter 8.1 of the UCC.

 

“Stock
Rights” means all dividends, instruments or other distributions and any
other right or property which the Grantor shall receive or shall become
entitled to receive for any reason whatsoever with respect to, in substitution
for or in exchange for any Equity Interest constituting Collateral, any right to
receive an Equity Interest and any right to receive earnings, in which the
Grantor now has or hereafter acquires any right, issued by an issuer of such
Equity Interest.

 

“Supporting
Obligations” shall have the meaning set forth in Chapter 9.1 of the
UCC.

 

 

“Trademarks”
means, with respect to any Person, all of such Person’s right, title, and
interest in and to the following:  (a) all
trademarks (including service marks), trade names, trade dress, and trade
styles and the registrations and applications for registration thereof and the
goodwill of the business symbolized by the foregoing; (b) all licenses of
the foregoing, whether as licensee or licensor; (c) all renewals of the
foregoing; (d) all income, royalties, damages, and payments now or
hereafter due or payable with respect thereto, including, without limitation,
damages, claims, and payments for past and future infringements thereof; (e) all
rights to sue for past, present, and future infringements of the foregoing,
including the right to settle suits involving claims and demands for royalties
owing; and (f) all rights corresponding to any of the foregoing throughout
the world.

 

“UCC”
means the Uniform Commercial Code, as in effect from time to time, of the State
of Indiana, Ind.
Code § 26-1, et seq., or of any other state
the laws of which are required as a result thereof to be applied in connection
with the attachment, perfection or priority of, or remedies with respect to,
Lender’s Lien on any Collateral. 
Excluding the definitions in Article I of this Security Agreement,
if the Uniform Commercial Code of any state other than Indiana is applicable,
then the references in this Security Agreement to any Chapter or Section of
Ind. Code § 26-1, et seq.
shall be deemed to be references to the equivalent Chapter or Section of
such other state’s Uniform Commercial Code however numbered or denominated.

 

The
foregoing definitions shall be equally applicable to both the singular and
plural forms of the defined terms.

 

ARTICLE II

GRANT OF SECURITY INTEREST

 

The
Grantor hereby pledges, collaterally assigns and grants to the Lender, a
security interest in all of its right, title and interest in, to and under all
personal property and other assets, whether now owned by or owing to, or
hereafter acquired by or arising in favor of the Grantor (including under any
trade name or derivations thereof), and whether owned or consigned by or to, or
leased from or to, the Grantor, and regardless of where located (all of which
will be collectively referred to as the “Collateral”), including:

 

(i)            all Accounts;

 

(ii)           all Chattel Paper;

 

(iii)          all Copyrights, Patents and Trademarks;

 

(iv)          all Documents;

 

(v)           all Equipment;

 

(vi)          all Fixtures;

 

(vii)         all General Intangibles;

 

(viii)        all Goods;

 

(ix)           all Instruments;

 

(x)            all Inventory;

 

 

(xi)           all Investment Property (other than Excluded Investments);

 

(xii)          all cash or cash equivalents;

 

(xiii)         all letters of credit, Letter-of-Credit
Rights and Supporting Obligations;

 

(xiv)        all Deposit Accounts with any bank or other financial institution;

 

(xv)         all Commercial Tort Claims; and

 

(xvi)        all accessions to, substitutions for and replacements,
proceeds (including Stock Rights), insurance proceeds and products of the
foregoing, together with all books and records, customer lists, credit files,
computer files, programs, printouts and other computer materials and records
related thereto and any General Intangibles at any time evidencing or relating
to any of the foregoing;

 

to
secure the prompt and complete payment and performance of the Grantor
Obligations.

 

ARTICLE III

REPRESENTATIONS AND WARRANTIES

 

The
Grantor represents and warrants to the Lender that:

 

3.1.         Title, Perfection and Priority.  The Grantor has good and valid rights in or
the power to transfer the Collateral and title to the Collateral with respect
to which it has purported to grant a security interest hereunder, free and
clear of all Liens except for Liens permitted under Section 4.1(e), and
has full power and authority to grant to the Lender the security interest in
such Collateral pursuant hereto.  When
financing statements have been filed in the appropriate offices against the
Grantor in the locations listed on Exhibit H, the Lender will have
a fully perfected first priority security interest in that Collateral in which
a security interest may be perfected by filing, subject only to Liens permitted
under Section 4.1(e).

 

3.2.         Type and Jurisdiction of Organization, Organizational and
Identification Numbers.  The type of
entity of the Grantor, its state of organization, the organizational number
issued to it by its state of organization and its federal employer
identification number are set forth on Exhibit A.

 

3.3.         Principal Location. 
The Grantor’s mailing address and the location of its place of business
(if it has only one) or its chief executive office (if it has more than one
place of business), are
disclosed in Exhibit A; the Grantor has no other places of business
except those set forth in Exhibit A.

 

3.4.         Collateral Locations. 
All of the Grantor’s locations where Collateral is located are listed on
Exhibit A.  All of said
locations are owned by the Grantor except for locations (i) which are
leased by the Grantor as lessee and designated in Part VII(b) of
Exhibit A and (ii) at which Inventory is held in a public
warehouse or is otherwise held by a bailee or on consignment as designated in Part VII(c) of
Exhibit A.

 

3.5.         Deposit Accounts. 
All of the Grantor’s Deposit Accounts are listed on Exhibit B.

 

3.6.         Exact Names. 
The Grantor’s name in which it has executed this Security Agreement is
the exact name as it appears in the Grantor’s organizational documents, as
amended, as filed with the Grantor’s jurisdiction of organization.  Except as set forth in Part I of Exhibit A,
the Grantor has not,

 

 

during the past five years, been known by or used
any other corporate or fictitious name, or been a party to any merger or
consolidation, or been a party to any acquisition.

 

3.7.         Letter-of-Credit Rights and Chattel Paper.  Exhibit C lists all
Letter-of-Credit Rights and Chattel Paper of the Grantor.  All action by the Grantor necessary or
desirable to protect and perfect the Lender’s Lien on each item listed on Exhibit C
(including the delivery of all originals and the placement of a legend on all
Chattel Paper as required hereunder) has been duly taken. The Lender will have
a fully perfected first priority security interest in the Collateral listed on Exhibit C,
subject only to Liens permitted under Section 4.1(e).

 

3.8.         Accounts and Chattel Paper.

 

(a)               To the knowledge and best ability of Grantor, the
names of the obligors, amounts owing, due dates and other information with
respect to its Accounts and Chattel Paper are and will be correctly stated in
all records of the Grantor relating thereto and in all invoices and Collateral
Reports with respect thereto furnished to the Lender by the Grantor from time
to time.  As of the time when each
Account or each item of Chattel Paper arises, the Grantor shall be deemed to
have represented and warranted that such Account or Chattel Paper, as the case
may be, and all records relating thereto, are genuine and in all respects what
they purport to be.

 

(b)               With respect to its Accounts, except as specifically
disclosed on the most recent Collateral Report or arising since the most recent
Collateral Report and prior to the subsequent Collateral Report next due, (i) all
Accounts are Eligible Accounts; (ii) all Accounts represent bona fide
sales of Inventory or rendering of services to Account Debtors in the ordinary
course of the Grantor’s business and are not evidenced by a judgment, Instrument
or Chattel Paper; (iii) to Grantor’s knowledge, there are no setoffs,
claims or disputes existing or asserted with respect thereto and the Grantor
has not made any agreement with any Account Debtor for any extension of time
for the payment thereof, any compromise or settlement for less than the full
amount thereof, any release of any Account Debtor from liability therefor, or
any deduction therefrom except a discount or allowance allowed by the Grantor
in the ordinary course of its business for prompt payment and disclosed to the
Lender; (iv) to the Grantor’s knowledge, there are no facts, events or
occurrences which in any way impair the validity or enforceability thereof or
could reasonably be expected to reduce the amount payable thereunder as shown
on the Grantor’s books and records and any invoices, statements and Collateral
Reports with respect thereto; (v) the Grantor has not received any notice
of proceedings or actions which are threatened or pending against any Account
Debtor which might result in any material adverse change in such Account Debtor’s
financial condition; and (vi) the Grantor has no knowledge that any
Account Debtor is unable generally to pay its debts as they become due.

 

(c)               In addition, with respect to all of its Accounts, (i) the
amounts shown on all invoices, statements and Collateral Reports with respect
thereto are actually owing to the Grantor as indicated thereon and are not in
any way contingent; and (ii) to the Grantor’s knowledge, all Account
Debtors have the capacity to contract.

 

3.9.         Inventory. 
With respect to any of its Inventory scheduled or listed on the most
recent Collateral Report, (a) such Inventory (other than Inventory in
transit) is located at one of the Grantor’s locations set forth on Exhibit A,
(b) no Inventory  (other than
Inventory in transit) is now, or shall at any time or times hereafter be stored
at any other location except as permitted by Section 4.1(g), (c) the
Grantor has good, indefeasible and merchantable title to such Inventory and
such Inventory is not subject to any Lien or security interest or document
whatsoever except for the Lien granted to the Lender, and except for Permitted
Liens, (d) except as specifically disclosed in the most recent Collateral
Report or acquired since the most recent Collateral Report and prior to the
subsequent Collateral Report next due,

 

 

such Inventory is Eligible Inventory of good and
merchantable quality, free from any material defects, (e) such Inventory
is not subject to any licensing, patent, royalty, trademark, trade name or
copyright agreements with any third parties which would require any consent of
any third party upon sale or disposition of that Inventory or the payment of
any monies to any third party upon such sale or other disposition, (f) such
Inventory has been produced in accordance with the Federal Fair Labor Standards
Act of 1938, as amended, and all rules, regulations and orders thereunder and (g) the
completion of manufacture, sale or other disposition of such Inventory by the
Lender following an Event of Default shall not require the consent (except for
consents required by any Intercreditor Agreement) of any Person and shall not
constitute a breach or default under any contract or agreement to which the
Grantor is a party or to which such property is subject.

 

3.10.       Intellectual Property. The Grantor does not have any
interest in, or title to, any Patent, Trademark or Copyright except as set
forth in Exhibit D.  This
Security Agreement is effective to create a valid and continuing Lien and, upon
filing of appropriate financing statements in the offices listed on Exhibit H
and this Security Agreement with the United States Copyright Office and the
United States Patent and Trademark Office, fully perfected first priority
security interests in favor of the Lender on the Grantor’s Patents, Trademarks
and Copyrights, such perfected security interests are enforceable as such as
against any and all creditors of and purchasers from the Grantor; and all action
necessary or desirable to protect and perfect the Lender’s Lien on the Grantor’s
Patents, Trademarks or Copyrights shall have been duly taken.

 

3.11.       Filing Requirements. 
None of its Equipment is covered by any certificate of title, except for
the vehicles described in Part I of Exhibit E.  None of the Collateral owned by Grantor is of
a type for which security interests or liens may be perfected by filing under
any federal statute except for (a) the vehicles described in Part II
of Exhibit E and (b) Patents, Trademarks and Copyrights held
by the Grantor and described in Exhibit D.

 

3.12.       No Financing Statements, Security Agreements.  No financing statement or security agreement
describing all or any portion of the Collateral which has not lapsed or been
terminated naming the Grantor as debtor has been filed or is of record in any
jurisdiction except (a) for financing statements or security agreements
naming the Lender as the secured party and (b) as permitted by Section 4.1(e).

 

3.13.       Pledged Collateral.

 

(a)               Exhibit G sets forth a complete and
accurate list of all Pledged Collateral. 
The Grantor is the direct, sole beneficial owner and sole holder of
record of the Pledged Collateral listed on Exhibit G as being owned
by it, free and clear of any Liens, except for the security interest granted to
the Lender hereunder.  The Grantor
further represents and warrants that (i) all Pledged Collateral
constituting an Equity Interest has been (to the extent such concepts are
relevant with respect to such Pledged Collateral) duly authorized, validly
issued, are fully paid and non-assessable, (ii) with respect to any
certificates delivered to the Lender representing an Equity Interest, either
such certificates are Securities as defined in Chapter 8.1 of the UCC as a
result of actions by the issuer or otherwise, or, if such certificates are not
Securities, the Grantor has so informed the Lender so that the Lender may take
steps to perfect its security interest therein as a General Intangible, (iii) all
such Pledged Collateral held by a securities intermediary is covered by a
control agreement among the Grantor, the securities intermediary and the Lender
pursuant to which the Lender has Control and (iv) all Pledged Collateral
which represents Indebtedness owed to the Grantor has been duly authorized,
authenticated or issued and delivered by the issuer of such Indebtedness, is
the legal, valid and binding obligation of such issuer and such issuer is not
in default thereunder.

 

 

 

(b)               In addition, (i) none of the
Pledged Collateral has been issued or transferred in violation of the
securities registration, securities disclosure or similar laws of any
jurisdiction to which such issuance or transfer may be subject, (ii) there are
existing no options, warrants, calls or commitments of any character whatsoever
relating to such Pledged Collateral or which obligate the issuer of any Equity
Interest included in the Pledged Collateral to issue additional Equity
Interests, and (iii) no consent, approval, authorization, or other action by,
and no giving of notice, filing with, any governmental authority or any other
Person is required for the pledge by the Grantor of such Pledged Collateral
pursuant to this Security Agreement or for the execution, delivery and
performance of this Security Agreement by the Grantor, or for the exercise by
the Lender of the voting or other rights provided for in this Security
Agreement or for the remedies in respect of the Pledged Collateral pursuant to
this Security Agreement, except as may be required in connection with such
disposition by laws affecting the offering and sale of securities generally.

 

(c)               Except as set forth in Exhibit
G, the Grantor owns 100% of the issued and outstanding  Equity Interests which constitute Pledged
Collateral and none of the Pledged Collateral which represents Indebtedness
owed to the Grantor is subordinated in right of payment to other Indebtedness
or subject to the terms of an indenture.

 

ARTICLE IV

COVENANTS

 

From
the date of this Security Agreement, and thereafter until this Security
Agreement is terminated, the Grantor agrees that:

 

4.1.          General.

 

(a)               Collateral Records.  The Grantor will maintain complete and
accurate books and records in all material respects with respect to the
Collateral, and furnish to the Lender, such reports relating to such Collateral
as the Lender shall from time to time reasonably request.

 

(b)               Authorization to File
Financing Statements; Ratification.  The Grantor hereby authorizes the Lender to
file, and if requested will deliver to the Lender, all financing statements and
other documents and take such other actions as may from time to time be
reasonably requested by the Lender in order to maintain a first perfected
security interest in and, if applicable, Control of, the Collateral.  Any financing statement filed by the Lender
may be filed in any filing office in any UCC jurisdiction and may (i) indicate
the Grantor’s Collateral (1) as all assets of the Grantor or words of similar
effect, regardless of whether any particular asset comprised in the Collateral
falls within the scope of Chapter 9.1 of the UCC or such jurisdiction, or
(2) by any other description which reasonably approximates the description
contained in this Security Agreement, and (ii) contain any other information
required by part 5 of Chapter 9.1 of the UCC for the sufficiency or filing
office acceptance of any financing statement or amendment, including (A)
whether the Grantor is an organization, the type of organization and any organization
identification number issued to the Grantor, and (B) in the case of a financing
statement filed as a fixture filing or indicating the Grantor’s Collateral as
as-extracted collateral or timber to be cut, a sufficient description of real
property to which the Collateral relates. 
The Grantor also agrees to furnish any such information to the Lender
promptly upon request.  The Grantor also
ratifies its authorization for the Lender to have filed in any UCC jurisdiction
any initial financing statements or amendments thereto if filed prior to the
date hereof.

 

(c)               Further Assurances.  The Grantor will, if so requested by the
Lender, furnish to the Lender, as often as the Lender reasonably requests,
statements and schedules further identifying and describing the Collateral and
such other reports and information in connection with its Collateral as the 

 

 

Lender may reasonably request, all in such detail as
the Lender may specify.  The Grantor also
agrees to take any and all actions necessary to defend title to the Collateral
against all persons and to defend the security interest of the Lender in its
Collateral and the priority thereof against any Lien not expressly permitted
hereunder.

 

(d)               Disposition of Collateral.  The Grantor will not sell, lease or otherwise
dispose of the Collateral except for dispositions specifically permitted
pursuant to Section 6.05 of the Credit Agreement.

 

(e)               Liens.  The Grantor will not create, incur, or suffer
to exist any Lien on the Collateral owned by it except (i) the security
interest created by this Security Agreement, and (ii) other Permitted Liens.

 

(f)                Other Financing Statements.  The Grantor will not authorize the filing of
any financing statement naming it as debtor covering all or any portion of the
Collateral, except as permitted by Section 4.1(e). The Grantor
acknowledges that it is not authorized to file any financing statement or
amendment or termination statement with respect to any financing statement
without the prior written consent of the Lender, subject to the Grantor’s
rights under Section 9.1-509(d)(2) of the UCC.

 

(g)               Locations. The Grantor
will not (i) maintain any Collateral at any location other than those locations
listed on Exhibit A, (ii) otherwise change, or add to, such locations
without the Lender’s prior written consent, which consent will not be
unreasonably withheld (and if the Lender gives such consent, the Grantor will
concurrently therewith obtain a Collateral Access Agreement for each such
location to the extent required by Section 4.13 of this Security Agreement), or
(iii) change its principal place of business or chief executive office from the
location identified on Exhibit A.

 

(h)               Compliance with Terms.  The Grantor will perform and comply in all
material respects with all obligations in respect of the Collateral and all
agreements to which it is a party or by which it is bound relating to the
Collateral.

 

4.2.          Receivables.

 

(a)               Certain Agreements on
Receivables.  The Grantor
will not make or agree to make any discount, credit, rebate or other reduction
in the original amount owing on a Receivable or accept in satisfaction of a
Receivable less than the original amount thereof, except that, prior to the
occurrence of an Event of Default, the Grantor may reduce the amount of
Accounts arising from the sale of Inventory in accordance with its present
policies and in the ordinary course of business.

 

(b)               Electronic Chattel Paper.  The Grantor shall take all steps reasonably
necessary to grant the Lender Control of all electronic chattel paper in
accordance with the UCC and all “transferable records” as defined in each of
the Uniform Electronic Transactions Act and the Electronic Signatures in Global
and National Commerce Act.

 

4.3.          Inventory and Equipment.

 

(a)               Maintenance of Goods.  The Grantor will do all things reasonably
necessary to maintain, preserve, protect and keep its Inventory and the
Equipment in good repair and working and saleable condition, except for damaged
or defective goods arising in the ordinary course of the Grantor’s business and
except for ordinary wear and tear and insured casualty loss in respect of the
Equipment.

 

 

(b)               Inventory Count.  The Grantor will conduct a physical count of
its Inventory at least once per Fiscal Year, and after and during the
continuation of an Event of Default, at such other times as the Lender
requests. The Grantor, at its own expense, shall deliver to the Lender the
results of each physical verification, which the Grantor has made, or has
caused any other Person to make on its behalf, of all or any portion of its
Inventory.

 

(c)               Equipment.  The Grantor shall promptly inform the Lender
of any additions to or deletions from the Equipment which individually exceed
$250,000.  The Grantor shall not permit
any Equipment to become a fixture with respect to real property or to become an
accession with respect to other personal property with respect to which real or
personal property the Lender does not have a Lien.  The Grantor will not, without the Lender’s
prior written consent, alter or remove any identifying symbol or number on any
of the Grantor’s Equipment constituting Collateral.

 

(d)               Titled Vehicles.  The Grantor will deliver to the Lender,
within 30 days of request by the Lender, the original of any vehicle title
certificate and provide and/or file all other documents or instruments
necessary to have the Lien of the Lender noted on any such certificate or with
the appropriate state office.

 

4.4.          Delivery of Instruments,
Securities, Chattel Paper and Documents. The Grantor will
(a) deliver to the Lender immediately upon execution of this Security
Agreement the originals of all Chattel Paper, Securities and Instruments
constituting Collateral (if any then exist), (b) hold in trust for the Lender
upon receipt and immediately thereafter deliver to the Lender any Chattel
Paper, Securities and Instruments constituting Collateral, (c) upon the Lender’s
request, deliver to the Lender (and thereafter hold in trust for the Lender
upon receipt and immediately deliver to the Lender) any Document evidencing or
constituting Collateral and (d) upon the Lender’s request, deliver to the
Lender a duly executed amendment to this Security Agreement, in the form of Exhibit
I hereto (the “Amendment”), pursuant to which the Grantor will
pledge such additional Collateral.  The
Grantor hereby authorizes the Lender to attach each Amendment to this Security
Agreement and agrees that all additional Collateral set forth in such
Amendments shall be considered to be part of the Collateral.

 

4.5.          Uncertificated Pledged
Collateral. The Grantor will permit the Lender from time to
time to cause the appropriate issuers (and, if held with a securities
intermediary, such securities intermediary) of uncertificated securities or
other types of Pledged Collateral not represented by certificates to mark their
books and records with the numbers and face amounts of all such uncertificated
securities or other types of Pledged Collateral not represented by certificates
and all rollovers and replacements therefor to reflect the Lien of the Lender granted
pursuant to this Security Agreement.  The
Grantor will take any actions necessary to cause (a) the issuers of
uncertificated securities which are Pledged Collateral and (b) any securities
intermediary which is the holder of any Pledged Collateral, to cause the Lender
to have and retain Control over such Pledged Collateral.  Without limiting the foregoing, the Grantor
will, with respect to Pledged Collateral held with a securities intermediary,
cause such securities intermediary to enter into a control agreement with the
Lender, in form and substance satisfactory to the Lender, giving the Lender
Control.

 

4.6.          Pledged Collateral.

 

(a)               Changes in Capital Structure
of Issuers. The Grantor will not (i) permit or suffer any
issuer of an Equity Interest constituting Pledged Collateral to dissolve,
merge, liquidate, retire any of its Equity Interests or other Instruments or
Securities evidencing ownership, reduce its capital, sell or encumber all or
substantially all of its assets (except for Permitted Liens and sales of assets
permitted pursuant to Section 4.1(d)) or merge or consolidate with any
other entity, or (ii) vote any Pledged Collateral in favor of any of the
foregoing.

 

 

(b)               Issuance of Additional
Securities.  The Grantor
will not permit or suffer the issuer of an Equity Interest constituting Pledged
Collateral owned by it to issue additional Equity Interests, any right to
receive the same or any right to receive earnings, except to the Grantor.

 

(c)               Registration of Pledged
Collateral.  The Grantor
will permit any registerable Pledged Collateral to be registered in the name of
the Lender or its nominee at any time at the option of the Lender.

 

(d)               Exercise of Rights in
Pledged Collateral.

 

(i)            Without in any way limiting
the foregoing and subject to clause (ii) below, the Grantor shall have the
right to exercise all voting rights or other rights relating to the Pledged
Collateral for all purposes not inconsistent with this Security Agreement, the
Credit Agreement or any other Loan Document; provided however,
that no vote or other right shall be
exercised or action taken which would have the effect of impairing the rights
of the Lender in respect of the Pledged Collateral.

 

(ii)           The Grantor will permit the
Lender or its nominee at any time after the occurrence of an Event of Default,
without notice, to exercise all voting rights or other rights relating to the
Pledged Collateral, including, without limitation, exchange, subscription or
any other rights, privileges, or options pertaining to any Equity Interest or
Investment Property constituting Pledged Collateral as if it were the absolute
owner thereof.

 

(iii)          The Grantor shall be
entitled to collect and receive for its own use all cash dividends and interest
paid in respect of the Pledged Collateral to the extent not in violation of the
Credit Agreement other than any of the following distributions and
payments (collectively referred to as the “Excluded Payments”): (A)
dividends and interest paid or payable other than in cash in respect of any
Pledged Collateral, and instruments and other property received, receivable or
otherwise distributed in respect of, or in exchange for, any Pledged
Collateral;  (B) dividends and other
distributions paid or payable in cash in respect of any Pledged Collateral in
connection with a partial or total liquidation or dissolution or in connection
with a reduction of capital, capital surplus or paid-in capital of an issuer;
and (C) cash paid, payable or otherwise distributed, in respect of principal
of, or in redemption of, or in exchange for, any Pledged Collateral; provided however, that until actually paid, all rights to
such distributions shall remain subject to the Lien created by this Security
Agreement; and

 

(iv)          All Excluded Payments and
all other distributions in respect of any of the Pledged Collateral, whenever
paid or made, shall be delivered to the Lender to hold as Pledged Collateral
and shall, if received by the Grantor, be received in trust for the benefit of
the Lender, be segregated from the other property or funds of the Grantor, and
be forthwith delivered to the Lender as Pledged Collateral in the same form as
so received (with any necessary endorsement).

 

4.7.          Intellectual Property.

 

(a)               The Grantor will use its
best efforts to secure all consents and approvals necessary or appropriate for
the assignment to or benefit of the Lender of any License held by the Grantor
and to enforce the security interests granted hereunder.

 

 

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

 

(c)               Grantor shall give the
Lender written notice if the Grantor, either directly or through any agent,
employee, licensee or designee, files an application for the registration of
any Patent, Trademark or Copyright with the United States Patent and Trademark
Office, the United States Copyright Office or any similar office or agency
within 10 Business Days of such filing, and, upon request of the Lender, the
Grantor shall execute and deliver any and all security agreements as the Lender
may request to evidence the Lender’s first priority security interest on such
Patent, Trademark or Copyright, and the General Intangibles of the Grantor
relating thereto or represented thereby.

 

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

 

(e)               The Grantor shall, unless it
shall determine, in its reasonable business judgment, that such Patent,
Trademark or Copyright is in no way material to the conduct of its business or
operations, promptly sue for infringement, misappropriation or dilution.  In the event that the Grantor institutes suit
because any of its Patents, Trademarks or Copyrights constituting Collateral is
infringed upon, or misappropriated or diluted by a third party, the Grantor
shall comply with Section 4.8.

 

4.8.          Commercial Tort Claims.  All of the Grantor’s Commercial Tort Claims
are listed on Exhibit I hereto. 
The Grantor shall promptly, and in any event within two Business Days
after the same is acquired by it, notify the Lender of any Commercial Tort Claim
acquired by it and, unless the Lender otherwise consents, the Grantor shall
enter into an amendment to this Security Agreement, in the form of Exhibit I
hereto, granting to Lender a first priority security interest in such
Commercial Tort Claim.

 

4.9.          Letter-of-Credit Rights.  If the Grantor is or becomes the beneficiary
of a letter of credit, it shall promptly, and in any event within two Business
Days after becoming a beneficiary, notify the Lender thereof and cause the
issuer and/or confirmation bank to (i) consent to the assignment of any
Letter-of-Credit Rights to the Lender and (ii) agree to direct all payments
thereunder to a Deposit Account at the Lender or subject to a Deposit Account
Control Agreement for application to the Secured Obligations, in accordance
with Section 2.17 of the Credit Agreement, all in form and substance reasonably
satisfactory to the Lender.

 

4.10.        Federal, State or Municipal
Claims.  The Grantor will promptly
notify the Lender of any Collateral which constitutes a claim against the
United States government or any state or local government or any
instrumentality or agency thereof, the assignment of which claim is restricted
by federal, state or municipal law.

 

4.11.        No Interference.  Provided Lender’s exercise of its rights and
remedies are in accordance with applicable law, the Grantor agrees that it will
not interfere with any right, power and remedy of the Lender provided for in
this Security Agreement or now or hereafter existing at law or in equity or by 

 

 

statute or otherwise, or the exercise or beginning
of the exercise by the Lender of any one or more of such rights, powers or
remedies.

 

 4.12.       Insurance.

 

(a)               In the event any Collateral
is located in any area that has been designated by the Federal Emergency Management
Agency as a “Special Flood Hazard Area”, the Grantor shall purchase and
maintain flood insurance on such Collateral (including any personal property
which is located on any real property leased by such Loan Party, or located
with a bailee or cosignee with respect to any warehouse, processor or converter
facility, or other location where Collateral is stored within a “Special Flood
Hazard Area”).  To the extent that
Grantor does not have the flood insurance required by this Section with respect
to any personal property which is located with a bailee or cosignee, Grantor
shall have 90 days after the Effective Date to obtain such flood
insurance.  The amount of flood insurance
required by this Section shall at a minimum comply with applicable law,
including the Flood Disaster Protection Act of 1973, as amended.

 

(b)               All insurance policies
required hereunder or under Section 5.09 of the Credit Agreement shall name the
Lender as an additional insured or as loss payee, as applicable, and shall
contain loss payable clauses or mortgagee clauses, through endorsements in form
and substance reasonably satisfactory to the Lender, which provide that: (i)
all proceeds thereunder with respect to any Collateral shall be payable to the
Lender; (ii) no such insurance shall be affected by any act or neglect of the
insured or owner of the property described in such policy; and (iii) such
policy and loss payable or mortgagee clauses, if applicable,  may be canceled, amended, or terminated only
upon at least thirty days prior written notice given to the Lender.

 

(c)               All premiums on such
insurance shall be paid when due by the Grantor, and, upon request by the
Lender, copies of the policies delivered to the Lender.  If the Grantor fails to obtain any insurance
as required by this Section, the Lender may obtain such insurance at the
Grantor’s expense.  By purchasing such
insurance, the Lender shall not be deemed to have waived any Default arising
from the Grantor’s failure to maintain such insurance or pay any premiums
therefor.

 

4.13.        Collateral Access Agreements.  The Grantor shall use commercially reasonable
efforts to obtain a Collateral Access Agreement from the lessor of each leased
property, mortgagee of owned property or bailee or consignee with respect to
any warehouse, processor or converter facility or other location where
Collateral is stored or located, which agreement or letter shall provide access
rights, contain a waiver or subordination of all Liens or claims that the
landlord, mortgagee, bailee or consignee may assert against the Collateral at
that location, and shall otherwise be reasonably satisfactory in form and
substance to the Lender. With respect to such locations or warehouse space
leased as of the Closing Date and thereafter, if the Lender has not received a
Collateral Access Agreement as of the Effective Date (or, if later, as of the
date such location is acquired or leased), Grantor’s Eligible Inventory at that
location shall be excluded from the Borrowing Base or subject to such Reserves
as may be established by the Lender  pursuant to
the Credit Agreement.  After the Closing
Date, no real property or warehouse space shall be leased by the Grantor and no
Inventory shall be shipped to a processor or converter under arrangements
established after the Closing Date, unless and until a satisfactory Collateral
Access Agreement shall first have been obtained with respect to such location
and if it has not been obtained, Grantor’s Eligible Inventory at that location
shall be excluded from the Borrowing Base subject to the establishment of
Reserves acceptable to the Lender pursuant to the Credit Agreement.  The Grantor shall timely and fully pay and
perform its obligations under all leases and other agreements with respect to
each leased location or third party warehouse where any Collateral is or may be
located.

 

 

4.14.        Deposit Account Control
Agreements.  The Grantor
will provide to the Lender upon the Lender’s request, a Deposit Account Control
Agreement duly executed on behalf of each financial institution holding a
deposit account of the Grantor; provided that,
the Lender may, in its discretion, defer delivery of any such Deposit Account
Control Agreement, establish a Reserve with respect to any deposit account for
which the Lender has not received such Deposit Account Control Agreement, and
require the Grantor to open and maintain a new deposit account with a financial
institution subject to a Deposit Account Control Agreement.

 

 4.15.       Change of Name or Location.  The Grantor shall not (a) change its
name as it appears in official filings in the state of its incorporation or
organization, (b) change its chief executive office, principal place of
business, mailing address, corporate offices or warehouses or locations at
which Collateral is held or stored, or the location of its records concerning
the Collateral as set forth in the Security Agreement, (c) change the type of
entity that it is, (d) change its organization identification number, if any,
issued by its state of incorporation or other organization, or (e) change its
state of incorporation or organization, in each case, unless the Lender shall
have received at least thirty days prior written notice of such change and the
Lender shall have acknowledged in writing that either (1) such change will not
adversely affect the validity, perfection or priority of the Lender’s security
interest in the Collateral, or (2) any reasonable action requested by the
Lender in connection therewith has been completed or taken (including any
action to continue the perfection of any Liens in favor of the Lender in any
Collateral), provided that, any new location
shall be in the continental U.S.

 

ARTICLE V

EVENTS OF DEFAULT AND REMEDIES

 

5.1.          Events of Default.  The occurrence of any one or more of the
following events shall constitute an Event of Default hereunder:

 

(a)               Any representation or
warranty made by or on behalf of the Grantor under or in connection with this
Security Agreement shall be materially false as of the date on which made.

 

(b)               The breach by the Grantor of
any of the terms or provisions of Article IV or Article VII.

 

(c)               The breach by the Grantor
(other than a breach which constitutes an Event of Default under any other
Section of this Article V) of any of the terms or provisions of this Security
Agreement which is not remedied within fifteen days after the earlier of
knowledge of such breach or notice thereof from the Lender.

 

(d)               The occurrence of any “Event
of Default” under, and as defined in, the Credit Agreement.

 

(e)               The occurrence of any “default”
or “event of default,” as defined in any other Loan Document or the breach of
any of the terms or provisions of any other Loan Document, which default or
breach continues beyond any grace period therein provided.

 

(f)                Any Equity Interest which is
included within the Collateral shall at any time constitute a Security or the
issuer of any such Equity Interest shall take any action to have such interests
treated as a Security unless (i) all certificates or other documents
constituting such Security have been delivered to the Lender and such Security
is properly defined as such under Article 8 of the UCC of the applicable
jurisdiction, whether as a result of actions by the issuer thereof or
otherwise, or (ii) the Lender has entered into a control agreement with the
issuer of such Security or with a securities intermediary 

 

 

relating to such Security and such Security is
defined as such under Article 8 of the UCC of the applicable jurisdiction,
whether as a result of actions by the issuer thereof or otherwise.

 

 5.2.         Remedies.

 

(a)               Upon the occurrence of an
Event of Default, the Lender may exercise any or all of the following rights
and remedies, subject to any limitations or restrictions imposed by applicable
law:

 

(i)            those rights and remedies
provided in this Security Agreement, the Credit Agreement, or any other Loan
Document; provided that, this Section 5.2(a) shall
not be understood to limit any rights or remedies available to the Lender prior
to an Event of Default;

 

(ii)           those rights and remedies
available to a secured party under the UCC (whether or not the UCC applies to
the affected Collateral) or under any other applicable law (including, without
limitation, any law governing the exercise of a bank’s right of setoff or
bankers’ lien) when a debtor is in default under a security agreement;

 

(iii)          give notice of sole control
or any other instruction under any Deposit Account Control Agreement or and
other control agreement with any securities intermediary and take any action
therein with respect to such Collateral;

 

(iv)          without notice (except as
specifically provided in Section 7.1 or elsewhere herein), demand or
advertisement of any kind to the Grantor or any other Person, enter the
premises of the Grantor where any Collateral is located (through self-help and
without judicial process) to collect, receive, assemble, process, appropriate,
sell, lease, assign, grant an option or options to purchase or otherwise
dispose of, deliver, or realize upon, the Collateral or any part thereof in one
or more parcels at public or private sale or sales (which sales may be
adjourned or continued from time to time with or without notice and may take
place at the Grantor’s premises or elsewhere), for cash, on credit or for
future delivery without assumption of any credit risk, and upon such other
terms as the Lender may deem commercially reasonable; and

 

(v)           concurrently with written
notice to the Grantor, transfer and register in its name or in the name of its
nominee the whole or any part of the Pledged Collateral, to exchange certificates
or instruments representing or evidencing Pledged Collateral for certificates
or instruments of smaller or larger denominations, to exercise the voting and
all other rights as a holder with respect thereto, to collect and receive all
cash dividends, interest, principal and other distributions made thereon and to
otherwise act with respect to the Pledged Collateral as though the Lender was
the outright owner thereof.

 

(b)               The Lender shall comply with
any applicable state or federal law requirements in connection with a
disposition of the Collateral and compliance will not be considered to
adversely affect the commercial reasonableness of any sale of the Collateral.

 

(c)               The Lender shall have the
right upon any such public sale or sales and, to the extent permitted by law,
upon any such private sale or sales, to purchase for the benefit of the Lender,
the whole or any part of the Collateral so sold, free of any right of equity
redemption, which equity redemption the Grantor hereby expressly releases.

 

 

 

(d)               Until the Lender is able to
effect a sale, lease, or other disposition of Collateral, the Lender shall have
the right to hold or use Collateral, or any part thereof, to the extent that it
deems appropriate for the purpose of preserving Collateral or its value or for
any other purpose deemed appropriate by the Lender. The Lender may, if it so
elects, seek the appointment of a receiver or keeper to take possession of
Collateral and to enforce any of the Lender’s remedies, with respect to such
appointment.  To the extent permitted by
law, Lender may seek such appointment without prior notice or hearing and
Grantor hereby consents to such appointment.

 

(e)               If, after the Credit
Agreement has terminated by its terms and all of the Obligations have been paid
in full, there remain Swap Obligations outstanding, the Lender may exercise the
remedies provided in this Section 5.2 upon the occurrence of any event
which would allow or require the termination or acceleration of any Swap
Obligations pursuant to the terms of the Swap Agreement.

 

(f)                Notwithstanding the
foregoing, the Lender shall not be required, except as required by applicable
law, to (i) make any demand upon, or pursue or exhaust any of their rights
or remedies against, the Grantor, any other obligor, guarantor, pledgor or any
other Person with respect to the payment of the Secured Obligations or to
pursue or exhaust any of their rights or remedies with respect to any
Collateral therefor or any direct or indirect guarantee thereof, (ii) marshal
the Collateral or any guarantee of the Secured Obligations or to resort to the
Collateral or any such guarantee in any particular order, or (iii) effect
a public sale of any Collateral.

 

(g)               The Grantor recognizes that
the Lender may be unable to effect a public sale of any or all the Pledged
Collateral and may be compelled to resort to one or more private sales thereof
in accordance with clause (a) above.  The Grantor also acknowledges that any
private sale may result in prices and other terms less favorable to the seller
than if such sale were a public sale and, notwithstanding such circumstances,
agrees that any such private sale, if conducted in compliance with the
requirements of the UCC, shall not be deemed to have been made in a
commercially unreasonable manner solely by virtue of such sale being
private.  The Lender shall be under no
obligation to delay a sale of any of the Pledged Collateral for the period of
time necessary to permit the Grantor or the issuer of the Pledged Collateral to
register such securities for public sale under the Securities Act of 1933, as
amended, or under applicable state securities laws, even if the Grantor and the
issuer would agree to do so.

 

5.3.         Grantor’s Obligations Upon
Default.  Upon the request of the Lender
after the occurrence and during the continuation of a Default, the Grantor
will:

 

(a)               assemble and make available
to the Lender the Collateral and all books and records relating thereto at any
place or places specified by the Lender, whether at the Grantor’s premises or elsewhere;

 

(b)               permit the Lender, by the
Lender’s representatives and agents, to enter, occupy and use  any premises where all or any part of the
Collateral, or the books and records relating thereto, or both, are located, to
take possession of all or any part of the Collateral or the books and records
relating thereto, or both, to remove all or any part of the Collateral or the
books and records relating thereto, or both, and to conduct sales of the
Collateral, without any obligation to pay the Grantor for such use and
occupancy;

 

(c)               prepare and file, or cause
an issuer of Pledged Collateral to prepare and file, with the Securities and
Exchange Commission or any other applicable government agency, registration
statements, a prospectus and such other documentation in connection with the
Pledged Collateral as the Lender may request, all in form and substance
satisfactory to the Lender, and furnish to the Lender, or 

 

 

cause an issuer of Pledged Collateral to furnish to
the Lender, any information regarding the Pledged Collateral in such detail as
the Lender may specify;

 

(d)               take, or cause an issuer of
Pledged Collateral to take, any and all actions necessary to register or
qualify the Pledged Collateral to enable the Lender to consummate a public sale
or other disposition of the Pledged Collateral; and

 

(e)               at its own expense, cause
the independent certified public accountants then engaged by the Grantor to
prepare and deliver to the Lender, at any time, and from time to time, promptly
upon the Lender’s request, the following reports with respect to the Grantor: (i) a
reconciliation of all Accounts; (ii) an aging of all Accounts; (iii) trial
balances; and (iv) a test verification of such Accounts.

 

5.4.         Grant of Intellectual
property License.  For the
purpose of enabling the Lender to exercise the rights and remedies under this Article V
at such time as the Lender shall be lawfully entitled to exercise such rights
and remedies, the Grantor hereby (a) grants to the Lender an irrevocable,
nonexclusive license (exercisable without payment of royalty or other
compensation to the Grantor) to use, license or sublicense any Intellectual
property Rights now owned or hereafter acquired by the Grantor, and wherever
the same may be located, and including in such license access to all media in
which any of the licensed items may be recorded or stored and to all computer
software and programs used for the compilation or printout thereof and (b) irrevocably
agrees that the Lender may sell any of the Grantor’s Inventory directly to any
person, including without limitation persons who have previously purchased the
Grantor’s Inventory from the Grantor and in connection with any such sale or
other enforcement of the Lender’s rights under this Security Agreement, may
sell Inventory which bears any Trademark owned by or licensed to the Grantor
and any Inventory that is covered by any Copyright owned by or licensed to the
Grantor and the Lender may finish any work in process and affix any Trademark
owned by or licensed to the Grantor and sell such Inventory as provided herein.

 

ARTICLE VI

ACCOUNT VERIFICATION; ATTORNEY IN FACT; PROXY

 

6.1.         Account Verification.  The Lender may, at any time, in the Lender’s
own name or in the name of a nominee of the Lender, communicate (by mail,
telephone, facsimile or otherwise) with the Account Debtors of the Grantor,
parties to contracts with the Grantor and obligors in respect of Instruments of
the Grantor to verify with such Persons, to the Lender’s satisfaction, the
existence, amount, terms of, and any other matter relating to, Accounts, Instruments,
Chattel Paper, payment intangibles and/or other Receivables.

 

6.2.         Authorization for Secured
Party to Take Certain Action.

 

(a)               The Grantor irrevocably
authorizes the Lender at any time and from time to time in the sole discretion
of the Lender and appoints the Lender as its attorney in fact (i) to
execute on behalf of the Grantor as debtor and to file financing statements
necessary or desirable in the Lender’s sole discretion to perfect and to
maintain the perfection and priority of the Lender’s security interest in the
Collateral, (ii) to endorse and collect any cash proceeds of the
Collateral, (iii) to file a carbon, photographic or other reproduction of
this Security Agreement or any financing statement with respect to the
Collateral as a financing statement and to file any other financing statement
or amendment of a financing statement (which does not add new collateral or add
a debtor) in such offices as the Lender in its sole discretion deems necessary
or desirable to perfect and to maintain the perfection and priority of the
Lender’s security interest in the Collateral, (iv) to contact and enter
into one or more agreements with the issuers of uncertificated securities which
are Pledged Collateral or with securities intermediaries holding Pledged
Collateral as may be necessary or advisable to give the Lender Control over
such 

 

 

Pledged Collateral, (v) to apply the proceeds
of any Collateral received by the Lender to the Secured Obligations as provided
in the Credit Agreement, (vi) to discharge past due taxes, assessments,
charges, fees or Liens on the Collateral (except for such Liens as are
specifically permitted hereunder), (vii) to contact Account Debtors for
any reason (subject to the notice requirements in Section 6.1 of this
Security Agreement), (viii) following the occurrence and during the
continuation of the Default to demand payment or enforce payment of the
Receivables in the name of the Lender or the Grantor and to endorse any and all
checks, drafts, and other instruments for the payment of money relating to the
Receivables, (ix) following the occurrence and during the continuation of
a Default, to sign the Grantor’s name on any invoice or bill of lading relating
to the Receivables, drafts against any Account Debtor of the Grantor,
assignments and verifications of Receivables, (x) following the occurrence
and during the continuation of a Default, to exercise all of the Grantor’s
rights and remedies with respect to the collection of the Receivables and any
other Collateral, (xi) following the occurrence and during the
continuation of a Default, to settle, adjust, compromise, extend or renew the
Receivables, (xii) following the occurrence and during the continuation of
a Default, to settle, adjust or compromise any legal proceedings brought to
collect Receivables, (xiii) following the occurrence and during the
continuation of a Default, to prepare, file and sign the Grantor’s name on a
proof of claim in bankruptcy or similar document against any Account Debtor of
the Grantor, (xiv) to prepare, file and sign the Grantor’s name on any
notice of Lien, assignment or satisfaction of Lien or similar document in
connection with the Receivables, (xv) following the occurrence and during
the continuation of a Default, to change the address for delivery of mail
addressed to the Grantor to such address as the Lender may designate and to
receive, open and dispose of all mail addressed to the Grantor, and (xvi) to
do all other acts and things reasonably necessary to carry out this Security
Agreement; and the Grantor agrees to reimburse the Lender on demand for any
payment made or any reasonable expense incurred by the Lender in connection
with any of the foregoing; provided that,
this authorization shall not relieve the Grantor of any of its obligations
under this Security Agreement or under the Credit Agreement.

 

(b)               All acts of said attorney or
designee are hereby ratified and approved. The powers conferred on the Lender,
under this Section 6.2 are solely to protect the Lender’s interests in the
Collateral and shall not impose any duty upon the Lender to exercise any such
powers.

 

6.3.         Proxy. THE GRANTOR
HEREBY IRREVOCABLY CONSTITUTES AND APPOINTS THE LENDER AS PROXY AND
ATTORNEY-IN-FACT (AS SET FORTH IN SECTION 6.2 ABOVE) OF THE GRANTOR WITH
RESPECT TO THE PLEDGED COLLATERAL, INCLUDING THE RIGHT TO VOTE SUCH
PLEDGED COLLATERAL, WITH FULL POWER OF SUBSTITUTION TO DO SO. IN ADDITION TO
THE RIGHT TO VOTE ANY SUCH PLEDGED COLLATERAL, THE APPOINTMENT OF THE LENDER AS
PROXY AND ATTORNEY-IN-FACT SHALL INCLUDE THE RIGHT TO EXERCISE ALL OTHER
RIGHTS, POWERS, PRIVILEGES AND REMEDIES TO WHICH A HOLDER OF SUCH PLEDGED
COLLATERAL WOULD BE ENTITLED (INCLUDING GIVING OR WITHHOLDING WRITTEN CONSENTS
OF SHAREHOLDERS, CALLING SPECIAL MEETINGS OF SHAREHOLDERS AND VOTING AT SUCH
MEETINGS) WHICH APPOINTMENT OF LENDER AS PROXY AND ATTORNEY-IN-FACT SHALL BE
EFFECTIVE UPON THE OCCURRENCE AND DURING THE CONTINUANCE OF AN EVENT OF
DEFAULT.  SUCH PROXY SHALL BE EFFECTIVE,
AUTOMATICALLY AND WITHOUT THE NECESSITY OF ANY ACTION (INCLUDING ANY TRANSFER
OF ANY SUCH PLEDGED COLLATERAL ON THE RECORD BOOKS OF THE ISSUER THEREOF) BY
ANY PERSON (INCLUDING THE ISSUER OF SUCH PLEDGED COLLATERAL OR ANY OFFICER OR
AGENT THEREOF).

 

6.4.         Nature of Appointment;
Limitation of Duty.  THE
APPOINTMENT OF THE LENDER AS PROXY AND ATTORNEY-IN-FACT IN THIS ARTICLE VI
IS COUPLED WITH AN INTEREST AND SHALL BE IRREVOCABLE UNTIL THE DATE ON WHICH
THIS SECURITY AGREEMENT IS TERMINATED IN ACCORDANCE WITH SECTION 7.14. NOTWITHSTANDING
ANYTHING

 

 

CONTAINED HEREIN, NEITHER THE LENDER NOR ANY OF ITS
RESPECTIVE AFFILIATES, OFFICERS, DIRECTORS, EMPLOYEES, AGENTS OR
REPRESENTATIVES SHALL HAVE ANY DUTY TO EXERCISE ANY RIGHT OR POWER GRANTED
HEREUNDER OR OTHERWISE OR TO PRESERVE THE SAME AND SHALL NOT BE LIABLE FOR ANY
FAILURE TO DO SO OR FOR ANY DELAY IN DOING SO, EXCEPT  IN RESPECT OF DAMAGES ATTRIBUTABLE SOLELY TO
THEIR OWN GROSS NEGLIGENCE OR WILLFUL MISCONDUCT AS FINALLY DETERMINED BY A
COURT OF COMPETENT JURISDICTION; PROVIDED THAT, IN NO EVENT SHALL THEY BE
LIABLE FOR ANY PUNITIVE, EXEMPLARY, INDIRECT OR CONSEQUENTIAL DAMAGES.

 

ARTICLE VII

GENERAL PROVISIONS

 

7.1.         Waivers.  To the extent such notice may be waived under
applicable law, the Grantor hereby waives notice of the time and place of any
public sale or the time after which any private sale or other disposition of
all or any part of the Collateral may be made. 
To the extent such notice may not be waived under applicable law, any
notice made shall be deemed reasonable if sent to the Grantor, addressed as set
forth in Article IX, at least ten days prior to (i) the date of any
such public sale or (ii) the time after which any such private sale or
other disposition may be made.  To the
maximum extent permitted by applicable law, the Grantor waives all claims,
damages, and demands against the Lender arising out of the repossession,
retention or sale of the Collateral, except such as arise solely out of the
gross negligence or willful misconduct of the Lender as finally determined by a
court of competent jurisdiction. To the extent it may lawfully do so, the
Grantor absolutely and irrevocably waives and relinquishes the benefit and
advantage of, and covenants not to assert against the Lender, any valuation,
stay, appraisal, extension, moratorium, redemption or similar laws and any and
all rights or defenses it may have as a surety now or hereafter existing which,
but for this provision, might be applicable to the sale of any Collateral made
under the judgment, order or decree of any court, or privately under the power
of sale conferred by this Security Agreement, or otherwise.  Except as otherwise specifically provided
herein, the Grantor hereby waives presentment, demand, protest or any notice
(to the maximum extent permitted by applicable law) of any kind in connection
with this Security Agreement or any Collateral.

 

7.2.         Limitation on the Lender’s
Duty with Respect to the Collateral.  The Lender shall have no obligation to
clean-up or otherwise prepare the Collateral for sale. The Lender shall use
reasonable care with respect to the Collateral in its possession or under its
control.  The Lender shall not have any
other duty as to any Collateral in its possession or control or in the possession
or control of any agent or nominee of the Lender, or any income thereon or as
to the preservation of rights against prior parties or any other rights
pertaining thereto. To the extent that applicable law imposes duties on the
Lender to exercise remedies in a commercially reasonable manner, the Grantor
acknowledges and agrees that it is commercially reasonable for the Lender (i) to
fail to incur expenses deemed significant by the Lender to prepare Collateral
for disposition or otherwise to transform raw material or work in process into
finished goods or other finished products for disposition, (ii) to fail to
obtain third party consents for access to Collateral to be disposed of, or to
obtain or, if not required by other law, to fail to obtain governmental or
third party consents for the collection or disposition of Collateral to be
collected or disposed of, (iii) to fail to exercise collection remedies
against Account Debtors or other Persons obligated on Collateral or to remove
Liens on or any adverse claims against Collateral, (iv) to exercise
collection remedies against Account Debtors and other Persons obligated on
Collateral directly or through the use of collection agencies and other
collection specialists, (v) to advertise dispositions of Collateral
through publications or media of general circulation, whether or not the
Collateral is of a specialized nature, (vi) to contact other Persons,
whether or not in the same business as the Grantor, for expressions of interest
in acquiring all or any portion of such Collateral, (vii) to hire one or
more professional auctioneers to assist in the disposition of Collateral,
whether or not the Collateral is of a specialized nature, (viii) to
dispose of

 

 

Collateral by utilizing internet sites that provide
for the auction of assets of the types included in the Collateral or that have
the reasonable capacity of doing so, or that match buyers and sellers of
assets, (ix) to dispose of assets in wholesale rather than retail markets,
(x) to disclaim disposition warranties, such as title, possession or quiet
enjoyment, (xi) to purchase insurance or credit enhancements to insure the
Lender against risks of loss, collection or disposition of Collateral or to
provide to the Lender a guaranteed return from the collection or disposition of
Collateral, or (xii) to the extent deemed appropriate by the Lender, to
obtain the services of other brokers, investment bankers, consultants and other
professionals to assist the Lender in the collection or disposition of any of
the Collateral.  The Grantor acknowledges
that the purpose of this Section 7.2 is to provide non-exhaustive
indications of what actions or omissions by the Lender would  be commercially reasonable in the Lender’s
exercise of remedies against the Collateral and that other actions or omissions
by the Lender shall not be deemed commercially unreasonable solely on account
of not being indicated in this Section 7.2.  Without limitation upon the foregoing,
nothing contained in this Section 7.2 shall be construed to grant any
rights to the Grantor or to impose any duties on the Lender that would not have
been granted or imposed by this Security Agreement or by applicable law in the
absence of this Section 7.2.

 

7.3.         Compromises and Collection
of Collateral.  The Grantor
and the Lender recognize that setoffs, counterclaims, defenses and other claims
may be asserted by obligors with respect to certain of the Receivables, that
certain of the Receivables may be or become uncollectible in whole or in part
and that the expense and probability of success in litigating a disputed
Receivable may exceed the amount that reasonably may be expected to be
recovered with respect to a Receivable. 
In view of the foregoing, the Grantor agrees that the Lender may in its
Permitted Discretion at any time and from time to time, if an Event of Default
has occurred and is continuing, compromise with the obligor on any Receivable,
accept in full payment of any Receivable such amount as the Lender in its
Permitted Discretion shall determine or abandon any Receivable, and any such
action by the Lender shall be commercially reasonable so long as the Lender
acts in good faith based on information known to it at the time it takes any
such action.

 

7.4.         Secured Party Performance of
Debtor Obligations.  Without
having any obligation to do so, the Lender may perform or pay any obligation
which the Grantor has agreed to perform or pay in this Security Agreement.  Any amounts paid by the Lender pursuant to
this Section 7.4 shall be deemed Protective Advances and shall subject to Section 2.04
of the Credit Agreement.

 

7.5.         Specific Performance of
Certain Covenants.  The Grantor
acknowledges and agrees that a breach of any of the covenants contained in
Sections 4.1(d), 4.1(e), 4.4, 4.5, 4.6, 4.7, 4.8, 4.9, 4.10, 4.12, 4.13, 4.14,
4.15, 5.3, or 7.7 or in Article VII will cause irreparable injury to the
Lender, that the Lender has no adequate remedy at law in respect of such
breaches and therefore agrees, without limiting the right of the Lender to seek
and obtain specific performance of other obligations of the Grantor contained
in this Security Agreement, that the covenants of the Grantor contained in the
Sections referred to in this Section 7.5 shall be specifically enforceable
against the Grantor.

 

7.6.         Dispositions Not Authorized.  The Grantor is not authorized to sell or
otherwise dispose of the Collateral except as set forth in Section 4.1(d) and
notwithstanding any course of dealing between the Grantor and the Lender or
other conduct of the Lender, no authorization to sell or otherwise dispose of
the Collateral (except as set forth in Section 4.1(d)) shall be binding
upon the Lender unless such authorization is in writing signed by the Lender.

 

7.7.         No Waiver; Amendments;
Cumulative Remedies. No delay or omission of the Lender to exercise any
right or remedy granted under this Security Agreement shall impair such right
or remedy or be construed to be a waiver of any Default or an acquiescence
therein, and any single or partial exercise of any such right or remedy shall
not preclude any other or further exercise thereof or the exercise of any other
right or remedy. No waiver, amendment or other variation of the terms,
conditions or provisions of

 

 

this Security Agreement whatsoever shall be valid
unless in writing signed by the Lender and then only to the extent in such
writing specifically set forth.  All
rights and remedies contained in this Security Agreement or by law afforded
shall be cumulative and all shall be available to the Lender until the Secured
Obligations have been paid in full.

 

7.8.         Limitation by Law;
Severability of Provisions.  All rights, remedies and powers provided in
this Security Agreement may be exercised only to the extent that the exercise
thereof does not violate any applicable provision of law, and all the
provisions of this Security Agreement are intended to be subject to all
applicable mandatory provisions of law that may be controlling and to be
limited to the extent necessary so that they shall not render this Security
Agreement invalid, unenforceable or not entitled to be recorded or registered,
in whole or in part.  Any provision in
any this Security Agreement that is held to be inoperative, unenforceable, or
invalid in any jurisdiction shall, as to that jurisdiction, be inoperative,
unenforceable, or invalid without affecting the remaining provisions in that
jurisdiction or the operation, enforceability, or validity of that provision in
any other jurisdiction, and to this end the provisions of this Security
Agreement are declared to be severable.

 

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

 

7.10.       Benefit of Agreement.  The terms and provisions of this Security
Agreement shall be binding upon and inure to the benefit of the Grantor, the
Lender and their respective successors and assigns (including all persons who
become bound as a debtor to this Security Agreement), except that the Grantor
shall not have the right to assign its rights or delegate its obligations under
this Security Agreement or any interest herein, without the prior written
consent of the Lender.  No sales of
participations, assignments, transfers, or other dispositions of any agreement
governing the Secured Obligations or any portion thereof or interest therein
shall in any manner impair the Lien granted to the Lender hereunder.

 

7.11.       Survival of Representations.  All representations and warranties of the
Grantor contained in this Security Agreement shall survive the execution and
delivery of this Security Agreement.

 

7.12.       Taxes and Expenses.  Any taxes (including income taxes) payable or
ruled payable by Federal or State authority in respect of this Security
Agreement shall be paid by the Grantor, together with interest and penalties,
if any.  The Grantor shall reimburse the
Lender for any and all reasonable out-of-pocket expenses and internal charges
(including reasonable attorneys’, auditors’ and accountants’ fees and
reasonable time charges of attorneys, paralegals, auditors and accountants who
may be employees of the Lender) paid or incurred by the Lender in connection
with the preparation, execution, delivery, administration, collection and
enforcement of this Security Agreement and in the audit, analysis,
administration, collection, preservation or sale of the Collateral (including
the expenses and charges associated with any periodic or special audit of the
Collateral).  Any and all costs and
expenses incurred by the Grantor in the performance of actions required
pursuant to the terms hereof shall be borne solely by the Grantor.

 

 

7.13.       Headings.  The title of and section headings in this
Security Agreement are for convenience of reference only, and shall not govern
the interpretation of any of the terms and provisions of this Security
Agreement.

 

7.14.       Termination.  This Security Agreement shall continue in
effect (notwithstanding the fact that from time to time there may be no Secured
Obligations outstanding) until (i) the Credit Agreement has terminated
pursuant to its express terms and (ii) all of the Secured Obligations have
been paid and performed in full and no commitments of the Lender which would
give rise to any Secured Obligations are outstanding.

 

7.15.       Entire Agreement.  This Security Agreement embodies the entire
agreement and understanding between the Grantor and the Lender relating to the
Collateral and supersedes all prior agreements and understandings between the
Grantor and the Lender relating to the Collateral, including without limitation
any previous security agreements and pledge agreements executed by the Grantor
for the benefit of Lender.

 

7.16.       CHOICE OF LAW.  THIS SECURITY AGREEMENT SHALL BE GOVERNED BY,
AND CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS (AND NOT THE LAW OF
CONFLICTS) OF THE STATE OF INDIANA, BUT GIVING EFFECT TO FEDERAL LAWS
APPLICABLE TO NATIONAL BANKS.

 

7.17.       CONSENT TO JURISDICTION.  THE GRANTOR AND THE LENDER HEREBY EACH
IRREVOCABLY SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF ANY U.S. FEDERAL OR
INDIANA STATE COURT SITTING IN INDIANAPOLIS, INDIANA, IN ANY ACTION
OR PROCEEDING ARISING OUT OF OR RELATING TO THIS SECURITY AGREEMENT OR ANY
OTHER LOAN DOCUMENT AND THE GRANTOR AND THE LENDER HEREBY EACH IRREVOCABLY
AGREES THAT ALL CLAIMS IN RESPECT OF SUCH ACTION OR PROCEEDING MAY BE
HEARD AND DETERMINED IN ANY SUCH COURT AND IRREVOCABLY WAIVES ANY OBJECTION IT MAY NOW
OR HEREAFTER HAVE AS TO THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING
BROUGHT IN SUCH A COURT OR THAT SUCH COURT IS AN INCONVENIENT FORUM.  NOTHING HEREIN SHALL LIMIT THE RIGHT OF THE
LENDER TO BRING PROCEEDINGS AGAINST THE GRANTOR IN THE COURTS OF ANY OTHER
JURISDICTION.  ANY JUDICIAL PROCEEDING BY
THE GRANTOR AGAINST THE LENDER OR ANY AFFILIATE OF THE LENDER INVOLVING,
DIRECTLY OR INDIRECTLY, ANY MATTER IN ANY WAY ARISING OUT OF, RELATED TO, OR
CONNECTED WITH THIS SECURITY AGREEMENT OR ANY OTHER LOAN DOCUMENT SHALL BE BROUGHT
ONLY IN A COURT IN INDIANAPOLIS, INDIANA.

 

7.18.       WAIVER OF JURY TRIAL. THE
GRANTOR AND THE LENDER HEREBY WAIVE TRIAL BY JURY IN ANY JUDICIAL PROCEEDING
INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER (WHETHER SOUNDING IN TORT,
CONTRACT OR OTHERWISE) IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH
THIS SECURITY AGREEMENT OR ANY OTHER LOAN DOCUMENT OR THE RELATIONSHIP
ESTABLISHED THEREUNDER.

 

7.19.       Indemnity.  The Grantor hereby agrees to indemnify the
Lender, and its successors, assigns, agents and employees, from and against any
and all liabilities, damages, penalties, suits, costs, and expenses of any kind
and nature (including, without limitation, all expenses of litigation or
preparation therefor whether or not the Lender is a party thereto) imposed on,
incurred by or asserted against the Lender, or its successors, assigns, agents
and employees, in any way relating to or arising out

 

 

of this Security Agreement, or the manufacture,
purchase, acceptance, rejection, ownership, delivery, lease, possession, use,
operation, condition, sale, return or other disposition of any Collateral
(including, without limitation, latent and other defects, whether or not
discoverable by the Lender or the Grantor, and any claim for Patent, Trademark
or Copyright infringement); provided that such indemnity shall not be available
to the extent that such losses, claims, damages, penalties, liabilities or
related expenses are determined by a court of competent jurisdiction by final
and nonappealable judgment to have resulted from the gross negligence or
willful or illegal misconduct of Lender and/or its successors, assigns, agents
and employees.

 

7.20.       Counterparts.  This Security Agreement may be executed in
any number of counterparts, all of which taken together shall constitute one
agreement, and any of the parties hereto may execute this Security Agreement by
signing any such counterpart.

 

ARTICLE VIII

NOTICES

 

8.1.         Sending Notices.  Any notice required or permitted to be given
under this Security Agreement shall be sent by United States mail, telecopier,
personal delivery or nationally established overnight courier service, and
shall be deemed received (a) when received, if sent by hand or overnight
courier service, or mailed by certified or registered mail notices or (b) when
sent, if sent by telecopier (except that, if not given during normal business
hours for the recipient, shall be deemed to have been given at the opening of
business on the next Business Day for the recipient), in each case addressed to
the Grantor at the address set forth on Exhibit A as its principal
place of business, and to the Lender at the address set forth in  accordance with Section 8.01 of the
Credit Agreement.

 

8.2.         Change in Address for
Notices.  The Grantor and the Lender may
change the address for service of notice upon it by a notice in writing to the
other parties.

 

 

IN
WITNESS WHEREOF, the Grantor and the Lender have executed this Security
Agreement as of the date first above written.

 

	
   

  	
  SUPREME INDUSTRIES, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Robert W. Wilson

  
	
   

  	
   

  	
  Robert W. Wilson, President

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  JPMORGAN CHASE BANK, N.A., as Lender

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ H. Robert Hill

  
	
   

  	
   

  	
  H. Robert Hill, Vice
  President

  
	
   

  	
   

  
	
  STATE OF INDIANA

  	
  )

  
	
   

  	
  ) SS

  
	
  COUNTY OF ELKHART

  	
  )

  
				

 

The foregoing instrument was acknowledged before
me this 30th day of September, 2010 by Robert W. Wilson, the President of
Supreme Industries, Inc., on behalf of said corporation, as its duly
authorized officer.

 

	
   

  	
   

  	
  /s/ Angela W. Wilson

  
	
   

  	
   

  	
  Signed

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Angela W. Wilson

  
	
   

  	
   

  	
  (Printed) Notary Public

  
	
  My commission expires:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  6-29-16

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  My county of residence:Exhibit 10.1

 

LEASE EXTENDING AND AMENDING
AGREEMENT

 

THIS AGREEMENT dated the 17th day of September,
2010

 

B E T W E E N:

 

	
   

  	
  707932 ONTARIO LIMITED

  
	
   

  	
   

  
	
   

  	
  (hereinafter
  called “Landlord”)

  
	
   

  	
   

  
	
   

  	
  OF THE FIRST PART

  
	
   

  	
   

  
	
   

  	
  -
  and -

  
	
   

  	
   

  
	
   

  	
  TUCOWS (DELAWARE) INC. and 

  TUCOWS.COM CO.

  
	
   

  	
   

  
	
   

  	
  (hereinafter
  called “Tenant”)

  
	
   

  	
   

  
	
   

  	
  OF THE SECOND PART

  

 

WHEREAS:

 

A.                                   By a lease dated December 10, 1999 (“Original Lease”) made between
Landlord and Tucows International Corporation (“Original Tenant”), Landlord
leased to Original Tenant, certain premises (“Original Premises”) on the ground
floor, comprising approximately 18,426 square feet of Rentable Area in the
building municipally known as 78 Mowat Avenue, Toronto, Ontario (“Building”)
for a term of Five (5) Years (“Initial Term”), commencing January 1,
2000, and expiring December 31, 2004;

 

B.                                     By an extension agreement dated September 10, 2004 (“Extension
Agreement”) made between Landlord, Original Tenant, Tucows Inc., and Tucows.com
Co.: (i) Original Tenant assigned all of its right title and interest in
and to the Original Lease and Original Premises to Tucows Inc., and Tucows.com
Co. (collectively the “Assignee”); (ii) Landlord leased to Assignee and
Assignee leased from Landlord certain additional premises in the Building,
being approximately 8,511 square feet of Rentable Area (the “Additional
Premises”) for a term of seven (7) years commencing January 1, 2005
and expiring December 31, 2011; and (iii) the parties agreed to
extend the Initial Term for a period of seven (7) years (“First Extension
Term”), commencing January 1, 2005 and expiring December 31, 2011,
and to otherwise amend the Original Lease on the terms and conditions set out
in the Extension Agreement;

 

C.                                     Tucows Inc. changed its name to Tucows (Delaware) Inc.; 

 

D.                                    Tenant is successor in interest to Assignee;

 

A.                                   The Original Lease, as amended and assigned by the Extension Agreement
is hereinafter referred to as the “Lease”;

 

B.                                     The Initial Term and the First Extension Term are hereinafter
collectively called the “Term”;

 

C.                                     The Original Premises and Additional Premises are hereinafter
collectively called the “Premises”;

 

D.                                    Landlord and Tenant have agreed to extend the Term of the Lease for a
further period of nine (9) years commencing on January 1, 2012 and
expiring on December 31, 2020 and to otherwise amend the terms of the
Lease, all on the terms and conditions set out herein.

 

 

NOW, THEREFORE, in consideration of the mutual promises hereinafter set forth and other
good and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged by each of the parties hereto, the parties hereto agree as
follows:

 

1.                                       CONFIRMATION OF RECITALS

 

The
parties hereto confirm that the foregoing recitals are true in substance and in
fact.

 

2.                                       EXTENSION OF LEASE

 

The Term of the Lease is hereby extended for a further
period of nine (9) years commencing on the 1st day
of January, 2012 and expiring on the 31st day
of December, 2020 (“Second Extension Term”) on the same terms and conditions as
contained in the Lease, except as expressly set out herein.

 

3.                                       BASIC RENT

 

The Basic Rent payable during the last year of the
First Extension Term and the whole of the Second Extension Term shall be
calculated as an amount per square foot of the Rentable Area of the Premises
per annum as follows:

 

(i)                                     January 1, 2011 to December 31, 2015: Seventeen Dollars and
Fifty Cents ($17.50); and

 

(ii)                                  January 1, 2016 to December 31, 2020: Nineteen Dollars and
Fifty Cents ($19.50).

 

4.                                       MAINTENANCE BY THE TENANT

 

Without limitation to any of the provisions of Section 8.2
of the Lease and in addition to such provisions, Tenant covenants and agrees
that it shall continue to be responsible for all non- structural maintenance of
the Premises which does not involve or affect the Building systems, the
maintenance of which shall be in accordance with the terms of the Lease.

 

5.                                       AMENDMENTS TO THE LEASE

 

Effective as of the date of this Agreement, the Lease
is amended as follows: 

 

(a)                                  Section 4.3 (Parking) is hereby amended by:

 

(i)                                     deleting the first four sentences and the last sentence therein;

 

(ii)                                  deleting in line 18 the reference to “GST” and replacing that word with
the word “HST”;

 

(a)                                  The following sections of the Lease shall no longer apply and are hereby
deleted and of no further force or effect:

 

(i)                                     Section 1.4 (Construction of Leased Premises); 

 

(ii)                                  Section 2.5 (Free Rent);

 

(iii)                               Section 10.3 (Option to Renew), as amended in Section 4(k) of
the Extension Agreement;

 

(iv)                              Section 10.4 (Right of Refusal);

 

(i)                                     Section 4(f) (Rent Free Period) of the Extension Agreement; 

 

(vi)                              Section 4(g) (Fixturing Period) of the Extension Agreement; 

 

(vii)                           Section 4(k) of the Extension Agreement;

 

(viii)                        Section 4(l) of the Extension Agreement; and

 

2

 

(ix)                                Section 4(n) of the Extension Agreement.

 

6.                                       CONDITION OF PREMISES

 

Tenant shall accept the Premises in “as is / where is”
condition at the commencement of the Second Extension Term and Landlord shall
not be required to perform any work in the Premises.

 

7.                                       NO FURTHER OPTION TO RENEW

 

The parties hereto agree that the Tenant shall have no
further option to renew the term beyond the Second Extension Term.

 

8.                                       LANDLORD’S WORK

 

Without limitation to any of the provisions of Section 11.1
of the Lease and in addition to such provisions, the Landlord and Tenant agree
(except in the event of any emergency, when the Landlord can enter the Premises
at any time) to work cooperatively in arranging the scheduling and logistics of
any work which may need to be completed in or on the Premises by the Landlord,
its employees, or contractors.

 

9.                                       MISCELLANEOUS

 

(a)                                  The parties hereto covenant and agree to execute such further assurances
as may be required by the other to give effect to the foregoing.

 

(b)                                 Capitalized expressions used herein, unless separately defined herein,
have the same meaning as defined in the Lease.

 

(c)                                  The Lease, as amended by the terms of this Agreement, is hereby ratified
and confirmed and remains in full force and effect in accordance with its terms.

 

(d)                                 Time in all respects shall be of the essence.

 

(e)                                  This Agreement and the Lease shall be binding upon and enure to the
benefit of the parties hereto and their respective heirs, administrators,
successors and assigns, subject to the express restrictions contained in the
Lease.

 

(f)                                    This Agreement shall come into force once fully executed by all parties.

 

(g)                                 The parties hereto covenant and agree that they have good right, full
power and authority to enter into this Agreement in the manner as aforesaid.

 

3

 

EXECUTED by
each of the parties hereto under seal on the date first above mentioned.

 

	
   

  	
  707932 ONTARIO LIMITED

  
	
   

  	
   

  
	
   

  	
  Per:

  	
  /s/
  Marci Lipson

  
	
   

  	
   

  	
  Name:

  	
  Marci Lipson

  
	
   

  	
   

  	
  Title:

  	
  Authorized Signor

  
	
   

  	
   

  
	
   

  	
  Per:

  	
  /s/
  Joy Lipson

  	
  c/s

  
	
   

  	
   

  	
  Name:

  	
  Joy Lipson

  
	
   

  	
   

  	
  Title:

  	
  Authorized Signor

  
	
   

  	
   

  
	
   

  	
  I/We
  have authority to bind the Corporation.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  TUCOWS (DELAWARE) INC.

  
	
   

  	
   

  
	
   

  	
  Per:

  	
  /s/
  Mike Cooperman

  
	
   

  	
   

  	
  Name:

  	
  Mike Cooperman

  
	
   

  	
   

  	
  Title:

  	
  Chief Financial Officer

  
	
   

  	
   

  	
   

  
	
   

  	
  Per:

  	
  /s/
  Elliot Noss

  	
  c/s

  
	
   

  	
   

  	
  Name:

  	
  Elliot
  Noss

  
	
   

  	
   

  	
  Title:

  	
  Chief Executive Officer

  
	
   

  	
   

  
	
   

  	
  I/We
  have authority to bind the Corporation.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  TUCOWS.COM CO.

  
	
   

  	
   

  
	
   

  	
  Per:

  	
  /s/
  Mike Cooperman

  
	
   

  	
   

  	
  Name:

  	
  Mike Cooperman

  
	
   

  	
   

  	
  Title:

  	
  Chief Financial Officer

  
	
   

  	
   

  	
   

  
	
   

  	
  Per:

  	
  /s/
  Elliot Noss

  	
  c/s 

  
	
   

  	
   

  	
  Name:

  	
  Elliot Noss

  
	
   

  	
   

  	
  Title:

  	
  Chief Executive Officer

  
	
   

  	
   

  
	
   

  	
  I/We
  have authority to bind the Corporation.

  
								

 

4

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