Document:

exv10w2

 

 

SUPERPRIORITY DEBTOR-IN-POSSESSION GUARANTEE AND COLLATERAL AGREEMENT

by and among

BALLY TOTAL FITNESS HOLDING CORPORATION,

and certain of its Domestic Subsidiaries

and

MORGAN STANLEY SENIOR FUNDING, INC.,

as Collateral Agent

Dated as of August 22, 2007

 

 

 

TABLE OF CONTENTS

	 	 	 	 	 
	 	 	Page	 
	1.1 Definitions
	 	 	2	 
	1.2 Other Definitional Provisions
	 	 	7	 
	 
	 	 	 	 
	SECTION 2. GUARANTEE
	 	 	7	 
	2.1 Guarantee
	 	 	7	 
	2.2 Right of Contribution
	 	 	8	 
	2.3 Subordination of Subrogation
	 	 	9	 
	2.4 Amendments, etc. with respect to the Borrower Obligations
	 	 	9	 
	2.5 Guarantee Absolute and Unconditional
	 	 	9	 
	2.6 Payments
	 	 	10	 
	 
	 	 	 	 
	SECTION 3. PRIORITY AND LIENS
	 	 	10	 
	3.1 Superpriority Claims and Liens
	 	 	10	 
	3.2 Real Property
	 	 	11	 
	3.3 Set Off
	 	 	12	 
	3.4 Discharge
	 	 	12	 
	 
	 	 	 	 
	SECTION 4. GRANT OF SECURITY INTEREST
	 	 	12	 
	4.1 Grant of Security Interest
	 	 	12	 
	4.2 Formalities
	 	 	13	 
	 
	 	 	 	 
	SECTION 5. REPRESENTATIONS AND WARRANTIES
	 	 	14	 
	5.1 Representations in Credit Agreement
	 	 	14	 
	5.2 Power and Authority
	 	 	14	 
	5.3 Valid and Binding Obligation
	 	 	14	 
	5.4 Title; No Other Liens
	 	 	14	 
	5.5 Perfected First Priority Liens
	 	 	14	 
	5.6 Chief Executive Office
	 	 	15	 
	5.7 Inventory and Equipment
	 	 	15	 
	5.8 Farm Products
	 	 	15	 
	5.9 Pledged Securities
	 	 	15	 
	5.10 Receivables
	 	 	16	 
	5.11 Contracts
	 	 	16	 
	5.12 Intellectual Property
	 	 	16	 
	5.13 Leasehold Mortgages
	 	 	17	 
	5.14 Commercial Tort Claims
	 	 	17	 
	 
	 	 	 	 
	SECTION 6. COVENANTS
	 	 	17	 
	6.1 Covenants in Credit Agreement
	 	 	17	 
	6.2 Delivery of Instruments and Chattel Paper
	 	 	17	 
	6.3 Maintenance of Insurance
	 	 	17	 
	6.4 Payment of Obligations
	 	 	17	 
	6.5 Maintenance of Perfected Security Interest; Further Documentation
	 	 	18	 
	6.6 Changes
in Locations, Name, etc
	 	 	18	 

 i

 

 

	 	 	 	 	 
	 	 	Page	 
	6.7 Notices
	 	 	19	 
	6.8 Pledged Securities
	 	 	19	 
	6.9 [Reserved]
	 	 	20	 
	6.10 Intellectual Property
	 	 	20	 
	6.11 Receivables
	 	 	21	 
	6.12 Commercial Tort Claims
	 	 	22	 
	6.13 Opt-in
	 	 	22	 
	 
	 	 	 	 
	SECTION 7. REMEDIAL PROVISIONS
	 	 	22	 
	7.1 Certain Matters Relating to Receivables
	 	 	22	 
	7.2 Communications with Obligors; Grantors Remain Liable
	 	 	23	 
	7.3 Pledged Securities
	 	 	23	 
	7.4 Proceeds to be Turned Over To Collateral Agent
	 	 	25	 
	7.5 Application of Proceeds
	 	 	25	 
	7.6 Code and Other Remedies
	 	 	25	 
	7.7 Registration Rights
	 	 	26	 
	7.8 Waiver; Deficiency
	 	 	27	 
	 
	 	 	 	 
	SECTION 8. THE COLLATERAL AGENT
	 	 	27	 
	8.1 Collateral Agent’s Appointment as Attorney-in-Fact, etc.
	 	 	27	 
	8.2 Duty of Collateral Agent
	 	 	29	 
	8.3 Execution of Financing Statements
	 	 	29	 
	8.4 Authority of Collateral Agent
	 	 	30	 
	 
	 	 	 	 
	SECTION 9. MISCELLANEOUS
	 	 	30	 
	9.1 Amendments in Writing
	 	 	30	 
	9.2 Notices
	 	 	30	 
	9.3 No Waiver by Course of Conduct; Cumulative Remedies
	 	 	30	 
	9.4 Enforcement Expenses; Indemnification
	 	 	30	 
	9.5 Successors and Assigns
	 	 	31	 
	9.6 Counterparts
	 	 	31	 
	9.7 Severability
	 	 	31	 
	9.8 Section Headings
	 	 	31	 
	9.9 Integration
	 	 	31	 
	9.10 GOVERNING LAW
	 	 	32	 
	9.11 Submission To Jurisdiction; Waivers
	 	 	32	 
	9.12 Acknowledgements
	 	 	32	 
	9.13 WAIVER OF JURY TRIAL
	 	 	32	 
	9.14 Additional Grantors
	 	 	33	 
	9.15 Releases; Exercise of Remedies
	 	 	33	 
	9.16 Operating Bank Obligations
	 	 	33	 

 ii

 

 

SUPERPRIORITY DEBTOR-IN-POSSESSION GUARANTEE AND COLLATERAL AGREEMENT

          SUPERPRIORITY DEBTOR-IN-POSSESSION GUARANTEE AND COLLATERAL AGREEMENT (as amended,
supplemented or otherwise modified from time to time, the “Agreement”), dated as of August
22, 2007, made by BALLY TOTAL FITNESS HOLDING CORPORATION, a Delaware corporation and a debtor and
debtor-in-possession in a case pending under Chapter 11 of the Bankruptcy Code (“Borrower”)
and each of the other signatories hereto (together with Borrower and any other entity that may
become a party hereto as provided herein, the “Grantors”), in favor of MORGAN STANLEY
SENIOR FUNDING, INC., as Collateral Agent for the Secured Creditors (as defined below) (in such
capacity, the “Collateral Agent”).

W
I  T  N  E  S  S  E 
T  H:

          WHEREAS, the Borrower, the Collateral Agent, the several lenders from time to time parties
thereto (the “Lenders”), Morgan Stanley Senior Funding, Inc., as Administrative Agent,
Wells Fargo Foothill, LLC, as Revolving Credit Agent and The CIT Group/Business Credit, Inc., as
Revolving Syndication Agent, are parties to that certain Superpriority Debtor-in-Possession Credit
Agreement, dated as of the date hereof (as amended, modified, restated or supplemented from time to
time, the “Credit Agreement”);

          WHEREAS, pursuant to the Credit Agreement, the Lenders have severally agreed to make loans to
the Borrower upon the terms and subject to the conditions set forth therein;

          WHEREAS, the Borrower is a member of an affiliated group of companies that includes each other
Grantor;

          WHEREAS, the proceeds of the extensions of credit under the Credit Agreement have been and
will be used in part to enable the Borrower to make valuable transfers to one or more of the other
Grantors in connection with the operation of their respective businesses;

          WHEREAS, the Borrower and the other Grantors are engaged in related businesses, and each
Grantor has derived and will derive substantial direct and indirect benefit from the making of the
extensions of credit under the Credit Agreement;

          WHEREAS, the Operating Banks (as defined in the Credit Agreement) have provided, and may from
time to time provide, independently of the Lenders and the Credit Agreement, customary banking
deposit, disbursement services and cash management services to the Borrower and/or its Subsidiaries
in connection with the Demand Deposit Accounts (as defined in the Credit Agreement) established by
the Borrower and/or its Subsidiaries with such Operating Banks;

          WHEREAS, it is a condition precedent to the obligations of the Lenders to make their
respective Loans to the Borrower under the Credit Agreement that the Grantors shall have executed
and delivered this Guarantee and Collateral Agreement to secure payment of the Obligations;

 

2

          WHEREAS, the grant of the security interest, pledge and Lien contained herein has been
authorized pursuant to the Bankruptcy Code by the Final Order; and

          WHEREAS, to supplement the Final Order without in any way diminishing or limiting the effect
of the Final Order or the security interest, pledge and Lien granted thereunder, the parties hereto
desire to more fully evidence and set forth their respective rights in connection with such
security interest, pledge and Lien.

          NOW, THEREFORE, in consideration of the premises and to induce the Lenders to make their
respective extensions of credit to the Borrower under the Credit Agreement, each Grantor hereby
agrees with the Collateral Agent, for the ratable benefit of the Secured Creditors, as follows:

               SECTION 1. DEFINED TERMS

          1.1 Definitions. (a) Definitions. Unless otherwise defined herein, terms
defined in the Credit Agreement and used herein shall have the meanings given to them in the Credit
Agreement, and the following terms which are defined in the New York UCC are used herein as so
defined: Certificated Security, Chattel Paper, Commercial Tort Claims, Deposit Accounts, Documents,
Equipment, Farm Products, Goods, Instruments, Inventory, Investment Property, Letter-of-Credit
Rights and Supporting Obligations.

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

     “Accounts”: as defined in the New York UCC including accounts, accounts
receivable and other rights of any Grantor to payment for goods sold or leased or for
services rendered, whether now existing or hereafter arising and wherever arising, and
whether or not they have been earned by performance.

     “Agreement”: as defined in the preamble.

     “Borrower Obligations”: the collective reference to all loans, advances,
Loans, debts, liabilities and monetary obligations owing to any Agent, any Lender, any
Issuing Lender, any of the Interest Expense Hedging Agreement Counterparties or any of them
or any of their respective successors and assigns, of any kind or nature, present or future,
arising under this Agreement, the Credit Agreement or under any other Credit Document or
under any Interest Expense Hedging Agreement with any of the Interest Expense Hedging
Agreement Counterparties, whether or not for the payment of money, whether arising by reason
of an extension of credit, opening or amendment of a letter of credit (or payment of any
draft drawn thereunder), loan, guaranty, indemnification, or in any other manner, whether
direct or indirect (including those acquired by assignment), absolute or contingent, due or
to become due, now existing or hereafter arising and however acquired. The term includes,
without limitation, all interest (whether or not such interest would be an allowed claim in
a bankruptcy or similar proceeding against any Grantor), charges, expenses, fees, reasonable
attorneys’ fees and disbursements and paralegals’
fees, and any other sums in each case to the extent chargeable to any Grantor under
this Agreement or any other Credit Document.

 

3

     “Carve-Out”: as defined in Section 3.1.

     “Carve-Out Trigger Notice”: as defined in Section 3.1.

     “Collateral”: as defined in Section 4.1.

     “Collateral Account”: as defined in Section 7.1(b).

     “Collateral Agent”: as defined in the recitals.

     “Contracts”: all contracts and agreements to which the Grantor is a party on
the date hereof or becomes a party subsequent to the date hereof, as the same may be
amended, supplemented or otherwise modified from time to time, including, without
limitation, (i) all rights of any Grantor to receive moneys due and to become due to it
thereunder or in connection therewith, (ii) all rights of any Grantor to damages arising
thereunder and (iii) all rights of any Grantor to perform and to exercise all remedies
thereunder.

     “Contractual Obligation”: as to any Person, any provision of any security
issued by such Person or of any agreement, instrument or other undertaking to which such
Person is a party or by which it or any of its property is bound.

     “Copyright Licenses”: any written agreement naming any Grantor as licensor or
licensee (including, without limitation, those listed in Schedule 6), granting any
right under any Copyright, including, without limitation, the grant of rights to
manufacture, distribute, exploit and sell materials derived from any Copyright.

     “Copyrights”: (i) all copyrights arising under the laws of the United States,
any other country or any political subdivision thereof, whether registered or unregistered
and whether published or unpublished (including, without limitation, those listed in
Schedule 6), all registrations and recordings thereof, and all applications in
connection therewith, including, without limitation, all registrations, recordings and
applications in the United States Copyright Office, and (ii) the right to obtain all
renewals thereof.

     “Credit Agreement”: as defined in the recitals.

     “Excluded Accounts”: (i) any Demand Deposit Account or deposit account with an
average daily balance of less than $500,000 individually or $2,000,000 in the aggregate for
all such accounts, (ii) tax accounts, or (iii) payroll accounts.

     “General Intangibles”: all “general intangibles” as such term is defined in
Section 9-102(a)(42) of the New York UCC and, in any event, including, without limitation,
with respect to any Grantor, all contracts, agreements, instruments and indentures in any
form, and portions thereof, to which such Grantor is a party or under which such Grantor has
any right, title or interest or to which such Grantor or any property of such Grantor is
subject, as the same may from time to time be amended, supplemented or otherwise
modified, including, without limitation, (i) all rights of such Grantor to receive moneys
due and to become due to it thereunder or in connection therewith, (ii) all rights of such

 

4

Grantor to damages arising thereunder and (iii) all rights of such Grantor to perform and to
exercise all remedies thereunder.

     “Grantor”: as defined in the recitals.

     “Guarantor Obligations”: with respect to any Guarantor, the collective
reference to (i) the Borrower Obligations and the Operating Bank Obligations and (ii) all
obligations and liabilities of such Guarantor which may arise under or in connection with
this Agreement or any other Credit Document to which such Guarantor is a party, in each case
whether on account of guarantee obligations, reimbursement obligations, fees, indemnities,
costs, expenses or otherwise (including, without limitation, all reasonable fees and
disbursements of counsel to the Collateral Agent, or to any other Secured Creditor) that are
required to be paid by such Guarantor pursuant to the terms of this Agreement or any other
Credit Document.

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

     “Intellectual Property”: the collective reference to all rights, priorities
and privileges relating to intellectual property, whether arising under United States,
multinational or foreign laws or otherwise, including, without limitation, the Copyrights,
the Copyright Licenses, the Patents, the Patent Licenses, the Trademarks and the Trademark
Licenses, and all rights to sue at law or in equity for any infringement or other impairment
thereof, including the right to receive all proceeds and damages therefrom.

     “Intercompany Note”: any promissory note evidencing loans made by any Grantor
to the Borrower or any of its Subsidiaries.

     “Issuers”: the collective reference to each issuer of a Pledged Security.

     “Lenders”: as defined in the recitals.

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

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

     “Patent License”: all agreements, whether written or oral, providing for the
grant by or to any Grantor of any right to manufacture, use or sell any invention covered in
whole or in part by a Patent, including, without limitation, any of the foregoing referred
to in Schedule 6.

     “Patents”: (i) all letters patent of the United States, any other country or
any political subdivision thereof, all reissues and extensions thereof and all goodwill
associated therewith, including, without limitation, any of the foregoing referred to
in Schedule 6, (ii) all applications for letters patent of the United States or any
other country and all divisions, continuations and continuations-in-part thereof, including,
without

 

5

limitation, any of the foregoing referred to in Schedule 6, and (iii) all
rights to obtain any reissues or extensions of the foregoing.

     “Pledged LLC Interests”: all interests in any limited liability company
including, without limitation, all limited liability company interests listed on
Schedule 2 under the heading “Pledged LLC Interests” (as such schedule may be
amended or supplemented from time to time) and the certificates, if any, representing such
limited liability company interests and any interest of such Grantor on the books and
records of such limited liability company or on the books and records of any securities
intermediary pertaining to such interest and all dividends, distributions, cash, warrants,
rights, options, instruments, securities and other property or proceeds from time to time
received, receivable or otherwise distributed in respect of or in exchange for any or all of
such limited liability company interests.

     “Pledged Notes”: all promissory notes listed on Schedule 2 under the
heading “Pledged Notes” (as such schedule may be amended or supplemented from time to time),
all Intercompany Notes at any time issued to any Grantor and all other promissory notes
issued to or held by any Grantor (other than promissory notes issued in connection with
extensions of trade credit by any Grantor in the ordinary course of business or any
promissory note not otherwise required to be delivered hereunder).

     “Pledged Partnership Interests”: in each case, whether now existing or
hereafter acquired, all of each Grantor’s right, title and interest in and to:

     (i) any Issuer listed on Schedule 2 under the heading “Pledged
Partnership Interests” (as such schedule may be amended or supplemented from time to
time), but not any of such Grantor’s obligations from time to time as a general or
limited partner, as the case may be, in any such Issuer (unless the Collateral Agent
or its designee, on behalf of the Secured Creditors, shall elect to become a general
or limited partner, as the case may be, in any such Issuer in connection with its
exercise of remedies pursuant to the terms hereof);

     (ii) any and all moneys due and to become due to such Grantor now or in the
future by way of a distribution made to such Grantor in its capacity as a general
partner or limited partner, as the case may be, in any such Issuer or otherwise in
respect of such Grantor’s interest as a general partner or limited partner, as the
case may be, in any such Issuer;

     (iii) any other Property of any such Issuer to which such Grantor now or in the
future may be entitled in respect of its interests as a general partner or limited
partner, as the case may be, in any such Issuer by way of distribution, return of
capital or otherwise;

     (iv) any other claim or right which such Grantor now has or may in the future
acquire in respect of its general or limited partnership interests in any such
Issuer;

 

6

     (v) the partnership agreement or other organizational documents of any such
Issuer;

     (vi) all certificates, options or rights of any nature whatsoever that may be
issued or granted by any such Issuer to such Grantor while this Agreement is in
effect; and

     (vii) to the extent not otherwise included, all Proceeds of any or all of the
foregoing.

     “Pledged Securities”: the collective reference to the Pledged Notes, the
Pledged Stock, the Pledged LLC Interests and the Pledged Partnership Interests.

     “Pledged Stock”: the shares of Capital Stock listed on Schedule 2 (as
amended from time to time).

     “Proceeds”: all “proceeds” as such term is defined in Section 9-102(a)(64) of
the New York UCC and, in any event, shall include, without limitation, all dividends or
other income from the Pledged Securities, collections thereon or distributions or payments
with respect thereto.

     “Receivables”: any right to payment for goods sold or leased or for services
rendered, whether or not such right is evidenced by an Instrument or Chattel Paper and
whether or not it has been earned by performance, including without limitation, any Account.

     “Secured Creditors”: the collective reference to, the Agents, the Lenders, the
Issuing Lenders and the Operating Banks in their separate financial arrangements with
Borrower, the Agents, the Lenders or the Issuing Lenders, and the Interest Expense Hedging
Agreement Counterparties, each in connection with the Secured Obligations.

     “Secured Obligations”: the collective reference to (i) the Borrower
Obligations, (ii) the Operating Bank Obligations and (iii) the Guarantor Obligations of all
Guarantors.

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

     “Trademarks”: (i) all trademarks, trade names, corporate names, company names,
business names, fictitious business names, trade styles, service marks, logos and other
source or business identifiers, and all goodwill associated therewith, now existing or
hereafter adopted or acquired, all registrations and recordings thereof, and all
applications in connection therewith, excluding “Intent to Use” filings, whether in the
United States Patent and Trademark Office or in any similar office or agency of the United
States, any State thereof or any other country or any political subdivision thereof, or
otherwise, and
all common-law rights related thereto, including, without limitation, any of the
foregoing referred to in Schedule 6, and (ii) the right to obtain all renewals
thereof.

     “Trademark License”: any agreement, whether written or oral, providing for the
grant by or to any Grantor of any right to use any Trademark, including, without

 

7

limitation,
any of the foregoing referred to in Schedule 6; excluding “Intent to Use” filings.

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

          (b) References to Exhibits and Schedules are to those to this Agreement, unless otherwise
indicated.

          (c) References to agreements and other contractual instruments shall be deemed to include all
exhibits and appendices attached thereto and all amendments, supplements and other modifications to
such instruments, but only to the extent such amendments, supplements and other modifications are
not prohibited by the terms of this Agreement or the Credit Agreement.

          (d) References to Persons include their respective permitted successors and assigns and, in
the case of governmental authorities, Persons succeeding to their respective functions and
capacities.

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

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

          (g) The
phrase “on the date hereof” and similar phrases shall mean
August 22, 2007.

SECTION 2. GUARANTEE

          2.1 Guarantee. (a) Each of the Guarantors hereby, jointly and severally,
unconditionally and irrevocably, guarantees to the Collateral Agent, for the benefit of (i) any
other agent under the Credit Agreement, (ii) each Lender, and (iii) each Interest Expense Hedge
Agreement Counterparty (collectively, the “Beneficiaries” and each a
“Beneficiary”), the prompt and complete payment and performance by Borrower when due
(whether at the stated maturity, by acceleration or otherwise) of the Borrower Obligations, and
each of the Guarantors further agrees
to pay any and all reasonable costs and out-of-pocket expenses (including, without limitation,
reasonable fees and out of pocket expenses of counsel) which may be paid or incurred by the
Collateral Agent in enforcing, or obtaining advice of counsel in respect of, any rights with
respect to, or collecting, any or all of the Borrower Obligations and/or enforcing any rights with
respect to, or collecting against, the Guarantors under the provisions of this Section 2.

          (b) Anything herein or in any other Credit Document to the contrary notwithstanding, the
maximum liability of each Guarantor hereunder and under the other Credit

 

8

Documents shall in no
event exceed the amount which can be guaranteed by such Guarantor under applicable federal and
state laws relating to the insolvency of debtors (after giving effect to the right of contribution
established in Section 2.2).

          (c) Each Guarantor agrees that the Borrower Obligations may at any time and from time to time
exceed the amount of the liability of such Guarantor hereunder without impairing the guarantee
contained in this Section 2 or affecting the rights and remedies of the Collateral Agent or any
Operating Bank hereunder.

          (d) The guarantee contained in this Section 2 shall remain in full force and effect until all
the Borrower Obligations and the obligations of each Guarantor under the guarantee contained in
this Section 2 (other than contingent indemnification obligations for which no claim has been
asserted) shall have been satisfied by payment in full, no Letter of Credit shall be outstanding
(unless such Letter of Credit shall have been cash collateralized, returned or backstopped in
accordance with the Credit Agreement) and the Commitments shall be terminated, notwithstanding that
from time to time during the term of the Credit Agreement the Borrower may be free from any
Borrower Obligations.

          (e) No payment made by the Borrower, any of the Guarantors, any other guarantor or any other
Person or received or collected by the Collateral Agent or any Lender from the Borrower, any of the
Guarantors, any other guarantor or any other Person by virtue of any action or proceeding or any
set-off or appropriation or application at any time or from time to time in reduction of or in
payment of the Borrower Obligations shall be deemed to modify, reduce, release or otherwise affect
the liability of any Guarantor hereunder which shall, notwithstanding any such payment (other than
any payment made by such Guarantor in respect of the Borrower Obligations or any payment received
or collected from such Guarantor in respect of the Borrower Obligations), remain liable for the
Borrower Obligations up to the maximum liability of such Guarantor hereunder until the Borrower
Obligations (other than contingent indemnification obligations for which no claim has been
asserted) are paid in full, no Letter of Credit shall be outstanding (unless such Letter of Credit
shall have been cash collateralized, returned or backstopped in accordance with the Credit
Agreement) and the Commitments are terminated.

          (f) Each Guarantor agrees that whenever, at any time, or from time to time, it shall make any
payment to any Beneficiary on account of its liability hereunder, it will promptly notify the
Collateral Agent in writing that such payment is made under this Section 2 for such purpose.

          2.2 Right of Contribution. Each Guarantor hereby agrees that to the extent that a Guarantor shall have paid more than
its proportionate share of any payment made hereunder, such Guarantor shall be entitled to seek and
receive contribution from and against any other Guarantor hereunder which has not paid its
proportionate share of such payment. Each Guarantor’s right of contribution shall be subject to
the terms and conditions of Section 2.3. The provisions of this Section 2.2 shall in no respect
limit the obligations and liabilities of any Guarantor to the Collateral Agent and the Lenders, and
each Guarantor shall remain liable to the Collateral Agent and the Lenders for the full amount
guaranteed by such Guarantor hereunder.

 

9

          2.3 Subordination of Subrogation. Notwithstanding any payment made by any Guarantor
hereunder or any set-off or application of funds of any Guarantor by the Collateral Agent or any
Operating Bank, each Guarantor agrees not to exercise any right of subrogation to any of the rights
of the Collateral Agent or any Lender against the Borrower or any other Guarantor or any collateral
security or guarantee or right of offset held by the Collateral Agent or any Lender for the payment
of the Borrower Obligations, each Guarantor agrees not to seek or be entitled to seek any
contribution or reimbursement from the Borrower or any other Guarantor in respect of payments made
by such Guarantor hereunder, until all amounts owing to the Collateral Agent and the Lenders by the
Borrower on account of the Borrower Obligations (other than contingent indemnification obligations
for which no claim has been asserted) are paid in full, no Letter of Credit shall be outstanding
(unless such Letter of Credit shall have been cash collateralized, returned or backstopped in
accordance with the Credit Agreement) and the Commitments are terminated. If any amount shall be
paid to any Guarantor on account of such subrogation rights at any time when all of the Borrower
Obligations shall not have been paid in full (other than contingent indemnification obligations for
which no claim has been asserted), such amount shall be held by such Guarantor in trust for the
Collateral Agent and the Lenders, segregated from other funds of such Guarantor, and shall,
forthwith upon receipt by such Guarantor, be turned over to the Collateral Agent in the exact form
received by such Guarantor (duly indorsed by such Guarantor to the Collateral Agent, if required),
to be applied against the Borrower Obligations in accordance with the terms of the Credit
Agreement.

          2.4 Amendments, etc. with respect to the Borrower Obligations. Each Guarantor shall
remain obligated hereunder notwithstanding that, without any reservation of rights against any
Guarantor and without notice to or further assent by any Guarantor, any demand for payment of any
of the Borrower Obligations made by the Collateral Agent or any Lender may be rescinded by the
Collateral Agent or such Lender and any of the Borrower Obligations continued, and the Borrower
Obligations or the liability of any other Person upon or for any part thereof, or any collateral
security or guarantee therefor or right of offset with respect thereto, may, from time to time, in
whole or in part, be renewed, extended, amended, modified, accelerated, compromised, waived,
surrendered or released by the Collateral Agent or any Lender, and the Credit Agreement, any other
Credit Documents and any other documents executed and delivered in connection therewith may be
amended, modified, supplemented or terminated, in whole or in part, as the Collateral Agent (or the
Majority Lenders under the Credit Agreement or all Lenders, as the case may be) may deem advisable
from time to time, and any collateral security, guarantee or right of offset at any time held by
the Collateral
Agent or any Lender for the payment of the Borrower Obligations may be sold, exchanged,
waived, surrendered or released. Neither the Collateral Agent nor any Lender shall have any
obligation to protect, secure, perfect or insure any Lien at any time held by it as security for
the Borrower Obligations or for the guarantee contained in this Section 2 or any property subject
thereto.

          2.5 Guarantee Absolute and Unconditional. Each Guarantor waives any and all notice of
the creation, renewal, extension or accrual of any of the Borrower Obligations and notice of or
proof of reliance by the Collateral Agent or any Lender upon the guarantee contained in this
Section 2 or acceptance of the guarantee contained in this Section 2; the Borrower Obligations, and
any of them, shall conclusively be deemed to have been created, contracted or incurred, or renewed,
extended, amended or waived, in reliance upon the guarantee contained in this Section 2; and all
dealings between the Borrower and any of the Guarantors, on the one

 

10

 hand, and the Collateral Agent
and the Lenders, on the other hand, likewise shall be conclusively presumed to have been had or
consummated in reliance upon the guarantee contained in this Section 2. Each Guarantor waives
diligence, presentment, protest, demand for payment and notice of default or nonpayment to or upon
the Borrower or any of the Guarantors with respect to the Borrower Obligations. Each Guarantor
understands and agrees that the guarantee contained in this Section 2 shall be construed as a
continuing, absolute and unconditional guarantee of payment without regard to (a) the validity or
enforceability of the Credit Agreement or any other Credit Document, any of the Borrower
Obligations or any other collateral security therefor or guarantee or right of offset with respect
thereto at any time or from time to time held by the Collateral Agent or any Lender, (b) any
defense, set-off or counterclaim (other than a defense of payment or performance) which may at any
time be available to or be asserted by the Borrower or any other Person against the Collateral
Agent or any Lender, or (c) any other circumstance whatsoever (with or without notice to or
knowledge of the Borrower or such Guarantor (other than payment or performance in full of the
Secured Obligations)) which constitutes, or might be construed to constitute, an equitable or legal
discharge of the Borrower for the Borrower Obligations, or of such Guarantor under the guarantee
contained in this Section 2, in bankruptcy or in any other instance. When making any demand
hereunder or otherwise pursuing its rights and remedies hereunder against any Guarantor, the
Collateral Agent or any Lender may, but shall be under no obligation to, make a similar demand on
or otherwise pursue such rights and remedies as it may have against the Borrower, any other
Guarantor or any other Person or against any collateral security or guarantee for the Borrower
Obligations or any right of offset with respect thereto, and any failure by the Collateral Agent or
any Lender to make any such demand, to pursue such other rights or remedies or to collect any
payments from the Borrower, any other Guarantor or any other Person or to realize upon any such
collateral security or guarantee or to exercise any such right of offset, or any release of the
Borrower, any other Guarantor or any other Person or any such collateral security, guarantee or
right of offset, shall not relieve any Guarantor of any obligation or liability hereunder, and
shall not impair or affect the rights and remedies, whether express, implied or available as a
matter of law, of the Collateral Agent or any Lender against any Guarantor. For the purposes
hereof “demand” shall include the commencement and continuance of any legal proceedings.

          2.6 Payments. Each Guarantor hereby guarantees that payments hereunder will be paid to the Collateral
Agent without set-off or counterclaim in Dollars at the office of the Collateral Agent located at
1585 Broadway, Floor 2, New York, New York 10036.

SECTION 3. PRIORITY AND LIENS

          3.1 Superpriority Claims and Liens. Each Grantor hereby covenants, represents and warrants
that, upon entry of the Final Order, the Obligations of the Grantors under the Credit Documents:
(i) pursuant to Section 364(c)(1) of the Bankruptcy Code, shall at all times constitute joint and
several allowed administrative expense claims in the Cases having priority over all administrative
expenses of the kind specified in Sections 503(b), 507(a) or 507(b) of the Bankruptcy Code; (ii)
pursuant to Section 364(c)(2) of the Bankruptcy Code, shall at all times be secured by a perfected
first priority Lien on all tangible and intangible property of the Grantors that is not subject to
Existing Liens or post-petition Liens permitted hereunder that secure (A) post-petition Capitalized
Leases or purchase money financings permitted to be entered into under

 

11

the Credit Agreement or (B)
obligations not to exceed $4 million, owing to JPMorgan Chase, N.A., in connection with procurement
card obligations and the cash management system of the Grantors (collectively, “Cash Management
Obligations”); (iii) pursuant to Section 364(c)(3) of the Bankruptcy Code, shall be secured by a
perfected Lien upon all tangible and intangible property of the Grantors that is subject to
Existing Liens and to post-petition Liens permitted hereunder that secure post-petition Capitalized
Leases or purchase money financings permitted to be entered into hereunder or Cash Management
Obligations, junior to such Existing Liens and the Liens granted in connection with such Cash
Management Obligations, Capitalized Leases and purchase money financings; and (iv) pursuant to
Section 364(d)(1) of the Bankruptcy Code, shall be secured by a perfected first priority, senior
priming Lien on all of the tangible and intangible property of Grantors that is subject to existing
Liens that secure the Grantors’ Debt and other obligations under the Prepetition Facility and any
Liens that are junior thereto (but subject to any Existing Liens to which the Liens being primed
hereby are subject or become subject subsequent to the Filing Date as permitted by Section 546(b)
of the Bankruptcy Code), including any Liens granted on or after the Filing Date to provide
adequate protection in respect of the Prepetition Facility (provided, that notwithstanding
anything to the contrary in clauses (a)(ii) to (a)(iv) herein, in no event shall the Obligations be
secured by any pledge in excess of 65% of the capital stock of its direct foreign subsidiaries or
any of the capital stock or interests of indirect foreign subsidiaries (if adverse tax consequences
could result to the Grantors) or joint ventures interest (if otherwise prohibited or requiring the
consent of any third party)); in the case of each of clauses (i) through (iv) subject only to (x)
on and after delivery of notice by the applicable Agent to the Borrower that an Event of Default
has occurred and the Lenders desire to trigger the Carve-Out (a “Carve-Out Trigger
Notice”), the payment of allowed and unpaid professional fees and disbursements incurred by the
Grantors, any statutory committees appointed in the Cases, and the adhoc noteholders’ committee, on
or after the date of delivery of the Carve-Out Trigger Notice in an aggregate amount not in excess
of $5,000,000 plus the amount of unpaid professional fees and expenses incurred by the Grantors
prior to the date of delivery of the Carve-Out Trigger Notice and (y) the payment of fees pursuant
to 28 U.S.C. § 1930 ((x) and (y), together, the “Carve-Out”), provided
that, except as otherwise provided in the Final Order, no portion of the Carve-
Out shall be utilized for the payment of professional fees and disbursements incurred in connection
with any challenge to the amount, extent, priority, validity, perfection or enforcement of the
indebtedness of the Grantors owing to the lenders, agents or indemnified parties under the Facility
or to the collateral securing the Facility. The Lenders agree that so long as no Event of Default
shall have occurred and be continuing, the Grantors shall be permitted to pay compensation and
reimbursement of expenses allowed and payable under 11 U.S.C. § 330 and 11 U.S.C. § 331, as the
same may be due and payable, and the same shall not reduce the Carve-Out. The foregoing shall not
be construed as a consent to the allowance of any fees and expenses referred to above and shall not
affect the right of the Agents and the Lenders to object to the allowance and payment of such
amounts.

          3.2 Real Property. Subject in all respects to terms of the Final Order, the priorities set
forth in Section 3.1 above and to the Carve-Out, the Grantors grant to the Collateral Agent on
behalf of the Secured Creditors a security interest in, and mortgage on, all of the right, title
and interest of the Grantors in all real property owned by the Grantors, together in each case with
all of the right, title and interest of the Grantors in and to all buildings, improvements, and
fixtures related thereto, all general intangibles relating thereto and all proceeds thereof. Each
Grantor acknowledges that, pursuant to the Final Order, the Liens in favor of the Collateral

 

12

Agent on behalf of the Secured Creditors in all of such owned real property shall be perfected without
the recordation of any instruments of mortgage or assignment. Each Grantor agrees that, upon the
request of the Collateral Agent, such Grantor shall promptly enter into separate fee or leasehold
mortgages in recordable form with respect to such properties on terms reasonably satisfactory to
the Collateral Agent.

          3.3 Set Off. Subject to Article VIII of the Credit Agreement, upon the occurrence and
during the continuance of any Event of Default, each Agent and each Lender is hereby authorized at
any time and from time to time, to the fullest extent permitted by law and without further order of
or application to the Bankruptcy Court, to set off and apply any and all deposits (general or
special, time or demand, provisional or final) (other than payroll, trust and tax accounts) at any
time held and other indebtedness at any time owing by each such Agent and each such Lender to or
for the credit or the account of any Grantor against any and all of the obligations of such Grantor
under the Credit Documents, whether or not such obligations are then due. The rights of each
Secured Creditor under this Section 3.3 are in addition to other rights and remedies which such
they may have upon the occurrence and during the continuance of any Event of Default under the
Credit Documents and the Final Order.

          3.4 Discharge. Each Grantor agrees that (i) its obligations hereunder shall not be
discharged by the entry of an order confirming the Plan of Reorganization (and Borrower and each
Guarantor, pursuant to Section 1141(d)(4) of the Bankruptcy Code, hereby waives any such discharge)
and (ii) the Superpriority Claim granted to the Agents and the Lenders pursuant to the Final Order
and described in Section 3.1 and the Liens granted to the Collateral Agent pursuant to the Final
Order
and the Collateral Documents shall not be affected in any manner by the entry of an order
confirming the Plan of Reorganization.

SECTION 4. GRANT OF SECURITY INTEREST

          4.1 Grant of Security Interest. Each Grantor hereby grants to the Collateral Agent,
for the benefit of the Secured Creditors, a security interest in all of the following property now
owned or at any time acquired by such Grantor or in which such Grantor now has or at any time in
the future may acquire any right, title or interest (collectively, the “Collateral”), as
collateral security for the prompt and complete payment and performance when due (whether at the
stated maturity, by acceleration or otherwise) of such Grantor’s Obligations:

     (a) all Accounts; all Deposit Accounts; all Letter-of-Credit Rights; all Supporting
Obligations;

     (b) all Chattel Paper;

     (c) all Commercial Tort Claims as described on Schedule 3 (as amended from time
to time);

     (d) all Contracts;

     (e) all Documents;

 

13

     (f) all Equipment;

     (g) all General Intangibles;

     (h) all Instruments;

     (i) all Intellectual Property;

     (j) all Inventory;

     (k) all Investment Property;

     (l) all Pledged Securities;

     (m) all Receivables;

     (n) all Goods;

     (o) all books and records pertaining to the Collateral; and

     (p) to the extent not otherwise included, all Proceeds and products of any and all of
the foregoing and all collateral security and guarantees given by any Person with respect to
any of the foregoing.

     Anything herein to the contrary notwithstanding, the term “Collateral” and any other defined
term constituting part of the Collateral shall not include (i) any of the outstanding capital stock
of a direct Foreign Subsidiary in excess of 65% of the voting power of all classes of capital stock
of such Foreign Subsidiary entitled to vote or any of the capital stock or interests of any
indirect Foreign Subsidiary (if, in either case, adverse tax consequences could result to the
Grantors) or joint ventures interest (if otherwise prohibited or requires the consent of any third
party), (ii) any of the outstanding capital stock of Lincoln Indemnity Company, and (iii) any claim
or cause of action under sections 502(d), 544, 545, 547, 548, 550 or 551 of the Bankruptcy Code
(“Avoidance Actions”), provided that any Proceeds from Avoidance Actions shall be included
in the Collateral.

     Notwithstanding the foregoing, the Grantors shall not have any obligation to perfect the
Collateral Agent’s interest in Intellectual Property outside the United States under this Agreement
or any other Credit Document.

          4.2 Formalities. (a) Stock Powers. Concurrently with the delivery to the
Collateral Agent of each certificate representing one or more shares of Pledged Stock to the
Collateral Agent, the Grantor owning such Pledged Stock shall deliver an undated stock power
covering such certificate, duly executed in blank by such Grantor.

          (b) Powers; Registration of Partnership Pledge. Concurrently with the delivery to the
Collateral Agent of any certificate representing any Pledged LLC Interests or Pledged

 

14

Partnership
Interests, the Grantor owning such Pledged LLC Interests or Pledged Partnership Interests shall, if
requested by the Collateral Agent, deliver an undated power covering such certificate, duly
executed in blank by such Grantor.

SECTION 5. REPRESENTATIONS AND WARRANTIES

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

          5.1 Representations in Credit Agreement. In the case of each Guarantor, the
representations and warranties set forth in Article V and Section 2.21 of the Credit Agreement as
they relate to such Guarantor or to the Credit Documents to which such Guarantor is a party, each
of which is hereby incorporated herein by reference, are true and correct in all material respects,
and the Secured Creditors shall be entitled to rely on each of them as if they were fully set forth
herein, provided that each reference in each such representation and warranty to the
Borrower’s knowledge shall, for the purposes of this Section 5.1, be deemed to be a reference to
such Guarantor’s knowledge.

          5.2 Power and Authority. Upon entry of the Final Order, each Grantor has the corporate or limited liability company power
and authority and the legal right to execute and deliver, to perform its obligations under, and to
grant the Lien on the Collateral pursuant to, this Agreement and has taken all necessary corporate
or limited liability company actions to authorize its execution, delivery and performance of, and
grant of the Lien on the Collateral pursuant to, this Agreement.

          5.3 Valid and Binding Obligation. Upon the entry by the Bankruptcy Court of the Final
Order, each Grantor is duly authorized to execute and deliver this Agreement to the Collateral
Agent, and this Agreement constitutes the legal, valid and binding obligation of each Grantor,
enforceable against such Grantor in accordance with its terms (subject to applicable bankruptcy,
insolvency, reorganization, moratorium or other laws affecting creditors’ rights generally and
subject to general principles of equity, regardless of whether considered in a proceeding in equity
or at law).

          5.4 Title; No Other Liens. Except for the security interest granted to the Collateral
Agent for the benefit of the Secured Creditors pursuant to this Agreement and the other Liens
permitted to exist on the Collateral by the Credit Agreement, such Grantor owns, or has rights in,
each item of the Collateral free and clear of any and all Liens. No financing statement or other
public notice with respect to all or any part of the Collateral is on file or of record in any
public office, except such as have been filed in favor of the Collateral Agent, for the benefit of
the Secured Creditors, pursuant to this Agreement or as are permitted by the Credit Agreement.

          5.5 Perfected First Priority Liens. Upon the entry by the Bankruptcy Court of the
Final Order, the security interests granted pursuant to this Agreement constitute valid and
perfected first priority security interests on the Collateral in favor of the Collateral Agent, for
the ratable benefit of the Secured Creditors (to the extent such security interest may be perfected
thereby), as collateral security for such Grantor’s Obligations, enforceable in accordance with the

 

15

terms hereof against all creditors of such Grantor and any Persons purporting to purchase any
Collateral from such Grantor (subject to applicable bankruptcy, insolvency, reorganization,
moratorium or other laws affecting creditors’ rights generally and subject to general principles of
equity, regardless of whether considered in a proceeding in equity or at law) and (b) are prior to
all other Liens on the Collateral in existence on the date hereof except for (i) Permitted Liens,
and (ii) the Carve-Out.

          5.6 Chief Executive Office. On the date hereof, such Grantor’s jurisdiction of
organization, identification number from the jurisdiction of organization (if any) and the location
of such Grantor’s chief executive office or sole place of business are specified on Schedule
4. Such Grantor has furnished to the Collateral Agent a certified charter, certificate of
incorporation or other organization document and long-form good standing certificate as of a date
which is recent to the date hereof.

          5.7
Inventory and Equipment. Except for goods in transit and items sent to third parties for repair, on the date hereof,
the Inventory and the Equipment (other than mobile goods) are kept at the locations listed on
Schedule 5.

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

          5.9 Pledged Securities. (a) The shares of Pledged Stock pledged by the Grantors
hereunder constitute (i) the certificates representing the certificated shares of each of the
Guarantors and each first-tier Domestic Subsidiary of such Guarantors, in each case to the extent
owned by a Grantor and otherwise required to be pledged hereunder, and (ii) the certificates
representing 65% of the certificated shares of the Foreign Subsidiaries owned directly by a Grantor
and otherwise required to be pledged hereunder, together with an undated stock power for each such
certificate executed in blank by a duly authorized officer of the pledgor thereof.

          (b) The Pledged Partnership Interests pledged by each Grantor constitute all of the issued and
outstanding partnership interests of each Issuer that is a partnership in which such Grantor has
any right, title and interest.

          (c) The Pledged LLC Interests pledged by each Grantor constitute all of the issued and
outstanding limited liability company interests of each Issuer that is a limited liability company
in which such Grantor has any right, title and interest.

          (d) All the shares of the Pledged Stock issued by Subsidiaries of Borrower and all of the
Pledged LLC Interests and Pledged Partnership Interests have been duly and validly issued and are
fully paid and nonassessable (to the extent applicable).

          (e) Each of the Intercompany Notes, and to the knowledge of the applicable Grantor, each of
the other Pledged Notes constitutes the legal, valid and binding obligation of the obligor with
respect thereto, enforceable in accordance with its terms, subject to the effects of bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws relating to or
affecting creditors’ rights generally, general equitable principles (whether considered in a
proceeding in equity or at law) and an implied covenant of good faith and fair dealing.

 

16

          (f) Such Grantor is the record and beneficial owner of, and has good and marketable title to,
the Pledged Securities pledged by it hereunder, free of any and all Liens or options in favor of,
or claims of, any other Person, except Permitted Liens and the security interest created by this
Agreement and the Final Order.

          5.10 Receivables. (a) No amount in excess of $250,000 payable to such Grantor under
or in connection with any Receivable is evidenced by any Instrument (other than an item deposited
for
collection in the ordinary course of business) or Chattel Paper which has not been delivered
to the Collateral Agent to the extent required by the terms of this Agreement.

          (b) None of the obligors on any Receivables is a governmental authority except with respect to
immaterial amounts.

          (c) The amounts represented by such Grantor to any of the Lenders from time to time as owing
to such Grantor in respect of the Receivables will, when taken as a whole, at such times be
accurate in all material respects.

          5.11 Contracts. (a) The right, title and interest of such Grantor in, to and under
the Contracts are not subject to any defenses, offsets, counterclaims or claims that, in the
aggregate, could reasonably be expected to have a Material Adverse Effect.

          (b) No amount in excess of $250,000 payable to such Grantor under or in connection with any
Contract is evidenced by any Instrument (other than an item deposited for collection in the
ordinary course of business) or Chattel Paper which has not been delivered to the Collateral Agent
to the extent required by the terms of this Agreement.

          (c) None of the parties to any material Contract is a governmental authority.

          5.12 Intellectual Property. (a) Schedule 6 lists all material Intellectual
Property owned by such Grantor in its own name on the date hereof.

          (b) On the date hereof, all material Intellectual Property is valid, subsisting, unexpired and
enforceable (subject to applicable bankruptcy, insolvency, reorganization, moratorium or other laws
affecting creditors’ rights generally and subject to general principles of equity, regardless of
whether considered in a proceeding in equity or at law), has not been abandoned and does not
infringe the intellectual property rights of any other Person in any material respect.

          (c) Except as set forth in Schedule 6, on the date hereof, no material portion of the
Intellectual Property set forth on Schedule 6 is the subject of any licensing or franchise
agreement pursuant to which such Grantor is the licensor or franchisor.

          (d) No holding, decision or judgment has been rendered by any governmental authority which
would limit, cancel or question the validity of, or such Grantor’s rights in, any Intellectual
Property in any respect that could reasonably be expected to have a Material Adverse Effect.

 

17

          (e) No action or proceeding is pending, or, to the knowledge of such Grantor, threatened in
writing, on the date hereof (i) seeking to limit, cancel or question the validity of any material
Intellectual Property or such Grantor’s ownership interest therein, or (ii) which
could reasonably be expected to have a material adverse effect on the value of any of the
Intellectual Property set forth on Schedule 6.

          5.13 Leasehold Mortgages. No Grantor will execute, deliver or record, or permit to be
executed, delivered or recorded, any leasehold mortgage or fixture filing in respect of any
leasehold except for leasehold mortgages and fixture filings granted in favor of the Collateral
Agent for the benefit of the Secured Creditors or as otherwise permitted by the Credit Agreement.

          5.14 Commercial Tort Claims On the date hereof, except to the extent listed on
Schedule 3, no Grantor has rights in any Commercial Tort Claim with a value that could
reasonably be expected to exceed $250,000.

SECTION 6. COVENANTS

          Each Grantor covenants and agrees with the Collateral Agent and the other Secured Creditors
that, from and after the date of this Agreement until the Obligations (other than contingent
indemnification obligations for which no claim has been asserted) shall have been paid in full, no
Letter of Credit shall be outstanding (unless such Letter of Credit shall have been cash
collateralized, returned or backstopped in accordance with the Credit Agreement) and the
Commitments shall have terminated:

          6.1 Covenants in Credit Agreement. In the case of each Guarantor, such Guarantor
shall take, or shall refrain from taking, as the case may be, each action that is necessary to be
taken or not taken, as the case may be, so that no Default or Event of Default under the Credit
Agreement is caused by the failure to take such action or to refrain from taking such action by
such Guarantor or any of its Subsidiaries.

          6.2 Delivery of Instruments and Chattel Paper. If any amount payable under or in
connection with any of the Collateral shall be or become evidenced by any Instrument (other than
items deposited for collection in the ordinary course of business), Certificated Security or
Chattel Paper, such Instrument, Certificated Security or Chattel Paper (other than any Instrument,
Certificated Security or Chattel Paper which evidences an amount payable which does not exceed
$250,000) shall within 14 days of receipt be delivered (unless an Event of Default has occurred and
is continuing under the Credit Agreement, in which case delivery shall be within 2 Banking Days of
receipt) to the Collateral Agent, without further order of the Bankruptcy Court and at the sole
expense of such Guarantor, duly indorsed in a manner satisfactory to the Collateral Agent, to be
held as Collateral pursuant to this Agreement.

          6.3 Maintenance of Insurance. The Grantors agree to maintain insurance as required by the Credit Agreement.

          6.4 Payment of Obligations. Such Grantor will pay all postpetition obligations,
including tax claims, when due, except (i) such as may be diligently contested in good faith and

 

 

18

by
appropriate proceedings or as to which a bona fide dispute may exist and for which adequate
reserves are being maintained or (ii) where the failure to keep to make such payments could not
reasonably be expected to have a Material Adverse Effect.

          6.5 Maintenance of Perfected Security Interest; Further Documentation. (a) Such
Grantor shall maintain the security interest created by this Agreement as a perfected security
interest having at least the priority described in Section 5.5 and shall defend such security
interest against the claims and demands of all Persons whomsoever.

          (b) Such Grantor will furnish to the Collateral Agent and the Lenders from time to time
statements and schedules further identifying and describing the Collateral and such other reports
in connection with the Collateral as the Collateral Agent may reasonably request, all in reasonable
detail.

          (c) At any time and from time to time, upon the written request of the Collateral Agent,
without further order from the Bankruptcy Court and at the sole expense of such Grantor, such
Grantor will promptly and duly execute and deliver, and have recorded, such further instruments and
documents and take such further actions as the Collateral Agent may reasonably request for the
purpose of obtaining or preserving the full benefits of this Agreement and of the rights and powers
herein granted, including, without limitation, (i) filing (or authorizing the filing of) any
financing or continuation statements under the Uniform Commercial Code (or other similar laws) in
effect in any jurisdiction with respect to the security interests created hereby (such financing
statements may describe the Collateral in the same manner as described herein or may contain an
indication or description of collateral that describes such property in any other manner as the
Collateral Agent may determine, in its sole discretion, is necessary, advisable or prudent to
ensure the perfection of the security interest in the Collateral granted to the Collateral Agent
herein, including, without limitation, describing such property as “all assets” or “all personal
property, whether now owned or hereafter acquired”) and (ii) in the case of Investment Property,
Pledged Securities, Deposit Accounts, Letter-of-Credit Rights and any other relevant Collateral,
taking any actions necessary to enable the Collateral Agent to obtain “control” thereof (within the
meaning of the applicable Uniform Commercial Code) (other than Excluded Accounts).

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

     (i) change its jurisdiction of organization or the location of its chief
executive office or sole place of business from that referred to in Section 5.6; or

     (ii) change its legal name.

 

19

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

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

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

          6.8 Pledged Securities. (a) If such Grantor shall become entitled to receive or
shall receive any certificate or instrument (including, without limitation, any certificate
representing a stock dividend or a distribution in connection with any reclassification, increase
or reduction of capital or any certificate issued in connection with any reorganization), option or
rights in respect of the Capital Stock of any Issuer, whether in addition to, in substitution of,
as a conversion of, or in exchange for, any shares or units of the Pledged Stock, the Pledged LLC
Interests or the Pledged Partnership Interests, or otherwise in respect thereof, such Grantor shall
(without further order of the Bankruptcy Court) accept the same for the benefit of the Collateral
Agent and the other Secured Creditors, hold the same in trust for the Collateral Agent and the
other Secured Creditors and deliver the same within 14 days of receipt (unless an Event of Default
has occurred and is continuing under the Credit Agreement, in which case delivery shall be within 2
Banking Days of receipt) to the Collateral Agent in the exact form received, duly indorsed by such
Grantor to the Collateral Agent, if required, together with an undated stock or other power
covering such certificate duly executed in blank by such Grantor and with, if the Collateral Agent
so requests, signature guaranteed, to be held by the Collateral Agent, subject to the terms hereof,
as additional collateral security for the Obligations. Any sums paid upon or in respect of the
Pledged Securities upon the liquidation or dissolution of any Issuer at any time that an Event of
Default shall have occurred and be continuing under the Credit Agreement shall be paid over to the
Collateral Agent to be held by it hereunder as additional collateral security for the Obligations,
and in case any distribution of capital shall be made on or in respect of the Pledged Securities or
any property shall be distributed upon or with respect to the Pledged Securities pursuant to the
recapitalization or reclassification of the capital of any Issuer or pursuant to the reorganization
thereof, the property so distributed shall, unless otherwise subject to a perfected security
interest in favor of the Collateral Agent, be delivered to the Collateral Agent to be applied to
the Obligations in accordance with the Collateral Agency Agreement and the Credit Agreement. If
any sums of money or property so paid or distributed in respect of the Pledged
Securities shall be received by such Grantor at any time that an Event of Default shall have
occurred and be continuing under the Credit Agreement, such Grantor shall, until such money or
property is paid or delivered to the Collateral Agent, hold such money or property in trust for the
Secured Creditors, segregated from other funds of such Grantor, as additional collateral security
for the Obligations.

          (b) During the continuance of an Event of Default in the case of clauses (i), (ii) and (iv) of
this paragraph, such Grantor will not (i) vote to enable, or take any other action to permit, any
of its Issuers to issue any stock, partnership interests or other equity securities of any

 

20

nature
or to issue any other securities convertible into or granting the right to purchase or exchange for
any stock or other equity securities of any nature of any Issuer, (ii) sell, assign, transfer,
exchange, or otherwise dispose of, or grant any option with respect to, the Pledged Securities or
Proceeds thereof (except pursuant to a transaction expressly permitted by the Credit Agreement),
(iii) create, incur or permit to exist any Lien or option in favor of, or any claim of any Person
with respect to, any of the Pledged Securities or Proceeds thereof, or any interest therein, except
for the security interests created by this Agreement and the Final Order or as otherwise permitted
by the Credit Agreement or (iv) enter into any agreement or undertaking restricting the right or
ability of such Grantor or the Collateral Agent to sell, assign or transfer any of the Pledged
Securities or Proceeds thereof.

          (c) In the case of each Grantor which is an Issuer, such Issuer agrees that (i) it will be
bound by the terms of this Agreement relating to the Pledged Securities issued by it and will
comply with such terms insofar as such terms are applicable to it, (ii) it will notify the
Collateral Agent promptly in writing of the occurrence of any of the events described in Section
6.8(a) with respect to the Pledged Securities issued by it and (iii) the terms of Sections 7.3(c)
and 7.7 shall apply to it, mutatis mutandis, with respect to all actions that may
be required of it pursuant to Section 6.3(c) or 6.7 with respect to the Pledged Securities issued
by it.

          6.9 [Reserved].

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

          (b) Except as the Collateral Agent may otherwise consent in its reasonable discretion (such
consent not to be unreasonably withheld or delayed), such Grantor (either itself or through
licensees) will not do any act, or omit to do any act, whereby any material Patent may become
forfeited, abandoned or dedicated to the public.

          (c) Except as the Collateral Agent may otherwise consent in its reasonable discretion (such
consent not to be unreasonably withheld or delayed), such Grantor (either itself or through
licensees) (i) will employ each material Copyright and (ii) will not (and will not permit any
licensee or sublicensee thereof to) do any act or knowingly omit to do any act whereby any material
portion of the Copyrights may become invalidated or otherwise impaired. Such Grantor will not
(either itself or through licensees) do any act whereby any material portion of the Copyrights may
fall into the public domain.

 

21

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

          (e) Such Grantor will notify the Collateral Agent and the other Secured Creditors promptly if
it knows, or has reason to know, that any application or registration relating to any material
Intellectual Property may become forfeited, abandoned or dedicated to the public, or of any adverse
determination or development (including, without limitation, the institution of, or any such
determination or development in, any proceeding in the United States Patent and Trademark Office,
the United States Copyright Office or any court or tribunal in any country) regarding such
Grantor’s ownership of, or the validity of, any material Intellectual Property or such Grantor’s
right to register the same or to own and maintain the same.

          (f) Whenever such Grantor, either by itself or through any agent, employee, licensee or
designee, shall file an application for the registration of any Intellectual Property with the
United States Patent and Trademark Office, the United States Copyright Office or any similar office
or agency in any other country or any political subdivision thereof, such Grantor shall report such
filing to the Collateral Agent concurrently with each quarterly compliance certificate delivered
pursuant to Section 6.03(d) of the Credit Agreement. Upon the reasonable request of the Collateral
Agent, such Grantor shall promptly execute and deliver, and have recorded, any and all agreements,
instruments, documents, and papers as the Collateral Agent may reasonably request to evidence the
Collateral Agent’s and the other Secured Creditors’ security interest in any Copyright, Patent or
Trademark and the goodwill and general intangibles of such Grantor relating thereto or represented
thereby, in each case to the extent such Copyright, Patent or Trademark constitutes Collateral.

          (g) Except as the Collateral Agent may otherwise consent in its reasonable discretion (such
consent not to be unreasonably withheld or delayed), such Grantor will take all reasonable and
necessary steps, including, without limitation, in any proceeding before the United States Patent
and Trademark Office, the United States Copyright Office or any similar office or agency in any
other country or any political subdivision thereof, to maintain and pursue each application (and to
obtain the relevant registration) and to maintain each registration of the material Intellectual
Property, including, without limitation, filing of applications for renewal, affidavits of use and
affidavits of incontestability.

          (h) In the event that any material Intellectual Property is infringed, misappropriated or
diluted by a third party (except as the Collateral Agent may otherwise consent in its reasonable
discretion (such consent not to be unreasonably withheld or delayed)), such Grantor shall (i) take
such actions as such Grantor shall reasonably deem appropriate under the circumstances to protect
such Intellectual Property and (ii) if such Intellectual Property is of material economic value,
promptly notify the Collateral Agent after it learns thereof and sue for infringement,
misappropriation or dilution, to seek injunctive relief where appropriate and to recover any and
all damages for such infringement, misappropriation or dilution.

          6.11 Receivables. Other than in the ordinary course of business, such Grantor will
not (i) grant any extension of the time of payment of any material Receivable, (ii) compromise or
settle any material Receivable for less than the full amount thereof, (iii) release,

 

22

wholly or
partially, any Person liable for the payment of any material Receivable, (iv) allow any credit or
discount whatsoever on any material Receivable or (v) amend, supplement or modify any material
Receivable in any manner that could materially adversely affect the value thereof.

          6.12 Commercial Tort Claims If such Grantor shall obtain an interest in any
Commercial Tort Claim with a value that could reasonably be expected to exceed $250,000, such
Grantor shall, concurrently with the delivery of the quarterly compliance certificate pursuant to
Section 6.03(d) of the Credit Agreement, execute and deliver documentation acceptable to the
Administrative Agent granting a security interest under the terms and provisions of this Agreement
in and to such Commercial Tort Claim.

          6.13 Opt-in. Without the prior written consent of the Collateral Agent, such Grantor shall
not vote to enable or take any other action to cause any issuer of any Pledged Partnership
Interests or Pledged LLC Interests which are not securities (for purposes of the UCC) on the date
hereof to elect or otherwise take any action to cause such Pledged Partnership Interests or Pledged
LLC Interests to be treated as securities for purposes of the UCC unless such Grantor shall
promptly notify the Collateral Agent in writing of any such proposed election or action and shall
take all steps necessary or advisable to establish the Collateral Agent’s “control” on the date
such Pledged Partnership Interests or Pledged LLC Interests are treated as securities for purposes
of the UCC.

SECTION 7. REMEDIAL PROVISIONS

          7.1 Certain Matters Relating to Receivables. (a) At any time that an Event of
Default shall have occurred and be continuing under the Credit Agreement, and without further order
of the Bankruptcy Court, (i) the Collateral Agent shall have the right to make test verifications
of the Receivables in any manner and through any medium that it reasonably considers advisable, and
each Grantor shall furnish all such assistance and information as the Collateral Agent may require
in connection with such test
verifications; and (ii) upon the Collateral Agent’s request and at the expense of the relevant
Grantor, such Grantor shall cause independent public accountants or others satisfactory to the
Collateral Agent to furnish to the Collateral Agent reports showing reconciliations, aging and test
verifications of, and trial balances for, the Receivables.

          (b) The Collateral Agent hereby authorizes each Grantor to collect such Grantor’s Receivables,
subject to the Collateral Agent’s direction and control, and the Collateral Agent may curtail or
terminate said authority at any time that an Event of Default shall have occurred and be continuing
under the Credit Agreement. If required by the Collateral Agent at any time that an Event of
Default shall have occurred and be continuing under the Credit Agreement, and without further order
of the Bankruptcy Court, any payments of Receivables, when collected by any Grantor, (i) shall be
forthwith (and, in any event, within two Banking Days) deposited by such Grantor in the exact form
received, duly indorsed by such Grantor to the Collateral Agent if required, in a collateral
account maintained under the sole dominion and control of the Collateral Agent, subject to
withdrawal by the Collateral Agent for the account of the Secured Creditors only as provided in
Section 7.5 (a “Collateral Account”), and (ii) until so turned over, shall be held by such
Grantor in trust for the Collateral Agent and the other Secured Creditors, segregated from other
funds of such Grantor. Each such deposit of Proceeds of

 

23

Receivables shall be accompanied by a
report identifying in reasonable detail the nature and source of the payments included in the
deposit.

          (c) At the Collateral Agent’s request, at any time that an Event of Default shall have
occurred and be continuing under the Credit Agreement, and without further order of the Bankruptcy
Court, each Grantor shall deliver to the Collateral Agent all original and other documents
evidencing, and relating to, the agreements and transactions which gave rise to the Receivables,
including, without limitation, all original orders, invoices and shipping receipts.

          7.2 Communications with Obligors; Grantors Remain Liable. (a) The Collateral Agent
in its own name or in the name of others may, at any time that an Event of Default shall have
occurred and be continuing under the Credit Agreement, and without further order of the Bankruptcy
Court, communicate with obligors under the Receivables and parties to the Contracts to verify with
them to the Collateral Agent’s satisfaction the existence, amount and terms of any Receivables or
Contracts.

          (b) Upon the request of the Collateral Agent at any time that an Event of Default shall have
occurred and be continuing under the Credit Agreement, and without further order of the Bankruptcy
Court, each Grantor shall notify obligors on the Receivables and parties to the Contracts that the
Receivables and the Contracts have been assigned to the Collateral Agent for the benefit of the
Secured Creditors and that payments in respect thereof shall be made directly to the Collateral
Agent. In the event that all Events of Default have been cured or waived in accordance with the
Credit Agreement, each Grantor shall have the right to notify (and upon request by the Grantors,
the Collateral Agent shall notify) such obligors on the Receivables and parties to the Contracts
that such payments in respect thereof shall be made directly to the applicable Grantor.

          (c) Anything herein to the contrary notwithstanding, each Grantor shall remain liable under
each of the Receivables and Contracts to observe and perform all the conditions and obligations to
be observed and performed by it thereunder, all in accordance with the terms of any agreement
giving rise thereto. Neither the Collateral Agent nor any other Secured Creditor shall have any
obligation or liability under any Receivable (or any agreement giving rise thereto) or Contract by
reason of or arising out of this Agreement or the receipt by the Collateral Agent or any other
Secured Creditor of any payment relating thereto, nor shall the Collateral Agent or any other
Secured Creditor be obligated in any manner to perform any of the obligations of any Grantor under
or pursuant to any Receivable (or any agreement giving rise thereto) or Contract, to make any
payment, to make any inquiry as to the nature or the sufficiency of any payment received by it or
as to the sufficiency of any performance by any party thereunder, to present or file any claim, to
take any action to enforce any performance or to collect the payment of any amounts which may have
been assigned to it or to which it may be entitled at any time or times.

          7.3 Pledged Securities. (a) Unless (i) an Event of Default shall have occurred and
be continuing under the Credit Agreement and (ii) the Collateral Agent shall have given notice to
the relevant Grantor of the Collateral Agent’s intent to exercise its corresponding rights pursuant
to Section 6.3(b), each Grantor shall be permitted to receive all cash dividends or distributions
or other amounts paid in respect of

 

24

the Pledged Stock, all distributions in respect of the Pledged
Partnership Interests and Pledged LLC Interests and all payments made in respect of the Pledged
Notes, in each case paid in the normal course of business of the relevant Issuer and consistent
with past practice, to the extent permitted in the Credit Agreement, and to exercise all voting and
corporate and partnership rights with respect to the Pledged Securities; provided,
however, that no vote shall be cast or corporate or partnership right exercised or other
action taken which, in the Collateral Agent’s reasonable judgment, would impair the Collateral or
which would be inconsistent with or result in any violation of any provision of the Credit
Agreement, this Agreement or any other Credit Document.

          (b) If (i) an Event of Default shall occur and be continuing under the Credit Agreement and
(ii) the Collateral Agent shall give notice of its intent to exercise such rights to the relevant
Grantor or Grantors, without further order of the Bankruptcy Court, (1) the Collateral Agent shall
have the right to receive any and all cash dividends, payments or other Proceeds paid in respect of
the Pledged Securities and make application thereof to the Obligations in such order as the
Collateral Agent may determine, and (2) any or all of the Pledged Securities shall be registered in
the name of the Collateral Agent or its nominee, and the Collateral Agent or its nominee may
thereafter exercise (x) all voting, corporate, partnership and other rights pertaining to such
Pledged Securities at any meeting of shareholders or partners (as the case may be) of the relevant
Issuer or Issuers or otherwise and (y) any and all rights of conversion, exchange and subscription
and any other rights, privileges or options pertaining to such Pledged Securities as if it were the
absolute owner thereof (including, without limitation, the right to exchange at its discretion any
and all of the Pledged Securities upon the merger, consolidation, reorganization, recapitalization
or other fundamental change in the corporate or partnership structure (as the case may be) of any
Issuer, or upon the exercise by any Grantor or the Collateral Agent of any right, privilege or
option pertaining to such Pledged Securities, and
in connection therewith, the right to deposit and deliver any and all of the Pledged
Securities with any committee, depositary, transfer agent, registrar or other designated agency
upon such terms and conditions as the Collateral Agent may determine), all without liability except
to account for property actually received by it, but the Collateral Agent shall have no duty to any
Grantor to exercise any such right, privilege or option and shall not be responsible for any
failure to do so or delay in so doing.

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

          (d) In the case of each Grantor which is a general partner or member in any Person which has
issued equity interests constituting Pledged Security, such Grantor consents to (a) the grant of a
security interest and lien in the Pledged Security, (b) the subsequent assignment or transfer by
the Collateral Agent of such Pledged Security and (c) the sale, foreclosure or other realization
upon any of the Collateral, in each case in connection with asserting its rights and remedies in
accordance with the terms herein.

 

25

          (e) After any and all Events of Default have been cured or waived in accordance with the
Credit Agreement, each Grantor shall automatically have the right to (i) exercise the voting,
managerial and other consensual rights and powers that it would otherwise be entitled to pursuant
to this Agreement, and (ii) receive the payments, proceeds, dividends, distributions, monies,
compensation, property, assets, instruments or rights which it would be authorized to receive and
retain pursuant to this Agreement. Upon the written request of any Grantor, and with reasonable
promptness after such cure or waiver and receipt of such written notice, the Collateral Agent shall
repay and deliver to such Grantor all cash and monies delivered to the Collateral Agent in
accordance with the terms of this Agreement that such Grantor is entitled to retain absent an Event
of Default that was not applied in accordance with the Credit Agreement.

          7.4 Proceeds to be Turned Over To Collateral Agent. In addition to the rights of the
Collateral Agent and the Lenders specified in Section 7.1 with respect to payments of Receivables,
if an Event of Default shall occur and be continuing under the Credit Agreement, and without
further order of the Bankruptcy Court, all Proceeds received by any Grantor consisting of cash,
checks and other near-cash items shall be held by such Grantor in trust for the Collateral Agent
and the Lenders, segregated from other funds of such Grantor, and shall, promptly upon receipt by
such Grantor, be turned over to the Collateral Agent in the exact form received by such Grantor
(duly indorsed by such Grantor to the Collateral Agent, if required). All Proceeds received by the
Collateral Agent hereunder shall be held by the Collateral Agent in a Collateral Account maintained
under its sole dominion and control. All Proceeds while held by the Collateral Agent in a
Collateral Account (or by such
Grantor in trust for the Collateral Agent and the Lenders) shall continue to be held as
collateral security for all the Obligations and shall not constitute payment thereof until applied
as provided in Section 7.5.

          7.5 Application of Proceeds. At such intervals as may be agreed upon by the Borrower
and the Collateral Agent, or, if an Event of Default shall have occurred and be continuing, at any
time at the Collateral Agent’s election and without further order of the Bankruptcy Court, the
Collateral Agent may apply all or any part of Proceeds held in any Collateral Account in payment of
the Obligations in accordance with the Collateral Agency Agreement and the Credit Agreement. Any
balance of such Proceeds remaining after the Obligations shall have been paid in full (other than
contingent indemnification obligations for which no claim has been asserted), no Letters of Credit
shall be outstanding (unless such Letter of Credit shall have been cash collateralized, returned or
backstopped in accordance with the Credit Agreement) and the Commitments shall have terminated
shall be paid over to the Borrower or to whomsoever may be lawfully entitled to receive the same.
Proceeds held in the Collateral Account at any time when no Default or Event of Default exists
shall be returned to the Borrower.

          7.6 Code and Other Remedies. If an Event of Default shall occur and be continuing
under the Credit Agreement, and without further order of the Bankruptcy Court, the Collateral
Agent, on behalf of the Secured Creditors, may exercise, in addition to all other rights and
remedies granted to them in this Agreement and in any other instrument or agreement securing,
evidencing or relating to the Obligations, all rights and remedies of a secured party under the
Uniform Commercial Code or any other applicable law. Without limiting the generality of the
foregoing, the Collateral Agent, without demand of performance or other

 

26

demand, presentment,
protest, advertisement or notice of any kind (except any notice or demand required by law referred
to below) to or upon any Grantor or any other Person (all and each of which demands, defenses,
advertisements and notices are hereby waived), may in such circumstances forthwith collect,
receive, appropriate and realize upon the Collateral, or any part thereof, and/or may forthwith
sell, lease, assign, give option or options to purchase, or otherwise dispose of and deliver the
Collateral or any part thereof (or contract to do any of the foregoing), in one or more parcels at
public or private sale or sales, at any exchange, broker’s board or office of the Collateral Agent
or any other Secured Creditor or elsewhere upon such terms and conditions as it may deem advisable
and at such prices as it may deem best, for cash or on credit or for future delivery without
assumption of any credit risk. The Collateral Agent or any other Secured Creditor shall have the
right upon any such public sale or sales, and, to the extent permitted by law, upon any such
private sale or sales, to purchase the whole or any part of the Collateral so sold, free of any
right or equity of redemption in any Grantor, which right or equity is hereby waived and released.
Each Grantor further agrees, at the Collateral Agent’s request, to assemble the Collateral and make
it available to the Collateral Agent at places which the Collateral Agent shall reasonably select,
whether at such Grantor’s premises or elsewhere. The Collateral Agent shall apply the net proceeds
of any action taken by it pursuant to this Section 6.6, after deducting all reasonable
out-of-pocket costs and expenses of every kind incurred in connection therewith or incidental to
the care or safekeeping of any of the Collateral or in any way relating to the Collateral or the
rights of the
Collateral Agent and the Secured Creditors hereunder, including, without limitation,
reasonable attorneys’ fees and disbursements of one primary counsel and one local counsel in each
appropriate jurisdiction with respect thereto, to the payment in whole or in part of the
Obligations, in such order set forth in Section 4(b) clause Third of the Collateral Agency
Agreement, and only after such application and after the payment by the Collateral Agent of any
other amount required by any provision of law, including, without limitation, Section 9-615(a)(3)
of the New York UCC, need the Collateral Agent account for the surplus, if any, to any Grantor. To
the extent permitted by applicable law, each Grantor waives all claims, damages and demands it may
acquire against the Collateral Agent or any Secured Creditor arising out of the exercise by them of
any rights hereunder. If any notice of a proposed sale or other disposition of Collateral shall be
required by law, such notice shall be deemed reasonable and proper if given at least 10 days before
such sale or other disposition.

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

 

27

          (b) Each Grantor agrees to use commercially reasonable efforts to do or cause to be done all
such other acts as may be necessary to make such sale or sales of all or any portion of the Pledged
Stock, Pledged LLC Interests or Pledged Partnership Interests pursuant to this Section 7.7 valid
and binding and in compliance with any and all other applicable requirements of law. Each Grantor
further agrees that a breach of any of the covenants contained in this Section 7.7 will cause
irreparable injury to the Collateral Agent and the other Secured Creditors, that the Collateral
Agent and the other Secured Creditors have no adequate remedy at law in respect of such breach and,
as a consequence, that each and every covenant contained in this Section 7.7 shall be specifically
enforceable against such Grantor, and such Grantor hereby waives and agrees not to assert any
defenses against an action for specific performance of such covenants except for a defense that no
Event of Default has occurred under the Credit Agreement.

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

Anything in this Section 7 (or any other provision herein) to the contrary notwithstanding, the
Collateral Agent shall not exercise any remedies with respect to the Collateral under this
Agreement unless Collateral Agent, prior to taking such action, first provides the applicable
Grantor with five (5) Banking Days’ prior written notice (with a copy to counsel for the Official
Creditors’ Committee appointed in the Cases, and to the United States Trustee for the District in
which the Cases are pending).

SECTION 8. THE COLLATERAL AGENT

          8.1 Collateral Agent’s Appointment as Attorney-in-Fact, etc. (a) Each Grantor hereby
irrevocably constitutes and appoints the Collateral Agent and any officer or agent thereof, with
full power of substitution, as its true and lawful attorney-in-fact with full irrevocable power and
authority in the place and stead of such Grantor and in the name of such Grantor or in its own
name, for the purpose of carrying out the terms of this Agreement, to take any and all appropriate
action and to execute any and all documents and instruments which may be necessary or desirable to
accomplish the purposes of this Agreement, and, without limiting the generality of the foregoing,
each Grantor hereby gives the Collateral Agent the power and right, on behalf of such Grantor,
without notice to or assent by such Grantor, to do any or all of the following:

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

 

28

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

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

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

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

     Anything in this Section 8.1(a) to the contrary notwithstanding, the Collateral Agent agrees
that it will not exercise any rights under the power of attorney provided for in this Section
8.1(a) unless an Event of Default under the Credit Agreement shall have occurred and be continuing.

 

29

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

          (c) The reasonable out-of-pocket expenses of the Collateral Agent incurred in connection with
actions undertaken as provided in this Section 8.1, together with interest thereon at a rate per
annum equal to the highest rate per annum at which interest would then be payable on past due
Reference Rate Loans under the Credit Agreement, from the date of payment by the Collateral Agent
to the date reimbursed by the relevant Grantor, shall be payable by such Grantor to the Collateral
Agent within thirty days of written demand.

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

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

          8.3 Execution of Financing Statements. Pursuant to any applicable law, each Grantor
authorizes the Collateral Agent to file or record financing statements and other filing or
recording documents or instruments with respect to the Collateral without the signature of such
Grantor in such form and in such offices as the Collateral Agent reasonably determines appropriate
to perfect the security interests of the Collateral Agent under this Agreement. Each Grantor
authorizes the Collateral Agent to use the collateral description “all personal property whether
now owned or hereafter acquired” or a similar description in any such financing statements. Each
Grantor hereby ratifies and authorizes the filing by the Collateral Agent under either the Exit
Credit Agreement or the Alternative Exit Credit Agreement (as the case may be) of any financing
statement with respect to the Collateral (as defined therein) made prior to the date thereof. The
Collateral Agent shall furnish Borrower with a copy of any documents filed or recorded pursuant to
this Section 8.3; provided that failing to furnish such copies shall not affect the
validity of effectiveness of such filing or recordation.

 

30

          8.4 Authority of Collateral Agent. Each Grantor acknowledges that the rights and
responsibilities of the Collateral Agent under this Agreement with respect to any action taken by
the Collateral Agent or the exercise or non-exercise by the Collateral Agent of any option, voting
right, request, judgment or other right or remedy provided for herein or resulting or arising out
of this Agreement shall, as between the Collateral Agent and the Secured Creditors, be governed by
the Credit Agreement, the Collateral Agency Agreement and the other Credit Documents, but, as
between the Collateral Agent and the Grantors, the Collateral Agent shall be conclusively presumed
to be acting as agent for the Secured Creditors with full and valid authority so to act or refrain
from acting, and
no Grantor shall be under any obligation, or entitlement, to make any inquiry respecting such
authority.

SECTION 9. MISCELLANEOUS

          9.1 Amendments in Writing. None of the terms or provisions of this Agreement may be
waived, amended, supplemented or otherwise modified except in accordance with Section 10.06 of the
Credit Agreement.

          9.2 Notices. All notices, requests and demands to or upon the Collateral Agent or any
Grantor hereunder shall be affected in the manner provided for in Section 9.01 of the Credit
Agreement; provided that any such notice, request or demand to or upon any Guarantor shall
be addressed to such Guarantor at its notice address set forth on Schedule 1.

          9.3 No Waiver by Course of Conduct; Cumulative Remedies. Neither the Collateral Agent
nor any Secured Creditor shall by any act (except by a written instrument pursuant to Section 9.1),
delay, indulgence, omission or otherwise be deemed to have waived any right or remedy hereunder or
to have acquiesced in any Default or Event of Default under any Credit Agreement. No failure to
exercise, nor any delay in exercising, on the part of the Collateral Agent or any Secured Creditor,
any right, power or privilege hereunder shall operate as a waiver thereof. No single or partial
exercise of any right, power or privilege hereunder shall preclude any other or further exercise
thereof or the exercise of any other right, power or privilege. A waiver by the Collateral Agent
or any Secured Creditor of any right or remedy hereunder on any one occasion shall not be construed
as a bar to any right or remedy which the Collateral Agent or such Secured Creditor would otherwise
have on any future occasion. The rights and remedies herein provided are cumulative, may be
exercised singly or concurrently and are not exclusive of any other rights or remedies provided by
law.

          9.4 Enforcement Expenses; Indemnification. (a) Without duplication of Section 9.06 of
the Credit Agreement, each Guarantor agrees to pay or reimburse the Collateral Agent within thirty
days of written demand (together with backup documentation supporting such reimbursement request)
for all reasonable costs and out-of-pocket expenses incurred in collecting against such Guarantor
under the guarantee contained in Section 2 or otherwise enforcing or preserving any rights under
this Agreement and the other Credit Documents to which such Guarantor is a party and any other
documents or instruments prepared in connection herewith or therewith and in connection with any
refinancing or restructuring
of the Guarantor Obligations in the nature of a “work out”, including,
without limitation, reasonable fees and out of pocket expenses of two consultants or restructuring

 

31

advisors (such consultants or restructuring advisors shall be reasonably acceptable to the
Guarantors) and one outside counsel and one local counsel in each appropriate jurisdiction which
may be paid or incurred by the Collateral Agent.

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

          (c) Each Guarantor agrees to pay, and to save the Collateral Agent and the other Secured
Creditors harmless from, any and all liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever with respect to
the execution, delivery, enforcement, performance and administration of this Agreement to the
extent the Borrower would be required to do so pursuant to Section 9.08 of the Credit Agreement.

          (d) The agreements in this Section 9.4 shall survive repayment of the Obligations and all
other amounts payable under any of the Credit Agreement and the other Credit Documents.

          9.5 Successors and Assigns. This Agreement shall be binding upon the successors and
assigns of each Grantor and shall inure to the benefit of the Collateral Agent and the other
Secured Creditors and their successors and assigns; provided that no Grantor may assign, transfer
or delegate any of its rights or obligations under this Agreement without the prior written consent
of the Collateral Agent.

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

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

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

          9.9 Integration. This Agreement and the other Credit Documents and the documents and agreements entered into
with respect to the Operating Bank Obligations represent the agreement of the Grantors, the
Collateral Agent and the Secured Creditors with respect to the subject matter hereof and thereof,
and there are no promises, undertakings, representations or warranties by the Collateral Agent or
any Secured Creditor relative to subject matter hereof and thereof not expressly set forth or
referred to herein or in the other Credit Documents or such other documents and agreements.

 

32

          9.10 GOVERNING LAW. THIS AGREEMENT AND ANY DISPUTE ARISING OUT OF, CONNECTED WITH,
RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED BETWEEN THEM IN CONNECTION WITH THIS
AGREEMENT, AND ALL OTHER DOCUMENTS EXECUTED IN CONNECTION HEREWITH, AND WHETHER ARISING IN
CONTRACT, TORT, EQUITY, OR OTHERWISE, SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN
ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.

          9.11 Submission To Jurisdiction; Waivers. THE SECURED CREDITORS SHALL ENFORCE ANY
CLAIM ARISING UNDER THIS AGREEMENT OR ANY OTHER COLLATERAL DOCUMENT IN THE BANKRUPTCY COURT, AND IF
THE BANKRUPTCY COURT DOES NOT HAVE (OR ABSTAINS FROM) JURISDICTION, THE SECURED CREDITORS MAY
ENFORCE EACH CLAIM IN ANY STATE OR FEDERAL COURT HAVING SUBJECT MATTER JURISDICTION AND LOCATED IN
CHICAGO, ILLINOIS OR NEW YORK, NEW YORK. FOR THE PURPOSE OF ANY ACTION OR PROCEEDING INSTITUTED
WITH RESPECT TO ANY SUCH CLAIM, EACH PARTY HERETO HEREBY IRREVOCABLY SUBMITS TO THE NON-EXCLUSIVE
JURISDICTION OF SUCH COURTS. EACH GRANTOR HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO THE
MAXIMUM EXTENT NOT PROHIBITED BY LAW, ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER IN ANY LEGAL ACTION
OR PROCEEDING REFERRED TO IN THIS SECTION ANY SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL
DAMAGES.

          9.12 Acknowledgements. Each Grantor hereby acknowledges that:

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

     (b) neither the Collateral Agent nor any other Secured Creditor has any fiduciary
relationship with or duty to any Grantor arising out of or in connection with this Agreement
or any of the other Credit Documents, and the relationship between the Grantors, on the one
hand, and the Collateral Agent and Secured Creditors, on the other hand, in connection
herewith or therewith is solely that of debtor and creditor; and

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

          9.13 WAIVER OF JURY TRIAL. EACH PARTY HERETO WAIVES ANY RIGHT TO HAVE A JURY
PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT, OR OTHERWISE, BETWEEN ANY
GRANTOR AND ANY SECURED CREDITOR ARISING OUT OF, CONNECTED WITH, RELATED TO OR INCIDENTAL TO THE
RELATIONSHIP ESTABLISHED BETWEEN THEM IN CONNECTION WITH THIS AGREEMENT. INSTEAD, ANY DISPUTES
RESOLVED IN COURT WILL BE RESOLVED IN A BENCH TRIAL WITHOUT A JURY.

 

33

          9.14 Additional Grantors. Each Subsidiary of the Borrower that is required to become
a party to this Agreement pursuant to Section 3.04 of the Credit Agreement shall become a Grantor
for all purposes of this Agreement upon execution and delivery by such Subsidiary of an Assumption
Agreement in the form of Annex 1 hereto.

          9.15 Releases; Exercise of Remedies. (a) At such time as the Obligations shall have
been paid in full (other than contingent indemnification obligations for which no claim has been
asserted), the Commitments have been terminated and no Letters of Credit shall be outstanding
(unless such Letter of Credit shall have been cash collateralized, returned or backstopped in
accordance with the Credit Agreement), the Collateral shall be released from the Liens created
hereby, and this Agreement and all obligations (other than those expressly stated to survive such
termination) of the Collateral Agent and each Grantor hereunder shall terminate, all without
delivery of any instrument or performance of any act by any party, and all rights to the Collateral
shall revert to the Grantors. At the request and sole expense of any Grantor following any such
termination, the Collateral Agent shall deliver to such Grantor any Collateral held by the
Collateral Agent hereunder, and execute and deliver to such Grantor such documents as such Grantor
shall reasonably request to evidence such termination.

          (b) If any of the Collateral shall be sold, transferred or otherwise disposed of by any
Grantor in a transaction permitted by the Credit Agreement, then the Collateral Agent, at the
request and sole expense of such Grantor, shall execute and deliver to such Grantor all releases or
other documents reasonably necessary or desirable for the release of the Liens created hereby on
such Collateral. At the request and sole expense of the Borrower, a Subsidiary Guarantor shall be
released from its obligations hereunder in the event that all the Capital Stock of such Subsidiary
Guarantor shall be sold, transferred or otherwise disposed of in a transaction permitted by the
Credit Agreement; provided that the Borrower shall have delivered to the Collateral Agent,
at least ten Banking Days prior to the date of the proposed release, a written request for release
identifying the relevant Subsidiary Guarantor and the terms of the sale or other disposition in
reasonable detail, including the price thereof and any expenses in connection
therewith, together with a certification by the Borrower stating that such transaction is in
compliance with the Credit Agreement and the other Credit Documents.

          (c) In addition, the Collateral Agent shall release all or a portion of the Collateral upon
directions from the Agent in accordance with the Collateral Agency Agreement.

          (d) By acceptance of the benefits hereof, each Secured Creditor acknowledges and consents to
the provisions of this Section 9.15 and agrees that neither the Collateral Agent nor the
Administrative Agent shall incur any liability whatsoever to any Secured Creditor for any release
directed or consented to by it in accordance with the Collateral Agency Agreement or the Credit
Agreement.

          9.16 Operating Bank Obligations. By acceptance of the benefits hereof, each Operating
Bank acknowledges and consents to the provisions of the Collateral Agency Agreement, and that it
shall not be entitled to the benefits of this Agreement or the Operating Bank Guaranty except
pursuant to the terms and conditions of the Collateral Agency Agreement.

[Remainder of Page Intentionally Left Blank]

 

 

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

	 	 	 	 	 	 	 
	 	 	BALLY TOTAL FITNESS HOLDING CORPORATION	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	/s/ Marc D. Bassewitz	 	 
	 

	 	 	 	Marc D. Bassewitz	 	 
	 

	 	 	 	Title:  Senior Vice President	 	 

Superpriority
Debtor-in-Possession Guarantee and Collateral Agreement

 

 

	 	 	 
	 

	 	BALLY FITNESS FRANCHISING, INC.
	 

	 	BALLY FRANCHISE RSC, INC.
	 

	 	BALLY FRANCHISING HOLDINGS, INC.
	 

	 	BALLY REFS WEST HARTFORD, LLC
	 

	 	BALLY SPORTS CLUBS, INC.
	 

	 	BALLY TOTAL FITNESS CORPORATION
	 

	 	BALLY TOTAL FITNESS FRANCHISING, INC.
	 

	 	BALLY TOTAL FITNESS INTERNATIONAL, INC.
	 

	 	BALLY TOTAL FITNESS OF CALIFORNIA, INC.
	 

	 	BALLY TOTAL FITNESS OF COLORADO, INC.
	 

	 	BALLY TOTAL FITNESS OF CONNECTICUT COAST, INC.
	 

	 	BALLY TOTAL FITNESS OF CONNECTICUT VALLEY, INC.
	 

	 	BALLY TOTAL FITNESS OF GREATER NEW YORK, INC.
	 

	 	BALLY TOTAL FITNESS OF MINNESOTA, INC.
	 

	 	BALLY TOTAL FITNESS OF MISSOURI, INC.
	 

	 	BALLY TOTAL FITNESS OF PHILADELPHIA, INC.
	 

	 	BALLY TOTAL FITNESS OF RHODE ISLAND, INC.
	 

	 	BALLY TOTAL FITNESS OF THE MID-ATLANTIC, INC.
	 

	 	BALLY TOTAL FITNESS OF THE MIDWEST, INC.
	 

	 	BALLY TOTAL FITNESS OF THE SOUTHEAST, INC.
	 

	 	BALLY TOTAL FITNESS OF TOLEDO, INC.
	 

	 	BALLY TOTAL FITNESS OF UPSTATE NEW YORK, INC.
	 

	 	BTF/CFI, INC.
	 

	 	GREATER PHILLY NO. 1 HOLDING COMPANY
	 

	 	GREATER PHILLY NO. 2 HOLDING COMPANY
	 

	 	HEALTH & TENNIS CORPORATION OF NEW YORK
	 

	 	HOLIDAY HEALTH CLUBS OF THE EAST COAST, INC.
	 

	 	HOLIDAY/SOUTHEAST HOLDING CORP.
	 

	 	JACK LA LANNE HOLDING CORP.
	 

	 	NEW FITNESS HOLDING CO., INC.
	 

	 	NYCON HOLDING CO., INC.
	 

	 	RHODE ISLAND HOLDING COMPANY
	 

	 	TIDELANDS HOLIDAY HEALTH CLUBS, INC.
	 

	 	U.S. HEALTH, INC.

	 	 	 	 	 	 	 
	 

	 	By:	 	/s/ Marc D. Bassewitz	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Name:  Marc D. Bassewitz	 	 
	 

	 	 	 	Title:    Senior Vice President	 	 
	 	 	 	 	             for each of the Guarantors listed above

Superpriority
Debtor-in-Possession Guarantee and Collateral Agreement

 

 

	 	 	 	 	 	 	 
	 	 	MORGAN STANLEY SENIOR FUNDING, INC., as Collateral Agent
	 
	 	 	 	 	 	 
	 

	 	By:	 	/s/ Gavin Balera	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Name:  Gavin Balera	 	 
	 

	 	 	 	Title:    Authorized
Signatory	 	 

Superpriority
Debtor-in-Possession Guarantee and Collateral Agreementexv10w1

 

Exhibit 10.1

EMULEX CORPORATION

Description of Compensation Arrangements for Certain Executive Officers

     The following is a description of the compensation arrangements for each of the Company’s
named executive officers listed in the Company’s Proxy Statement for the 2006 Annual Meeting of
Stockholders of Emulex Corporation. The compensation for these executive officers consists of base
salary and perquisites, long-term incentive compensation and annual cash bonus compensation.
Effective August 22, 2007, the following are the base salaries (on an annual basis) of the
Company’s named executive officers:

	 	 	 	 	 
	Name and Principal Position	 	New Base Salary
	 
	 	 	 	 
	Paul F. Folino *

	 	$	590,527	 
	Executive Chairman
	 	 	 	 
	 
	 	 	 	 
	James M. McCluney

	 	$	572,450	 
	Chief Executive Officer and President
	 	 	 	 
	 
	 	 	 	 
	Michael J. Rockenbach

	 	$	339,596	 
	Exec. V.P. and Chief Financial Officer
	 	 	 	 
	 
	 	 	 	 
	Marshall D. Lee

	 	$	307,204	 
	Exec. V.P., Engineering
	 	 	 	 
	 
	 	 	 	 
	William F. Gill

	 	$	291,005	 
	Exec. V.P., Worldwide Sales
	 	 	 	 

* Base salary for Paul F. Folino unchanged since September 5, 2006

     The Company does not have employment agreements with any of its executive officers but has
executed key employee retention agreements with each of its named executive officers and certain
other officers and key employees of the Company. The Company’s agreement with Mr. Folino entitles
him to receive the following payments and benefits in the event of termination of his employment by
the Company without cause or by Mr. Folino because of a demotion (as defined in such agreement)
within 2 years after a change in control of the Company: (i) a severance payment equal to the
present value of 2 times the sum of Mr. Folino’s annual salary plus the highest annual average of
any 2 of his last 3 annual bonuses; (ii) continuation for 2 years following termination of
employment of his health and life insurance, disability income, tax assistance and executive
automobile benefits (reduced to the extent similar benefits are received by him from another
employer); and (iii) acceleration of his right to exercise his stock options and vesting of any
restricted stock awards based on the length of his

 

 

continued employment following the grant of the option by one year upon the change in control of
the Company and full acceleration of such option exercise right and vesting of restricted stock
awards in the event of termination of his employment without cause or because of a demotion (as
defined in such agreement) within two years after the change in control.

     Mr. McCluney’s key employee retention agreement is substantially the same as Mr. Folino’s
agreement described above. Additionally, in the event that Mr. McCluney is terminated without cause
(regardless of whether a change in control has occurred), he will be entitled to severance in the
amount of one year’s base salary at the rate then in effect, any deferred incentive bonuses,
reimbursement of COBRA premiums, if any, for one year, and continued vesting of his stock options
for one year.

     The above descriptions are qualified in their entirety by the forms of Key Employee Retention
Agreements for Mr. Folino and Mr. McCluney which are incorporated herein by reference to Exhibits
10.2 and 10.1, respectively, to the Company’s Current Report on Form 8-K filed on September 6,
2006.

     The Company also has entered into similar agreements with each of the other named executive
officers which provide for benefits similar to those described above, except that the severance
payment is equal to the present value of one times the sum of the employee’s annual salary plus the
highest annual average of any 2 of the employee’s last 3 annual bonuses; and continuation following
termination of employment of the employee’s health and life insurance, disability income, tax
assistance and executive automobile benefits (reduced to the extent similar benefits are received
by the employee from another employer) is limited to one year. The form of key employee retention
agreement for each of the other named executive officers is filed as Exhibit 10.7 to the Company’s
Quarterly Report on Form 10-Q for the quarterly period ended December 31, 2006.

     Additionally, the Company’s executive officers are entitled to participate in health and
welfare and retirement plans, perquisite, fringe benefit and other arrangements generally available
to other salaried employees. In addition, each officer is entitled to participate in the Emulex
Corporation Retirement Savings Plan, and receives group term life insurance premiums and health
care reimbursement paid with respect to the named executive.

     The Company’s executive officers are eligible for annual performance-based cash bonuses under
the Company’s Executive Bonus Plan. The Bonus Plan is intended to provide incentives to executive
officers and other participants in the form of quarterly cash bonus payments based on Company
performance against net revenue and net operating income targets established periodically and, in
certain circumstances, other specified business goals. Actual goals for measurement purposes are
the Company’s fiscal annual operating plan that is approved by the Board of Directors. In addition,
a discretionary bonus for recognition of extraordinary contributions to the success of the company
may be recommended by the Chairman or Chief Executive Officer. All bonus recommendations are
subject to the approval of the Compensation Committee. Each executive officer of the Company has a
quarterly target award opportunity expressed as a percentage of quarterly gross base salary at the
end of the quarter in question. The quarterly target award opportunity for the executives range
from 35% to 90% of quarterly base

 

 

salary (the “target award percentage”). Each participant’s quarterly bonus is weighted based upon
achieving a combination of corporate performance goals. For example, 45% of an executive officer’s
bonus may be based upon achievement of net revenue performance goals with the remaining 55% of the
bonus based on achievement of net operating income performance. Targeted quarterly bonuses are
further adjusted by application of an accelerator formula pursuant to which bonuses are increased
to reward for over-achievement of targets and decreased to minimize bonus payments for performance
below targeted levels. For example, if quarterly net revenue is 10% more than targeted net revenue,
the bonus attributable to achievement of net revenue targets for such quarter will be between 15
and 20% above the targeted bonus amount. Similarly, if quarterly revenue is 10% less than targeted
net revenue, the bonus attributable to achievement of net revenue targets for such quarter will be
decreased by 15% to 20% percent from the targeted bonus amount. Net revenue and net operating
income bonuses are treated separately regardless of the award formula. However, no net revenue
bonus or net operating income bonus will be paid for a given quarter unless at least 80% of the
corresponding net revenue or net operating income goal, as the case may be, is achieved. In
addition, no bonus payout of any kind shall be made if net operating income is less than 50% of the
applicable net operating income goal. A participant must be an employee for the entire quarter to
be eligible for a quarterly bonus. Quarterly bonuses are generally paid 30 days following the end
of each quarter. Award formulas under the Bonus Plan are established for a fiscal year and may be
modified, extended, or canceled annually at the discretion of the Compensation Committee. The
foregoing description is qualified in its entirety by the Executive Bonus Plan which is filed as
Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on September 6, 2006.

     Long term incentives are provided to the named executives in accordance with the Company’s
2005 Equity Incentive Plan which is attached as Appendix B to the Company’s Definitive Proxy
Statement for the Annual Meeting of Stockholders held on November 30, 2006. In addition, the
Company’s executive officers have previously received options pursuant to option or other equity
plans maintained by the Company prior to the adoption of the 2005 Equity Incentive Plan in 2005.

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00128-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00128-of-00352.parquet"}]]