SECURITY AGREEMENT

EXHIBIT 10.2

EXECUTION COPY

SECURITY AGREEMENT

dated as of

October 25, 2007,

among

ICELAND ACQUISITION SUBSIDIARY, INC.,

and

HAPC, INC.,

as Grantors

and

I-FLOW CORPORATION,
as Secured Party

TABLE OF CONTENTS

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SCHEDULES

SECURITY AGREEMENT

     THIS SECURITY AGREEMENT (this “ Agreement ”), dated as of October 25, 2007, is made by ICELAND ACQUISITION SUBSIDIARY, INC., a Delaware corporation (the “ Borrower ”), HAPC, INC., a Delaware corporation (“ Holdings ”), and each other Person that may become an additional Grantor hereunder as provided in Section 8.15 hereof (any such Person, a “ Subsidiary Grantor ”; the Subsidiary Grantors, the Borrower and Holdings are collectively referred to herein as the “ Grantors ”), in favor of I-FLOW CORPORATION, a Delaware corporation, as secured party (together with its successors and assigns, the “ Secured Party ”) .

W I T N E S S E T H:

     WHEREAS, pursuant to the Credit and Guaranty Agreement dated as of October 25, 2007 (as such Credit and Guaranty Agreement may be amended, amended and restated, supplemented or otherwise modified from time to time, the “ Credit Agreement ”) among the Borrower, Holdings, the Secured Party and the other parties thereto, the Secured Party has agreed to make Loan to the Borrower;

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

     WHEREAS, it is a condition precedent to the obligations of the Secured Party to make the Loan under the Credit Agreement that the Borrower and each other Grantor shall have executed and delivered this Agreement to the Secured Party;

     NOW, THEREFORE, in consideration of the mutual conditions and agreements set forth herein, to induce the Lender to enter into the Credit Agreement and make the Loan thereunder and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

SECTION 1.

DEFINITIONS

      1.1 Credit Agreement Defined Terms; New York UCC Definitions . All capitalized terms used in this Agreement and not otherwise defined herein shall have the meanings assigned to them in the Credit Agreement. The following terms are used herein as defined in the New York UCC: Accounts, Certificated Security, Chattel Paper, Commercial Tort Claims, Deposit Account, Documents, Equipment, Farm Products, Goods, Instruments, Inventory, Letter of Credit Rights, Securities Account, Securities Intermediary and Supporting Obligations.

      1.2 Other Defined Terms . For purposes of this Agreement, the following terms shall have the respective meanings given to them below.

     “ Account Collateral ” each Grantor’s right, title and interest, whether now existing or hereafter acquired or arising, in, to and under, each Deposit Account and Securities Account (including any successor accounts to any such accounts) and all amounts, investments and any other property (including, but not limited to, Checks, securities, financial assets, investment property, security entitlements and instruments) at any time deposited in or credited to any such account and all security entitlements with respect thereto, including all income or gain earned thereon and any Proceeds thereof.

     “ Agreement ” means this Security Agreement, as the same may be amended, supplemented or otherwise modified from time to time.

     “ Books and Records ” means all books, records and other written, electronic or other documentation in whatever form maintained now or hereafter by or for the Borrower in connection with, and relating to, the ownership of, or evidencing or containing information relating to, the Collateral.

     “ Checks ” means checks and other instruments and other payment instructions deposited into any Deposit Account or Securities Account.

     “ Collateral ” has the meaning set forth in Section 2.1 .

     “ Collateral Account ” means any collateral account established by the Secured Party as provided in Section 5.1 or 5.4 .

     “ Computer Hardware and Software ” means all rights (including rights as licensee and lessee) with respect to (i) computer and other electronic data processing hardware, including all integrated computer systems, central processing units, memory units, display terminals, printers, computer elements, card readers, tape drives, hard and soft disc drives, cables, electrical supply hardware, generators, power equalizers, accessories, peripheral devices and other related computer hardware; (ii) all software and all software programs designed for use on the computers and electronic data processing hardware described in clause (i) above, including all operating system software, utilities and application programs in any form (service code and object code in magnetic tape, disc or hard copy format or any other listings whatsoever); (iii) any firmware associated with any of the foregoing; (iv) any documentation for hardware, software and firmware described in clauses (i), (ii) and (iii) above, including flow charts, logic diagrams, manuals, specifications, training materials, charts and pseudo codes; and all rights with respect thereto, including any and all licenses, options, warrants, service contracts, program services, test rights, maintenance rights, support rights, improvement rights, renewal rights and indemnifications, and any substitutions, replacements, additions or model conversions of any of the foregoing.

     “ Contracts ” means all contracts, agreements, instruments and credit agreements in any form (including, without limitation, any interest rate protection agreements, Hedge Agreements, licensing agreements and any partnership agreements, joint venture agreements and limited liability company agreements), and portions thereof, to which any Grantor is a party or under which any Grantor or any property of any Grantor is subject, as the same may from time to time be amended, supplemented, waived or otherwise modified, 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, (iii) all rights of any Grantor to perform and to exercise all remedies thereunder, (iv) any and all rights to receive and compel performance under any or all Contracts and (v) any and all other rights, interests and claims now existing or in the future arising in connection with any or all Contracts.

     “ Copyright Licenses ” means any written agreement naming any Grantor as licensor or licensee, 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 ” means (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, 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 ” has the meaning set forth in the recitals hereto.

     “ Deposit Account Control Agreement ” means a Deposit Account Control Agreement, in substantially the form set forth on Annex II attached hereto or otherwise reasonably acceptable to the Secured Party, by and among a Grantor, the Secured Party and a depositary institution.

     “ Domain Names ” means all Internet domain names and associated URL addresses in or to which any Grantor now or hereafter has any right, title or interest.

     “ Filings ” means the filing or recording of (i) the financing statements in the filing offices listed in Annex IV, and (ii) any filings after the date hereof in any other jurisdiction as may be necessary under any requirement of law.

     “ General Intangibles ” means all “general intangibles” as such term is defined in Section 9-102(a)(42) of the Uniform Commercial Code in effect in the State of New York on the date hereof and, in any event, including, without limitation, with respect to any Grantor, all contracts, agreements, instruments and Credit Agreements 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 Grantor to damages arising thereunder and (iii) all rights of such Grantor to perform and to exercise all remedies thereunder.

     “ Intellectual Property ” means 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 Domain Names, the Patents, the Patent Licenses, the Trade Secrets, the Trade Secret Licenses, the Trademarks and the Trademark Licenses and all rights to sue at law or equity or otherwise recover for any and all past, present and future infringements, misappropriations, dilutions or other impairments thereof and all income, royalties, damages and other payments now and hereafter due and/or payable with respect thereto (including, without limitation, payments under all licenses entered into in connection therewith, and damages and payments for past, present or future infringements, misappropriations, dilutions or other impairments thereof).

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

     “ Investment Property ” means the collective reference to (a) all “investment property” as such term is defined in Section 9-102(a)(49) of the New York UCC and (b) whether or not constituting “investment property” as so defined, all Pledged Notes and all Pledged Equity Interests.

     “ Issuers ” means the collective reference to each issuer of any Investment Property.

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

     “ Patent License ” means any agreements, whether written or oral, providing for the grant by or to any Grantor of any right to manufacture, have manufactured, use or sell or import any invention covered in whole or in part by a Patent.

     “ Patents ” means (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, (ii) all applications for letters patent of the United States or any other country and all provisionals, divisions, continuations and continuations-in-part thereof, and (iii) all rights to obtain any reissues or extensions of the foregoing.

     “ Permitted Liens ” means Liens permitted under Section 8.3 of the Credit Agreement.

     “ Pledged Equity Interests ” means all Equity Interests of InfuSystem, Inc., a California corporation, together with any other shares, stock certificates, options, interests or rights of any nature whatsoever in respect of the Equity Interests of any Person that may be issued or granted to, or held by, any Grantor while this Agreement is in effect.

     “ Pledged Notes ” means 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).

     “ Pledged Securities ” means the Pledged Notes and the Pledged Equity Interests.

     “ Proceeds ” means 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 Investment Property, collections thereon or distributions or payments with respect thereto.

     “ Receivable ” means 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).

     “ Release Date ” means (a) with respect to the Borrower, the Termination Date, and (b) with respect to any Subsidiary Grantor or other Grantor (other than the Borrower), the earlier to occur of (i) the date upon which all Obligations and all other Secured Obligations shall have been paid in full in cash and all Term Loan Commitments shall have been permanently terminated and (ii) the date upon which all the capital stock or substantially all the assets of such Subsidiary Grantor shall have been sold or otherwise disposed of in accordance with the terms of the Credit Agreement.

     “ Secured Obligations ” means all Obligations and all other obligations and liabilities of every nature of the Borrower, Holdings and the Subsidiary Grantors or any other Obligor (including, without limitation, the obligations under the Guaranty) now or hereafter existing under or arising out of or in connection with the Credit Agreement or the other Loan Documents, in each case together with all extensions or renewals thereof, whether for principal, interest (including, without limitation, interest that, but for the filing of a petition in bankruptcy with respect to the Borrower or any other Grantor, would accrue at the applicable rate provided for in the Credit Agreement on such obligations, whether or not a claim for post-filing or post-completion interest is allowed against the Borrower or such Grantor in the related bankruptcy, insolvency or similar proceeding), fees, expenses, indemnities or otherwise, whether voluntary or involuntary, direct or indirect, absolute or contingent, liquidated or unliquidated, whether or not jointly owed with others, and whether or not from time to time decreased or extinguished and later increased, created or incurred, and all or any portion of such obligations or liabilities that are paid, to the extent all or any part of such payment is avoided or recovered directly or indirectly from the Secured Party as a preference, fraudulent transfer or otherwise, and all obligations of every nature of the Grantors now or hereafter existing under this Agreement.

     “ Securities Account Control Agreement ” means a Securities Account Control Agreement, in substantially the form set forth on Annex III attached hereto or otherwise reasonably acceptable to the Secured Party, by and among a Grantor, the Secured Party and a Securities Intermediary.

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

     “ Subsidiary Grantor Claims ” means indebtedness owing to a Grantor by another Grantor.

     “ Trade Secret Licenses ” means any agreement, whether written or oral, providing for the grant by or to any Grantor of any right to use any Trade Secret.

     “ Trade Secrets ” means all trade secrets, including, without limitation, know how, processes, formulae, compositions, designs, and confidential business and technical information, and all rights of any kind whatsoever accruing thereunder or pertaining thereto.

     “ Trademark License ” means any agreement, whether written or oral, providing for the grant by or to any Grantor of any right to use any Trademark, including.

     “ Trademarks ” means (i) all trademarks, trade names, corporate names, company names, business names, fictitious business names, trade styles, service marks, domain names, logos and other source or business identifiers, and all goodwill associated therewith, now existing or hereafter adopted or acquired, all registrations and recordings thereof, and all applications in connection therewith, whether in the United States Patent and Trademark Office or in any similar office or agency of the United States, any State thereof or any other country or any political subdivision thereof, or otherwise, and all common-law rights related thereto, and (ii) the right to obtain all renewals thereof.

      1.3 Rules of Interpretation . The provisions of this Agreement shall be construed and interpreted in accordance with the rules of construction set forth in Sections 1.2 and 1.3 of the Credit Agreement. As used herein, and any certificate or other document made or delivered pursuant hereto:

     (a) the words “hereof”, “herein” 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 clause, subsection, Section, Schedule, Annex, Exhibit and analogous references are to this Agreement unless otherwise specified;

     (b) the expressions “payment in full”, “paid in full” and any other similar terms or phrases when used herein with respect to the Secured Obligations shall mean the payment in full, in immediately available funds, of all the Secured Obligations; and

     (c) 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.

SECTION 2.

SECURITY INTEREST

      2.1 Grant of Security Interest . Each Grantor hereby pledges, assigns and transfers to the Secured Party, and hereby grants to the Secured Party a security interest in, all of the following property now owned or at any time hereafter acquired by such Grantor or in which such Grantor now has or at any time in the future may acquire any right, title or interest (collectively, the “ Collateral ”):

     (a) all Accounts;

     (b) all Account Collateral;

     (c) all Books and Records;

     (d) all Chattel Paper;

     (e) all Commercial Tort Claims;

     (f) all Computer Hardware and Software;

     (g) all Contracts;

     (h) all Documents;

     (i) all Equipment;

     (j) all General Intangibles;

     (k) all Goods;

     (l) all Instruments;

     (m) all Intellectual Property;

     (n) all Inventory;

     (o) all Investment Property;

     (p) all Letter of Credit Rights;

     (q) all plant fixtures, business fixtures and other fixtures and storage and office facilities, and all accessions thereto and products thereof;

     (r) all other personal property to the extent not otherwise described above; and

     (s) to the extent not otherwise included, all Proceeds, Supporting Obligations 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.

     Each item of Collateral listed in this Section 2.1 that is defined in Articles 8 or 9 of the New York UCC and that is not otherwise defined herein shall have the meaning set forth in the New York UCC, it being the intention of the Grantors that the description of the Collateral set forth above be construed to include the broadest possible range of assets.

      2.2 Security for Secured Obligations . This Agreement secures, and the Collateral assigned by each Grantor is collateral security for, the prompt payment or performance in full when due, whether at stated maturity, by required prepayment, declaration, acceleration, demand or otherwise (including without limitation the payment of amounts that would become due but for the operation of the automatic stay under Section 362(a) of the Bankruptcy Code), of all Secured Obligations of such Grantor.

      2.3 Transfer of Collateral . All certificates and instruments representing or evidencing the Pledged Securities shall be delivered to and held pursuant hereto by the Secured Party or a Person designated by the Secured Party and shall be in suitable form for transfer by delivery, or shall be accompanied by duly executed instruments of transfer or assignment in blank, and accompanied by any required transfer tax stamps to effect the pledge of the Pledged Securities to the Secured Party. Notwithstanding the preceding sentence, at the Secured Party’s discretion, all such Pledged Securities must be delivered or transferred in such manner as to permit the Secured Party to be a “protected purchaser” to the extent of its security interest as provided in Section 8-303 of the New York UCC (if the Secured Party otherwise qualifies as a protected purchaser). During the continuance of an Event of Default, the Secured Party shall have the right, at any time in its discretion and without notice, to transfer to or to register in the name of the Secured Party or any of its nominees any or all of the Pledged Securities. In addition, during the continuance of an Event of Default, the Secured Party shall have the right at any time to exchange certificates or instruments representing or evidencing Pledged Securities for certificates or instruments of smaller or larger denominations.

      2.4 Bailees . Any Person (other than the Secured Party) at any time and from time to time holding all or any portion of the Collateral shall be deemed to, and shall, hold the Collateral as pledge holder and bailee and agent for perfection for, and for the benefit of, the Secured Party. At any time and from time to time during the continuance of an Event of Default, the Secured Party may give notice to any such Person holding all or any portion of the Collateral that such Person is holding the Collateral as the bailee of and agent for perfection for, and as pledge holder for, and for the benefit of, the Secured Party, and request such Person’s written acknowledgment thereof. Without limiting the generality of the foregoing, during the continuance of an Event of Default, each Grantor will join with the Secured Party upon the Secured Party’s request in notifying any Person who has possession of any Collateral of the Secured Party’s security interest therein and requesting an acknowledgment from such Person that it is holding the Collateral for the benefit of the Secured Party.

SECTION 3.

Representations and Warranties.

     To induce the Secured Party to enter into the Credit Agreement and to make Loans thereunder, each Grantor hereby represents and warrants to the Secured Party that:

      3.1 Annex IV and Representations in Other Loan Documents . The statements and information set forth in Annex IV hereto and the representations and warranties of such Grantor set forth in the Credit Agreement and the other Loan Documents to which such Grantor is a party, each of which is hereby incorporated herein by reference, are true and correct, and the Secured Party shall be entitled to rely on each of them as if they were fully set forth herein.

      3.2 Title; No Other Liens . Except for Permitted Liens, such Grantor owns each item of the Collateral free and clear of any and all Liens or claims of others. No financing statement or other public notice with respect to all or any part of the Collateral is on file or of record in any public office, except (i) such as have been filed in favor of the Secured Party pursuant to this Agreement and (ii) as are permitted by the Credit Agreement.

      3.3 Perfected First Priority Liens . Upon completion of the Filings (or, in the case of (x) all Deposit Accounts, Securities Accounts and Collateral Accounts, the obtaining and maintenance of “control” (as described in the Code), (y) in the case of Commercial Tort Claims, the taking of the actions required by Section 4.13 herein and (z) in the case of Letter-of-Credit Rights, the taking of the actions required by Section 4.5(c) hereof), the security interests granted pursuant to this Agreement (1) will

constitute valid perfected security interests in all of the Collateral in which a security interest may be perfected by Filings, and in all Collateral constituting Deposit Accounts, Securities Accounts and Collateral Accounts, all commercial tort claims and Letter-of-Credit Rights, as applicable, in favor of the Secured Party as collateral security for such Grantor’s Secured Obligations, enforceable in accordance with the terms hereof against all creditors of such Grantor and any Persons purporting to purchase any Collateral from such Grantor and (2) are prior to all other Liens on the Collateral in existence on the date hereof, and the Collateral will be subject to no Liens other than Permitted Liens.

      3.4 Jurisdiction of Organization; 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 or principal residence, as the case may be, are specified on Annex IV.

      3.5 Inventory and Equipment . On the date hereof, the Inventory and the Equipment (other than mobile goods) are kept at the locations listed on Annex IV.

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

      3.7 Investment Property .

     (a) The shares of Pledged Equity Interests pledged by such Grantor hereunder constitute all the issued and outstanding Equity Interests of each Issuer owned by such Grantor.

     (b) All the shares of the Pledged Equity Interests have been duly and validly issued and are fully paid and nonassessable.

     (c) Such Grantor is the record and beneficial owner of, and has good and marketable title to, the Investment Property pledged by it hereunder, free of any and all Liens or options in favor of, or claims of, any other Person, except the Liens created by this Agreement.

      3.8 Receivables .

     (a) No amount payable to such Grantor under or in connection with any Receivable is evidenced by any Instrument or Chattel Paper which has not been delivered to the Secured Party.

     (b) [intentionally omitted].

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

      3.9 Intellectual Property .

     (a) There are no material registrations and/or applications for Intellectual Property and trade names (whether or not subject to an application or registration) that are owned by such Grantor in its own name on the date hereof.

     (b) On the date hereof, all material Intellectual Property owned or used by such Grantor is valid, subsisting, unexpired and enforceable, has not been abandoned and does not infringe the intellectual property rights of any other Person.

     (c) On the date hereof, none of the Intellectual Property owned or used by such Grantor 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.

     (e) No action or proceeding is pending, or, to the knowledge of such Grantor, threatened, on the date hereof (i) seeking to limit, cancel or question the validity of any Intellectual Property or such Grantor’s ownership interest therein, or (ii) which, if adversely determined, would have a material adverse effect on the value of any Intellectual Property.

      3.10 Deposit Accounts and Securities Accounts . Each Grantor is the record and beneficial owner of, and has good title to, the Deposit Accounts and Securities Accounts pledged by it hereunder, free of any and all Liens or options in favor or, or claims of, any other Person, except the Security Interest created by this Agreement, and rights of setoff of any depository bank or securities intermediary and other Permitted Liens. As of the date hereof, all Deposit Accounts and Securities Accounts held by a Grantor (other than those maintained with the Secured Party) are subject to a Deposit Account Control Agreement and a Securities Account Control Agreement, as applicable.

      3.11 Benefit to each Subsidiary Grantor . The Borrower is a member of an affiliated group of companies that includes Holdings and each Subsidiary Grantor, and the Borrower, Holdings and the Subsidiary Grantors are engaged in related businesses. Holdings is the parent company of, and each Subsidiary Grantor is a Subsidiary of, the Borrower and each such Grantor’s obligations pursuant to this Agreement reasonably may be expected to benefit it, directly or indirectly, and it has determined that this Agreement is necessary and convenient to the conduct, promotion and attainment of the business of Holdings and such Subsidiary Grantor and the Borrower.

      3.12 Consents . No consent of any party (other than a Grantor) to any Copyright License, Patent License, Trade Secret License or Trademark License constituting Collateral or any obligor in respect of any material Account constituting Collateral or which owes in the aggregate a material portion of all the Accounts constituting Collateral is required, or purports to be required, to be obtained by or on behalf of any Grantor in connection with the execution, delivery and performance of this Agreement that has not been obtained. Each Copyright License, Patent License, Trade Secret License, Trademark License and Account constituting Collateral is in full force and effect and constitutes a valid and legally enforceable obligation of the Grantor party thereto and (to the knowledge of such Grantor) each other party thereto except as enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditor’s rights generally and by general equitable principles (whether enforcement is sought by proceedings in equity or at law) and except to the extent the failure of any such Copyright License, Patent License, Trade Secret License, Trademark Licenses, Accounts, Contracts and General Intangibles constituting Collateral to be in full force and effect or valid or legally enforceable could not be reasonably expected, in the aggregate, to have a material adverse effect on the value of the Collateral. No consent or authorization of, filing with or other act by or in respect of any Governmental Authority is required in connection with the execution, delivery, performance, validity or enforceability of this Agreement or any of the Copyright Licenses, Patent Licenses, Trade Secret Licenses, Trademark Licenses and Accounts constituting Collateral by any party thereto other than those which have been duly obtained, made or performed and are in full force and effect and those the failure of which to make or obtain could not be reasonably expected, in the aggregate, to have a material adverse effect on the value of the Collateral. No Grantor nor (to the knowledge of any Grantor) any other party to any Copyright License, Patent License, Trade Secret License, Trademark

License or Account, Contract or other General Intangible constituting Collateral is in default in the performance or observance of any of the terms thereof, except for such defaults as could not reasonably be expected, in the aggregate, to have a material adverse effect on the value of the Collateral.

SECTION 4.

COVENANTS

     Each Grantor covenants and agrees with the Secured Party that, from and after the date of this Agreement until the Release Date with respect to such Grantor:

      4.1 Covenants in Credit Agreement . In the case of each Grantor, such Grantor 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 is caused by the failure to take such action or to refrain from taking such action by such Grantor or any of its Subsidiaries.

      4.2 Delivery of Instruments, Certificated Securities and Chattel Paper . If any amount payable under or in connection with any of the Collateral shall be or become evidenced by any Instrument, Certificated Security or Chattel Paper, such Instrument, Certificated Security or Chattel Paper shall be promptly delivered to the Secured Party, duly indorsed in a manner satisfactory to the Secured Party, to be held as Collateral pursuant to this Agreement.

      4.3 Maintenance of Insurance .

     (a) Such Grantor will maintain, with financially sound and reputable companies, insurance policies (i) insuring the Inventory, the Equipment and all real property subject to a Mortgage against loss by fire, explosion, theft and such other casualties as may be reasonably satisfactory to the Secured Party and (ii) insuring such Grantor and the Secured Party against liability for personal injury and property damage relating to such Inventory and Equipment, such policies to be in such form and amounts and having such coverage as may be reasonably satisfactory to the Secured Party.

     (b) All such insurance shall (i) provide that no cancellation, material reduction in amount or material change in coverage thereof shall be effective until at least 30 days after receipt by the Secured Party of written notice thereof, (ii) name the Secured Party as insured party and loss payee as its interests may appear, (iii) if reasonably requested by the Secured Party, include a breach of warranty clause and (iv) be reasonably satisfactory in all other respects to the Secured Party.

     (c) The Borrower shall deliver to the Secured Party a report of a reputable insurance broker with respect to such insurance substantially concurrently with each delivery of the Borrower’s annual financial statements pursuant to Section 7.1(a) of the Credit Agreement and such supplemental reports with respect thereto as the Secured Party may from time to time reasonably request.

      4.4 Payment of Obligations . Such Grantor will pay and discharge or otherwise satisfy at or before maturity or before they become delinquent, as the case may be, all taxes, assessments and governmental charges or levies imposed upon the Collateral or in respect of income or profits therefrom, as well as all claims of any kind (including, without limitation, claims for labor, materials and supplies) against or with respect to the Collateral, except that no such charge need be paid if the amount or validity thereof is currently being contested in good faith by appropriate proceedings, reserves in conformity with GAAP with respect thereto have been provided on the books of such Grantor and such proceedings could not reasonably be expected to result in the sale, forfeiture or loss of any significant portion of the Collateral or any interest therein.

      4.5 Maintenance of Perfected Security Interest; Further Documentation .

     (a) Other than as permitted by this Agreement or the Credit Agreement, such Grantor shall maintain the security interest created by this Agreement as a perfected security interest having at least the priority described in Section 3.3 and shall defend such security interest against the claims and demands of all Persons whomsoever including without limitation, completing the Filings and filing any financing or continuation or analogous statements or filings under the Uniform Commercial Code (or other applicable laws) in effect in any jurisdiction with respect to the security interests created hereby.

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

     (c) At any time and from time to time, upon the written request of the Secured Party, 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 Secured Party 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 any financing or continuation or analogous statements or filings under the Uniform Commercial Code (or other Applicable Laws) in effect in any jurisdiction with respect to the security interests created hereby, (ii) in the case of Investment Property, Account Collateral, Letter-of-Credit Rights and any other relevant Collateral, taking any actions reasonably necessary to enable the Secured Party to obtain “control” (within the meaning of the applicable Uniform Commercial Code (or other Applicable Laws)) with respect thereto, and (iii) in the case of any item of Equipment that is covered by a certificate of title under a statute of any jurisdiction under the law of which indication of a security interest on such certificate is required as a condition of perfection thereof, at the request of the Secured Party, execute and file with the registrar of motor vehicles or other appropriate authority in such jurisdiction an application or other document requesting the notation or other indication of the security interest created her