SECURITY AGREEMENT

Exhibit 4.2

Execution Copy

SECURITY AGREEMENT

dated as of May 28, 2009

Among

The GRANTORS referred to herein

as Grantors,

WELLS FARGO BANK, NATIONAL ASSOCIATION

as Collateral Agent

WELLS FARGO BANK, NATIONAL ASSOCIATION,

as Notes Authorized Representative

and

Each ADDITIONAL AUTHORIZED REPRESENTATIVE from

time to time party hereto

TABLE OF CONTENTS

 

 

i

 

ii

ANNEXES

 

SCHEDULES :

 

EXHIBITS :

 

 

iii

SECURITY AGREEMENT

SECURITY AGREEMENT dated as of May 28, 2009 (this “ Agreement ”) among WMG ACQUISITION CORP., a Delaware corporation (the “ Company ”), WMG HOLDINGS CORP., a Delaware corporation (“ Holdings ”), the other Persons listed on the signature pages hereof and the Additional Grantors (the Company, Holdings, the Persons so listed and the Additional Grantors being, collectively, the “ Grantors ”), WELLS FARGO BANK, NATIONAL ASSOCIATION, as collateral agent for the Secured Parties (in such capacity together with its successors in such capacity, the “ Collateral Agent ”), WELLS FARGO BANK, NATIONAL ASSOCIATION, as trustee under the Indenture (in such capacity, together with any successor trustee, the “ Notes Authorized Representative ”) and each additional Authorized Representative from time to time party hereto for the Additional Secured Parties of the Series with respect to which it is acting in such capacity.

PRELIMINARY STATEMENTS

In order to induce the Secured Parties and the Additional Secured Parties to extend credit and otherwise enter into and perform certain transactions, the Grantors hereby grant a security interest and assign and pledge the Collateral as set forth herein to secure the Secured Obligations. Therefore each Grantor hereby agrees with the Collateral Agent for the ratable benefit of the Secured Parties as follows:

ARTICLE 1

D EFINITIONS

Section 1.01. Defined Terms. Capitalized terms not otherwise defined herein have the meanings set forth in the Indenture on the date hereof. Further, unless otherwise defined in this Agreement or in the Indenture, terms defined in Article 8 or 9 of the UCC are used in this Agreement as such terms are defined in such Article 8 or 9 (including Accounts, Certificated Security, Chattel Paper, Commercial Tort Claims, Deposit Accounts, Documents, Equipment, Farm Products, Financial Assets, Fixtures, General Intangibles, Goods, Instruments, Inventory, Investment Property, Letter-of-Credit Rights, Proceeds, Securities Accounts, Security, Supporting Obligations and Uncertificated Security).

(b) As used in this Agreement, the following terms shall have the meanings set forth below:

“ Additional Grantor ” has the meaning specified in Section 6.02(b).

“ Additional Secured Agreement ” means any Credit Agreement, indenture, loan agreement or other agreement, notes, guarantees, registration rights agreements or other similar agreements issued in connection with or relating to the Additional Secured Obligations; provided that in each case, the obligations thereunder have been designated as Additional Secured Obligation pursuant to and in accordance with Section 6.10 hereto.

 

1

“ Additional Secured Obligation ” means all advances to, and debts, liabilities, obligations, covenants and duties of, any Grantor arising under any Additional Secured Agreement, whether direct or indirect (including those acquired by assumption, absolute or contingent, due or to become due, now existing or hereafter arising and including interest and fees that accrue after the commencement by or against any Grantor of any proceeding under any Debtor Relief Law naming such person as the debtor in such proceeding, regardless of whether such interest and fees are allowed claims in such proceeding), in each case, that have been designated as Additional Secured Obligations pursuant to and in accordance with Section 6.10. Without limiting the generality of the foregoing, the Additional Secured Obligations include any and all obligations of the Company or any other Grantor under the relevant Additional Secured Agreements to pay principal, interest, commissions, charges, expenses, fees, indemnities and other amounts payable by such parties thereunder, including First Lien Obligations.

“ Additional Secured Parties ” means the holders of any Additional Secured Obligations and any Authorized Representative with respect thereto.

“ Additional Secured Party Consent ” shall mean a consent in the form of Annex A hereto, executed by the Authorized Representative of any holders of Additional Secured Obligations pursuant to Section 6.10.

“ Affiliate ” means, with respect to any Person, any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For purposes of this definition, “ control ” (including, with correlative meanings, the terms “ controlling ,” “ controlled by ” and “ under common control with ”), as used with respect to any Person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by agreement or otherwise. In no event shall any Secured Party or Agent be deemed to be an “Affiliate” of any Grantor.

“ After-Acquired Intellectual Property ” has the meaning specified in Section 2.09(d).

“ Applicable Authorized Representative ” means, as of the date hereof, the Notes Authorized Representative; provided that:

(a) following the incurrence of Bank Obligations after the date hereof and assumption by the Credit Agreement Authorized Representative of its role as an Applicable Authorized Representative pursuant to the Additional Secured Party Consent, (i) until the earlier of (x) the Discharge of Bank Obligations and (y) the Non-Controlling Authorized Representative Enforcement Date, the Credit Agreement Authorized Representative, and (ii) from the earlier of (x) the Discharge of Bank Obligations and (y) the Non-Controlling Authorized Representative Enforcement Date, the Major Additional Authorized Representative and

(b) to the extent no Bank Obligations have been in incurred or remain outstanding, following the incurrence of the Series of Additional Secured Obligations that constitutes the largest outstanding principal amount of any then outstanding Series of Additional Secured Obligations and assumption by the Major Additional Authorized Representative of its role as an Applicable Authorized Representative pursuant to the Additional Secured Party Consent, the Major Additional Authorized Representative.

 

2

“ Assigned Agreements ” has the meaning specified in Section 2.01.

“ Authorized Representative ” means (i) in the case of any Notes Obligations or the Notes Secured Parties, the Notes Authorized Representative, (ii) in the case of any Bank Obligations or the Credit Agreement Secured Parties (in respect of Bank Obligations) that become subject to this Agreement after the date hereof, the Credit Agreement Authorized Representative and (iii) in the case of any Series of Additional Secured Obligations or the Additional Secured Parties that become subject to this Agreement after the date hereof, the Authorized Representative named for such Series in the applicable Additional Secured Party Consent.

“ Bank Obligations ” means all commitments or Obligations in excess of $150.0 million incurred pursuant to a Credit Agreement.

“ Business Day ” means any day other than a Saturday, Sunday or other day on which commercial banks are authorized to close under the laws of, or are in fact closed in, the State of New York.

“ Capital Stock ” means (i) in the case of a corporation, capital stock; (ii) in the case of an association or business entity, any and all shares, interests, participations, rights or other equivalents (however designated) of capital stock; (iii) in the case of a partnership or limited liability company, partnership or membership interests (whether general or limited); and (iv) any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, the issuing Person.

“ Cash Management Obligations ” means obligations owed by any Grantor to any registered holder or any lender, or any affiliate of a registered holder or a lender, pursuant to any Additional Secured Agreement in respect of any overdraft and related liabilities arising from treasury, depository and cash management services or any automated clearing house transfers of funds.

“ Code ” means the U.S. Internal Revenue Code of 1986.

“ Collateral ” means the Personal Property Collateral and the Real Estate Collateral.

“ Computer Software ” has the meaning specified in Section 2.01.

“ control ” has the meaning specified in the definition of “Affiliate”.

“ Controlling Secured Parties ” means the Series of Secured Parties the Authorized Representative of whom is the Applicable Authorized Representative.

“ Copyrights ” has the meaning specified in Section 2.01.

“ Credit Agreement ” means a credit agreement for loans or credit extensions, as amended, restated, supplemented, modified, renewed, refunded, replaced or refinanced

 

3

from time to time (in each case with the same or new lenders or institutional investors), including any agreement extending the maturity thereof or otherwise restructuring all or any portion of the Indebtedness thereunder or increasing the amount loaned or issued thereunder or altering the maturity thereof.

“ Credit Agreement Authorized Representative ” means an administrative agent, collateral agent, other agent, lender or affiliate thereof under a Credit Agreement that becomes subject to this Agreement after the date hereof pursuant to the applicable Additional Secured Party Consent.

“ Credit Agreement Secured Parties ” means each agent or lender secured pursuant to any Credit Agreement.

“ Debtor Relief Laws ” means the Bankruptcy Code of the United States, and all other liquidation, conservatorship, bankruptcy, assignment for the benefit of creditors, moratorium, rearrangement, receivership, insolvency, reorganization, or similar debtor relief laws of the United States or other applicable jurisdictions from time to time in effect and affecting the rights of creditors generally.

“ Discharge of Bank Obligations ” means the first date on which all of the following has occurred: (i) the payment in full in cash of the Bank Obligations, other than (x) obligations under hedging arrangements designated as secured obligations in accordance with any Credit Agreement and obligations with respect to cash management or similar services designated as secured obligations in accordance with any Credit Agreement, in either case that are not yet due and payable, and (y) contingent indemnification obligations not yet accrued and payable, (ii) the termination or expiration of all letters of credit issued pursuant to any Credit Agreement and (iii) the termination of all commitments to extend credit under any Credit Agreement; provided that the Discharge of Bank Obligations shall not be deemed to have occurred in connection with a Refinancing of such Bank Obligations (or any Refinancing of such Refinancing) with Secured Obligations secured by the Collateral under an Additional Secured Agreement which has been designated in writing by the administrative agent under the Credit Agreement so Refinanced to the Collateral Agent and each Authorized Representative as the “Credit Agreement” for purposes of this Agreement.

“ Discharge of Secured Obligations ” means the first date on which the following shall have occurred (i) the Discharge of Bank Obligations and (ii) the payment in full of all Additional Secured Obligations (other than contingent indemnification obligations not yet accrued and payable).

“ Domestic Subsidiary ” means any Subsidiary that is organized under the laws of the United States, any state thereof or the District of Columbia and any other Subsidiary that is not a “controlled foreign corporation” under Section 957 of the Code.

“ Effective Date ” means May 28, 2009.

“ Equity Interests ” means Capital Stock and all warrants, options or other rights to acquire Capital Stock (but excluding any debt security that is convertible into, or exchangeable for, Capital Stock).

 

4

“ Event of Default ” means an “Event of Default” under and as defined in the Indenture or any Additional Secured Agreement.

“ Finance Documents ” means each Secured Agreement, each Secured Hedge Agreement and all instruments, agreements or other documents evidencing the Cash Management Obligations.

“ First Lien Security Documents ” means this Agreement, each Notes Security Document and each other agreement entered into in favor of the Collateral Agent for purposes of securing any Series of Secured Obligations.

“ First Lien Obligations ” has the meaning specified in the Indenture.

“ Foreign Subsidiary ” means any direct or indirect Subsidiary of the Company which is not a Domestic Subsidiary.

“ Governmental Authority ” means any nation or government, any state or other political subdivision thereof, any agency, authority, instrumentality, regulatory body, court, administrative tribunal, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government.

“ Hedging Obligations ” means, with respect to any Person, the obligations of such Person under (i) currency exchange, interest rate or commodity swap agreements, currency exchange, interest rate or commodity cap agreements and currency exchange, interest rate or commodity collar agreements; and (ii) other agreements or arrangements designed to protect such Person against fluctuations in currency exchange, interest rates or commodity prices.

“ Holder ” has the meaning specified in the Indenture.

“ Indemnified Party ” has the meaning specified in Section 6.01(a).

“ Indenture ” means that certain Indenture, dated as of May 28, 2009 (as amended, amended and restated, supplemented, modified, renewed, refunded, replaced or refinanced from time to time) among Holdings, the Company, the Notes Authorized Representative and the other parties signatory thereto.

“ Intellectual Property Collateral ” has the meaning specified in Section 2.01(q).

“ Intellectual Property Security Agreements ” means the U.S. Intellectual Property Security Agreements and the Non-U.S. Trademark Security Agreements.

“ IP Agreements ” has the meaning specified in Section 2.01(q)(viii).

“ Lien ” means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset, whether or not filed, recorded or otherwise perfected under applicable law, including any conditional sale or other title retention agreement, any lease in the nature thereof, any option or other agreement to sell or give a security interest in and any filing of or agreement to give any financing statement under the UCC (or equivalent statutes) of any jurisdiction; provided that in no event shall an operating lease be deemed to constitute a Lien.

 

5

“ Major Additional Authorized Representative ” means the Authorized Representative of the Series of Additional Secured Obligations that constitutes the largest outstanding principal amount of any then outstanding Series of Additional Secured Obligations.

“ Material Adverse Effect ” means (a) a material adverse effect on the business, operations, assets, liabilities (actual or contingent) or condition (financial or otherwise) of the Company and its Subsidiaries, taken as a whole, (b) a material adverse effect on the ability of the Grantors (taken as a whole) to perform their respective obligations under any Secured Agreement to which any Grantor is a party or (c) a material adverse effect on the rights and remedies of the Secured Parties under any Secured Agreement or any First Lien Security Document.

“ Material Recordable Copyrights ” has the meaning specified in Section 2.06(f).

“ Material Recordable Intellectual Property ” has the meaning specified in Section 2.06(f).

“ Material Recordable Patents ” has the meaning specified in Section 2.06(f).

“ Material Recordable Publishing Copyright ” has the meaning specified in Section 2.06(f).

“ Material Recordable Recorded Music Copyrights ” has the meaning specified in Section 2.06(f).

“ Material Recordable Trademarks ” has the meaning specified in Section 2.06(f).

“ Mortgage ” means, collectively, the deeds of trust, trust deeds and mortgages made by the Grantors in favor or for the benefit of the Collateral Agent on behalf of the Secured Parties, together with each other mortgage executed and delivered pursuant to the Secured Agreements.

“ Mortgage Modifications ” has the meaning specified in Section 2.07(e).

“ Non-Controlling Authorized Representative ” means, at any time, any Authorized Representative that is not the Applicable Authorized Representative at such time.

“ Non-Controlling Authorized Representative Enforcement Date ” means, with respect to any Non-Controlling Authorized Representative, the date which is 90 days (throughout which 90 day period such Non-Controlling Authorized Representative was the Major Additional Authorized Representative) after the occurrence of both (i) an Event of Default (under and as defined in the Additional Secured Agreement under which such Non-Controlling Authorized Representative is the Authorized Representative) and (ii) the Collateral Agent’s and each other Authorized Representative’s receipt of written notice from such Non-Controlling Authorized Representative certifying that (x) such

 

6

Non-Controlling Authorized Representative is the Major Additional Authorized Representative and that an Event of Default (under and as defined in the Additional Secured Agreement under which such Non-Controlling Authorized Representative is the Authorized Representative) has occurred and is continuing and (y) the Additional Secured Obligations of the Series with respect to which such Non-Controlling Authorized Representative is the Authorized Representative are currently due and payable in full (whether as a result of acceleration thereof or otherwise) in accordance with the terms of the applicable Additional Secured Agreement; provided that the Non-Controlling Authorized Representative Enforcement Date shall be stayed and shall not occur and shall be deemed not to have occurred with respect to any Collateral (1) at any time the Collateral Agent has commenced and is pursuing any enforcement action with respect to such Collateral with reasonable diligence in light of the then existing circumstances or (2) at any time the Grantor which has granted a security interest in such Collateral is then a debtor under or with respect to (or otherwise subject to) any proceeding under any Debtor Relief Law.

“ Non-Controlling Secured Parties ” means, at any time, any Secured Party represented by an Authorized Representative that is not the Applicable Authorized Representative at such time.

“ Non-U.S. Trademark Security Agreements ” means an agreement in form and substance suitable for recording with any foreign intellectual property registry and otherwise satisfactory to the Collateral Agent.

“ Non-Voting Foreign Stock ” has the meaning specified in Section 2.01.

“ Notes Authorized Representative ” has the meaning specified in the preamble.

“ Notes Obligations ” means the “Obligations” as defined in the Indenture.

“ Notes Secured Parties ” means the Collateral Agent, the Notes Authorized Representative, the Holders and any other party designated as a secured party under the Indenture.

“ Notes Security Documents ” means this Agreement and all security agreements, pledge agreements, collateral assignments, mortgages, deeds of trust, collateral agency agreements, control agreements or other grants or transfers for security executed and delivered by the Issuer or any Guarantor creating (or purporting to create) a Lien upon Collateral in favor of the Collateral Agent, in each case, as amended, modified, renewed, restated or replaced, in whole or in part, from time to time.

“ Patents ” has the meaning specified in Section 2.01(q)(i).

“ Person ” means any natural person, corporation, limited liability company, trust, joint venture, association, company, partnership, Governmental Authority or other entity.

“ Personal Property Collateral ” has the meaning specified in Section 2.01.

“ Pledged Debt ” has the meaning specified in Section 2.01(o)(i).

“ Pledged Equity ” has the meaning specified in Section 2.01(o)(ii).

 

7

“ Possessory Collateral ” means any Collateral in the possession of the Collateral Agent (or its agents or bailees), to the extent that possession thereof perfects a Lien thereon under the UCC of any jurisdiction. Possessory Collateral includes, without limitation, any Certificated Securities, Promissory Notes, Instruments, and Chattel Paper, in each case, delivered to or in the possession of the Collateral Agent under the terms of the First Lien Security Documents.

“ Publishing Copyrights ” has the meaning specified in Section 2.01(q)(iii).

“ Real Estate Collateral ” means any Real Property subject to a Lien securing the Secured Obligations pursuant to a Mortgage and includes, for the avoidance of doubt, any “Trust Property” referred to in any Mortgage.

“ Real Property ” means those properties listed on Schedule V hereto.

“ Recorded Music Copyrights ” has the meaning specified in Section 2.01(q)(iii).

“ Refinance ” means, in respect of any indebtedness, to refinance, extend, renew, defease, amend, increase, modify, supplement, restructure, refund, replace or repay, or to issue other indebtedness or enter alternative financing arrangements, in exchange or replacement for such indebtedness (in whole or in part), including by adding or replacing lenders, creditors, agents, borrowers and/or guarantors, and including in each case, but not limited to, after the original instrument giving rise to such indebtedness has been terminated and including, in each case, through any credit agreement, indenture or other agreement. “ Refinanced ” and “ Refinancing ” have correlative meanings.

“ Responsible Officer ” means the chief executive officer, president, vice president, chief financial officer, treasurer or assistant treasurer or other similar officer of the Company. Any document delivered hereunder that is signed by a Responsible Officer of the Company shall be conclusively presumed to have been authorized by all necessary corporate, partnership and/or other action on the part of the Company and such Responsible Officer shall be conclusively presumed to have acted on behalf of the Company.

“ Rule 3-16 Additional Secured Obligations ” has the meaning specified in Section 2.01.

“ Rule 3-16 Excluded Collateral ” has the meaning specified in Section 2.01.

“ Rule 3-16 Proceeds ” has the meaning specified in Section 3.02.

“ SEC ” means the Securities and Exchange Commission, or any Governmental Authority succeeding to any of its principal functions.

“ Secured Agreements ” means (i) the Indenture and each Notes Security Document and (ii) each Additional Secured Agreement.

“ Secured Hedge Agreement ” means any Hedging Obligations designated as secured obligations in accordance with the Indenture or any Credit Agreement.

 

8

“ Secured Obligations ” means, collectively, (i) the Notes Obligations and (ii) each Series of Additional Secured Obligations.

“ Secured Parties ” means (i) the Notes Secured Parties and (ii) the Additional Secured Parties with respect to each Series of Additional Secured Obligations.

“ Security Agreement Supplement ” has the meaning specified in Section 6.02(b).

“ Security Collateral ” has the meaning specified in Section 2.01(o).

“ Series ” means (a) with respect to the Secured Parties, each of (i) the Notes Secured Parties (in their capacities as such) and (ii) the Additional Secured Parties that become subject to this Agreement after the date hereof that are represented by a common Authorized Representative (in its capacity as such for such Additional Secured Parties) and (b) with respect to any Secured Obligations, each of (i) the Notes Obligations and (ii) the Additional Secured Obligations incurred pursuant to any Additional Secured Agreement, which pursuant to an Additional Secured Party Consent, are to be represented hereunder by a common Authorized Representative (in its capacity as such for such Additional Secured Obligations).

“ Subsidiary ” of a Person means a corporation, partnership, joint venture, limited liability company or other business entity of which a majority of the shares of securities or other interests having ordinary voting power for the election of directors or other governing body (other than securities or interests having such power only by reason of the happening of a contingency) are at the time beneficially owned, or the management of which is otherwise controlled, directly, or indirectly through one or more intermediaries, or both, by such Person. Unless otherwise specified, all references herein to a “Subsidiary” or to “Subsidiaries” shall refer to a Subsidiary or Subsidiaries of Holdings.

“ Swap Contract ” means (a) any and all rate swap transactions, basis swaps, credit derivative transactions, forward rate transactions, commodity swaps, commodity options, forward commodity contracts, equity or equity index swaps or options, bond or bond price or bond index swaps or options or forward bond or forward bond price or forward bond index transactions, interest rate options, forward foreign exchange transactions, cap transactions, floor transactions, collar transactions, currency swap transactions, cross-currency rate swap transactions, currency options, spot contracts, or any other similar transactions or any combination of any of the foregoing (including any options to enter into any of the foregoing), whether or not any such transaction is governed by or subject to any master agreement, and (b) any and all transactions of any kind, and the related confirmations, which are subject to the terms and conditions of, or governed by, any form of master agreement published by the International Swaps and Derivatives Association, Inc., any International Foreign Exchange Master Agreement, or any other master agreement (any such master agreement, together with any related schedules, a “ Master Agreement ”), including any such obligations or liabilities under any Master Agreement.

“ Top Ten Jurisdictions ” means, collectively, New Zealand, Mexico, Japan, Australia, Canada, European Union, Germany, France and Italy.

“ Trade Secrets ” has the meaning specified in Section 2.01(q)(v).

 

9

“ Trademarks ” has the meaning specified in Section 2.01(q)(ii).

“ UCC ” means the Uniform Commercial Code as the same may from time to time be in effect in the State of New York or the Uniform Commercial Code (or similar code or statute) of another jurisdiction, to the extent it may be required to apply to any item or items of Collateral.

“ U.S. Intellectual Property Security Agreements ” has the meaning specified in 2.06(g).

“ Voting Foreign Stock ” has the meaning specified in Section 2.01(o)(ii).

Section 1.02. Other Interpretative Provisions. With reference to this Agreement, unless otherwise specified herein:

(a) the meanings of defined terms are equally applicable to the singular and plural forms of the defined terms.

(b) The words “herein,” “hereto,” “hereof” and “hereunder” and words of similar import when used herein shall refer to this Agreement as a whole and not to any particular provision thereof.

(c) Article, Section, Exhibit, Annex and Schedule references are to Articles, Sections, Exhibits, Annexes and Schedules to this Agreement.

(d) The term “including” is by way of example and not limitation.

(e) The term “documents” includes any and all instruments, documents, agreements, certificates, notices, reports, financial statements and other writings, however evidenced, whether in physical or electronic form.

(f) In the computation of periods of time from a specified date to a later specified date, the word “from” means “from and including,” the words “to” and “until” each mean “to but excluding,” and the word “through” means “to and including.”

(g) Section headings herein are included for convenience of reference only and shall not affect the interpretation of this Agreement.

(h) Unless otherwise expressly provided herein, (i) references to organization documents, agreements and other contractual instruments shall be deemed to include all subsequent amendments, restatements, extensions, supplements and other modifications thereto; and (ii) references to any law shall include all statutory and regulatory provisions consolidating, amending, replacing, supplementing or interpreting such law.

ARTICLE 2

C OLLATERAL

Section 2.01. Grant of Security. Each Grantor hereby grants to the Collateral Agent, for the ratable benefit of the Secured Parties, a security interest in such Grantor’s right, title and interest in and to the following property, in each case, as to each type of property described below, whether now owned or hereafter acquired by such Grantor, wherever located, and whether now or hereafter existing or arising (collectively, the “ Personal Property Collateral ”):

(a) all Accounts;

 

10

(b) all cash and Cash Equivalents;

(c) all Chattel Paper;

(d) all Commercial Tort Claims (including, without limitation, the Commercial Tort Claims set forth on Schedule III hereto);

(e) all Deposit Accounts;

(f) all Documents;

(g) all Equipment;

(h) all Farm Products;

(i) all Fixtures;

(j) all General Intangibles;

(k) all Goods;

(l) all Instruments;

(m) all Inventory;

(n) all Letter-of-Credit Rights;

(o) the following (the “ Security Collateral ”):

(i) all indebtedness evidenced by promissory notes or other instruments from time to time owed to such Grantor (the “ Pledged Debt ”), and all interest, cash, instruments and other property from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of the Pledged Debt;

(ii) all Equity Interests from time to time acquired, owned or held by such Grantor in any manner (the “ Pledged Equity ”), including, without limitation, the Equity Interests held by each Grantor set forth opposite such Grantor’s name on and otherwise described on Schedule II, and the certificates, if any, representing such additional shares or units or other Equity Interests, and all dividends, distributions, return of capital, cash, instruments and other property from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of such shares or other Equity Interests and all subscription warrants, rights or options issued thereon or with respect thereto; provided that no Grantor shall be required to pledge, and the terms “ Pledged Equity ” and “ Security Collateral ” used in this Agreement shall not include, any Equity Interests in any Foreign Subsidiary acquired, owned or otherwise held by

 

11

such Grantor which, when aggregated with all of the other shares of stock in such Foreign Subsidiary pledged by the Grantors, would result in more than 65% of the shares of stock in such Foreign Subsidiary entitled to vote (within the meaning of Treasury Regulation Section 1.956 2(c)(2) promulgated under the Code) (the “ Voting Foreign Stock ”) being pledged to the Collateral Agent, on behalf of the Secured Parties under this Agreement; provided further that all of the shares of stock or units or other Equity Interests in such Foreign Subsidiary not entitled to vote (within the meaning of Treasury Regulation Section 1.956-2(c)(2) promulgated under the Code) (the “ Non-Voting Foreign Stock ”) shall be pledged by such Grantor; and

(iii) all other Investment Property and all Financial Assets, and all dividends, distributions, return of capital, interest, cash, instruments and other property from time to time received, receivable or otherwise distributed in respect of or in exchange therefor and all subscription warrants, rights or options issued thereon or with respect thereto;

(p) all contracts and agreements between any Grantor and one or more additional parties (including, without limitation, any Swap Contracts, licensing agreements and any partnership agreements, joint venture agreements, limited liability company agreements) and the IP Agreements, in each case as such agreements may be amended, amended and restated, supplemented or otherwise modified from time to time (collectively, the “ Assigned Agreements ”), including, without limitation, all rights of such Grantor to receive moneys due and to become due under or pursuant to the Assigned Agreements;

(q) the following (collectively, the “ Intellectual Property Collateral ”):

(i) all patents, patent applications, utility models and statutory invention registrations, all inventions claimed or disclosed therein and all improvements thereto (“ Patents ”);

(ii) all trademarks, service marks, domain names, trade dress, logos, designs, slogans, trade names, business names, corporate names and other source identifiers, whether registered or unregistered ( provided that no security interest shall be granted in United States intent-to-use trademark applications to the extent that, and solely during the period in which, the grant of a security interest therein would impair the validity or enforceability of any registration issuing from such intent-to-use trademark applications under applicable federal law), together, in each case, with the goodwill symbolized thereby (“ Trademarks ”);

(iii) all copyrights whether registered or unregistered (“ Copyrights ”), including, without limitation, copyrights in (A) all recordings of sound, whether or not coupled with a visual image, by any method or format and on any substance or material, whether now or hereafter known, which is used or useful in the recording, production and/or manufacture of records or for any other exploitation of sound (“ Recorded Music Copyrights ”), (B) all music compositions or medleys consisting of words and music, or any dramatic material and bridging passages, whether in form of instrumental and/or vocal music, prose or otherwise, irrespective of length (“ Publishing Copyrights ”) and (C) Computer Software, internet web sites and the content thereof;

 

12

(iv) all computer software, programs and databases (including, without limitation, source code, object code and all related applications and data files), firmware and documentation and materials relating thereto, together with any and all maintenance rights, service rights, programming rights, hosting rights, test rights, improvement rights, renewal rights and indemnification rights and any substitutions, replacements, improvements, error corrections, updates and new versions of any of the foregoing (“ Computer Software ”);

(v) all confidential and proprietary information, including, without limitation, confidential and proprietary know-how, trade secrets, manufacturing and production processes and techniques, inventions, research and development information, databases and data, including, without limitation, technical data, financial, marketing and business data, pricing and cost information, business and marketing plans and customer and supplier lists and information (collectively, “ Trade Secrets ”), and all other intellectual, industrial and intangible property of any type, including, without limitation, industrial designs and mask works;

(vi) all registrations and applications for registration for any of the foregoing, together with all reissues, divisions, continuations, continuations-in-part, extensions, renewals and reexaminations thereof;

(vii) all rights in the foregoing provided by international treaties or conventions, all rights corresponding thereto throughout the world and all other rights of any kind whatsoever of such Grantor accruing thereunder or pertaining thereto;

(viii) all agreements, permits, consents, orders and franchises relating to the license, development, use or disclosure of any of the foregoing to which such Grantor, now or hereafter, is a party or a beneficiary (“ IP Agreements ”); and

(ix) any and all claims for damages and injunctive relief for past, present and future infringement, dilution, misappropriation, violation, misuse or breach with respect to any of the foregoing, with the right, but not the obligation, to sue for and collect, or otherwise recover, such damages;

(r) all books and records (including, without limitation, customer lists, credit files, printouts and other computer output materials and records) of such Grantor pertaining to any of the Collateral;

(s) all other tangible and intangible personal property of whatever nature whether or not covered by Article 9 of the UCC; and

(t) all Proceeds of, collateral for, income, royalties and other payments now or hereafter due and payable with respect to, and Supporting Obligations relating to, any and all of the Collateral and, to the extent not otherwise included, all payments under insurance (whether or not the Collateral Agent is the loss payee thereof), or any indemnity, warranty or guaranty, payable by reason of loss or damage to or otherwise with respect to any of the foregoing Collateral;

 

13

provided that notwithstanding anything to the contrary in this Agreement, this Agreement shall not constitute a grant of a security interest in (A) motor vehicles the perfection of a security interest in which is excluded from the UCC in the relevant jurisdiction, (B) any Letter-of-Credit Rights to the extent any Grantor is required by applicable law to apply the Proceeds of such Letter-of-Credit Rights for a specified purpose or (C) any General Intangible, Investment Property or other rights of a Grantor arising under any contract, instrument, license or other document if (but only to the extent that) the grant of a security interest therein would constitute a violation of a valid and enforceable restriction in respect of such General Intangible, Investment Property or other rights in favor of a third party or under any law, regulation, permit, order or decree of any Governmental Authority, unless and until all required consents shall have been obtained (for the avoidance of doubt, the restrictions described herein are not negative pledges or similar undertakings in favor of a lender or other financial counterparty); provided further that the limitation set forth in clause (C) above shall not affect, limit, restrict or impair the grant by a Grantor of a security interest pursuant to this Agreement in any such Collateral to the extent that an otherwise applicable prohibition or restriction on such grant is rendered ineffective by the UCC. Each Grantor shall, if requested to do so by the Collateral Agent, use commercially reasonable efforts to obtain any such required consent that is reasonably obtainable with respect to Collateral which the Collateral Agent reasonably determines to be material.

Notwithstanding anything else contained in this Agreement, in the event that Rule 3-16 of Regulation S-X under the United States Securities Act of 1933 would require (or is replaced with another rule or regulation, or any other law, rule or regulation is adopted, which would require) (such law, rule or regulation, as amended or replaced with another rule or regulation, “ Rule 3-16 ”) the filing with the SEC of separate financial statements of any Affiliate of the Company due to the fact that a security interest in such Affiliate’s Equity Interests has been granted hereunder as security for the payment or performance, as the case may be, of any Additional Secured Obligations (the “ Rule 3-16 Additional Secured Obligations ”), then, solely to the extent securing such Rule 3-16 Additional Secured Obligations, the Lien granted pursuant to this Agreement or any other Security Document in such Equity Interests (the “ Rule 3-16 Excluded Collateral ”) shall be deemed not to secure, or to constitute “Collateral” with respect to, such Rule 3-16 Additional Secured Obligations, in any event solely to the extent necessary and only for so long as required to cause the Company and its Affiliates to not be subject to such requirement. In such event, this Agreement may be amended or modified, without the consent of any Additional Secured Party, to the extent necessary to release the Lien granted hereunder in favor of the Collateral Agent on the Rule 3-16 Excluded Collateral solely with respect to the Rule 3-16 Additional Secured Obligations. In the event that Rule 3-16 is amended, modified or interpreted by the SEC to permit (or is replaced with another rule or regulation, or any other law, rule or regulation is adopted, which would permit) any Rule 3-16 Excluded Collateral to secure the Additional Secured Obligations in excess of the amount then pledged without the filing with the SEC (or any other Governmental Authority) of separate financial statements for such Affiliate of the Company, then the Equity Interest of such Affiliate will automatically be deemed to be a part of the Collateral for the relevant Additional Secured Obligations to the extent otherwise required by this Agreement. For avoidance of doubt, nothing in this paragraph shall prevent or limit any pledge of Equity Interests or any other securities hereunder from securing the Notes Obligations at all times.

 

14

In the event of any conflict or inconsistency between the grant of security provided in this Section 2.01 and the provisions of any Intellectual Property Security Agreements, the provisions of this Section 2.01 shall control.

Section 2.02. Security for Secured Obligations. This Agreement secures, in the case of each Grantor, the payment of all Secured Obligations of such Grantor now or hereafter existing, whether direct or indirect, absolute or contingent, and whether for principal, reimbursement obligations, interest, fees, premiums, penalties, indemnifications, contract causes of action, costs, expenses or otherwise.

Section 2.03. Grantors Remain Liable. Anything herein to the contrary notwithstanding, (a) each Grantor shall remain liable under the contracts and agreements included in such Grantor’s Collateral to the extent set forth therein to perform all of its duties and obligations thereunder to the same extent as if this Agreement had not been executed, (b) the exercise by the Collateral Agent of any of the rights hereunder shall not release any Grantor from any of its duties or obligations under the contracts and agreements included in the Collateral and (c) no Secured Party shall have any obligation or liability under the contracts and agreements included in the Collateral by reason of this Agreement or any other Finance Document, nor shall any Secured Party be obligated to perform any of the obligations or duties of any Grantor thereunder or to take any action to collect or enforce any claim for payment assigned hereunder.

Section 2.04. Delivery and Control of Security Collateral . (a) All certificates representing or evidencing the Pledged Equity and all instruments representing or evidencing the Pledged Debt in an aggregate principal amount in excess of $2,000,000 shall be delivered to and held by or on behalf of the Collateral Agent pursuant hereto and shall be in suitable form for transfer by delivery, or shall be accompanied by duly executed instruments of transfer or assignment in blank, all in form and substance satisfactory to the Collateral Agent. During the continuation of an Event of Default and subject to Section 2.04(c), the Collateral Agent shall have the right, at any time in its discretion and without notice to any Grantor, to (i) transfer to or to register in the name of the Collateral Agent or any of its nominees any or all of the Security Collateral, subject only to the revocable rights specified in Section 2.10(a), (ii) exchange certificates or instruments representing or evidencing Security Collateral for certificates or instruments of smaller or larger denominations, and (iii) convert Security Collateral consisting of Financial Assets credited to any Securities Account to Security Collateral consisting of Financial Assets held directly by the Collateral Agent, and to convert Security Collateral consisting of Financial Assets held directly by the Collateral Agent to Security Collateral consisting of Financial Assets credited to any Securities Account.

(b) During the continuation of an Event of Default and subject to Section 2.04(c), promptly upon the request of the Collateral Agent, with respect to any Security Collateral in which any Grantor has any right, title or interest and that constitutes an Uncertificated Security, such Grantor will cause the issuer thereof either (i) to register the Collateral Agent as the registered owner of such Security or (ii) to agree in an authenticated record with such Grantor and the Collateral Agent that such issuer will comply with instructions with respect to such Security originated by the Collateral Agent without further consent of such Grantor, such authenticated record to be in form and substance satisfactory to the Collateral Agent. During the continuation of an Event of Default and subject to Section 2.04(c), with respect to any Security Collateral in which any Grantor has any right, title or interest and that is not an Uncertificated Security, promptly upon the request of the Collateral Agent, such Grantor will notify each such issuer of Pledged Equity that such Pledged Equity is subject to the security interest granted hereunder.

 

15

(c) Nothing in Section 2.04(a) or Section 2.04(b) shall be construed to require any Grantor to enter into any control agreement with respect to any Deposit Account or Securities Account.

Section 2.05. Maintaining Electronic Chattel Paper, Transferable Records and Letter-of-Credit Rights and Giving Notice of Commercial Tort Claims. So long as the Discharge of Secured Obligations has not occurred:

(a) During the continuation of an Event of Default, promptly upon the request of the Collateral Agent, each Grantor will maintain (i) all Electronic Chattel Paper so that the Collateral Agent has control of the Electronic Chattel Paper in the manner specified in Section 9-105 of the UCC and (ii) all transferable records so that the Collateral Agent has control of the transferable records in the manner specified in Section 16 of the Uniform Electronic Transactions Act, as in effect in the jurisdiction governing such transferable record; and

(b) Each Grantor will give prompt notice to the Collateral Agent of any Commercial Tort Claim individually in excess of $5,000,000 that may arise in the future and will promptly execute or otherwise authenticate a supplement to this Agreement, and otherwise take all necessary action, to subject such Commercial Tort Claim to the first priority security interest created under this Agreement.

Section 2.06. Representations and Warranties. Each Grantor represents and warrants as follows:

(a) Such Grantor’s exact legal name, as defined in Section 9-503(a) of the UCC, is correctly set forth as of the date hereof in Schedule I hereto. Such Grantor is located (within the meaning of Section 9-307 of the UCC) and has its chief executive office in the state or jurisdiction set forth in Schedule I hereto. The information set forth in Schedule I hereto with respect to such Grantor is true and accurate in all material respects.

(b) Subject to Section 2.07(d), all Pledged Equity consisting of Certificated Securities has been delivered to the Collateral Agent in accordance herewith, other than any Certificated Securities with respect to any Grantors set forth on Schedule II-A hereof.

(c) Such Grantor is the legal and beneficial owner of the Collateral of such Grantor free and clear of any Lien, claim, option or right of others, except for the security interest created under this Agreement, subject to Liens permitted under each Secured Agreement.

(d) The Pledged Equity pledged by such Grantor hereunder has been duly authorized and validly issued and is fully paid and non assessable.

(e) As of the date hereof, the Pledged Equity pledged by such Grantor constitutes the percentage of the issued and outstanding Equity Interests of the issuers thereof indicated on Schedule II hereto.

 

16

(f) On or prior to the Effective Date, the Company has delivered to the Collateral Agent a complete and accurate list, as of the Effective Date, of all (A) Publishing Copyrights owned or co-owned by, or exclusively licensed in the United States (in whole or in part) to, any Grantor and registered with the U.S. Copyright Office, other than Publishing Copyrights with respect to compositions that generated less than $500 of “net publisher’s share” in the United States in the fiscal year most recently ended (“ Material Recordable Publishing Copyrights ”), (B) Recorded Music Copyrights owned by or exclusively licensed in the United States to any Grantor, registered with the U.S. Copyright Office and available for sale in the United States, as of the last day of the fiscal year most recently ended, by Warner-Elektra-Atlantic Corporation, Alternative Distribution Alliance or any other general market distributor in the United States which is owned and/or controlled by the Company (“ Material Recordable Recorded Music Copyrights ” and, together with Material Recordable Publishing Copyrights, “ Material Recordable Copyrights ”), (C) Trademarks owned by any Grantor and pending or registered with the U.S. Patent and Trademark Office (“ Material Recordable Trademarks ”) and (D) Patents owned by any Grantor and issued by or pending or registered with the U.S. Patent and Trademark Office (“ Material Recordable Patents ” and, together with Material Recordable Copyrights and Material Recordable Trademarks, “ Material Recordable Intellectual Property ”).

(g) On the Effective Date each Grantor has executed and delivered to the Collateral Agent (i) with respect to the Material Recordable Copyrights of such Grantor for the fiscal year ended September 30, 2008, an agreement, in substantially the form set forth in Exhibit B hereto or otherwise in form and substance satisfactory to the Collateral Agent (a “ Copyright Security Agreement ”), (ii) with respect to the Material Recordable Patents of such Grantor, an agreement, in substantially the form set forth in Exhibit C hereto or otherwise in form and substance satisfactory to the Collateral Agent (a “ Patent Security Agreement ”) and (iii) with respect to the Material Recordable Trademarks of such Grantor, an agreement, in substantially the form set forth in Exhibit D hereto or otherwise in form and substance satisfactory to the Collateral Agent (a “ Trademark Security Agreement ” and, together with each Copyright Security Agreement and each Patent Security Agreement, the “ U.S. Intellectual Property Security Agreements ”), in each case for recording the security interest granted hereunder to the Collateral Agent in such Intellectual Property Collateral with the U.S. Patent and Trademark Office or the U.S. Copyright Office, as applicable.

(h)(i) This Agreement creates in favor of the Collateral Agent for the benefit of the Secured Parties a valid security interest in all the Personal Property Collateral of each Grantor, securing the payment of the Secured Obligations of such Grantor; (ii) upon the filing of a UCC financing statement in the UCC filing office in the jurisdiction set forth in Schedule I under the heading “Jurisdiction of Organization” with respect to such Grantor, naming such Grantor as the debtor, the Collateral Agent as the secured party and including the collateral description set forth in Schedule IV, all actions necessary to perfect the security interest in the Personal Property Collateral of such Grantor created under this Agreement with respect to which a Lien may be perfected by filing pursuant to the UCC (all such Collateral, “ Filing Collateral ”) shall have been duly made or taken and be in full force and effect, and the Lien created under this Agreement in such Grantor’s Filing Collateral shall be perfected; and (iii) upon the timely recordation of a Copyright Security Agreement naming such Grantor as the grantor and the Collateral Agent as the secured party with the U.S. Copyright Office, all actions necessary to perfect the security interest

 

17

in the Collateral of such Grantor consisting of the Material Recordable Copyrights described therein and IP Agreements with respect thereto (“ Copyright Collateral ”) shall have been duly made or taken and be in full force and effect, and the Lien created under this Agreement in such Grantor’s Copyright Collateral shall be perfected.

(i) Except as could not reasonably be expected to have a Material Adverse Effect:

(i) To the Grantor’s knowledge, the operation of such Grantor’s business as currently conducted or as contemplated to be conducted and the use of the Intellectual Property Collateral in connection therewith do not conflict with, infringe, misappropriate, dilute, misuse or otherwise violate the intellectual property rights of any third party.

(ii) The registered Intellectual Property Collateral is subsisting and has not been adjudged invalid or unenforceable in whole or part, and to such Grantor’s knowledge, is valid and enforceable. Such Grantor is not aware of any uses of any item of Intellectual Property Collateral by a Grantor or any Affiliate of a Grantor that could be expected to lead to such item becoming invalid or unenforceable.

(iii) Such Grantor has made or performed all filings, recordings and other acts and has paid all required fees and taxes to maintain and protect its interest in its registered Intellectual Property Collateral in full force and effect in the United States, and to protect and maintain its interest therein including, without limitation, recordations of any of its interests in the Patents and Trademarks with the U.S. Patent and Trademark Office and recordation of any of its interests in the Copyrights with the U.S. Copyright Office. Such Grantor has used any statutory notice required in the United States in connection with its use of each registered Patent, Trademark and Copyright in the Intellectual Property Collateral.

(iv) To such Grantor’s knowledge, (A) none of the material Trade Secrets of such Grantor has been used, divulged, disclosed or appropriated to the detriment of such Grantor for the benefit of any other Person other than such Grantor; (B) no employee, independent contractor or agent of such Grantor has misappropriated any trade secrets of any other Person in the course of the performance of his or her duties as an employee, independent contractor or agent of such Grantor; and (C) no employee, independent contractor or agent of such Grantor is in default or breach of any term of any employment agreement, non-disclosure agreement, assignment of inventions agreement or similar agreement or contract relating in any way to the protection, ownership, development, use or transfer of such Grantor’s Intellectual Property Collateral.

(v) To such Grantor’s knowledge, no Grantor or Intellectual Property Collateral is subject to any outstanding consent, settlement, decree, order, injunction, judgment or ruling restricting the use of any Intellectual Property Collateral by such Grantor or any of its Affiliates or that would impair the validity or enforceability of such Intellectual Property Collateral.

 

18

Section 2.07. Further Assurances. (a) Each Grantor agrees that from time to time, at the expense of such Grantor, such Grantor will promptly execute and deliver, or otherwise authenticate, all further instruments and documents, and take all further action that may be reasonably necessary or desirable, or that the Collateral Agent may reasonably request, in order to perfect and protect any pledge or security interest granted or purported to be granted by such Grantor hereunder or to enable the Collateral Agent to exercise and enforce its rights and remedies hereunder with respect to any Collateral of such Grantor.

(b) Each Grantor hereby authorizes the Collateral Agent to file one or more financing or continuation statements, and amendments thereto, including, without limitation, one or more financing statements indicating that such financing statements cover all assets or all personal property (or words of similar effect) of such Grantor, in each case without the signature of such Grantor, and regardless of whether any particular asset described in such financing statements falls within the scope of the UCC or the granting clause of this Agreement. A photocopy or other reproduction of this Agreement or any financing statement covering the Collateral or any part thereof shall be sufficient as a financing statement where permitted by law. Each Grantor ratifies its authorization for the Collateral Agent to have filed such financing statements, continuation statements or amendments filed prior to the date hereof.

(c) Each Grantor agrees, at its own expense, to execute, acknowledge, deliver and cause to be duly filed and/or recorded all financing statements, instruments and documents and take all such actions to perfect the security interests and the rights and remedies created hereby, including the payment of any fees and taxes required in connection with the execution and delivery of this Agreement and the granting of the security interests and the filing of any financing statements (including fixture filings) or other documents in connection herewith, all in accordance with the terms hereof and the Secured Agreements.

(d) Each Grantor agrees that within the period or by the date specified on Schedule II-A (or on such later date as the Collateral Agent shall agree) it will deliver the items described on Schedule II-A.

(e) Each Grantor agrees that in connection with any Additional Secured Obligations, if Collateral Agent determines in its reasonable discretion that modification of the Mortgages or, alternatively, replacements of the Mortgages encumbering the Real Estate Collateral pursuant to the First Lien Security Documents (such modifications or replacements, collectively, the “ Mortgage Modifications ”), is necessary or desirable to create or continue the Lien on the Real Estate Collateral following the issuance of such Additional Secured Obligations, then such Grantor shall deliver the Mortgage Modifications covering the Real Estate Collateral duly executed by such Grantor as of the closing date under the applicable Additional Secured Agreement. The applicable Grantor shall also provide Collateral Agent with any and all other deliveries or documents reasonably requested by Collateral Agent in connection with the Mortgage Modifications, including but not limited to endorsements to the lender’s title insurance policies or new lender’s title insurance policies, as the case may be, insuring the Lien of the Mortgage Modifications, local counsel opinions with respect to the Mortgage Modification