SECURITY AGREEMENT

Exhibit 4.8

EXECUTION VERSION

SECURITY AGREEMENT

Dated as of July 2, 2009

by and among

the Grantors referred to herein

as Grantors

and

U.S. BANK NATIONAL ASSOCIATION

as Collateral Trustee

T A B L E O F C O N T E N T S

 

 

i

Schedules

 

 

ii

SECURITY AGREEMENT

SECURITY AGREEMENT dated as of July 2, 2009 (as amended, amended and restated, supplemented or otherwise modified from time to time, this “ Agreement ”) by and among SOLO CUP COMPANY, a Delaware corporation (the “ Company ”), SOLO CUP OPERATING CORPORATION, a Delaware corporation (“ SCOC ,” and together with the Company, the “ Issuers ” and, each, an “ Issuer ”), the other Persons listed on the signature pages hereof (the Issuers and the Persons so listed being, collectively, the “ Grantors ” and, each, a “ Grantor ”) and U.S. Bank National Association, as collateral trustee (in such capacity, together with any successor collateral trustee appointed pursuant to Section 6.2 of the Collateral Trust Agreement (as hereinafter defined), the “ Collateral Trustee ”) for the Secured Parties (as defined below).

PRELIMINARY STATEMENTS

(1) The Grantors have entered into an Indenture, dated as of July 2, 2009 (said Indenture, as it may hereafter be amended, amended and restated, adjusted, waived, renewed, refunded, replaced, restructured, increased, refinanced, supplemented or otherwise modified from time to time, being the “ Indenture ”) with the Collateral Trustee and U.S. Bank National Association, as trustee (the “ Trustee ”).

(2) The Grantors have entered into a Collateral Trust Agreement, dated as of July 2, 2009 (said Collateral Trust Agreement, as it may hereafter be amended, amended and restated, waived, renewed, replaced, restructured, supplemented or otherwise modified from time to time, being the “ Collateral Trust Agreement ”) with the Collateral Trustee, the Trustee and the other representatives and agents from time to time party thereto.

(3) The Collateral Trust Agreement sets forth the terms on which each Secured Party (as defined below) has appointed the Collateral Trustee as trustee for the present and future holders of the Secured Obligations (as defined below) to receive, hold, maintain, administer and distribute the Collateral at any time delivered to the Collateral Trustee and to enforce the Priority Lien Documents, including this Agreement, and all interests, rights, powers and remedies of the Collateral Trustee in respect thereof or thereunder and the proceeds thereof.

(4) Each Grantor is the owner of the promissory notes set forth opposite such Grantor’s name on and as otherwise described in Part I of Schedule I hereto and issued by the obligors named therein (the “ Initial Pledged Debt ”).

(5) Each Grantor is the owner of the deposit accounts set forth opposite such Grantor’s name on Schedule II hereto (the “ Pledged Deposit Accounts ”).

(6) SCOC is the owner of Account No. 8666216501 (the “ Cash Collateral Account ”), maintained with Bank of America, N.A. and subject to the terms of this Agreement.

(7) SCOC is the owner of Account No. 8666823636 (the “ Collateral Proceeds Account ”), maintained with Bank of America, N.A. and subject to the terms of this Agreement.

(8) Each Grantor is the owner of the securities accounts set forth in Part II of Schedule I (the “ Securities Accounts ”).

(9) It is a condition precedent to the issuance of any Series of Priority Lien Debt pursuant to the Priority Lien Documents that the Grantors shall have granted the security interest contemplated by this Agreement. Each Grantor will derive substantial direct and indirect benefit from the transactions contemplated by the Priority Lien Documents.

(10) Each Grantor has agreed to secure such Grantor’s obligations under the Priority Lien Documents as set forth herein.

NOW, THEREFORE, in consideration of the premises and in order to induce the Secured Parties to enter into the Priority Lien Documents and to induce such Secured Parties to make their respective extensions of credit and other accommodations as set forth in the Priority Lien Documents, each Grantor hereby agrees with the Collateral Trustee for the ratable benefit of the Secured Parties as follows:

Section 1. Certain Defined Terms; Construction; Updated Schedules. (a) The following terms will have the following meanings:

“ ABL Agent ” means the Bank of America, N.A., as administrative agent for the ABL Secured Parties (as defined in the Intercreditor Agreement) and, from and after the date of execution and delivery of an ABL Substitute Facility (as defined in the Intercreditor Agreement), the agent, collateral agent, trustee or other representative of the lenders or holders of the indebtedness and other Obligations (as defined in the Intercreditor Agreement) evidenced thereunder or governed thereby, in each case, together with its successors in such capacity.

“ ABL Debt Obligations ” has the meaning assigned to that term in the Intercreditor Agreement.

“ ABL First Lien Collateral ” has the meaning assigned to that term in the Intercreditor Agreement.

“ ABL Secured Parties ” has the meaning assigned to that term in the Intercreditor Agreement.

“ Applicable Law ” means all laws, rules, regulations and governmental guidelines applicable to the Person, conduct, transaction, agreement or matter in question, including all applicable statutory law, and all provisions of constitutions, treaties, statutes, rules, regulations, orders and decrees of governmental authorities.

“ Equity Interest ” means capital stock, partnership interests, membership interests in a limited liability company, beneficial interests in a trust or other equity ownership interests in a Person.

“ Federal Book-Entry Regulations ” means (A) the federal regulations contained in Subpart B (“Treasury/Reserve Automated Debt Entry System (TRADES)”) governing book-entry securities consisting of U.S. Treasury notes, bills and bonds and Subpart D (“Additional Provisions”) of 31 C.F.R. Part 357, 31 C.F.R. § 357.10 through § 357.15 and § 357.40 through § 357.45, including related defined terms in 31 C.F.R. § 357.2); and (B) to the extent substantially identical to the federal regulations referred to in clause (A) above, the federal regulations governing other book-entry securities.

 

2

“ Full Payment ” means, with respect to any Secured Obligations (other than unasserted contingent obligations) the full cash payment thereof, including any interest, fees and other charges accruing during an Insolvency or Liquidation Proceeding (whether or not allowed in the proceeding) or with respect to Letters of Credit constituting Secured Obligations, the discharge or cash collateralization (at the lower of (A) 105% of the aggregate undrawn amount and (B) the percentage of the aggregate undrawn amount required for release of liens under the terms of the applicable Priority Lien Document).

“ Intellectual Property ” for the purposes of the definitions of “License”, “Licensor” and “Lien Waiver” below, means, all intellectual property of a Person, including inventions, designs, patents, copyrights, trademarks, service marks, trade names, trade dress, logos, confidential and proprietary information, including know-how and trade secrets, software and databases, and all rights therein, all embodiments or fixations thereof and all applications and/or registrations or other rights to use any of the foregoing.

“ License ” means any agreement to which an Issuer or a Grantor is a party and under which such Issuer or Grantor is authorized to use Intellectual Property in connection with any manufacture, marketing, distribution or disposition of Collateral, any use of Property or any other conduct of its business.

“ Licensor ” means any Person from whom an Issuer or a Grantor obtains the right to use any Intellectual Property.

“ Lien Waiver ” means an agreement, in form and substance reasonably satisfactory to Collateral Trustee, by which (a) for any Collateral located on leased premises, the lessor waives or subordinates any Lien it may have on the Collateral, and agrees to permit Collateral Trustee to enter upon the premises and remove the Collateral or to use the premises to store or dispose of the Collateral during certain time periods as may be agreed upon by Collateral Trustee and such lessor; (b) for any Collateral held by a warehouseman, processor, shipper, customs broker or freight forwarder, such Person waives or subordinates any Lien it may have on the Collateral, agrees to hold any Documents in its possession relating to the Collateral as agent for Collateral Trustee, and agrees to deliver the Collateral to Collateral Trustee upon request; (c) for any Collateral held by a repairman, mechanic or bailee, such Person acknowledges Collateral Trustee’s Lien, waives or subordinates any Lien it may have on the Collateral, and agrees to deliver the Collateral to Collateral Trustee upon request; and (d) for any Collateral subject to a Licensor’s Intellectual Property rights, the Licensor grants to Collateral Trustee the right, vis-à-vis such Licensor, to enforce Collateral Trustee’s Liens with respect to the Collateral, including the right to dispose of it with the benefit of the Intellectual Property, whether or not a default exists under any applicable License.

 

3

“ Material Adverse Effect ” means the effect of any event or circumstance that, taken alone or in conjunction with other events or circumstances, (a) has or could be reasonably expected to have a material adverse effect on the business, operations, properties, liabilities or financial condition of the Issuers and Guarantors taken as a whole, on the value of the Collateral taken as a whole, on the enforceability of any Priority Lien Documents, or on the validity or priority of Collateral Trustee’s Liens on any material portion of the Noteholder First Lien Collateral; (b) impairs the ability of the Issuers and Guarantors, taken as a whole, to perform any payment obligations or other material obligations under the Priority Lien Documents; or (c) otherwise impairs the ability of Collateral Trustee or any holder of Secured Obligations to enforce or collect any Secured Obligations or to realize upon any material portion of the Noteholder First Lien Collateral; provided that for purposes of representations and warranties made as of the date of the original issuance of the Notes under the Indenture, “Material Adverse Effect” shall not include any state of facts, event, change or effect caused by events, changes or developments arising from changes in GAAP or from any changes in the market in which the Issuers and Grantors operate which do not disproportionately affect any of the Issuers or Grantors; provided further that the limitations on remedies in the Intercreditor Agreement shall be deemed not to impair any rights of Collateral Trustee or any holder of Secured Obligations for purposes of this definition.

“ Noteholder First Lien Collateral ” has the meaning assigned to that term in the Intercreditor Agreement.

“Obligations ” means any principal, interest, penalties, fees, expenses, indemnifications, reimbursements, damages and other liabilities (including all interest, Special Interest (if any), fees and expenses accruing after the commencement of any Insolvency or Liquidation Proceeding, even if such interest, fees and expenses are not enforceable, allowable or allowed as a claim in such proceeding) under any Priority Lien Documents, and, to the extent applicable, includes Banking Product Obligations and Hedging Obligations.

“ Priority Lien Default ” means any event or condition which, under the terms of any credit agreement, indenture or other agreement governing any Series of Priority Lien Debt causes, or permits holders of Priority Lien Obligations outstanding thereunder to cause, the Priority Lien Debt outstanding thereunder to become immediately due and payable.

“ Properly Contested ” means with respect to any obligation of an Issuer, Guarantor or any Restricted Subsidiary thereof, (a) the obligation is subject to a bona fide dispute regarding amount or such Issuer’s or Guarantor’s or Restricted Subsidiary’s liability to pay; (b) the obligation is being properly contested in good faith by appropriate proceedings promptly instituted and diligently pursued; (c) appropriate reserves have been established in accordance with GAAP; (d) non-payment could not have a Material Adverse Effect, nor result in forfeiture or sale of any assets of such Issuer, Guarantor or any Restricted Subsidiary; (e) no Lien is imposed on assets of such Issuer, Guarantor or Restricted Subsidiary, unless bonded and stayed to the satisfaction of Collateral Trustee; and (f) if the obligation results from entry of a judgment or other order, such judgment or order is stayed pending appeal or other judicial review.

“ Secured Debt Obligations ” has the meaning assigned to that term in the Intercreditor Agreement.

 

4

“ Secured Documents ” has the meaning assigned to that term in the Intercreditor Agreement.

“ Secured Obligations ” has the meaning assigned to that term in Section 3.

“ Secured Parties ” means the holders of the Priority Lien Obligations, the Collateral Trustee, and the Priority Lien Representative.

“ Security Documents ” has the meaning assigned to that term in the Intercreditor Agreement.

“ UCC ” means the Uniform Commercial Code as in effect from time to time in the State of New York; provided that, if perfection or the effect of perfection or non perfection or the priority of the security interest in any Collateral is governed by the Uniform Commercial Code as in effect in a jurisdiction other than the State of New York, “ UCC ” means the Uniform Commercial Code as in effect from time to time in such other jurisdiction for purposes of the provisions hereof relating to such perfection, effect of perfection or non perfection or priority.

(b) Terms defined in the Collateral Trust Agreement and not otherwise defined in this Agreement are used in this Agreement as defined in the Collateral Trust Agreement. Further, unless otherwise defined in this Agreement or in the Collateral Trust Agreement, terms defined in Article 1, 8 or 9 of the UCC and/or in the Federal Book Entry Regulations are used in this Agreement as such terms are defined in such Article 1, 8 or 9 and/or in the Federal Book Entry Regulations.

(c) Each Grantor shall be entitled to provide at any time and from time to time (by providing written notice to the Collateral Trustee and any Priority Lien Representative) such supplements to the schedules hereof as are necessary to accurately reflect at such time the information required by this Agreement to be stated therein.

Section 2. Grant of Security . Each Grantor hereby grants to the Collateral Trustee, for the ratable benefit of the Secured Parties, a security interest in such Grantor’s right, title and interest in and to the following, 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 “ Collateral ”):

(a) all equipment in all of its forms, including, without limitation, all machinery, tools, furniture and fixtures, and all parts thereof and all accessions thereto, including, without limitation, computer programs and supporting information that constitute equipment within the meaning of the UCC (any and all such property being the “ Equipment ”);

(b) all inventory in all of its forms, including, without limitation, (i) all raw materials, work in process, finished goods and materials used or consumed in the manufacture, production, preparation or shipping thereof, (ii) goods in which such Grantor has an interest in mass or a joint or other interest or right of any kind (including, without limitation, goods in which such Grantor has an interest or right as consignee) and (iii) goods that are returned to or repossessed or stopped in transit by such Grantor, and all accessions thereto and products thereof and documents therefor, including, without limitation, computer programs and supporting information that constitute inventory within the meaning of the UCC (any and all such property being the “ Inventory ”);

 

5

(c) all accounts (including, without limitation, health-care-insurance receivables), chattel paper (including, without limitation, tangible chattel paper and electronic chattel paper), instruments (including, without limitation, promissory notes), deposit accounts, letter-of-credit rights, general intangibles (including, without limitation, payment intangibles) and all other right to payment of monetary obligations of any kind, whether or not arising out of or in connection with the sale or lease of goods or the rendering of services and whether or not earned by performance, and all rights now or hereafter existing in and to all supporting obligations and in and to all security agreements, mortgages, Liens, leases, letters of credit and other contracts securing or otherwise supporting payment of any of the foregoing property (any and all of such accounts, chattel paper, instruments, deposit accounts, letter-of-credit rights, general intangibles and other obligations, to the extent not referred to in clause (d), (e) or (f) below, being the “ Receivables ,” and any and all such supporting obligations, security agreements, mortgages, Liens, leases, letters of credit and other contracts being the “ Related Contracts ”);

(d) the following (collectively, the “ Security Collateral ”):

(i) the Initial Pledged Debt and the instruments, if any, evidencing the Initial 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 Initial Pledged Debt;

(ii) all additional monetary obligations from time to time owed to such Grantor (such indebtedness, together with the Initial Pledged Debt, being the “ Pledged Debt ”) and the instruments, if any, evidencing such monetary obligations, 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 such monetary obligations;

(iii) the Securities Accounts, all security entitlements with respect to all financial assets from time to time credited to the Securities Accounts, 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 for any or all of such security entitlements or financial assets and all warrants, rights or options issued thereon or with respect thereto; and

(iv) all other investment property (including, without limitation, all (A) securities, whether certificated or uncertificated, (B) security entitlements, (C) securities accounts, (D) commodity contracts and (E) commodity accounts) in which such Grantor has now, or acquires from time to time hereafter, any right, title or interest in any manner, and the certificates or instruments, if any, representing or evidencing such investment property, 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 for any or all of such investment property and all warrants, rights or options issued thereon or with respect thereto;

 

6

(e) each of the agreements listed on Schedule III hereto as such agreements may be amended, amended and restated, supplemented or otherwise modified from time to time (collectively, the “ Assigned Agreements ”), including, without limitation, (i) all rights of such Grantor to receive moneys due and to become due under or pursuant to the Assigned Agreements, (ii) all rights of such Grantor to receive proceeds of any insurance, indemnity, warranty or guaranty with respect to the Assigned Agreements, (iii) claims of such Grantor for damages arising out of or for breach of or default under the Assigned Agreements and (iv) the right of such Grantor to terminate the Assigned Agreements, to perform thereunder and to compel performance and otherwise exercise all remedies thereunder (all such Collateral being the “ Agreement Collateral ”);

(f) the following (collectively, the “ Account Collateral ”):

(i) the Pledged Deposit Accounts, the Cash Collateral Account, the Collateral Proceeds Account and all funds and financial assets from time to time credited thereto (including, without limitation, all Cash Equivalents), and all certificates and instruments, if any, from time to time representing or evidencing the Pledged Deposit Accounts, the Cash Collateral Account or the Collateral Proceeds Account;

(ii) all promissory notes, certificates of deposit, checks and other instruments from time to time delivered to or otherwise possessed by the Collateral Trustee or the ABL Agent for or on behalf of such Grantor in substitution for or in addition to any or all of the then existing Account Collateral; and

(iii) all interest, dividends, distributions, 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 then existing Account Collateral; and

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

(i) all patents, patent applications, utility models and statutory invention registrations, together with 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, fictitious business names, corporate names, certification marks, collective marks and other source identifiers, whether registered or unregistered ( provided that no security interest shall be granted in any United States intent-to-use trademark application for registration of a trademark filed pursuant to Section 1(b) of the Lanham Act, 15 U.S.C. § 1051, prior to the filing of a “Statement of Use” pursuant to Section 1(d) of the Lanham Act or an “Amendment to Allege Use” pursuant to Section 1(c) of the Lanham Act with respect thereto, solely 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 that issues from such intent-to-use trademark applications under applicable federal law), together, in each case, with the goodwill symbolized thereby (“ Trademarks ”);

 

7

(iii) all copyrights (whether or not the underlying works of authorship have been published), including, without limitation, copyrights in Computer Software (as hereinafter defined), internet web sites and the content thereof, whether registered or unregistered (“ Copyrights ”);

(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, 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, including, without limitation, those registrations and applications for registration set forth in Schedule IV hereto, 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, including, without limitation, the agreements set forth in Schedule IV hereto (“ IP Agreements ”);

(ix) all tangible embodiments of any of the foregoing, and

(x) 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;

 

8

(h) the commercial tort claims described in Schedule V hereto (together with any commercial tort claims as to which the Grantors have complied with the requirements of Section 18, the “ Commercial Tort Claims Collateral ”);

(i) 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 foregoing Collateral or any of the Collateral referred to in clause (j) below; and

(j) 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 foregoing Collateral (including, without limitation, proceeds, collateral and supporting obligations that constitute property of the types described in clauses (a) through (i) of this Section 2) and, to the extent not otherwise included, all (A) payments under insurance (whether or not the Collateral Trustee 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, and (B) cash;

provided that Collateral shall not include the following (collectively, the “ Excluded Assets ”):

(1) all interests in real property other than fee interests and other interests appurtenant thereto;

(2) fee interests in real property if the greater of the cost or the book value of such fee interest is less than $1,000,000;

(3) any property or asset to the extent that the grant of a Lien under the Security Documents (as defined in the Intercreditor Agreement) in such property or asset is prohibited by applicable law or requires any consent of any governmental authority not obtained pursuant to applicable law; provided that such property or asset will be an Excluded Asset only to the extent and for so long as the consequences specified above will result and will cease to be an Excluded Asset and will become subject to the Lien granted under the Security Documents (as defined in the Intercreditor Agreement), immediately and automatically, at such time as such consequences will no longer result;

(4) any lease, license, contract, property right or agreement to which any Grantor is a party or any of its rights or interests thereunder only to the extent and only for so long as the grant of a Lien under the Security Documents (as defined in the Intercreditor Agreement) will constitute or result in a breach, termination or default under or requires any consent not obtained under any such lease, license, contract, agreement or property right (other than to the extent that any such term would be rendered ineffective pursuant to Sections 9-406, 9-407, 9-408 or 9-409 of the UCC (or any successor provision or provisions) of any relevant jurisdiction or any other applicable law (including the Bankruptcy Code) or principles of equity); provided that such lease, license, contract, property right or agreement will be an Excluded Asset only to the extent and for so long as the consequences specified above will result and will cease to be an Excluded Asset and will become subject to the Lien granted under the Security Documents (as defined in the Intercreditor Agreement), immediately and automatically, at such time as such consequences will no longer result;

 

9

(5) any motor vehicles, vessels and aircraft, or other property subject to a certificate of title statute of any jurisdiction;

(6) cash or Cash Equivalents (or deposits or securities accounts that solely contain such cash or cash equivalents) (i) securing reimbursement obligations under letters of credit or surety bonds (other than, in the case of ABL Collateral, reimbursement obligations in respect of letters of credit securing or constituting ABL Debt Obligations), (ii) solely consisting of earnest money deposits made or received in connection with any disposition of property or assets or in connection with any investment or (iii) securing Hedging Obligations (as defined in the Intercreditor Agreement), in each case to the extent permitted under all Secured Documents (as defined in the Intercreditor Agreement);

(7) assets or property subject to purchase money liens or capital leases permitted to be incurred under all Secured Documents (as defined in the Intercreditor Agreement), to the extent a Lien on such assets or property is not permitted, under the terms of the documents governing such purchase money liens, purchase money indebtedness or capital leases, to be created to secure any Secured Debt Obligations (as defined in the Intercreditor Agreement);

(8) all “securities” of any of the Issuers’ “affiliates” (as the terms “securities” and “affiliates” are used in Rule 3-16 of Regulation S-X under the Securities Act of 1933, as amended);

(9) Equity Interests in any joint venture with a third party that is not an Affiliate of such Grantor, to the extent a pledge of such Equity Interests is prohibited by the documents governing such joint venture;

(10) the real property located at 1951 Highway 304, Belen, New Mexico, the real property located at 177 Florence Street, Leominster, Massachusetts, and the real property located at 1900 S. Clark Road, Havre de Grace, Maryland, in each case, including all fixtures and improvements located thereon; and

(11) the real property located at 3333 East 87th Street, Chicago, Illinois (formerly known as the USX South Works site), including all fixtures and improvements located thereon;

provided, further , that notwithstanding the foregoing proviso, the Collateral does include all deposit and securities accounts identified on Schedules I and II hereto and all instruments identified on Schedule I hereto.

For the avoidance of doubt, the security interest created in this Section 2 is subject to the Intercreditor Agreement, including, without limitation, Section 2.01 thereof.

Section 3. Security for Secured Obligations . The security interest in the Collateral created hereunder secures, in the case of each Grantor, the payment of all Obligations

 

10

of such Grantor now or hereafter existing under each Series of Priority Lien Debt issued pursuant to the Priority Lien Documents, 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 (all such obligations being the “ Secured Obligations ”). Without limiting the generality of the foregoing, the security interest in the Collateral created hereunder secures, as to each Grantor, the payment of all amounts that constitute part of the Secured Obligations and would be owed by such Grantor to any Secured Party under the Priority Lien Documents but for the fact that they are unenforceable or not allowable due to the existence of a bankruptcy, reorganization or similar proceeding involving an Issuer or a Guarantor.

Section 4. 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 Trustee 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 Priority Lien 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 5. Delivery and Control of Security Collateral . (a) All instruments representing or evidencing Pledged Debt (except to the extent the aggregate outstanding principal amount of Pledged Debt owing to such Grantor does not exceed $200,000) with respect to any Grantor shall be delivered to and held by or on behalf of the Collateral Trustee pursuant hereto (unless the ABL Agent is granted a prior security interest in such instruments and the same are required to be delivered (and are so delivered) to the ABL Agent for the benefit of the ABL Secured Parties pursuant to the Intercreditor Agreement) 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 reasonably satisfactory to the Collateral Trustee.

(b) With respect to any Securities Account and any Security Collateral that constitutes a security entitlement (except for any Securities Account that is an Excluded Account (as defined below)), the relevant Grantor will cause the securities intermediary with respect to such Securities Account and security entitlement either (i) to identify in its records the Collateral Trustee as the entitlement holder thereof, unless the ABL Agent is granted a prior security interest in such security entitlement and such Grantor is required to cause (and has so caused) such securities intermediary to identify in its records the ABL Agent as the entitlement holder thereof for the benefit of the ABL Secured Parties pursuant to the Intercreditor Agreement, or (ii) to agree with such Grantor and the Collateral Trustee that such securities intermediary will comply with entitlement orders originated by the Collateral Trustee without further consent of such Grantor, such agreement to be in form and substance reasonably satisfactory to the Collateral Trustee (and if the ABL Agent is required to be granted (and has been granted) a prior security interest in such Securities Account and security entitlement for the benefit of the ABL Secured Parties pursuant to the Intercreditor Agreement, with provisions instructing such securities intermediary that entitlement orders originated by the ABL Agent controls pursuant to the Intercreditor Agreement) (a “ Securities Account Control Agreement ”).

 

11

(c) Subject to the Intercreditor Agreement, the Collateral Trustee shall have the right, at any time after the occurrence and during the continuation of a Priority Lien Default, (i) in its discretion and without notice to any Grantor, to transfer to or to register in the name of the Collateral Trustee or any of its nominees any or all of the Security Collateral, subject only to the revocable rights specified in Section 15(a) and (ii) to convert Security Collateral consisting of financial assets credited to the Securities Account to Security Collateral consisting of financial assets held directly by the Collateral Trustee, and to convert Security Collateral consisting of financial assets held directly by the Collateral Trustee to Security Collateral consisting of financial assets credited to the Securities Account.

(d) Upon the request of the Collateral Trustee following the occurrence and during the continuance of a Priority Lien Default, each Grantor will notify each issuer of Security Collateral granted by it hereunder that such Security Collateral is subject to the security interest granted hereunder.

Section 6. Maintaining the Account Collateral . Until Full Payment of the Secured Obligations (the “ Discharge ”):

(a) Each Grantor will maintain deposit accounts (other than an account exclusively used for payroll, payroll taxes, employee benefits or other similar fiduciary obligations, any trust account, any zero-balance disbursement account (i.e., any account used only for disbursement purposes in which a balance of zero is maintained by automatically transferring funds from another account in an amount only large enough to cover checks presented) and any account used to settle foreign exchange trades or accounts having an aggregate balance of not more than $250,000 or the account number 8666823891 maintained with Bank of America, N.A. so long as the ending daily balance of such account does not exceed $500,000 (collectively, the “ Excluded Accounts ”)), including the Collateral Proceeds Account, only with a bank (a “ Pledged Account Bank ”) that has agreed with such Grantor and the Collateral Trustee to comply with instructions originated by the Collateral Trustee directing the disposition of funds in such deposit account without the further consent of such Grantor, such agreement to be in form and substance reasonably satisfactory to the Collateral Trustee (in the cases of the Pledged Deposit Accounts and Cash Collateral Account, with provisions instructing such bank that pursuant to the Intercreditor Agreement, instructions originated by the ABL Agent control) (a “ Deposit Account Control Agreement ”).

(b) Each Grantor will (i) immediately instruct each Person obligated at any time to make any payment to such Grantor for any reason (an “ Obligor ”) to make such payment to a Pledged Deposit Account or the Cash Collateral Account and (ii) deposit in a Pledged Deposit Account or the Cash Collateral Account, at the end of each Business Day, all proceeds of Collateral and all other cash of such Grantor; provided that only proceeds of the Noteholder First Lien Collateral shall be deposited in the Collateral Proceeds Account and each Grantor shall so instruct each such Person, shall so deposit proceeds of any Collateral and other cash and shall take all other actions necessary to give effect to the intent of this proviso.

 

12

(c) Subject to the Intercreditor Agreement, the Collateral Trustee may, at any time and without notice to, or consent from, the Grantor, transfer, or direct the transfer of, funds from the Collateral Proceeds Account and, if applicable, the Pledged Deposit Accounts or the Cash Collateral Account, as the case maybe, to satisfy the Grantor’s Obligations if a Priority Lien Default shall have occurred and be continuing.

Section 7. Investing of Amounts in the Cash Collateral Account . Following the Discharge of ABL Debt Obligations, to the extent applicable, the Collateral Trustee will, subject to the Intercreditor Agreement and the provisions of Sections 6 and 23, from time to time (a) invest, or direct the applicable Pledged Account Bank to invest, amounts received with respect to the Cash Collateral Account in such Cash Equivalents credited to the Cash Collateral Account as SCOC, or any other agent designated by Grantors as their representative and agent (in such capacity, the “ Grantor Agent ”) for all purposes under the Priority Lien Documents, may select and the Collateral Trustee may approve, and (b) invest interest paid on the Cash Equivalents referred to in clause (a) above, and reinvest other proceeds of any such Cash Equivalents that may mature or be sold, in each case in such Cash Equivalents credited in the same manner. Interest and proceeds that are not invested or reinvested in Cash Equivalents as provided above shall be deposited and held in the Cash Collateral Account. In addition, the Collateral Trustee shall have the right at any time to exchange, or direct the applicable Pledged Account Bank to exchange, such Cash Equivalents for similar Cash Equivalents of smaller or larger denominations, or for other Cash Equivalents, credited to the Cash Collateral Account.

Section 8. Cash Dominion Period . The Collateral Trustee may send to each bank or securities intermediary party to any Deposit Account Control Agreement or Securities Account Control Agreement a notice terminating the rights of such Grantor to originate any entitlement orders or instructions directing disposition of funds. In addition, the Collateral Trustee agrees (i) to send such notices described above only if a Priority Lien Default has occurred and is continuing and (ii) to send notices to such banks and securities intermediaries revoking such notices described above if such Priority Lien Default has been cured.

Section 9. Representations and Warranties . Each Grantor hereby represents and warrants to the Collateral Trustee and the applicable Secured Parties, as of the date hereof and on the date of incurrence of any Series of Priority Lien Debt, that:

(a) Such Grantor’s exact legal name, chief executive office, type of organization, jurisdiction of organization and organizational identification number is set forth in Schedule VI hereto. Within the five years preceding the date hereof, such Grantor has not changed its name, chief executive office, type of organization, jurisdiction of organization or organizational identification number from those set forth in Schedule VI hereto except as set forth in Schedule VII hereto.

(b) Such Grantor owns or has rights in the Collateral granted by it hereunder free and clear of any Lien except for the security interest created under this Agreement or the Liens permitted under the Priority Lien Documents (including, without limitation, the Liens held by the ABL Agent). No effective financing statement or other instrument similar in effect covering all or any part of such Collateral or listing such Grantor as debtor is on file in any recording office, except such as may have been filed in favor of the Collateral Trustee relating to the Priority Lien Documents or with respect to Liens otherwise permitted under the Priority Lien Documents (including, without limitation, the Liens held by the ABL Agent).

 

13

(c) All of the Equipment and Inventory (other than Inventory in trans