SECURITY AGREEMENT

Exhibit 10.3

 

SECURITY AGREEMENT

This SECURITY AGREEMENT (this “ Agreement ”) is dated as of September 4, 2009, and made by PHYSICIANS FORMULA, INC., a New York corporation (the “ Borrower ”) and each other entity listed on the signature pages hereof (with the Borrower, each a “ Grantor ” and collectively, the “ Grantors ”), whose obligations are joint and several, in favor of MILL ROAD CAPITAL, L.P. (the “ Lender ”).

RECITALS

A.           The Lender has entered into that certain Term Loan Agreement dated as of September 4, 2009 (said Agreement, as it may hereafter be amended, restated, supplemented or otherwise modified from time to time, being called the “ Loan Agreement ”) with the Borrower.

B.           Concurrently herewith each Grantor other than the Borrower is executing a Guarantee dated as of even date herewith, in favor of the Lender, which Guarantee supports the Loan Agreement and the Lender’s loan to the Borrower will result in a direct and substantial benefit to such Grantors.

C.           It is a condition precedent to the extension of credit by the Lender under the Loan Agreement that each Grantor shall have executed and delivered this Agreement.

D.           Terms defined in the Loan Agreement and not otherwise defined herein have the same respective meanings when used herein, and the rules of interpretation set forth in Section 1.2 of the Loan Agreement are incorporated herein by reference.  Schedule and Exhibit references are to this Agreement unless otherwise specified, and each such Schedule and Exhibit is incorporated herein.  The words “include,” “includes” and “including” shall be deemed to be followed by the phrase “without limitation”.

AGREEMENT

NOW, THEREFORE, in order to induce the Lender to enter into the Loan Agreement and for other good and valuable consideration, the receipt and adequacy of which hereby is acknowledged, each Grantor hereby represents, warrants, covenants, agrees, assigns and grants as follows:

1.            Definitions .  Unless the context otherwise requires, terms defined in the Uniform Commercial Code of the State of New York (the “ Uniform Commercial Code ”) and not otherwise defined in this Agreement or in the Loan Agreement shall have the meanings defined for those terms in the Uniform Commercial Code.  In addition, the following terms shall have the meanings respectively set forth after each:

“ Asset Disposition ” shall have the meaning described to such term in the UB Credit Agreement.

“ Capital Stock ” means  any and all shares, interests, participation or other equivalents (however designated) of capital stock of a corporation, any and all equivalent ownership interests in a Person (other than a corporation), any and all warrants, options or rights to purchase or any other securities convertible into any of the foregoing.

“ Certificates ” means all certificates, instruments and other documents now or hereafter representing or evidencing any Pledged Securities or any Pledged Limited Liability Company Interests.

“ Collateral ” means all present and future right, title and interest of each Grantor in or to any property or assets whatsoever, whether now owned or existing or hereafter arising or acquired and wheresoever located, and all rights and powers of such Grantor to transfer any interest in or to any property or assets whatsoever, including, any and all of the following property:

(a)           All present and future accounts, accounts receivable, agreements, guarantees, contracts, leases, licenses, contract rights, health-care-insurance receivables, letter-of-credit rights and other rights to payment (collectively, the “ Accounts ”), together with all instruments, documents, chattel paper, security agreements, guaranties, undertakings, surety bonds, insurance policies, notes and drafts, all other supporting obligations, and all forms of obligations owing to such Grantor or in which such Grantor may have any interest, however created or arising;

(b)           All present and future general intangibles and payment intangibles; and all other forms of obligations owing to such Grantor or in which such Grantor may have any interest, however created or arising; all tax refunds of every kind and nature to which such Grantor now or hereafter may become entitled, however arising, all other refunds, all commitments to extend financing to such Grantor, and all deposits, goodwill, choses in action, trade secrets, computer programs, software, customer lists, trademarks, trade names, patents, licenses, copyrights, technology, processes, proprietary information, insurance proceeds and warranties including, the Copyrights, the Patents, the Marks and the goodwill of such Grantor’s business connected with and symbolized by the Marks;

(c)           All present and future demand, time, savings, passbook, deposit and like accounts (general or special) (collectively, the “ Deposit Accounts ”) in which such Grantor has any interest which is maintained with any bank, savings and loan association, credit union or like organization, including, each account listed on Schedule E (as such Schedule may be supplemented from time to time in accordance with the terms of this Agreement), and all money, cash and cash equivalents of such Grantor, whether or not deposited in any Deposit Account;

(d)           All present and future books and records, including, books of account and ledgers of every kind and nature, all electronically recorded data relating to such Grantor or the business thereof, all receptacles and containers for such records, and all files and correspondence;

(e)           All present and future goods, including, (i) all presses, furnaces, ovens, conveyors, motors, pumps, containers, compressors, hoists, loaders, lifts, saws, mills and drills and (ii) all furniture, fixtures, furnishings, machinery, automobiles, trucks, other vehicles, spare parts, supplies, equipment, tooling, molds, patterns, dies and other tangible property owned by such Grantor and used, held for use or useful in connection with its business, wherever located, and all other goods used in connection with or in the conduct of such Grantor’s business or otherwise owned by such Grantor (collectively, the “ Equipment ”);

(f)           All present and future inventory and merchandise, including, all present and future goods held for sale or lease or to be furnished under a contract of service, all extruded aluminum and thermal management products, all raw materials, work in process and finished goods, all packing materials, supplies and containers relating to or used in connection with any of the foregoing, and all bills of lading, warehouse receipts and documents of title relating to any of the foregoing (collectively, the “ Inventory ”);

(g)          All present and future stocks, bonds, debentures, certificated and uncertificated securities, security entitlements, subscription rights, options, warrants, puts, calls, certificates, securities accounts, commodity contracts, commodity accounts, partnership interests, limited liability company interests, joint venture interests and investment and/or brokerage accounts, and all other investment property, including, the Certificates, the Pledged Securities, the Pledged Partnership Interests and the Pledged Limited Liability Company Interests, and all rights, preferences, privileges, dividends, distributions (in cash or in kind), redemption payments or liquidation payments with respect thereto;

(h)           All present and future accessions, appurtenances, components, repairs, repair parts, spare parts, replacements, substitutions, additions, issue and/or improvements to or of or with respect to any of the foregoing;

(i)           All other tangible and intangible personal property of such Grantor;

(j)           All rights, remedies, powers and/or privileges of such Grantor with respect to any of the foregoing; and

(k)          Any and all proceeds and products of the foregoing, including, all money, accounts, general intangibles, deposit accounts, documents, instruments, letter-of-credit rights, investment property, chattel paper, goods, insurance proceeds and any other tangible or intangible property received upon the sale or disposition of any of the foregoing;

provided , that the Collateral shall not include, and no Grantor grants to the Lender, a Lien in any lease, license or other contract which prohibits the assignment thereof or the grant of a security interest therein to the extent such provisions are not rendered ineffective pursuant to Sections 9-406, 9-407, 9-408 and 9-409 of the Uniform Commercial Code.

“ Control Agreement ”:  means all control agreements, restricted account agreement or similar agreement or document, in each case in form and substance satisfactory to the Lender and entered into for the purpose of perfecting a security interest in one or more deposit accounts or securities accounts of the Borrower or its Subsidiaries.

“ Copyrights ” means all:

(a)           copyrights, whether or not published or registered under the Copyright Act of 1976, 17 U.S.C. Section 101 et seq., as the same shall be amended from time to time, and any predecessor or successor statute thereto (the “ Copyright Act ”), and applications for registration of copyrights, and all works of authorship and other intellectual property rights therein, including, copyrights for computer programs, source code and object code data bases and related materials and documentation, and including the registered copyrights and copyright applications listed on Schedule B (as such Schedule may be supplemented from time to time in accordance with the terms of this Agreement), and (i) all renewals, revisions, derivative works, enhancements, modifications, updates, new releases and other revisions thereof, (ii) all income, royalties, damages and payments now and hereafter due and/or payable with respect thereto, including, payments under all licenses entered into in connection therewith and damages and payments for past or future infringements thereof, (iii) the right to sue for past, present and future infringements thereof and (iv) all of each Grantor’s rights corresponding thereto throughout the world;

(b)           rights under or interests in any copyright license agreements with any other party, whether any Grantor is a licensee or licensor under any such license agreement, including, the copyright license agreements listed on Schedule B (as such Schedule may be supplemented from time to time in accordance with the terms of this Agreement), and the right to use the foregoing in connection with the enforcement of the Lender’s rights under the Loan Documents; and

(c)           copyrightable materials now or hereafter owned by any Grantor, all tangible property embodying the copyrights or copyrightable materials described herein, and all tangible property covered by the licenses described in clause (b) hereof.

“ Domestic Subsidiary ” means each Subsidiary organized under the laws of the United States or any state thereof.

“ Foreign Subsidiary : means any Subsidiary other than a Domestic Subsidiary.

“ Limited Liability Company Acknowledgement ” shall have the meaning ascribed to it in Section 4(b) of this Agreement.

“ Limited Liability Company Assets ” means all assets, whether tangible or intangible and whether real, personal or mixed (including, all limited liability company capital and interests in other limited liability companies), at any time owned or represented by any Limited Liability Company Interests.

“ Limited Liability Company Interests ” means the entire limited liability company interest at any time owned by any Grantor in any Pledged Entity.

“ Limited Liability Company Notice ” shall have the meaning ascribed to it in Section 4(b) of this Agreement.

“ Marks ” means all (i) trademarks, trademark registrations, interests under trademark license agreements, trade names, trademark applications, service marks, business names, trade styles, designs, logos and other source or business identifiers which are used in the United States or any state, territory or possession thereof, or in any other place, nation or jurisdiction anywhere in the world, including the trademarks, trademark registrations, applications, service marks, business names, trade styles, design logos and other source or business identifiers listed on Schedule B (as such Schedule may be supplemented from time to time in accordance with the terms of this Agreement), (ii) licenses pertaining to any such mark, whether any Grantor is a licensor or licensee including, the licenses listed on Schedule B (as such Schedule may be supplemented from time to time in accordance with the terms of this Agreement), (iii) all income, royalties, damages and payments now and hereafter due and/or payable with respect to any such mark or any such license, including, damages and payments for past, present or future infringements thereof, (iv) rights to sue for past, present and future infringements thereof, (v) rights corresponding thereto throughout the world, (vi) all product specification documents and production and quality control manuals used in the manufacture of products sold under or in connection with such marks, (vii) all documents that reveal the name and address of all sources of supply of, and all terms of purchase and delivery for, all materials and components used in the production of products sold under or in connection with such marks, (viii) all documents constituting or concerning the then current or proposed advertising and promotion by any Grantor, its subsidiaries or licensees of products sold under or in connection with such marks, including all documents that reveal the media used or to be used and the cost for all such advertising and (ix) renewals and proceeds of any of the foregoing.

“ Patents ” means all (i) letters patent, design patents, utility patents, inventions and trade secrets, all patents and patent applications in the United States Patent and Trademark Office, and all interests under patent license agreements, including the inventions and improvements described and claimed therein, including those letters patent, design patents, utility patents, inventions, trade secrets, patents, patent applications and patent license agreements listed on Schedule B (as such Schedule may be supplemented from time to time in accordance with the terms of this Agreement), (ii) licenses pertaining to any patent whether any Grantor is a licensor or licensee, (iii) income, royalties, damages and payments now and hereafter due and/or payable under and with respect thereto, including, damages and payments for past, present or future infringements thereof, (iv) rights to sue for past, present and future infringements thereof, (v) rights corresponding thereto throughout the world and (vi) the reissues, divisions, continuations, renewals, extensions and continuations-in-part of any of the foregoing.

“ Pledged Collateral ” means the Certificates, the Pledged Securities, the Pledged Partnership Interests and the Pledged Limited Liability Company Interests.  Notwithstanding the foregoing, the security interest granted herein shall not include, and the term Pledged Collateral shall not include, equity interests in any direct Foreign Subsidiary of any Grantor in excess of 65% of the Capital Stock having voting power in such Foreign Subsidiary (unless a greater amount of such equity interests shall not cause such Grantor to incur material adverse tax consequences under Section 956 of the Code).

“ Pledged Entity ” means each limited liability company set forth in Schedule A (as such Schedule may be supplemented from time to time in accordance with the terms of this Agreement), together with any other limited liability company in which any Grantor may have an interest at any time.

“ Pledged Limited Liability Company Interests ” means all interests in each Pledged Entity held by any Grantor, including those Limited Liability Company Interests identified in Schedule A (as such Schedule may be supplemented from time to time in accordance with the terms of this Agreement), including (i) all the capital thereof and such Grantor’s interests in all profits, losses, Limited Liability Company Assets and other distributions in respect thereof; (ii) all other payments due or to become due to such Grantor in respect of such Limited Liability Company Interests; (iii) all of such Grantor’s claims, rights, powers, privileges, authority, options, security interests, liens and remedies in respect of such Limited Liability Company Interests; (iv) all of such Grantor’s rights to exercise and enforce every right, power, remedy, authority, option and privilege relating to such Limited Liability Company Interests; and (v) all other property delivered in substitution for or in addition to any of the foregoing and all certificates and instruments representing or evidencing such other property received, receivable or otherwise distributed in respect of or in exchange for any or all thereof.

“ Pledged Partnership Interests ” means all interests in any partnership or joint venture held by each Grantor, including those partnerships and/or joint ventures identified in Schedule A (as such Schedule may be supplemented from time to time in accordance with the terms of this Agreement) and all dividends, cash, instruments and other properties from time to time received, to be received or otherwise distributed in respect of or in exchange for any or all of such interests.

“ Pledged Securities ” means all shares of capital stock of any issuer in which any Grantor has an interest, including, those shares of stock identified in Schedule A (as such Schedule may be supplemented from time to time in accordance with the terms of this Agreement) and all dividends, cash, instruments and other properties from time to time received, to be received or otherwise distributed in respect of or in exchange for any or all of such shares.

“ Subordination Agreement ” means that certain Intercreditor and Subordination Agreement dated as of September 4, 2009 among the Borrower, the Lender, UB (for the benefit of the Lenders under the UB Credit Agreement) and the other parties referred to therein, as such Subordination Agreement may be amended, modified or restated from time to time.

2.       Creation of Security Interest .  Each Grantor hereby collaterally assigns and pledges to the Lender, and grants to the Lender a security interest in and to, all right, title and interest of such Grantor in and to all presently existing and hereafter acquired Collateral.

3.       Security for Obligations .  This Agreement and the pledges made and security interests granted herein secure the prompt payment, in full in cash, and full performance of, the Obligations.

4.       Delivery of Pledged Collateral.

(a)           With respect to any provision in this Agreement which requires any Grantor to deliver possession or control of any negotiable document, instrument, certificated securities, promissory notes, deposit accounts, security accounts, commodity accounts, and letter of credit rights or other Collateral requiring possession or control thereof in order to perfect the security interest of the Lender therein under the Uniform Commercial Code, no such delivery or giving of control to the Lender shall be required to the extent such Collateral is required to be delivered to or control is required to be given to UB in accordance with the UB Credit Agreement, it being understood that the UB is acting as agent and bailee for the benefit of the Lender pursuant to the terms of the Subordination Agreement.

(b)           Each Certificate shall, on (i) the Closing Date (with respect to Certificates existing on such date) and (ii) on the date of receipt or acquisition by any Grantor (with respect to Certificates received or acquired after the Closing Date), be delivered to and held by the Lender and shall be in suitable form for transfer by delivery, or shall be accompanied by duly executed undated endorsements, instruments of transfer or assignment in blank, all in form and substance reasonably satisfactory to the Lender, provided that, the Grantors shall not be obligated to deliver any of the foregoing to the extent inconsistent with the Subordination Agreement.

(c)           With respect to each Limited Liability Company Interest, on (i) the Closing Date (with respect to Limited Liability Company Interests existing on such date) and (ii) the date of acquisition by any Grantor (with respect to Limited Liability Company Interests acquired after the Closing Date) of any Limited Liability Company Interest, a notice substantially in the form set forth in Schedule G (the “ Limited Liability Company Notice ”) shall be appropriately completed and delivered to each Pledged Entity, notifying each Pledged Entity of the existence of this Agreement and such Grantor shall have received and delivered to the Lender a copy of such Limited Liability Company Notice, along with an acknowledgment in the form set forth in Schedule G (the “ Limited Liability Company Acknowledgment ”), duly executed by the relevant Pledged Entity.

(d)           The Lender shall have the right, upon the occurrence and during the continuance of an Event of Default, without notice to any Grantor, to transfer to or to direct each Grantor or any nominee of such Grantor to register or cause to be registered in the name of the Lender or any of its nominees any or all of the Pledged Collateral.  In addition, the Lender shall have the right at any time to exchange certificates or instruments representing or evidencing Pledged Collateral for certificates or instruments of smaller or larger denominations.

5.       Further Assurances.

(a)           At any time and from time to time, at the written request of the Lender, each Grantor shall execute and deliver to the Lender, at such Grantor’s expense, all such financing statements and other instruments, certificates and documents in form and substance reasonably satisfactory to the Lender, and perform all such other acts as shall be necessary or as the Lender shall reasonably request to fully perfect or protect or maintain, when filed, recorded, delivered or performed, the Lender’s security interests granted pursuant to this Agreement or to enable the

 

Lender and the Lenders to exercise and enforce their rights and remedies hereunder with respect to any Collateral.  Without limiting the generality of the foregoing, each Grantor shall:  (i) at the reasonable request of the Lender, mark conspicuously each document included in the inventory and each other contract relating to the Accounts, and all chattel paper, instruments and other documents and each of their records pertaining to the Collateral with a legend, in form and substance reasonably satisfactory to the Lender, indicating that such document, contract, chattel paper, instrument or Collateral is subject to the security interests granted hereby, provided that, the Grantors shall not be obligated to deliver any of the foregoing to the extent inconsistent with the Subordination Agreement; (ii) if any Account or contract or other writing relating thereto shall be evidenced by a promissory note or other instrument with an individual face value in excess of $50,000 or with an aggregate value in excess of $250,000, deliver and pledge to the Lender such note and/or other instrument duly endorsed and accompanied by duly executed undated instruments of transfer or assignment, all in form and substance reasonably satisfactory to the Lender; (iii) execute and file, and authorize the filing of (where permitted), such financing or continuation statements, or amendments thereto, and such other instruments or notices, as may be necessary or desirable, or as the Lender may request, in order to perfect and preserve, with the required priority, the security interests granted, or purported to be granted hereby; (iv) upon such Grantor’s registration, or application therefor, of any copyright under the Copyright Act, at the Lender’s request execute and deliver to the Lender for recordation and filing in the United States Copyright Office a copy of this Agreement or another appropriate copyright mortgage document in form and substance satisfactory to the Lender; (v) upon such Grantor’s registration, or application therefor, of any Patent or Mark, at the Lender’s request execute and deliver to the Lender for recordation and filing in the United States Patent and Trademark Office a copy of this Agreement or another appropriate patent or trademark mortgage document, as applicable, in form and substance satisfactory to the Lender; and (vi) at the request of the Lender, cause Control Agreements to be executed by all parties necessary to establish “control” under the Uniform Commercial Code with respect to all deposit accounts, investment property, letter-of-credit rights and electronic chattel paper of such Grantor.

(b)           At any time and from time to time, the Lender shall be entitled to file and/or record any or all such financing statements, instruments and documents held by it, and any or all such further financing statements, documents and instruments, relative to the Collateral or any part thereof in each instance, and to take all such other actions as the Lender may deem appropriate to perfect and to maintain perfected the security interests granted herein.

(c)           Each Grantor hereby (i) authorizes the Lender to file, one or more financing or continuation statements and amendments thereto that describe the Collateral as “all assets” or words of similar effect and that contain any other information required by Part 5 of Article 9 of the Uniform Commercial Code for the sufficiency or filing office acceptance of any financing statement, continuation statement or amendment, including, without limitation, whether such Grantor is an organization, the type of organization and any organization number issued to such Grantor and (ii) ratifies such authorization to the extent that the Lender has filed any such financing statements, continuation statements, or amendments thereto, prior to the date hereof.  A carbon, photographic 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.

(d)           Each Grantor shall furnish to the Lender, concurrently with the delivery of quarterly financial statements, schedules further identifying and describing the Collateral and such other reports in connection with the Collateral as the Lender may reasonably request or as required by the Loan Agreement.  Upon any Grantor’s obtaining any rights or interests in any Deposit Accounts, securities accounts or other investment property (other than that referred to on Schedule A ), such Grantor shall, in addition to all other acts required to be performed in respect thereof pursuant to this Agreement, supplement Schedule E to reflect such additional Deposit Accounts, securities accounts or other investment property.  Upon any Grantor’s publication or registration, or application for registration, of any copyright under the Copyright Act, such Grantor shall, in addition to all other acts required to be performed in respect thereof pursuant to this Agreement, supplement Schedule B to reflect the publication or registration of such copyright or application therefor.  Upon any Grantor’s obtaining any rights or interests in any Marks, such Grantor shall, in addition to all other acts required to be performed in respect thereof pursuant to this Agreement, supplement Schedule B to reflect such additional Marks.  Upon any Grantor’s obtaining any rights or interests in any Patents, such Grantor shall, in addition to all other acts required to be performed in respect thereof pursuant to this Agreement, supplement Schedule B to reflect such Patents.  Upon any Grantor’s receipt or acquisition of any additional shares of capital stock of any Person, any additional partnership interests in any partnership or joint venture or any additional Limited Liability Company Interests, such Grantor shall, in addition to all other acts required to be performed in respect thereof pursuant to this Agreement, supplement Schedule A to reflect such additional Pledged Collateral.  Upon any Grantor’s obtaining any rights or interests in any chattel paper or electronic chattel paper, such Grantor shall, in addition to all other acts required to be performed in respect thereof pursuant to this Agreement, promptly notify the Lender of such rights or interests.

(e)           With respect to any Collateral with an individual value of $50,000 consisting of certificates of title or the like as to which the Lender’s security interest need be perfected by, or the priority thereof need be assured by, notation on the certificate of title pertaining to such Collateral, each Grantor will (i) promptly notify the Lender of the acquisition thereof and (ii) at the request of the Lender, cause such security interest to be noted on such certificate of title.

(f)           With respect to any Collateral consisting of certificates of stock, securities, instruments, partnership or joint venture interests, interests in limited liability companies, or the like, each Grantor hereby consents and agrees that, upon the occurrence and during the continuance of an Event of Default, the issuers of, or obligors on, any such Collateral, or any registrar or transfer agent or trustee for any such Collateral, shall, subject to the Subordination Agreement, be entitled to accept the provisions of this Agreement as conclusive evidence of the right of the Lender to effect any transfer or exercise any right hereunder or with respect to any such Collateral subject to the terms hereof, notwithstanding any other notice or direction to the contrary heretofore or hereafter given by such Grantor or any other Person to such issuers or such obligors or to any such registrar or transfer agent or trustee.

6.       Voting Rights; Dividends; Etc .  So long as no Event of Default shall have occurred and be continuing:

(a)            Voting Rights .  Each Grantor shall be entitled to exercise any and all voting and other consensual rights pertaining to the Pledged Securities, the Pledged Partnership Interests

 

and the Pledged Limited Liability Company Interests (including, all voting, consent, administration, management and other rights and remedies under any partnership agreement or any operating agreement or otherwise with respect to the Pledged Securities, the Pledged Partnership Interests or the Pledged Limited Liability Company Interests), or any part thereof, for any purpose not inconsistent with the terms of this Agreement, the Loan Agreement or the other Loan Documents; provided , however , that such Grantor shall not exercise any such right if it would result in a Default.

(b)            Dividend and Distribution Rights .  Subject to the terms of the Loan Agreement, each Grantor shall be entitled to receive and to retain and use any and all dividends or distributions paid in respect of the Pledged Securities, the Pledged Partnership Interests or the Pledged Limited Liability Company Interests; provided , however , that any and all

(i)     non-cash dividends or distributions in the form of capital stock, certificated limited liability company interests, instruments or other property received, receivable or otherwise distributed in respect of, or in exchange for, any Pledged Securities, Pledged Partnership Interests or Pledged Limited Liability Company Interests,

(ii)    dividends and other distributions paid or payable in cash in respect of any Pledged Securities, Pledged Partnership Interests or Pledged Limited Liability Company Interests in connection with a partial or total liquidation or dissolution or in connection with a reduction of capital, capital surplus or paid-in-surplus, and

(iii)   cash paid, payable or otherwise distributed in redemption of, or in exchange for, any Pledged Securities, Pledged Partnership Interests or Pledged Limited Liability Company Interests,

shall forthwith be delivered to the Lender to be held as Collateral or applied to the Obligations in accordance with the Loan Agreement, as the Lender may elect; and, if received by such Grantor, shall be received in trust for the benefit of the Lender, be segregated from the other property of such Grantor and forthwith be delivered to the Lender in the same form as so received (with any necessary endorsements).

7.       Rights as to Pledged Collateral During Event of Default .  When an Event of Default has occurred and is continuing:

(a)            Voting, Dividend and Distribution Rights .  At the option of the Lender, all rights of any Grantor to exercise the voting and other consensual rights which it would otherwise be entitled to exercise pursuant to Section 6(a) above, and to receive the dividends and distributions which it would otherwise be authorized to receive and retain pursuant to Section 6(b) above, shall cease, and all such rights shall thereupon become vested in the Lender who shall thereupon have the sole right to exercise such voting and other consensual rights and to receive and to hold as Pledged Collateral such dividends and distributions.

(b)            Dividends and Distributions Held in Trust .  All dividends and other distributions which are received by any Grantor contrary to the provisions of Section 7(a) of this Agreement shall be received in trust for the benefit of the Lender, shall be segregated from other funds of

 

such Grantor and forthwith shall be paid over to the Lender as Collateral in the same form as so received (with any necessary endorsements).

(c)            Registration .  Determination by the Lender to exercise its right to sell pursuant to Section 16 hereof any or all of the Pledged Securities without registering the Pledged Securities under the Securities Act of 1933 shall not, by the sole fact of such sale, be deemed to be commercially unreasonable.

After any and all Events of Default have been cured or waived, each Grantor shall have the right to exercise the voting and other consensual rights it would otherwise be entitled to exercise pursuant to Section 6(a) hereof and the Loan Agreement and receive the distributions which it would be authorized to receive and retain pursuant to Section 6(b) hereof and the Loan Agreement.

8.       Irrevocable Proxy .  Each Grantor hereby revokes (except for any proxies granted in favor of UB) all previous proxies with regard to the Pledged Securities, the Pledged Partnership Interests (if such interests are limited partnership interests) and the Pledged Limited Liability Company Interests and appoints the Lender as its proxyholder and attorney-in-fact to (i) attend and vote at any and all meetings of the shareholders of the corporation(s) which issued the Pledged Securities (whether or not transferred into the name of the Lender), and any adjournments thereof, held on or after the date of the giving of this proxy and to execute any and all written consents, waivers and ratifications of shareholders of such corporation(s) executed on or after the date of the giving of this proxy with the same effect as if such Grantor had personally attended the meetings or had personally voted its shares or had personally signed the written consents, waivers or ratification, and (ii) attend and vote at any and all meetings of the members of the Pledged Entities (whether or not such Pledged Limited Liability Company Interests or Pledged Partnership Interests are transferred into the name of the Lender), and any adjournments thereof, held on or after the date of the giving of this proxy and to execute any and all written consents, waivers and ratifications of the Pledged Entities executed on or after the date of the giving of this proxy with the same effect as if such Grantor had personally attended the meetings or had personally voted on its Limited Liability Company Interests or Pledged Partnership Interests or had personally signed the consents, waivers or ratifications; provided , however , that the Lender as proxyholder and attorney-in-fact shall have rights hereunder only upon the occurrence and during the continuance of an Event of Default.  Each Grantor hereby authorizes the Lender to substitute another Person (which Person shall be a successor to the rights of the Lender hereunder or a nominee appointed by the Lender to serve as proxyholder) as the proxyholder and, upon the occurrence or during the continuance of any Event of Default, hereby authorizes and directs the proxyholder to file this proxy and the substitution instrument with the secretary of the appropriate corporation, limited partnership or limited liability company.  This proxy is coupled with an interest and is irrevocable until such time each Commitment and each Letter of Credit has expired and all Obligations have been paid in full.

9.       Copyrights .

(a)            Royalties .  Each Grantor hereby agrees that the use by the Lender of the Copyrights as authorized hereunder in connection with the Lender’s exercise of their rights and

 

remedies hereunder shall be without any liability for royalties or other related charges from the Lender to such Grantor.

(b)            Restrictions on Future Agreements .  Subject to the terms hereof and of the Loan Agreement, each Grantor shall be permitted to manage, license and administer its Copyrights in such manner as such Grantor in its reasonable business judgment deems desirable; provided , however , that such Grantor will not, without the Lender’s prior written consent, (i) abandon any Copyright in which such Grantor now owns or hereafter acquires any rights or interests, (ii) enter into any license agreements or (iii) fail to take any action, or permit any others (including licensees) to fail to take any action, which would customarily be taken by a Person in the same business and in similar circumstances as such Grantor.

(c)            Duties of Grantor .  Each Grantor agrees to:  (i) prosecute in accordance with its reasonable business judgment any copyright application included in the Copyrights, (ii) upon an Event of Default, make application for registration of such uncopyrighted but copyrightable material owned by such Grantor as the Lender reasonably deems appropriate, (iii) place notices of copyright on all copyrightable property produced or owned by such Grantor embodying the Copyrights and cause its licensees to do the same, (iv) file and prosecute opposition and cancellation proceedings in its reasonable business judgment, and (v) take all action necessary in its reasonable business judgment to preserve and maintain all of such Grantor’s rights in those Copyrights that are or shall be necessary in the operation of such Grantor’s business, including making timely filings for renewals and extensions of registered Copyrights and diligently monitoring unauthorized use thereof.  Any expenses incurred in connection with the foregoing shall be borne by the Grantors.  Each Grantor shall give proper statutory notice in connection with its use of each Copyright to the extent necessary for the protection thereof.  Each Grantor shall notify the Lender of any suits it commences to enforce any Copyright and shall provide the Lender with copies of any documents requested by the Lender relating to such suits.  The Lender shall not have any duty with respect to the Copyrights other than to act lawfully and without gross negligence or willful misconduct.  Without limiting the generality of the foregoing, the Lender shall not be under any obligation to take any steps necessary to preserve rights in the Copyrights against any other party, but the Lender may do so at its option upon the occurrence and during the continuance of an Event of Default, and all reasonable expenses incurred in connection therewith shall be for the account of such Grantor and shall be added to the Obligations.

10.       Patents and Marks .

(a)            Royalties .  Each Grantor hereby agrees that any rights granted hereunder to the Lender with respect to Patents and Marks shall be applicable to all territories in which such Grantor has the right to use such Patents and Marks, from time to time, and without any liability for royalties or other related charges from the Lender to such Grantor.

(b)            Restrictions on Future Agreements .  Subject to the terms hereof and of the Loan Agreement, each Grantor shall be permitted to manage, license and administer its Patents and Marks in such manner as such Grantor in its reasonable business judgment deems desirable; provided , however , that such Grantor will not, without the Lender’s prior written consent, (i) abandon any Patent or Mark in which such Grantor now owns or hereafter acquires any rights

 

or interests, (ii) enter into any license agreements or (iii) fail to take any action, or permit any others (including licensees) to fail to take any action, which would customarily be taken by a Person in the same business and in similar circumstances as such Grantor.

(c)            Duties of Grantor .  Each Grantor agrees to: (i) prosecute in accordance with its reasonable business judgment any patent application or trademark application included in the Patents