Guaranty and Collateral Agreement between Universal Compression Holdings, Inc., Universal Compression, Inc., Subsidiaries, and First Union National Bank (Feb. 9, 2001)
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Summary
Universal Compression Holdings, Inc., Universal Compression, Inc., and certain subsidiaries entered into this agreement with First Union National Bank, acting as Administrative Agent for a group of lenders. The agreement guarantees the obligations of Universal Compression, Inc. under a senior secured revolving credit facility and grants a security interest in certain assets as collateral. The guarantors agree to provide financial support and collateral to secure the loans, and the agreement outlines their responsibilities, the rights of the secured party, and procedures in case of default.
EX-10.8 12 h84190ex10-8.txt GUARANTY AND COLLATERAL AGREEMENT 1 EXHIBIT 10.8 - -------------------------------------------------------------------------------- GUARANTEE AND COLLATERAL AGREEMENT MADE BY UNIVERSAL COMPRESSION HOLDINGS, INC.; AND UNIVERSAL COMPRESSION, INC. AND CERTAIN OF ITS SUBSIDIARIES IN FAVOR OF FIRST UNION NATIONAL BANK, AS ADMINISTRATIVE AGENT DATED AS OF FEBRUARY 9, 2001 - -------------------------------------------------------------------------------- 2 Table of Contents
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ii 4 GUARANTEE AND COLLATERAL AGREEMENT, dated as of February 9, 2001, made by each of the signatories hereto (together with any other entity that may become a party hereto as provided herein, but excluding Universal Compression Holdings, Inc., the "Grantors"), in favor of FIRST UNION NATIONAL BANK, as Administrative Agent (in such capacity, the "Secured Party") for the banks and other financial institutions or entities (the "Lenders") from time to time parties to the Credit Agreement referred to below, the Issuing Bank (as defined in the Credit Agreement) and, in the case of any Hedging Agreement referred to below, any Lender Affiliate (as defined in the Credit Agreement). W I T N E S S E T H: -------------------- WHEREAS, pursuant to that certain Senior Secured Revolving Credit Agreement dated as of February 9, 2001 (as amended, supplemented or otherwise modified from time to time, the "Credit Agreement"), among UNIVERSAL COMPRESSION, INC., a Texas corporation (the "Company"), the Lenders and the Secured Party, the Lenders have severally agreed to make revolving credit loans to and extensions of credit on behalf of the Company upon the terms and subject to the conditions set forth therein, up to the aggregate maximum principal amount of $125,000,000; WHEREAS, it is a condition precedent to the obligation of the Lenders to make their respective revolving credit loans to and extensions of credit on behalf of the Company under the Credit Agreement that the Grantors shall have executed and delivered this Agreement to the Secured Party for the ratable benefit of the Lenders; and NOW, THEREFORE, in consideration of the premises and to induce the Secured Party and the Lenders to enter into the Credit Agreement and to induce the Lenders to make their respective revolving credit loans to and extensions of credit on behalf of the Company thereunder, each Grantor hereby agrees with the Secured Party, for the ratable benefit of the Lenders, as follows: SECTION 1. DEFINED TERMS 1.1 Definitions. (a) Unless otherwise defined herein, terms defined in the Credit Agreement and used herein shall have the meanings given to them in the Credit Agreement, and the following terms which are defined in the Uniform Commercial Code in effect in the State of Texas on the date hereof are used herein as so defined: Accounts, Chattel Paper, Documents, Equipment, Farm Products, Instruments and Inventory. (b) The following terms shall have the following meanings: "Agreement": this Guarantee and Collateral Agreement, as the same may be amended, supplemented or otherwise modified from time to time. "Capital Stock": any and all shares, interests, participations or other equivalents (however designated) of capital stock of a corporation, any and all equivalent ownership interests in a Person (other than a corporation) and any and all warrants, rights or options to purchase any of the foregoing. 1 5 "Code": the Uniform Commercial Code as from time to time in effect in the State of Texas. "Collateral": as defined in Section 3. "Collateral Account": any collateral account established by the Secured Party as provided in Section 6.1 or 6.4. "Company Obligations": the collective reference to all obligations of the Company under the Loan Documents, including, without limitation, the unpaid principal of and interest on the Loans and the LC Exposure and all other obligations and liabilities of the Company (including, without limitation, interest accruing at the then applicable rate provided in the Credit Agreement after the maturity of the Loans and the LC Exposure and interest accruing at the then applicable rate provided in the Credit Agreement after the filing of any petition in bankruptcy, or the commencement of any insolvency, reorganization or like proceeding, relating to the Company, whether or not a claim for post-filing or post-petition interest is allowed in such proceeding) to the Secured Party or any Lender (or, in the case of any Hedge Agreement referred to below, any Lender Affiliate), whether direct or indirect, absolute or contingent, due or to become due, or now existing or hereafter incurred, which may arise under, out of, or in connection with, the Credit Agreement, this Agreement, the other Loan Documents or any Hedge Agreement entered into by the Company with any Lender (or any Lender Affiliate) or any other document made, delivered or given in connection therewith, in each case whether on account of principal, interest, reimbursement obligations, fees, indemnities, costs, expenses or otherwise (including, without limitation, all fees and disbursements of counsel to the Secured Party or to the Lenders that are required to be paid by the Company pursuant to the terms of any of the foregoing agreements). "Excluded Property": the collective reference to all finished gas compression equipment of any Grantor, all Accounts arising therefrom, all General Intangibles relating thereto and all Chattel Paper created thereby, which is subject to or pledged as security for an Operating Equipment Lease Facility. "General Intangibles": all "general intangibles" as such term is defined in Section 9-106 of the Uniform Commercial Code in effect in the State of Texas on the date hereof and, in any event, including, without limitation, with respect to any Grantor, all contracts, agreements, instruments and indentures in any form, and portions thereof, to which such Grantor is a party or under which such Grantor has any right, title or interest or to which such Grantor or any property of such Grantor is subject, as the same may from time to time be amended, supplemented or otherwise modified, including, without limitation, (i) all rights of such Grantor to receive moneys due and to become due to it thereunder or in connection therewith, (ii) all rights of such Grantor to damages arising thereunder and (iii) all rights of such Grantor to perform and to exercise all remedies thereunder, in each case to the extent the grant by such Grantor of a security interest pursuant to this Agreement in its right, title and interest in such contract, agreement, instrument or indenture is not prohibited by such contract, agreement, instrument or indenture without the consent of any other party thereto, would not give any other party to such contract, agreement, instrument or indenture the right to terminate its obligations thereunder, or is permitted with consent if all necessary consents to such grant of a security interest have been obtained from the other parties thereto (it being understood that the foregoing shall not be deemed to obligate such Grantor to obtain such consents); provided, that 2 6 the foregoing limitation shall not affect, limit, restrict or impair the grant by such Grantor of a security interest pursuant to this Agreement in any Receivable or any money or other amounts due or to become due under any such contract, agreement, instrument or indenture; and provided further, that any Operating Lease and all related agreements and contracts are excluded from this definition. "Guarantor Obligations": with respect to any Guarantor, the collective reference to (i) such Guarantor's obligations under Section 2 of this Guarantee and Collateral Agreement and (ii) all obligations and liabilities of such Guarantor which may arise under or in connection with this Agreement or any other Loan Document to which such Guarantor is a party. "Guarantors": the collective reference to Universal Compression Holdings, Inc. and each other entity that may hereafter become a Guarantor hereunder. "Issuers": the collective reference to each issuer of a Pledged Security. "Obligations": (i) in the case of the Company, the Company Obligations, and (ii) in the case of each Guarantor, its Guarantor Obligations. "Pledged Securities": the collective reference to (a) the Pledged Stock, and (b)(i) the certificates or instruments, if any, representing such securities, (ii) all dividends (cash, stock or otherwise), cash, instruments, rights to subscribe, purchase or sell and all other rights and property from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of the Pledged Securities, (iii) all replacements, additions to and substitutions for any of the property referred to in this definition, including, without limitation, claims against third parties, (iv) the proceeds, interest, profits and other income of or on any of the property referred to in this definition, and (v) all books and records relating to any of the property referred to in this definition.. "Pledged Stock": the shares of Capital Stock listed on Schedule 2, together with any other shares, stock certificates, options or rights of any nature whatsoever in respect of the Capital Stock of any Person that may be issued or granted to, or held by, any Grantor while this Agreement is in effect. "Proceeds": all "proceeds" as such term is defined in Section 9-306(1) of the Code on the date hereof and, in any event, shall include, without limitation, all dividends or other income from the Pledged Securities, collections thereon or distributions or payments with respect thereto. "Securities Act": the Securities Act of 1933, as amended. 1.2 Other Definitional Provisions. (a) The words "hereof," "herein", "hereto" and "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement, and Section and Schedule references are to this Agreement unless otherwise specified. (b) The meanings given to terms defined herein shall be equally applicable to both the singular and plural forms of such terms. 3 7 (c) Where the context requires, terms relating to the Collateral or any part thereof, when used in relation to a Grantor, shall refer to such Grantor's Collateral or the relevant part thereof. (d) For the purposes of Sections 4 and 5, and, in the case of clauses (iv), (v) and (vi) below, Section 3, each reference to Collateral or to any relevant type or item of Property constituting Collateral shall be deemed to exclude (i) tangible Property that is not located in the United States (including its possessions), (ii) motor vehicles the perfection of a security interest in which is excluded from the Uniform Commercial Code in the relevant jurisdiction, (iii) voting equity interests in any foreign Subsidiary, to the extent (but only to the extent) required to prevent the Collateral from including more than 65% of all voting equity interests in such foreign Subsidiary and (iv) any general intangibles or other rights 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 material violation of a valid and enforceable restriction in favor of a third party, unless and until all required consents shall have been obtained. SECTION 2. GUARANTEE 2.1 Guarantee. (a) Each of the Guarantors hereby, jointly and severally, unconditionally and irrevocably, guarantees to the Secured Party, for the ratable benefit of the Lenders and their respective successors, indorsees, transferees and assigns, the prompt and complete payment and performance by the Company when due (whether at the stated maturity, by acceleration or otherwise) of the Company Obligations. This is a guarantee of payment and not collection and the liability of each Guarantor is primary and not secondary. (b) Anything herein or in any other Loan Document to the contrary notwithstanding, the maximum liability of each Guarantor hereunder and under the other Loan Documents shall in no event exceed the amount which can be guaranteed by such Guarantor under applicable federal and state laws relating to the insolvency of debtors (after giving effect to the right of contribution established in Section 2.2). (c) Each Guarantor agrees that the Company Obligations may at any time and from time to time exceed the amount of the liability of such Guarantor hereunder without impairing the guarantee contained in this Section 2 or affecting the rights and remedies of the Secured Party or any Lender hereunder. (d) Each Guarantor agrees that if the maturity of the Company Obligations is accelerated by bankruptcy or otherwise, such maturity shall also be deemed accelerated for the purpose of this guarantee without demand or notice to such Guarantor. The guarantee contained in this Section 2 shall remain in full force and effect until all the Company Obligations and the obligations of each Guarantor under the guarantee contained in this Section 2 shall have been satisfied by payment in full and the Commitments shall be terminated, notwithstanding that from time to time during the term of the Credit Agreement no Company Obligations may be outstanding. (e) No payment made by the Company, any of the Guarantors, any other guarantor or any other Person or received or collected by the Secured Party or any Lender from the Company, any of the Guarantors, any other guarantor or any other Person by virtue of any action or proceeding or any 4 8 set-off or appropriation or application at any time or from time to time in reduction of or in payment of the Company Obligations shall be deemed to modify, reduce, release or otherwise affect the liability of any Guarantor hereunder which shall, notwithstanding any such payment (other than any payment made by such Guarantor in respect of the Company Obligations or any payment received or collected from such Guarantor in respect of the Company Obligations), remain liable for the Company Obligations up to the maximum liability of such Guarantor hereunder until, subject to Section 2.6, the Company Obligations are paid in full and the Commitments are terminated. 2.2 Right of Contribution. Each Guarantor hereby agrees that to the extent that a Guarantor shall have paid more than its proportionate share of any payment made hereunder, such Guarantor shall be entitled to seek and receive contribution from and against any other Guarantor hereunder which has not paid its proportionate share of such payment. Each Guarantor's right of contribution shall be subject to the terms and conditions of Section 2.3. The provisions of this Section 2.2 shall in no respect limit the obligations and liabilities of any Guarantor to the Secured Party and the Lenders, and each Guarantor shall remain liable to the Secured Party and the Lenders for the full amount guaranteed by such Guarantor hereunder. 2.3 No Subrogation. Notwithstanding any payment made by any Guarantor hereunder or any set-off or application of funds of any Guarantor by the Secured Party or any Lender, no Guarantor shall be entitled to be subrogated to any of the rights of the Secured Party or any Lender against the Company or any other Guarantor or any collateral security or guarantee or right of offset held by the Secured Party or any Lender for the payment of the Company Obligations, nor shall any Guarantor seek or be entitled to seek any indemnity, exoneration, participation, contribution or reimbursement from the Company or any other Guarantor in respect of payments made by such Guarantor hereunder, until all amounts owing to the Secured Party and the Lenders by the Company on account of the Company Obligations are paid in full and the Commitments are terminated. If any amount shall be paid to any Guarantor or account of such subrogation rights at any time when all of the Company Obligations shall not have been paid in full, such amount shall be held by such Guarantor in trust for the Secured Party and the Lenders, segregated from other funds of such Guarantor, and shall, forthwith upon receipt by such Guarantor, be turned over to the Secured Party in the exact form received by such Guarantor (duly indorsed by such Guarantor to the Secured Party, if required), to be applied against the Company Obligations, whether matured or unmatured, in such order as the Secured Party may determine. 2.4 Amendments, etc. with respect to the Company Obligations. Each Guarantor shall remain obligated hereunder notwithstanding that, without any reservation of rights against any Guarantor and without notice to or further assent by any Guarantor (a) any demand for payment of any of the Company Obligations made by the Secured Party or any Lender may be rescinded by the Secured Party or such Lender and any of the Company Obligations continued, (b) the Company Obligations, the liability of any other Person upon or for any part thereof, or any collateral security or guarantee therefor or right of offset with respect thereto, may, from time to time, in whole or in part, be renewed, extended, amended, modified, accelerated, compromised, waived, surrendered or released by or any indulgence or forebearance in respect thereof granted by, the Secured Party or any Lender, (c) the Credit Agreement, the other Loan Documents, any Hedging Agreement and any other documents executed and delivered in connection therewith may be amended, modified, supplemented or terminated, in whole or in part, as the Secured Party (or the Required Lenders or 5 9 all Lenders, as the case may be) may deem advisable from time to time, and any collateral security, guarantee or right of offset at any time held by the Secured Party or any Lender for the payment of the Company Obligations may be sold, exchanged, waived, surrendered or released, and (e) any other event shall occur which constitutes a defense or release of security generally, except full and final payment of the Company Obligations. Neither the Secured Party nor any Lender shall have any obligation to protect, secure, perfect or insure any Lien at any time held by it as security for the Company Obligations or for the guarantee contained in this Section 2 or any property subject thereto. 2.5 Guarantee Absolute and Unconditional. Each Guarantor waives any and all notice of the creation, renewal, extension or accrual of any of the Company Obligations and notice of or proof of reliance by the Secured Party or any Lender upon the guarantee contained in this Section 2 or acceptance of the guarantee contained in this Section 2; the Company Obligations, and any of them, shall conclusively be deemed to have been created, contracted or incurred, or renewed, extended, amended or waived, in reliance upon the guarantee contained in this Section 2 and no notice of creation of the Company Obligations or any extension of credit already or hereafter contracted by or extended to the Company need be given to any Guarantor; and all dealings between the Company and any of the Guarantors, on the one hand, and the Secured Party and the Lenders, on the other hand, likewise shall be conclusively presumed to have been had or consummated in reliance upon the guarantee contained in this Section 2. Each Guarantor waives diligence, presentment, protest, demand for payment and notice of default or nonpayment to or upon the Company or any of the Guarantors with respect to the Company Obligations. Each Guarantor understands and agrees that the guarantee contained in this Section 2 shall be construed as a continuing, completed, absolute and unconditional guarantee of payment without regard to (a) the validity or enforceability of the Credit Agreement or any other Loan Document, any of the Company Obligations or any other collateral security therefor or guarantee or right of offset with respect thereto at any time or from time to time held by the Secured Party or any Lender, (b) any defense, set-off or counterclaim (other than a defense of payment or performance) which may at any time be available to or be asserted by the Company or any other Person against the Secured Party or any Lender, (c) the insolvency, bankruptcy, arrangement, reorganization, adjustment, composition, liquidation, disability, dissolution or lack of power of the Company or any other Guarantor or any other Person at any time liable for the payment of all or part of the Obligations; or any sale, lease or transfer of any or all of the assets of the Company or any other Guarantor, or any changes in the shareholders of the Company or the Guarantor; (d) the fact that any Collateral or Lien contemplated or intended to be given, created or granted as security for the repayment of the Obligations shall not be properly perfected or created, or shall prove to be unenforceable or subordinate to any other Lien, it being recognized and agreed by each of the Guarantors that it is not entering into this Agreement in reliance on, or in contemplation of the benefits of, the validity, enforceability, collectability or value of any of the Collateral for the Obligations; or (e) any other circumstance or act whatsoever, including any action or omission of the type described in Section 2.4 (with or without notice to or knowledge of the Company or such Guarantor) which constitutes, or might be construed to constitute, an equitable or legal discharge of the Company for the Company Obligations, or of such Guarantor under the guarantee contained in this Section 2, in bankruptcy or in any other instance. When making any demand hereunder or otherwise pursuing its rights and remedies hereunder against any Guarantor, the Secured Party or any Lender may, but shall be under no obligation to, make a similar demand on or otherwise pursue such rights and remedies as it may have against the Company, any other Guarantor or any other Person or against any collateral security or guarantee for 6 10 the Company Obligations or any right of offset with respect thereto, and any failure by the Secured Party or any Lender to make any such demand, to pursue such other rights or remedies or to collect any payments from the Company, any other Guarantor or any other Person or to realize upon any such collateral security or guarantee or to exercise any such right of offset, or any release of the Company, any other Guarantor or any other Person or any such collateral security, guarantee or right of offset, shall not relieve any Guarantor of any obligation or liability hereunder, and shall not impair or affect the rights and remedies, whether express, implied or available as a matter of law, of the Secured Party or any Lender against any Guarantor. For the purposes hereof "demand" shall include the commencement and continuance of any legal proceedings. 2.6 Reinstatement. The guarantee contained in this Section 2 shall continue to be effective, or be reinstated, as the case may be, if at any time payment, or any part thereof, of any of the Company Obligations is rescinded or must otherwise be restored or returned by the Secured Party or any Lender upon the insolvency, bankruptcy, dissolution, liquidation or reorganization of the Company or any Guarantor, or upon or as a result of the appointment of a receiver, intervenor or conservator of, or trustee or similar officer for, the Company or any Guarantor or any substantial part of its property, or otherwise, all as though such payments had not been made. 2.7 Payments. Each Guarantor hereby guarantees that payments hereunder will be paid without set-off or counterclaim and in immediately available funds to the Person, in the amount and at the time and place required for the Company Obligations in respect of which such payments are made. SECTION 3. GRANT OF SECURITY INTEREST 3.1 Collateral. Each Grantor hereby pledges, assigns and transfers to the Secured Party, and hereby grants to the Secured Party, for the ratable benefit of the Lenders, a security interest in, all of the following property now owned or at any time hereafter acquired by such Grantor or in which such Grantor now has or at any time in the future may acquire any right, title or interest (collectively, the "Collateral"), as collateral security for the prompt and complete payment and performance when due (whether at the stated maturity, by acceleration or otherwise) of the Company Obligations: (a) all Accounts; (b) all Chattel Paper; (c) all Documents; (d) all Equipment, excluding finished gas compression equipment used in connection with service contracts or subject to an Operating Equipment Lease unless such finished gas compression equipment is specifically described on Schedule 6, as such Schedule 6 may, from time to time, be amended, supplemented and/or restated; (e) all General Intangibles; 7 11 (f) all Instruments; (g) all Inventory, excluding finished gas compressors held by any Grantor for sale or lease unless such finished gas compressors are specifically described on Schedule 6, as such Schedule 6 may, from time to time, be amended, supplemented and/or restated; (h) all Pledged Securities; (i) all books and records pertaining to the Collateral; and (j) to the extent not otherwise included, all Proceeds and products of any and all of the foregoing and all collateral security and guarantees given by any Person with respect to any of the foregoing. It is hereby expressly understood and agreed that (a) the term "Collateral" (as defined above) shall not include any Excluded Property, (b) the Excluded Property shall not, at any time, be subject to the Lien created by and existing under this Agreement, and (c) the rights and remedies of Secured Party, whether existing under this Agreement, by law or otherwise, shall not extend to the Excluded Property. 3.2 Transfer of Collateral. All certificates or instruments representing or evidencing the Pledged Stock shall be delivered to and held pursuant hereto by the Secured Party or a Person designated by the Secured Party and shall be in suitable form for transfer by delivery, or shall be accompanied by duly executed instruments of transfer or assignment in blank, or (in the case of either certificated or uncertificated securities) Secured Party shall have been provided with evidence that the Pledged Stock has been otherwise delivered to Secured Party in accordance with Section 8-301 of the Code, and accompanied by any required transfer tax stamps to effect the pledge of the Pledged Stock to the Secured Party. Notwithstanding the preceding sentence, at the Secured Party's discretion, all Pledged Stock must be delivered or transferred in such manner as to permit the Secured Party to be a "protected purchaser" to the extent of its security interest as provided in Section 8-303 of the Code (if the Secured Party otherwise qualifies as a protected purchaser). During the continuance of an Event of Default, the Secured Party shall have the right, at any time in its discretion and without notice, to transfer to or to register in the name of the Secured Party or any of its nominees any or all of the Pledged Stock, subject only to the revocable rights specified in Section 6.3. In addition, during the continuance of an Event of Default, the Secured Party shall have the right at any time to exchange certificates or instruments representing or evidencing Pledged Stock for certificates or instruments of smaller or larger denominations. SECTION 4. REPRESENTATIONS AND WARRANTIES To induce the Secured Party and the Lenders to enter into the Credit Agreement and to induce the Lenders to make their respective revolving credit loans to and extensions of credit on behalf of the Company thereunder, each Grantor hereby represents and warrants to the Secured Party and each Lender that: 8 12 4.1 Representations in Credit Agreement. In the case of each Guarantor, the representations and warranties set forth in Article III of the Credit Agreement as they relate to such Guarantor or to the Loan Documents to which such Guarantor is a party, each of which is hereby incorporated herein by reference, are true and correct in all material respects, and the Secured Party and each Lender shall be entitled to rely on each of them as if they were fully set forth herein, provided that each reference in each such representation and warranty to the Company's knowledge shall, for the purposes of this Section 4.1, be deemed to be a reference to such Guarantor's knowledge. 4.2 Title; No Other Liens. Except for the security interest granted to the Secured Party for the ratable benefit of the Lenders pursuant to this Agreement and the other Liens permitted to exist on the Collateral pursuant to Section 9.02 of the Credit Agreement, such Grantor owns its respective items of the Collateral free and clear of any and all Liens or claims of others. No financing statement or other public notice with respect to all or any part of the Collateral is on file or of record in any public office, except such as have been filed in favor of the Secured Party, for the ratable benefit of the Lenders, pursuant to this Agreement or as are filed to secure Liens permitted by Section 9.02 of the Credit Agreement. 4.3 Perfected First Priority Liens. The security interests granted pursuant to this Agreement (a) upon completion of the filings and other actions specified on Schedule 3 (which, in the case of all filings and other documents referred to on said Schedule, have been delivered to the Secured Party in completed and duly executed form) will constitute valid perfected security interests in all of the Collateral in favor of the Secured Party, for the ratable benefit of the Lenders, as collateral security for such Grantor's Obligations, enforceable in accordance with the terms hereof against all creditors of such Grantor and any Persons purporting to purchase any Collateral from such Grantor and (b) are prior to all other Liens on the Collateral in existence on the date hereof except, in each case, Liens expressly permitted by the Credit Agreement. 4.4 Chief Executive Office. On the date hereof, such Grantor's jurisdiction of organization and the location of such Grantor's chief executive office or sole place of business are specified on Schedule 4. 4.5 Inventory and Equipment. On the date hereof, the Inventory and the Equipment (other than mobile goods) are kept at the locations listed on Schedule 5. 4.6 Farm Products. None of the Collateral constitutes, or is the Proceeds of, Farm Products. 4.7 Pledged Securities. (a) The shares of Pledged Stock pledged by such Grantor hereunder constitute 100% of the issued and outstanding shares of all classes of the Capital Stock of each Issuer owned by such Grantor that is a Domestic Subsidiary, and 65% of the issued and outstanding shares of all classes of the Capital Stock of each Issuer owned by such Grantor that is a Foreign Subsidiary. (b) All the shares of the Pledged Stock issued by any Subsidiary or Affiliate of the Company have been duly and validly issued and are fully paid and nonassessable. 9 13 (c) Except to the extent permitted under the Credit Agreement, such Grantor is the record and beneficial owner of, and has good and marketable title to, the Pledged Securities pledged by it hereunder, free of any and all Liens or options in favor of, or claims of, any other Person, except the security interest created by this Agreement. 4.8 Accounts. No amount payable to such Grantor under or in connection with any Account is evidenced by any Instrument or Chattel Paper in excess of $1,000,000 which has not been delivered to the Secured Party. The places where such Grantor keeps its records concerning such Grantor's Accounts are listed on Schedule 4 or such other location or locations of which such Grantor shall have provided prior written notice to the Secured Party pursuant to Section 5.5. 4.9 Benefit to the Guarantor. Each Guarantor is a wholly-owned direct or indirect Subsidiary of the Borrower and its guaranty and surety obligations pursuant to this Agreement reasonably may be expected to benefit, directly or indirectly, it; and it has determined that this Agreement is necessary and convenient to the conduct, promotion and attainment of the business of such Guarantor and the Company. 4.10 Solvency. Each Grantor (i) is not insolvent as of the date hereof and will not be rendered insolvent as a result of this Agreement, (ii) is not engaged in business or a transaction, or about to engage in a business or a transaction, for which any Property or assets remaining with it constitute unreasonably small capital, and (iii) does not intend to incur, or believe it will incur, debts that will be beyond its ability to pay as such debts mature. SECTION 5. COVENANTS Each Grantor covenants and agrees with the Secured Party and the Lenders that, from and after the date of this Agreement until the Obligations shall have been paid in full and the Commitments shall have terminated. 5.1 Covenants in Credit Agreement. In the case of each Guarantor, such Guarantor shall take, or shall refrain from taking, as the case may be, each action that is necessary to be taken or not taken, as the case may be, so that no Default or Event of Default is caused by the failure to take such action or to refrain from taking such action by such Guarantor or any of its Subsidiaries. 5.2 Delivery of Instruments and Chattel Paper. If any amount payable under or in connection with any of the Collateral shall be or become evidenced by any Instrument or Chattel Paper having a value in excess $1,000,000, such Instrument or Chattel Paper shall be immediately delivered to the Secured Party, duly indorsed in a manner satisfactory to the Secured Party, to be held as Collateral pursuant to this Agreement. 5.3 Insurance. Each Grantor's collateral shall be insured as required by the Credit Agreement. 5.4 Maintenance of Perfected Security Interest; Further Documentation. (a) Such Grantor shall maintain the security interest created by this Agreement as a perfected security interest having 10 14 at least the priority described in Section 4.3 and shall defend such security interest against the claims and demands of all Persons whomsoever. (b) Such Grantor will furnish to the Secured Party and the Lenders from time to time statements and schedules further identifying and describing the Collateral and its locations and such other reports in connection with the Collateral as the Secured Party may reasonably request, all in reasonable detail. (c) At any time and from time to time, upon the written request of the Secured Party, and at the sole expense of such Grantor, such Grantor will promptly and duly execute, deliver and/or have recorded with appropriate agencies such further instruments and documents and take such further actions as the Secured Party may reasonably request for the purpose of obtaining or preserving the full benefits of this Agreement and of the rights and powers herein granted, including, without limitation, the filing of any financing or continuation statements under the Uniform Commercial Code (or other similar laws) in effect in any jurisdiction with respect to the security interests created hereby. 5.5 Changes in Locations, Name, etc. Such Grantor will not, except upon 30 days' prior written notice to the Secured Party and delivery to the Secured Party of (a) all additional executed financing statements and other documents reasonably requested by the Secured Party to maintain the validity, perfection and priority of the security interests provided for herein, and (b) if applicable, a written supplement to Schedule 5 showing any additional location at which Inventory or Equipment shall be kept: (a) permit any of the Inventory (other than Inventory in transit to another location as set forth on Schedule 5 or to a customer) or Equipment (other than Equipment in transit to another location as set forth on Schedule 5 or mobile goods) to be kept at a location other than those listed on Schedule 5; (b) change the location of its chief executive office or sole place of business from that referred to in Section 4.4; or (c) change its name, identity or corporate structure to such an extent that any financing statement filed by the Secured Party in connection with this Agreement would become misleading. 5.6 Notices. Such Grantor will advise the Secured Party and the Lenders promptly, in reasonable detail, of any Lien (other than security interests created hereby or Liens permitted under the Credit Agreement) on any of the Collateral which would materially adversely affect the ability of the Secured Party to exercise any of its remedies hereunder. 5.7 Pledged Securities. (a) If such Grantor shall become entitled to receive or shall receive any stock certificate (including, without limitation, any certificate representing a stock dividend or a distribution in connection with any reclassification, increase or reduction of capital or any certificate issued in connection with any reorganization), option or rights in respect of the capital stock of any Issuer that is a Subsidiary of the Company, whether in addition to, in substitution for, as a conversion of, or in exchange for, any shares of the Pledged Stock, or otherwise in respect 11 15 thereof, such Grantor shall accept the same as the agent of the Secured Party and the Lenders, hold the same in trust for the Secured Party and the Lenders and deliver the same forthwith to the Secured Party in the exact form received, duly indorsed by such Grantor to the Secured Party, if required, together with an undated stock power covering such certificate duly executed in blank by such Grantor and with, if the Secured Party so requests, signature guaranteed, to be held by the Secured Party, subject to the terms hereof, as additional collateral security for the Obligations. The foregoing shall only apply to 65% of such shares or rights in the case of an Issuer that is a Foreign Subsidiary. If an Event of Default shall have occurred and be continuing, (i) any sums paid upon or in respect of the Pledged Securities upon the liquidation or dissolution of any Issuer shall be paid over to the Secured Party to be held by it hereunder as additional collateral security for the Obligations and (ii) in case any distribution of capital shall be made on or in respect of the Pledged Securities or any property shall be distributed upon or with respect to the Pledged Securities pursuant to the recapitalization or reclassification of the capital of any Issuer or pursuant to the reorganization thereof, the property so distributed shall, unless otherwise subject to a perfected security interest in favor of the Secured Party, be delivered to the Secured Party to be held by it hereunder as additional collateral security for the Obligations. If any sums of money or property so paid or distributed in respect of the Pledged Securities shall be received by such Grantor, such Grantor shall, until such money or property is paid or delivered to the Secured Party, hold such money or property in trust for the Lenders, segregated from other funds of such Grantor, as additional collateral security for the Obligations. (b) Without the prior written consent of the Secured Party, such Grantor will not (i) unless otherwise permitted hereby, vote to enable, or take any other action to permit, any Issuer that is a Subsidiary of the Company to issue any stock or other equity securities of any nature (except to the extent such stock or other securities held by such Grantor are pledged to the Secured Party hereunder) or to issue any other securities convertible into or granting the right to purchase or exchange for any stock or other equity securities of any nature of any Issuer that is a Subsidiary of the Company, (ii) sell, assign, transfer, exchange, or otherwise dispose of, or grant any option with respect to, the Pledged Securities or Proceeds thereof (except pursuant to a transaction expressly permitted by the Credit Agreement), (iii) create, incur or permit to exist any Lien or option in favor of, or any claim of any Person with respect to, any of the Pledged Securities or Proceeds thereof, or any interest therein, except for the security interests created by this Agreement or permitted by the Credit Agreement, or (iv) enter into any agreement or undertaking restricting the right or ability of such Grantor or the Secured Party to sell, assign, transfer or otherwise dispose of any of the Pledged Securities or Proceeds thereof (except, in the case of this clause (iv), as expressly permitted under the Credit Agreement or in connection with a disposition expressly permitted by the Credit Agreement). (c) Each Grantor shall furnish to the Secured Party such stock powers and other instruments as may be required by the Secured Party to assure the transferability of the Pledged Securities when and as often as may be reasonably requested by the Secured Party. 5.8 Accounts. Other than in the ordinary course of business, and with respect to an Account or Accounts in the aggregate amount of $50,000 or greater, such Grantor will not (a) grant any extension of the time of payment of such Account or Accounts, (b) compromise or settle such Account or Accounts for less than the full amount thereof, (c) release, wholly or partially, any Person 12 16 liable from the payment of such Account or Accounts, (d) allow any credit or discount whatsoever on such Account or Accounts, or (e) amend, supplement or modify such Account or Accounts in any manner that could adversely affect the value thereof. SECTION 6. REMEDIAL PROVISIONS 6.1 Certain Matters Relating to Accounts. (a) The Secured Party shall have the right to make test verifications of the Accounts in any manner and through any medium that it reasonably considers advisable, and the relevant Grantor shall furnish all such assistance and information as the Secured Party may reasonably require in connection with such test verifications. At any time while an Event of Default shall have occurred and be continuing, upon the Secured Party's request and at the expense of the relevant Grantor, such Grantor shall cause independent public accountants or others satisfactory to the Secured Party to furnish to the Secured Party reports showing reconciliations, aging and test verifications of, and trial balances for, the Accounts. (b) The Secured Party hereby authorizes each Grantor to collect such Grantor's Account, and the Secured Party may curtail or terminate said authority at any time after the occurrence and during the continuance of an Event of Default. If required by the Secured Party at any time after the occurrence and during the continuance of an Event of Default, any Proceeds constituting collections of such Accounts, when collected by such Grantor, (i) shall be forthwith (and, in any event, within two Business Days) be deposited by such Grantor in the exact form received, duly indorsed by such Grantor to the Secured Party if required, in a Collateral Account maintained under the sole dominion and control of the Secured Party, subject to withdrawal by the Secured Party for the account of the Lenders only as provided in Section 6.5, and (ii) until so turned over, shall be held by such Grantor in trust for the Secured Party and the Lenders, segregated from other funds of such Grantor. Each such deposit of Proceeds of Accounts shall be accompanied by a report identifying in reasonable detail the nature and source of the payments included in the deposit. All Proceeds constituting collections of Accounts while held by the Collateral Account bank (or by any Grantor in trust for the benefit of the Secured Party and the other Lenders) shall continue to be collateral security for the Obligations of the applicable Grantor and shall not constitute payment thereof until applied as hereinafter provided. At any time when an Event of Default has occurred and is continuing, at the Secured Party's election, the Secured Party may apply all or any part of the funds on deposit in the Collateral Account established by the relevant Grantor to the payment of the Obligations of such Grantor then due and owing, such application to be made as set forth in Section 6.5 of this Agreement. (c) At the Secured Party's request at any time after the occurrence and during the continuance of an Event of Default, each Grantor shall deliver to the Secured Party all original and other documents evidencing, and relating to, the agreements and transactions which gave rise to such Grantor's Accounts, including, without limitation, all original orders, invoices and shipping receipts. 6.2 Communications with Obligors; Grantors Remain Liable. (a) The Secured Party in its own name or in the name of others may at any time after the occurrence and during the continuance of an Event of Default communicate with obligors under the Accounts to verify with them to the Secured Party's reasonable satisfaction the existence, amount and terms of any Accounts. 13 17 (b) Upon the request of the Secured Party at any time after the occurrence and during the continuance of an Event of Default, each Grantor shall notify the obligors on the Accounts that the Accounts have been assigned to the Secured Party for the ratable benefit of the Lenders and that payments in respect thereof shall be made directly to the Secured Party. (c) Anything herein to the contrary notwithstanding, each Grantor shall remain liable under each of its Accounts to observe and perform all the conditions and obligations to be observed and performed by it thereunder, all in accordance with the terms of any agreement giving rise thereto. Neither the Secured Party nor any Lender shall have any obligation or liability under any Account (or any agreement giving rise thereto) by reason of or arising out of this Agreement or the receipt by the Secured Party or any Lender of any payment relating thereto, nor shall the Secured Party or any Lender be obligated in any manner to perform any of the obligations of any Grantor under or pursuant to any Account (or any agreement giving rise thereto) to make any payment, to make any inquiry as to the nature or the sufficiency of any payment received by it or as to the sufficiency of any performance by any party thereunder, to present or file any claim, to take any action to enforce any performance or to collect the payment of any amounts which may have been assigned to it or to which it may be entitled at any time or times. 6.3 Pledged Stock. (a) Unless an Event of Default shall have occurred and be continuing, each Grantor shall be permitted to receive all cash dividends paid in respect of the Pledged Stock, in each case to the extent that payment thereof is not prohibited in the Credit Agreement, and to exercise all voting and corporate rights with respect to the Pledged Securities; provided, however, that no vote shall be cast or corporate right exercised or other action taken which results in any violation of any provision of the Credit Agreement, this Agreement or any other Loan Document. (b) If an Event of Default shall occur and be continuing, (i) the Secured Party shall have the right to receive any and all cash dividends, payments or other Proceeds paid in respect of the Pledged Securities and make application thereof to the Obligations in such order as the Secured Party may determine, and (ii) the Secured Party may cause any or all of the Pledged Securities to be registered in the name of the Secured Party or its nominee, and the Secured Party or its nominee may thereafter (for so long as any Event of Default shall be continuing) exercise (x) all voting, corporate and other rights pertaining to such Pledged Securities at any meeting of shareholders of the relevant Issuer or Issuers or otherwise and (y) any and all rights of conversion, exchange and subscription and any other rights, privileges or options pertaining to such Pledged Securities as if it were the absolute owner thereof (including, without limitation, the right to exchange at its discretion any and all of the Pledged Securities upon the merger, consolidation, reorganization, recapitalization or other fundamental change in the corporate structure of any Issuer, or upon the exercise by any Grantor or the Secured Party of any right, privilege or option pertaining to such Pledged Securities, and in connection therewith, the right to deposit and deliver any and all of the Pledged Securities with any committee, depositary, transfer agent, registrar or other designated agency upon such terms and conditions as the Secured Party may determine), all without liability except to account for property actually received by it, but the Secured Party shall have no duty to any Grantor to exercise any such right, privilege or option and shall not be responsible for any failure to do so or delay in so doing. 14 18 (c) Each Grantor hereby authorizes and instructs each Issuer of any Pledged Securities pledged by such Grantor hereunder to (i) comply with any instruction received by it from the Secured Party in writing that (x) states that an Event of Default has occurred and is continuing and (y) is otherwise in accordance with the terms of this Agreement, without any other or further instructions from such Grantor, and each Grantor agrees that each Issuer shall be fully protected in so complying, and (ii) unless otherwise expressly permitted hereby, pay any dividends or other payments with respect to such Pledged Securities directly to the Secured Party. 6.4 Proceeds to be Turned Over To Secured Party. In addition to the rights of the Secured Party and the Lenders specified in Section 6.1 with respect to payments of Accounts, if an Event of Default shall occur and be continuing, all Proceeds received by any Grantor consisting of cash, checks and other near-cash items shall be held by such Grantor in trust for the Secured Party and the Lenders segregated from other funds of such Grantor, and shall, at the request of the Secured Party, forthwith upon receipt by such Grantor, be turned over to the Secured Party in the exact form received by such Grantor (duly indorsed by such Grantor to the Secured Party, if required). All Proceeds received by the Secured Party hereunder shall be held by the Secured Party in a Collateral Account maintained under its sole dominion and control. All Proceeds while held by the Secured Party in a Collateral Account (or by such Grantor in trust for the Secured Party and the Lenders) shall continue to be held as collateral security for all the Obligations and shall not constitute payment thereof until applied as provided in Section 6.5. 6.5 Application of Proceeds. At any time after the occurrence and during the continuance of an Event of Default, at the Secured Party's election, the Secured Party may apply all or any part of Proceeds of any Grantor held in any Collateral Account in payment of the Obligations of such Grantor in such order as the Secured Party may elect, and any part of such funds which the Secured Party elects not so to apply and deems not required as collateral security for such Obligations shall be paid over from time to time by the Secured Party to the Company or to whomsoever may be lawfully entitled to receive the same. Any balance of such Proceeds remaining after the Obligations shall have been paid in full, no Letters of Credit shall be outstanding (or shall be cash collateralized by an amount equal to the LC Exposure) and the Commitments shall have terminated shall be paid over to the Company or to whomsoever may be lawfully entitled to receive the same. 6.6 Code and Other Remedies. (a) If an Event of Default shall occur and be continuing, the Secured Party, on behalf of the Lenders, may exercise, in addition to all other rights and remedies granted to them in this Agreement, the other Loan Documents and in any other instrument or agreement securing, evidencing or relating to the Obligations, all rights and remedies of a secured party under the Code or any other applicable law or otherwise available at law or equity. Without limiting the generality of the foregoing, the Secured Party, without demand of performance or other demand, presentment, protest, advertisement or notice of any kind (except any notice required by law referred to below) to or upon any Grantor or any other Person (all and each of which demands, defenses, advertisements and notices are hereby waived), may in such circumstances forthwith collect, receive, appropriate and realize upon the Collateral, or any part thereof, and/or may forthwith sell, lease, assign, give option or options to purchase, or otherwise dispose of and deliver the Collateral or any part thereof (or contract to do any of the foregoing), in one or more parcels at public or private sale or sales, at any exchange, broker's board or office of the Secured Party or any Lender or elsewhere upon such commercially reasonable terms and conditions as it may deem advisable and 15 19 at such commercially reasonable prices as it may deem best, for cash or on credit or for future delivery without assumption of any credit risk. The Secured Party or any Lender shall have the right upon any such public sale or sales, and, to the extent permitted by law, upon any such private sale or sales, to purchase the whole or any part of the Collateral so sold, free of any right or equity of redemption in any Grantor, which right or equity is hereby waived and released to the fullest extent permitted under applicable law. Each Grantor further agrees, at the Secured Party's request, to assemble its Collateral and make it available to the Secured Party at places which the Secured Party shall reasonably select, whether at such Grantor's premises or elsewhere. Any such sale or transfer by the Secured Party either to itself or to any other Person shall, to the fullest extent permitted under applicable law, be absolutely free from any claim of right by any Grantor, including any equity or right of redemption, stay or appraisal which such Grantor has or may have under any rule of law, regulation or statute now existing or hereafter adopted. Upon any such sale or transfer, the Secured Party shall have the right to deliver, assign and transfer to the purchaser or transferee thereof the Collateral so sold or transferred. The Secured Party shall apply the net proceeds of any action taken by it pursuant to this Section 6.6 with respect to the Collateral of any Grantor, after deducting all reasonable costs and expenses of every kind incurred in connection therewith or incidental to the care or safekeeping of any of such Collateral or in any way relating to such Collateral or the rights of the Secured Party and the Lenders hereunder, including, without limitation, reasonable attorneys' fees and disbursements, to the payment in whole or in part of the Obligations of such Grantor, in such order as the Secured Party may elect, and only after such application and after the payment by the Secured Party of any other amount required by any provision of law, including, without limitation, Section 9-504(1)(c) of the Code, need the Secured Party account for the surplus, if any, to the applicable Grantor. To the extent permitted by applicable law, each Grantor waives all claims, damages and demands it may acquire against the Secured Party or any Lender arising out of the exercise by them of any rights hereunder. If any notice of a proposed sale or other disposition of Collateral shall be required by law, such notice shall be deemed reasonable and proper if given at least 10 days before such sale or other disposition. (b) In the event that the Secured Party elects not to sell the Collateral of any Grantor, the Secured Party retains its rights to dispose of or utilize such Collateral or any part or parts thereof in any manner authorized or permitted by law or in equity, and to apply the proceeds of the same towards payment of the Obligations of such Grantor. Each and every method of disposition of the Collateral described in this Agreement shall constitute disposition in a commercially reasonable manner. (c) The Secured Party may appoint any Person as agent to perform any act or acts necessary or incident to any sale or transfer of the Collateral. 6.7 Waiver; Deficiency. Each Grantor waives and agrees not to assert any rights or privileges which it may acquire under Section 9-112 of the Code. Subject to Section 2.1(b), each Grantor shall remain liable for any deficiency if the proceeds of any sale or other disposition of its Collateral are insufficient to pay its Obligations and the fees and disbursements of any attorneys employed by the Secured Party or any Lender to collect such deficiency. 6.8 Non-judicial Enforcement. The Secured Party may enforce its rights hereunder without prior judicial process or judicial hearing, and to the extent permitted by law, each Grantor 16 20 expressly waives any and all legal rights which might otherwise require the Secured Party to enforce its rights by judicial process. SECTION 7. THE SECURED PARTY 7.1 Secured Party's Appointment as Attorney-in-Fact etc. (a) Each Grantor hereby irrevocably constitutes and appoints the Secured Party and any officer or agent thereof, with full power of substitution, as its true and lawful attorney-in-fact with full irrevocable power and authority in the place and stead of such Grantor and in the name of such Grantor or in its own name, for the purpose of carrying out the terms of this Agreement, to take any and all appropriate action and to execute any and all documents and instruments which may be necessary or desirable to accomplish the purposes of this Agreement, and, without limiting the generality of the foregoing, each Grantor hereby gives the Secured Party the power and right, on behalf of such Grantor, without notice to or assent by such Grantor, to do any or all of the following: (i) in the name of such Grantor or its own name, or otherwise, take possession of and indorse and collect any checks, drafts, notes, acceptances or other instruments for the payment of moneys due under any of its Account or with respect to any of its other Collateral and file any claim or take any other action or proceeding in any court of law or equity or otherwise deemed appropriate by the Secured Party for the purpose of collecting any and all such moneys due under any of its Account or with respect to any of its other Collateral whenever payable: (ii) pay or discharge taxes and Liens levied or placed on or threatened against any of its Collateral, effect any repairs or any insurance called for by the terms of this Agreement and pay all or any part of the premiums therefor and the costs thereof; (iii) execute, in connection with any sale provided for in Section 6.6 or 6.7, any indorsements, assignments or other instruments of conveyance or transfer with respect to any of its Collateral; and (iv) (l) direct any party liable for any payment under any of its Collateral to make payment of any and all moneys due or to become due thereunder directly to the Secured Party or as the Secured Party shall direct; (2) ask or demand for, collect, and receive payment of and receipt for, any and all moneys, claims and other amounts due or to become due at any time in respect of or arising out of any of its Collateral; (3) sign and indorse any invoices, freight or express bills, bills of lading, storage or warehouse receipts, drafts against debtors, assignments, verifications, notices and other documents in connection with any of its Collateral; (4) commence and prosecute any suits, actions or proceedings at law or in equity in any court of competent jurisdiction to collect any of its Collateral or any portion thereof and to enforce any other right in respect of any of its Collateral; (5) defend any suit, action or proceeding brought against such Grantor with respect to any of its Collateral; (6) settle, compromise or adjust any such suit, action or proceeding and, in connection therewith, give such discharges or releases as the Secured Party may deem appropriate; and (7) generally, sell, transfer, pledge and make any agreement with respect to or otherwise deal with any of its Collateral as fully and completely as though the Secured Party were the absolute owner 17 21 thereof for all purposes, and do, at the Secured Party's option and such Grantor's expense, at any time, or from time to time, all acts and things which the Secured Party deems necessary to protect, preserve or realize upon any of such Grantor's Collateral and the Secured Party's and the Lenders' security interests therein and to effect the intent of this Agreement, all as fully and effectively as such Grantor might do. Anything in this Section 7.1(a) to the contrary notwithstanding, the Secured Party agrees that it will not exercise any rights under the power of attorney provided for in this Section 7.1(a) unless an Event of Default shall have occurred and be continuing. (b) If any Grantor fails to perform or comply with any of its agreements contained herein within the applicable grace periods, the Secured Party, at its option, but without any obligation so to do, may perform or comply, or otherwise cause performance or compliance, with such agreement. (c) The expenses of the Secured Party incurred in connection with actions undertaken as provided in this Section 7.1, together with interest thereon at a rate per annum equal to the rate per annum at which interest would then be payable under the Credit Agreement on Loans from the date of payment by the Secured Party to the date reimbursed by the relevant Grantor, shall be payable by such Grantor to the Secured Party on demand. (d) Each Grantor hereby ratifies all that said attorneys shall lawfully do or cause to be done by virtue hereof. All powers, authorizations and agencies contained in this Agreement are coupled with an interest and are irrevocable until this Agreement is terminated and the security interests created hereby are released. 7.2 Duty of Secured Party. The Secured Party's sole duty with respect to the custody, safekeeping and physical preservation of the Collateral in its possession, under Section 9-207 of the Code or otherwise, shall be to deal with it in the same manner as the Secured Party deals with similar property for its own account and the Secured Party shall be deemed to have exercised reasonable care in the custody and preservation of the Collateral in its possession if the Collateral is accorded treatment substantially equal to that which comparable secured parties accord comparable collateral. To the fullest extent permitted under applicable law, neither the Secured Party, any Lender nor any of their respective officers, directors, employees or agents shall be liable for failure to demand, collect or realize upon any of the Collateral or for any delay in doing so or shall be under any obligation to sell or otherwise dispose of any Collateral upon the request of any Grantor or any other Person or to take any other action whatsoever with regard to the Collateral or any part thereof. The powers conferred on the Secured Party and the Lenders hereunder are solely to protect the Secured Party's and the Lenders' interests in the Collateral and shall not impose any duty upon the Secured Party or any Lender to exercise any such powers. The Secured Party and the Lenders shall be accountable only for amounts that they actually receive as a result of the exercise of such powers, and neither they nor any of their officers, directors, employees or agents shall be responsible to any Grantor for any act or failure to act hereunder, except for their own gross negligence or willful misconduct. To the fullest extent permitted by applicable law, the Secured Party shall be under no duty whatsoever to make or give any presentment, notice of dishonor, protest, demand for performance, notice of non-performance, notice of intent to accelerate, notice of acceleration, or other notice or demand in connection with any Collateral or the Obligations, or to take any steps 18 22 necessary to preserve any rights against any Grantor or other Person or ascertaining or taking action with respect to calls, conversions, exchanges, maturities, tenders or other matters relative to any Collateral, whether or not it has or is deemed to have knowledge of such matters. Each Grantor waives any right of marshaling in respect of any and all Collateral, and waives any right to require the Secured Party or any Lender to proceed against any Grantor or other Person, exhaust any Collateral or enforce any other remedy which the Secured Party or any Lender now has or may hereafter have against any Grantor or other Person. 7.3 Execution of Financing Statements. Pursuant to Section 9-402 of the Code and any other applicable laws, each Grantor, to the fullest extent permitted under applicable law, authorizes the Secured Party to file or record financing statements and other filing or recording documents or instruments with respect to the Collateral without the signature of such Grantor in such form and in such offices as the Secured Party reasonably determines appropriate to perfect the security interests of the Secured Party under this Agreement. A photographic or other reproduction of this Agreement shall be sufficient as a financing statement or other filing or recording document or instrument for filing or recording in any jurisdiction. 7.4 Authority of Secured Party. Each Grantor acknowledges that the rights and responsibilities of the Secured Party under this Agreement with respect to any action taken by the Secured Party or the exercise or non-exercise by the Secured Party of any option, voting right, request, judgment or other right or remedy provided for herein or resulting or arising out of this Agreement shall, as between the Secured Party and the Lenders, be governed by the Credit Agreement and by such other agreements with respect thereto as may exist from time to time among them, but, as between the Secured Party and the Grantors, the Secured Party shall be conclusively presumed to be acting as agent for the Lenders with full and valid authority so to act or refrain from acting, and no Grantor shall be under any obligation, or entitlement, to make any inquiry respecting such authority. SECTION 8. SUBORDINATION OF INDEBTEDNESS 8.1 Subordination of All Guarantor Claims. As used herein, the term "Guarantor Claims" shall mean all debts and obligations of the Company or any other Grantor to any Grantor, whether such debts and obligations now exist or are hereafter incurred or arise, or whether the obligation of the debtor thereon be direct, contingent, primary, secondary, several, joint and several, or otherwise, and irrespective of whether such debts or obligations be evidenced by note, contract, open account, or otherwise, and irrespective of the Person or Persons in whose favor such debts or obligations may, at their inception, have been, or may hereafter be created, or the manner in which they have been or may hereafter be acquired by. Except for payments permitted by the Credit Agreement, upon the occurrence and during the continuance of an Event of Default and until the Obligations shall be paid and satisfied in full, the Commitments are terminated and the Grantor shall have performed all of its obligations hereunder and under the other Loan Documents to which it is a party, no Grantor shall receive or collect, directly or indirectly, from any obligor in respect thereof any amount upon the Guarantor Claims. 8.2 Claims in Bankruptcy. In the event of receivership, bankruptcy, reorganization, arrangement, debtor's relief, or other insolvency proceedings involving any Grantor, the Secured 19 23 Party on behalf of the Secured Party and the Lenders shall have the right to prove their claim in any proceeding, so as to establish their rights hereunder and receive directly from the receiver, trustee or other court custodian, dividends and payments which would otherwise be payable upon Guarantor Claims. Each Grantor hereby assigns such dividends and payments to the Secured Party for the benefit of the Lenders. Should any Agent or Lender receive, for application upon the Obligations, any such dividend or payment which is otherwise payable to any Grantor, and which, as to such Grantor, shall constitute a credit upon the Guarantor Claims, then upon payment in full of the Obligations, the intended recipient shall become subrogated to the rights of the Secured Party and the Lenders to the extent that such payments to the Lenders on the Guarantor Claims have contributed toward the liquidation of the Obligations, and such subrogation shall be with respect to that proportion of the Obligations which would have been unpaid if the Secured Party and the Lenders had not received dividends or payments upon the Guarantor Claims. 8.3 Payments Held in Trust. In the event that notwithstanding Sections 8.1 and 8.2, any Grantor should receive any funds, payments, claims or distributions which are prohibited by such Sections, then it agrees: (a) to hold in trust for the Secured Party and the Lenders an amount equal to the amount of all funds, payments, claims or distributions so received, and (b) that it shall have absolutely no dominion over the amount of such funds, payments, claims or distributions except to pay them promptly to the Secured Party, for the benefit of the Secured Party and the Lenders; and each Grantor covenants promptly to pay the same to the Secured Party. 8.4 Liens Subordinate. Each Grantor agrees that, until the Obligations are paid in full and the Commitments terminated, any Liens securing payment of the Guarantor Claims shall be and remain inferior and subordinate to any Liens securing payment of the Obligations, regardless of whether such encumbrances in favor of such Grantor, any Secured Party or Lender presently exist or are hereafter created or attach. Without the prior written consent of the Required Lenders, no Grantor, during the period in which any of the Obligations are outstanding or the Commitments are in effect, shall (a) exercise or enforce any creditor's right it may have against any debtor in respect of the Guarantor Claims, or (b) foreclose, repossess, sequester or otherwise take steps or institute any action or proceeding (judicial or otherwise, including without limitation the commencement of or joinder in any liquidation, bankruptcy, rearrangement, debtor's relief or insolvency proceeding) to enforce any Lien held by it. 8.5 Notation of Records. All promissory notes and, upon the request of the Secured Party, all accounts receivable ledgers or other evidence of the Guarantor Claims accepted by or held by any Grantor shall contain a specific written notice thereon that the indebtedness evidenced thereby is subordinated under the terms of this Agreement. SECTION 9. MISCELLANEOUS 9.1 Amendments in Writing. None of the terms or provisions of this Agreement may be waived, amended, supplemented or otherwise modified except in accordance with Section 12.04 of the Credit Agreement. 9.2 Notices. All notices, requests and demands to or upon the Secured Party or any Grantor hereunder shall be effected in the manner provided for in Section 12.02 of the Credit 20 24 Agreement; provided that any such notice, request or demand to or upon any Guarantor shall be addressed to such Guarantor at its notice address set forth on Schedule 1. 9.3 No Waiver by Course of Conduct; Cumulative Remedies. Neither the Secured Party nor any Lender shall by any act (except by a written instrument pursuant to Section 9.1), delay, indulgence, omission or otherwise be deemed to have waived any right or remedy hereunder or to have acquiesced in any Default or Event of Default. No failure to exercise, nor any delay in exercising, on the part of the Secured Party or any Lender, any right, power or privilege hereunder shall operate as a waiver thereof. No single or partial exercise of any right, power or privilege hereunder shall preclude any other or further exercise thereof or the exercise of any other right, power or privilege. A waiver by the Secured Party or any Lender of any right or remedy hereunder on any one occasion shall not be construed as a bar to any right or remedy which the Secured Party or such Lender would otherwise have on any future occasion. The rights and remedies herein provided are cumulative, may be exercised singly or concurrently and are not exclusive of any other rights or remedies provided by law. 9.4 Enforcement Expenses; Indemnification. (a) Each Guarantor agrees to pay or reimburse each Lender and the Secured Party for all its costs and expenses incurred in collecting against such Guarantor under the guarantee contained in Section 2 or otherwise enforcing or preserving any rights under this Agreement and the other Loan Documents to which such Guarantor is a party, including, without limitation, the reasonable fees and disbursements of counsel to each Lender and of counsel to the Secured Party. (b) The agreements in this Section 9.4 shall survive repayment of the Obligations and all other amounts payable under the Credit Agreement and the other Loan Documents. 9.5 Successors and Assigns. This Agreement shall be binding upon the successors and assigns of each Grantor and shall inure to the benefit of the Secured Party and the Lenders and their successors and assigns; provided that no Grantor may assign, transfer or delegate any of its rights or obligations under this Agreement without the prior written consent of the Secured Party. 9.6 Set-Off. In addition to any rights and remedies of the Secured Party and the Lenders provided by law, the Secured Party and each Lender shall have the right, without prior notice to any Grantor, any such notice being expressly waived by each Grantor to the extent permitted by applicable law, upon any amount becoming due and payable by any Grantor hereunder (whether at the stated maturity, by acceleration or otherwise) to set off and appropriate and apply against such amount any and all deposits (general or special, time or demand, provisional or final), in any currency, and any other credits, indebtedness or claims, in any currency, in each case whether direct or indirect, absolute or contingent, matured or unmatured, at any time held or owing by such Lender or any branch or agency thereof to or for the credit or the account of such Grantor. The Secured Party and each Lender agrees promptly to notify the relevant Grantor and (if applicable) the Secured Party after any such setoff and application made by the Secured Party or such Lender, provided that the failure to give such notice shall not affect the validity of such setoff and application. 9.7 Counterparts. This Agreement may be executed by one or more of the parties to this Agreement on any number of separate counterparts (including by telecopy), and all of said 21 25 counterparts taken together shall be deemed to constitute one and the same instrument. A set of the copies of this Agreement signed by all the parties shall be lodged with the Company and the Secured Party. 9.8 Severability. Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. 9.9 Integration. This Agreement and the other Loan Documents represent the entire agreement of the Grantors, the Secured Party and the Lenders with respect to the subject matter hereof and thereof, and there are no promises, undertakings, representations or warranties by the Secured Party or any Lender relative to the subject matter hereof and thereof not expressly set forth or referred to herein or in the other Loan Documents. 9.10 GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES UNDER THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS AND, TO THE EXTENT CONTROLLING, LAWS OF THE UNITED STATES OF AMERICA. 9.11 Submission To Jurisdiction; Waivers. Each Grantor hereby irrevocably and unconditionally: (a) submits for itself and its property in any legal action or proceeding relating to this Agreement and the other Loan Documents to which it is a party, or for recognition and enforcement of any judgment in respect thereof, to the non-exclusive general jurisdiction of the Courts of the State of Texas, the courts of the United States of America for the Southern District of Texas, and appellate courts from any thereof; (b) to the fullest extent permitted under applicable law, such courts and waives any objection that it may now or hereafter have to the venue of any such action or proceeding in any such court or that such action or proceeding was brought in an inconvenient court and agrees not to plead or claim the same; (c) agrees that service of process in any such action or proceeding may be effected by mailing a copy thereof by registered or certified mail (or any substantially similar form of mail), postage prepaid, to such Grantor at its address referred to in Section 8.2 or at such other address of which the Secured Party shall have been notified pursuant thereto; (d) agrees that nothing herein shall affect the right to effect service of process in any other manner permitted by law or shall limit the right to sue in any other jurisdiction; and (e) waives, to the maximum extent not prohibited by law, any right it may have to claim or recover in any legal action or proceeding referred to in this Section 8.11 any special, exemplary, punitive or consequential damages. 22 26 9.12 Acknowledgments. Each Grantor hereby acknowledges that: (a) it has been advised by counsel in the negotiation, execution and delivery of this Agreement and the other Loan Documents; (b) neither the Secured Party nor any Lender has any fiduciary relationship with or duty to any Grantor arising out of or in connection with this Agreement or any of the other Loan Documents, and the relationship between Secured Party and Lenders, on one hand, and the Grantors, on the other hand, in connection herewith or therewith is solely that of debtor and creditor; and (c) no joint venture is created hereby or by the other Loan Documents or otherwise exists by virtue of the transactions contemplated hereby among the Lenders or among the Grantors and the Lenders. 9.13 WAIVERS OF JURY TRIAL. EACH GRANTOR AND THE SECURED PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVE TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT AND FOR ANY COUNTERCLAIM THEREIN. 9.14 Section Headings. The Section headings used in this Agreement are for convenience of reference only and are not to affect the construction hereof or be taken into consideration in the interpretation hereof. 9.15 Additional Grantors. Each Subsidiary of the Company that is required to become a party to this Agreement pursuant to Section 5.1(i) of the Credit Agreement shall become a Grantor for all purposes of this Agreement upon execution and delivery by such Subsidiary of an Assumption Agreement in the form of Annex I hereto. 9.16 Releases. (a) At such time as the Obligations shall have been paid in full, no Letters of Credit are outstanding (or are cash collateralized by an amount equal to the LC Exposure) and the Commitments have been terminated, the Collateral shall be released from the Liens created hereby, and this Agreement and all obligations (other than those expressly stated to survive such termination) of the Secured Party and each Grantor hereunder shall terminate, all without delivery of any instrument or performance of any act by any party, and all rights to the Collateral shall revert to the Grantors. At the request and sole expense of any Grantor following any such termination, the Secured Party shall deliver to such Grantor any Collateral held by the Secured Party hereunder, and execute and deliver to such Grantor such documents as such Grantor shall reasonably request to evidence such termination. (b) If any of the Collateral is released pursuant to Section 8.09 of the Credit Agreement, or if any of the collateral shall be sold, assigned, transferred or otherwise disposed of by any Grantor, or if all the capital stock of a Grantor shall be sold, transferred or otherwise disposed of and its obligations hereunder shall have been released pursuant to the next sentence of this Section 9.16(b), in either case in a transaction permitted by the Credit Agreement or with the consent of the Majority 23 27 Lenders, then the Secured Party, at the request and sole expense of such Grantor, shall execute and deliver to such Grantor all releases or other documents reasonably necessary or desirable for the release of the Liens created hereby on such Collateral. At the request and sole expense of the Company, a Guarantor shall be released from its obligations hereunder in the event that all the capital stock of such Guarantor shall be sold, transferred or otherwise disposed of in a transaction permitted by the Credit Agreement or with the consent of the Majority Lenders; provided that the Company shall have delivered to the Secured Party at least three Business Days prior to the date of the proposed release, a written request for release identifying the relevant Guarantor, together with a certification by the Company stating that such transaction is in compliance with the Credit Agreement and the other Loan Documents or has been consented to by the Majority Lenders. (c) Except as may be expressly applicable pursuant to Section 9-505 of the Code, no action taken or omission to act by the Secured Party or the Lenders hereunder, including, without limitation, any exercise of voting or consensual rights or any other action taken or inaction, shall be deemed to constitute a retention of the Collateral in satisfaction of the Obligations or otherwise to be in full satisfaction of the Obligations, and the Obligations shall remain in full force and effect, until the Secured Party and the Lenders shall have applied payments (including, without limitation, collections from Collateral) towards the Obligations in the full amount then outstanding. 9.17 Acceptance. Each Grantor hereby expressly waives notice of acceptance of this Agreement, acceptance on the part of the Secured Party and the Lenders being conclusively presumed by their request for this Agreement and delivery of the same to the Secured Party. [SIGNATURES BEGIN NEXT PAGE] 24 28 IN WITNESS WHEREOF, each of the undersigned has caused this Guarantee and Collateral Agreement to be duly executed and delivered as of the date first above written. COMPANY: UNIVERSAL COMPRESSION, INC., By: ______________________________ Name: ______________________________ Title: ______________________________ Guarantee and Collateral Signature Page 1 29 GUARANTORS: UNIVERSAL COMPRESSION HOLDINGS, INC. By: ______________________________ Name: ______________________________ Title: ______________________________ Guarantee and Collateral Signature Page 2
