Exhibit 10.29

 

EXHIBIT A

 

FORM OF COMMITTED LOAN NOTICE

 

To:                              Deutsche Bank AG New York Branch, as
Administrative Agent
60 Wall Street
New York, NY  10005
Attention:  Marguerite Sutton

 

[Date]

 

Ladies and Gentlemen:

 

Reference is made to the Credit Agreement dated as of October 31, 2006 (as
amended, supplemented, restated and/or otherwise modified from time to time, the
“Credit Agreement”), among Michaels Stores, Inc., (the “Borrower”), the lenders
from time to time party thereto (the “Lenders”), Deutsche Bank AG New York
Branch, as Administrative Agent (in such capacity, the “Administrative Agent”),
JPMorgan Chase Bank, N.A., as Syndication Agent and Bank of America, N.A. and
Credit Suisse, as Co-Documentation Agents.  Capitalized terms used herein and
not otherwise defined herein shall have the meanings assigned to such terms in
the Credit Agreement.

 

The Borrower hereby requests (select one):

 

· A Borrowing of new Loans

 

· A conversion of Loans from one Type to the other

 

· A continuation of Eurocurrency Rate Loans

 

to be made on the terms set forth below:

 

(A)                               Date of Borrowing,
conversion or continuation
(which is a Business Day)

 

(B)                               Principal amount(1)

 

(C)                               Type of Loan(2)

 

(D)                               Interest Period(3)

 

The above request has been made to the Administrative Agent by telephone at
[                    ].(4)

 

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(1)   Eurocurrency Rate Loans shall be in a principle amount of $2,500,000 or a
whole multiple of $500,000 in excess thereof.  Base Rate Loans shall be in a
principle amount of $500,000 or a whole multiple of $100,000 in excess thereof.

(2)   Specify Eurocurrency Rate or Base Rate.

(3)   Applicable for Eurocurrency Rate/Loans only.

 

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[The Borrower hereby represents and warrants to the Administrative Agent and the
Lenders that, on the date of this Committed Loan Notice and on the date of the
related Borrowing, the conditions to lending specified in paragraphs (i) and
(j) of Section 4.01 of the Credit Agreement have been satisfied.](5)

 

 

MICHAELS STORES, INC.

 

 

 

 

 

 

 

By:

 

 

 

Name:

Lisa K. Klinger

 

 

Title:

Vice President — Treasurer

 

 

 

and Investor Relations

 

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(4)   By 12:30 p.m. (New York, New York time) (i) three (3) Business Days prior
to the requested date of any Borrowing or Continuation of Eurocurrency Rate
Loans or any conversion of Base Rate Loans to Eurocurrency Rate Loans, and (ii)
one (1) Business Day before the requested date of any Borrowing of Base Rate
Loans or conversion of any Eurocurrency Rate Loans to Base Rate Loans.

(5)   Insert bracketed language if the Borrower is requesting a Borrowing of new
Loans.

 

2

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EXHIBIT C

 

LENDER:  [·]

PRINCIPAL AMOUNT:  $[·]

 

FORM OF TERM NOTE

 

New York, New York
[Date]

 

FOR VALUE RECEIVED, the undersigned, MICHAELS STORES, INC. a Delaware
corporation (“Borrower”), hereby promises to pay to the Lender set forth above
(the “Lender”) or its registered assigns, in lawful money of the United States
of America in immediately available funds at the Administrative Agent’s Office
(such term, and each other capitalized term used but not defined herein, having
the meaning assigned to it in the Credit Agreement dated as of October 31, 2006
(as the same may be amended, supplemented, restated and/or otherwise modified
from time to time, the “Credit Agreement”), among the Borrower, the lenders from
time to time party thereto, Deutsche Bank AG New York Branch, as Administrative
Agent, JPMorgan Chase Bank, N.A., as Syndication Agent and Bank of America N.A.
and Credit Suisse, as Co-Documentation Agents, (i) on the dates set forth in the
Credit Agreement, the principal amounts set forth in the Credit Agreement with
respect to Loans made by the Lender to the Borrower pursuant to the Credit
Agreement and (ii) on each Interest Payment Date, interest at the rate or rates
per annum as provided in the Credit Agreement on the unpaid principal amount of
all Loans made by the Lender to the Borrower pursuant to the Credit Agreement.

 

The Borrower promises to pay interest, on demand, on any overdue principal and,
to the extent permitted by law, overdue interest from their due dates at the
rate or rates provided in the Credit Agreement.

 

The Borrower hereby waives diligence, presentment, demand, protest and notice of
any kind whatsoever.  The nonexercise by the holder hereof of any of its rights
hereunder in any particular instance shall not constitute a waiver thereof in
that or any subsequent instance.

 

All borrowings evidenced by this note and all payments and prepayments of the
principal hereof and interest hereon and the respective dates thereof shall be
endorsed by the holder hereof on the schedule attached hereto and made a part
hereof or on a continuation thereof which shall be attached hereto and made a
part hereof, or otherwise recorded by such holder in its internal records;
provided, however, that the failure of the holder hereof to make such a notation
or any error in such notation shall not affect the obligations of the Borrower
under this note.

 

This note is one of the Notes referred to in the Credit Agreement that, among
other things, contains provisions for the acceleration of the maturity hereof
upon the happening of certain events, for optional and mandatory prepayment of
the principal hereof prior to the maturity hereof and for the amendment or
waiver of certain provisions of the Credit Agreement, all upon the terms and
conditions therein specified.

 

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THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE
STATE OF NEW YORK.

 

 

 

MICHAELS STORES, INC.

 

 

 

 

 

 

By:

 

 

 

Name:

Lisa K. Klinger

 

 

Title:

Vice President — Treasurer

 

 

 

and Investor Relations

 

2

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LOANS AND PAYMENTS

 

Date

 

Amount of Loan

 

Maturity Date

 

Payments of
Principal/Interest

 

Principal
Balance of Note

 

Name of
Person Making
the Notation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3

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EXHIBIT D

 

FORM OF COMPLIANCE CERTIFICATE(1)

 

Reference is made to the Credit Agreement dated as of October 31, 2006 (as
amended, supplemented, waived, restated and/or otherwise modified from time to
time, the “Credit Agreement”), among Michaels Stores, Inc. (the “Borrower”), the
lenders from time to time party thereto (the “Lenders”), Deutsche Bank AG New
York Branch, as Administrative Agent (in such capacity, the “Administrative
Agent”), JPMorgan Chase Bank, N.A., as Syndication Agent and Bank of America,
N.A. and Credit Suisse, as Co-Documentation Agents, (capitalized terms used
herein have the meanings attributed thereto in the Credit Agreement unless
otherwise defined herein).  Pursuant to Sections 6.01(a), 6.01(b) and 6.02(b) of
the Credit Agreement, the undersigned, in his/her capacity as a Responsible
Officer of the Borrower, certifies as follows:

 

1.                                      [Attached hereto as Exhibit [    ] is
the consolidated balance sheet of the Borrower and its Subsidiaries as of
[          ], 20[  ] and related consolidated statements of income or
operations, stockholders’ equity and cash flows for the fiscal year then ended,
setting forth in each case in comparative form the figures for the previous
fiscal year, all in reasonable detail and prepared in accordance with GAAP,
audited and accompanied by a report and opinion of [                ], prepared
in accordance with generally accepted auditing standards in the United States
and not subject to any “going concern” or like qualification or exception or any
qualification or exception as to the scope of such audit.](2)

 

2.                                      [Attached hereto as Exhibit [    ] is
the consolidated balance sheet of the Borrower and its Subsidiaries as of [    ]
and the related (i) consolidated statements of income or operations for such
fiscal quarter and for the portion of the fiscal year then ended and (ii)
consolidated statements of cash flows for the portion of the fiscal year then
ended, setting forth in each case in comparative form the figures for the
corresponding fiscal quarter of the previous fiscal year and the corresponding
portion of the previous fiscal year, all in reasonable detail.  These present
fairly in all material respects the financial position, results of operations,
stockholders’ equity and cash flows of the Borrower and its Subsidiaries in
accordance with GAAP, subject only to normal year-end audit adjustments and the
absence of footnotes.](3)

 

3.                                      To my knowledge, except as otherwise
disclosed to the Administrative Agent in writing pursuant to the Credit
Agreement, at no time during the

 

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(1)  To be delivered within five (5) days after the delivery of the annual
financial statements of the Borrower and its Subsidiaries in accordance with
Section 6.01(a) of the Credit Agreement or the quarterly financial statements of
the Borrower and its Subsidiaries in accordance with Section 6.01(b) of the
Credit Agreement.

 

(2)  Within ninety (90) days after the end of each fiscal year of the Borrower
beginning with the 2007 fiscal year.

 

(3)  Within forty-five (45) days after the end of each of the fist three (3)
fiscal quarters of each fiscal year of the Borrower.

 

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period between [    ] and [    ] (the “Certificate Period”) did a Default or an
Event of Default exist.  [If unable to provide the foregoing certification,
fully describe the reasons therefor and circumstances thereof and any action
taken or proposed to be taken with respect thereto on Annex A attached hereto.]

 

2

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IN WITNESS WHEREOF, the undersigned, in his/her capacity as a Responsible
Officer of the Borrower, has executed this certificate for and on behalf of the
Borrower and has caused this certificate to be delivered this          day
of                           .

 

 

Michaels Stores, Inc.

 

 

 

 

 

 

 

By:

 

 

 

Name:

Lisa K. Klinger

 

 

Title:

Senior Vice President — Finance and Treasurer

 

3

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[Exhibit     ]

 

[Consolidated Balance Sheet of the Borrower and its Subsidiaries as of
[            ], 20[    ]]

 

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[Consolidated Balance Sheet of the Borrower and its Subsidiaries as of [    ]]

 

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EXHIBIT E

 

FORM OF ASSIGNMENT AND ASSUMPTION

 

This Assignment and Assumption (this “Assignment and Assumption”) is dated as of
the Effective Date set forth below and is entered into by and between the
Assignor (as defined below) and the Assignee (as defined below).  Capitalized
terms used in this Assignment and Assumption and not otherwise defined herein
have the meanings specified in the Credit Agreement, dated as of October 31,
2006 (as amended, supplemented, restated and/or otherwise modified from time to
time, the “Credit Agreement”), among Michaels Stores, Inc., the lenders from
time to time party thereto (the “Lenders”), Deutsche Bank AG New York Branch, as
Administrative Agent (in such capacity, the “Administrative Agent”), JPMorgan
Chase Bank, as Syndication Agent and Bank of America N.A. and Credit Suisse, as
Co-Documentation Agents, as Documentation Agent, receipt of a copy of which is
hereby acknowledged by the Assignee.  The Standard Terms and Conditions set
forth in Annex 1 attached hereto are hereby agreed to and incorporated herein by
reference and made a part of this Assignment and Assumption as if set forth
herein in full.

 

For an agreed consideration, the Assignor hereby irrevocably sells and assigns
to the Assignee, and the Assignee hereby irrevocably purchases and assumes from
the Assignor, subject to and in accordance with the Standard Terms and
Conditions and the Credit Agreement, as of the Effective Date inserted by the
Administrative Agent as contemplated below, (i) all of the Assignor’s rights and
obligations in its capacity as a Lender under the Credit Agreement and any other
documents or instruments delivered pursuant thereto to the extent related to the
amount and percentage interest identified below of all of such outstanding
rights and obligations of the Assignor under the facility identified below and
(ii) to the extent permitted to be assigned under applicable law, all claims,
suits, causes of action and any other right of the Assignor (in its capacity as
a Lender) against any Person, whether known or unknown, arising under or in
connection with the Credit Agreement, any other documents or instruments
delivered pursuant thereto or the loan transactions governed thereby or in any
way based on or related to any of the foregoing, including, but not limited to,
contract claims, tort claims, malpractice claims, statutory claims and all other
claims at law or in equity related to the rights and obligations sold and
assigned pursuant to clause (i) above (the rights and obligations sold and
assigned pursuant to clauses (i) and (ii) above being referred to herein
collectively as the “Assigned Interest”).  Such sale and assignment is without
recourse to the Assignor and, except as expressly provided in this Assignment
and Assumption, without representation or warranty by the Assignor.

 

1.                                      Assignor (the “Assignor”):

 

2.                                      Assignee (the “Assignee”):

 

Assignee is an Affiliate of:  [Name of Lender]

 

Assignee is an Approved Fund of:  [Name of Lender]

 

3.                                      Borrower:

 

4.                                      Administrative Agent:

 

5.                                      Assigned Interest:

 

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Aggregate Amount of
Commitment/Loans of
all Lenders

 

Amount of
Commitment/Loans
Assigned

 

Percentage Assigned
of Commitment/
Loans(1)

 

Loans

 

$

 

 

$

 

 

 

%

 

Effective Date:

 

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(1)   Set forth, to at least 8 decimals, as a percentage of the Commitment/Loans
of all Lenders thereunder.

 

2

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The terms set forth in this Assignment and Assumption are hereby agreed to:

 

 

 

[NAME OF ASSIGNOR], as Assignor,

 

 

 

 

 

By:

 

 

 

Name:

 

 

Title:

 

 

 

 

 

[NAME OF ASSIGNEE], as Assignee,

 

 

 

 

 

By:

 

 

 

Name:

 

 

Title:

 

3

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[Consented to and](2) Accepted:

 

DEUTSCHE BANK AG NEW YORK BRANCH
as Administrative Agent

 

 

By:

 

 

 

Name:

 

 

Title:

 

 

 

Consented to:

 

 

 

 

 

MICHAELS STORES, INC.

 

 

 

 

 

By:

 

 

 

Name:

 

 

Title:](3)

 

 

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(2)   No consent of the Administrative Agent shall be required for (i) an
assignment to an Agent or an Affiliate of an Agent or (ii) an assignment of a
Loan to a Lender, an Affiliate of a Lender or an Approved Fund.

(3)   No consent of the Borrower shall be required for an assignment to a
Lender, an Affiliate of a Lender, an Approved Fund or, if an Event of Default
under Section 8.01(a), (f) or (g) of the Credit Agreement has occurred and is
continuing, any Assignee.

 

4

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ANNEX 1

To Exhibit E

 

CREDIT AGREEMENT(1)

 

STANDARD TERMS AND CONDITIONS FOR
ASSIGNMENT AND ASSUMPTION

 

1.  Representations and Warranties.

 

1.1  Assignor.  The Assignor (a) represents and warrants that (i) it is the
legal and beneficial owner of the Assigned Interest, (ii) the Assigned Interest
is free and clear of any lien, encumbrance or other adverse claim and (iii) it
has full power and authority, and has taken all action necessary, to execute and
deliver this Assignment and Assumption and to consummate the transactions
contemplated hereby; and (b) assumes no responsibility with respect to (i) any
statements, warranties or representations made in or in connection with the
Credit Agreement, (ii) the execution, legality, validity, enforceability,
genuineness, sufficiency or value of the Credit Agreement, (iii) the financial
condition of the Borrower or any of its Subsidiaries or Affiliates or any other
Person obligated in respect of the Credit Agreement or (iv) the performance or
observance by the Borrower or any of its Subsidiaries or Affiliates or any other
Person of any of their obligations under the Credit Agreement.

 

1.2  Assignee.  The Assignee (a) represents and warrants that (i) it has full
power and authority, and has taken all action necessary, to execute and deliver
this Assignment and Assumption and to consummate the transactions contemplated
hereby and to become a Lender under the Credit Agreement, (ii) it satisfies the
requirements, if any, specified in the Credit Agreement that are required to be
satisfied by it in order to acquire the Assigned Interest and become a Lender,
(iii) from and after the Effective Date, it shall be bound by the provisions of
the Credit Agreement as a Lender thereunder and, to the extent of the Assigned
Interest, shall have the obligations of a Lender thereunder, (iv) it has
received a copy of the Credit Agreement, together with copies of the most recent
financial statements delivered pursuant to Section 6.01 thereof, and such other
documents and information as it has deemed appropriate to make its own credit
analysis and decision to enter into this Assignment and Assumption and to
purchase the Assigned Interest on the basis of which it has made such analysis
and decision independently and without reliance on any Agent or any other
Lender, and (v) if it is a Foreign Lender, attached to this Assignment and
Assumption is any documentation required to be delivered by it pursuant to
Section 10.15 of the Credit Agreement, duly completed and executed by the
Assignee; and (b) agrees that (i) it will, independently and without reliance on
the Assignor, any Agent or any other Lender, and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit decisions in taking or not taking action under the Credit Agreement, and
(ii) it will perform in accordance with their terms all of the obligations which
by the terms of the Credit Agreement are required to be performed by it as a
Lender.

 

2.  Payments.  From and after the Effective Date, the Administrative Agent shall
make all payments in respect of the Assigned Interest (including payments of
principal, interest,

 

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(1)   Capitalized terms used in this Assignment and Assumption and not otherwise
defined herein have the meanings specified in the Credit Agreement dated of
October 31, 2006 (as amended, supplemented, restated and/or otherwise modified
from time to time, the “Credit Agreement”), among Michaels Stores, Inc. the
lenders from time to time party thereto (the “Lenders”), Deutsche Bank AG New
York Branch, as Administrative Agent (in such capacity, the “Administrative
Agent”), and JPMorgan Chase Bank, N.A., as Syndication Agent.

 

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fees and other amounts) to the Assignor for amounts which have accrued to but
excluding the Effective Date and to the Assignee for amounts which have accrued
from and after the Effective Date.

 

3.  General Provisions.  This Assignment and Assumption shall be binding upon
and inure to the benefit of the parties hereto and their respective successors
and assigns.  This Assignment and Assumption may be executed in any number of
counterparts, which together shall constitute one instrument.  Delivery of an
executed counterpart of a signature page of this Assignment and Assumption by
facsimile or other electronic transmission shall be as effective as delivery of
a manually executed counterpart of this Assignment and Assumption.  This
Assignment and Assumption shall be construed in accordance with and governed by
the law of the State of New York.

 

2

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EXHIBIT F-1

[CONFORMED AS EXECUTED]

 

 

 

 

GUARANTEE AGREEMENT

 

dated as of

 

October 31, 2006

 

among

 

MICHAELS STORES, INC.

 

CERTAIN OTHER SUBSIDIARIES OF MICHAELS STORES, INC.,

IDENTIFIED HEREIN

 

and

 

DEUTSCHE BANK AG NEW YORK BRANCH,

 

as Administrative Agent

 

 

 

 

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Table of Contents

 

 

 

Page

 

 

 

ARTICLE I Definitions

1

 

 

 

Section 1.01.

Credit Agreement

1

Section 1.02.

Other Defined Terms

1

 

 

 

ARTICLE II Guarantee

2

 

 

 

Section 2.01.

Guarantee

2

Section 2.02.

Guarantee of Payment

2

Section 2.03.

No Limitations

3

Section 2.04.

Reinstatement

4

Section 2.05.

Agreement To Pay; Subrogation

4

Section 2.06.

Information

4

 

 

 

ARTICLE III Indemnity, Subrogation and Subordination

5

 

 

 

Section 3.01.

Indemnity and Subrogation

5

Section 3.02.

Contribution and Subrogation

5

Section 3.03.

Subordination

5

 

 

 

ARTICLE IV Miscellaneous

6

 

 

 

Section 4.01.

Notices

6

Section 4.02.

Waivers; Amendment

6

Section 4.03.

Administrative Agent’s Fees and Expenses; Indemnification

7

Section 4.04.

Successors and Assigns

7

Section 4.05.

Survival of Agreement

7

Section 4.06.

Counterparts; Effectiveness; Several Agreement

8

Section 4.07.

Severability

8

Section 4.08.

Right of Set-Off

8

Section 4.09.

GOVERNING LAW

9

Section 4.10.

WAIVER OF RIGHT TO TRIAL BY JURY

9

Section 4.11.

Headings

9

Section 4.12.

Obligations Absolute

9

Section 4.13.

Termination or Release

10

Section 4.14.

Additional Restricted Subsidiaries

10

Section 4.15.

Recourse

11

Section 4.16.

Limitation on Guaranteed Obligations

11

 

SCHEDULES

 

Schedule I

Subsidiary Parties

 

 

EXHIBITS

 

Exhibit I

Form of Guarantee Agreement Supplement

 

 

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GUARANTEE AGREEMENT, dated as of October 31, 2006, among MICHAELS STORES, INC.,
a Delaware corporation (the “Borrower”), the Subsidiaries of the Borrower
identified herein and DEUTSCHE BANK AG NEW YORK BRANCH, as Administrative Agent.

 

Reference is made to the Credit Agreement, dated as of October 31, 2006 (as
amended, restated, supplemented and/or otherwise modified from time to time, the
“Credit Agreement”), among the Borrower, Deutsche Bank AG New York Branch, as
Administrative Agent, each Lender from time to time party thereto, JPMorgan
Chase Bank, N.A., as Syndication Agent, and Bank of America N.A. and Credit
Suisse, as Co-Documentation Agents.

 

The Lenders have agreed to extend credit to the Borrower subject to the terms
and conditions set forth in the Credit Agreement, and the Hedge Banks have
agreed to enter into and/or maintain one or more Secured Hedge Agreements on the
terms and conditions set forth therein.  The obligations of the Lenders to
extend such credit, and the obligation of the Hedge Banks to enter into and/or
maintain such Secured Hedge Agreements, are, in each case, conditioned upon,
among other things, the execution and delivery of this Agreement by each
Guarantor.  The Borrower and the Subsidiary Parties are affiliates of one
another, are an integral part of a consolidated enterprise and it will derive
substantial direct and indirect benefits from (i) the extensions of credit to
the Borrower pursuant to the Credit Agreement and (ii) the entering into and/or
maintaining by the Hedge Banks of Secured Hedge Agreements with the Borrower
and/or one or more of its Restricted Subsidiaries, and are willing to execute
and deliver this Agreement in order to induce the Lenders to extend such credit
and the Hedge Banks to enter into and/or maintain such Secured Hedge Agreements.

 

Accordingly, in consideration of the foregoing and other benefits accruing to
each Guarantor, the receipt and sufficiency of which are hereby acknowledged,
each Guarantor hereby makes the following representations and warranties to the
Administrative Agent for the benefit of the Secured Parties and hereby covenants
and agrees with each other Guarantor and the Administrative Agent for the
benefit of the Secured Parties as follows:

 

ARTICLE I

 

Definitions

 

Section 1.01.                  Credit Agreement.  (a)  Capitalized terms used in
this Agreement and not otherwise defined herein have the meanings specified in
the Credit Agreement.

 

(b)  The rules of construction specified in Article I of the Credit Agreement
also apply to this Agreement.

 

Section 1.02.                  Other Defined Terms.  As used in this Agreement,
the following terms have the meanings specified below:

 

“Adjusted Net Worth” means, in respect of each Subsidiary Party on any date, the
greater of (x) the amount by which the fair saleable value of such Subsidiary
Party’s assets on such date exceeds its existing debts and other liabilities
(including contingent liabilities, but without giving effect to any Guaranteed
Obligations arising under this Agreement or any

 

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guaranteed obligations arising under any guaranty of the New notes or any
Refinancing Indebtedness in respect thereof) on such date, and (y) zero.

 

“Agreement” means this Guarantee Agreement.

 

“Credit Agreement” has the meaning assigned to such term in the preliminary
statement of this Agreement.

 

“Guarantee Agreement Supplement” means an instrument substantially in the form
of Exhibit I hereto.

 

“Guaranteed Obligations” mean the “Obligations” as defined in the Credit
Agreement.

 

“Guaranteed Party” means the Borrower, each Subsidiary Guarantor and each
Restricted Subsidiary of the Borrower party to any Secured Hedge Agreement.

 

“Guarantor” means each of the Borrower and each Subsidiary Party.

 

“Secured Credit Document” shall mean each Loan Document and each Secured Hedge
Agreement.

 

“Secured Parties” has the meaning provided in the Security Agreement.

 

“Subsidiary Parties” means (a) the Restricted Subsidiaries identified on
Schedule I and (b) each other Restricted Subsidiary that becomes a party to this
Agreement as a Subsidiary Party after the Closing Date.

 

ARTICLE II

 

Guarantee

 

Section 2.01.                          Guarantee.  Each Guarantor irrevocably,
absolutely and unconditionally guarantees, jointly with the other Guarantors and
severally, as a primary obligor and not merely as a surety, the due and punctual
payment and performance of the Guaranteed Obligations, in each case, whether
such Guaranteed Obligations are now existing or hereafter incurred under,
arising out of or in connection with any Secured Credit Document, and whether at
maturity, by acceleration or otherwise.  Each of the Guarantors further agrees
that the Guaranteed Obligations may be extended, increased or renewed, in whole
or in part, without notice to, or further assent from, such Guarantor and that
such Guarantor will remain bound upon its guarantee notwithstanding any
extension, increase or renewal of any Guaranteed Obligation.  Each of the
Guarantors waives presentment to, demand of payment from, and protest to, the
applicable Guaranteed Party or any other Loan Party of any of the Guaranteed
Obligations, and also waives notice of acceptance of its guarantee and notice of
protest for nonpayment.

 

Section 2.02.                          Guarantee of Payment.  Each of the
Guarantors further agrees that its guarantee hereunder constitutes a guarantee
of payment when due and not of collection, and waives any right to require that
any resort be had by the Administrative Agent or any other

 

2

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Secured Party to any security held for the payment of the Guaranteed
Obligations, or to any balance of any deposit account or credit on the books of
the Administrative Agent or any other Secured Party in favor of any Guaranteed
Party or any other Person. The obligations of each Guarantor hereunder are
independent of the obligations of any other Guarantor, any other guarantor, the
Borrower or any other Guaranteed Party, and a separate action or actions may be
brought and prosecuted against each Guarantor whether or not action is brought
against any other Guarantor, any other guarantor, the Borrower or any other
Guaranteed Party and whether or not any other Guarantor, any other guarantor,
the Borrower or any other Guaranteed Party be joined in any such action or
actions. Any payment required to be made by a Guarantor hereunder may be
required by the Administrative Agent or any other Secured Party on any number of
occasions.

 

Section 2.03.                          No Limitations.  (a)  Except for
termination of a Guarantor’s obligations hereunder as expressly provided in
Section 4.13, to the fullest extent permitted by applicable law, the obligations
of each Guarantor hereunder shall not be subject to any reduction, limitation,
impairment or termination for any reason, including any claim of waiver,
release, surrender, alteration or compromise, and shall not be subject to any
defense or set-off, counterclaim, recoupment or termination whatsoever by reason
of the invalidity, illegality or unenforceability of the Guaranteed Obligations,
or otherwise.  Without limiting the generality of the foregoing, to the fullest
extent permitted by applicable law and except for termination of a Guarantor’s
obligations hereunder in accordance with the terms of Section 4.13, but without
prejudice to Section 2.04, the obligations of each Guarantor hereunder shall not
be discharged  impaired or otherwise affected by (i) the failure of the
Administrative Agent or any other Secured Party to assert any claim or demand or
to enforce any right or remedy under the provisions of any Secured Credit
Document or otherwise; (ii) any rescission, waiver, amendment or modification
of, or any release from any of the terms or provisions of, any Secured Credit
Document or any other agreement, including with respect to any other Guarantor
under this Agreement; (iii) the release of any security held by the Collateral
Agent or any other Secured Party for the Guaranteed Obligations; (iv) any
default, failure or delay, willful or otherwise, in the performance of the
Guaranteed Obligations; (v) the failure to perfect any security interest in, or
the release of, any of the Collateral held by or on behalf of the Collateral
Agent or any other Secured Party, (vi) the lack of legal existence of the
Borrower or any Guarantor or legal obligation to discharge any of the Guaranteed
Obligations by Borrower or any Guarantor for any reason whatsoever, including,
without limitation, in any insolvency, bankruptcy or reorganization of any Loan
Party, or (vii) any other act or omission that may or might in any manner or to
any extent vary the risk of any Guarantor or otherwise operate as a discharge of
any Guarantor as a matter of law or equity (other than the indefeasible payment
in full in cash of all the Guaranteed Obligations).  Each Guarantor expressly
authorizes the applicable Secured Parties to take and hold security for the
payment and performance of the Guaranteed Obligations, to exchange, waive or
release any or all such security (with or without consideration), to enforce or
apply such security and direct the order and manner of any sale thereof in their
sole discretion or to release or substitute any one or more other guarantors or
obligors upon or in respect of the Guaranteed Obligations all without affecting
the obligations of any Guarantor hereunder.

 

(b)  To the fullest extent permitted by applicable law and except for
termination of a Guarantor’s obligations hereunder in accordance with the terms
of Section 4.13, but without prejudice to Section 2.04, each Guarantor waives
any defense based on or arising out of any defense of the Borrower or any other
Guaranteed Party or the unenforceability of the Guaranteed

 

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Obligations or any part thereof from any cause, or the cessation from any cause
of the liability of the Borrower or any other Guaranteed Party, other than the
indefeasible payment in full in cash of all the Guaranteed Obligations.  The
Administrative Agent and the other Secured Parties may in accordance with the
terms of the Collateral Documents, at their election, foreclose on any security
held by one or more of them by one or more judicial or nonjudicial sales, accept
an assignment of any such security in lieu of foreclosure, compromise or adjust
any part of the Guaranteed Obligations make any other accommodation with the
Borrower or any other Guaranteed Party or exercise any other right or remedy
available to them against Guaranteed Party, without affecting or impairing in
any way the liability of any Guarantor hereunder except to the extent the
Guaranteed Obligations have been paid in full in cash.  To the fullest extent
permitted by applicable law, each Guarantor waives any defense arising out of
any such election even though such election operates, pursuant to applicable
law, to impair or to extinguish any right of reimbursement or subrogation or
other right or remedy of such Guarantor against the Borrower or any other
Guaranteed Party, as the case may be, or any security.

 

Section 2.04.                          Reinstatement.  Notwithstanding anything
to contrary contained in this Agreement, each of the Guarantors agrees that
(i) its guarantee hereunder shall continue to be effective or be reinstated, as
the case may be, if at any time payment, or any part thereof, of any Guaranteed
Obligation is rescinded or must otherwise be restored by the Administrative
Agent or any other Secured Party upon the bankruptcy or reorganization of the
Borrower or any other Guaranteed Party or otherwise and (ii) the provisions of
this Section 2.04 shall survive the termination of this Agreement.

 

Section 2.05.                          Agreement To Pay; Subrogation.  In
furtherance of the foregoing and not in limitation of any other right that the
Administrative Agent or any other Secured Party has at law or in equity against
any Guarantor by virtue hereof, upon the failure of the Borrower or any other
Guaranteed Party to pay any Guaranteed Obligation when and as the same shall
become due, whether at maturity, by acceleration, after notice of prepayment or
otherwise, each Guarantor hereby promises to and will forthwith pay, or cause to
be paid, to the Administrative Agent for distribution to the applicable Secured
Parties in cash the amount of such unpaid Guaranteed Obligation.  Upon payment
by any Guarantor of any sums to the Administrative Agent as provided above, all
rights of such Guarantor against the Borrower or any other Guaranteed Party
arising as a result thereof by way of right of subrogation, contribution,
reimbursement, indemnity or otherwise shall in all respects be subject to
Article III.

 

Section 2.06.                          Information.  Each Guarantor assumes all
responsibility for being and keeping itself informed of the Borrower’s and each
other Guaranteed Party’s financial condition and assets, and of all other
circumstances bearing upon the risk of nonpayment of the Guaranteed Obligations
and the nature, scope and extent of the risks that such Guarantor assumes and
incurs hereunder, and agrees that none of the Administrative Agent or the other
Secured Parties will have any duty to advise such Guarantor of information known
to it or any of them regarding such circumstances or risks.

 

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ARTICLE III

 

Indemnity, Subrogation and Subordination

 

Section 3.01.                          Indemnity and Subrogation.  In addition
to all such rights of indemnity and subrogation as the Guarantors may have under
applicable law (but subject to Section 3.03), each Guaranteed Party agrees that
in the event a payment shall be made by any Guarantor under this Agreement on
account of any Guaranteed Obligation (other than a payment to which Section 3.02
applies), such Guaranteed Party shall indemnify such Guarantor for the full
amount of such payment and such Guarantor shall be subrogated to the rights of
the Person to whom such payment shall have been made to the extent of such
payment.

 

Section 3.02.                          Contribution and Subrogation.  (a)  Each
Subsidiary Party (a “Contributing Party”) agrees (subject to Section 3.03) that,
in the event a payment shall be made by any other Subsidiary Party (the
“Claiming Party”) hereunder in respect of any Obligation and the Claiming Party
shall not have been fully indemnified by the relevant Guaranteed Party as
provided in Section 3.01 (a “Relevant Payment”), the Claiming Party shall have a
right to contribution against each Contributing Party in an amount equal to the
amount of such Relevant Payment, multiplied by a fraction of which (x) the
numerator shall be the Adjusted Net Worth of the relevant Contributing Party and
(y) the denominator shall be the aggregate Adjusted Net Worth of all the
Subsidiary Parties, in each case calculated on the date that the Relevant
Payment is made.

 

(c)  All contribution obligations or rights of each Subsidiary Party shall
(i) arise at the time of a Relevant Payment by any Subsidiary Party and (ii) be
revised and restated as of the date of a Relevant Payment by any Subsidiary
Party, taking into account all prior Relevant Payments by all Subsidiary Parties
for which a right to contribution (or any part thereof) exists.

 

(d)  Notwithstanding anything to the contrary in this Section 3.02, any
Subsidiary Party that is released from this Agreement pursuant to Section 4.13
hereof shall thereafter have no contribution obligations, or rights, pursuant to
this Section 3.02, and at the time of any such release, the contribution rights
and obligations of the remaining Subsidiary Parties shall be recalculated on the
respective date of release based on any prior Relevant Payments made by any of
the remaining Subsidiary Parties for which a right to contribution (or any part
thereof) exists.

 

(e)  Each of the Subsidiary Parties recognizes and acknowledges that the rights
to contribution arising hereunder shall constitute an asset in favor of the
party entitled to such contribution.  In this connection, each Subsidiary Party
has the right to waive its contribution right against any other Subsidiary Party
to the extent that after giving effect to such waiver such Subsidiary Party
would remain solvent, in the determination of the Required Lenders.

 

(f)  Any Contributing Party making any payment to a Claiming Party pursuant to
this Section 3.02 shall be subrogated to the rights of such Claiming Party to
the extent of such payment.

 

Section 3.03.                          Subordination.  Notwithstanding any
provision of this Agreement to the contrary, all rights of the Guarantors under
Sections 3.01 and 3.02 and all other rights of indemnity, contribution or
subrogation under applicable law or otherwise shall be fully subordinated to the
indefeasible payment in full in cash of the Guaranteed Obligations; provided,
that if any amount shall be paid to such Guarantor on account of such
subrogation rights at any time prior to the irrevocable payment in full in cash
of all the Guaranteed Obligations, such

 

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amount shall be held in trust for the benefit of the Secured Parties and shall
forthwith be paid to the Administrative Agent to be credited and applied against
the Guaranteed Obligations, whether matured or unmatured, in accordance with
Section 5.02 of the Security Agreement or Section 8.04 of the Credit Agreement,
as applicable.  No failure on the part of the Borrower or any Guarantor to make
the payments required by Sections 3.01 and 3.02 (or any other payments required
under applicable law or otherwise) shall in any respect limit the obligations
and liabilities of any Guarantor with respect to its obligations hereunder, and
each Guarantor shall remain liable for the full amount of the obligations of
such Guarantor hereunder.

 

ARTICLE IV

 

Miscellaneous

 

Section 4.01.                          Notices.  All communications and notices
hereunder shall (except as otherwise expressly permitted herein) be in writing
and given as provided in Section 10.02 of the Credit Agreement.  All
communications and notices hereunder to any Subsidiary Party shall be given to
it in care of the Borrower as provided in Section 10.02 of the Credit Agreement.

 

Section 4.02.                          Waivers; Amendment.  (a)  No failure or
delay by the Administrative Agent, or any Lender in exercising any right,
remedy,  power or privilege hereunder or under any other Secured Credit Document
shall operate as a waiver thereof, nor shall any single or partial exercise of
any such right, remedy, power or privilege, or any abandonment or discontinuance
of steps to enforce such a right, remedy, power or privilege, preclude any other
or further exercise thereof or the exercise of any other right, remedy, power or
privilege.  The rights, remedies, powers and privileges of the Secured Parties
hereunder and under the other Secured Credit Documents are cumulative and are
not exclusive of any rights, remedies, powers or privileges that they would
otherwise have.  No waiver of any provision of this Agreement or consent to any
departure by any Loan Party therefrom shall in any event be effective unless the
same shall be permitted by paragraph (b) of this Section 4.02, and then such
waiver or consent shall be effective only in the specific instance and for the
purpose for which given.  Without limiting the generality of the foregoing, the
making of a Loan shall not be construed as a waiver of any Default, regardless
of whether the Administrative Agent or any Lender or may have had notice or
knowledge of such Default at the time.  No notice or demand on any Loan Party in
any case shall entitle any Loan Party to any other or further notice or demand
in similar or other circumstances.

 

(b)  Neither this Agreement nor any provision hereof may be waived, amended or
modified except pursuant to an agreement or agreements in writing entered into
by the Administrative Agent and the Loan Party or Loan Parties with respect to
which such waiver, amendment or modification is to apply, subject to any consent
required in accordance with Section 10.01 of the Credit Agreement. This Guaranty
shall be construed as a separate agreement with respect to each Guarantor and
may be amended, modified, supplemented, waived or released with respect to any
Guarantor without the approval of any other Guarantor and without affecting the
obligations of any other Guarantor hereunder.

 

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Section 4.03.                          Administrative Agent’s Fees and Expenses;
Indemnification.  (a)  The parties hereto agree that the Administrative Agent
shall be entitled to reimbursement of its expenses incurred hereunder as
provided in Section 10.04 of the Credit Agreement.

 

(b)  Without limitation of its indemnification obligations under the other
Secured Credit Documents, each Guarantor jointly and severally agrees to
indemnify the Administrative Agent and the other Indemnitees (as defined in
Section 10.05 of the Credit Agreement) against, and hold each Indemnitee
harmless from, any and all losses, claims, damages, liabilities and related
expenses, including all Attorney Costs of any counsel for any Indemnitee,
incurred by or asserted against any Indemnitee arising out of, in connection
with the Indemnified Liabilities; provided that such indemnity shall not, as to
any Indemnitee, be available to the extent that such losses, claims, damages,
liabilities or related expenses are determined by a court of competent
jurisdiction by final and nonappealable judgment to have resulted from the gross
negligence or willful misconduct of such Indemnitee or of any Affiliate,
director, officer, employee, counsel, agent, trustee, investment advisor or
attorney-in-fact of such Indemnitee.

 

(c)  Any such amounts payable as provided hereunder shall be additional
Guaranteed Obligations secured by the Collateral Documents.  The provisions of
this Section 4.03 shall remain operative and in full force and effect regardless
of the termination of this Agreement or any other Secured Credit Document, the
consummation of the transactions contemplated hereby, the repayment of any of
the Guaranteed Obligations, the invalidity or unenforceability of any term or
provision of this Agreement or any other Secured Credit Document, or any
investigation made by or on behalf of the Administrative Agent or any other
Secured Party.  All amounts due under this Section 4.03 shall be payable within
10 Business Days of written demand therefor.

 

Section 4.04.                          Successors and Assigns.  Whenever in this
Agreement any of the parties hereto is referred to, such reference shall be
deemed to include the permitted successors and assigns of such party; and all
covenants, promises and agreements by or on behalf of any Guarantor or the
Administrative Agent that are contained in this Agreement shall bind and inure
to the benefit of their respective successors and assigns.

 

Section 4.05.                          Survival of Agreement.  All covenants,
agreements, representations and warranties made by the Guaranteed Parties in the
Secured Credit Documents and in the certificates or other instruments prepared
or delivered in connection with or pursuant to this Agreement or any other
Secured Credit Document shall be considered to have been relied upon by the
relevant Secured Parties, and shall survive the execution and delivery of the
relevant Secured Credit Documents and the making of any Loans, regardless of any
investigation made by any Secured Party or on its behalf and notwithstanding
that the Administrative Agent, any Lender or any other Secured Party may have
had notice or knowledge of any Default or any incorrect representation or
warranty at the time any credit is extended under any Secured Credit Document,
and shall continue in full force and effect as long as the principal of or any
accrued interest on any Loan or any fee or any other amount payable under any
Loan Document is outstanding and unpaid and so long as the Commitments have not
expired or terminated or until this Agreement is terminated with respect to such
Guarantor or such Guarantor is otherwise released from its obligations under
this Agreement in accordance with the terms hereof.

 

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Section 4.06.                          Counterparts; Effectiveness; Several
Agreement.  This Agreement may be executed in counterparts, each of which shall
constitute an original but all of which when taken together shall constitute a
single contract.  Delivery of an executed signature page to this Agreement by
facsimile transmission shall be as effective as delivery of a manually signed
counterpart of this Agreement.  This Agreement shall become effective as to any
Loan Party when a counterpart hereof executed on behalf of such Loan Party shall
have been delivered to the Administrative Agent and a counterpart hereof shall
have been executed on behalf of the Administrative Agent, and thereafter shall
be binding upon such Loan Party and the Administrative Agent and their
respective permitted successors and assigns, and shall inure to the benefit of
such Loan Party, the Administrative Agent and the other Secured Parties and
their respective successors and assigns, except that no Loan Party shall have
the right to assign or transfer its rights or obligations hereunder or any
interest herein (and any such assignment or transfer shall be void) except as
expressly contemplated by this Agreement or the Credit Agreement.  This
Agreement shall be construed as a separate agreement with respect to each Loan
Party and may be amended, restated, modified, supplemented, waived or released
with respect to any Loan Party without the approval of any other Loan Party and
without affecting the obligations of any other Loan Party hereunder.

 

Section 4.07.                          Severability.  Any provision of this
Agreement held to be invalid, illegal or unenforceable in any jurisdiction
shall, as to such jurisdiction, be ineffective to the extent of such invalidity,
illegality or unenforceability without affecting the validity, legality and
enforceability of the remaining provisions hereof; and the invalidity of a
particular provision in a particular jurisdiction shall not invalidate such
provision in any other jurisdiction.  The parties shall endeavor in good faith
negotiations to replace the invalid, illegal or unenforceable provisions with
valid provisions the economic effect of which comes as close as possible to that
of the invalid, illegal or unenforceable provisions.

 

Section 4.08.                          Right of Set-Off.  In addition to any
rights and remedies of the Lenders provided by Law, upon the occurrence and
during the continuance of any Event of Default, each Lender and its Affiliates
is authorized at any time and from time to time, without prior notice to the
Borrower or any other Guaranteed Party, any such notice being waived by the
Borrower or any other Guaranteed Party to the fullest extent permitted by
applicable Law, to set off and apply any and all deposits (general or special,
time or demand, provisional or final) at any time held by, and other
Indebtedness at any time owing by, such Lender and its Affiliates to or for the
credit or the account of the respective Loan Parties against any and all
obligations owing to such Lender and its Affiliates hereunder, now or hereafter
existing, irrespective of whether or not such Lender or Affiliate shall have
made demand under this Agreement and although such obligations may be contingent
or unmatured or denominated in a currency different from that of the applicable
deposit or Indebtedness.  Each Lender agrees promptly to notify the Borrower and
the Administrative Agent after any such set off and application made by such
Lender, provided that the failure to give such notice shall not affect the
validity of such setoff and application.  The rights of each Lender under this
Section 4.08 are in addition to other rights and remedies (including other
rights of setoff) that such Lender may have.  Each Secured Party (by its
acceptance of the benefits hereof) acknowledges and agrees that the provisions
of this Section 4.08 are subject to the sharing provisions set forth in
Section 2.13 of the Credit Agreement.

 

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Section 4.09.                          GOVERNING LAW.  THIS AGREEMENT SHALL BE
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.

 

(b)  ANY LEGAL ACTION OR PROCEEDING ARISING UNDER THIS AGREEMENT OR IN ANY WAY
CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO OR
THE TRANSACTIONS RELATED THERETO, WHETHER NOW EXISTING OR HEREAFTER ARISING, MAY
BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK SITTING IN NEW YORK CITY OR OF
THE UNITED STATES FOR THE SOUTHERN DISTRICT OF SUCH STATE, AND BY EXECUTION AND
DELIVERY OF THIS AGREEMENT, EACH OF THE GUARANTORS CONSENTS, FOR ITSELF AND IN
RESPECT OF ITS PROPERTY, TO THE NON-EXCLUSIVE JURISDICTION OF THOSE COURTS. 
EACH OF THE GUARANTORS IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING ANY OBJECTION
TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT
MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY ACTION OR PROCEEDING IN SUCH
JURISDICTION, OR OTHER JURISDICTION SELECTED BY THE ADMINISTRATIVE AGENT IN
RESPECT OF THIS AGREEMENT.

 

Section 4.10.                          WAIVER OF RIGHT TO TRIAL BY JURY.  EACH
PARTY TO THIS AGREEMENT HEREBY EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY OF
ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION ARISING UNDER THIS AGREEMENT OR IN
ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES
HERETO OR THE TRANSACTIONS RELATED THERETO, IN EACH CASE WHETHER NOW EXISTING OR
HEREAFTER ARISING, AND WHETHER FOUNDED IN CONTRACT OR TORT OR OTHERWISE; AND
EACH PARTY HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR
CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY, AND THAT ANY
PARTY TO THIS AGREEMENT MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS
SECTION 4.10 WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE
SIGNATORIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.

 

Section 4.11.                          Headings.  Article and Section headings
and the Table of Contents used herein are for convenience of reference only, are
not part of this Agreement and are not to affect the construction of, or to be
taken into consideration in interpreting, this Agreement.

 

Section 4.12.                          Obligations Absolute.  All rights of the
Administrative Agent hereunder and all obligations of each Guarantor hereunder
shall be absolute and unconditional irrespective of (a) any lack of validity or
enforceability of the Credit Agreement, any other Loan Document, any Secured
Hedge Agreement, any agreement with respect to any of the Guaranteed Obligations
or any other agreement or instrument relating to any of the foregoing, (b) any
change in the time, manner or place of payment of, or in any other term of, all
or any of the Guaranteed Obligations, or any other amendment or waiver of or any
consent to any departure from the Credit Agreement, any other Loan Document, any
other Secured Hedge Agreement or any other agreement or instrument, (c) any
release or amendment or waiver of or consent under or departure from any
guarantee guaranteeing all or any portion of the Guaranteed Obligations or

 

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(d) except for termination of a Guarantor’s obligations hereunder in accordance
with the terms of Section 4.13, but without prejudice to Section 2.04, any other
circumstance that might otherwise constitute a defense available to, or a
discharge of, any Guarantor in respect of the Guaranteed Obligations or this
Agreement.

 

Section 4.13.                          Termination or Release.  (a)  This
Agreement and the Guarantees made herein shall terminate with respect to all
Guaranteed Obligations when all the outstanding Guaranteed Obligations (other
than Guaranteed Obligations in respect of Secured Hedging Agreements not yet due
and payable and contingent indemnification obligations not yet accrued and
payable) have been indefeasibly paid in full in cash and the Lenders have no
further commitment to lend under the Credit Agreement, provided, however, that
in connection with the termination of this Guaranty, the Administrative Agent
may require such indemnities as it shall reasonably deem necessary or
appropriate to protect the Secured Parties against (x) loss on account of
credits previously applied to the Guaranteed Obligations that may subsequently
be reversed or revoked, and (y) any obligations that may thereafter arise with
respect to the Secured Hedge Agreements to the extent not provided for
thereunder.

 

(b)  A Subsidiary Party shall automatically be released from its obligations
hereunder upon the consummation of any transaction permitted by the Credit
Agreement as a result of which such Subsidiary Party ceases to be a Subsidiary
of the Borrower; provided that the Required Lenders shall have consented to such
transaction (to the extent required by the Credit Agreement) and the terms of
such consent did not provide otherwise.

 

(c)  In connection with any termination or release pursuant to paragraph (a) or
(b), the Administrative Agent shall promptly (after reasonable advance notice)
execute and deliver to any Guarantor, at such Guarantor’s expense, all documents
that such Guarantor shall reasonably request to evidence such termination or
release.  Any execution and delivery of documents pursuant to this Section 4.13
shall be without recourse to or warranty by the Administrative Agent.

 

(d)  At any time that the Borrower desires that the Administrative Agent take
any of the actions described in immediately preceding clause (c), it shall, upon
request of the Administrative Agent, deliver to the Administrative Agent an
officer’s certificate certifying that the release of the respective Subsidiary
Party is permitted pursuant to paragraph (a) or (b).  The Administrative Agent
shall have no liability whatsoever to any Secured Party as the result of any
release of any Subsidiary Party by it as permitted (or which the Administrative
Agent in good faith believes to be permitted) by this Section 4.13.

 

Section 4.14.                          Additional Restricted Subsidiaries. 
Pursuant to (and to the extent required by) Section 6.11 of the Credit
Agreement, certain Restricted Subsidiaries of the Loan Parties that were not in
existence or not Restricted Subsidiaries on the date of the Credit Agreement are
required to enter in this Agreement as Subsidiary Parties upon becoming a
Restricted Subsidiary.  Upon execution and delivery by the Administrative Agent
and a Restricted Subsidiary of a Guarantee Agreement Supplement, such Restricted
Subsidiary shall become a Subsidiary Party hereunder with the same force and
effect as if originally named as a Subsidiary Party herein.  The execution and
delivery of any such instrument shall not require the consent of any other Loan
Party hereunder.  The rights and obligations of each Loan Party

 

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hereunder shall remain in full force and effect notwithstanding the addition of
any new Loan Party as a party to this Agreement.

 

Section 4.15.                          Recourse.  This Agreement is made with
full recourse to each Guarantor and pursuant to and upon all the warranties,
representations, covenants and agreements on the part of such Guarantor
contained herein, in the Loan Documents and the other Secured Credit Documents
and otherwise in writing in connection herewith or therewith, with respect to
the Obligations of each applicable Secured Party.

 

Section 4.16.                          Limitation on Guaranteed Obligations. 
Each Guarantor that is a Subsidiary Party and each Secured Party (by its
acceptance of the benefits of this Agreement) hereby confirms that it is its
intention that this Agreement not constitute a fraudulent transfer or conveyance
for purposes of any Debtor Relief Laws (including the Bankruptcy Code, the
Uniform Fraudulent Conveyance Act or any similar Federal or state law).  To
effectuate the foregoing intention, each Guarantor that is a Subsidiary Party
and each Secured Party (by its acceptance of the benefits of this Agreement)
hereby irrevocably agrees that the Guaranteed Obligations owing by such
Guarantor under this Agreement shall be limited to such amount as will, after
giving effect to such maximum amount and all other (contingent or otherwise)
liabilities of such Guarantor that are relevant under such Debtor Relief Laws
(it being understood that it is the intention of the parties to this Agreement
and the parties to any guaranty of the New Notes (or Refinancing Indebtedness in
respect thereof) that, to the maximum extent permitted under applicable laws,
the liabilities in respect of the guarantees of the New Notes (or Refinancing
Indebtedness in respect thereof) shall not be included for the foregoing
purposes and that, if any reduction is required to the amount guaranteed by any
Guarantor hereunder and with respect to the New Notes (or Refinancing
Indebtedness in respect thereof) that its guarantee of amounts owing in respect
of the New Notes (or Refinancing Indebtedness in respect thereof) shall first be
reduced) and after giving effect to any rights to contribution and/or
subrogation pursuant to any agreement providing for an equitable contribution
and/or subrogation among such Guarantor and the other Guarantors, result in the
Guaranteed Obligations of such Guarantor in respect of such maximum amount not
constituting a fraudulent transfer or conveyance.

 

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IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of
the day and year first above written.

 

 

MICHAELS STORES, INC.

 

 

 

 

By:

/s/ Jeffrey N. Boyer

 

 

Title:   President and Chief Financial Officer

 

 

 

 

AARON BROTHERS, INC.

 

 

 

By:

/s/ Lisa K. Klinger

 

 

Title:   Vice President and Treasurer

 

 

 

 

MICHAELS FINANCE COMPANY, INC.

 

 

 

By:

/s/ Jeffrey N. Boyer

 

 

Title:   President and Chief Financial Officer

 

 

 

 

MICHAELS STORES CARD SERVICES, LLC

 

 

 

By:

/s/ Jeffrey N. Boyer

 

 

Title:   President

 

 

 

 

MICHAELS STORES PROCUREMENT COMPANY, INC.

 

 

 

By:

/s/ Jeffrey N. Boyer

 

 

Title:   President and Chief Financial Officer

 

 

 

 

ARTISTREE, INC.

 

 

 

By:

/s/ Lisa K. Klinger

 

 

Title:   Vice President and Treasurer

 

 

 

 

 

 

 

DEUTSCHE BANK AG NEW YORK BRANCH, as Administrative Agent

 

 

 

By:

/s/ Marguerite Sutton

 

 

Title:   Director

 

 

 

 

By:

/s/ Omyra Laucella

 

 

Title:   Vice President

 

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SCHEDULE I to the
Guarantee Agreement

 

SUBSIDIARY PARTIES

 

Michaels Finance Company, Inc.

Michaels Stores Card Services, LLC

Aaron Brothers, Inc.

Michaels Stores Procurement Company, Inc.

Artistree, Inc.

 

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EXHIBIT I to the
Guarantee Agreement

 

SUPPLEMENT NO.      dated as of [                ], to the Guarantee Agreement
dated as of October 31, 2006, among MICHAELS STORES, INC., a Delaware
corporation (the “Borrower”) the Subsidiaries of the Borrower identified therein
and DEUTSCHE BANK AG NEW YORK BRANCH, as Collateral Agent for the Secured
Parties (as defined below).

 

A.  Reference is made to (i) the Credit Agreement dated as of October 31, 2006
(as amended, restated, supplemented or otherwise modified from time to time, the
“Credit Agreement”), among the Borrower, Deutsche Bank AG New York Branch, as
Administrative Agent, each Lender from time to time party thereto, and JPMorgan
Chase Bank, N.A., as Syndication Agent, and Bank of America N.A. and Credit
Suisse, as Co-Documentation Agents and (ii) each Secured Hedge Agreement (as
defined in the Credit Agreement).

 

B.  Capitalized terms used herein and not otherwise defined herein shall have
the meanings assigned to such terms in the Credit Agreement and the Guarantee
Agreement referred to therein.

 

C.  The Guarantors have entered into the Guarantee Agreement in order to induce
(x) the Lenders to make Loans and (y) the Hedge Banks to enter into and/or
maintain Secured Hedge Agreements.  Section 4.14 of the Guarantee Agreement
provides that additional Restricted Subsidiaries of the Borrower may become
Subsidiary Parties under the Guarantee Agreement by execution and delivery of an
instrument in the form of this Supplement.  The undersigned Restricted
Subsidiary (the “New Subsidiary”) is executing this Supplement in accordance
with the requirements of the Credit Agreement to become a Subsidiary Party under
the Guarantee Agreement as consideration for Loans previously made.

 

Accordingly, the Administrative Agent and the New Subsidiary agree as follows:

 

Section 1.  In accordance with Section 4.14 of the Guarantee Agreement, the New
Subsidiary by its signature below becomes a Subsidiary Party and Guarantor under
the Guarantee Agreement with the same force and effect as if originally named
therein as a Subsidiary Party and the New Subsidiary hereby (a) agrees to all
the terms and provisions of the Guarantee Agreement applicable to it as a
Subsidiary Party and Guarantor thereunder and (b) represents and warrants that
the representations and warranties made by it as a Guarantor thereunder are true
and correct on and as of the date hereof, provided that, to the extent that such
representations and warranties specifically refer to an earlier date, they shall
be true and correct in all respects as of such earlier date. Each reference to a
“Guarantor” in the Guarantee Agreement shall be deemed to include the New
Subsidiary.  The Guarantee Agreement is hereby incorporated herein by reference.

 

Section 2.  The New Subsidiary represents and warrants to the Administrative
Agent and the other Secured Parties that this Supplement has been duly
authorized, executed and delivered by it and constitutes its legal, valid and
binding obligation, enforceable against it in accordance with its terms, subject
to the effects of any applicable Debtor Relief Laws.

 

Section 3.  This Supplement may be executed in counterparts (and by different
parties hereto on different counterparts), each of which shall constitute an
original, but all of which when taken together shall constitute a single
contract.  This Supplement shall become

 

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effective when the Administrative Agent shall have received a counterpart of
this Supplement that bears the signature of the New Subsidiary and the
Administrative Agent has executed a counterpart hereof.  Delivery of an executed
signature page to this Supplement by facsimile transmission shall be as
effective as delivery of a manually signed counterpart of this Supplement.

 

Section 4.  Except as expressly supplemented hereby, the Guarantee Agreement
shall remain in full force and effect.

 

Section 5.  THIS SUPPLEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE LAWS OF THE STATE OF NEW YORK.

 

Section 6.  In case any one or more of the provisions contained in this
Supplement should be held invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of the remaining provisions contained
herein and in the Guarantee Agreement shall not in any way be affected or
impaired thereby (it being understood that the invalidity of a particular
provision in a particular jurisdiction shall not in and of itself affect the
validity of such provision in any other jurisdiction).  The parties hereto shall
endeavor in good-faith negotiations to replace the invalid, illegal or
unenforceable provisions with valid provisions the economic effect of which
comes as close as possible to that of the invalid, illegal or unenforceable
provisions.

 

Section 7.  All communications and notices hereunder shall be in writing and
given as provided in Section 4.01 of the Guarantee Agreement.

 

Section 8.  The New Subsidiary agrees to reimburse the Administrative Agent for
its reasonable out-of-pocket expenses in connection with this Supplement,
including all Attorney Costs of counsel for the Administrative Agent.

 

2

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IN WITNESS WHEREOF, the New Subsidiary and the Administrative Agent have duly
executed this Supplement to the Guarantee Agreement as of the day and year first
above written.

 

 

[NAME OF NEW SUBSIDIARY]

 

 

 

 

 

By:

 

 

 

Name:

 

 

Title:

 

 

 

 

 

DEUTSCHE BANK AG NEW YORK BRANCH, as Administrative Agent

 

 

 

 

 

By:

 

 

 

Name:

 

 

Title:

 

 

 

 

 

By:

 

 

 

Name:

 

 

Title:

 

3

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EXHIBIT F-2

[CONFORMED AS EXECUTED]

 

 

 

 

GUARANTEE AGREEMENT

 

dated as of

 

October 31, 2006

 

between

 

MICHAELS OF CANADA, ULC

 

and

 

DEUTSCHE BANK AG NEW YORK BRANCH,

 

as Administrative Agent

 

 

 

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Table of Contents

 

 

 

Page

 

 

 

ARTICLE I Definitions

1

 

 

 

Section 1.01.

Credit Agreement

1

Section 1.02.

Other Defined Terms

1

 

 

 

ARTICLE II Guarantee

2

 

 

 

Section 2.01.

Guarantee

2

Section 2.02.

Guarantee of Payment

2

Section 2.03.

No Limitations

3

Section 2.04.

Reinstatement

4

Section 2.05.

Agreement To Pay; Subrogation

4

Section 2.06.

Information

4

Section 2.07.

Taxes

4

 

 

 

ARTICLE III Subordination

5

 

 

 

Section 3.01.

Subordination

5

 

 

 

ARTICLE IV Miscellaneous

5

 

 

 

Section 4.01.

Notices

5

Section 4.02.

Waivers; Amendment

5

Section 4.03.

Administrative Agent’s Fees and Expenses; Indemnification

6

Section 4.04.

Successors and Assigns

6

Section 4.05.

Survival of Agreement

6

Section 4.06.

Counterparts; Effectiveness; Several Agreement

7

Section 4.07.

Severability

7

Section 4.08.

Right of Set-Off

7

Section 4.09.

GOVERNING LAW

8

Section 4.10.

WAIVER OF RIGHT TO TRIAL BY JURY

8

Section 4.11.

Headings

8

Section 4.12.

Obligations Absolute

8

Section 4.13.

Termination or Release

9

Section 4.14.

Recourse

9

Section 4.15.

Judgment Currency

10

Section 4.16.

Acknowledgement

10

Section 4.17.

Language

10

 

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GUARANTEE AGREEMENT, dated as of October 31, 2006, between MICHAELS OF CANADA,
ULC, a Nova Scotia unlimited liability company (the “Guarantor”), and DEUTSCHE
BANK AG NEW YORK BRANCH, as Administrative Agent.

 

Reference is made to the Credit Agreement, dated as of October 31, 2006 (as
amended, restated, supplemented and/or otherwise modified from time to time, the
“Credit Agreement”), among MICHAELS STORES, INC., a Delaware Corporation (the
“Borrower”), Deutsche Bank AG New York Branch, as Administrative Agent, each
Lender from time to time party thereto, JPMorgan Chase Bank, N.A., as
Syndication Agent, and Bank of America N.A. and Credit Suisse, as
Co-Documentation Agents.

 

The Lenders have agreed to extend credit to the Borrower subject to the terms
and conditions set forth in the Credit Agreement, and the Hedge Banks have
agreed to enter into and/or maintain one or more Secured Hedge Agreements on the
terms and conditions set forth therein.  The obligations of the Lenders to
extend such credit, and the obligation of the Hedge Banks to enter into and/or
maintain such Secured Hedge Agreements, are, in each case, conditioned upon,
among other things, the execution and delivery of this Agreement by the
Guarantor.  The Borrower and the Guarantor are affiliates of one another, are an
integral part of a consolidated enterprise and it will derive substantial direct
and indirect benefits from (i) the extensions of credit to the Borrower pursuant
to the Credit Agreement and (ii) the entering into and/or maintaining by the
Hedge Banks of Secured Hedge Agreements with the Borrower and/or one or more of
its Restricted Subsidiaries, and are willing to execute and deliver this
Agreement in order to induce the Lenders to extend such credit and the Hedge
Banks to enter into and/or maintain such Secured Hedge Agreements.

 

Accordingly, in consideration of the foregoing and other benefits accruing to
the Guarantor, the receipt and sufficiency of which are hereby acknowledged, the
Guarantor hereby makes the following representations and warranties to the
Administrative Agent for the benefit of the Secured Parties and hereby covenants
and agrees with the Administrative Agent for the benefit of the Secured Parties
as follows:

 

ARTICLE I

 

Definitions

 

Section 1.01.                          Credit Agreement (a)  Capitalized terms
used in this Agreement and not otherwise defined herein have the meanings
specified in the Credit Agreement.

 

(b)  The rules of construction specified in Article I of the Credit Agreement
also apply to this Agreement.

 

Section 1.02.                          Other Defined Terms.

 

As used in this Agreement, the following terms have the meanings specified
below:

 

“Agreement” means this Guarantee Agreement.

 

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“Credit Agreement” has the meaning assigned to such term in the preliminary
statement of this Agreement.

 

“Guaranteed Obligations” mean the “Obligations” as defined in the Credit
Agreement.

 

“Guaranteed Party” means the Borrower, each of the Other Guarantors and each
Restricted Subsidiary of the Borrower party to any Secured Hedge Agreement.

 

“Guarantor” has the meaning assigned to such term in the preliminary statement
of this Agreement.

 

“Other Guarantors” means the Persons (other than the Guarantor) who are
“Guarantors” as defined in the Credit Agreement.

 

“Secured Credit Document” shall mean each Loan Document and each Secured Hedge
Agreement.

 

“Secured Parties” has the meaning provided in the Security Agreement.

 

ARTICLE II

 

Guarantee

 

Section 2.01.                          Guarantee The Guarantor irrevocably,
absolutely and unconditionally guarantees, jointly with the Other Guarantors and
severally, as a primary obligor and not merely as a surety, the due and punctual
payment and performance of the Guaranteed Obligations, in each case, whether
such Guaranteed Obligations are now existing or hereafter incurred under,
arising out of or in connection with any Secured Credit Document, and whether at
maturity, by acceleration or otherwise.  The Guarantor further agrees that the
Guaranteed Obligations may be extended, increased or renewed, in whole or in
part, without notice to, or further assent from, the Guarantor and that the
Guarantor will remain bound upon its guarantee notwithstanding any extension,
increase or renewal of any Guaranteed Obligation.  The Guarantor waives
presentment to, demand of payment from, and protest to, the applicable
Guaranteed Party or any other Loan Party of any of the Guaranteed Obligations,
and also waives notice of acceptance of its guarantee and notice of protest for
nonpayment.

 

Section 2.02.                          Guarantee of Payment The Guarantor
further agrees that its guarantee hereunder constitutes a guarantee of payment
when due and not of collection, and waives any right to require that any resort
be had by the Administrative Agent or any other Secured Party to any security
held for the payment of the Guaranteed Obligations, or to any balance of any
deposit account or credit on the books of the Administrative Agent or any other
Secured Party in favor of the Guarantor, any Guaranteed Party or any other
Person.  The obligations of the Guarantor hereunder are independent of the
obligations of any other guarantor, the Borrower or any other Guaranteed Party,
and a separate action or actions may be brought and prosecuted against the
Guarantor whether or not action is brought against any other guarantor, the
Borrower or any other Guaranteed Party and whether or not any other guarantor,
the Borrower or any other Guaranteed Party be joined in any such action or
actions; and the

 

2

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Guarantor waives the benefit of any statute of limitations affecting its
liability hereunder.  Any payment required to be made by the Guarantor hereunder
may be required by the Administrative Agent or any other Secured Party on any
number of occasions.

 

Section 2.03.                          No Limitations(a)   Except for
termination or release of the Guarantor’s obligations hereunder as expressly
provided in Section 4.13, to the fullest extent permitted by Applicable Law, the
obligations of the Guarantor hereunder shall not be subject to any reduction,
limitation, impairment or termination for any reason, including any claim of
waiver, release, surrender, alteration or compromise, and shall not be subject
to any defense or set-off, counterclaim, recoupment or termination whatsoever by
reason of the invalidity, illegality or unenforceability of the Guaranteed
Obligations, or otherwise.  Without limiting the generality of the foregoing, to
the fullest extent permitted by Applicable Law and except for termination or
release of the Guarantor’s obligations hereunder in accordance with the terms of
Section 4.13 (but without prejudice to Section 2.04), the obligations of the
Guarantor hereunder shall not be discharged, impaired or otherwise affected by
(i) the failure of the Administrative Agent or any other Secured Party to assert
any claim or demand or to enforce any right or remedy under the provisions of
any Secured Credit Document or otherwise; (ii) any rescission, waiver, amendment
or modification of, or any release from any of the terms or provisions of, any
Secured Credit Document or any other agreement, including with respect to any
Guaranteed Party; (iii) the release of any security held by the Collateral Agent
or any other Secured Party for the Guaranteed Obligations; (iv) any default,
failure or delay, willful or otherwise, in the performance of the Guaranteed
Obligations; (v) the failure to perfect any security interest in, or the release
of, any of the Collateral held by or on behalf of the Collateral Agent or any
other Secured Party, (vi) the lack of legal existence of the Guarantor or any
Guaranteed Party or legal obligation to discharge any of the Guaranteed
Obligations by the Guarantor or any Guaranteed Party for any reason whatsoever,
including, without limitation, in any insolvency, bankruptcy or reorganization
of any Loan Party, or (vii) any other act or omission that may or might in any
manner or to any extent vary the risk of the Guarantor or any Guaranteed Party
or otherwise operate as a discharge of the Guarantor or any Guaranteed Party as
a matter of law or equity (other than the indefeasible payment in full in cash
of all the Guaranteed Obligations).  The Guarantor expressly authorizes the
applicable Secured Parties to take and hold security for the payment and
performance of the Guaranteed Obligations, to exchange, waive or release any or
all such security (with or without consideration), to enforce or apply such
security and direct the order and manner of any sale thereof in their sole
discretion or to release or substitute any one or more other guarantors or
obligors upon or in respect of the Guaranteed Obligations all without affecting
the obligations of the Guarantor hereunder.

 

(b)  To the fullest extent permitted by Applicable Law and except for
termination or release of the Guarantor’s obligations hereunder in accordance
with the terms of Section 4.13, but without prejudice to Section 2.04, the
Guarantor waives any defense based on or arising out of any defense of the
Guarantor or any Guaranteed Party, the unenforceability of the Guaranteed
Obligations or any part thereof from any cause, or the cessation from any cause
of the liability of the Guarantor or any Guaranteed Party, other than the
indefeasible payment in full in cash of all the Guaranteed Obligations.  The
Administrative Agent and the other Secured Parties may in accordance with the
terms of the Collateral Documents, at their election, foreclose on any security
held by one or more of them by one or more judicial or nonjudicial sales, accept
an assignment of any such security in lieu of foreclosure, compromise or adjust
any part of the

 

3

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Guaranteed Obligations make any other accommodation with the Guarantor or any
Guaranteed Party or exercise any other right or remedy available to them against
the Guarantor or any Guaranteed Party, without affecting or impairing in any way
the liability of the Guarantor hereunder except to the extent the Guaranteed
Obligations have been paid in full in cash.  To the fullest extent permitted by
Applicable Law, the Guarantor waives any defense arising out of any such
election even though such election operates, pursuant to Applicable Law, to
impair or to extinguish any right of reimbursement or subrogation or other right
or remedy of the Guarantor against the Borrower or any other Guaranteed Party,
as the case may be, or any security.

 

Section 2.04.                          Reinstatement Notwithstanding anything to
contrary contained in this Agreement, the Guarantor agrees that (i) its
guarantee hereunder shall continue to be effective or be reinstated, as the case
may be, if at any time payment, or any part thereof, of any Guaranteed
Obligation is rescinded or must otherwise be restored by the Administrative
Agent or any other Secured Party upon the bankruptcy or reorganization of the
Guarantor or any Guaranteed Party or otherwise and (ii) the provisions of this
Section 2.04 shall survive the termination of this Agreement.

 

Section 2.05.                          Agreement To Pay; Subrogation In
furtherance of the foregoing and not in limitation of any other right that the
Administrative Agent or any other Secured Party has at law or in equity against
the Guarantor or any Guaranteed Party by virtue hereof, upon the failure of the
Borrower or any other Guaranteed Party to pay any Guaranteed Obligation when and
as the same shall become due, whether at maturity, by acceleration, after notice
of prepayment or otherwise, the Guarantor hereby promises to and will forthwith
pay, or cause to be paid, to the Administrative Agent for distribution to the
applicable Secured Parties in cash the amount of such unpaid Guaranteed
Obligation.  Upon payment by the Guarantor of any sums to the Administrative
Agent as provided above, all rights of the Guarantor against the Borrower or any
other Guaranteed Party arising as a result thereof by way of right of
subrogation, contribution, reimbursement, indemnity or otherwise shall in all
respects be subject to Article III.

 

Section 2.06.                          Information The Guarantor assumes all
responsibility for being and keeping itself informed of the Borrower’s and each
other Guaranteed Party’s financial condition and assets, and of all other
circumstances bearing upon the risk of nonpayment of the Guaranteed Obligations
and the nature, scope and extent of the risks that the Guarantor assumes and
incurs hereunder, and agrees that none of the Administrative Agent or the other
Secured Parties will have any duty to advise the Guarantor of information known
to it or any of them regarding such circumstances or risks.

 

Section 2.07.                          Taxes

 

The terms and provisions of Section 3.01 and 10.15 of the Credit Agreement are
herein incorporated by reference, and the Guarantor and the Administrative Agent
hereby agree to be bound by and observe the terms and provisions therein set
forth as if such terms and provisions were set out at length herein.

 

4

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ARTICLE III

 

Subordination

 

Section 3.01.                          Subordination Upon payment by the
Guarantor of any Guaranteed Obligations, all rights of the Guarantor against any
Guaranteed Party arising as a result thereof by way of right of subrogation,
contribution, reimbursement, indemnity, or otherwise shall in all respect be
subordinate and junior in right of payment to the prior payment in full in cash
of the Guaranteed Obligations (other than contingent indemnity obligations for
then unasserted claims) and the termination of all commitments of the Lenders to
any Loan Party under any Loan Document.  If any amount shall erroneously be paid
to any Guaranteed Party or any other Person on account of (i) such subrogation,
contribution, reimbursement, indemnity or similar right or (ii) any such
indebtedness of any Guaranteed Party, such amount shall be held in trust for the
benefit of the Secured Parties and shall forthwith be paid to the Administrative
Agent to be credited against the payment of the Guaranteed Obligations, whether
matured or unmatured, in accordance with the terms of the Credit Agreement and
the other Loan Documents.

 

ARTICLE IV

 

Miscellaneous

 

Section 4.01.                          Notices All communications and notices
hereunder shall (except as otherwise expressly permitted herein) be in writing
and given as provided in Section 10.02 of the Credit Agreement.  All
communications and notices hereunder to the Guarantor shall be given to it in
care of the Borrower as provided in Section 10.02 of the Credit Agreement.

 

Section 4.02.                          Waivers; Amendment (a)  No failure or
delay by the Administrative Agent, or any Lender in exercising any right,
remedy, power or privilege hereunder or under any other Secured Credit Document
shall operate as a waiver thereof, nor shall any single or partial exercise of
any such right, remedy, power or privilege, or any abandonment or discontinuance
of steps to enforce such a right, remedy, power or privilege, preclude any other
or further exercise thereof or the exercise of any other right, remedy, power or
privilege.  The rights, remedies, powers and privileges of the Secured Parties
hereunder and under the other Secured Credit Documents are cumulative and are
not exclusive of any rights, remedies, powers or privileges that they would
otherwise have.  No waiver of any provision of this Agreement or consent to any
departure by any Loan Party therefrom shall in any event be effective unless the
same shall be permitted by paragraph (b) of this Section 4.02, and then such
waiver or consent shall be effective only in the specific instance and for the
purpose for which given.  Without limiting the generality of the foregoing, the
making of a Loan shall not be construed as a waiver of any Default, regardless
of whether the Administrative Agent or any Lender or may have had notice or
knowledge of such Default at the time.  No notice or demand on any Loan Party in
any case shall entitle any Loan Party to any other or further notice or demand
in similar or other circumstances.

 

(b)  Neither this Agreement nor any provision hereof may be waived, amended or
modified except pursuant to an agreement or agreements in writing entered into
by the Administrative Agent and the Loan Party or Loan Parties with respect to
which such waiver,

 

5

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amendment or modification is to apply, subject to any consent required in
accordance with Section 10.01 of the Credit Agreement. This Agreement shall be
construed as a separate agreement with respect to the Guarantor and may be
amended, modified, supplemented, waived or released with respect to the
Guarantor without the approval of any Guaranteed Party.

 

Section 4.03.                          Administrative Agent’s Fees and Expenses;
Indemnification (a)  The parties hereto agree that the Administrative Agent
shall be entitled to reimbursement of its expenses incurred hereunder as
provided in Section 10.04 of the Credit Agreement.

 

(b)  Without limitation of its indemnification obligations under the other
Secured Credit Documents, the Guarantor jointly with each Guaranteed Party and
severally agrees to indemnify the Administrative Agent and the other Indemnitees
(as defined in Section 10.05 of the Credit Agreement) against, and hold each
Indemnitee harmless from, any and all losses, claims, damages, liabilities and
related expenses, including all Attorney Costs of any counsel for any
Indemnitee, incurred by or asserted against any Indemnitee arising out of, in
connection with the Indemnified Liabilities; provided that such indemnity shall
not, as to any Indemnitee, be available to the extent that such losses, claims,
damages, liabilities or related expenses are determined by a court of competent
jurisdiction by final and nonappealable judgment to have resulted from the gross
negligence or willful misconduct of such Indemnitee or of any Affiliate,
director, officer, employee, counsel, agent, trustee, investment advisor or
attorney-in-fact of such Indemnitee.

 

(c)  Any such amounts payable as provided hereunder shall be additional
Guaranteed Obligations secured by the Collateral Documents.  The provisions of
this Section 4.03 shall remain operative and in full force and effect regardless
of the termination of this Agreement or any other Secured Credit Document, the
consummation of the transactions contemplated hereby, the repayment of any of
the Guaranteed Obligations, the invalidity or unenforceability of any term or
provision of this Agreement or any other Secured Credit Document, or any
investigation made by or on behalf of the Administrative Agent or any other
Secured Party.  All amounts due under this Section 4.03 shall be payable within
10 Business Days of written demand therefor.

 

Section 4.04.                          Successors and Assigns Whenever in this
Agreement any of the parties hereto is referred to, such reference shall be
deemed to include the permitted successors and assigns of such party; and all
covenants, promises and agreements by or on behalf of the Guarantor or the
Administrative Agent that are contained in this Agreement shall bind and inure
to the benefit of their respective successors and assigns.

 

Section 4.05.                          Survival of Agreement All covenants,
agreements, representations and warranties made by the Guarantor and each
Guaranteed Party in the Secured Credit Documents and in the certificates or
other instruments prepared or delivered in connection with or pursuant to this
Agreement or any other Secured Credit Document shall be considered to have been
relied upon by the relevant Secured Parties, and shall survive the execution and
delivery of the relevant Secured Credit Documents and the making of any Loans,
regardless of any investigation made by any Secured Party or on its behalf and
notwithstanding that the Administrative Agent, any Lender or any other Secured
Party may have had notice or knowledge of any Default or any incorrect
representation or warranty at the time any credit is extended

 

6

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under any Secured Credit Document, and shall continue in full force and effect
as long as the principal of or any accrued interest on any Loan or any fee or
any other amount payable under any Loan Document is outstanding and unpaid and
so long as the Commitments have not expired or terminated or until this
Agreement is terminated with respect to the Guarantor or the Guarantor is
otherwise released from its obligations under this Agreement in accordance with
the terms hereof.

 

Section 4.06.                          Counterparts; Effectiveness; Several
Agreement This Agreement may be executed in counterparts, each of which shall
constitute an original but all of which when taken together shall constitute a
single contract.  Delivery of an executed signature page to this Agreement by
facsimile transmission shall be as effective as delivery of a manually signed
counterpart of this Agreement.  This Agreement shall become effective as to the
Guarantor when a counterpart hereof executed on behalf of the Guarantor shall
have been delivered to the Administrative Agent and a counterpart hereof shall
have been executed on behalf of the Administrative Agent, and thereafter shall
be binding upon the Guarantor and the Administrative Agent and their respective
permitted successors and assigns, and shall inure to the benefit of the
Guarantor, the Administrative Agent and the other Secured Parties and their
respective successors and assigns, except that the Guarantor shall not have the
right to assign or transfer its rights or obligations hereunder or any interest
herein (and any such assignment or transfer shall be void) except as expressly
contemplated by this Agreement or the Credit Agreement.  This Agreement may be
amended, restated, modified, supplemented, waived or released with respect to
the Guarantor without the approval of any Guaranteed Party.

 

Section 4.07.                          Severability Any provision of this
Agreement held to be invalid, illegal or unenforceable in any jurisdiction
shall, as to such jurisdiction, be ineffective to the extent of such invalidity,
illegality or unenforceability without affecting the validity, legality and
enforceability of the remaining provisions hereof; and the invalidity of a
particular provision in a particular jurisdiction shall not invalidate such
provision in any other jurisdiction.  The parties shall endeavor in good faith
negotiations to replace the invalid, illegal or unenforceable provisions with
valid provisions the economic effect of which comes as close as possible to that
of the invalid, illegal or unenforceable provisions.

 

Section 4.08.                          Right of Set-Off In addition to any
rights and remedies of the Lenders provided by Law, upon the occurrence and
during the continuance of any Event of Default, each Lender and its Affiliates
is authorized at any time and from time to time, without prior notice to the
Guarantor or any Guaranteed Party, any such notice being waived by the Guarantor
to the fullest extent permitted by Applicable Law, to set off and apply any and
all deposits (general or special, time or demand, provisional or final) at any
time held by, and other Indebtedness at any time owing by, such Lender and its
Affiliates to or for the credit or the account of the respective Loan Parties
against any and all obligations owing to such Lender and its Affiliates
hereunder, now or hereafter existing, irrespective of whether or not such Lender
or Affiliate shall have made demand under this Agreement and although such
obligations may be contingent or unmatured or denominated in a currency
different from that of the applicable deposit or Indebtedness.  Each Lender
agrees promptly to notify the Borrower and the Administrative Agent after any
such set off and application made by such Lender, provided that the failure to
give such notice shall not affect the validity of such setoff and application. 
The rights of each Lender under this Section 4.08 are in addition to other
rights and remedies

 

7

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(including other rights of setoff) that such Lender may have.  Each Secured
Party (by its acceptance of the benefits hereof) acknowledges and agrees that
the provisions of this Section 4.08 are subject to the sharing provisions set
forth in Section 2.13 of the Credit Agreement.

 

Section 4.09.                          GOVERNING
LAW.                                 THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE PROVINCE OF ONTARIO.

 

(b)  ANY LEGAL ACTION OR PROCEEDING ARISING UNDER THIS AGREEMENT OR IN ANY WAY
CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO OR
ANY OF THEM WITH RESPECT TO THIS AGREEMENT, OR THE TRANSACTIONS RELATED HERETO,
WHETHER NOW EXISTING OR HEREAFTER ARISING, MAY BE BROUGHT IN THE COURTS OF THE
PROVINCE OF ONTARIO, AND BY EXECUTION AND DELIVERY OF THIS AGREEMENT, THE
GUARANTOR CONSENTS, FOR ITSELF AND IN RESPECT OF ITS PROPERTY, TO THE
NON-EXCLUSIVE JURISDICTION OF THOSE COURTS.  THE GUARANTOR IRREVOCABLY WAIVES
ANY OBJECTION, INCLUDING ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE
GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE
BRINGING OF ANY ACTION OR PROCEEDING IN SUCH JURISDICTION, OR OTHER JURISDICTION
SELECTED BY THE ADMINISTRATIVE AGENT IN RESPECT OF THIS AGREEMENT.

 

Section 4.10.                          WAIVER OF RIGHT TO TRIAL BY JURY EACH
PARTY TO THIS AGREEMENT HEREBY EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY OF
ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION ARISING UNDER THIS AGREEMENT OR IN
ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES
HERETO, OR THE TRANSACTIONS RELATED THERETO, IN EACH CASE WHETHER NOW EXISTING
OR HEREAFTER ARISING, AND WHETHER FOUNDED IN CONTRACT OR TORT OR OTHERWISE; AND
EACH PARTY HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR
CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY, AND THAT ANY
PARTY TO THIS AGREEMENT MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS
SECTION 4.10 WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE
SIGNATORIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.

 

Section 4.11.                          Headings Article and Section headings and
the Table of Contents used herein are for convenience of reference only, are not
part of this Agreement and are not to affect the construction of, or to be taken
into consideration in interpreting, this Agreement.

 

Section 4.12.                          Obligations Absolute All rights of the
Administrative Agent hereunder and all obligations of the Guarantor hereunder
shall be absolute and unconditional irrespective of (a) any lack of validity or
enforceability of the Credit Agreement, any other Loan Document, any Secured
Hedge Agreement, any agreement with respect to any of the Guaranteed Obligations
or any other agreement or instrument relating to any of the foregoing, (b) any
change in the time, manner or place of payment of, or in any other term of, all
or any of the Guaranteed

 

8

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Obligations, or any other amendment or waiver of or any consent to any departure
from the Credit Agreement, any other Loan Document, any other Secured Hedge
Agreement or any other agreement or instrument, (c) any release or amendment or
waiver of or consent under or departure from any guarantee guaranteeing all or
any portion of the Guaranteed Obligations or (d) except for termination or
release of the Guarantor’s obligations hereunder in accordance with the terms of
Section 4.13, but without prejudice to Section 2.04, any other circumstance that
might otherwise constitute a defense available to, or a discharge of, the
Guarantor in respect of the Guaranteed Obligations or this Agreement.

 

Section 4.13.                          Termination or Release (a)   This
Agreement and the Guarantee made herein shall terminate with respect to all
Guaranteed Obligations when all the outstanding Guaranteed Obligations (other
than Guaranteed Obligations in respect of Secured Hedging Agreements not yet due
and payable and contingent indemnification obligations not yet accrued and
payable) have been indefeasibly paid in full in cash and the Lenders have no
further commitment to lend under the Credit Agreement, provided, however, that
in connection with the termination of this Agreement, the Administrative Agent
may require such indemnities as it shall reasonably deem necessary or
appropriate to protect the Secured Parties against (x) loss on account of
credits previously applied to the Guaranteed Obligations that may subsequently
be reversed or revoked, and (y) any obligations that may thereafter arise with
respect to the Secured Hedge Agreements to the extent not provided for
thereunder.

 

(b)  The Guarantor shall automatically be released from its obligations
hereunder upon the consummation of any transaction permitted by the Credit
Agreement as a result of which the Guarantor ceases to be a Subsidiary of the
Borrower under the Credit Agreement; provided that the Required Lenders shall
have consented to such transaction (to the extent required by the Credit
Agreement) and the terms of such consent did not provide otherwise.

 

(c)  In connection with any termination or release pursuant to paragraph (a) or
(b), the Administrative Agent shall promptly (after reasonable advance notice)
execute and deliver to the Guarantor, at Guarantor’s expense, all documents that
the Guarantor shall reasonably request to evidence such termination or release. 
Any execution and delivery of documents pursuant to this Section 4.13 shall be
without recourse to or warranty by the Administrative Agent.

 

(d)  At any time that the Borrower desires that the Administrative Agent take
any of the actions described in immediately preceding clause (c), it shall, upon
request of the Administrative Agent, deliver to the Administrative Agent an
officer’s certificate certifying that the release of the Guarantor is permitted
pursuant to paragraph (a) or (b).  The Administrative Agent shall have no
liability whatsoever to any Secured Party as the result of any release of any
Subsidiary Party by it as permitted (or which the Administrative Agent in good
faith believes to be permitted) by this Section 4.13.

 

Section 4.14.                          Recourse This Agreement is made with full
recourse to the Guarantor and pursuant to and upon all the warranties,
representations, covenants and agreements on the part of the Guarantor contained
herein, in the Loan Documents and the other Secured Credit Documents and
otherwise in writing in connection herewith or therewith, with respect to the
Obligations of each applicable Secured Party.

 

9

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Section 4.15.                          Judgment Currency

 

If, for the purposes of obtaining judgment in any court, it is necessary to
convert a sum due under this Agreement in one currency into another currency,
the rate of exchange used shall be that at which in accordance with normal
banking procedures the Administrative Agent could purchase the first currency
with such other currency on the Business Day preceding that on which final
judgment is given.  The obligation of the Guarantor  in respect of any such sum
due from it to the Administrative Agent or the Lenders hereunder shall,
notwithstanding any judgment in a currency (the “Judgment Currency”) other than
that in which such sum is denominated in accordance with the applicable
provisions of the Credit Agreement (the “Agreement Currency”), be discharged
only to the extent that on the Business Day following receipt by the
Administrative Agent of any sum adjudged to be so due in the Judgment Currency,
the Administrative Agent may in accordance with normal banking procedures
purchase the Agreement Currency with the Judgment Currency.  If the amount of
the Agreement Currency so purchased is less than the sum originally due to the
Administrative Agent from the Guarantor in the Agreement Currency, the Guarantor
agrees, as a separate obligation and notwithstanding any such judgment, to
indemnify the Administrative Agent or the Person to whom such obligation was
owing against such loss.  If the amount of the Agreement Currency so purchased
is greater than the sum originally due to the Administrative Agent in such
currency, the Administrative Agent agrees to return the amount of any excess to
the Guarantor (or to any other Person who may be entitled thereto under
Applicable Law).

 

Section 4.16.                          Acknowledgement

 

The Guarantor hereby acknowledges that it has received and taken cognizance of
an original executed copy of the Credit Agreement and this Agreement and is
familiar with all the provisions thereof.

 

Section 4.17.                          Language

 

The parties hereto confirm that it is their wish that this Agreement and all
documents relating thereto, including notices, be drawn up in the English
language.  Les parties aux présentes confirment leur volonté que cette
convention de même que tous documents, y compris tous avis, s’y rapportant
soient rédigés en langue anglaise.

 

[signature pages follow]

 

10

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IN WITNESS WHEREOF, this Guarantee Agreement is executed as of the date first
above written.

 

 

 

MICHAELS OF CANADA, ULC

 

 

 

 

 

 

Name:

/s/ Jeffrey N. Boyer

 

 

 

Title:  President

 

 

 

 

 

DEUTSCHE BANK AG NEW YORK BRANCH, as Administrative Agent

 

 

 

 

 

 

Name:

/s/ Marguerite Sutton

 

 

 

Title:  Director

 

 

 

 

 

 

Name:

/s/ Omayra Laucella

 

 

Title:

Title:  Vice President

 

11

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EXHIBIT G-1

[CONFORMED AS EXECUTED]

 

 

 

SECURITY AGREEMENT

 

dated as of

 

October 31, 2006

 

among

 

MICHAELS STORES, INC.,

 

CERTAIN OTHER SUBSIDIARIES OF MICHAELS STORES, INC.
IDENTIFIED HEREIN

and

 

DEUTSCHE BANK AG NEW YORK BRANCH,
as Collateral Agent

 

--------------------------------------------------------------------------------

 

Table of Contents

 

 

Page

 

 

ARTICLE I Definitions

1

 

 

Section 1.01. Credit Agreement

1

Section 1.02. Other Defined Terms

1

 

 

ARTICLE II Pledge of Securities

6

 

 

Section 2.01. Pledge

6

Section 2.02. Delivery of the Pledged Collateral

7

Section 2.03. Representations, Warranties and Covenants

8

Section 2.04. Certification of Limited Liability Company and Limited Partnership
Interests

9

Section 2.05. Registration in Nominee Name; Denominations

9

Section 2.06. Voting Rights; Dividends and Interest

10

Section 2.07. Collateral Agent Not a Partner or Limited Liability Company Member

12

Section 2.08. Overriding Provisions with Respect to ABL Priority Collateral

12

 

 

ARTICLE III Security Interests in Personal Property

12

 

 

Section 3.01. Security Interest

12

Section 3.02. Representations and Warranties

15

Section 3.03. Covenants

16

Section 3.04. Other Actions

18

 

 

ARTICLE IV Special Provisions Concerning Intellectual Property Collateral

19

 

 

Section 4.01. Grant of License to Use Intellectual Property

19

Section 4.02. Protection of Collateral Agent’s Security

20

 

 

ARTICLE V Remedies

21

 

 

Section 5.01. Remedies Upon Default

21

Section 5.02. Application of Proceeds

24

 

 

ARTICLE VI Indemnity, Subrogation and Subordination

25

 

 

Section 6.01. Indemnity

25

Section 6.02. Contribution and Subrogation

25

Section 6.03. Subordination

26

 

 

ARTICLE VII Miscellaneous

26

 

 

Section 7.01. Notices

26

Section 7.02. Waivers; Amendment

26

Section 7.03. Collateral Agent’s Fees and Expenses; Indemnification

27

Section 7.04. Successors and Assigns

27

Section 7.05. Survival of Agreement

27

Section 7.06. Counterparts; Effectiveness; Several Agreement

28

Section 7.07. Severability

28

Section 7.08. Right of Set-Off

28

Section 7.09. GOVERNING LAW

29

 

i

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Table of Contents

 

 

Page

 

 

Section 7.10. WAIVER OF RIGHT TO TRIAL BY JURY

29

Section 7.11. Headings

29

Section 7.12. Security Interest Absolute

29

Section 7.13. Termination or Release

30

Section 7.14. Additional Restricted Subsidiaries

31

Section 7.15. Collateral Agent Appointed Attorney-in-Fact

31

Section 7.16. General Authority of the Collateral Agent

32

Section 7.17. Recourse; Limited Obligations

32

Section 7.18. Mortgages

32

Section 7.19. Intercreditor Agreement

32

Section 7.20. Collections

32

 

SCHEDULES

 

 

 

 

 

Schedule I

-

Subsidiary Parties

Schedule II

-

Pledged Equity; Pledged Debt

Schedule III

-

Commercial Tort Claims

Schedule IV

-

Intellectual Property

 

 

 

EXHIBITS

 

 

 

 

 

Exhibit I

-

Form of Security Agreement Supplement

Exhibit II

-

Form of Perfection Certificate

Exhibit III

-

Form of Grant of Security Interest in Trademarks

Exhibit IV

-

Form of Grant of Security Interest in Patents

Exhibit V

-

Form of Grant of Security Interest in Copyrights

 

ii

--------------------------------------------------------------------------------

 

SECURITY AGREEMENT, dated as of October 31, 2006, among MICHAELS STORES, INC.
(the “Borrower”), a Delaware corporation, the Subsidiaries of the Borrower
identified herein and DEUTSCHE BANK AG NEW YORK BRANCH, as Collateral Agent for
the Secured Parties (as defined below).

 

Reference is made to (i) the Credit Agreement, dated as of October 31, 2006 (as
amended, restated, supplemented and/or otherwise modified from time to time, the
“Credit Agreement”), among the Borrower, Deutsche Bank AG New York Branch, as
Administrative Agent, each Lender from time to time party thereto, JPMorgan
Chase Bank, N.A., as Syndication Agent and Bank of America N.A. and Credit
Suisse, as Co-Documentation Agents, (ii) the Borrower Guaranty (as defined in
the Credit Agreement), (iii) the Subsidiary Guaranty (as defined in the Credit
Agreement) and (iv) each Secured Hedge Agreement (as defined in the Credit
Agreement).

 

The Lenders have agreed to extend credit to the Borrower subject to the terms
and conditions set forth in the Credit Agreement, and the Hedge Banks have
agreed to enter into and/or maintain one or more Secured Hedge Agreements on the
terms and conditions set forth therein.  The obligations of the Lenders to
extend such credit, and the obligation of the Hedge Banks to enter into and/or
maintain such Secured Hedge Agreements, are, in each case, conditioned upon,
among other things, the execution and delivery of this Agreement by each
Grantor.  The Borrower and the Subsidiary Parties are affiliates of one another,
will derive substantial benefits from (i) the extensions of credit to the
Borrower pursuant to the Credit Agreement and (ii) the entering into and/or
maintaining by the Hedge Banks of Secured Hedge Agreements with the Borrower
and/or one or more of its Restricted Subsidiaries, and are willing to execute
and deliver this Agreement in order to induce the Lenders to extend such credit
and the Hedge Banks to enter into and/or maintain such Secured Hedge
Agreements.  The Intercreditor Agreement governs the relative rights and
priorities of the Secured Parties and the ABL Secured Parties in respect of the
Term Priority Collateral and the ABL Priority Collateral (and with respect to
certain other matters as described therein).  Accordingly, the parties hereto
agree as follows:

 

ARTICLE I

 

Definitions

 

Section 1.01.  Credit Agreement.  (a)Capitalized terms used in this Agreement
and not otherwise defined herein have the meanings specified in the Credit
Agreement.  All terms defined in the New York UCC (as defined herein) and not
defined in this Agreement have the meanings specified therein; the term
“instrument” shall have the meaning specified in Article 9 of the New York UCC.

 

(b)                                 The rules of construction specified in
Article I of the Credit Agreement also apply to this Agreement.

 

Section 1.02.  Other Defined Terms.  As used in this Agreement, the following
terms have the meanings specified below:

 

--------------------------------------------------------------------------------

 

“ABL Agent” has the meaning assigned that term in the Intercreditor Agreement.

 

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

 

“ABL Priority Collateral” has the meaning assigned that term in the
Intercreditor Agreement.

 

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

 

“Account” means any “account” as such term is defined in the New York UCC, or
the PPSA, as applicable.

 

“Account Debtor” means any Person who is or who may become obligated to any
Grantor under, with respect to or on account of an Account.

 

“Adjusted Net Worth” means, in respect of each Subsidiary Party on any date, the
greater of (x) the amount by which the fair saleable value of such Subsidiary
Party’s assets on such date exceeds its existing debts and other liabilities
(including contingent liabilities, but without giving effect to any Guaranteed
Obligations arising under the Subsidiary Guaranty or any guaranteed obligations
arising under any guaranty of the New Notes or any Permitted Refinancing
thereof) on such date, and (y) zero.

 

“Agreement” means this Security Agreement.

 

“Article 9 Collateral” has the meaning assigned to such term in Section 3.01(a).

 

“Bankruptcy Event of Default” shall mean any Event of Default under Sections
8.01(f) or (g) of the Credit Agreement provided that, for the purposes of this
Agreement only and notwithstanding Section 8.03 of the Credit Agreement, in
determining whether such an Event of Default has occurred, any reference in any
such clause to any Restricted Subsidiary or Loan Party shall be deemed not to
include (i) any Loan Party affected by any event or circumstances referred to in
any such clause that did not, as of the last day of the most recent completed
fiscal quarter of the Borrower, have assets with a value in excess of 5.0% of
the consolidated total assets of the Borrower and the Restricted Subsidiaries
and did not, as of the four quarter period ending on the last day of such fiscal
quarter, have revenues exceeding 5.0% of the total revenues of the Borrower and
the Restricted Subsidiaries (it being agreed that all Loan Parties affected by
any event or circumstance referred to in any such clause shall be considered
together, as a single consolidated Loan Party, for purposes of determining
whether the condition specified above is satisfied) nor (ii) any Restricted
Subsidiary that is not a Loan Party affected by any event or circumstances
referred to in any such clause.

 

“Collateral” means the Article 9 Collateral and the Pledged Collateral.

 

“Collateral Account” means any cash collateral account established pursuant to,
or in connection with, any Secured Credit Document (including, the Cash
Collateral Account (as defined in the Credit Agreement)), which cash collateral
account shall be maintained with, and

 

2

--------------------------------------------------------------------------------

 

under the sole dominion and control of, the Collateral Agent for the benefit of
the relevant Secured Parties.

 

“Copyright License” means any written agreement, now or hereafter in effect,
granting any right to any third party under any Copyright now or hereafter owned
by any Grantor or that such Grantor otherwise has the right to license, or
granting any right to any Grantor under any Copyright now or hereafter owned by
any third party, and all rights of such Grantor under any such agreement.

 

“Copyrights” means all of the following now owned or hereafter acquired by or
assigned to any Grantor:  (a) all copyright rights in any work subject to the
copyright laws of the United States or any other country, whether as author,
assignee, transferee or otherwise, whether registered or unregistered and
whether published or unpublished, (b) all registrations and applications for
registration of any such copyright in the United States or any other country,
including registrations, recordings, supplemental registrations and pending
applications for registration in the United States Copyright Office, including
those listed on Schedule IV and all (i) rights and privileges arising under
applicable law with respect to such Grantor’s use of such copyrights,
(ii) reissues, renewals, continuations and extensions thereof and amendments
thereto, (iii) income, fees, royalties, damages, claims and payments now or
hereafter due and/or payable with respect thereto, including damages and
payments for past, present or future infringements thereof, (iv) rights
corresponding thereto throughout the world and (v) rights to sue for past,
present or future infringements thereof.

 

“Credit Agreement” has the meaning assigned to such term in the preliminary
statement of this Agreement.

 

“Discharge of ABL Obligations” has the meaning assigned that term in the
Intercreditor Agreement.

 

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

 

“Equipment” shall mean (x) any “equipment” as such term is defined in Article 9
of the New York UCC and in any event, shall include, but shall not be limited
to, all machinery, equipment, furnishings, appliances, furniture, fixtures,
tools, and vehicles now or hereafter owned by any Grantor in each case,
regardless of whether characterized as equipment under the New York UCC and
(y) and any and all additions, substitutions and replacements of any of the
foregoing and all accessions thereto, wherever located, whether or not at any
time of determination incorporated or installed therein or attached thereto, and
all replacements therefore, together with all attachments, components, parts,
equipment and accessories installed thereon or affixed thereto.

 

“General Intangibles” has the meaning provided in Article 9 of the New York UCC
and shall in any event include all chooses in action and causes of action and
all other intangible personal property of every kind and nature (other than
Accounts) now owned or hereafter acquired by any Grantor, as the case may be,
including corporate or other business records, indemnification claims, contract
rights (including rights under leases, whether entered

 

3

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into as lessor or lessee, Swap Contracts and other agreements), goodwill,
registrations, franchises, tax refund claims and any letter of credit,
guarantee, claim, security interest or other security held by or granted to any
Grantor.

 

“Grant of Security Interest” means a Grant of Security Interest in certain
Intellectual Property in the form of Exhibit III, IV or V attached hereto.

 

“Grantor” means each of the Borrower and each Subsidiary Party.

 

“Intellectual Property” means all intellectual and similar property of every
kind and nature now owned or hereafter acquired by any Grantor, including
inventions, designs, Patents, Copyrights, Licenses, Trademarks, trade secrets,
confidential or proprietary technical and business information, know how, show
how or other data or information, software,  databases, all other proprietary
information, including but not limited to Domain Names, and all embodiments or
fixations thereof and related documentation, registrations and franchises, and
all additions, improvements and accessions to, and books and records describing
or used in connection with, any of the foregoing.

 

“Intellectual Property Collateral” means Collateral consisting of Intellectual
Property.

 

“License” means any Patent License, Trademark License, Copyright License or
other license or sublicense agreement to which any Grantor is a party, including
those listed on Schedule IV.

 

“Margin Stock” means any “margin stock” (as defined in Regulation U of the FRB).

 

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

 

“Patent License” means any written agreement, now or hereafter in effect,
granting to any third party any right to make, use or sell any invention on
which a Patent, now or hereafter owned by any Grantor or that any Grantor
otherwise has the right to license, is in existence, or granting to any Grantor
any right to make, use or sell any invention on which a Patent, now or hereafter
owned by any third party, is in existence, and all rights of any Grantor under
any such agreement.

 

“Patents” means all of the following now owned or hereafter acquired by any
Grantor:  (a) all letters patent of the United States or the equivalent thereof
in any other country, all registrations and recordings thereof, and all
applications for letters patent of the United States or the equivalent thereof
in any other country, including registrations, recordings and pending
applications in the United States Patent and Trademark Office or any similar
offices in any other country, including those listed on Schedule IV, and (b) all
(i) rights and privileges arising under applicable law with respect to such
Grantor’s use of any patents, (ii) inventions and improvements described and
claimed therein, (iii) reissues, divisions, continuations, renewals, extensions
and continuations-in-part thereof and amendments thereto, (iv) income, fees,

 

4

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royalties, damages, claims and payments now or hereafter due and/or payable
thereunder and with respect thereto including damages and payments for past,
present or future infringements thereof, (v) rights corresponding thereto
throughout the world and (vi) rights to sue for past, present or future
infringements thereof.

 

“Perfection Certificate” means a certificate substantially in the form of
Exhibit II, completed and supplemented with the schedules and attachments
contemplated thereby, and duly executed by the chief financial officer and the
chief legal officer of the Borrower.

 

“Pledged Collateral” has the meaning assigned to such term in Section 2.01.

 

“Pledged Debt” has the meaning assigned to such term in Section 2.01.

 

“Pledged Equity” has the meaning assigned to such term in Section 2.01.

 

“Pledged Securities” means any promissory notes, stock certificates or other
securities now or hereafter included in the Pledged Collateral, including all
Pledged Equity, Pledged Debt and all other certificates, instruments or other
documents representing or evidencing any Pledged Collateral.

 

“Proceeds” has the meaning specified in Section 9-102 of the New York UCC.

 

“Secured Credit Document” shall mean each Loan Document and each Secured Hedge
Agreement.

 

“Secured Obligations” means the “Obligations” as defined in the Credit Agreement
and the Guaranteed Obligations (as defined in the Guaranty); it being
acknowledged and agreed that the term “Secured Obligations” as used herein shall
include each extension of credit under the Credit Agreement and all obligations
of the Borrower and/or its Restricted Subsidiaries under the Secured Hedge
Agreements, in each case, whether outstanding on the date of this Agreement or
extended from time to time after the date of this Agreement.

 

“Secured Parties” has the meaning provided in the Credit Agreement.

 

“Security” shall mean all “security” as such term is defined in Article 8 of the
New York UCC any stock, shares, partnership interests, voting trust
certificates, certificates of interest or participation in any profit sharing
agreement or arrangement, options, warrants, bonds, debentures, notes, or other
evidences of indebtedness, secured or unsecured, convertible, subordinated or
otherwise, or in general any instruments commonly known as “securities” or any
certificates of interest, shares or participations in temporary or interim
certificates for the purchase or acquisition of, or any right to subscribe to,
purchase or acquire, any of the foregoing.

 

“Security Agreement Supplement” means an instrument substantially in the form of
Exhibit I hereto.

 

“Security Interest” has the meaning assigned to such term in Section 3.01(a).

 

5

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“Subsidiary Parties” means (a) the Restricted Subsidiaries identified on
Schedule I and (b) each other Restricted Subsidiary that becomes a party to this
Agreement as a Subsidiary Party after the Closing Date.

 

“Term Priority Collateral” shall have the meaning assigned that term in the
Intercreditor Agreement.

 

“Trademark License” means any written agreement, now or hereafter in effect,
granting to any third party any right to use any Trademark now or hereafter
owned by any Grantor or that any Grantor otherwise has the right to license, or
granting to any Grantor any right to use any Trademark now or hereafter owned by
any third party, and all rights of any Grantor under any such agreement.

 

“Trademarks” means all of the following now owned or hereafter acquired by any
Grantor:  (a) all trademarks, service marks, trade names, corporate names,
company names, business names, fictitious business names, trade styles, trade
dress, logos, other source or business identifiers, designs and general
intangibles of like nature, now existing or hereafter adopted, acquired or
assigned to, all registrations and recordings thereof, and all registration and
recording applications filed in connection therewith, including registrations
and registration applications in the United States Patent and Trademark Office
or any similar offices in any State of the United States or any other country or
any political subdivision thereof, and all extensions or renewals thereof,
including those listed on Schedule IV and (b) any and all (i) rights and
privileges arising under applicable law with respect to such Grantor’s use of
any trademarks, (ii) reissues, continuations, extensions and renewals thereof
and amendments thereto, (iii) income, fees, royalties, damages and payments now
and hereafter due and/or payable thereunder and with respect thereto, including
damages, claims and payments for past, present or future infringements thereof,
(iv) rights corresponding thereto throughout the world and (v) rights to sue for
past, present and future infringements thereof.

 

ARTICLE II

 

Pledge of Securities

 

Section 2.01.  Pledge.  As security for the payment or performance, as the case
may be, in full of the Secured Obligations, each Grantor hereby assigns and
pledges to the Collateral Agent, its successors and assigns, for the benefit of
the Secured Parties, and hereby grants to the Collateral Agent, its successors
and assigns, for the benefit of the Secured Parties, a security interest in, all
of such Grantor’s right, title and interest in, to and under (i) all Equity
Interests held by it and listed on Schedule II and any other Equity Interests
obtained in the future by such Grantor and the certificates representing all
such Equity Interests (the “Pledged Equity”); provided that pledges of voting
Equity Interests of each Foreign Subsidiary (including each Foreign Subsidiary
held by a Canadian Subsidiary Guarantor) shall be limited to 65% of the total
combined voting power of all Equity Interests of such Foreign Subsidiary at any
time; provided further that in the case of Canadian Subsidiary Guarantor that
owns Equity Interests in a Foreign Subsidiary, the pledge of voting Equity
Interests of such Canadian Subsidiary Guarantor shall be limited to 65% of the
total combined voting power of all Equity Interests of such Canadian Subsidiary
Guarantor (or, if such Canadian Subsidiary Guarantor is an

 

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unlimited liability company, such  lesser percentage as is acceptable to the
Collateral Agent); and provided that the Pledged Equity shall not include
(A) Equity Interests of Unrestricted Subsidiaries (until such time as any
Unrestricted Subsidiary becomes a Restricted Subsidiary in accordance with the
Credit Agreement, at which time, and without further action, this clause
(A) shall no longer apply to the Equity Interests of such Subsidiary),
(B) Equity Interests of any Subsidiary of a Foreign Subsidiary, (C) Equity
Interests of any Subsidiary acquired pursuant to a Permitted Acquisition
financed with Indebtedness incurred pursuant to Section 7.03(b)(xix) of the
Credit Agreement, (D) Equity Interests of a Person that is not a direct or
indirect, wholly owned Subsidiary of the Borrower (E) any Margin Stock owned by
such Grantor, and (F) specifically identified Equity Interests of any Subsidiary
with respect to which the Administrative Agent has confirmed in writing to the
Borrower its determination that the costs or other consequences (including
adverse tax consequences) of providing a pledge of its Equity Interests is
excessive in view of the benefits to be obtained by the Lenders; (ii)(A) the
promissory notes and any instruments evidencing indebtedness owned by it and
listed opposite the name of such Grantor on Schedule II and (B) any promissory
notes and instruments evidencing indebtedness obtained in the future by such
Grantor (the “Pledged Debt”); (iii) all other property that may be delivered to
and held by the Collateral Agent pursuant to the terms of this Section 2.01;
(iv) subject to Section 2.06, all payments of principal or interest, dividends,
cash, instruments and other property from time to time received, receivable or
otherwise distributed in respect of, in exchange for or upon the conversion of,
and all other Proceeds received in respect of, the securities referred to in
clauses (i) and (ii) above; (v) subject to Section 2.06, all rights and
privileges of such Grantor with respect to the securities and other property
referred to in clauses (i), (ii), (iii) and (iv) above; and (vi) all Proceeds
of, and Security Entitlements in, any of the foregoing (the items referred to in
clauses (i) through (vi) above being collectively referred to as the “Pledged
Collateral”).

 

TO HAVE AND TO HOLD the Pledged Collateral, together with all right, title,
interest, powers, privileges and preferences pertaining or incidental thereto,
unto the Collateral Agent, its successors and assigns, for the benefit of the
applicable Secured Parties, forever; subject, however, to the terms, covenants
and conditions hereinafter set forth.

 

Section 2.02.  Delivery of the Pledged Collateral.  (a)  Each Grantor agrees
promptly to deliver or cause to be delivered to the Collateral Agent, for the
benefit of the applicable Secured Parties, any and all Pledged Securities (other
than any uncertificated securities, but only for so long as such securities
remain uncertificated) to the extent such Pledged Securities, in the case of
promissory notes and instruments evidencing Indebtedness, are required to be
delivered pursuant to paragraph (b) of this Section 2.02.

 

(b)                                 Each Grantor will cause any Indebtedness for
borrowed money having an aggregate principal amount equal to or in excess of
$5,000,000 owed to such Grantor by any Person (other than a Loan Party) to be
evidenced by a duly executed promissory note that is pledged and delivered to
the Collateral Agent, for the benefit of the applicable Secured Parties,
pursuant to the terms hereof.

 

(c)                                  Upon delivery to the Collateral Agent,
(i) any Pledged Securities shall be accompanied by stock powers duly executed in
blank or other instruments of transfer reasonably satisfactory to the Collateral
Agent and by such other instruments and documents as the

 

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Collateral Agent may reasonably request and (ii) all other property comprising
part of the Pledged Collateral shall be accompanied by proper instruments of
assignment duly executed by the applicable Grantor and such other instruments or
documents as the Collateral Agent may reasonably request.  Each delivery of
Pledged Securities shall be accompanied by a schedule describing the securities,
which schedule shall be deemed to supplement Schedule II and be made a part
hereof; provided that failure to attach any such schedule hereto shall not
affect the validity of such pledge of such Pledged Securities.  Each schedule so
delivered shall supplement any prior schedules so delivered.

 

Section 2.03.  Representations, Warranties and Covenants.  Each Grantor
represents, warrants and covenants, as to itself and the other Grantors, to and
with the Collateral Agent, for the benefit of the Secured Parties, that:

 

(a)                                 Schedule II correctly sets forth, as of the
Closing Date and as of each date on which a Supplement to Schedule II is
delivered pursuant to Section 2.02(c), the percentage of the issued and
outstanding units of each class of the Equity Interests of the issuer thereof
represented by the Pledged Equity and includes all Equity Interests, the
promissory notes and instruments required to be pledged hereunder in order to
satisfy the Collateral and Guarantee Requirement;

 

(b)                                 the Pledged Equity issued by the Borrower or
a Subsidiary and Pledged Debt (solely with respect to Pledged Debt issued by a
Person other than the Borrower or a Subsidiary of the Borrower, to the best of
the Borrower’s knowledge) have been duly and validly authorized and issued by
the issuers thereof and (i) in the case of Pledged Equity (other than Pledged
Equity consisting of limited liability company interests or partnership
interests which, pursuant to the relevant organizational or formation documents,
cannot be fully paid and non-assessable), are fully paid and nonassessable and
(ii) in the case of Pledged Debt (solely with respect to Pledged Debt issued by
a Person other than the Borrower or a Subsidiary of the Borrower, to the best of
the Borrower’s knowledge), are legal, valid and binding obligations of the
issuers thereof;

 

(c)                                  except for the security interests granted
hereunder, each of the Grantors (i) is and, subject to any transfers made in
compliance with the Credit Agreement, will continue to be the direct owner,
beneficially and of record, of the Pledged Securities indicated on Schedule II
as owned by such Grantors, (ii) holds the same free and clear of all Liens,
other than (A)  Liens created by the Collateral Documents and (B)  nonconsensual
Liens expressly permitted pursuant to Section 7.04 of the Credit Agreement,
(iii) will make no assignment, pledge, hypothecation or transfer of, or create
or permit to exist any security interest in or other Lien on, the Pledged
Collateral, other than (A) Liens created by the Collateral Documents and
(B) nonconsensual Liens expressly permitted pursuant to Section 7.04 of the
Credit Agreement, and (iv) will defend its title or interest thereto or therein
against any and all Liens (other than the Liens permitted pursuant to this
Section 2.03(c)), however, arising, of all Persons whomsoever;

 

(d)                                 except for (i) restrictions and limitations
imposed by the Loan Documents or securities laws generally, (ii) in the case of
Pledged Equity of Persons that are not Subsidiaries, transfer restrictions that
exist at the time of acquisition of Equity Interest in

 

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such Persons, and (iii) except as described in the Perfection Certificate, the
Pledged Collateral is and will continue to be freely transferable and
assignable, and none of the Pledged Collateral is or will be subject to any
option, right of first refusal, shareholders agreement, charter or by-law
provisions or contractual restriction of any nature that might prohibit, impair,
delay or otherwise affect in any manner material and adverse to the Secured
Parties the pledge of such Pledged Collateral hereunder, the sale or disposition
thereof pursuant hereto or the exercise by the Collateral Agent of rights and
remedies hereunder;

 

(e)                                  each of the Grantors has the power and
authority to pledge the Pledged Collateral pledged by it hereunder in the manner
hereby done or contemplated;

 

(f)                                   no consent or approval of any Governmental
Authority, any securities exchange or any other Person was or is necessary to
the validity of the pledge effected hereby (other than such as have been
obtained and are in full force and effect);

 

(g)                                  by virtue of the execution and delivery by
the Grantors of this Agreement, when any Pledged Securities are delivered to the
Collateral Agent in accordance with this Agreement, the Collateral Agent will
obtain a legal, valid and first-priority (subject only to any nonconsensual Lien
permitted pursuant by Section 7.04 of the Credit Agreement) perfected lien upon
and security interest in such Pledged Securities as security for the payment and
performance of the Secured Obligations; and

 

(h)                                 the pledge effected hereby is effective to
vest in the Collateral Agent, for the benefit of the Secured Parties, the rights
of the Collateral Agent in the Pledged Collateral as set forth herein.

 

Section 2.04.  Certification of Limited Liability Company and Limited
Partnership Interests.  Each interest in any limited liability company or
limited partnership controlled by any Grantor and pledged under Section 2.01
shall be represented by a certificate, shall be a “security” within the meaning
of Article 8 of the New York UCC and shall be governed by Article 8 of the New
York UCC.

 

Section 2.05.  Registration in Nominee Name; Denominations.  If an Event of
Default shall occur and be continuing and the Collateral Agent shall give the
Borrower notice of its intent to exercise such rights, (a) the Collateral Agent,
on behalf of the Secured Parties, shall have the right (in its sole and absolute
discretion) to hold the Pledged Securities in its own name as pledgee, the name
of its nominee (as pledgee or as sub-agent) or the name of the applicable
Grantor, endorsed or assigned in blank or in favor of the Collateral Agent and
each Grantor will promptly give to the Collateral Agent copies of any notices or
other communications received by it with respect to Pledged Securities
registered in the name of such Grantor and (b) the Collateral Agent shall have
the right to exchange the certificates representing Pledged Securities for
certificates of smaller or larger denominations for any purpose consistent with
this Agreement; provided that, notwithstanding the foregoing, if a Bankruptcy
Event of Default shall have occurred and be continuing, the Collateral Agent
shall not be required to give the notice referred to above in order to exercise
the rights described above.

 

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Section 2.06.  Voting Rights; Dividends and Interest.  (a)Unless and until an
Event of Default shall have occurred and be continuing and the Collateral Agent
shall have notified the Borrower that the rights of the Grantors under this
Section 2.06 are being suspended:

 

(i)                                     Each Grantor shall be entitled to
exercise any and all voting and/or other consensual rights and powers inuring to
an owner of Pledged Securities or any part thereof for any purpose consistent
with the terms of this Agreement, the Credit Agreement and the other Loan
Documents; provided that such rights and powers shall not be exercised in any
manner that could materially and adversely affect the rights inuring to a holder
of any Pledged Securities or the rights and remedies of any of the Collateral
Agent or the other Secured Parties under this Agreement, the Credit Agreement or
any other Loan Document or the ability of the Secured Parties to exercise the
same.

 

(ii)                                  The Collateral Agent shall promptly
execute and deliver to each Grantor, or cause to be executed and delivered to
such Grantor, all such proxies, powers of attorney and other instruments as such
Grantor may reasonably request for the purpose of enabling such Grantor to
exercise the voting and/or consensual rights and powers it is entitled to
exercise pursuant to subparagraph (i) above.

 

(iii)                               Each Grantor shall be entitled to receive
and retain any and all dividends, interest, principal and other distributions
paid on or distributed in respect of the Pledged Securities, to the extent (and
only to the extent) that such dividends, interest, principal and other
distributions are permitted by, and otherwise paid or distributed in accordance
with, the terms and conditions of the Credit Agreement, the other Loan Documents
and applicable Laws; provided that any noncash dividends, interest, principal or
other distributions that would constitute Pledged Equity or Pledged Debt,
whether resulting from a subdivision, combination or reclassification of the
outstanding Equity Interests of the issuer of any Pledged Securities or received
in exchange for Pledged Securities or any part thereof, or in redemption
thereof, or as a result of any merger, consolidation, acquisition or other
exchange of assets to which such issuer may be a party or otherwise, shall be
and become part of the Pledged Collateral, and, if received by any Grantor,
shall not be commingled by such Grantor with any of its other funds or property
but shall be held separate and apart therefrom, shall be held in trust for the
benefit of the Collateral Agent and the applicable Secured Parties and shall be
forthwith delivered to the Collateral Agent in the same form as so received
(with any necessary endorsement reasonably requested by the Collateral Agent). 
So long as no Default or Event of Default has occurred and is continuing, the
Collateral Agent shall promptly deliver to each Grantor any Pledged Securities
in its possession if requested to be delivered to the issuer thereof in
connection with any exchange or redemption of such Pledged Securities.

 

(b)                                 Upon the occurrence and during the
continuance of an Event of Default, after the Collateral Agent shall have
notified the Borrower of the suspension of the rights of the Grantors under
Section 2.06(a)(iii), then all rights of any Grantor to dividends, interest,
principal or other distributions that such Grantor is authorized to receive

 

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pursuant to Section 2.06(a)(iii) shall cease, and all such rights shall
thereupon become vested in the Collateral Agent, which shall have the sole and
exclusive right and authority to receive and retain such dividends, interest,
principal or other distributions.  All dividends, interest, principal or other
distributions received by any Grantor contrary to the provisions of this
Section 2.06 shall be held in trust for the benefit of the Collateral Agent,
shall be segregated from other property or funds of such Grantor and shall be
forthwith delivered to the Collateral Agent upon demand in the same form as so
received (with any necessary endorsement reasonably requested by the Collateral
Agent).  Any and all money and other property paid over to or received by the
Collateral Agent pursuant to the provisions of this paragraph (b) shall be
retained by the Collateral Agent in an account to be established by the
Collateral Agent upon receipt of such money or other property and shall be
applied in accordance with the provisions of Section 4.02.  After all Events of
Default have been cured or waived, the Collateral Agent shall promptly repay to
each Grantor (without interest) all dividends, interest, principal or other
distributions that such Grantor would otherwise be permitted to retain pursuant
to the terms of Section 2.06(a)(iii) in the absence of an Event of Default and
that remain in such account.

 

(c)                                  Upon the occurrence and during the
continuance of an Event of Default, after the Collateral Agent shall have
notified the Borrower of the suspension of the rights of the Grantors under
Section 2.06(a)(i), then all rights of any Grantor to exercise the voting and
consensual rights and powers it is entitled to exercise pursuant to
Section 2.06(a)(i), and the obligations of the Collateral Agent under
Section 2.06(a)(ii), shall cease, and all such rights shall thereupon become
vested in the Collateral Agent, which shall have the sole and exclusive right
and authority to exercise such voting and consensual rights and powers; provided
that, unless otherwise directed by the Required Lenders, the Collateral Agent
shall have the right from time to time following and during the continuance of
an Event of Default to permit the Grantors to exercise such rights.  After all
Events of Default have been cured or waived, each Grantor shall have the
exclusive right to exercise the voting and/or consensual rights and powers that
such Grantor would otherwise be entitled to exercise pursuant to the terms of
Section 2.06(a)(i), and the obligations of the Collateral Agent under
Section 2.06(a)(ii) shall be reinstated.

 

(d)                                 Any notice given by the Collateral Agent to
the Borrower suspending the rights of the Grantors under
Section 2.06(a)(i) shall be given in writing, (ii) may be given with respect to
one or more of the Grantors at the same or different times and (iii) may suspend
the rights of the Grantors under Section 2.06(a)(i) or (iii) in part without
suspending all such rights (as specified by the Collateral Agent in its sole and
absolute discretion) and without waiving or otherwise affecting the Collateral
Agent’s rights to give additional notices from time to time suspending other
rights so long as an Event of Default has occurred and is continuing. 
Notwithstanding anything to the contrary contained in Section 2.06(a), (b) or
(c), if a Bankruptcy Event of Default shall have occurred and be continuing, the
Collateral Agent shall not be required to give any notice referred to in said
Section in order to exercise any of its rights described in such Section,

 

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and the suspension of the rights of each of the Grantors under each such
Section shall be automatic upon the occurrence of such Bankruptcy Event of
Default.

 

Section 2.07.  Collateral Agent Not a Partner or Limited Liability Company
Member.  Nothing contained in this Agreement shall be construed to make the
Collateral Agent or any other Secured Party liable as a member of any limited
liability company or as a partner of any partnership and neither the Collateral
Agent nor any other Secured Party by virtue of this Agreement or otherwise
(except as referred to in the following sentence) shall have any of the duties,
obligations or liabilities of a member of any limited liability company or as a
partner in any partnership.  The parties hereto expressly agree that, unless the
Collateral Agent shall become the absolute owner of Pledged Equity consisting of
a limited liability company interest or a partnership interest pursuant hereto,
this Agreement shall not be construed as creating a partnership or joint venture
among the Collateral Agent, any other Secured Party, any Grantor and/or any
other Person.

 

Section 2.08.  Overriding Provisions with Respect to ABL Priority Collateral. 
Notwithstanding anything to the contrary contained above in this Section 2, or
elsewhere in this Agreement or any other Collateral Document, to the extent the
provisions of this Agreement (or any other Security Documents) require the
delivery of, or control over, ABL Priority Collateral to be granted to the
Collateral Agent at any time prior to the Discharge of ABL Obligations, then
delivery of such ABL Priority Collateral (or control with respect thereto) shall
instead be granted to the ABL Agent, to be held in accordance with the ABL
Documents and the Intercreditor Agreement.  Furthermore, at all times prior to
the Discharge of ABL Obligations, the Collateral Agent is authorized by the
parties hereto to effect transfers of ABL Priority Collateral at any time in its
possession (and any “control” or similar agreements with respect to ABL Priority
Collateral) to the ABL Agent.

 

ARTICLE III

 

Security Interests in Personal Property

 

Section 3.01.  Security Interest.  (a)As security for the payment or
performance, as the case may be, in full of the Secured Obligations, including
each Guaranty, each Grantor hereby assigns and pledges to the Collateral Agent,
its successors and assigns, for the benefit of the Secured Parties, and hereby
grants to the Collateral Agent, its successors and assigns, for the benefit of
the Secured Parties, a security interest (the “Security Interest”) in, all
right, title or interest in or to any and all of the following assets and
properties 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 “Article 9 Collateral”):

 

(i)                                     all Accounts;

 

(ii)                                  all Chattel Paper;

 

(iii)                               all Documents;

 

(iv)                              all Equipment;

 

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(v)                                 all General Intangibles;

 

(vi)                              all Instruments;

 

(vii)                           all Inventory;

 

(viii)                        all Investment Property;

 

(ix)                              all books and records pertaining to the
Article 9 Collateral;

 

(x)                                 all Goods and Fixtures;

 

(xi)                              all Money and Deposit Accounts;

 

(xii)                           all Letter-of-Credit Rights;

 

(xiii)                        all Commercial Tort Claims described on Schedule
III from time to time;

 

(xiv)                       the Collateral Account, and all cash, securities and
other investments deposited therein;

 

(xv)                          all Supporting Obligations;

 

(xvi)                       all Security Entitlements in any or all of the
foregoing;

 

(xvii)                    all Intellectual Property Collateral; and

 

(xviii)                 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;

 

provided that (i) with respect to any Trademarks, applications in the United
States Patent and Trademark Office to register Trademarks or service marks on
the basis of any Grantor’s “intent to use” such Trademarks or service marks will
not be deemed to be Collateral unless and until a “Statement of Use” or
“Amendment to Allege Use” has been filed and accepted in the United States
Patent and Trademark Office, whereupon such application shall be automatically
subject to the security interest granted herein and deemed to be included in the
Collateral and (ii)  notwithstanding anything to the contrary in this Agreement,
this Agreement shall not constitute a grant of a security interest in (A) motor
vehicles the perfection of a security interest in which is excluded from the UCC
in the relevant jurisdiction, (B)(I) any Equity Interests in any Unrestricted
Subsidiary (until such time any Unrestricted Subsidiary becomes a Restricted
Subsidiary in accordance with the Credit Agreement, at which time, and without
further action, this clause (I) shall no longer apply to the Equity Interests of
such Subsidiary), (II) any Subsidiary acquired pursuant to a Permitted
Acquisition financed with Indebtedness incurred pursuant to
Section 7.03(b)(xix) of the Credit Agreement, (III) Equity Interests of any
Subsidiary of a Foreign Subsidiary, or (IV) Equity Interests of a Person that is
not a direct or indirect, wholly owned Subsidiary of a Grantor, (C) more than
65% of the total combined voting power of

 

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all Equity Interests of any Foreign Subsidiary (including each Foreign
Subsidiary held by a Canadian Subsidiary Guarantor, provided further that should
any Canadian Subsidiary Guarantor create or acquire a Foreign Subsidiary, the
security interest in the Equity Interests of such Canadian Subsidiary Guarantor
is limited to 65% of the total combined voting power of all Equity Interests of
such Canadian Subsidiary Guarantor (or if such Canadian Subsidiary Guarantor is
an unlimited liability company, such lesser percentage as is acceptable to the
Collateral Agent), (D) any specifically identified asset with respect to which
the Administrative Agent has confirmed in writing to the Borrower its
determination that the costs or other consequences (including adverse tax
consequences) of providing a security interest is excessive in view of the
benefits to be obtained by the Lenders, (E) any Margin Stock owned by such
Grantor, or (F) any General Intangible, Investment Property or other such rights
of a Grantor arising under any contract, lease, instrument, license or other
document if (but only to the extent that) the grant of a security interest
therein would (x) constitute a violation of a valid and enforceable restriction
in respect of such General Intangible, Investment Property, or other such rights
in favor of a third party or under any Law, regulation, permit, order or decree
of any Governmental Authority, unless and until all required consents shall have
been obtained (for the avoidance of doubt, the restrictions described herein are
not negative pledges or similar undertakings in favor of a lender or other
financial counterparty) or (y) expressly give any other party in respect of any
such contract, lease, instrument, license or other document, the right to
terminate or to effect the abandonment, cancellation, invalidation or
unenforceability of any right, title or interest of any Grantor therein  its
obligations thereunder, provided, however, that the limitation set forth in
clause (F) above shall not affect, limit, restrict or impair the grant by a
Grantor of a security interest pursuant to this Agreement in any such Collateral
to the extent that an otherwise applicable prohibition or restriction on such
grant is rendered ineffective by any applicable law, including the UCC and
provided further that the Proceeds from any such contract, lease, instrument or
other document shall not be excluded from the definition of Article 9 Collateral
to the extent that the assignment of such Proceeds is not prohibited.  Each
Grantor shall, if requested to do so by the Collateral Agent, use commercially
reasonable efforts to obtain any such required consent that is reasonably
obtainable with respect to Collateral which the Collateral Agent reasonably
determines to be material.

 

(b)                                 Each Grantor hereby irrevocably authorizes
the Collateral Agent for the benefit of the Secured Parties at any time and from
time to time to file in any relevant jurisdiction any initial financing
statements (including fixture filings) with respect to the Article 9 Collateral
or any part thereof and amendments thereto that (i) indicate the Collateral as
all assets of such Grantor or words of similar effect as being of an equal or
lesser scope or with greater detail, and (ii) contain the information required
by Article 9 of the Uniform Commercial Code or the analogous legislation of each
applicable jurisdiction for the filing of any financing statement or amendment,
including (A) whether such Grantor is an organization, the type of organization
and any organizational identification number issued to such Grantor and (B) in
the case of a financing statement filed as a fixture filing, a sufficient
description of the real property to which such Article 9 Collateral relates. 
Each Grantor agrees to provide such information to the Collateral Agent promptly
upon request.

 

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(c)                                  The Security Interest is granted as
security only and shall not subject the Collateral Agent or any other Secured
Party to, or in any way alter or modify, any obligation or liability of any
Grantor with respect to or arising out of the Article 9 Collateral.

 

(d)                                 Each Grantor hereby further authorizes the
Collateral Agent to file a Grant of Security Interest substantially in the form
of Exhibit III, IV or V, as applicable, covering relevant Intellectual Property
Collateral with the United States Patent and Trademark Office or United States
Copyright Office (or any successor office or any similar office in any other
country), as applicable, or any similar offices in any other country and such
other documents as may be necessary or advisable for the purpose of perfecting,
confirming, continuing, enforcing or protecting the Security Interest granted by
such Grantor hereunder, without the signature of such Grantor, and naming such
Grantor, as debtor, and the Collateral Agent, as secured party.

 

Section 3.02.  Representations and Warranties.  Each Grantor represents and
warrants, as to itself and the other Grantors, to the Collateral Agent and the
Secured Parties that:

 

(a)                                 Each Grantor has good and valid rights (not
subject to any Liens other than Liens permitted by Section 7.04 of the Credit
Agreement (or Section 6.01 of the ABL Credit Agreement)) and/or title in the
Article 9 Collateral with respect to which it has purported to grant a Security
Interest hereunder (which rights and/or title, are in any event, sufficient
under Section 9-203 of the Uniform Commercial Code), and has full power and
authority to grant to the Collateral Agent the Security Interest in such
Article 9 Collateral pursuant hereto and to execute, deliver and perform its
obligations in accordance with the terms of this Agreement, without the consent
or approval of any other Person other than any consent or approval that has been
obtained.

 

(b)                                 The Perfection Certificate has been duly
prepared, completed, executed and delivered to the Collateral Agent and the
information set forth therein, including the exact legal name of each Grantor,
is correct and complete in all material respects as of the Closing Date.  The
Uniform Commercial Code financing statements (including fixture filings, as
applicable) or other appropriate filings, recordings or registrations prepared
by the Collateral Agent based upon the information provided to the Collateral
Agent in the Perfection Certificate for filing in each governmental, municipal
or other office specified in Section I.A. of the Perfection Certificate (or
specified by notice from the applicable Grantor to the Collateral Agent after
the Closing Date in the case of filings, recordings or registrations required by
Section 6.11 of the Credit Agreement), are all the filings, recordings and
registrations that are necessary to establish a legal, valid and perfected
security interest in favor of the Collateral Agent (for the benefit of the
Secured Parties) in respect of all Article 9 Collateral in which the Security
Interest may be perfected by filing, recording or registration in the United
States (or any political subdivision thereof) and its territories and
possessions, and no further or subsequent filing, refiling, recording,
rerecording, registration or reregistration is necessary in any such
jurisdiction, except as provided under applicable law with respect to the filing
of continuation statements. Each Grantor represents and warrants that, as of the
Closing Date, fully executed Grants of Security Interest in the form attached as
Exhibit III, IV or V, as applicable, containing a description of all Collateral
consisting of Intellectual Property with respect to Patents, registered
Trademarks (and Trademarks for which registration applications are pending) or
registered Copyrights, as applicable,  have been delivered to the Collateral
Agent for recording by the United States Patent

 

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and Trademark Office or the United States Copyright Office, as applicable,
pursuant to 35 U.S.C. § 261, 15 U.S.C. § 1060 or 17 U.S.C. § 205 and the
regulations thereunder or other or any similar offices in any other country as
required by applicable law in such jurisdiction.

 

(c)                                  The Security Interest constitutes (i) a
legal and valid security interest in all the Article 9 Collateral securing the
payment and performance of the Secured Obligations, (ii) subject to the filings
described in Section 3.02(b), a perfected security interest in all Article 9
Collateral in which a security interest may be perfected by filing, recording or
registering a financing statement or analogous document in the United States (or
any political subdivision thereof) and its territories and possessions pursuant
to the Uniform Commercial Code and (iii) a security interest that shall be
perfected in all Collateral in which a security interest may be perfected upon
the receipt and recording of the relevant Grants of Security Interest with the
United States Patent and Trademark Office and the United States Copyright
Office, as applicable, within the three month period (commencing as of the date
hereof) pursuant to 35 U.S.C. § 261 or 15 U.S.C. § 1060 or the one month period
(commencing as of the date hereof) pursuant to 17 U.S.C. § 205 and otherwise as
may be required pursuant to the laws of any other necessary jurisdiction.  The
Security Interest is and shall be prior to any other Lien on any of the
Article 9 Collateral, other than (i) any nonconsensual Lien that is expressly
permitted pursuant to Section 7.04 of the Credit Agreement and has priority as a
matter of law and (ii) Liens expressly permitted pursuant to Section 7.04 of the
Credit Agreement.

 

(d)                                 The Article 9 Collateral is owned by the
Grantors free and clear of any Lien, except for Liens expressly permitted
pursuant to Section 7.04 of the Credit Agreement.  None of the Grantors has
filed or consented to the filing of (i) any financing statement or analogous
document under the Uniform Commercial Code or any other applicable laws covering
any Article 9 Collateral, (ii) any assignment in which any Grantor assigns any
Article 9 Collateral or any security agreement or similar instrument covering
any Collateral with the United States Patent and Trademark Office or the United
States Copyright Office, or (iii) any assignment in which any Grantor assigns
any Article 9 Collateral or any security agreement or similar instrument
covering any Article 9 Collateral with any foreign governmental, municipal or
other office, which financing statement or analogous document, assignment,
security agreement or similar instrument is still in effect, except, in each
case, for Liens expressly permitted pursuant to Section 7.04 of the Credit
Agreement.

 

(e)                                  All Commercial Tort Claims of each Grantor
in excess of $2,000,000 in existence on the date of this Agreement (or on the
date upon which such Grantor becomes a party to this Agreement) are described on
Schedule III hereto.

 

Section 3.03.  Covenants.  (a)The Borrower agrees to promptly notify the
Collateral Agent of any change (i) in the legal name of any Grantor, (ii) in the
identity or type of organization or corporate structure of any Grantor, (iii) in
the jurisdiction of organization of any Grantor, (iv) in the Location of any
Grantor or (v) in the organizational identification number of any Grantor.  In
addition, if any Grantor does not have an organizational identification number
on the Closing Date (or the date such Grantor becomes a party to this Agreement)
and later obtains one, the Borrower shall promptly thereafter notify the
Collateral Agent of such

 

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organizational identification number and shall take all actions reasonably
satisfactory to the Collateral Agent to the extent necessary to maintain the
security interests (and the priority thereof) of the Collateral Agent in the
Collateral intended to be granted hereby fully perfected and in full force and
effect.

 

(b)                                 Each Grantor shall, at its own expense, take
any and all commercially reasonable actions necessary to defend title to the
Article 9 Collateral against all Persons and to defend the Security Interest of
the Collateral Agent in the Article 9 Collateral and the priority thereof
against any Lien not expressly permitted pursuant to Section 7.04 of the Credit
Agreement.

 

(c)                                  Each year, at the time of delivery of
annual financial statements with respect to the preceding fiscal year pursuant
to Section 6.01 of the Credit Agreement, the Borrower shall deliver to the
Collateral Agent a certificate executed by the chief financial officer and the
chief legal officer of the Borrower setting forth the information required
pursuant to Sections I.A., I.B., I.G., II.A. (only to the extent it applies to
Stores located in Canada and distribution centers located in the United States
and Canada), II.B and III of the Perfection Certificate or confirming that there
has been no change in such information since the date of such certificate or the
date of the most recent certificate delivered pursuant to this Section 3.03(c).

 

(d)                                 The Borrower agrees, on its own behalf and
on behalf of each other Grantor, at its own expense, to execute, acknowledge,
deliver and cause to be duly filed all such further instruments and documents
and take all such actions as the Collateral Agent may from time to time
reasonably request to better assure, preserve, protect and perfect the Security
Interest and the rights and remedies created hereby, including the payment of
any fees and taxes required in connection with the execution and delivery of
this Agreement, the granting of the Security Interest and the filing of any
financing statements (including fixture filings) or other documents in
connection herewith or therewith.  If any amount payable under or in connection
with any of the Article 9 Collateral (other than by a Loan Party) that equals or
exceeds $5,000,000 shall be or become evidenced by any promissory note or
instrument, such note or instrument shall be promptly pledged and delivered to
the Collateral Agent, for the benefit of the Secured Parties, duly endorsed in a
manner reasonably satisfactory to the Collateral Agent.

 

(e)                                  At its option, the Collateral Agent may
discharge past due taxes, assessments, charges, fees, Liens, security interests
or other encumbrances at any time levied or placed on the Article 9 Collateral
and not permitted pursuant to Section 7.04 of the Credit Agreement, and may pay
for the maintenance and preservation of the Article 9 Collateral to the extent
any Grantor fails to do so as required by the Credit Agreement or this Agreement
and within a reasonable period of time after the Collateral Agent has requested
that it do so, and each Grantor jointly and severally agrees to reimburse the
Collateral Agent within 10 days after demand for any payment made or any
reasonable expense incurred by the Collateral Agent pursuant to the foregoing
authorization.  Nothing in this paragraph shall be interpreted as excusing any
Grantor from the performance of, or imposing any obligation on the Collateral
Agent or any Secured Party to cure or perform, any covenants or other promises
of any Grantor with respect to taxes, assessments, charges, fees, Liens,
security interests or other encumbrances and maintenance as set forth herein or
in the other Loan Documents.

 

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(f)                                   If at any time any Grantor shall take a
security interest in any property of an Account Debtor or any other Person the
value of which equals or exceeds $2,000,000 to secure payment and performance of
an Account, such Grantor shall promptly assign such security interest to the
Collateral Agent for the benefit of the applicable Secured Parties.  Such
assignment need not be filed of public record unless necessary to continue the
perfected status of the security interest against creditors of and transferees
from the Account Debtor or other Person granting the security interest.

 

(g)                                  Each Grantor (rather than the Collateral
Agent or any Secured Party) shall remain liable (as between itself and any
relevant counterparty) to observe and perform all the conditions and obligations
to be observed and performed by it under each contract agreement or instrument
relating to the Article 9 Collateral, all in accordance with the terms and
conditions thereof, and each Grantor jointly and severally agrees to indemnify
and hold harmless the Collateral Agent and the Secured Parties from and against
any and all liability for such performance.

 

Section 3.04.  Other Actions.  In order to further insure the attachment,
perfection and priority of, and the ability of the Collateral Agent to enforce,
the Security Interest, each Grantor agrees, in each case at such Grantor’s own
expense, to take the following actions with respect to the following Article 9
Collateral:

 

(a)                                 Instruments.  If any Grantor shall at any
time hold or acquire any Instruments constituting Collateral and evidencing an
amount equal to or in excess of $2,000,000 such Grantor shall forthwith endorse,
assign and deliver the same to the Collateral Agent for the benefit of the
applicable Secured Parties, accompanied by such instruments of transfer or
assignment duly executed in blank as the Collateral Agent may from time to time
reasonably request.

 

(b)                                 Investment Property.  Except to the extent
otherwise provided in Article II, if any Grantor shall at any time hold or
acquire any certificated securities, such Grantor shall forthwith endorse,
assign and deliver the same to the Collateral Agent for the benefit of the
applicable Secured Parties, accompanied by such instruments of transfer or
assignment duly executed in blank as the Collateral Agent may from time to time
reasonably request.  If any securities now or hereafter acquired by any Grantor
are uncertificated and are issued to such Grantor or its nominee directly by the
issuer thereof, upon the Collateral Agent’s request and following the occurrence
of an Event of Default such Grantor shall promptly notify the Collateral Agent
thereof and, at the Collateral Agent’s reasonable request, pursuant to an
agreement in form and substance reasonably satisfactory to the Collateral Agent,
either (i) cause the issuer to agree to comply with instructions from the
Collateral Agent as to such securities, without further consent of any Grantor
or such nominee, or (ii) arrange for the Collateral Agent to become the
registered owner of the securities.  If any securities, whether certificated or
uncertificated, or other investment property are held by any Grantor or its
nominee through a securities intermediary or commodity intermediary, upon the
Collateral Agent’s request and following the occurrence of an Event of Default,
such Grantor shall immediately notify the Collateral Agent thereof and at the
Collateral Agent’s request and option, pursuant to an agreement in form and
substance reasonably satisfactory to the Collateral Agent shall

 

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either (i) cause such securities intermediary or (as the case may be) commodity
intermediary to agree to comply with entitlement orders or other instructions
from the Collateral Agent to such securities intermediary as to such security
entitlements, or (as the case may be) to apply any value distributed on account
of any commodity contract as directed by the Collateral Agent to such commodity
intermediary, in each case without further consent of any Grantor or such
nominee, or (ii) in the case of financial assets or other Investment Property
held through a securities intermediary, arrange for the Collateral Agent to
become the entitlement holder with respect to such Investment Property, with the
Grantor being permitted, only with the consent of the Collateral Agent, to
exercise rights to withdraw or otherwise deal with such Investment Property. 
The Collateral Agent agrees with each of the Grantors that the Collateral Agent
shall not give any such entitlement orders or instructions or directions to any
such issuer, securities intermediary or commodity intermediary, and shall not
withhold its consent to the exercise of any withdrawal or dealing rights by any
Grantor, unless an Event of Default has occurred and is continuing.  The
provisions of this paragraph shall not apply to any financial assets credited to
a securities account for which the Collateral Agent is the securities
intermediary.

 

(c)                                  Commercial Tort Claims.  If any Grantor
shall at any time after the date of this Agreement acquire a Commercial Tort
Claim in an amount (taking the greater of the aggregate claimed damages
thereunder or the reasonably estimated value thereof) of $2,000,000 or more,
such Grantor shall promptly notify the Collateral Agent thereof in a writing
signed by such Grantor and provide supplements to Schedule III describing the
details thereof and shall grant to the Collateral Agent a security interest
therein and in the proceeds thereof, all upon the terms of this Agreement.

 

(d)                                 Letter of Credit Rights.  If any Grantor is
at any time a beneficiary under a letter of credit with a stated amount of
$2,000,000 or more, the proceeds of which have not otherwise been previously
perfected as a supporting obligation of such Grantor by the filing of the
Uniform Commercial Code Financing Statement described in Section 3.02(b), such
Grantor shall promptly notify the Collateral Agent thereof and, at the request
of the Collateral Agent, such Grantor shall, pursuant to an agreement in form
and substance reasonably satisfactory to the Collateral Agent, use its
commercially reasonable efforts to (i) arrange for the issuer and any confirmer
of such letter of credit to consent to an assignment to the Collateral Agent of
the proceeds of any drawing under such letter of credit or (ii) arrange for the
Collateral Agent to become the transferee beneficiary of such letter of credit,
with the Collateral Agent agreeing, in each case, that the proceeds of any
drawing under the letter of credit are to be applied as provided in this
Agreement after the occurrence and during the continuance of an Event of
Default.

 

ARTICLE IV

 

Special Provisions Concerning Intellectual Property Collateral

 

Section 4.01.  Grant of License to Use Intellectual Property.  Without limiting
the provision of Section 3.01 hereof or any other rights of the Collateral Agent
as the holder of a Security Interest in any Intellectual Property Collateral,
for the purpose of enabling the Collateral

 

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Agent to exercise rights and remedies under this Agreement at such time as the
Collateral Agent shall be lawfully entitled to exercise such rights and
remedies, each Grantor shall, upon request by the Collateral Agent at any time
after the occurrence and during the continuance of an Event of Default, grant to
the Collateral Agent an irrevocable, nonexclusive license (exercisable without
payment of royalty or other compensation to the Grantors) to use, license or
sublicense any of the Intellectual Property Collateral now owned or hereafter
acquired by such Grantor, and wherever the same may be located (including all
Intellectual Property Collateral located in Canada, and whether or not any
license agreement by and between any Grantor and any other Person relating to
the use of such Intellectual Property Collateral may be terminated hereafter),
and including in such license reasonable access to all media in which any of the
licensed items may be recorded or stored and to all computer software and
programs used for the compilation or printout thereof.  The use of such license
by the Collateral Agent may be exercised, at the option of the Collateral Agent,
during the continuation of an Event of Default; provided that any license,
sublicense or other transaction entered into by the Collateral Agent in
accordance herewith shall be binding upon the Grantors notwithstanding any
subsequent cure of an Event of Default.  In the event the license set forth in
this Section 4.01 is exercised with regard to any Trademarks, then the following
shall apply: (i) all goodwill arising from any licensed or sublicensed use of
any Trademark shall inure to the Grantor; (ii) the licensed or sublicensed
Trademarks shall only be used in association with goods or services of a quality
and nature consistent with the quality and reputation with which such Trademarks
were associated when used by Grantor prior to the exercise of the license rights
set forth herein; and (iii) at the Grantor’s request and expense, licensees and
sublicensees shall provide reasonable cooperation in any effort by the Grantor
to maintain the registration or otherwise secure the ongoing validity and
effectiveness of such licensed Trademarks, including, without limitation the
actions and conduct described in Section 4.02 below.

 

Section 4.02.  Protection of Collateral Agent’s Security.  (a)  Except to the
extent that failure to act could not reasonably be expected to have a Material
Adverse Effect, with respect to registration or pending application of each item
of its Intellectual Property Collateral for which such Grantor has standing to
do so, each Grantor agrees to take, at its expense, all steps, including,
without limitation, in the U.S. Patent and Trademark Office, the U.S. Copyright
Office and any other governmental authority located in the United States or any
similar offices in any other country, to (i) maintain the validity and
enforceability of any registered Intellectual Property Collateral and maintain
such Intellectual Property Collateral in full force and effect, and (ii) pursue
the registration and maintenance of each Patent, Trademark, or Copyright
registration or application, now or hereafter included in such Intellectual
Property Collateral of such Grantor, including, without limitation, the payment
of required fees and taxes, the filing of responses to office actions issued by
the U.S. Patent and Trademark Office, the U.S. Copyright Office or other
governmental authorities or any similar offices in any other country, the filing
of applications for renewal or extension, the filing of affidavits under
Sections 8 and 15 of the U.S. Trademark Act, the filing of divisional,
continuation, continuation-in-part, reissue and renewal applications or
extensions, the payment of maintenance fees and the participation in
interference, reexamination, opposition, cancellation, infringement and
misappropriation proceedings.

 

(b)                                 Except to the extent that failure to act
could not reasonably be expected to have a Material Adverse Effect, no Grantor
shall do or permit any act or knowingly omit to do

 

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any act whereby any of its Intellectual Property Collateral may lapse, be
terminated, or become invalid or unenforceable or placed in the public domain
(or in case of a trade secret, lose its competitive value).

 

(c)                                  Except to the extent that failure to act
could not reasonably be expected to have a Material Adverse Effect, each Grantor
shall take all steps to preserve and protect each item of its Intellectual
Property Collateral, including, without limitation, maintaining the quality of
any and all products or services used or provided in connection with any of the
Trademarks, consistent with the quality of the products and services as of the
date hereof, and taking all steps necessary to ensure that all licensed users of
any of the Trademarks abide by the applicable license’s terms with respect to
the standards of quality.

 

(d)                                 Each Grantor agrees that, should it obtain
an ownership or other interest in any Intellectual Property Collateral after the
Closing Date (the “After-Acquired Intellectual Property”) (i) the provisions of
this Agreement shall automatically apply thereto, and (ii) any such
After-Acquired Intellectual Property and, in the case of Trademarks, the
goodwill symbolized thereby, shall automatically become part of the Intellectual
Property Collateral subject to the terms and conditions of this Agreement with
respect thereto.

 

(e)                                  Once every fiscal quarter of the Borrower,
with respect to issued or registered Patents (or published applications
therefor) or Trademarks (or applications therefor), and once every month, with
respect to registered Copyrights, each Grantor shall sign and deliver to the
Collateral Agent an appropriate Security Agreement Supplement and related Grant
of Security Interest with respect to all applicable Intellectual Property owned
or exclusively licensed by it as of the last day of such period, to the extent
that such Intellectual Property is not covered by any previous Security
Agreement Supplement (and Grant of Security Interests) so signed and delivered
by it.  In each case, it will promptly cooperate as reasonably necessary to
enable the Collateral Agent to make any necessary or reasonably desirable
recordations with the U.S. Copyright Office or the U.S. Patent and Trademark
Office,  as appropriate, or any similar offices in any other country.

 

(f)                                   Notwithstanding the foregoing provisions
of this Section 4.02 or elsewhere in this Agreement, nothing in this Agreement
shall prevent any Grantor from discontinuing the use or maintenance of any or
its Intellectual Property Collateral to the extent permitted by the Credit
Agreement if such Grantor determines in its reasonable business judgment that
such discontinuance is desirable in the conduct of its business.3

 

ARTICLE V

 

Remedies

 

Section 5.01.  Remedies Upon Default.  Upon the occurrence and during the
continuance of an Event of Default, it is agreed that the Collateral Agent shall
have the right to exercise any and all rights afforded to a secured party with
respect to the Secured Obligations, as applicable, under the Uniform Commercial
Code or other applicable law, and also may (i)

 

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require each Grantor to, and each Grantor agrees that it will at its expense and
upon request of the Collateral Agent forthwith, assemble all or part of the
Collateral as directed by the Collateral Agent and make it available to the
Collateral Agent at a place and time to be designated by the Collateral Agent
that is reasonably convenient to both parties; (ii) occupy any premises owned
or, to the extent lawful and permitted, leased by any of the Grantors where the
Collateral or any part thereof is assembled or located for a reasonable period
in order to effectuate its rights and remedies hereunder or under law, without
obligation to such Grantor in respect of such occupation; provided that the
Collateral Agent shall provide the applicable Grantor with notice thereof prior
to or promptly after such occupancy; (iii) exercise any and all rights and
remedies of any of the Grantors under or in connection with the Collateral, or
otherwise in respect of the Collateral; provided that the Collateral Agent shall
provide the applicable Grantor with notice thereof prior to or promptly after
such exercise; (iv) withdraw any and all cash or other Collateral from any
Collateral Account and apply such cash and other Collateral to the payment of
any and all Secured Obligations in the manner provided in Section 5.02 of this
Agreement; (v) subject to the mandatory requirements of applicable law and the
notice requirements described below, sell or otherwise dispose of all or any
part of the Collateral securing the Secured Obligations at a public or private
sale or at any broker’s board or on any securities exchange, for cash, upon
credit or for future delivery as the Collateral Agent shall deem appropriate and
(vi) with respect to any Intellectual Property Collateral, on demand, cause the
Security Interest to become an assignment, transfer and conveyance of any of or
all such Intellectual Property Collateral by the applicable Grantors to the
Collateral Agent, or license or sublicense, whether general, special or
otherwise, and whether on an exclusive or nonexclusive basis, any such
Intellectual Property Collateral throughout the world on such terms and
conditions and in such manner as the Collateral Agent shall determine, provided,
however, that such terms shall include all terms and restrictions that
customarily required to ensure the continuing validity and effectiveness of the
Intellectual Property at issue, such as, without limitation, quality control and
inure provisions with regard to Trademarks, patent designation provisions with
regard to patents, and copyright notices and restrictions or decompilation and
reverse engineering of copyrighted software.  The Grantors recognize that
(a) the Collateral Agent may be unable to effect a public sale of all or a part
of the Collateral consisting of securities by reason of certain prohibitions
contained in the Securities Act of 1933, 15 U.S.C. §77, (as amended and in
effect, the “Securities Act”) or the Securities laws of various states (the
“Blue Sky Laws”), but may be compelled to resort to one or more private sales to
a restricted group of purchasers who will be obliged to agree, among other
things, to acquire such securities for their own account, for investment and not
with a view to the distribution or resale thereof, (b) that private sales so
made may be at prices and upon other terms less favorable to the seller than if
such securities were sold at public sales, (c) that neither the Collateral Agent
nor any other Secured Party has any obligation to delay sale of any of the
Collateral for the period of time necessary to permit such securities to be
registered for public sale under the Securities Act or the Blue Sky Laws, and
(d) that private sales made under the foregoing circumstances shall be deemed to
have been made in a commercially reasonable manner. Upon consummation of any
such sale the Collateral Agent shall have the right to assign, transfer and
deliver to the purchaser or purchasers thereof the Collateral so sold.  Each
such purchaser at any sale of Collateral shall hold the property sold
absolutely, free from any claim or right on the part of any Grantor, and each
Grantor hereby waives (to the extent permitted by law) all rights of redemption,
stay and appraisal which such Grantor now has or may at any time in the future
have under any rule of law or statute now existing or hereafter enacted.

 

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The Collateral Agent shall give the applicable Grantors 10 days’ written notice
(which each Grantor agrees is reasonable notice within the meaning of
Section 9-611 of the New York UCC or its equivalent in other jurisdictions) of
the Collateral Agent’s intention to make any sale of Collateral.  Such notice,
in the case of a public sale, shall state the time and place for such sale and,
in the case of a sale at a broker’s board or on a securities exchange, shall
state the board or exchange at which such sale is to be made and the day on
which the Collateral, or portion thereof, will first be offered for sale at such
board or exchange.  Any such public sale shall be held at such time or times
within ordinary business hours and at such place or places as the Collateral
Agent may fix and state in the notice (if any) of such sale.  The Collateral
Agent may conduct one or more going out of business sales, in the Collateral
Agent’s own right or by one or more agents and contractors. Such sale(s) may be
conducted upon any premises owned, leased, or occupied by any Grantor.  The
Collateral Agent and any such agent or contractor, in conjunction with any such
sale, may augment the Inventory with other goods (all of which other goods shall
remain the sole property of the Collateral Agent or such agent or contractor). 
Any amounts realized from the sale of such goods which constitute augmentations
to the Inventory (net of an allocable share of the costs and expenses incurred
in their disposition) shall be the sole property of the Collateral Agent or such
agent or contractor and neither any Grantor nor any Person claiming under or in
right of any Grantor shall have any interest therein.  At any such sale, the
Collateral, or portion thereof, to be sold may be sold in one lot as an entirety
or in separate parcels, as the Collateral Agent may (in its sole and absolute
discretion) determine.  The Collateral Agent shall not be obligated to make any
sale of any Collateral if it shall determine not to do so, regardless of the
fact that notice of sale of such Collateral shall have been given.  The
Collateral Agent may, without notice or publication, adjourn any public or
private sale or cause the same to be adjourned from time to time by announcement
at the time and place fixed for sale, and such sale may, without further notice,
be made at the time and place to which the same was so adjourned.  In case any
sale of all or any part of the Collateral is made on credit or for future
delivery, the Collateral so sold may be retained by the Collateral Agent until
the sale price is paid by the purchaser or purchasers thereof, but the
Collateral Agent shall not incur any liability in case any such purchaser or
purchasers shall fail to take up and pay for the Collateral so sold and, in case
of any such failure, such Collateral may be sold again upon like notice.  At any
public (or, to the extent permitted by law, private) sale made pursuant to this
Agreement, any Secured Party may bid for or purchase, free (to the extent
permitted by law) from any right of redemption, stay, valuation or appraisal on
the part of any Grantor (all said rights being also hereby waived and released
to the extent permitted by law), the Collateral or any part thereof offered for
sale and may make payment on account thereof by using any claim then due and
payable to such Secured Party from any Grantor as a credit against the purchase
price, and such Secured Party may, upon compliance with the terms of sale, hold,
retain and dispose of such property without further accountability to any
Grantor therefor.  For purposes of determining the Grantors’ rights in the
Collateral, a written agreement to purchase the Collateral or any portion
thereof shall be treated as a sale thereof; the Collateral Agent shall be free
to carry out such sale pursuant to such agreement and no Grantor shall be
entitled to the return of the Collateral or any portion thereof subject thereto,
notwithstanding the fact that after the Collateral Agent shall have entered into
such an agreement all Events of Default shall have been remedied and the Secured
Obligations paid in full, provided, however, that such terms shall include all
terms and restrictions that customarily required to ensure the continuing
validity and effectiveness of the Intellectual Property at issue, such as,
without limitation, quality control and inure provisions

 

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with regard to Trademarks, patent designation provisions with regard to patents,
and copyright notices and restrictions or decompilation and reverse engineering
of copyrighted software.  As an alternative to exercising the power of sale
herein conferred upon it, the Collateral Agent may proceed by a suit or suits at
law or in equity to foreclose this Agreement and to sell the Collateral or any
portion thereof pursuant to a judgment or decree of a court or courts having
competent jurisdiction or pursuant to a proceeding by a court appointed
receiver.  Any sale pursuant to the provisions of this Section 5.01 shall be
deemed to conform to the commercially reasonable standards as provided in
Section 9-610(b) of the New York UCC or its equivalent in other jurisdictions.

 

Each Grantor irrevocably makes, constitutes and appoints the Collateral Agent
(and all officers, employees or agents designated by the Collateral Agent) as
such Grantor’s true and lawful agent (and attorney-in-fact) during the
continuance of an Event of Default and after notice to the Borrower of its
intent to exercise such rights (except in the case of a Bankruptcy Event of
Default, in which case no such notice shall be required), for the purpose of
(i) making, settling and adjusting claims in respect of Article 9 Collateral
under policies of insurance, endorsing the name of such Grantor on any check,
draft, instrument or other item of payment for the proceeds of such policies of
insurance, (ii) making all determinations and decisions with respect thereto and
(iii) obtaining or maintaining the policies of insurance required by
Section 6.07 of the Credit Agreement or to pay any premium in whole or in part
relating thereto.  All sums disbursed by the Collateral Agent in connection with
this paragraph, including reasonable attorneys’ fees, court costs, expenses and
other charges relating thereto, shall be payable, within 10 days of demand, by
the Grantors to the Collateral Agent and shall be additional Secured Obligations
secured hereby.

 

By accepting the benefits of this Agreement and each other Collateral Document,
the Secured Parties expressly acknowledge and agree that this Agreement and each
other Collateral Document may be enforced only by the action of the Collateral
Agent acting upon the instructions of the Required Lenders and that no other
Secured Party shall have any right individually to seek to enforce or to enforce
this Agreement or to realize upon the security to be granted hereby, it being
understood and agreed that such rights and remedies may be exercised by the
Collateral Agent for the benefit of the Secured Parties upon the terms of this
Agreement and the other Collateral Documents.

 

Section 5.02.  Application of Proceeds.  The Collateral Agent shall apply the
proceeds of any collection or sale of Collateral, including any Collateral
consisting of cash, in accordance with the provisions of Section 8.04 of the
Credit Agreement.  The Collateral Agent shall have absolute discretion as to the
time of application of any such proceeds, moneys or balances in accordance with
this Agreement.  Upon any sale of Collateral by the Collateral Agent (including
pursuant to a power of sale granted by statute or under a judicial proceeding),
the receipt of the Collateral Agent or of the officer making the sale shall be a
sufficient discharge to the purchaser or purchasers of the Collateral so sold
and such purchaser or purchasers shall not be obligated to see to the
application of any part of the purchase money paid over to the Collateral Agent
or such officer or be answerable in any way for the misapplication thereof.  It
is understood and agreed that the Grantors shall remain jointly and severally
liable to the extent of any deficiency between the amount of the proceeds of the
Collateral and the aggregate amount of the Secured Obligations.

 

24

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ARTICLE VI

 

Indemnity, Subrogation and Subordination

 

Section 6.01.  Indemnity.  In addition to all such rights of indemnity and
subrogation as the Grantors may have under applicable law (but subject to
Section 6.03), each Guaranteed Party (as defined in the Guaranty) agrees that,
in the event any assets of any Grantor shall be sold pursuant to this Agreement
or any other Collateral Document to satisfy in whole or in part an Obligation
owing by such Guaranteed Party to any Secured Party (other than a sale of assets
to which Section 6.02 applies) to its capacity as a Guarantor under its
Guaranty), such Guaranteed Party shall indemnify such Grantor in an amount equal
to the fair market value of the assets so sold.

 

Section 6.02.  Contribution and Subrogation.  Each Subsidiary Party (a
“Contributing Party”) agrees (subject to Section 6.03) that, in the event a
payment shall be made  by any other Subsidiary Party (the “Claiming Party”)
hereunder in respect of the Secured Obligations under this Agreement or any
other Collateral Document as a result of a sale of assets by such Subsidiary
Party that shall not have been fully indemnified by the relevant Guaranteed
Party as provided in Section 6.01 (a “Relevant Payment”), the Claiming Party
shall have a right to contribution against each Contributing Party in an amount
equal to the amount of such Relevant Payment, multiplied by a fraction of which
(x) the numerator shall be the Adjusted Net Worth of the relevant Contributing
Party and (y) the denominator shall be the aggregate Adjusted Net Worth of all
the Subsidiary Parties, in each case calculated on the date that the Relevant
Payment is made.

 

(b)                                 All contribution obligations or rights of
each Subsidiary Party shall (i) arise at the time of a Relevant Payment by any
Subsidiary Party and (ii) be revised and restated as of the date of a Relevant
Payment by any Subsidiary Party, taking into account all prior Relevant Payments
by all Subsidiary Parties for which a right to contribution (or any part
thereof) exists.

 

(c)                                  Notwithstanding anything to the contrary in
this Section 6.02, any Subsidiary Party that is released from this Agreement
pursuant to Section 7.13 hereof shall thereafter have no contribution
obligations, or rights, pursuant to this Section 6.02, and at the time of any
such release, the contribution rights and obligations of the remaining
Subsidiary Parties shall be recalculated on the respective date of release based
on any prior Relevant Payments made by any of the remaining Subsidiary Parties
for which a right to contribution (or any part thereof) exists.

 

(d)                                 Each of the Subsidiary Parties recognizes
and acknowledges that the rights to contribution arising hereunder shall
constitute an asset in favor of the party entitled to such contribution.  In
this connection, each Subsidiary Party has the right to waive its contribution
right against any other Subsidiary Party to the extent that after giving effect
to such waiver such Subsidiary Party would remain solvent, in the determination
of the Required Lenders.

 

25

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(e)                                  Any Contributing Party making any payment
to a Claiming Party pursuant to this Section 3.02 shall be subrogated to the
rights of such Claiming Party to the extent of such payment.

 

Section 6.03.  Subordination.  Notwithstanding any provision of this Agreement
to the contrary, all rights of the Grantors under Sections 6.01 and 6.02 and all
other rights of indemnity, contribution or subrogation under applicable law or
otherwise shall be fully subordinated to the indefeasible payment in full in
cash of the Secured Obligations; provided that if any amount shall be paid to
such Grantor on account of such subrogation rights at any time prior to the
irrevocable payment in full in cash of all the Secured Obligations, such amount
shall be held in trust for the benefit of the Secured Parties and shall
forthwith be paid to the Collateral Agent to be credited and applied against the
Secured Obligations, whether matured or unmatured, in accordance with
Section 5.02(a) of this Agreement.  No failure on the part of any Borrower or
any Grantor to make the payments required by Sections 6.01 and 6.02 (or any
other payments required under applicable law or otherwise) shall in any respect
limit the obligations and liabilities of any Grantor with respect to its
obligations hereunder, and each Grantor shall remain liable for the full amount
of the obligations of such Grantor hereunder.

 

ARTICLE VII

 

Miscellaneous

 

Section 7.01.  Notices.  All communications and notices hereunder shall (except
as otherwise expressly permitted herein) be in writing and given as provided in
Section 10.02 of the Credit Agreement.  All communications and notices hereunder
to any Subsidiary Party shall be given to it in care of the Borrower as provided
in Section 10.02 of the Credit Agreement.

 

Section 7.02.  Waivers; Amendment.  (a)No failure or delay by the Collateral
Agent or any Lender in exercising any right, remedy, power or privilege
hereunder or under any other Loan Document shall operate as a waiver thereof,
nor shall any single or partial exercise of any such right, remedy, power or
privilege, or any abandonment or discontinuance of steps to enforce such a
right, remedy, power or privilege, preclude any other or further exercise
thereof or the exercise of any other right, remedy, power or privilege.  The
rights, remedies, powers and privileges of the Collateral Agent and the Lenders
hereunder and under the other Loan Documents are cumulative and are not
exclusive of any rights remedies, powers or privileges that they would otherwise
have.  No waiver of any provision of this Agreement or consent to any departure
by any Loan Party therefrom shall in any event be effective unless the same
shall be permitted by paragraph (b) of this Section 7.02, and then such waiver
or consent shall be effective only in the specific instance and for the purpose
for which given.  Without limiting the generality of the foregoing, the making
of a Loan shall not be construed as a waiver of any Default, regardless of
whether the Collateral Agent or any Lender may have had notice or knowledge of
such Default at the time.  No notice or demand on any Loan Party in any case
shall entitle any Loan Party to any other or further notice or demand in similar
or other circumstances.

 

(b)                                 Neither this Agreement nor any provision
hereof may be waived, amended or modified except pursuant to an agreement or
agreements in writing entered into by the Collateral Agent and the Loan Party or
Loan Parties with respect to which such waiver,

 

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amendment or modification is to apply, subject to any consent required in
accordance with Section 10.01 of the Credit Agreement.

 

Section 7.03.  Collateral Agent’s Fees and Expenses; Indemnification.  (a)The
parties hereto agree that the Collateral Agent shall be entitled to
reimbursement of its expenses incurred hereunder as provided in Section 10.04 of
the Credit Agreement.

 

(b)                                 Without limitation of its indemnification
obligations under the other Loan Documents, the Borrower agrees to indemnify the
Collateral Agent and the other Indemnitees (as defined in Section 10.05 of the
Credit Agreement) against, and hold each Indemnitee harmless from, any and all
losses, claims, damages, liabilities and related expenses, including the
reasonable fees, charges and disbursements of any counsel for any Indemnitee,
incurred by or asserted against any Indemnitee arising out of, in connection
with, or as a result of, the execution, delivery, performance or enforcement of
this Agreement or any claim, litigation, investigation or proceeding relating to
any of the foregoing agreement or instrument contemplated hereby, or to the
Collateral, whether or not any Indemnitee is a party thereto; provided that such
indemnity shall not, as to any Indemnitee, be available to the extent that such
losses, claims, damages, liabilities or related expenses are determined by a
court of competent jurisdiction by final and nonappealable judgment to have
resulted from the gross negligence or willful misconduct of such Indemnitee or
of any Affiliate, director, officer, employee, counsel, agent, trustee,
investment advisor or attorney-in-fact of such Indemnitee.

 

(c)                                  Any such amounts payable as provided
hereunder shall be additional Secured Obligations secured hereby and by the
other Collateral Documents.  The provisions of this Section 7.03 shall remain
operative and in full force and effect regardless of the termination of this
Agreement or any other Loan Document, the consummation of the transactions
contemplated hereby, the repayment of any of the Secured Obligations, the
invalidity or unenforceability of any term or provision of this Agreement or any
other Loan Document, or any investigation made by or on behalf of the Collateral
Agent or any other Secured Party.  All amounts due under this Section 7.03 shall
be payable within 10 Business Days of written demand therefor.

 

Section 7.04.  Successors and Assigns.  Whenever in this Agreement any of the
parties hereto is referred to, such reference shall be deemed to include the
permitted successors and assigns of such party; and all covenants, promises and
agreements by or on behalf of any Grantor or the Collateral Agent that are
contained in this Agreement shall bind and inure to the benefit of their
respective successors and assigns.

 

Section 7.05.  Survival of Agreement.  All covenants, agreements,
representations and warranties made by the Loan Parties in the Loan Documents
and in the certificates or other instruments prepared or delivered in connection
with or pursuant to this Agreement or any other Loan Document shall be
considered to have been relied upon by the Lenders and shall survive the
execution and delivery of the Loan Documents and the making of any Loans,
regardless of any investigation made by any Lender or on its behalf and
notwithstanding that the Collateral Agent or any Lender may have had notice or
knowledge of any Default or incorrect representation or warranty at the time any
credit is extended under the Credit Agreement, and shall continue in full force
and effect as long as the principal of or any accrued interest on any

 

27

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Loan or any fee or any other amount payable under any Loan Document is
outstanding and unpaid and so long as the Commitments have not expired or
terminated.

 

Section 7.06.  Counterparts; Effectiveness; Several Agreement.  This Agreement
may be executed in counterparts, each of which shall constitute an original but
all of which when taken together shall constitute a single contract.  Delivery
of an executed signature page to this Agreement by facsimile transmission shall
be as effective as delivery of a manually signed counterpart of this Agreement. 
This Agreement shall become effective as to any Loan Party when a counterpart
hereof executed on behalf of such Loan Party shall have been delivered to the
Collateral Agent and a counterpart hereof shall have been executed on behalf of
the Collateral Agent, and thereafter shall be binding upon such Loan Party and
the Collateral Agent and their respective permitted successors and assigns, and
shall inure to the benefit of such Loan Party, the Collateral Agent and the
other Secured Parties and their respective successors and assigns, except that
no Loan Party shall have the right to assign or transfer its rights or
obligations hereunder or any interest herein or in the Collateral (and any such
assignment or transfer shall be void) except as expressly contemplated by this
Agreement or the Credit Agreement.  This Agreement shall be construed as a
separate agreement with respect to each Loan Party and may be amended, modified,
supplemented, waived or released with respect to any Loan Party without the
approval of any other Loan Party and without affecting the obligations of any
other Loan Party hereunder.

 

Section 7.07.  Severability.  Any provision of this Agreement held to be
invalid, illegal or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such invalidity, illegality or
unenforceability without affecting the validity, legality and enforceability of
the remaining provisions hereof; and the invalidity of a particular provision in
a particular jurisdiction shall not invalidate such provision in any other
jurisdiction.  The parties shall endeavor in good faith negotiations to replace
the invalid, illegal or unenforceable provisions with valid provisions the
economic effect of which comes as close as possible to that of the invalid,
illegal or unenforceable provisions.

 

Section 7.08.  Right of Set-Off.  In addition to any rights and remedies of the
Lenders provided by Law, upon the occurrence and during the continuance of any
Event of Default, each Lender and its Affiliates is authorized at any time and
from time to time, without prior notice to the Borrower or any other Loan Party,
any such notice being waived by the Borrower and each Loan Party to the fullest
extent permitted by applicable Law, to set off and apply any and all deposits
(general or special, time or demand, provisional or final) at any time held by,
and other Indebtedness at any time owing by, such Lender and its Affiliates to
or for the credit or the account of the respective Loan Parties against any and
all obligations owing to such Lender and its Affiliates hereunder, now or
hereafter existing, irrespective of whether or not such Lender or Affiliate
shall have made demand under this Agreement and although such obligations may be
contingent or unmatured or denominated in a currency different from that of the
applicable deposit or Indebtedness.  Each Lender agrees promptly to notify the
Borrower and the Collateral Agent after any such set off and application made by
such Lender; provided, that the failure to give such notice shall not affect the
validity of such setoff and application.  The rights of each Lender under this
Section 7.08 are in addition to other rights and remedies (including other
rights of setoff) that such Lender may have.

 

28

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Section 7.09.  GOVERNING LAW.  (a) THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK;

 

(b)                                 ANY LEGAL ACTION OR PROCEEDING ARISING UNDER
THIS AGREEMENT OR IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE
DEALINGS OF THE PARTIES HERETO OR FOR RECOGNITION OR ENFORCEMENT OF ANY
JUDGMENT, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, MAY BE BROUGHT
IN THE COURTS OF THE STATE OF NEW YORK SITTING IN NEW YORK CITY OR OF THE UNITED
STATES FOR THE SOUTHERN DISTRICT OF SUCH STATE, AND BY EXECUTION AND DELIVERY OF
THIS AGREEMENT, THE BORROWER AND THE COLLATERAL AGENT EACH CONSENTS FOR ITSELF
AND IN RESPECT OF ITS PROPERTY, TO THE NON-EXCLUSIVE JURISDICTION OF THOSE
COURTS.  THE BORROWER AND THE COLLATERAL AGENT IRREVOCABLY WAIVE ANY OBJECTION,
INCLUDING ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM
NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY ACTION
OR PROCEEDING IN SUCH JURISDICTION, OR OTHER JURISDICTION SELECTED BY THE
COLLATERAL AGENT IN RESPECT OF THIS AGREEMENT.

 

Section 7.10.  WAIVER OF RIGHT TO TRIAL BY JURY.  EACH PARTY TO THIS AGREEMENT
HEREBY EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION
OR CAUSE OF ACTION ARISING UNDER THIS AGREEMENT OR IN ANY WAY CONNECTED WITH OR
RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO, IN EACH CASE
WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER FOUNDED IN CONTRACT OR
TORT OR OTHERWISE; AND EACH PARTY HEREBY AGREES AND CONSENTS THAT ANY SUCH
CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT
A JURY, AND THAT ANY PARTY TO THIS AGREEMENT MAY FILE AN ORIGINAL COUNTERPART OR
A COPY OF THIS SECTION 7.10 WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF
THE SIGNATORIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.

 

Section 7.11.  Headings.  Article and Section headings and the Table of Contents
used herein are for convenience of reference only, are not part of this
Agreement and are not to affect the construction of, or to be taken into
consideration in interpreting, this Agreement.

 

Section 7.12.  Security Interest Absolute.  All rights of the Collateral Agent
hereunder, the Security Interest, the grant of a security interest in the
Pledged Collateral and all obligations of each Grantor hereunder shall be
absolute and unconditional irrespective of (a) any lack of validity or
enforceability of the Credit Agreement, any other Loan Document, the Secured
Hedge Agreements, any agreement with respect to any of the Secured Obligations
or any other agreement or instrument relating to any of the foregoing, (b) any
change in the time, manner or place of payment of, or in any other term of, all
or any of the Secured Obligations, or any other amendment or waiver of or any
consent to any departure from the Credit Agreement, any other Loan Document, the
Secured Hedge Agreements or any other agreement or instrument,

 

29

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(c) any exchange, release or non-perfection of any Lien on other collateral, or
any release or amendment or waiver of or consent under or departure from any
guarantee, securing or guaranteeing all or any of the Secured Obligations or (d)
subject only to termination of a Guarantor’s obligations hereunder in accordance
with the terms of Section 7.13, but without prejudice to reinstatement rights
under Section 2.04 of the Guaranty Agreement, any other circumstance that might
otherwise constitute a defense available to, or a discharge of, any Grantor in
respect of the Secured Obligations or this Agreement.

 

Section 7.13.  Termination or Release.  (a) This Agreement, the Security
Interest and all other security interests granted hereby shall terminate with
respect to all Secured Obligations when all the outstanding Secured Obligations
(other than obligations that may thereafter in with respect of the Secured
Hedging Agreements not yet due and payable and contingent indemnification
obligations not yet accrued and payable) have been indefeasibly paid in full in
cash and the Lenders have no further commitment to lend under the Credit
Agreement provided, however, that in connection with the termination of this
Agreement, the Administrative Agent may require such indemnities as it shall
reasonably deem necessary or appropriate to protect the Secured Parties against
(x) loss on account of credits previously applied to the Secured Obligations
that may subsequently be reversed or revoked, and (y) any obligations that may
thereafter arise with respect to the Secured Hedge Agreements to the extent not
provided for thereunder.

 

(b)                                 A Subsidiary Party shall automatically be
released from its obligations hereunder and the Security Interest in the
Collateral of such Subsidiary Party shall be automatically released upon the
consummation of any transaction permitted by the Credit Agreement as a result of
which such Subsidiary Party ceases to be a Subsidiary of the Borrower; provided
that the Required Lenders shall have consented to such transaction (to the
extent required by the Credit Agreement) and the terms of such consent did not
provide otherwise.

 

(c)                                  Upon any sale or other transfer by any
Grantor of any Collateral that is permitted under the Credit Agreement, or upon
the effectiveness of any written consent to the release of the security interest
granted hereby in any Collateral pursuant to Section 10.01 of the Credit
Agreement, the security interest in such Collateral shall be automatically
released.

 

(d)                                 In connection with any termination or
release pursuant to paragraph (a), (b), or (c), the Collateral Agent shall
promptly execute and deliver to any Grantor, at such Grantor’s expense, all
documents that such Grantor shall reasonably request to evidence such
termination or release.  Any execution and delivery of documents pursuant to
this Section 7.13 shall be without recourse to or warranty by the Collateral
Agent.

 

(e)                                  At any time that the respective Grantor
desires that the Collateral Agent take any action described in immediately
preceding clause (d), it shall, upon request of the Collateral Agent, deliver to
the Collateral Agent an officer’s certificate certifying that the release of the
respective Collateral is permitted pursuant to paragraph (a), (b) or (c).  The
Collateral Agent shall have no liability whatsoever to any Secured Party as the
result

 

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of any release of Collateral by it as permitted (or which the Collateral Agent
in good faith believes to be permitted) by this Section 7.13.

 

Section 7.14.  Additional Restricted Subsidiaries.  Pursuant to Section 6.11 of
the Credit Agreement, certain Restricted Subsidiaries of the Loan Parties that
were not in existence or not Restricted Subsidiaries on the date of the Credit
Agreement are required to enter in this Agreement as Subsidiary Parties upon
becoming Restricted Subsidiaries.  Upon execution and delivery by the Collateral
Agent and a Restricted Subsidiary of a Security Agreement Supplement, such
Restricted Subsidiary shall become a Subsidiary Party hereunder with the same
force and effect as if originally named as a Subsidiary Party herein.  The
execution and delivery of any such instrument shall not require the consent of
any other Loan Party hereunder.  The rights and obligations of each Loan Party
hereunder shall remain in full force and effect notwithstanding the addition of
any new Loan Party as a party to this Agreement.

 

Section 7.15.  Collateral Agent Appointed Attorney-in-Fact.  Each Grantor hereby
appoints the Collateral Agent the attorney-in-fact of such Grantor for the
purpose of carrying out the provisions of this Agreement and taking any action
and executing any instrument that the Collateral Agent may deem necessary or
advisable to accomplish the purposes hereof at any time after and during the
continuance of an Event of Default, which appointment is irrevocable and coupled
with an interest.  Without limiting the generality of the foregoing, the
Collateral Agent shall have the right, upon the occurrence and during the
continuance of an Event of Default and (unless a Bankruptcy Event of Default has
occurred and is continuing) delivery of notice by the Collateral Agent to the
Borrower of its intent to exercise such rights, with full power of substitution
either in the Collateral Agent’s name or in the name of such Grantor (a) to
receive, endorse, assign and/or deliver any and all notes, acceptances, checks,
drafts, money orders or other evidences of payment relating to the Collateral or
any part thereof; (b) to demand, collect, receive payment of, give receipt for
and give discharges and releases of all or any of the Collateral; (c) to sign
the name of any Grantor on any invoice or bill of lading relating to any of the
Collateral; (d) to send verifications of Accounts to any Account Debtor; (e) to
commence and prosecute any and all suits, actions or proceedings at law or in
equity in any court of competent jurisdiction to collect or otherwise realize on
all or any of the Collateral or to enforce any rights in respect of any
Collateral; (f) to settle, compromise, compound, adjust or defend any actions,
suits or proceedings relating to all or any of the Collateral; (g) to notify, or
to require any Grantor to notify, Account Debtors to make payment directly to
the Collateral Agent or to a Collateral Account and adjust, settle or compromise
the amount of payment of any Account; and (h) to use, sell, assign, transfer,
pledge, make any agreement with respect to or otherwise deal with all or any of
the Collateral, and to do all other acts and things necessary to carry out the
purposes of this Agreement, as fully and completely as though the Collateral
Agent were the absolute owner of the Collateral for all purposes; provided that
nothing herein contained shall be construed as requiring or obligating the
Collateral Agent to make any commitment or to make any inquiry as to the nature
or sufficiency of any payment received by the Collateral Agent, or to present or
file any claim or notice, or to take any action with respect to the Collateral
or any part thereof or the moneys due or to become due in respect thereof or any
property covered thereby.  The Collateral Agent and the other Secured Parties
shall be accountable only for amounts actually received as a result of the
exercise of the powers granted to them herein, and neither they nor their
officers, directors, employees or agents shall be responsible to any Grantor for
any act or failure to act

 

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hereunder, except for their own gross negligence or willful misconduct or that
of any of their Affiliates, directors, officers, employees, counsel, agents or
attorneys-in-fact.

 

Section 7.16.  General Authority of the Collateral Agent.  By acceptance of the
benefits of this Agreement and any other Collateral Documents, each Secured
Party (whether or not a signatory hereto) shall be deemed irrevocably (a) to
consent to the appointment of the Collateral Agent as its agent hereunder and
under such other Collateral Documents, (b) to confirm that the Collateral Agent
shall have the authority to act as the exclusive agent of such Secured Party for
the enforcement of any provisions of this Agreement and such other Collateral
Documents against any Grantor, the exercise of remedies hereunder or thereunder
and the giving or withholding of any consent or approval hereunder or thereunder
relating to any Collateral or any Grantor’s obligations with respect thereto,
(c) to agree that it shall not take any action to enforce any provisions of this
Agreement or any other Collateral Document against any Grantor, to exercise any
remedy hereunder or thereunder or to give any consents or approvals hereunder or
thereunder except as expressly provided in this Agreement or any other
Collateral Document and (d) to agree to be bound by the terms of this Agreement
and any other Collateral Documents.

 

Section 7.17.  Recourse; Limited Obligations.  This Agreement is made with full
recourse to each Grantor and pursuant to and upon all the warranties,
representations, covenants and agreements on the part of such Grantor contained
herein, in the Loan Documents and the other Secured Credit Documents and
otherwise in writing in connection herewith or therewith, with respect to the
Secured Obligations of each applicable Secured Party.  It is the desire and
intent of each Grantor and each applicable Secured Party that this Agreement
shall be enforced against each Grantor to the fullest extent permissible under
the laws applied in each jurisdiction in which enforcement is sought. 
Notwithstanding anything to the contrary contained herein, and in furtherance of
the foregoing, it is noted that the obligations of each Grantor that is a
Subsidiary Party have been limited as expressly provided in the Subsidiary
Guaranty and are limited hereunder as and to the same extent provided therein.

 

Section 7.18.  Mortgages.  In the event that any of the Collateral  hereunder is
also subject to a valid and enforceable Lien under the terms of a Mortgage and
the terms thereof are inconsistent with the terms of this Agreement, then with
respect to such Collateral, the terms of such Mortgage shall control in the case
of Fixtures and real estate leases, letting and licenses of, and contracts, and
agreements relating to the lease of, real property, and the terms of this
Agreement shall control in the case of all other Collateral.

 

Section 7.19.  Intercreditor Agreement.  The Grantors and the Collateral Agent
acknowledge that the exercise of certain of the Collateral Agent’s rights and
remedies hereunder may be subject to, and restricted by, the provisions of the
Intercreditor Agreement.  Nothing contained in the Intercreditor Agreement shall
be deemed to modify any of the provisions of this Agreement, which, as among the
Grantors and the Collateral Agent shall remain in full force and effect.

 

Section 7.20.  Collections Without the prior written consent of the Collateral
Agent, no Grantor shall modify or amend the instructions pursuant to any of the
Credit Card Notifications, or the Blocked Account Agreements (in each case as
defined in the ABL Credit Agreement).  So long as no Event of Default under
Sections 8.01(a), 8.01(f) or 8.01(g) of the

 

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Credit Agreement has occurred and is continuing, each Grantor shall, and the
Collateral Agent hereby authorizes each Grantor to, enforce and collect all
amounts owing on the Inventory and Accounts, for the benefit and on behalf of
the Collateral Agent and the other Secured Parties; provided, however, that such
authorization may, at the direction of the Collateral Agent, be terminated after
the occurrence and during the continuance of any Event of Default under Sections
8.01(a), 8.01(f) or 8.01(g) of the Credit Agreement.

 

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IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of
the day and year first above written.

 

 

MICHAELS STORES, INC.

 

 

 

 

 

By:

/s/ Jeffrey N. Boyer

 

 

Title:   President and Chief Financial Officer

 

 

 

AARON BROTHERS, INC.

 

 

 

 

 

By:

/s/ Lisa K. Klinger

 

 

Title:   Vice President and Treasurer

 

 

 

MICHAELS FINANCE COMPANY, INC.

 

 

 

 

 

By:

/s/ Jeffrey N. Boyer

 

 

Title:   President and Chief Financial Officer

 

 

 

MICHAELS STORES CARD SERVICES, LLC

 

 

 

 

 

By:

/s/ Jeffrey N. Boyer

 

 

Title:   President

 

 

 

MICHAELS STORES PROCUREMENT COMPANY, INC.

 

 

 

 

 

By:

/s/ Jeffrey N. Boyer

 

 

Title:   President and Chief Financial Officer

 

 

 

ARTISTREE, INC.

 

 

 

 

 

By:

/s/ Lisa K. Klinger

 

 

Title:   Vice President and Treasurer

 

 

 

MICHAELS OF CANADA, ULC

 

 

 

 

 

By:

/s/ Jeffrey N. Boyer

 

 

Name: Jeffrey N. Boyer

 

 

Title:   President

 

34

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DEUTSCHE BANK AG NEW YORK BRANCH, as Collateral Agent,

 

 

 

 

 

By:

/s/ Marguerite Sutton

 

 

Title: Director

 

 

 

 

 

 

 

By:

/s/ Omayra Laucella

 

 

Title: Vice President

 

35

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SCHEDULE I
To Security Agreement

 

SUBSIDIARY PARTIES

 

1.              Aaron Brothers, Inc., a Delaware corporation

 

2.              Artistree, Inc., a Delaware corporation

 

3.              Michaels Finance Company, Inc., a Delaware corporation

 

4.              Michaels Stores Card Services, LLC, a Virginia limited liability
company

 

5.              Michaels Stores Procurement Company, Inc., a Delaware
corporation

 

6.              Michaels of Canada, ULC, a Nova Scotia unlimited liability
company

 

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SCHEDULE II
To Security Agreement

 

EQUITY INTERESTS

 

Issuer

 

Number of
Certificate

 

Registered
Owner

 

Number and
Class of
Equity Interest

 

Percentage
of Equity Interests

 

Aaron Brothers, Inc.

 

005

 

Michaels Stores, Inc.

 

100
Common

 

100

%

 

 

 

 

 

 

 

 

 

 

Michaels Finance Company, Inc.

 

001

 

Michaels Stores, Inc.

 

100

Common

 

100

%

 

 

 

 

 

 

 

 

 

 

Michaels Stores Card Services, LLC

 

001

 

Michaels Stores, Inc.

 

100

Membership Interests

 

100

%

 

 

 

 

 

 

 

 

 

 

Michaels Stores Procurement Company, Inc.

 

001

 

Michaels Stores, Inc.

 

100

Common

 

100

%

 

 

 

 

 

 

 

 

 

 

Artistree, Inc.

 

001

 

Michaels Stores Procurement Company, Inc.

 

100
Common

 

100

%

 

PROMISSORY NOTES

 

Issuer

 

Principal
Amount as of the date of
Issuance (or delivery)

 

Date of Promissory
Note/Instrument

 

Maturity Date

Michaels Stores Procurement Company, Inc.

 

$

1,090,000,000

 

12/31/2003

 

12/31/2018

 

--------------------------------------------------------------------------------

 

SCHEDULE III
To Security Agreement

 

COMMERCIAL TORT CLAIMS

 

None.

 

--------------------------------------------------------------------------------

 

SCHEDULE IV
To Security Agreement

 

U.S. COPYRIGHTS OWNED BY AARON BROTHERS, INC.

 

U.S. Copyright Registrations

 

None.

 

Pending U.S. Copyright Applications for Registration

 

None.

 

--------------------------------------------------------------------------------

 

U.S. COPYRIGHTS OWNED BY ARTISTREE, INC.

 

U.S. Copyright Registrations

 

None.

 

Pending U.S. Copyright Applications for Registration

 

None.

 

--------------------------------------------------------------------------------

 

U.S. COPYRIGHTS OWNED BY MICHAELS FINANCE COMPANY, INC.

 

U.S. Copyright Registrations

 

None.

 

Pending U.S. Copyright Applications for Registration

 

None.

 

--------------------------------------------------------------------------------

 

U.S. COPYRIGHTS OWNED BY MICHAELS STORES CARD SERVICES, LLC

 

U.S. Copyright Registrations

 

None.

 

Pending U.S. Copyright Applications for Registration

 

None.

 

--------------------------------------------------------------------------------

 

U.S. COPYRIGHTS OWNED BY MICHAELS STORES PROCUREMENT COMPANY, INC.

 

U.S. Copyright Registrations

 

None.

 

Pending U.S. Copyright Applications for Registration

 

None.

 

--------------------------------------------------------------------------------

 

U.S. COPYRIGHTS OWNED BY MICHAELS STORES, INC.

 

U.S. Copyright Registrations

 

None.

 

Pending U.S. Copyright Applications for Registration

 

None.

 

--------------------------------------------------------------------------------

 

U.S. COPYRIGHTS OWNED BY MICHAELS OF CANADA, ULC

 

U.S. Copyright Registrations

 

None.

 

Pending U.S. Copyright Applications for Registration

 

None.

 

--------------------------------------------------------------------------------

 

PATENTS OWNED BY AARON BROTHERS, INC.

 

U.S. Patent Registrations

 

None.

 

U.S. Patent Applications

 

None.

 

--------------------------------------------------------------------------------

 

PATENTS OWNED BY ARTISTREE, INC.

 

U.S. Patent Registrations

 

None.

 

U.S. Patent Applications

 

None.

 

--------------------------------------------------------------------------------

 

PATENTS OWNED BY MICHAELS FINANCE COMPANY, INC.

 

U.S. Patent Registrations

 

None.

 

U.S. Patent Applications

 

None.

 

--------------------------------------------------------------------------------

 

PATENTS OWNED BY MICHAELS STORES CARD SERVICES, LLC

 

U.S. Patent Registrations

 

None.

 

U.S. Patent Applications

 

None.

 

--------------------------------------------------------------------------------

 

PATENTS OWNED BY MICHAELS STORES PROCUREMENT COMPANY, INC.

 

U.S. Patent Registrations

 

None.

 

U.S. Patent Applications

 

None.

 

--------------------------------------------------------------------------------

 

PATENTS OWNED BY MICHAELS STORES, INC.

 

U.S. Patent Registrations

 

None.

 

U.S. Patent Applications

 

None.

 

--------------------------------------------------------------------------------

 

PATENTS OWNED BY MICHAELS OF CANADA, ULC

 

U.S. Patent Registrations

 

None.

 

U.S. Patent Applications

 

None.

 

--------------------------------------------------------------------------------

 

TRADEMARK/TRADE NAMES OWNED BY AARON BROTHERS, INC.

 

U.S. Trademark Registrations

 

Mark

 

Reg. Date

 

Reg. No.

Aaron Brothers

 

05/16/89

 

1539734

Aaron Brothers Art Marts

 

05/16/89

 

1539735

Aaron Brothers Art Marts

 

06/06/89

 

1542560

Express Yourself

 

05/30/00

 

2352964

What a Difference a Mat Makes

 

03/13/01

 

2435148

You Make the Memories. We Make Them Last.

 

03/13/01

 

2435149

 

 

 

 

 

Aaron Brothers Art & Framing

 

03/13/01

 

2435150

Aaron Brothers Art & Framing

 

03/13/01

 

2435151

One Cent Frame Sale

 

03/20/01

 

2436920

1¢ Frame Sale

 

04/03/01

 

2440744

Timeframe Professional Framing. While you Shop.

 

07/02/02

 

2588495

 

 

 

 

 

Timeframe

 

07/02/02

 

2588496

We Frame the Things You Love

 

12/13/05

 

3026118

We Frame the Things You Love

 

01/24/06

 

3048037

 

U.S. Trademark Applications

 

Mark

 

Filing Date

 

Application No.

Life is Art. Frame It.

 

11/26/03

 

76561947

Life is Art. Frame It.

 

11/26/03

 

76561948

Life is Art. Frame It.

 

11/26/03

 

76561949

Life is Art. Frame It.

 

01/03/05

 

76626641

Aaron Brothers Best

 

04/18/05

 

76636205

Aaron Brothers Best

 

04/18/05

 

76636206

Aaron Brothers Best

 

04/18/05

 

76636207

 

--------------------------------------------------------------------------------

 

TRADEMARK/TRADE NAMES OWNED BY ARTISTREE, INC.

 

U.S. Trademark Registrations

 

None.

 

U.S. Trademark Applications

 

None.

 

--------------------------------------------------------------------------------

 

TRADEMARK/TRADE NAMES OWNED BY MICHAELS FINANCE COMPANY, INC.

 

U.S. Trademark Registrations

 

None.

 

U.S. Trademark Applications

 

None.

 

--------------------------------------------------------------------------------

 

TRADEMARK/TRADE NAMES OWNED BY MICHAELS STORES
CARD SERVICES, LLC

 

U.S. Trademark Registrations

 

None.

 

U.S. Trademark Applications

 

None.

 

--------------------------------------------------------------------------------

 

TRADEMARK/TRADE NAMES OWNED BY MICHAELS STORES
PROCUREMENT COMPANY, INC.

 

U.S. Trademark Registrations

 

Mark

 

Reg. Date

 

Reg. No.

Michaels

 

01/04/83

 

1222952

Michaels

 

12/25/84

 

1311589

Crafts & More

 

02/28/89

 

1527525

Moskatel’s

 

09/18/90

 

1614413

Michaels

 

06/30/92

 

1697669

Michaels

 

07/07/92

 

1699119

Michaels

 

03/23/93

 

1759792

Michaels

 

11/02/93

 

1802039

Kids Club

 

01/14/97

 

2029624

Recollections

 

08/04/98

 

2179582

Michaels the Arts and Crafts Store

 

03/16/99

 

2232360

Kids Club

 

01/11/00

 

2307155

Artistree Art Frame & Design

 

11/28/00

 

2408396

Artistree Art Frame & Design

 

11/28/00

 

2408397

Kids Club Summer Camp

 

02/13/01

 

2428568

Carolina Art & Frame

 

03/06/01

 

2433148

Michaels.com

 

09/04/01

 

2486259

Star Decorators’ Wholesale Warehouse

 

01/08/02

 

2527196

Where Originals Originate.

 

02/12/02

 

2537708

Vendor Connect

 

10/08/02

 

2631443

Michaels.com

 

11/05/02

 

2646441

Create

 

12/17/02

 

2664234

Michaels.com

 

01/14/03

 

2675387

Bright Tidings

 

02/04/03

 

2684520

Michaels.com

 

04/08/03

 

2705025

MMG

 

04/29/03

 

2711937

Crafts & More

 

05/13/03

 

2716080

Michaels Manufacturing Group

 

06/24/03

 

2730052

Village Crafts by Michaels

 

09/16/03

 

2765378

For Weddings as Original as You

 

09/14/04

 

2884979

Sparkling Creations

 

07/12/05

 

2967453

Star Decorators’ Wholesale

 

01/10/06

 

3042282

Recollections

 

01/10/06

 

3042415

Kid Crafted Mom Approved

 

06/27/06

 

3109693

 

U.S. Trademark Applications

 

Mark

 

Filing Date

 

Application No.

Turkey Bucks

 

01/13/05

 

76627803

Michaels Arts, Crafts & More

 

03/22/05

 

76634146

Where Ideas Come Together

 

11/03/05

 

78746568

Experience Paper Crafting

 

11/14/05

 

78753445

Artistree

 

02/13/06

 

78813758

Star Decorators Wholesale

 

02/16/06

 

78816788

 

--------------------------------------------------------------------------------

 

TRADEMARK/TRADE NAMES OWNED BY MICHAELS STORES, INC.

 

U.S. Trademark Registrations

 

None.

 

U.S. Trademark Applications

 

None.

 

--------------------------------------------------------------------------------

 

TRADEMARK/TRADE NAMES OWNED BY MICHAELS OF CANADA, ULC

 

U.S. Trademark Registrations

 

None.

 

U.S. Trademark Applications

 

None.

 

--------------------------------------------------------------------------------

 

DOMAIN NAMES OWNED BY AARON BROTHERS, INC.

 

None.

 

--------------------------------------------------------------------------------

 

DOMAIN NAMES OWNED BY ARTISTREE, INC.

 

None.

 

--------------------------------------------------------------------------------

 

DOMAIN NAMES OWNED BY MICHAELS FINANCE COMPANY, INC.

 

None.

 

--------------------------------------------------------------------------------

 

DOMAIN NAMES OWNED BY MICHAELS STORES CARD SERVICES, LLC

 

None.

 

--------------------------------------------------------------------------------

 

DOMAIN NAMES OWNED BY MICHAELS STORES PROCUREMENT COMPANY, INC.

 

Internet Domain Names

 

Country

 

Registration No. (or other
applicable identifier)

 

 

 

 

 

ship2michaels.com

 

U.S.

 

 

vendorconnect.com

 

U.S.

 

 

michaelsedi.com

 

U.S.

 

 

 

--------------------------------------------------------------------------------

 

DOMAIN NAMES OWNED BY MICHAELS STORES, INC.

 

Internet Domain Names

 

Country

 

Registration No. (or other
applicable identifier)

 

 

 

 

 

aaronbrothers.com

 

U.S.

 

 

ihatemichaels.org

 

U.S.

 

 

i-hate-michaels.org

 

U.S.

 

 

ihatemichaelscrafts.org

 

U.S.

 

 

i-hate-michaels-crafts.org

 

U.S.

 

 

ihatemichaelsstores.org

 

U.S.

 

 

i-hate-michaels-stores.org

 

U.S.

 

 

micahels.org

 

U.S.

 

 

michaels.com

 

U.S.

 

 

michaelsartprints.org

 

U.S.

 

 

michaelscrafts.org

 

U.S.

 

 

michaelscrafts-suck.org

 

U.S.

 

 

michaelscraftsucks.org

 

U.S.

 

 

michaelscraftsux.org

 

U.S.

 

 

michaelsstoressuck.org

 

U.S.

 

 

michaels-stores-suck.org

 

U.S.

 

 

michaelssucks.org

 

U.S.

 

 

michaelssux.org

 

U.S.

 

 

michaelsucks.org

 

U.S.

 

 

michaelsux.org

 

U.S.

 

 

mikels.org

 

U.S.

 

 

mymichaels.org

 

U.S.

 

 

recollectionsonline.com

 

U.S.

 

 

stardecorators.com

 

U.S.

 

 

 

--------------------------------------------------------------------------------

 

DOMAIN NAMES OWNED BY MICHAELS OF CANADA, ULC

 

None.

 

--------------------------------------------------------------------------------

 

U.S. COPYRIGHTS LICENSES OWNED BY AARON BROTHERS, INC.

 

None.

 

--------------------------------------------------------------------------------

 

U.S. COPYRIGHTS LICENSES OWNED BY ARTISTREE, INC.

 

None.

 

--------------------------------------------------------------------------------

 

U.S. COPYRIGHTS LICENSES OWNED BY MICHAELS FINANCE COMPANY, INC.

 

None.

 

--------------------------------------------------------------------------------

 

U.S. COPYRIGHTS LICENSES OWNED BY MICHAELS STORES CARD SERVICES, LLC

 

None.

 

--------------------------------------------------------------------------------

 

U.S. COPYRIGHTS LICENSES OWNED BY MICHAELS STORES
PROCUREMENT COMPANY, INC.

 

None.

 

--------------------------------------------------------------------------------

 

U.S. COPYRIGHTS LICENSES OWNED BY MICHAELS STORES, INC.

 

None.

 

--------------------------------------------------------------------------------

 

U.S. COPYRIGHTS LICENSES OWNED BY MICHAELS OF CANADA, ULC

 

None.

 

--------------------------------------------------------------------------------

 

PATENTS LICENSES OWNED BY AARON BROTHERS, INC.

 

None.

 

3

 

--------------------------------------------------------------------------------

 

PATENTS LICENSES OWNED BY ARTISTREE, INC.

 

None.

 

--------------------------------------------------------------------------------

 

PATENTS LICENSES OWNED BY MICHAELS FINANCE COMPANY, INC.

 

None.

 

--------------------------------------------------------------------------------

 

PATENTS LICENSES OWNED BY MICHAELS STORES CARD SERVICES, LLC

 

None.

 

--------------------------------------------------------------------------------

 

PATENTS LICENSES OWNED BY MICHAELS STORES
PROCUREMENT COMPANY, INC.

 

None.

 

--------------------------------------------------------------------------------

 

PATENTS LICENSES OWNED BY MICHAELS STORES, INC.

 

None.

 

--------------------------------------------------------------------------------

 

PATENTS LICENSES OWNED BY MICHAELS OF CANADA, ULC

 

None.

 

--------------------------------------------------------------------------------

 

TRADEMARK LICENSES OWNED BY AARON BROTHERS, INC.

 

None.

 

--------------------------------------------------------------------------------

 

TRADEMARK LICENSES OWNED BY ARTISTREE, INC.

 

None.

 

--------------------------------------------------------------------------------

 

TRADEMARK LICENSES OWNED BY MICHAELS FINANCE COMPANY, INC.

 

None.

 

--------------------------------------------------------------------------------

 

TRADEMARK LICENSES OWNED BY MICHAELS STORES CARD SERVICES, LLC

 

None.

 

--------------------------------------------------------------------------------

 

TRADEMARK LICENSES OWNED BY MICHAELS STORES
PROCUREMENT COMPANY, INC.

 

None.

 

--------------------------------------------------------------------------------

 

TRADEMARK LICENSES OWNED BY MICHAELS STORES, INC.

 

None.

 

--------------------------------------------------------------------------------

 

TRADEMARK LICENSES OWNED BY MICHAELS OF CANADA, ULC

 

None.

 

--------------------------------------------------------------------------------

 

EXHIBIT I

To Security Agreement

 

SUPPLEMENT NO.      dated as of [·], to the Security Agreement dated as of
October 31, 2006, among MICHAELS STORES, INC. (the “Borrower”) the Subsidiaries
of the Borrower identified therein and DEUTSCHE BANK AG NEW YORK BRANCH, as
Collateral Agent for the Secured Parties (as defined below).

 

A.  Reference is made to (i) the Credit Agreement dated as of October 31, 2006
(as amended, restated, supplemented or otherwise modified from time to time, the
“Credit Agreement”), among the Borrower, Deutsche Bank AG New York Branch, as
Administrative Agent, each Lender from time to time party thereto and JPMorgan
Chase Bank, N.A., as Syndication Agent, (ii) the Borrower Guaranty (as defined
in the Credit Agreement), (iii) the Subsidiary Guaranty (as defined in the
Credit Agreement) and (iv) each Secured Hedge Agreement (as defined in the
Credit Agreement).

 

B.  Capitalized terms used herein and not otherwise defined herein shall have
the meanings assigned to such terms in the Credit Agreement and the Security
Agreement referred to therein.

 

C.  The Grantors have entered into the Security Agreement in order to induce
(x) the Lenders to make Loans and (y) the Hedge Banks to enter into and maintain
Secured Hedge Agreements.  Section 7.14 of the Security Agreement provides that
additional Restricted Subsidiaries of the Borrower may become Subsidiary Parties
under the Security Agreement by execution and delivery of an instrument
substantially in the form of this Supplement.  The undersigned Restricted
Subsidiary (the “New Subsidiary”) is executing this Supplement in accordance
with the requirements of the Credit Agreement to become a Subsidiary Party under
the Security Agreement in order to induce the Lenders to make additional Loans
and as consideration for Loans previously made.

 

Accordingly, the Collateral Agent and the New Subsidiary agree as follows:

 

Section 1.  In accordance with Section 7.14 of the Security Agreement, the New
Subsidiary by its signature below becomes a Subsidiary Party (and accordingly,
becomes a Grantor) and Grantor under the Security Agreement with the same force
and effect as if originally named therein as a Subsidiary Party and the New
Subsidiary hereby (a) agrees to all the terms and provisions of the Security
Agreement applicable to it as a Subsidiary Party and Grantor thereunder and
(b) represents and warrants that the representations and warranties made by it
as a Grantor thereunder are true and correct on and as of the date hereof;
provided that, to the extent that such representations and warranties
specifically refer to an earlier date, they shall be true and correct in all
respects as of such earlier date.  In furtherance of the foregoing, the New
Subsidiary, as security for the payment and performance in full of the Secured
Obligations does hereby create and grant to the Collateral Agent, its successors
and assigns, for the benefit of the Secured Parties, their successors and
assigns, a security interest in and lien on all of the New Subsidiary’s right,
title and interest in and to the Collateral (as defined in the Security
Agreement) of the New Subsidiary.  Each reference to a “Grantor” in the Security
Agreement shall be deemed to include the New Subsidiary.  The Security Agreement
is hereby incorporated herein by reference.

 

--------------------------------------------------------------------------------

 

Section 2.  The New Subsidiary represents and warrants to the Collateral Agent
and the other Secured Parties that this Supplement has been duly authorized,
executed and delivered by it and constitutes its legal, valid and binding
obligation, enforceable against it in accordance with its terms.

 

Section 3.  This Supplement may be executed in counterparts (and by different
parties hereto on different counterparts), each of which shall constitute an
original, but all of which when taken together shall constitute a single
contract.  This Supplement shall become effective when the Collateral Agent
shall have received a counterpart of this Supplement that bears the signature of
the New Subsidiary and the Collateral Agent has executed a counterpart hereof. 
Delivery of an executed signature page to this Supplement by facsimile
transmission shall be as effective as delivery of a manually signed counterpart
of this Supplement.

 

Section 4.  The New Subsidiary hereby represents and warrants that (a) set forth
on Schedule I attached hereto is a true and correct schedule of the location of
any and all Collateral of the New Subsidiary and (b) set forth under its
signature hereto is the true and correct legal name of the New Subsidiary, its
jurisdiction of formation and the location of its chief executive office (or if
different, its “location” as determined in accordance with Section 9-307 of the
Uniform Commercial Code).

 

Section 5.  Except as expressly supplemented hereby, the Security Agreement
shall remain in full force and effect.

 

Section 6.  THIS SUPPLEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE LAWS OF THE STATE OF NEW YORK.

 

Section 7.  In case any one or more of the provisions contained in this
Supplement should be held invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of the remaining provisions contained
herein and in the Security Agreement shall not in any way be affected or
impaired thereby (it being understood that the invalidity of a particular
provision in a particular jurisdiction shall not in and of itself affect the
validity of such provision in any other jurisdiction).  The parties hereto shall
endeavor in good-faith negotiations to replace the invalid, illegal or
unenforceable provisions with valid provisions the economic effect of which
comes as close as possible to that of the invalid, illegal or unenforceable
provisions.

 

Section 8.  All communications and notices hereunder shall be in writing and
given as provided in Section 7.01 of the Security Agreement.

 

Section 9.  The New Subsidiary agrees to reimburse the Collateral Agent for its
reasonable out-of-pocket expenses in connection with this Supplement, including
all Attorney Costs of counsel for the Collateral Agent.

 

--------------------------------------------------------------------------------

 

IN WITNESS WHEREOF, the New Subsidiary and the Collateral Agent have duly
executed this Supplement to the Security Agreement as of the day and year first
above written.

 

 

[NAME OF NEW SUBSIDIARY],

 

 

 

 

 

 

By:

 

 

 

Name:

 

 

Title:

 

 

 

 

 

Legal Name:

 

 

Jurisdiction of Formation:

 

 

Location of Chief Executive office:

 

 

 

 

DEUTSCHE BANK AG NEW YORK BRANCH, as Collateral Agent

 

 

 

 

 

By:

 

 

 

Name:

 

 

Title:

 

 

 

 

 

 

 

By:

 

 

 

Name:

 

 

Title:

 

--------------------------------------------------------------------------------

 

EXHIBIT II

To Security Agreement

 

Perfection Certificate

 

In connection with (i) that certain Credit Agreement (the “Revolving Credit
Agreement”) to be entered into by, among others, Michaels Stores, Inc. (the
“Company”), the other borrowers named therein, the facility guarantors listed
therein, the lenders party thereto from time to time, and Bank of America, N.A.,
as administrative agent and as collateral agent (in such capacity, collectively,
the “Revolver Agent”) and (ii) that certain Credit Agreement (the “Term Loan
Credit Agreement” and, together with the Revolving Credit Agreement, the “Credit
Agreements”), to be entered into by, among others, the Company, the lenders
party thereto from time to time, and Deutsche Bank AG New York Branch, as
administrative agent and as collateral agent (in such capacity, the “Term Loan
Agent” and together with the Revolver Agent, the “Agents”), the Company and each
other grantor specified below (each a “Grantor” and, collectively, the
“Grantors”) hereby certify as follows:

 

I.             Current Information

 

A.            Legal Names, Organizations, Corporate Functions, Jurisdictions of
Organization and Organizational Identification Numbers. The full and exact legal
name (as it appears in each respective certificate or articles of incorporation,
limited liability membership agreement or similar organizational documents, in
each case as amended to date), the type of organization, the corporate function,
the jurisdiction of organization (or formation, as applicable) and the state
organizational identification number and federal taxpayer identification number)
of the Company and each other Grantor are as follows:

 

Name of
Company/Grantor

 

Type of
Organization
(e.g.
corporation,
limited
liability
company,
limited
partnership)

 

Corporate
Function

 

Jurisdiction
of
Organization/
Formation

 

Organizational
Identification
Number

 

Federal
Taxpayer
Identification
Number

Michaels Stores, Inc.

 

Corporation

 

Main operating company/employer

 

Delaware

 

2021624

 

75-1943604

 

 

 

 

 

 

 

 

 

 

 

Aaron Brothers, Inc.

 

Corporation

 

Specialty retail operating company (frames and art supplies)

 

Delaware

 

2156476

 

13-3498646

 

 

 

 

 

 

 

 

 

 

 

Michaels Finance Company, Inc.

 

Corporation

 

Holder of intercompany long-term debt obligations

 

Delaware

 

3711652

 

20-0313952

 

--------------------------------------------------------------------------------

 

Name of
Company/Grantor

 

Type of
Organization
(e.g.
corporation,
limited
liability
company,
limited
partnership)

 

Corporate
Function

 

Jurisdiction
of
Organization/
Formation

 

Organizational
Identification
Number

 

Federal
Taxpayer
Identification
Number

Michaels Stores Card Services, LLC

 

Limited liability company

 

Issuer of merchandise gift cards

 

Virginia

 

S075864-1

 

72-1524325

 

 

 

 

 

 

 

 

 

 

 

Michaels Stores Procurement Company, Inc.

 

Corporation

 

Performs certain services for Michaels Stores, Inc./employer

 

Delaware

 

3711651

 

20-0313890

 

 

 

 

 

 

 

 

 

 

 

Artistree, Inc.

 

Corporation

 

Shell

 

Delaware

 

4238675

 

83-0466644

 

 

 

 

 

 

 

 

 

 

 

Michaels of Canada, ULC

 

Unlimited liability company

 

Retailer of arts and crafts supplies, home decorating products, ready-made
frames in Canada/employer

 

Nova Scotia

 

3015830

 

13529-9063 (Canadian)

 

B.            Chief Executive Offices and Mailing Addresses.  The chief
executive office address and the preferred mailing address and any other
location in which any Grantor maintains any books or records relating to any of
the collateral (in each case if different than chief executive office) of the
Company and each other Grantor are as follows:

 

Name of
Company/Grantor

 

Address of
Chief Executive Office

 

Mailing Address
(if different than CEO)

 

Other Locations where 
books and record are located

Michaels Stores, Inc.

 

8000 Bent Branch Drive
Irving, Texas 75063

 

P.O. Box 619566
DFW, Texas 75261-9566

 

1221 S. Beltline Rd., Suite 500
Coppell, Texas 75019

2302 113th Street
Grand Prairie, Texas 75050

 

 

 

 

 

 

 

Aaron Brothers, Inc.

 

8000 Bent Branch Drive
Irving, Texas 75063

 

N/A

 

1221 S. Beltline Rd., Ste 500
Coppell, TX 75019

 

 

 

 

 

 

 

Michaels Finance Company, Inc.

 

8000 Bent Branch Drive
Irving, Texas 75063

 

N/A

 

N/A

 

 

 

 

 

 

 

Michaels Stores Card Services, LLC

 

1221 S. Beltline Rd., Suite 500
Coppell, Texas 75019

 

8000 Bent Branch Drive
Irving, Texas 75063

 

8000 Bent Branch Drive
Irving, Texas 75063

 

 

 

 

 

 

 

Michaels Stores Procurement

 

2303 113th Street
Grand Prairie, Texas 75050

 

P.O. Box 619566
DFW, Texas 75261-9566

 

8000 Bent Branch Drive
Irving, Texas 75063

 

2

--------------------------------------------------------------------------------

 

Name of
Company/Grantor

 

Address of
Chief Executive Office

 

Mailing Address
(if different than CEO)

 

Other Locations where 
books and record are located

Company, Inc.

 

 

 

 

 

 

 

 

 

 

 

 

 

Artistree, Inc.

 

850 North Lake Drive, Suite 500
Coppell, Texas 75019

 

N/A

 

8000 Bent Branch Drive
Irving, Texas 75063

 

 

 

 

 

 

 

Michaels of Canada, ULC

 

Summit Place
1601 Lower Water Street
Halifax, Nova Scotia B3J 3P6

 

8000 Bent Branch Drive
Irving, Texas 75063

 

N/A

 

C.            Changes in Names, Jurisdiction of Organization or Corporate
Structure.

 

Except as set forth below, neither the Company nor any other Grantor has changed
its name, jurisdiction of organization or its corporate structure in any way
(e.g., by merger, consolidation, change in corporate form, change in
jurisdiction of organization or otherwise) within the past five (5) years:

 

Company/Grantor

 

Date of Change

 

Description of Change

 

 

 

 

 

None

 

—

 

—

 

D.            Prior Addresses.

 

Except as set forth below, neither the Company nor any other Grantor has changed
its chief executive office within the past five (5) years:

 

Company/Grantor

 

Prior Address/City/State/Zip Code

 

 

 

Aaron Brothers, Inc.

 

1270 S. Goodrich Blvd.
Commerce, Ca 90022

 

E.            Acquisitions of Equity Interests or Assets.

 

Except as set forth below, neither the Company nor any Grantor has acquired the
equity interests of another entity or substantially all the assets of another
entity within the past five (5) years:

 

Company/Grantor

 

Date of Acquisition

 

Description of Acquisition

 

 

 

 

 

None

 

—

 

—

 

F.            Trade Names.

 

Set forth below is each trade name or assumed name currently used (or used at
any time during the past five (5) years) by the Company or any other Grantor or
by which the Company or any Grantor is known or is transacting any business (or
has been known or has transacted any business during the past five (5) years):

 

3

--------------------------------------------------------------------------------

 

Company/Grantor

 

Trade/Assumed Name

 

 

 

Michaels Stores, Inc.

 

Recollections

Star Decorators Wholesale Warehouse

Moskatel’s

Michaels

Michaels The Arts & Crafts Store

Michaels Craft & Floral Warehouse

Craft and Floral Warehouse

 

 

 

Michaels Stores Procurement Company, Inc.

 

Artistree

 

 

G.            Corporate Ownership and Organizational Structure.

 

Attached as Exhibit A hereto is a true and correct chart showing the ownership
relationship of the Company and all of its affiliates.

 

II.            Additional Information

 

A.            Tangible Personal Property.  Set forth below are all the locations
where the Company or any other Grantor currently maintains any of its tangible
personal property (including goods, inventory and equipment) of such Company or
any other Grantor (whether or not in the possession of such Company or any other
Grantor):

 

See Section VI(A).

 

B.            Warehousemen and bailees.  Except as set forth below, no persons
(including warehousemen and bailees) other than the Company or any other Grantor
have possession of any assets (including goods, inventory and equipment) of the
Company or any other Grantor:

 

Company/Grantor

 

Address/City/State/Zip Code

 

County

 

Description of 
Assets and Value

 

 

 

 

 

 

 

Michaels Stores Procurement Company, Inc.

 

Mericle Logistics, LLC
63 Green Mountain Road
Hazelton, PA 18202

 

Schuylkill

 

Inventory — Asset value varies but aggregate value held at third-party
warehouses never exceeds $25 million

 

 

 

 

 

 

 

Michaels Stores, Inc.

 

National Distribution Centers
3102 W. Valley Hwy N
Auborn, WA 98001
(until 4/30/07)

 

King

 

Inventory — Asset value varies but aggregate value held at third-party
warehouses never exceeds $25 million

 

4

--------------------------------------------------------------------------------

 

Company/Grantor

 

Address/City/State/Zip Code

 

County

 

Description of 
Assets and Value

 

 

 

 

 

 

 

Michaels Stores, Inc.

 

National Distribution Centers
1990 Pomona Road
Corona, CA 91720
(until 12/31/06)

 

Riverside

 

Inventory — Asset value varies but aggregate value held at third-party
warehouses never exceeds $25 million

 

 

 

 

 

 

 

Michaels Stores Procurement Company, Inc.

 

National Distribution Centers
15750 Mountain Avenue
Chino, CA 91710
(beginning 01/01/07)

 

San Bernardino

 

Inventory — Asset value varies but aggregate value held at third-party
warehouses never exceeds $25 million

 

The Company occasionally uses temporary storage facilities.

 

III.          Investment Related Property

 

A.            Securities.  Set forth below is a list of all equity interests
owned by the Company and each Grantor together with the type of organization
which issued such equity interests (e.g. corporation, limited liability company,
partnership or trust):

 

Company/Grantor

 

Issuer

 

Type of
Organization

 

# of
Shares
Owned

 

Total Shares
Outstanding

 

% of
Interest
Pledged

 

Certificate No.
(if uncertificated,
please indicate so)

 

Par Value

 

Michaels Stores, Inc.

 

Aaron Brothers, Inc.

 

Corporation

 

100

 

100

 

100

%

005

 

$

0.01

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Michaels Stores, Inc.

 

Michaels Finance Company, Inc.

 

Corporation

 

100

 

100

 

100

%

001

 

$

0.01

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Michaels Stores, Inc.

 

Michaels Stores Card Services, LLC

 

Limited liability company

 

100

 

100

 

100

%

001

 

N/A

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Michaels Stores, Inc.

 

Michaels Stores Procurement Company, Inc.

 

Corporation

 

100

 

100

 

100

%

001

 

$

0.01

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Michaels Stores Procurement Company, Inc.

 

Artistree, Inc.

 

Corporation

 

100

 

100

 

100

%

001

 

$

0.01

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Michaels Stores, Inc.

 

Michaels of Canada, ULC

 

Unlimited liability company

 

1,000 Common

 

1,000

 

100

%

1

 

$

0.01

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Michaels Stores, Inc.

 

Michaels of Canada, ULC

 

Unlimited liability company

 

4,000 Class A Preferred

 

4,000

 

100

%

PA-1

 

$

1,000

 

 

5

--------------------------------------------------------------------------------

 

B.            Securities Accounts.  Set forth below is a list of all securities
accounts in which the Company or any other Grantor customarily maintains
securities or other assets:

 

Company/Grantor

 

Type of Account

 

Name & Address of
Financial Institutions

Michaels Stores, Inc.

 

Investment Securities Account

 

Merrill Lynch

 

 

 

 

 

Michaels Stores, Inc.

 

Investment Securities Account

 

Morgan Stanley

 

 

 

 

 

Michaels Stores, Inc.

 

Investment Securities Account (Tax Exempt CP only)

 

Morgan Stanley

 

 

 

 

 

Michaels Stores, Inc.

 

Investment Securities Account

 

Banc of America Securities

 

 

 

 

 

Michaels Stores, Inc.

 

McDonald Investments, Inc.

 

Keybanc Capital Markets

 

 

 

 

 

Michaels Stores Procurement Company, Inc.

 

Tax Exempt Money Market Fund

 

Merrill Lynch

 

 

 

 

 

Michaels Stores Card Services, LLC

 

Goldman Sachs Tax Free Institutional Money Market Fund

 

Compass Bank

 

 

 

 

 

Michaels Stores Card Services, LLC

 

Investment Securities Account (Tax Exempt CP only)

 

Morgan Stanley

 

 

 

 

 

Michaels Stores Card Services, LLC

 

Investment Securities Account

 

Banc of America Securities

 

 

 

 

 

Michaels Finance Company, Inc.

 

Tax Exempt Money Market Fund

 

Merrill Lynch

 

 

 

 

 

Michaels Stores, Inc.

 

Interstate Tax Exempt Money Market Fund

 

Reserve

 

 

 

 

 

Michaels Stores, Inc.

 

Premier (taxable) Money Market Fund

 

Merrill Lynch

 

 

 

 

 

Michaels Stores, Inc.

 

Tax Exempt Money Market Fund

 

Merrill Lynch

 

C.            Deposit Accounts.  Set forth below is a list of all bank accounts
(checking, savings, money market or the like) of the Company or any other
Grantor:

 

Company/Grantor

 

Type of Account

 

Name & Address of 
Financial Institutions

Michaels Stores, Inc.

 

Concentration (Funding Account)

 

Wells Fargo Bank

 

 

 

 

 

Michaels Stores, Inc.

 

Payroll - Direct Deposit

 

Wells Fargo Bank

 

 

 

 

 

Michaels Stores, Inc.

 

Payroll - Checking

 

Wells Fargo Bank

 

 

 

 

 

Michaels Stores, Inc.

 

Payroll - Manual

 

Wells Fargo Bank

 

 

 

 

 

Michaels Stores, Inc.

 

Credit & Collections — Lockbox

 

Wells Fargo Bank

 

6

--------------------------------------------------------------------------------

 

Company/Grantor

 

Type of Account

 

Name & Address of 
Financial Institutions

Michaels Stores, Inc.

 

Star Decorator Wholesale (a Division of Michaels Stores, Inc.

 

Wells Fargo Bank

 

 

 

 

 

Michaels Stores, Inc.

 

Credit Card Settlement

 

Wells Fargo Bank

 

 

 

 

 

Michaels Stores, Inc.

 

Employee Assistance

 

Wells Fargo Bank

 

 

 

 

 

Michaels Stores, Inc.

 

Retail Bank Account

 

Wells Fargo Bank

 

 

 

 

 

Michaels Stores, Inc.

 

Retail Bank Account

 

AmSouth

 

 

 

 

 

Michaels Stores, Inc.

 

Retail Bank Account

 

Bank of America

 

 

 

 

 

Michaels Stores, Inc.

 

Retail Bank Account

 

Bank of Oklahoma

 

 

 

 

 

Michaels Stores, Inc.

 

Retail Bank Account

 

Berkshire Bank

 

 

 

 

 

Michaels Stores, Inc.

 

Retail Bank Account

 

Capital One

 

 

 

 

 

Michaels Stores, Inc.

 

Retail Bank Account

 

Chase Bank

 

 

 

 

 

Michaels Stores, Inc.

 

Retail Bank Account

 

Citizens

 

 

 

 

 

Michaels Stores, Inc.

 

Retail Bank Account

 

Citizens Bank — New York

 

 

 

 

 

Michaels Stores, Inc.

 

Retail Bank Account

 

Community Bank

 

 

 

 

 

Michaels Stores, Inc.

 

Retail Bank Account

 

Compass Bank

 

 

 

 

 

Michaels Stores, Inc.

 

Retail Bank Account

 

Fifth Third Bank

 

 

 

 

 

Michaels Stores, Inc.

 

Retail Bank Account

 

First Citizens Bank

 

 

 

 

 

Michaels Stores, Inc.

 

Retail Bank Account

 

First Interstate Bank

 

 

 

 

 

Michaels Stores, Inc.

 

Retail Bank Account

 

First Niagara Bank

 

 

 

 

 

Michaels Stores, Inc.

 

Retail Bank Account

 

Huntington Bank

 

 

 

 

 

Michaels Stores, Inc.

 

Retail Bank Account

 

Key Bank

 

 

 

 

 

Michaels Stores, Inc.

 

Retail Bank Account

 

M&T Bank

 

 

 

 

 

Michaels Stores, Inc.

 

Retail Bank Account

 

National City Bank

 

 

 

 

 

Michaels Stores, Inc.

 

Retail Bank Account

 

Northwest Bank

 

 

 

 

 

Michaels Stores, Inc.

 

Retail Bank Account

 

PNC

 

 

 

 

 

Michaels Stores, Inc.

 

Retail Bank Account

 

Regions

 

7

--------------------------------------------------------------------------------

 

Company/Grantor

 

Type of Account

 

Name & Address of 
Financial Institutions

Michaels Stores, Inc.

 

Retail Bank Account

 

US Bank

 

 

 

 

 

Michaels Stores, Inc.

 

Retail Bank Account

 

Wachovia Bank

 

 

 

 

 

Michaels Stores, Inc.

 

RCC / RCK (returned check / re-presentments)

 

National City Bank

 

 

 

 

 

Michaels Stores, Inc.

 

Consumer Draft (returned check collection fees)

 

National City Bank

 

 

 

 

 

Michaels Stores, Inc.

 

Bank Revolver / Documentary LCs and Collections Funding Account

 

Bank of America

 

 

 

 

 

Michaels Stores Procurement Company, Inc.

 

Concentration (Funding Account)

 

Wells Fargo Bank

 

 

 

 

 

Michaels Stores Procurement Company, Inc.

 

Payroll — Manual

 

Wells Fargo Bank

 

 

 

 

 

Michaels Stores Procurement Company, Inc.

 

Payroll — Checking

 

Wells Fargo Bank

 

 

 

 

 

Michaels Stores Procurement Company, Inc.

 

Payroll - Direct Deposit

 

Wells Fargo Bank

 

 

 

 

 

Michaels Stores Procurement Company, Inc.

 

Accounts Payable — Merchandise

 

Bank of New York

 

 

 

 

 

Aaron Brothers, Inc.

 

Concentration (Funding Account)

 

Wells Fargo Bank

 

 

 

 

 

Aaron Brothers, Inc.

 

Direct Deposit Payroll

 

Wells Fargo Bank

 

 

 

 

 

Aaron Brothers, Inc.

 

Payroll Controlled Disbursement

 

Wells Fargo Bank

 

 

 

 

 

Aaron Brothers, Inc.

 

AP Controlled Disbursement

 

Wells Fargo Bank

 

 

 

 

 

Aaron Brothers, Inc.

 

Retail Concentration

 

Wells Fargo Bank

 

 

 

 

 

Aaron Brothers, Inc.

 

Retail Bank Account

 

Bank of America

 

 

 

 

 

Aaron Brothers, Inc.

 

Retail Bank Account

 

Wachovia Bank

 

 

 

 

 

Aaron Brothers, Inc.

 

Retail Bank Account

 

Compass Bank

 

 

 

 

 

Aaron Brothers, Inc.

 

Retail Bank Account

 

US Bank

 

 

 

 

 

Aaron Brothers, Inc.

 

Documentary LCs and Collections Funding Account

 

Bank of America

 

 

 

 

 

Aaron Brothers, Inc.

 

Certificate of Deposit (180 Days) Renewal Date August 1, 2006 - Aaron
Brothers, Inc DBA Aaron

 

Bank of America

 

8

--------------------------------------------------------------------------------

 

Company/Grantor

 

Type of Account

 

Name & Address of 
Financial Institutions

 

 

Brothers Art Mart or Nevada Department of Taxation

 

 

 

 

 

 

 

Michaels of Canada, ULC.

 

Concentration - Canadian Dollar

 

Canadian Imperial Bank of Commerce

 

 

 

 

 

Michaels of Canada, ULC

 

Vendor Debit - Canadian Dollar

 

Canadian Imperial Bank of Commerce

 

 

 

 

 

Michaels of Canada, ULC

 

Manual Payroll - Canadian Dollar

 

Canadian Imperial Bank of Commerce

 

 

 

 

 

Michaels of Canada, ULC

 

Accounts Payable - US Dollar

 

Canadian Imperial Bank of Commerce

 

 

 

 

 

Michaels of Canada, ULC

 

Retail Bank Accounts

 

Canadian Imperial Bank of Commerce

 

 

 

 

 

Michaels Stores Card Services, LLC

 

Concentration (Funding Account)

 

Wells Fargo Bank

 

 

 

 

 

Michaels Finance Company, Inc.

 

Concentration (Funding Account)

 

Wells Fargo Bank

 

D.            Instruments.  Set forth below is a list of all instruments owed to
the Company or any other Grantor:

 

Company/Grantor

 

Issuer of Instrument

 

Principal Amount
of Instrument

 

Maturity Date

Michaels Finance Company, Inc.

 

Michaels Stores Procurement Company, Inc.

 

$

1,090,000,000

 

12/31/2018

 

9

--------------------------------------------------------------------------------

 

IV.          Intellectual Property

 

A.            Set forth below is a list of all copyrights, patents and
trademarks and other intellectual property owned or used, or hereafter adopted,
held or used, by the Company  and each other Grantor:

 

Company/Grantor

 

Copyrights

 

Filing Date

 

Status

 

Registration No.

 

 

 

 

 

 

 

 

 

None

 

—

 

—

 

—

 

—

 

Company/Grantor

 

Patents

 

Filing Date

 

Status

 

Registration No.

 

 

 

 

 

 

 

 

 

None

 

—

 

—

 

—

 

—

 

Company/Grantor

 

U.S. Trademarks

 

Filing
Date

 

Status

 

Registration
No.

 

Registration
Date

Aaron Brothers, Inc.

 

Life is Art. Frame It.

 

11/26/03

 

First Extension — Granted (App. No. 76561949)

 

—

 

—

 

 

 

 

 

 

 

 

 

 

 

Aaron Brothers, Inc.

 

Life is Art. Frame It.

 

11/26/03

 

First Extension — Granted (App. No. 76561948)

 

—

 

—

 

 

 

 

 

 

 

 

 

 

 

Aaron Brothers, Inc.

 

Life is Art. Frame It.

 

01/03/05

 

First Extension Granted (App. No. 76626641)

 

—

 

—

 

 

 

 

 

 

 

 

 

 

 

Aaron Brothers, Inc.

 

Aaron Brothers Best

 

04/18/05

 

Notice of Allowance — Issued (App. No. 76636205)

 

—

 

—

 

 

 

 

 

 

 

 

 

 

 

Aaron Brothers, Inc.

 

Aaron Brothers Best

 

04/18/05

 

Notice of Allowance — Issued (App. No. 76636206)

 

—

 

—

 

 

 

 

 

 

 

 

 

 

 

Aaron Brothers, Inc.

 

Aaron Brothers Best

 

04/18/05

 

Notice of Allowance — Issued (App. No. 76636207)

 

—

 

—

 

 

 

 

 

 

 

 

 

 

 

Aaron Brothers, Inc.

 

We Frame the Things You Love

 

10/27/04

 

Registered

 

3048037

 

01/24/06

 

 

 

 

 

 

 

 

 

 

 

Aaron Brothers, Inc.

 

We Frame the Things You Love

 

10/27/04

 

Registered

 

3026118

 

12/13/05

 

10

--------------------------------------------------------------------------------

 

Company/Grantor

 

U.S. Trademarks

 

Filing
Date

 

Status

 

Registration
No.

 

Registration
Date

Aaron Brothers, Inc.

 

Timeframe

 

11/02/01

 

Registered

 

2588496

 

07/02/02

 

 

 

 

 

 

 

 

 

 

 

Aaron Brothers, Inc.

 

Aaron Brothers Art Marts

 

02/08/88

 

Registered

 

1539735

 

05/16/89

 

 

 

 

 

 

 

 

 

 

 

Aaron Brothers, Inc.

 

Timeframe Professional Framing. While you Shop.

 

11/02/01

 

Registered

 

2588495

 

07/02/02

 

 

 

 

 

 

 

 

 

 

 

Aaron Brothers, Inc.

 

One Cent Frame Sale

 

02/29/00

 

Registered

 

2436920

 

03/20/01

 

 

 

 

 

 

 

 

 

 

 

Aaron Brothers, Inc.

 

Aaron Brothers Art & Framing

 

02/29/00

 

Registered

 

2435151

 

03/13/01

 

 

 

 

 

 

 

 

 

 

 

Aaron Brothers, Inc.

 

Aaron Brothers Art & Framing

 

02/29/00

 

Registered

 

2435150

 

03/13/01

 

 

 

 

 

 

 

 

 

 

 

Aaron Brothers, Inc.

 

Aaron Brothers Art Marts

 

02/08/88

 

Registered

 

1542560

 

06/06/89

 

 

 

 

 

 

 

 

 

 

 

Aaron Brothers, Inc.

 

Aaron Brothers

 

02/08/88

 

Registered

 

1539734

 

05/16/89

 

 

 

 

 

 

 

 

 

 

 

Aaron Brothers, Inc.

 

1¢ Frame Sale

 

02/29/00

 

Registered

 

2440744

 

04/03/01

 

 

 

 

 

 

 

 

 

 

 

Aaron Brothers, Inc.

 

Express Yourself

 

07/17/96

 

Registered

 

2352964

 

05/30/00

 

 

 

 

 

 

 

 

 

 

 

Aaron Brothers, Inc.

 

You Make the Memories. We Make Them Last.

 

02/29/00

 

Registered

 

2435149

 

03/13/01

 

 

 

 

 

 

 

 

 

 

 

Aaron Brothers, Inc.

 

What a Difference a Mat Makes

 

02/29/00

 

Registered

 

2435148

 

03/13/01

 

 

 

 

 

 

 

 

 

 

 

Aaron Brothers, Inc.

 

Life is Art. Frame It.

 

11/26/03

 

Second Extension — Granted (App. No. 76561947)

 

—

 

—

 

 

 

 

 

 

 

 

 

 

 

Michaels Stores Procurement Company, Inc.

 

Star Decorators Wholesale

 

02/16/06

 

Final review prior to Publication (78816788)

 

—

 

—

 

 

 

 

 

 

 

 

 

 

 

Michaels Stores Procurement Company, Inc.

 

Artistree

 

02/13/06

 

Newly filed Application (78813758)

 

—

 

—

 

 

 

 

 

 

 

 

 

 

 

Michaels Stores Procurement Company, Inc.

 

Michaels Arts, Crafts & More

 

03/22/05

 

Notice of Allowance Issued 8/29/06 (App. No. 76634146)

 

—

 

—

 

11

--------------------------------------------------------------------------------

 

Company/Grantor

 

U.S. Trademarks

 

Filing
Date

 

Status

 

Registration
No.

 

Registration
Date

Michaels Stores Procurement Company, Inc.

 

Where Ideas Come Together

 

11/03/05

 

Published for Opposition 7/18/06 (App. No. 78746568)

 

—

 

—

 

 

 

 

 

 

 

 

 

 

 

Michaels Stores Procurement Company, Inc.

 

Experience Paper Crafting

 

11/14/05

 

Published for Opposition 8/15/06 (App. No. 78753445)

 

—

 

—

 

 

 

 

 

 

 

 

 

 

 

Michaels Stores Procurement Company, Inc.

 

Vendor Connect

 

11/28/01

 

Registered

 

2631443

 

10/08/02

 

 

 

 

 

 

 

 

 

 

 

Michaels Stores Procurement Company, Inc.

 

Sparkling Creations

 

04/12/01

 

Registered

 

2967453

 

07/12/05

 

 

 

 

 

 

 

 

 

 

 

Michaels Stores Procurement Company, Inc.

 

Carolina Art & Frame

 

09/29/99

 

Registered

 

2433148

 

03/06/01

 

 

 

 

 

 

 

 

 

 

 

Michaels Stores Procurement Company, Inc.

 

Recollections

 

01/14/03

 

Registered

 

3042415

 

01/10/06

 

 

 

 

 

 

 

 

 

 

 

Michaels Stores Procurement Company, Inc.

 

Bright Tidings

 

04/12/01

 

Registered

 

2684520

 

02/04/03

 

 

 

 

 

 

 

 

 

 

 

Michaels Stores Procurement Company, Inc.

 

Michaels.com

 

02/28/00

 

Registered

 

2486259

 

09/04/01

 

 

 

 

 

 

 

 

 

 

 

Michaels Stores Procurement Company, Inc.

 

Where Originals Originate.

 

01/31/00

 

Registered

 

2537708

 

02/12/02

 

 

 

 

 

 

 

 

 

 

 

Michaels Stores Procurement Company, Inc.

 

Artistree Art Frame & Design

 

09/29/99

 

Registered

 

2408397

 

11/28/00

 

 

 

 

 

 

 

 

 

 

 

Michaels Stores Procurement Company, Inc.

 

Kids Club

 

06/18/98

 

Registered

 

2307155

 

01/11/00

 

 

 

 

 

 

 

 

 

 

 

Michaels Stores Procurement Company, Inc.

 

Michaels the Arts and Crafts Store

 

04/29/98

 

Registered

 

2232360

 

03/16/99

 

 

 

 

 

 

 

 

 

 

 

Michaels Stores Procurement Company, Inc.

 

Star Decorators’ Wholesale Warehouse

 

10/31/00

 

Registered

 

2527196

 

01/08/02

 

 

 

 

 

 

 

 

 

 

 

Michaels Stores Procurement Company, Inc.

 

Michaels.com

 

02/28/00

 

Registered

 

2705025

 

04/08/03

 

 

 

 

 

 

 

 

 

 

 

Michaels Stores Procurement Company, Inc.

 

Crafts & More

 

02/28/00

 

Registered

 

2716080

 

05/13/03

 

 

 

 

 

 

 

 

 

 

 

Michaels Stores Procurement Company, Inc.

 

Artistree Art Frame & Design

 

09/29/99

 

Registered

 

2408396

 

11/28/00

 

12

--------------------------------------------------------------------------------

 

Company/Grantor

 

U.S. Trademarks

 

Filing
Date

 

Status

 

Registration
No.

 

Registration
Date

Michaels Stores Procurement Company, Inc.

 

Recollections

 

03/11/97

 

Registered

 

2179582

 

08/04/98

 

 

 

 

 

 

 

 

 

 

 

Michaels Stores Procurement Company, Inc.

 

Star Decorators’ Wholesale

 

02/17/04

 

Registered

 

3042282

 

01/10/06

 

 

 

 

 

 

 

 

 

 

 

Michaels Stores Procurement Company, Inc.

 

Kid Crafted Mom Approved

 

06/09/03

 

Registered

 

3109693

 

06/27/06

 

 

 

 

 

 

 

 

 

 

 

Michaels Stores Procurement Company, Inc.

 

For Weddings as Original as You

 

05/23/03

 

Registered

 

2884979

 

09/14/04

 

 

 

 

 

 

 

 

 

 

 

Michaels Stores Procurement Company, Inc.

 

Michaels.com

 

02/28/00

 

Registered

 

2675387

 

01/14/03

 

 

 

 

 

 

 

 

 

 

 

Michaels Stores Procurement Company, Inc.

 

Village Crafts by Michaels

 

03/08/02

 

Registered

 

2765378

 

09/16/03

 

 

 

 

 

 

 

 

 

 

 

Michaels Stores Procurement Company, Inc.

 

Michaels.com

 

02/28/00

 

Registered

 

2646441

 

11/05/02

 

 

 

 

 

 

 

 

 

 

 

Michaels Stores Procurement Company, Inc.

 

Crafts & More

 

06/27/88

 

Registered

 

1527525

 

02/28/89

 

 

 

 

 

 

 

 

 

 

 

Michaels Stores Procurement Company, Inc.

 

Michaels Manufacturing Group

 

04/06/01

 

Registered

 

2730052

 

06/24/03

 

 

 

 

 

 

 

 

 

 

 

Michaels Stores Procurement Company, Inc.

 

MMG

 

04/06/01

 

Registered

 

2711937

 

04/29/03

 

 

 

 

 

 

 

 

 

 

 

Michaels Stores Procurement Company, Inc.

 

Kids Club Summer Camp

 

04/05/00

 

Registered

 

2428568

 

02/13/01

 

 

 

 

 

 

 

 

 

 

 

Michaels Stores Procurement Company, Inc.

 

Create

 

12/21/00

 

Registered

 

2664234

 

12/17/02

 

 

 

 

 

 

 

 

 

 

 

Michaels Stores Procurement Company, Inc.

 

Michaels

 

08/05/91

 

Registered and Renewed

 

1697669

 

06/30/92

 

 

 

 

 

 

 

 

 

 

 

Michaels Stores Procurement Company, Inc.

 

Michaels

 

07/26/83

 

Registered and Renewed

 

1311589

 

12/25/84

 

 

 

 

 

 

 

 

 

 

 

Michaels Stores Procurement Company, Inc.

 

Michaels

 

08/05/91

 

Registered and Renewed

 

1759792

 

03/23/93

 

 

 

 

 

 

 

 

 

 

 

Michaels Stores Procurement Company, Inc.

 

Moskatel’s

 

10/02/89

 

Registered and Renewed

 

1614413

 

09/18/90

 

 

 

 

 

 

 

 

 

 

 

Michaels Stores Procurement Company, Inc.

 

Kids Club

 

05/17/95

 

Registered and Renewed

 

2029624

 

01/14/97

 

13

--------------------------------------------------------------------------------

 

Company/Grantor

 

U.S. Trademarks

 

Filing
Date

 

Status

 

Registration
No.

 

Registration
Date

Michaels Stores Procurement Company, Inc.

 

Michaels

 

08/05/91

 

Registered and Renewed

 

1699119

 

07/07/92

 

 

 

 

 

 

 

 

 

 

 

Michaels Stores Procurement Company, Inc.

 

Michaels

 

12/13/79

 

Registered and Renewed

 

1222952

 

01/04/83

 

 

 

 

 

 

 

 

 

 

 

Michaels Stores Procurement Company, Inc.

 

Michaels

 

08/05/91

 

Registered and Renewed

 

1802039

 

11/02/93

 

 

 

 

 

 

 

 

 

 

 

Michaels Stores Procurement Company, Inc.

 

Michaels

 

02/20/74

 

Renewed

 

3107617(1)

 

03/01/84

 

 

 

 

 

 

 

 

 

 

 

Michaels Stores Procurement Company, Inc.

 

Turkey Bucks

 

01/13/05

 

Statement of Use filed 7/24/06 (App. No. 76627803)

 

—

 

—

 

Company/Grantor

 

Canadian Trademarks

 

Filing
Date

 

Status

 

Registration
No.

 

Registration
Date

Michaels Stores Procurement Company, Inc.

 

Where Originals Originate.

 

5/30/01

 

Registered

 

TMA587825

 

8/21/03

 

 

 

 

 

 

 

 

 

 

 

Michaels Stores Procurement Company, Inc.

 

Sparkling Creations

 

5/30/01

 

Allowed

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Michaels Stores Procurement Company, Inc.

 

Kids Club

 

5/30/01

 

Registered

 

TMA587749

 

8/21/03

 

 

 

 

 

 

 

 

 

 

 

Michaels Stores Procurement Company, Inc.

 

Michaels.com

 

2/4/00

 

Registered

 

TMA574815

 

1/30/03

 

 

 

 

 

 

 

 

 

 

 

Michaels Stores Procurement Company, Inc.

 

Michaels the Arts and Crafts Store Design

 

4/13/99

 

Registered

 

TMA539861

 

1/17/01

 

 

 

 

 

 

 

 

 

 

 

Michaels Stores Procurement Company, Inc.

 

Michaels of Canada, Inc. & Design

 

6/3/93

 

Registered

 

TMA448805

 

10/13/95

 

 

 

 

 

 

 

 

 

 

 

Michaels Stores Procurement Company, Inc.

 

Michaels Arts, Crafts & More

 

9/22/05

 

Pending

 

—

 

—

 

 

 

 

 

 

 

 

 

 

 

Michaels Stores Procurement Company, Inc.

 

Michaels

 

6/8/01

 

Registered

 

TMA578207

 

3/26/03

 

--------------------------------------------------------------------------------

(1)  This trademark is registered in the State of Texas.

 

14

--------------------------------------------------------------------------------

 

Company/Grantor

 

Canadian Trademarks

 

Filing
Date

 

Status

 

Registration
No.

 

Registration
Date

Michaels Stores Procurement Company, Inc.

 

Bright Tidings

 

5/30/01

 

Registered

 

TMA613549

 

6/23/04

 

 

 

 

 

 

 

 

 

 

 

Michaels Stores Procurement Company, Inc.

 

Kids Club & Design

 

5/30/01

 

Registered

 

TMA588587

 

8/29/03

 

 

 

 

 

 

 

 

 

 

 

Michaels Stores Procurement Company, Inc.

 

Create!

 

1/29/01

 

Registered

 

TMA584612

 

7/7/03

 

 

 

 

 

 

 

 

 

 

 

Michaels Stores Procurement Company, Inc.

 

Carolina Art & Frame

 

2/4/00

 

Registered

 

TMA574751

 

1/30/03

 

 

 

 

 

 

 

 

 

 

 

Michaels Stores Procurement Company, Inc.

 

Michaels the Arts and Crafts Store

 

4/13/99

 

Registered

 

TMA539862

 

1/17/01

 

 

 

 

 

 

 

 

 

 

 

Michaels Stores Procurement Company, Inc.

 

Michaels Design

 

7/13/98

 

Registered

 

TMA515320

 

8/25/99

 

V.            Commercial Tort Claims.  Each Grantor currently has the following
commercial tort claims against other parties:

 

Company/Grantor

 

Case Name/Filing Number

 

Defendant

 

 

 

 

 

None

 

 

 

 

 

VI.          Real Estate Related UCC Collateral

 

A.            Fixtures.  Attached hereto as Schedule 1 are all the locations
where the Company or any other Grantor owns or leases any real property:

 

See attached Schedule 1.

 

VII.         No Unusual Transactions.  Except for those purchases, acquisitions,
and other transactions as set forth in Schedule 2 attached hereto, all of the
collateral has been originated by the Grantors in the ordinary course of each
Grantor’s business or consists of goods which have been acquired by the Grantors
in the ordinary course from a person in the business of selling goods of that
kind.

 

15

--------------------------------------------------------------------------------

 

IN WITNESS WHEREOF, the undersigned hereto has caused this Perfection
Certificate to be executed as of this 31 day of October, 2006 by its officer
thereunto duly authorized.

 

 

 

MICHAELS STORES, INC.

 

 

 

 

 

 

By:

/s/ Lisa K. Klinger

 

 

Title:

Vice President — Treasurer and

 

 

 

Investor Relations

 

 

 

 

 

 

 

AARON BROTHERS, INC.

 

 

 

 

 

 

 

By:

/s/ Lisa K. Klinger

 

 

Title:

Vice President and Treasurer

 

 

 

 

 

 

 

 

 

MICHAELS FINANCE COMPANY, INC.

 

 

 

 

 

By:

/s/ Lisa K. Klinger

 

 

Title:

Vice President and Treasurer

 

 

 

 

 

 

 

 

 

MICHAELS STORES PROCUREMENT COMPANY, INC.

 

 

 

 

 

 

By:

/s/ Lisa K. Klinger

 

 

Title:

Vice President and Treasurer

 

 

 

 

 

 

 

 

 

MICHAELS STORES CARD SERVICES, LLC

 

 

 

 

 

 

By:

/s/ Lisa K. Klinger

 

 

Title:

Vice President and Treasurer

 

--------------------------------------------------------------------------------

 

 

ARTISTREE, INC.

 

 

 

 

 

 

By:

/s/ Lisa K. Klinger

 

 

Title:

Vice President and Treasurer

 

 

 

 

 

 

 

 

 

MICHAELS OF CANADA, ULC

 

 

 

By:

/s/ Lisa K. Klinger

 

 

Title:

Vice President and Treasurer

 

2

--------------------------------------------------------------------------------

 

Exhibit A

 

Corporate Structure

 

[g284871lc039i001.jpg]

 

--------------------------------------------------------------------------------

 

Schedule 1

 

Leases

 

See attached.

 

Owned Property

 

Company/Grantor

 

Address/City/State/Zip Code

 

County

 

Owned or
Leased

 

 

 

 

 

 

 

Michaels Stores, Inc.

 

1714 Newport Blvd
Costa Mesa, CA  92627-3010

 

Orange

 

Owned

 

--------------------------------------------------------------------------------

 

Schedule 2

 

Unusual Transactions

 

None.

 

--------------------------------------------------------------------------------

 

EXHIBIT III

To Security Agreement

 

GRANT OF SECURITY INTEREST
IN UNITED STATES TRADEMARKS

 

FOR GOOD AND VALUABLE CONSIDERATION, receipt and sufficiency of which are hereby
acknowledged, [Name of Grantor], a                                         (the
“Grantor”) with principal offices at
                                                        , hereby grants to
DEUTSCHE BANK AG NEW YORK BRANCH, as Collateral Agent, with principal offices at
60 Wall Street, New York, NY 10005 (the “Grantee”), a continuing security
interest in (i) all of the Grantor’s right, title and interest in, to and under
to the United States trademarks, trademark registrations and trademark
applications (the “Marks”) set forth on Schedule A attached hereto, (ii) all
Proceeds (as such term is defined in the Security Agreement referred to below)
and products of the Marks, (iii) the goodwill of the businesses with which the
Marks are associated and (iv) all causes of action arising prior to or after the
date hereof for infringement of any of the Marks or unfair competition regarding
the same.

 

THIS GRANT is made to secure the satisfactory performance and payment of all the
Obligations of the Grantor, as such term is defined in the Security Agreement
among the Grantor, the other assignors from time to time party thereto and the
Grantee, dated as of October     , 2006 (as amended, modified, restated and/or
supplemented from time to time, the “Security Agreement”).

 

--------------------------------------------------------------------------------

 

This Grant has been granted in conjunction with the security interest granted to
the Grantee under the Security Agreement.  The rights and remedies of the
Grantee with respect to the security interest granted herein are as set forth in
the Security Agreement, all terms and provisions of which are incorporated
herein by reference.  In the event that any provisions of this Grant are deemed
to conflict with the Security Agreement, the provisions of the Security
Agreement shall govern.

 

[Remainder of this page intentionally left blank; signature page follows]

 

--------------------------------------------------------------------------------

 

IN WITNESS WHEREOF, the undersigned have executed this Grant as of the         
day of October, 2006.

 

 

[NAME OF GRANTOR], Grantor

 

 

 

 

 

 

By

 

 

 

Name:

 

 

Title:

 

 

 

DEUTSCHE BANK AG NEW YORK BRANCH,

 

  as Collateral Agent and Grantee

 

 

 

 

 

 

By

 

 

 

Name:

 

 

Title:

 

 

 

 

 

 

By

 

 

 

Name:

 

 

Title:

 

--------------------------------------------------------------------------------

 

STATE OF                            )

                                               )  ss.:

COUNTY OF                        )

 

On this          day of October, 2006, before me personally came
                                                  who, being by me duly sworn,
did state as follows:  that [s]he is                              of [Name of
Grantor], that [s]he is authorized to execute the foregoing Grant on behalf of
said                          and that [s]he did so by authority of the [Board
of Directors] of said                         .

 

 

 

 

Notary Public

 

--------------------------------------------------------------------------------

 

STATE OF                            )

                                               )  ss:

COUNTY OF                        )

 

On this          day of October, 2006, before me personally came
                                                            who, being by me
duly sworn, did state as follows:  that [s]he is
                                     of DEUTSCHE BANK AG NEW YORK BRANCH, that
[s]he is authorized to execute the foregoing Grant on behalf of said
                         and that [s]he did so by authority of the Board of
Directors of said                           .

 

 

 

 

Notary Public

 

--------------------------------------------------------------------------------

 

MARK

 

REG. NO.

 

REG. DATE

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

--------------------------------------------------------------------------------

 

EXHIBIT IV

To Security Agreement

 

GRANT OF SECURITY INTEREST
IN UNITED STATES PATENTS

 

FOR GOOD AND VALUABLE CONSIDERATION, receipt and sufficiency of which are hereby
acknowledged, [Name of Grantor], a                                         (the
“Grantor”) with principal offices at
                                                        , hereby grants to
DEUTSCHE BANK AG NEW YORK BRANCH, as Collateral Agent, with principal offices at
60 Wall Street, New York, NY 10005 (the “Grantee”), a continuing security
interest in (i) all of the Grantor’s rights, title and interest in, to and under
the United States patents (the “Patents”) set forth on Schedule A attached
hereto, in each case together with (ii) all Proceeds (as such term is defined in
the Security Agreement referred to below) and products of the Patents, and
(iii) all causes of action arising prior to or after the date hereof for
infringement of any of the Patents or unfair competition regarding the same.

 

THIS GRANT is made to secure the satisfactory performance and payment of all the
Obligations of the Grantor, as such term is defined in the Security Agreement
among the Grantor, the other assignors from time to time party thereto and the
Grantee, dated as of October     , 2006 (as amended, modified, restated and/or
supplemented from time to time, the “Security Agreement”).

 

--------------------------------------------------------------------------------

 

This Grant has been granted in conjunction with the security interest granted to
the Grantee under the Security Agreement.  The rights and remedies of the
Grantee with respect to the security interest granted herein are as set forth in
the Security Agreement, all terms and provisions of which are incorporated
herein by reference.  In the event that any provisions of this Grant are deemed
to conflict with the Security Agreement, the provisions of the Security
Agreement shall govern.

 

[Remainder of this page intentionally left blank; signature page follows]

 

--------------------------------------------------------------------------------

 

IN WITNESS WHEREOF, the undersigned have executed this Grant as of the         
day of October, 2006.

 

 

[NAME OF GRANTOR], Grantor

 

 

 

 

 

By

 

 

 

Name:

 

 

Title:

 

 

 

 

 

DEUTSCHE BANK AG NEW YORK BRANCH,

 

  as Collateral Agent and Grantee

 

 

 

 

 

By

 

 

 

Name:

 

 

Title:

 

 

 

By

 

 

 

Name:

 

 

Title:

 

--------------------------------------------------------------------------------

 

STATE OF                          )

                                            )  ss:

COUNTY OF                     )

 

On this          day of October, 2006, before me personally came
                                               who, being by me duly sworn, did
state as follows:  that [s]he is                              of [Name of
Grantor], that [s]he is authorized to execute the foregoing Grant on behalf of
said                          and that [s]he did so by authority of the Board of
Directors of said                         .

 

 

 

 

Notary Public

 

--------------------------------------------------------------------------------

 

STATE OF                          )

                                            )  ss:

COUNTY OF                     )

 

On this          day of October, 2006, before me personally came
                                                            who, being by me
duly sworn, did state as follows:  that [s]he is
                                     of DEUTSCHE BANK AG NEW YORK BRANCH, that
[s]he is authorized to execute the foregoing Grant on behalf of said
                         and that [s]he did so by authority of the Board of
Directors of said                           .

 

 

 

Notary Public

 

--------------------------------------------------------------------------------

 

 

PATENT

 

PATENT NO.

 

ISSUE DATE

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

--------------------------------------------------------------------------------

 

EXHIBIT V

To Security Agreement

 

GRANT OF SECURITY INTEREST
 IN UNITED STATES COPYRIGHTS

 

WHEREAS, [Name of Grantor], a                               
                           (the “Grantor”), having its chief executive office at
                                          ,                            , is the
owner of all right, title and interest in and to the United States copyrights
and associated United States copyright registrations and applications for
registration set forth in Schedule A attached hereto;

 

WHEREAS, DEUTSCHE BANK AG NEW YORK BRANCH, as Collateral Agent, having its
principal offices at 60 Wall Street, New York, NY 10005 (the “Grantee”), desires
to acquire a security interest in said copyrights and copyright registrations
and applications therefor; and

 

WHEREAS, the Grantor is willing to grant to the Grantee a security interest in
and lien upon the copyrights and copyright registrations and applications
therefor described above.

 

NOW, THEREFORE, for good and valuable consideration, the receipt of which is
hereby acknowledged, and subject to the terms and conditions of the Security
Agreement, dated as of October     , 2006, made by the Grantor, the other
assignors from time to time party thereto and the Grantee (as amended, modified,
restated and/or supplemented from time to time, the “Security Agreement”), the
Grantor hereby assigns to the Grantee as collateral security, and grants to the
Grantee a continuing security interest in, to and under the copyrights and
copyright registrations and applications therefor set forth in Schedule A
attached hereto.

 

This Grant has been granted in conjunction with the security interest granted to
the Grantee under the Security Agreement.  The rights and remedies of the
Grantee with respect to the security interest granted herein are as set forth in
the Security Agreement, all terms and provisions of which are incorporated
herein by reference.  In the event that any provisions of this Grant are deemed
to conflict with the Security Agreement, the provisions of the Security
Agreement shall govern.

 

[Remainder of this page intentionally left blank; signature page follows]

 

--------------------------------------------------------------------------------

 

IN WITNESS WHEREOF, the undersigned have executed this Grant as of the         
day of October, 2006.

 

 

[NAME OF GRANTOR], Grantor

 

 

 

 

 

By

 

 

 

Name:

 

 

Title:

 

 

 

 

 

DEUTSCHE BANK AG NEW YORK BRANCH,

 

  as Collateral Agent and Grantee

 

 

 

By

 

 

 

Name:

 

 

Title:

 

 

 

By

 

 

 

Name:

 

 

Title:

 

--------------------------------------------------------------------------------

 

STATE OF                         )

                                            )  ss:

COUNTY OF                     )

 

On this       day of October, 2006, before me personally came
                                                   , who being duly sworn, did
depose and say that [s]he is                                        of [Name of
Grantor], that [s]he is authorized to execute the foregoing Grant on behalf of
said corporation and that [s]he did so by authority of the Board of Directors of
said corporation.

 

 

 

 

Notary Public

 

--------------------------------------------------------------------------------

 

STATE OF                              )

                                                )  ss.:

COUNTY OF                         )

 

On this          day of October, 2006, before me personally came
                                                      who, being by me duly
sworn, did state as follows:  that [s]he is                                     
of DEUTSCHE BANK AG NEW YORK BRANCH, that [s]he is authorized to execute the
foregoing Grant on behalf of said                      and that [s]he did so by
authority of the Board of Directors of said                           .

 

 

 

 

Notary Public

 

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EXHIBIT G-2

[CONFORMED AS EXECUTED]

 

GENERAL SECURITY AGREEMENT

 

TO:                                                                                                                        
DEUTSCHE BANK AG NEW YORK BRANCH
60 Wall Street, New York, NY  10005
(on its own behalf and as Collateral Agent for the Secured Parties)

 

(hereinafter the “Agent”)

 

GRANTED BY:                   MICHAELS OF CANADA, ULC
having its principal office or place of business at:
Summit Place, 1601 Lower Water Street
PO Box 730, Halifax, NS  B3J 2V1

 

(hereinafter the “Debtor”)

 

1                                         GRANT OF SECURITY INTEREST

 

1.1                               Security Interest

 

As general and continuing security for the payment or performance, as the case
may be, in full of the Secured Obligations owing by the Debtor, including under
the Canadian Guarantee, wherever incurred and in any currency and whether
incurred by the Debtor alone or with another or others and whether as principal,
guarantor or surety, the Debtor, IN CONSIDERATION OF THE SECURED OBLIGATIONS and
for other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, hereby grants, bargains, assigns and transfers to the
Agent (for itself and on behalf of the Secured Parties) a continuing security
interest in, all of the Debtor’s present and after-acquired personal property,
wherever located (the “Collateral”), including, without limitation, but subject
to the exclusions specified in Section 1.3:

 

(a)                                 Accounts Receivable

 

All debts, book debts, accounts, claims, demands, moneys and choses in action
whatsoever including, without limitation, claims against the Crown and claims
under insurance policies, which are now owned by or are due, owing or accruing
due to the Debtor or which may hereafter be owned by or become due, owing or
accruing due to the Debtor together with all contracts, securities, bills,
notes, lien notes, judgments, chattel mortgages, mortgages and all other rights,
benefits and documents now or hereafter taken, vested in or held by the Debtor
in respect of or as security for the same and the full benefit and advantage
thereof, and all rights of action or claims which the Debtor now has or may at
any time hereafter have against any person or persons, firm or corporation in
respect thereof (all of the foregoing being herein collectively called the
“Accounts Receivable”);

 

(b)                                 Inventory

 

All inventory of whatever kind now or hereafter owned by the Debtor or in which
the

 

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Debtor now or hereinafter has an interest or right of any kind, and all
accessions thereto and products thereof, including, without limitation, all
goods, merchandise, raw materials, goods in process, finished goods, packaging
and packing material and other tangible personal property now or hereafter held
for sale, lease, rental or resale or that are to be furnished or have been
furnished under a contract of service or that are to be used or consumed in the
business of the Debtor (all of the foregoing being herein collectively called
the “Inventory”);

 

(c)                                  Equipment

 

All goods now or hereafter owned by the Debtor which are not inventory or
consumer goods as defined in the PPSA including, without limitation, all
machinery, equipment, furniture, furnishings, fixtures, and other tangible
personal property (except Inventory), including motor vehicles with respect to
which a certificate of title has been issued, aircraft, dies, tools, jigs, and
office equipment, as well as all of such types of personal property leased by
the Debtor and all of the Debtor’s rights and interests with respect thereto
under such leases (including, without limitation, options to purchase); together
with all present and future additions and accessions thereto, replacements
therefor, component and auxiliary parts and supplies used or to be used in
connection therewith, and all substitutes for any of the foregoing, and all
manuals, drawings, instructions, warranties and rights with respect thereto;
wherever any of the foregoing is located (all of the foregoing being herein
collectively called the “Equipment”);

 

(d)                                 Chattel Paper, Instruments, Securities, etc.

 

All chattel paper, instruments, warehouse receipts, bills of lading and other
documents of title, whether negotiable or non-negotiable, shares, stock,
warrants, bonds, debentures, debenture stock or other securities, now or
hereafter owned by the Debtor;

 

(e)                                  Intangibles

 

All intangibles now or hereafter owned by the Debtor including, without
limitation, (i) all patents, and all unpatented or unpatentable inventions;
(ii) all trademarks, service marks, and trade names; (iii) all copyrights and
literary rights; (iv) all computer software programs; (v) all mask works of
semiconductor chip products; (vi) all trade secrets, proprietary information,
customer lists, manufacturing, engineering and production plans, drawings,
specifications, processes and systems.  The Collateral shall include all good
will connected with or symbolized by any of such intangibles; all contract
rights, documents, applications, licenses, materials and other matters related
to such intangibles; all tangible property embodying or incorporating any such
intangibles; and all chattel paper and instruments relating to such intangibles;

 

(f)                                   Books and Accounts, etc.

 

With respect to the property described in Paragraphs (a) to (e) inclusive, all
books, accounts, invoices, deeds, documents, writings, letters, papers, security
certificates and other records in any form evidencing or relating thereto and
all contracts, securities, instruments and other rights and benefits in respect
thereof;

 

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(g)                                  Other Property

 

The uncalled capital, money, rights, bills of exchange, negotiable and non
negotiable instruments, judgments and securities not otherwise described in
Paragraphs (a) to (f) inclusive;

 

(h)                                 Replacements, etc.

 

With respect to the property described in Paragraphs (a) to (g) inclusive, all
substitutions and replacements thereof, increases, additions and accessions
thereto and any interest of the Debtor therein; and

 

(i)                                     Proceeds

 

With respect to the property described in Paragraphs (a) to (h) inclusive,
personal property in any form or fixtures derived directly or indirectly from
any dealing with such property or that indemnifies or compensates for such
property destroyed or damaged and proceeds of proceeds whether of the same type,
class or kind as the original proceeds.

 

1.2                               Definitions and Interpretation

 

In this General Security Agreement:

 

(a)                                 Terms used but not defined herein and
defined in the PPSA shall have the same meanings herein as in the PPSA unless
the context otherwise requires; for the purposes of this General Security
Agreement, the “PPSA” shall mean the Personal Property Security Act of Ontario
(or any successor statute) or similar legislation of any other Canadian
jurisdiction, the laws of which are required by such legislation to be applied
in connection with the issue, perfection, enforcement, opposability, validity or
effect of security interests;

 

(b)                                 Terms used and not otherwise defined herein
shall have the meaning ascribed to them in the Credit Agreement (as hereinafter
defined);

 

(c)                                  Any reference to “Collateral” shall, unless
the context otherwise requires, refer to “Collateral or any part thereof”;

 

(d)                                 “Canadian Guarantee” shall mean that certain
guarantee agreement dated as of the date hereof, made by the Debtor in favour of
the Agent pursuant to the terms of the Credit Agreement, as same may be amended,
supplemented, revised, restated or replaced from time to time;

 

(e)                                  “Credit Agreement” shall mean that certain
Credit Agreement, dated as of the date hereof (as amended, restated,
supplemented and/or otherwise modified from time to time), by, among others,
Michael Stores, Inc., as the Borrower (the “Borrower”), Deutsche Bank AG New
York Branch, as Administrative Agent and Collateral Agent, each Lender from time
to time party thereto, JPMorgan Chase Bank, N.A., as Syndication Agent and Bank
of America N.A. and Credit Suisse, as Co-Documentation Agents;

 

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(f)                                   “Secured Obligations” means the
“Obligations” (as defined in the Credit Agreement) owing by the Debtor and the
“Guaranteed Obligations” (as defined in the Canadian Guarantee) owing by the
Debtor; it being acknowledged and agreed that the term “Obligations” (as defined
in the Credit Agreement) shall include each extension of credit under the Credit
Agreement and all obligations of the Borrower and/or its Restricted Subsidiaries
under the Secured Hedge Agreements, in each case, whether outstanding on the
date of this General Security Agreement or extended from time to time after the
date of this General Security Agreement;

 

(g)                                  “Secured Parties” has the meaning provided
in the Credit Agreement;

 

(h)                                 “US Security Agreement” shall mean that
certain security agreement dated as of the date hereof, between, amongst others,
the Borrower, the other Loan Parties party thereto and the Agent, for its
benefit and for the benefit of the other Secured Parties, as same may be
amended, supplemented, revised, restated or replaced from time to time;

 

(i)                                     The term “security interest” shall
include, without limitation, a fixed mortgage, hypothecation, pledge, charge and
assignment;

 

(j)                                    The term “encumbrance” shall include,
without limitation, a security interest, lien, hypothec, claim, charge, deemed
trust or encumbrance of any kind whatsoever.

 

1.3                               Leases

 

(a)                                 The last day of the term of any lease of
real property, oral or written, or any agreement therefor, now held or hereafter
acquired by the Debtor, shall be excepted from the security interest hereby
granted and shall not form part of the Collateral, but the Debtor shall stand
possessed of such one day remaining, upon trust to assign and dispose of the
same as the Agent or any assignee of such lease or agreement shall direct.  If
any such lease or agreement therefor contains a provision which provides in
effect that such lease or agreement may not be assigned, sub-leased, charged or
encumbered without the leave, license, consent or approval of the lessor, the
application of the security interest created hereby to any such lease or
agreement shall be conditional upon such leave, license, consent or approval
having been obtained.

 

(b)                                 There shall also be excluded from the
Collateral all property and assets specifically excluded from the defined term
“Collateral” (as so defined in the US Security Agreement).

 

1.4                               Debtor Remains Liable

 

Notwithstanding anything herein to the contrary, but subject as otherwise
provided in the Credit Agreement or the US Security Agreement:

 

(a)                                 the Debtor shall remain liable under the
contracts and agreements included in the

 

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Collateral to the extent set forth therein to perform all its duties and
obligations thereunder to the same extent as if this General Security Agreement
had not been executed;

 

(b)                                 the exercise by the Agent of any of the
rights or remedies hereunder shall not release the Debtor from any of its duties
or obligations under the contracts and agreements included in the Collateral;
and

 

(c)                                  the Agent shall not have any obligation or
liability under the contracts and agreements included in the Collateral by
reason of this General Security Agreement, nor shall the Agent be obligated to
perform any of the obligations or duties of the Debtor thereunder or to take any
action to collect or enforce any claim for payment assigned hereunder.

 

2                                         REPRESENTATIONS, WARRANTIES, ETC.

 

The Debtor represents and warrants to and in favour of the Agent:

 

2.1                               Representations and Warranties in the Credit
Agreement and US Security Agreement

 

In addition to and not in substitution for any representation and warranty
contained in this General Security Agreement, the Debtor does hereby represent
and warrant to and in favour of the Agent and the Secured Parties that each
representation and warranty made in the Credit Agreement and US Security
Agreement, inasmuch as applicable to the Debtor, is hereby reiterated and
restated by the Debtor and each such representation and warranty is hereby
incorporated by reference herein, mutatis mutandis (including, without
limitation, that references to the New York UCC shall, to the extent
appropriate, include the PPSA, as applicable), and is hereby confirmed as true
and correct as of the date hereof (except to the extent that such
representations and warranties refer to a specific date in which case they are
confirmed as true and correct as of such date).

 

2.2                               Covenants and Agreements in the Credit
Agreement and US Security Agreement

 

In addition to and not in substitution for any covenant, agreement, undertaking
and condition contained in this General Security Agreement, the Debtor does
hereby covenant and agree with the Agent and the Secured Parties, that it shall
comply with, and ensure the compliance of, all covenants, agreements,
undertakings and conditions given under the Credit Agreement and the US Security
Agreement, and each such covenant, agreement, undertaking and condition is
hereby incorporated by reference herein, mutatis mutandis.

 

2.3                               Survival

 

All representations, warranties, covenants, agreements, undertakings and
conditions made in the Loan Documents, which, if not true, accurate and complete
when made and which, if not performed in accordance with the terms thereof, are
material, shall be considered to have been relied on by the Agent or the Secured
Parties and shall survive the execution and delivery of this General Security
Agreement or any investigation made at any time by or on behalf of the Agent and
any disposition or payment of the Secured Obligations until repayment and
performance in

 

5

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full of the Secured Obligations and termination of all rights of the Debtor
that, if exercised, would result in the existence of Secured Obligations.

 

3                                         COVENANTS OF THE DEBTOR

 

In addition to the covenants referred to in Section 2.4 of this General Security
Agreement, the Debtor covenants and agrees with the Agent that so long as there
shall remain any Secured Obligations of or affecting any party to this General
Security Agreement:

 

3.1                               Payment

 

The Debtor will pay duly and punctually all sums of money due by it to the Agent
or any Secured Party under this General Security Agreement at the times and
places and in the manner provided for herein.

 

4                                         COLLECTION OF PROCEEDS

 

4.1                               Payments to the Agent

 

Upon the occurrence of a Default (as defined below) which is continuing, the
Debtor shall, upon request of the Agent:

 

(a)                                 Collect and enforce payment of all Accounts
Receivable and shall dispose of and receive payment for all Inventory which is
ordinarily disposed of in the Debtor’s business;

 

(b)                                 Receive and hold in trust for the Agent, all
payments on or instruments received in respect of the Collateral, all rights by
way of suretyship or guarantee which the Debtor now has or may hereafter acquire
to enforce payment of Collateral and all rights in the nature of a security
interest whereby the Debtor may satisfy any Collateral out of property, and all
non cash proceeds of any such collection, disposition or realization of any of
the Collateral shall be subject to the security interest hereby created;

 

(c)                                  Endorse to the Agent and forthwith deliver
to it all such payments and instruments in the form received by the Debtor; and

 

(d)                                 Forthwith deliver to the Agent all property
in the Debtor’s possession or hereafter coming into its possession through
enforcement of any such rights.

 

5                                         DEFAULT

 

5.1                               Default

 

The security interests hereby constituted shall become enforceable upon the
occurrence and during the continuance of an Event of Default, as defined in the
Credit Agreement (each and every such Event of Default , herein called a
“Default”).

 

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5.2                               Demand Nature of Secured Obligations

 

The Debtor agrees that the provision of defaults in Section 5.1 hereof shall not
derogate from any demand nature of the Secured Obligations as provided in the
Credit Agreement as at any time without restriction.  The Debtor agrees that
upon the occurrence and during the continuance of a Default under Section 5.1
hereof, the security interests hereby constituted shall become enforceable and
the Agent shall be entitled to exercise and enforce any or all of the remedies
herein provided or which may otherwise be available to the Agent by statute at
law or in equity and all amounts secured hereby shall immediately be paid to the
Agent (for itself and on behalf of the Secured Parties) by the Debtor.

 

6                                         REMEDIES ON DEFAULT

 

Upon the occurrence and during the continuance of a Default, the Agent shall
have, in addition to any other rights, remedies and powers which it may have at
law, in equity or under the PPSA, the Civil Code of Quebec (the “CCQ”) or the
Uniform Commercial Code as from time to time in effect in the State of New York
(the “New York UCC”) the following rights, remedies and powers:

 

6.1                               Power of Entry

 

The Debtor shall forthwith upon demand assemble and deliver to the Agent
possession of all of the Collateral at such place as may be specified by the
Agent that is reasonably convenient to both parties.  The Agent may take such
steps as it considers necessary or desirable to obtain possession of all or any
part of the Collateral and, to that end, the Debtor agrees that the Agent, its
servants or agents or Receiver (as hereinafter defined) may, at any time, during
the day or night, enter upon lands and premises where the Collateral may be
found for a reasonable period for the purpose of taking possession of and/or
removing the Collateral or any part thereof; provided that the Agent shall
provide the Debtor with notice thereof prior to or promptly after such
occupancy.  In the event of the Agent taking possession of the Collateral, or
any part thereof, the Agent shall have the right to maintain the same upon the
premises on which the Collateral may then be situate.  The Agent may take such
action or do such things as to render any Equipment unusable.

 

6.2                               Power of Sale

 

Except as otherwise required or prohibited by Applicable Law, the Agent may
sell, lease or otherwise dispose of all or any part of the Collateral, as a
whole or in separate parcels, by public auction, private tender or by private
contract, with or without notice, except as otherwise required by applicable
law, with or without advertising and without any other formality, all of which
are hereby waived by the Debtor.  Except as otherwise required or prohibited by
Applicable Law, such sale, lease or disposition shall be on such terms and
conditions as to credit and otherwise and as to upset or reserve bid or price
as  the Agent, in its sole discretion, may seem advantageous.  If such sale,
transfer or disposition is made on credit or part cash and part credit, the
Agent need only credit against the Secured Obligations the actual cash received
at the time of the sale.  Any payments made pursuant to any credit granted at
the time of the sale shall be credited against the Secured Obligations as they
are received.  The Agent may buy in or rescind or vary any contract for sale of
all or any of the Collateral and may resell without being answerable for any
loss occasioned thereby.  Any such sale, lease or disposition may take place
whether or not the Agent has taken possession of the Collateral.  The Agent may,
before any

 

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such sale, lease or disposition, perform any commercially reasonable repair,
processing or preparation for disposition and the amount so paid or expended
shall be deemed advanced to the Debtor by the Agent, shall become part of the
Secured Obligations, shall bear interest at the highest rate per annum charged
by the Agent on the Secured Obligations or any part thereof and shall be secured
by this General Security Agreement.

 

6.3                               Validity of Sale

 

No person dealing with the Agent or its servants shall be concerned to inquire
whether the security hereby constituted has become enforceable, whether the
powers which the Agent is purporting to exercise have become exercisable,
whether any money remains due on the security of the Collateral, as to the
necessity or expedience of the stipulations and conditions subject to which any
sale, lease or disposition shall be made, otherwise  as to the propriety or
regularity of any sale or any other dealing by the Agent with the Collateral or
to see to the application of any money paid to the Agent.  In the absence of
fraud on the part of such persons, such dealings shall be deemed, so far as
regards the safety and protection of such person, to be within the powers hereby
conferred and to be valid and effective accordingly.

 

6.4                               Receiver-Manager

 

The Agent may, in addition to any other rights it may have, appoint by
instrument in writing a receiver or receiver and manager (both of which are
herein called a “Receiver”) of all or any part of the Collateral or may
institute proceedings in any court of competent jurisdiction for the appointment
of such a Receiver.  Any such Receiver is hereby given and shall have the same
powers and rights and exclusions and limitations of liability as the Agent has
under this General Security Agreement, at law or in equity.  In exercising any
such powers, any such Receiver shall, to the extent permitted by law, act as and
for all purposes shall be deemed to be the agent of the Debtor and the Agent
shall not be responsible for any act or default of any such Receiver.  The Agent
may appoint one or more Receivers hereunder and may remove any such Receiver or
Receivers and appoint another or others in his or their stead from time to
time.  Any Receiver so appointed may be an officer or employee of the Agent.  A
court need not appoint, ratify the appointment by the Agent of or otherwise
supervise in any manner the actions of any Receiver.  Upon the Debtor receiving
notice from the Agent of the taking of possession of the Collateral or the
appointment of a Receiver, all powers, functions, rights and privileges of each
of the directors and officers of the Debtor with respect to the Collateral shall
cease, unless specifically continued by the written consent of the Agent.

 

6.5                               Carrying on Business

 

The Agent may carry on, or concur in the carrying on of, all or any part of the
business or undertaking of the Debtor, may, to the exclusion of all others,
including the Debtor, enter upon, occupy and use all or any of the premises,
buildings, plant and undertaking of or occupied or used by the Debtor as
provided in Section 6.1 hereof and may use all or any of the tools, machinery,
equipment and intangibles of the Debtor for such time as the Agent sees fit,
free of charge, to carry on the business of the Debtor and, if applicable, to
manufacture or complete the manufacture of any Inventory and to pack and ship
the finished product.

 

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6.6                               Dealing with Collateral

 

The Agent may seize, collect, realize, dispose of, enforce, release to third
parties or otherwise deal with the Collateral or any part thereof in such
manner, upon such terms and conditions and at such time or times as may seem to
it advisable, all of which without notice to the Debtor except as otherwise
required by any Applicable Law.  The Agent may demand, sue for and  receive any
Accounts Receivable with or without notice to the Debtor, give such receipts,
discharges and extensions of time and make such compromises in respect of any
Accounts Receivable  which may, in the Agent’s absolute discretion, seem bad or
doubtful.  The Agent may charge on its own behalf and pay to others, sums for
reasonable costs and expenses incurred including, without limitation, reasonable
legal fees and expenses on a substantial indemnity basis and Receivers’ and
accounting fees, in or in connection with seizing, collecting, realizing,
disposing, enforcing or otherwise dealing with the Collateral and in connection
with the protection and enforcement of the rights of the Agent hereunder
including, without limitation, in connection with advice with respect to any of
the foregoing.  The amount of such sums shall be deemed advanced to the Debtor
by the Agent, shall become part of the Secured Obligations, shall bear interest
at the highest rate per annum charged by the Agent on the Secured Obligations or
any part thereof and shall be secured by this General Security Agreement.

 

6.7                               Right to Use

 

The Debtor hereby grants to the Agent a license or other right to use, without
charge, all of the Debtor’s present and future property, whether real or
personal, including, without limitation, labels, patents, copyrights, rights of
use of any name, trade secrets, trade names, trademarks, services marks, and
advertising matter, or any other property of any nature or of a similar nature,
as it pertains to the Collateral, in completing production of, advertising for
sale, and selling of any Collateral and the Debtor’s rights under all licenses
and all franchise agreements shall inure to the Agent.

 

6.8                               Retention of Collateral

 

Upon notice to the Debtor and subject to any obligation to dispose of any of the
Collateral, as provided in the PPSA, the Agent may, to the extent permitted by
Applicable Law, elect to retain all or any part of the Collateral in
satisfaction of the Secured Obligations or any of them.

 

6.9                               Pay Encumbrances

 

The Agent may pay any encumbrance that may exist or be threatened against the
Collateral.  In addition, the Agent may borrow money required for the
maintenance, preservation or protection of the Collateral or for the carrying on
of the business or undertaking of the Debtor and may grant further security
interests in the Collateral in priority to the security interest created hereby
as security for the money so borrowed.  In every such case the amounts so paid
or borrowed together with costs, charges and expenses incurred in connection
therewith shall be deemed to have been advanced to the Debtor by the Agent,
shall become part of the Secured Obligations, shall bear interest at the highest
rate per annum charged by the Agent on the Secured Obligations or any part
thereof and shall be secured by this General Security Agreement.

 

6.10                        Application of Payments Against Secured Obligations

 

Any and all payments made in respect of the Secured Obligations from time to
time and moneys

 

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realized on the Collateral may be applied to such part or parts of the Secured
Obligations in accordance with Section 7.04 of the Credit Agreement.  Except as
otherwise provided in the Credit Agreement and the US Security Agreement, any
property insurance moneys received by the Agent pursuant to this General
Security Agreement may, at the option of the Agent, be applied to rebuilding or
repairing the Collateral or be applied against the Secured Obligations in
accordance with the provisions of this Section.

 

6.11                        Set-Off

 

The Secured Obligations will be paid by the Debtor without regard to any
equities between the Debtor and the Agent and/or any Secured Party or any right
of set-off or cross-claim.  Any indebtedness owing by the Agent and/or any
Secured Party to the Debtor may be set off and applied by the Agent against the
Secured Obligations at any time or from time to time either before or after
maturity, without demand upon or notice to anyone.

 

6.12                        Deficiency

 

If the proceeds of the realization of the Collateral are insufficient to repay
the Agent and the Secured Parties the Secured Obligations, the Debtor shall
forthwith pay or cause to be paid to the Agent (either for itself or on behalf
of the Secured Parties) such deficiency.

 

6.13                        Agent Not Liable

 

The Agent shall not be liable or accountable for any failure to seize, collect,
realize, dispose of, enforce or otherwise deal with the Collateral, shall not be
bound to institute proceedings for any such purposes or for the purpose of
preserving any rights of the Agent, the Debtor or any other person, firm or
corporation in respect of the Collateral and shall not be liable or responsible
for any loss, cost or damage whatsoever which may arise in respect of any such
failure, except to the extent resulting from the gross negligence, bad faith or
wilful misconduct of the Agent or any of its officers, servants, agents,
solicitors, attorneys, Receivers or otherwise.  Neither the Agent nor its
officers, servants, agents, or Receivers shall be liable by reason of any entry
into possession of the Collateral or any part thereof, to account as a mortgagee
in possession, for anything except actual receipts, for any loss on realization,
for any act or omission for which a mortgagee in possession might be liable, for
any negligence in the carrying on or occupation of the business or undertaking
of the Debtor as provided in Section 6.5 or for any loss, cost, damage or
expense whatsoever which may arise in respect of any such actions or omissions
except to the extent resulting from their gross negligence, bad faith or wilful
misconduct.

 

6.14                        Extensions of Time

 

The Agent may grant renewals, extensions of time and other indulgences, take and
give up securities, accept compositions, grant releases and discharges, perfect
or fail to perfect any securities, release any part of the Collateral to third
parties and otherwise deal or fail to deal with the Debtor, Subsidiaries of the
Debtor, guarantors, sureties and others and with the Collateral and other
securities as the Agent may see fit, all without prejudice to the liability of
the Debtor to the Agent or the Agent’s rights and powers under this General
Security Agreement.

 

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6.15                       Rights in Addition

 

The rights and powers conferred by this Section 6 are in supplement of and in
addition to and not in substitution for any other rights or powers the Agent may
have from time to time under this General Security Agreement or under Applicable
Law.  The Agent may proceed by way of any action, suit, remedy or other
proceeding at law or in equity and no such remedy for the enforcement of the
rights of the Agent shall be exclusive of or dependent on any other such
remedy.  Any one or more of such remedies may from time to time be exercised
separately or in combination.  The Debtor recognizes that if it fails to perform
or observe its obligations hereunder, no remedy at law will provide adequate
relief to the Agent, and the Debtor agrees that the Agent shall be entitled to
temporary and permanent injunctive relief in any such case without the necessity
of proving irreparable harm.  Any notification of intended disposition of any of
the Collateral required by law will be deemed reasonably and properly given if
given at least fifteen (15) calendar days before such disposition.

 

7                                         GENERAL

 

7.1                               Security in Addition

 

The security hereby constituted is not in substitution for any other security
for the Secured Obligations or for any other agreement between the parties
creating a security interest in all or part of the Collateral, whether
heretofore or hereafter made, and such security and such agreements shall be
deemed to be continued and not affected hereby unless expressly provided to the
contrary in writing and signed by the Agent and the Debtor.  The taking of any
action or proceedings or refraining from so doing, or any other dealing with any
other security for the Secured Obligations or any part thereof, shall not
release or affect the security interest created by this General Security
Agreement and the taking of the security interest hereby created or any
proceedings hereunder for the realization of the security interest hereby
created shall not release or affect any other security held by the Agent for the
repayment of or performance of the Secured Obligations.

 

7.2                               Waiver

 

Any waiver of a breach by the Debtor of any of the terms or provisions of this
General Security Agreement or of a Default under Section 5.1 hereof must be in
writing to be effective against and bind the Agent.  No such waiver by the Agent
shall extend to or be taken in any manner to affect any subsequent breach or
Default or the rights of the Agent arising therefrom.

 

7.3                               Further Assurances

 

The Debtor shall at all times do, execute, acknowledge and deliver or cause to
be done, executed, acknowledged or  delivered all and singular every such
further acts, deeds, conveyances, instruments, transfers, assignments, security
agreements and assurances as the Agent may reasonably require in order to give
effect to the provisions and purposes of this General Security Agreement
including, without limitation, in respect of the Agent’s enforcement of the
security and its realization on the Collateral, and for the better granting,
transferring, assigning, charging, setting over, assuring, confirming and/or
perfecting the security interest of the Agent in the Collateral pursuant to this
General Security Agreement.  The Debtor hereby constitutes and appoints any
officer of the Agent at its above address, or any Receiver appointed by the
court or the Agent as provided herein, the true and lawful attorney of the
Debtor irrevocably with full

 

11

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power of substitution to do, make and execute all such assignments, documents,
acts, matters or things with the right to use the name of the Debtor whenever
and wherever it may be deemed necessary or expedient provided that such power of
attorney may only be exercised during the continuance of a Default.  The Debtor
hereby authorizes the Agent to file such proofs of claim and other documents as
may be necessary or advisable in order to prove its claim in any bankruptcy,
proposed winding-up or other proceeding relating to the Debtor.

 

Without limiting the generality of the foregoing, the Debtor:

 

(a)                                 shall execute and file such financing or
continuation statements, or amendments, thereto, and such other instruments or
notices, as may be necessary or desirable, or as the Agent may request, in order
to perfect and preserve the security interests granted or purported to be
granted hereby; and

 

(b)                                 hereby authorizes the Agent to file one or
more financing or continuation statements, and amendments thereto, relative to
all or any part of the Collateral without the signature of the Debtor, where
permitted by law.

 

7.4                               No Merger

 

Neither the taking of any judgment nor the exercise of any power of seizure or
sale shall operate to extinguish the liability of the Debtor to make payment of
or satisfy the Secured Obligations.  The acceptance of any payment or alternate
security shall not constitute or create any novation and the taking of a
judgment or judgments under any of the covenants herein contained shall not
operate as a merger of such covenants.

 

7.5                               Notices

 

All communications and notices hereunder shall (except as otherwise expressly
permitted herein) be in writing and given as provided in Section 10.02 of the
Credit Agreement.  All communications and notices hereunder to the Debtor shall
be given to it in care of the Borrower as provided in Section 10.02 of the
Credit Agreement.

 

7.6                               Continuing Security Interest

 

This General Security Agreement shall create a continuing security interest in
the Collateral and shall remain in full force and effect until payment and
performance in full of the Secured Obligations and the termination of the Credit
Agreement, notwithstanding any dealing between the Agent and the Debtor in
respect of the Secured Obligations or any release, exchange, non-perfection,
amendment, waiver, consent or departure from or in respect of any or all of the
terms or provision of any security held for the Secured Obligations.

 

7.7                               Governing Law

 

This General Security Agreement shall be governed by and construed in accordance
with the laws of the Province of Ontario and the laws of Canada applicable
therein, except as required by mandatory provisions of law and except to the
extent that the validity or perfection of the security interests hereunder, or
remedies hereunder, in respect of any particular Collateral are governed by the
laws of a jurisdiction other than the Province of Ontario.

 

12

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ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT MAY BE BROUGHT IN
THE COURTS OF THE PROVINCE OF ONTARIO OR OF THE FEDERAL COURTS OF CANADA
THEREIN, AND BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH OF THE DEBTOR AND
THE AGENT CONSENTS, FOR ITSELF AND IN RESPECT OF ITS PROPERTY, TO THE
NON-EXCLUSIVE JURISDICTION OF THOSE COURTS.  EACH OF THE DEBTOR AND THE AGENT
IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING ANY OBJECTION TO THE LAYING OF VENUE
OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER
HAVE TO THE BRINGING OF ANY ACTION OR PROCEEDING IN SUCH JURISDICTION OR ANY
OTHER JURISDICTION SELECTED BY THE AGENT IN RESPECT OF THIS AGREEMENT.  EACH OF
THE DEBTOR AND THE AGENT WAIVES PERSONAL SERVICE OF ANY SUMMONS, COMPLAINT OR
OTHER PROCESS, WHICH MAY BE MADE BY ANY OTHER MEANS PERMITTED BY THE LAW OF
ONTARIO.

 

The parties hereto hereby waive trial by jury in any action, proceeding, claim
or counterclaim, whether in contract or tort, at law or in equity with respect
to, in connection with, or arising out of this General Security Agreement, other
financing agreements, the obligations of the Borrower and the Debtor, the
collateral, or any instrument, document or guarantee delivered pursuant hereto
or to any of the foregoing, or the validity, protection, interpretation,
administration, collection or enforcement hereof or thereof, or any other claim
or dispute hereunder or thereunder.

 

7.8                               Security Interest Effective Immediately

 

The parties intend the security interest created hereby to attach and take
effect forthwith upon execution of this General Security Agreement by the Debtor
and the Debtor acknowledges that value has been given and that the Debtor has
rights in the Collateral now owned by it.

 

7.9                               Provisions Reasonable

 

The Debtor expressly acknowledges and agrees that the provisions of this General
Security Agreement and, in particular, those respecting remedies and powers of
the Agent against the Debtor, its business and the Collateral upon default, are
commercially reasonable and not manifestly unreasonable.

 

7.10                        Number and Gender

 

In this General Security Agreement, words importing the singular number include
the plural and vice-versa and words importing gender include all genders.

 

7.11                        Invalidity

 

In the event that any term or provision of this General Security Agreement
shall, to any extent, be invalid or unenforceable, the remaining terms and
provisions of this General Security Agreement shall be unaffected thereby and
shall be valid and enforceable to the fullest extent permitted by law.

 

13

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7.12                        Indemnity and Expenses

 

(a)                                 The Debtor agrees to indemnify and save
harmless the Agent and the Secured Parties from and against any and all claims,
losses and liabilities arising out of or resulting out of or resulting from this
General Security Agreement (including, without limitation, enforcement of this
General Security Agreement), except claims, losses or liabilities resulting from
the Agent’s gross negligence, bad faith or wilful misconduct.

 

(b)                                 The Debtor will upon demand pay to the Agent
the amount of any and all reasonable expenses, including the reasonable fees and
disbursements of its counsel and of any experts and agents, which the Agent may
incur in connection with (i) the custody, preservation, use or operation of, or
the sale of, collection from, or other realization upon, any of the Collateral,
(ii) the exercise or enforcement of any of the rights or remedies of the Agent
hereunder or (iii) the failure by the Debtor to perform or observe any of the
provisions hereunder.

 

7.13                        Precedence

 

Except as limited herein. in the event that any provisions of this General
Security Agreement contradict, are inconsistent with and are otherwise incapable
of being construed in conjunction with the provisions (including any rights,
remedies and covenants therein) of the Credit Agreement and/or the US Security
Agreement, as applicable, the provisions of the Credit Agreement and/or the US
Security Agreement, as applicable, shall take precedence over those contained in
this General Security Agreement; provided that if any provisions contained in
both the Credit Agreement and the US Security Agreement conflict with,
contradict, are inconsistent with and are otherwise incapable of being construed
in conjunction with each such provision, the provisions of the Credit Agreement,
as applicable, shall take precedence over those contained in the US Security
Agreement and, in particular, if any act of the Debtor is expressly permitted
under the Credit Agreement and/or the US Security Agreement but is prohibited
under this General Security Agreement, any such act shall be deemed to be
permitted under this General Security Agreement.  Notwithstanding the foregoing,
in the event that granting of security interest provisions in the Credit
Agreement or the US Security Agreement conflict with, contradict, are
inconsistent and are otherwise incapable of being construed in conjunction with
the provisions of this General Security Agreement, such provisions of this
General Security Agreement shall take precedence over those contained in the
Credit Agreement or the US Security Agreement, as applicable.

 

7.14                        Judgement Currency

 

If, for the purposes of obtaining judgment in any court, it is necessary to
convert a sum due under this General Security Agreement in one currency into
another currency, the rate of exchange used shall be that at which in accordance
with normal banking procedures the Agent could purchase the first currency with
such other currency on the Business Day preceding that on which final judgment
is given.  The obligation of the Debtor in respect of any such sum due from it
to the Agent or the Secured Parties hereunder shall, notwithstanding any
judgment in a currency (the “Judgment Currency”) other than that in which such
sum is denominated in accordance with the applicable provisions of the Credit
Agreement (the “Agreement

 

14

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Currency”), be discharged only to the extent that on the Business Day following
receipt by the Agent of any sum adjudged to be so due in the Judgment Currency,
the Agent may in accordance with normal banking procedures purchase the
Agreement Currency with the Judgment Currency.  If the amount of the Agreement
Currency so purchased is less than the sum originally due to the Agent from any
Loan Party in the Agreement Currency, the Debtor agrees, as a separate
obligation and notwithstanding any such judgment, to indemnify the Agent or the
Person to whom such obligation was owing against such loss.  If the amount of
the Agreement Currency so purchased is greater than the sum originally due to
the Agent in such currency, the Administrative Agent agrees to return the amount
of any excess to the Debtor (or to any other Person who may be entitled thereto
under Applicable Law).

 

7.15                        Sections and Headings

 

The division of this General Security Agreement into sections and the insertion
of headings are for convenience of reference only and shall not affect the
construction or interpretation hereof.

 

7.16                        Receipt of Copy

 

The Debtor acknowledges receipt of an executed copy of this General Security
Agreement.

 

7.17                        Binding Effect

 

This General Security Agreement shall enure to the benefit of and shall bind the
Debtor and the Agent and their respective successors and permitted assigns.

 

7.18                        Intercreditor Agreement

 

The Debtor and the Agent acknowledge that the exercise of certain of the Agent’s
rights and remedies hereunder may be subject to, and restricted by, the
provisions of the Intercreditor Agreement.  Nothing contained in the
Intercreditor Agreement shall be deemed to modify any of the provisions of this
General Security Agreement, which, as among the Debtor and the Agent shall
remain in full force and effect.

 

7.19                        Language

 

The parties hereto acknowledge that they have requested and are satisfied that
the foregoing, as well as all notices, actions and legal proceedings be drawn up
in the english language.  Les parties à cette convention reconnaissent qu’elles
ont exigé que ce qui précède ainsi que tous avis, actions et procédures légales
soient rédigés et exécutés en anglais et s’en déclarent satisfaites.

 

[signature pages follow]

 

15

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IN WITNESS WHEREOF, this General Security Agreement is executed as of the date
first above written.

 

 

 

MICHAELS OF CANADA, ULC

 

 

 

 

 

By:

/s/ Jeffrey N. Boyer

 

 

Name: Jeffrey N. Boyer

 

 

Title:President

 

 

 

 

 

DEUTSCHE BANK AG NEW YORK BRANCH, as Collateral Agent,

 

 

 

 

 

By:

/s/ Marguerite Sutton

 

 

Title: Director

 

 

 

 

 

By:

/s/ Omayra Laucella

 

 

Title: Vice President

 

16

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EXHIBIT H
[CONFORMED AS EXECUTED]

 

INTERCREDITOR AGREEMENT

 

by and between

 

BANK OF AMERICA, N.A.,

 

as ABL Agent,

 

and

 

DEUTSCHE BANK AG NEW YORK BRANCH,

 

as Term Agent

 

Dated as of October 31, 2006

 

--------------------------------------------------------------------------------

 

TABLE OF CONTENTS

 

 

 

Page No.

 

 

 

ARTICLE 1 DEFINITIONS

2

 

 

 

Section 1.1

UCC Definitions

2

Section 1.2

Other Definitions

2

Section 1.3

Rules of Construction

15

 

 

 

ARTICLE 2 LIEN PRIORITY

16

 

 

 

Section 2.1

Priority of Liens

16

Section 2.2

Waiver of Right to Contest Liens

17

Section 2.3

Remedies Standstill

18

Section 2.4

Exercise of Rights

19

Section 2.5

No New Liens

21

Section 2.6

Waiver of Marshalling

21

 

 

 

ARTICLE 3 ACTIONS OF THE PARTIES

22

 

 

 

Section 3.1

Certain Actions Permitted

22

Section 3.2

Agent for Perfection

22

Section 3.3

Sharing of Information and Access

23

Section 3.4

Insurance

23

Section 3.5

No Additional Rights For the Credit Parties Hereunder

23

Section 3.6

Inspection and Access Rights

23

Section 3.7

Tracing of and Priorities in Proceeds

25

Section 3.8

Payments Over

25

 

 

 

ARTICLE 4 APPLICATION OF PROCEEDS

26

 

 

 

Section 4.1

Application of Proceeds

26

Section 4.2

Specific Performance

28

 

 

 

ARTICLE 5 INTERCREDITOR ACKNOWLEDGEMENTS AND WAIVERS

28

 

 

 

Section 5.1

Notice of Acceptance and Other Waivers

28

Section 5.2

Modifications to ABL Documents and Term Documents

30

Section 5.3

Reinstatement and Continuation of Agreement

31

 

 

 

ARTICLE 6 INSOLVENCY PROCEEDINGS

32

 

 

 

Section 6.1

DIP Financing

32

Section 6.2

Relief From Stay

34

Section 6.3

No Contest; Adequate Protection

34

Section 6.4

Asset Sales

35

Section 6.5

Separate Grants of Security and Separate Classification

36

Section 6.6

Enforceability

36

Section 6.7

ABL Obligations Unconditional

36

Section 6.8

Term Obligations Unconditional

37

Section 6.9

Adequate Protection

37

 

i

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ARTICLE 7 MISCELLANEOUS

38

 

 

 

Section 7.1

Rights of Subrogation

38

Section 7.2

Further Assurances

38

Section 7.3

Representations

39

Section 7.4

Amendments

39

Section 7.5

Addresses for Notices

39

Section 7.6

No Waiver; Remedies

39

Section 7.7

Continuing Agreement, Transfer of Secured Obligations

40

Section 7.8

Governing Law; Entire Agreement

40

Section 7.9

Counterparts

40

Section 7.10

No Third Party Beneficiaries

40

Section 7.11

Headings

40

Section 7.12

Severability

40

Section 7.13

Attorneys’ Fees

41

Section 7.14

VENUE; JURY TRIAL WAIVER

41

Section 7.15

Intercreditor Agreement

41

Section 7.16

No Warranties or Liability

42

Section 7.17

Conflicts

42

Section 7.18

Information Concerning Financial Condition of the Credit Parties

42

 

ii

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INTERCREDITOR AGREEMENT

 

THIS INTERCREDITOR AGREEMENT (as amended, supplemented, restated or otherwise
modified from time to time pursuant to the terms hereof, this “Agreement”) is
entered into as of October 31, 2006 between BANK OF AMERICA, N.A. (“Bank of
America”), in its capacities as administrative agent and collateral agent
(together with its successors and assigns in such capacities, the “ABL Agent”)
for (i) the financial institutions party from time to time to the ABL Credit
Agreement referred to below (such financial institutions, together with their
respective successors, assigns and transferees, the “ABL Lenders”) and (ii) any
ABL Bank Product Affiliates and ABL Cash Management Affiliates (each as defined
below) (such ABL Bank Product Affiliates and ABL Cash Management Affiliates,
together with the ABL Agent and the ABL Lenders, the “ABL Secured Parties”) and
DEUTSCHE BANK AG NEW YORK BRANCH in its capacities as administrative agent and
collateral agent (together with its successors and assigns in such capacities,
the “Term Agent”) for (i) the financial institutions party from time to time to
the Term Credit Agreement referred to below (such financial institutions,
together with their respective successors, assigns and transferees, the “Term
Lenders”), and (ii) any Term Hedging Affiliates (as defined below) (such Term
Hedging Affiliates, together with the Term Agent and the Term Lenders, the “Term
Secured Parties”).

 

RECITALS

 

A.            Pursuant to that certain Credit Agreement dated as of the date
hereof by and among Michaels Stores, Inc., Aaron Brothers, Inc., Michael Stores
Procurement Company, Inc., and Artistree, Inc. (collectively, the “ABL
Borrowers”), the ABL Lenders and the ABL Agent (as such agreement may be
amended, supplemented, restated or otherwise modified from time to time, the
“ABL Credit Agreement”), the ABL Lenders have agreed to make certain loans and
other financial accommodations to or for the benefit of the ABL Borrowers.

 

B.            Pursuant to certain guaranties each dated as of the date hereof
(as the same may be amended, supplemented, restated and/or otherwise modified,
collectively, the “ABL Guaranty”) by the ABL Guarantors (as hereinafter defined)
in favor of the ABL Secured Parties, the ABL Guarantors have agreed to
guarantee, inter alia, the payment and performance of the ABL Borrowers’
obligations under the ABL Documents (as hereinafter defined).

 

C.            As a condition to the effectiveness of the ABL Credit Agreement
and to secure the obligations of the ABL Borrowers and the ABL Guarantors (the
ABL Borrowers, the ABL Guarantors and each other direct or indirect subsidiary
or parent of the ABL Borrowers or any of their affiliates that is now or
hereafter becomes a party to any ABL Document, collectively, the “ABL Credit
Parties”) under and in connection with the ABL Documents, the ABL Credit Parties
have granted to the ABL Agent (for the benefit of the ABL Secured Parties) Liens
on the Collateral.

 

D.            Pursuant to that certain Credit Agreement dated as of the date
hereof by and among Michaels Stores, Inc. (the “Term Borrower”), the Term
Lenders and the Term Agent (as such agreement may be amended, supplemented,
restated or otherwise modified from time to time, the “Term Credit Agreement”),
the Term Lenders have agreed to make certain loans to the Term Borrower.

 

--------------------------------------------------------------------------------

 

E.            Pursuant to certain guaranties each dated as of the date hereof
(collectively, the “Term Guaranty) by the Term Guarantors (as hereinafter
defined) in favor of the Term Secured Parties, the Term Guarantors have agreed
to guarantee, inter alia, the payment and performance of the Term Borrower’s
obligations under the Term Documents (as hereinafter defined).

 

F.             As a condition to the effectiveness of the Term Credit Agreement
and to secure the obligations of the Term Borrower and the Term Guarantors (the
Term Borrower, the Term Guarantors and each other direct or indirect subsidiary
or parent of the Term Borrower or any of its affiliates that is now or hereafter
becomes a party to any Term Document, collectively, the “Term Credit Parties”)
under and in connection with the Term Documents, the Term Credit Parties have
granted to the Term Agent (for the benefit of the Term Secured Parties) Liens on
the Collateral.

 

G.            Each of the ABL Agent (on behalf of the ABL Secured Parties) and
the Term Agent (on behalf of the Term Secured Parties) and, by their
acknowledgment hereof, the ABL Credit Parties and the Term Credit Parties,
desire to agree to the relative priority of Liens on the Collateral and certain
other rights, priorities and interests as provided herein.

 

NOW THEREFORE, in consideration of the foregoing and for other good and valuable
consideration, receipt of which is hereby acknowledged, the parties hereto agree
as follows:

 

ARTICLE 1
DEFINITIONS

 

Section 1.1            UCC Definitions. The following terms which are defined in
the Uniform Commercial Code are used herein as so defined:  Accounts, Chattel
Paper, Commercial Tort Claims, Deposit Accounts, Documents, Electronic Chattel
Paper, Financial Assets, Fixtures, General
Intangibles, Instruments, Inventory, Investment Property, Letter-of-Credit
Rights, Money, Payment Intangibles, Promissory Notes, Records, Securities
Accounts, Security Entitlements, Supporting Obligations and Tangible Chattel
Paper.

 

Section 1.2            Other Definitions.  Subject to Section 1.1, as used in
this Agreement, the following terms shall have the meanings set forth below:

 

“ABL Agent” shall have the meaning assigned to that term in the introduction to
this Agreement and shall include any successor thereto as well as any Person
designated as the “Agent”, “Administrative Agent” or “Collateral Agent” under
any ABL Credit Agreement.

 

“ABL Bank Products Affiliate” shall mean any ABL Lender or any Affiliate of any
ABL Lender that has entered into a Bank Products Agreement with an ABL Credit
Party with the obligations of such ABL Credit Party thereunder being secured by
one or more ABL Collateral Documents, together with their respective successors,
assigns and transferees (even if such ABL Lender subsequently ceases to be a
lender under the ABL Credit Agreement for any reason).

 

“ABL Borrowers” shall have the meaning assigned to that term in the recitals to
this Agreement.

 

2

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“ABL Cash Management Affiliate” shall mean any ABL Lender or any Affiliate of an
ABL Lender that provides Cash Management Services to any of the ABL Credit
Parties with the obligations of such ABL Credit Parties thereunder being secured
by one or more ABL Collateral Documents, together with their respective
successors, assigns and transferees (even if such ABL Lender subsequently ceases
to be a lender under the ABL Credit Agreement for any reason).

 

“ABL Collateral Documents” shall mean all “Security Documents” as defined in the
ABL Credit Agreement, and all other security agreements, mortgages, deeds of
trust and other collateral documents executed and delivered in connection with
the ABL Credit Agreement, in each case as the same may be amended, supplemented,
restated or otherwise modified from time to time.

 

“ABL Credit Agreement” shall mean have the meaning assigned to such term in the
recitals to this Agreement and shall include any other agreement extending the
maturity of, consolidating, restructuring, refunding, replacing or refinancing
all or any portion of the ABL Obligations, whether by the same or any other
agent, lender or group of lenders and whether or not increasing the amount of
any Indebtedness that may be incurred thereunder.

 

“ABL Credit Parties” shall have the meaning assigned to that term in the
recitals to this Agreement.

 

“ABL Documents” shall mean the ABL Credit Agreement, the ABL Guaranty, the ABL
Collateral Documents, all Bank Products Agreements between any ABL Credit Party
and any ABL Bank Products Affiliate, all Cash Management Services Agreements
between any ABL Credit Party and any ABL Cash Management Affiliate, those other
ancillary agreements as to which any ABL Secured Party is a party or a
beneficiary and all other agreements, instruments, documents and certificates,
now or hereafter executed by or on behalf of any ABL Credit Party or any of its
respective Subsidiaries or Affiliates, and delivered to the ABL Agent or any
other ABL Secured Party, in connection with any of the foregoing or any ABL
Credit Agreement, in each case as the same may be amended, supplemented,
restated or otherwise modified from time to time.

 

“ABL Guarantors” shall mean the collective reference to (i) the Parent and each
direct or indirect Subsidiary of the Parent other than any Excluded Subsidiary
(but including Michaels of Canada, ULC and any other direct or indirect Canadian
Subsidiary of Michaels Stores, Inc. which becomes an ABL Guarantor), and
(ii) any other Person who becomes a guarantor under any ABL Guaranty.

 

“ABL Guaranty” shall have the meaning assigned to that term in the recitals to
this Agreement and shall also include any further guaranty made by an ABL
Guarantor guaranteeing, inter alia, the payment and performance of the ABL
Obligations.

 

“ABL Lenders” shall have the meaning assigned to that term in the introduction
to this Agreement, as well as any Person designated as a “Lender” under any ABL
Credit Agreement.

 

“ABL Obligations” shall mean all obligations of every nature of each ABL Credit
Party from time to time owed to the ABL Secured Parties, or any of them, under
any ABL Document, whether for principal, interest (including interest which, but
for the filing of a petition in

 

3

--------------------------------------------------------------------------------

 

bankruptcy with respect to such ABL Credit Party, would have accrued on any ABL
Obligation, whether or not a claim is allowed against such ABL Credit Party for
such interest in the related bankruptcy proceeding), reimbursement of amounts
drawn under letters of credit, payments for early termination of Swap Contracts,
fees, expenses, indemnification or otherwise, and all other amounts owing or due
under the terms of the ABL Documents, as amended, restated, modified, renewed,
refunded, replaced or refinanced in whole or in part from time to time.

 

“ABL Priority Collateral” shall mean all Collateral (other than Shared
Collateral) consisting of the following (including for the avoidance of doubt,
any such assets that, but for the application of Section 552 of the Bankruptcy
Code (or any similar provision of any foreign Debtor Relief Laws), would be ABL
Priority Collateral):

 

(1)           all Accounts, other than Accounts which constitute identifiable
proceeds of Term Priority Collateral;

 

(2)           all Chattel Paper (including Tangible Chattel Paper and Electronic
Chattel Paper), other than Chattel Paper which constitutes identifiable proceeds
of Term Priority Collateral;

 

(3)           (x) all Deposit Accounts (other than Term Loan Priority Accounts)
and money and all cash, checks, other negotiable instruments, funds and other
evidences of payments held therein, and (y) Securities Accounts (other than Term
Loan Priority Accounts), Security Entitlements and Securities credited to such a
Securities Account, and, in each case, all cash, checks and other property held
therein or credited thereto; provided, however, that to the extent that
identifiable proceeds of Term Priority Collateral are deposited in any such
Deposit Accounts or Securities Accounts, such identifiable proceeds shall be
treated as Term Priority Collateral;

 

(4)           all Inventory;

 

(5)           to the extent relating to, evidencing or governing any of the
items referred to in the preceding clauses (1) through (4) constituting ABL
Priority Collateral, all Documents, General Intangibles (other than any
Intellectual Property), Instruments (including Promissory Notes) and Commercial
Tort Claims; provided that to the extent any of the foregoing also relates to
Term Priority Collateral, only that portion related to the items referred to in
the preceding clauses (1) through (4) shall be included in the ABL Priority
Collateral;

 

(6) to the extent relating to any of the items referred to in the preceding
clauses (1) through (5) constituting ABL Priority Collateral, all Supporting
Obligations and Letter-of-Credit Rights; provided that to the extent any of the
foregoing also relates to Term Priority Collateral only that portion related to
the items referred to in the preceding clauses (1) through (5) shall be included
in the ABL Priority Collateral;

 

(7)           all books and Records relating to the items referred to in the
preceding clauses (1) through (6) constituting ABL Priority Collateral
(including all books, databases, customer lists, engineer drawings, and Records,
whether tangible or electronic,

 

4

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which contain any information relating to any of the items referred to in the
preceding clauses (1) through (6)); and

 

(8)           all collateral security and guarantees with respect to any of the
foregoing and all cash, Money, insurance proceeds, Instruments, Securities,
Financial Assets and Deposit Accounts received as proceeds of any of the
foregoing (such proceeds, “ABL Priority Proceeds”); provided, however, that no
proceeds of ABL Priority Proceeds will constitute ABL Priority Collateral unless
such proceeds of ABL Priority Proceeds would otherwise constitute ABL Priority
Collateral.

 

“ABL Recovery” shall have the meaning set forth in Section 5.3(a).

 

“ABL Secured Parties” shall have the meaning to that term in the introduction to
this Agreement.

 

“Affiliate” shall mean, with respect to a specified Person, any other Person
that directly or indirectly through one or more intermediaries Controls, is
Controlled by or is under common Control with the Person specified.

 

“Agent(s)” means individually the ABL Agent or the Term Agent and collectively
means both the ABL Agent and the Term Agent.

 

“Agreement” shall have the meaning assigned to that term in the introduction to
this Agreement.

 

“Bank of America” shall have the meaning assigned to that term in the
introduction to this Agreement.

 

“Bank Products” shall have the meaning provided in the ABL Credit Agreement.

 

“Bank Products Agreement” shall mean any agreement pursuant to which an ABL Bank
Products Affiliate agrees to provide Bank Products.

 

“Bankruptcy Code” shall mean Title 11 of the United States Code , as now or
hereafter in effect or any successor thereto.

 

“Borrower” shall mean any of the ABL Borrowers and the Term Borrower.

 

“Business Day” shall mean any day that is not a Saturday, Sunday or other day on
which commercial banks in Boston, Massachusetts or New York, New York are
authorized or required by law to remain closed (or are in fact closed).

 

“Capital Stock” shall mean, as to any Person that is a corporation, the
authorized shares of such Person’s capital stock, including all classes of
common, preferred, voting and nonvoting capital stock, and, as to any Person
that is not a corporation or an individual, the membership or other ownership
interests in such Person, including the right to share in profits and losses,
the right to receive distributions of cash and other property, and the right to
receive allocations of items of income, gain, loss, deduction and credit and
similar items from such Person, whether or

 

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not such interests include voting or similar rights entitling the holder thereof
to exercise Control over such Person, collectively with, in any such case, all
warrants, options and other rights to purchase or otherwise acquire, and all
other instruments convertible into or exchangeable for, any of the foregoing.

 

“Cash Management Services” shall have the meaning provided in the ABL Credit
Agreement.

 

“Cash Management Services Agreement” shall mean any agreement pursuant to which
an ABL Cash Management Affiliate agrees to provide Cash Management Services.

 

“Collateral” shall mean all Property now owned or hereafter acquired by any
Borrower or any Guarantor in or upon which a Lien is granted or purported to be
granted to the ABL Agent or the Term Agent under any of the ABL Collateral
Documents or the Term Collateral Documents, together with all rents, issues,
profits, products and Proceeds thereof.

 

“Control” shall mean the possession, directly or indirectly, of the power (a) to
vote 50% or more of the securities having ordinary voting power for the election
of directors (or any similar governing body) of a Person, or (b) to direct or
cause the direction of the management or policies of a Person, whether through
the ability to exercise voting power, by contract or otherwise. The terms
“Controlling” and “Controlled” have meanings correlative thereto.

 

“Control Collateral” shall mean any Collateral consisting of any Certificated
Security (as defined in Section 8-102 of the Uniform Commercial
Code), Investment Property, Deposit Account, Instruments and any other
Collateral as to which a Lien may be perfected through possession or control by
the secured party, or any agent therefor.

 

“Copyright Licenses” shall mean any written agreement, now or hereafter in
effect, granting any right to any third party under any Copyright now or
hereafter owned by any Credit Party or that such Credit Party otherwise has the
right to license, or granting any right to any Credit Party under any Copyright
now or hereafter owned by any third party, and all rights of such Credit Party
under any such agreement.

 

“Copyrights” shall mean all of the following now owned or hereafter acquired by
or assigned to any Credit Party:  (a) all copyright rights in any work subject
to the copyright laws of the United States or any other country, whether as
author, assignee, transferee or otherwise, whether registered or unregistered
and whether published or unpublished, (b) all registrations and applications for
registration of any such copyright in the United States or any other country,
including registrations, recordings, supplemental registrations and pending
applications for registration in the United States Copyright Office, including
those listed on Schedule IV to the Security Agreements from the Credit Parties
in favor of the ABL Agent and the Term Agent, respectively, and all (i) rights
and privileges arising under applicable law with respect to such Credit Party’s
use of such copyrights, (ii) reissues, renewals, continuations and extensions
thereof and amendments thereto, (iii) income, fees, royalties, damages, claims
and payments now or hereafter due and/or payable with respect thereto, including
damages and payments for past, present or future infringements thereof,
(iv) rights corresponding thereto throughout the world and (v) rights to sue for
past, present or future infringements thereof.

 

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“Credit Documents” shall mean the ABL Documents and the Term Documents.

 

“Credit Parties” shall mean the ABL Credit Parties and the Term Credit Parties.

 

“Debtor Relief Laws” shall mean the Bankruptcy Code and for Canadian purposes,
the Bankruptcy and Insolvency Act (Canada), the Companies’ Creditor Arrangement
Act (Canada) and the Winding-up Act (Canada), each as now or hereafter in effect
or any successor thereto, as well as all other liquidation, conservatorship,
bankruptcy, assignment for benefit of creditors, moratorium, rearrangement,
receivership, insolvency, reorganization, or similar debtor relief laws of the
United States federal or state law or of any applicable foreign law from time to
time in effect affecting the rights of creditors generally.

 

“DIP Financing” shall have the meaning set forth in Section 6.1(a).

 

“Discharge of ABL Obligations” shall mean (a) the payment in full in cash of all
outstanding ABL Obligations excluding contingent indemnity obligations with
respect to then unasserted claims but including, with respect to amounts
available to be drawn under outstanding letters of credit issued thereunder (or
indemnities or other undertakings issued pursuant thereto in respect of
outstanding letters of credit), the cancellation of such letters of credit or
the delivery or provision of money or backstop letters of credit in respect
thereof in compliance with the terms of any ABL Credit Agreement (which shall
not exceed an amount equal to 101.5% of the aggregate undrawn amount of such
letters of credit) and (b) the termination of all commitments to extend credit
under the ABL Documents.

 

“Discharge of Term Obligations” shall mean the payment in full in cash of all
outstanding Term Obligations (other than contingent indemnity obligations with
respect to then unasserted claims).

 

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

 

“Enforcement Notice” shall mean a written notice delivered by either the ABL
Agent or the Term Agent to the other announcing that an Enforcement Period has
commenced.

 

“Enforcement Period” shall mean the period of time following the receipt by
either the ABL Agent or the Term Agent of an Enforcement Notice from the other
and continuing until the earliest of (a) in case of an Enforcement Period
commenced by the Term Agent, the Discharge of Term Obligations, (b) in the case
of an Enforcement Period commenced by the ABL Agent, the Discharge of ABL
Obligations, or (c) the ABL Agent or the Term Agent (as applicable) terminate,
or agree in writing to terminate, the Enforcement Period.

 

“Equipment” shall mean (x) any “equipment” as such term is defined in Article 9
of the Uniform Commercial Code, and in any event, shall include, but shall not
be limited to, all machinery, equipment, furnishings, appliances, furniture,
fixtures, tools, and vehicles now or hereafter owned by any Credit Party in each
case, regardless of whether characterized as equipment under the Uniform
Commercial Code (but excluding any such items which constitute Inventory), and
(y) and any and all additions, substitutions and replacements of any of the
foregoing and all accessions thereto, wherever located, whether or not at any
time of

 

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determination incorporated or installed therein or attached thereto, and all
replacements therefore, together with all attachments, components, parts,
equipment and accessories installed thereon or affixed thereto.

 

“Event of Default” shall mean an Event of Default as defined in the ABL Credit
Agreement or the Term Credit Agreement, as applicable.

 

“Exercise of Any Secured Creditor Remedies” or “Exercise of Secured Creditor
Remedies” shall mean, except as otherwise provided in the final sentence of this
definition:

 

(a)           the taking by any Secured Party of any action to enforce or
realize upon any Lien, including the institution of any foreclosure proceedings
or the noticing of any public or private sale pursuant to Article 9 of the
Uniform Commercial Code or under the provisions of the PPSA or other applicable
law;

 

(b)           the exercise by any Secured Party of any right or remedy provided
to a secured creditor on account of a Lien under any of the Credit Documents,
under applicable law, in an Insolvency Proceeding or otherwise, including the
election to retain any of the Collateral in satisfaction of a Lien;

 

(c)           the taking of any action by any Secured Party or the exercise of
any right or remedy by any Secured Party in respect of the collection on, set
off against, marshaling of, injunction respecting or foreclosure on the
Collateral or the Proceeds thereof;

 

(d)           the appointment on the application of a Secured Party, of a
receiver, receiver and manager or interim receiver of all or part of the
Collateral;

 

(e)           the sale, lease, license, or other disposition of all or any
portion of the Collateral by private or public sale conducted by a Secured Party
or any other means at the direction of a Secured Party permissible under
applicable law;

 

(f)            the exercise of any other right of a secured creditor under
Part 6 of Article 9 of the Uniform Commercial Code or under provisions of
similar effect under the PPSA or other applicable law; and

 

(g)           the exercise by a Secured Party of any voting rights relating to
any Capital Stock included in the Collateral.

 

For the avoidance of doubt, none of the following shall be deemed to constitute
an Exercise of Secured Creditor Remedies: (i) the filing of a proof of claim in
any Insolvency Proceeding or seeking adequate protection, (ii) the exercise of
rights by the ABL Agent upon the occurrence of a Cash Dominion Event (as defined
in the ABL Credit Agreement), including, without limitation, the notification of
account debtors, depository institutions or any other Person to deliver proceeds
of Collateral to the ABL Agent, (iii) the consent by the ABL Agent to a store
closing sale, going out of business sale or other disposition by any Credit
Party of any of the ABL Priority Collateral, (iv) the reduction of advance rates
or sub-limits by the ABL Agent and the

 

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ABL Lenders, or (v) the imposition of Reserves (as defined in the ABL Credit
Agreement) by the ABL Agent.

 

“Financing Lease” shall mean any lease of property, real or personal, the
obligations of the lessee in respect of which are required in accordance with
GAAP (as defined in the ABL Credit Agreement as in effect n the date hereof) to
be capitalized on a balance sheet of the lessee.

 

“Foreign Subsidiary” shall mean any Subsidiary of the Parent that is organized
under the laws of a jurisdiction other than the United States of America or any
State thereof or the District of Columbia, or any of its territories or
possessions, provided, that the term “Foreign Subsidiary” shall not include any
such Subsidiary which is a Guarantor.

 

“Governmental Authority” shall mean any nation or government, any state or other
political subdivision thereof and any entity exercising executive, legislative,
judicial, regulatory or administrative functions of or pertaining to government.

 

“Guarantor” shall mean any of the ABL Guarantors or Term Guarantors.

 

“Holdco” means a holding company formed to be the direct parent of Michaels
Stores, Inc., the primary purpose of which is to own 100% of the Capital Stock
of Michaels Stores, Inc.

 

“Indebtedness”  shall mean (i) all obligations of a Person for borrowed money
and all obligations of such Person evidenced by bonds, debentures, notes, loan
agreements or other similar instruments; (ii) the maximum amount (after giving
effect to any prior drawings which may have been reimbursed or reductions) of
all letters of credit, bankers’ acceptances, bank guaranties, surety bonds,
performance bonds and similar instruments issued or created by or for the
account of such Person; (iii) obligations of such Person under any Swap Contract
or hedge agreement; (iv) indebtedness secured by a Lien on property owned or
being purchased by such Person (including indebtedness arising under conditional
sales or other title retention agreements and mortgage, industrial revenue bond,
industrial development bond and similar financings), whether or not such
indebtedness shall have been assumed by such Person or is limited in recourse,
and (v) any guarantees of the foregoing.

 

“Insolvency Proceeding” shall mean (a) any case, action or proceeding before any
court or other Governmental Authority relating to bankruptcy, reorganization,
insolvency, liquidation, receivership, dissolution, winding-up or relief of
debtors, or (b) any general assignment for the benefit of creditors,
composition, marshalling of assets for creditors or other similar arrangement in
respect of its creditors generally or any substantial portion of its creditors;
in each case covered by clauses (a) and (b) undertaken under any Debtor Relief
Laws.

 

“Intellectual Property” shall mean all intellectual and similar property of
every kind and nature now owned or hereafter acquired by any Credit Party,
including inventions, designs, Patents, Copyrights, Licenses, Trademarks, Trade
Secrets, confidential or proprietary technical and business information, know
how, show how or other data or information, software,  databases, all other
proprietary information, including but not limited to Domain Names, and all
embodiments or fixations thereof and related documentation, registrations and
franchises, and all additions, improvements and accessions to, and books and
records describing or used in connection with, any of the foregoing.

 

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“Lender(s)” means individually, the ABL Lenders or the Term Lenders and
collectively means all of the ABL Lenders and the Term Lenders.

 

“License” means any Patent License, Trade Secret License, Trademark License,
Copyright License or other license or sublicense agreement to which any Credit
Party is a party.

 

“Lien” shall mean, with respect to any asset, (a) any mortgage, deed of trust,
lien (statutory or otherwise), pledge, hypothecation, encumbrance, collateral
assignment, charge or security interest in, on or of such asset, (b) the
interest of a vendor or a lessor under any conditional sale agreement, capital
lease or title retention agreement (or any Financing Lease having substantially
the same economic effect as any of the foregoing) relating to such asset and
(c) in the case of securities, any purchase option, call or similar right of a
third party with respect to such securities.

 

“Lien Priority” shall mean with respect to any Lien of the ABL Secured Parties
or the Term Secured Parties in the Collateral, the order of priority of such
Lien as specified in Section 2.1.

 

“Parent” shall mean Michaels Stores, Inc. unless and until Holdco is established
and executes an acknowledgement of this Agreement in the form annexed hereto,
from and after which “Parent” shall mean Holdco.

 

“Party” shall mean the ABL Agent or the Term Agent, and “Parties” shall mean
both the ABL Agent and the Term Agent.

 

“Patent License” shall mean any written agreement, now or hereafter in effect,
granting to any third party any right to make, use or sell any invention on
which a Patent, now or hereafter owned by any Credit Party or that any Credit
Party otherwise has the right to license, is in existence, or granting to any
Credit Party any right to make, use or sell any invention on which a Patent, now
or hereafter owned by any third party, is in existence, and all rights of any
Credit Party under any such agreement.

 

“Patents” shall mean all of the following now owned or hereafter acquired by any
Credit Party:  (a) all letters patent of the United States or the equivalent
thereof in any other country, all registrations and recordings thereof, and all
applications for letters patent of the United States or the equivalent thereof
in any other country, including registrations, recordings and pending
applications in the United States Patent and Trademark Office or any similar
offices in any other country, including those listed on Schedule IV to the
Security Agreements from the Credit Parties in favor of the ABL Agent and the
Term Agent, respectively, and (b)(i) rights and privileges arising under
applicable law with respect to such Credit Party’s use of any patents,
(ii) inventions and improvements described and claimed therein, (iii) reissues,
divisions, continuations, renewals, extensions and continuations-in-part thereof
and amendments thereto, (iv) income, fees, royalties, damages, claims and
payments now or hereafter due and/or payable thereunder and with respect thereto
including damages and payments for past, present or future infringements
thereof, (v) rights corresponding thereto throughout the world and (vi) rights
to sue for past, present or future infringements thereof.

 

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“Person” shall mean an individual, partnership, corporation, limited liability
company, unlimited liability company, business trust, joint stock company,
trust, unincorporated association, joint venture, Governmental Authority or
other entity of whatever nature.

 

“PPSA” shall mean the Personal Property Security Act of Ontario (or any
successor thereto) or similar legislation of any other Canadian jurisdiction,
including, without limitation, the Civil Code of Quebec, the laws of which are
required by such legislation to be applied in connection with the issue,
perfection, enforcement, opposability, validity or effect of security interests.

 

“Priority Collateral” shall mean the ABL Priority Collateral or the Term
Priority Collateral, as applicable.

 

“Proceeds” shall mean (a) all “proceeds,” as defined in Article 9 of the Uniform
Commercial Code, with respect to the Collateral, and (b) whatever is recoverable
or recovered when any Collateral is sold, exchanged, collected, or disposed of,
whether voluntarily or involuntarily.

 

“Property” shall mean any interest in any kind of property or asset, whether
real, personal or mixed, or tangible or intangible.

 

“Pro Rata” shall mean with respect to the ABL Secured Parties and the Term
Secured Parties, the percentage obtained by dividing (i) the aggregate amount of
the then outstanding ABL Obligations plus any then unused commitments therefor
or Term Obligations, as applicable, by (ii) the sum of the ABL Obligations plus
any then unused commitments therefor and the Term Obligations provided, however,
that if any such commitment of an ABL Lender has been terminated, then in
calculating “Pro Rata” the unused commitments of the ABL Lender shall not be
included.

 

“Real Property” shall mean any right, title or interest in and to real property,
including any fee interest, leasehold interest, easement, or license and any
other right to use or occupy real property.

 

“Secured Parties” shall mean the ABL Secured Parties and the Term Secured
Parties.

 

“Security” shall mean any “security” as such term is defined in Article 8 of the
Uniform Commercial Code, any stock, shares, partnership interests, voting trust
certificates, certificates of interest or participation in any profit sharing
agreement or arrangement, options, warrants, bonds, debentures, notes, or other
evidences of indebtedness, secured or unsecured, convertible, subordinated or
otherwise, or in general any instruments commonly known as “securities” or any
certificates of interest, shares or participations in temporary or interim
certificates for the purchase or acquisition of, or any right to subscribe to,
purchase or acquire, any of the foregoing.

 

“Shared Collateral” means all amounts paid by the holder of Subordinated
Indebtedness (including, without limitation, under the Senior Subordinated Notes
and the Subordinated Discount Notes, as each of those terms is defined in the
ABL Credit Agreement as in effect on the date hereof) to any Party pursuant to
the subordination provisions of the instruments, documents and agreements
evidencing such Subordinated Indebtedness.

 

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“Subordinated Indebtedness” shall mean Indebtedness which is expressly
subordinated in right of payment to the prior payment in full of the ABL
Obligations and the Term Obligations on terms reasonably acceptable to the
Agents.

 

“Subsidiary” shall mean with respect to any Person (the “parent”) at any date,
any corporation, limited liability company, partnership, association or other
entity (a) of which Capital Stock representing more than 50% of the ordinary
voting power or, in the case of a partnership, more than 50% of the general
partnership interests are, as of such date, owned, Controlled or held, or
(b) that is, as of such date, otherwise Controlled, by the parent or one or more
subsidiaries of the parent or by the parent and one or more subsidiaries of the
parent.

 

“Swap Contract” has the meaning set forth in the ABL Credit Agreement.

 

“Term Agent” shall have the meaning assigned to that term in the introduction to
this Agreement and shall include any successor thereto as well as any Person
designated as the “Agent”, “Administrative Agent” or “Collateral Agent” under
any Term Credit Agreement.

 

“Term Borrower” shall have the meaning assigned to that term in the introduction
to this Agreement.

 

“Term Collateral Documents” shall mean all “Collateral Documents” as defined in
the Term Credit Agreement, and all other security agreements, mortgages, deeds
of trust and other collateral documents executed and delivered in connection
with any Term Credit Agreement, in each case as the same may be amended,
supplemented, restated or otherwise modified from time to time.

 

“Term Credit Agreement” shall have the meaning assigned to that term in the
recitals to this Agreement and shall include any other agreement extending the
maturity of, consolidating, restructuring, refunding, replacing or refinancing
all or any portion of the Term Obligations, whether by the same or any other
agent, lender or group of lenders and whether or not increasing the amount of
any Indebtedness that may be incurred thereunder.

 

“Term Credit Parties” shall have the meaning assigned to that term in the
recitals to this Agreement.

 

“Term Documents” shall mean the Term Credit Agreement, the Term Guaranties, the
Term Collateral Documents, any Term Hedging Agreements between any Term Credit
Party and any Term Hedging Affiliate, those other ancillary agreements as to
which any Term Secured Party is a party or a beneficiary and all other
agreements, instruments, documents and certificates, now or hereafter executed
by or on behalf of any Term Credit Party or any of its respective Subsidiaries
or Affiliates, and delivered to the Term Agent, in connection with any of the
foregoing or any Term Credit Agreement, in each case as the same may be amended,
supplemented, restated or otherwise modified from time to time.

 

“Term Guarantors” shall mean the collective reference to (i) the Parent and each
Subsidiary of the Parent, other than any Excluded Subsidiary (but including
Michaels of Canada, ULC and any other direct or indirect Canadian Subsidiary of
Michaels Stores, Inc. which

 

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becomes a Term Guarantor), and (ii) any other Person who becomes a guarantor
under any Term Guaranty.

 

“Term Guaranty” shall have the meaning assigned to that term in the recitals to
this Agreement and shall also include any further guaranty made by a Term
Guarantor guaranteeing, inter alia, the payment and performance of the Term
Obligations.

 

“Term Hedging Affiliate” shall mean any Term Lender or any affiliate of any Term
Lender that has entered into a Term Hedging Agreement with an Term Credit Party
with the obligations of such Term Credit Party thereunder being secured by one
or more Term Collateral Documents, together with their respective successors,
assigns and transferees (even if such Term Lender subsequently ceases to be a
lender under the Term Credit Agreement for any reason).

 

“Term Hedging Agreement” means any “Secured Hedge Agreement” as defined in the
Term Credit Agreement.

 

“Term Lenders” shall have the meaning assigned to that term in the introduction
to this Agreement, as well as any Person designated as a “Lender” under any Term
Credit Agreement.

 

“Term Loan Priority Accounts” means any Deposit Accounts or Securities Accounts
that are intended to solely contain identifiable proceeds of the Term Priority
Collateral (it being understood that any property in such Deposit Accounts or
Securities Accounts which is not identifiable proceeds of Term Priority
Collateral shall not be Term Priority Collateral solely by virtue of being on
deposit in any such Deposit Account or Securities Account).

 

“Term Obligations” shall mean all obligations of every nature of each Term
Credit Party from time to time owed to the Term Secured Parties or any of them,
under any Term Document, whether for principal, interest (including interest
which, but for the filing of a petition in bankruptcy with respect to such Term
Credit Party, would have accrued on any Term Obligation, whether or not a claim
is allowed against such Term Credit Party for such interest in the related
bankruptcy proceeding), payments for early termination of Term Hedging
Agreements, fees, expenses, indemnification or otherwise, and all other amounts
owing or due under the terms of the Term Documents, as amended, restated,
modified, renewed, refunded, replaced or refinanced in whole or in part from
time to time.

 

“Term Priority Collateral” shall mean all Collateral other than ABL Priority
Collateral and Shared Collateral consisting of the following (including for the
avoidance of doubt, any such assets that, but for the application of Section 552
of the Bankruptcy Code (or any similar provision of any foreign Debtor Relief
Laws) would be Term Priority Collateral):

 

(1)           all Equipment, Fixtures, Real Property, Intellectual Property and
Investment Property (other than any Investment Property described in clauses
3(y) and 8 of the definition of ABL Priority Collateral);

 

(2)           except to the extent constituting ABL Priority Collateral, all
Instruments, Commercial Tort Claims, Documents and General Intangibles,

 

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(3)           all other Collateral, other than the ABL Priority Collateral
(including ABL Priority Proceeds) and Shared Collateral, and

 

(4)           all collateral security and guarantees with respect to the
foregoing, and all cash, Money, insurance proceeds, Instruments, Securities,
Financial Assets and Deposit Accounts received as proceeds of any Collateral,
other than the Shared Collateral and the ABL Priority Collateral (including ABL
Priority Proceeds) (such proceeds, “Term Priority Proceeds”).

 

“Term Recovery” shall have the meaning set forth in Section 5.3(b).

 

“Term Secured Parties” shall have the meaning assigned to that term in the
introduction to this Agreement.

 

“Trade Secret Licenses” shall mean any and all agreements, whether written or
oral, providing for the grant by or to any Credit Party of any right in or to
Trade Secrets, to the extent that a grant of a security interest in such Trade
Secret License is not prohibited by applicable law or the applicable Trade
Secret License.

 

“Trade Secrets” shall mean with respect to any Credit Party, all of such Credit
Party’s right, title and interest in and to all United States and foreign trade
secrets, including know how, processes, formulae, compositions, designs, and
confidential business and technical information, and all rights of any kind
whatsoever accruing thereunder or pertaining thereto, including (a) all income,
royalties, damages and payments now and hereafter due and/or payable with
respect thereto, including payments under all licenses, non disclosure
agreements and memoranda of understanding entered into in connection therewith,
and damages and payments for past or future misappropriations thereof, and
(b) the right to sue or otherwise recover for past, present or future
misappropriations thereof.

 

“Trademark License” shall mean any written agreement, now or hereafter in
effect, granting to any third party any right to use any Trademark now or
hereafter owned by any Credit Party or that any Credit Party otherwise has the
right to license, or granting to any Credit Party any right to use any Trademark
now or hereafter owned by any third party, and all rights of any Credit Party
under any such agreement.

 

“Trademarks” shall mean all of the following now owned or hereafter acquired by
any Credit Party:  (a) all trademarks, service marks, trade names, corporate
names, company names, business names, fictitious business names, trade styles,
trade dress, logos, other source or business identifiers, designs and general
intangibles of like nature, now existing or hereafter adopted, acquired or
assigned to, all registrations and recordings thereof, and all registration and
recording applications filed in connection therewith, including registrations
and registration applications in the United States Patent and Trademark Office
or any similar offices in any State of the United States or any other country or
any political subdivision thereof, and all extensions or renewals thereof,
including those listed on Schedule IV to the Security Agreements from the Credit
Parties in favor of the ABL Agent and the Term Agent, respectively, and (b) any
and all (i) rights and privileges arising under applicable law with respect to
such Credit Party’s use of any trademarks, (ii) reissues, continuations,
extensions and renewals thereof and amendments

 

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thereto, (iii) income, fees, royalties, damages and payments now and hereafter
due and/or payable thereunder and with respect thereto, including damages,
claims and payments for past, present or future infringements thereof,
(iv) rights corresponding thereto throughout the world and (v) rights to sue for
past, present and future infringements thereof.

 

“Uniform Commercial Code” shall mean the Uniform Commercial Code as the same
may, from time to time, be in effect in the State of New York; provided that to
the extent that the Uniform Commercial Code is used to define any term in any
security document and such term is defined differently in differing Articles of
the Uniform Commercial Code, the definition of such term contained in Article 9
shall govern; provided, further, that, to the extent that personal property
security laws as enacted and in effect in any foreign jurisdiction (including,
without limitation, the PPSA) contains and is used to define terms which are
defined in the Uniform Commercial Code and mentioned in Section 1.1 hereof, and
such term is defined differently in such foreign personal property security
laws, the definition of such term contained in the Uniform Commercial Code shall
govern to the extent of any conflict or inconsistency; and provided further that
in the event that, by reason of mandatory provisions of law, any or all of the
attachment, perfection, publication or priority of, or remedies with respect to,
Liens of any Party is governed by the Uniform Commercial Code or foreign
personal property security laws as enacted and in effect in a jurisdiction other
than the State of New York, the term “Uniform Commercial Code” will mean the
Uniform Commercial Code or such foreign personal property security laws as
enacted and in effect in such other jurisdiction solely for purposes of the
provisions thereof relating to such attachment, perfection, priority or remedies
and for purposes of definitions related to such provisions.

 

“Use Period” means the period commencing on the date that the ABL Agent (or an
ABL Credit Party acting with the consent of the ABL Agent) commences the
liquidation and sale of the ABL Priority Collateral in a manner as provided in
Section 3.6 (having theretofore furnished the Term Agent with an Enforcement
Notice) and ending 180 days thereafter. If any stay or other order that
prohibits any of the ABL Agent, the other ABL Secured Parties or any ABL Credit
Party (with the consent of the ABL Agent) from commencing and continuing to
Exercise Any Secured Creditor Remedies or to liquidate and sell the ABL Priority
Collateral has been entered by a court of competent jurisdiction, such 180-day
period shall be tolled during the pendency of any such stay or other order and
the Use Period shall be so extended.

 

Section 1.3            Rules of Construction.  Unless the context of this
Agreement clearly requires otherwise, references to the plural include the
singular, references to the singular include the plural, the term “including” is
not limiting and shall be deemed to be followed by the phrase “without
limitation,” and the term “or” has, except where otherwise indicated, the
inclusive meaning represented by the phrase “and/or.”  The words “hereof,”
“herein,” “hereby,” “hereunder,” and similar terms in this Agreement refer to
this Agreement as a whole and not to any particular provision of this
Agreement.  Article, section, subsection, clause, schedule and exhibit
references herein are to this Agreement unless otherwise specified.  Any
reference in this Agreement to any agreement, instrument, or document shall
include all alterations, amendments, changes, restatements, extensions,
modifications, renewals, replacements, substitutions, joinders, and supplements
thereto and thereof, as applicable (subject to any restrictions on such
alterations, amendments, changes, restatements, extensions, modifications,
renewals, replacements, substitutions, joinders, and supplements set forth
herein).  Any reference herein to any Person

 

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shall be construed to include such Person’s successors and assigns.  Any
reference herein to the repayment in full of an obligation shall mean the
payment in full in cash of such obligation, or in such other manner as may be
approved in writing by the requisite holders or representatives in respect of
such obligation.

 

ARTICLE 2
LIEN PRIORITY

 

Section 2.1            Priority of Liens.

 

(a)           Subject to the provisos in subclauses (b) and (c) of Section 4.1,
notwithstanding (i) the date, time, method, manner, or order of grant,
attachment, or perfection (including any defect or deficiency or alleged defect
or deficiency in any of the foregoing) of any Liens granted to the ABL Secured
Parties in respect of all or any portion of the Collateral or of any Liens
granted to the Term Secured Parties in respect of all or any portion of the
Collateral and regardless of how any such Lien was acquired (whether by grant,
statute, operation of law, subrogation or otherwise), (ii) the order or time of
filing or recordation of any document or instrument for perfecting the Liens in
favor of the ABL Agent or the Term Agent (or ABL Secured Parties or Term Secured
Parties) in any Collateral, (iii) any provision of the Uniform Commercial Code,
the PPSA, Debtor Relief Laws or any other applicable law, or of the ABL
Documents or the Term Documents, (iv) whether the ABL Agent or the Term Agent,
in each case, either directly or through agents, holds possession of, or has
control over, all or any part of the Collateral, (v) the date on which the ABL
Obligations or the Term Obligations are advanced or made available to the Credit
Parties, (vi) the fact that any such Liens in favor of the ABL Agent or the ABL
Lenders or the Term Agent or the Term Lenders securing any of the ABL
Obligations or Term Obligations, respectively, are (x) subordinated to any Lien
securing any obligation of any Credit Party other than the Term Obligations or
the ABL Obligations, respectively, or (y) otherwise subordinated, voided,
avoided, invalidated or lapsed, or (vii) any other circumstance of any kind or
nature whatsoever, the ABL Agent, on behalf of itself and the ABL Secured
Parties, and the Term Agent, on behalf of itself and the Term Secured Parties,
hereby agree that:

 

(1)           any Lien in respect of all or any portion of the ABL Priority
Collateral now or hereafter held by or on behalf of the Term Agent or any Term
Secured Party that secures all or any portion of the Term Obligations shall in
all respects be junior and subordinate to all Liens granted to the ABL Agent and
the ABL Secured Parties in the ABL Priority Collateral to secure all or any
portion of the ABL Obligations;

 

(2)           any Lien in respect of all or any portion of the ABL Priority
Collateral now or hereafter held by or on behalf of the ABL Agent or any ABL
Secured Party that secures all or any portion of the ABL Obligations shall in
all respects be senior and prior to all Liens granted to the Term Agent or any
Term Secured Party in the ABL Priority Collateral to secure all or any portion
of the Term Obligations;

 

(3)           any Lien in respect of all or any portion of the Term Priority
Collateral now or hereafter held by or on behalf of the ABL Agent or any ABL
Secured Party that secures all or any portion of the ABL Obligations shall in
all respects be junior

 

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and subordinate to all Liens granted to the Term Agent and the Term Secured
Parties in the Term Priority Collateral to secure all or any portion of the Term
Obligations; and

 

(4)           any Lien in respect of all or any portion of the Term Priority
Collateral now or hereafter held by or on behalf of the Term Agent or any Term
Secured Party that secures all or any portion of the Term Obligations shall in
all respects be senior and prior to all Liens granted to the ABL Agent or any
ABL Secured Party in the Term Priority Collateral to secure all or any portion
of the ABL Obligations.

 

(b)           Notwithstanding any failure by any ABL Secured Party or Term
Secured Party to perfect its security interests in the Collateral or any
avoidance, invalidation, priming or subordination by any third party or court of
competent jurisdiction of the security interests in the Collateral granted to
the ABL Secured Parties or the Term Secured Parties but, for the avoidance of
doubt, subject to the provisos in subclauses (b) and (c) of Section 4.1, the
priority and rights as between the ABL Secured Parties and the Term Secured
Parties with respect to the Collateral shall be as set forth herein.

 

(c)           The Parties agree that their respective rights in the Shared
Collateral are of equal priority.  Any amounts received on account of the Shared
Collateral shall be distributed as provided in Section 4.1(d).

 

(d)           The Term Agent, for and on behalf of itself and the Term Secured
Parties, acknowledges and agrees that, concurrently herewith, the ABL Agent, for
the benefit of itself and the ABL Secured Parties, has been, or may be, granted
Liens upon all of the Collateral in which the Term Agent has been granted Liens
and the Term Agent hereby consents thereto.  The ABL Agent, for and on behalf of
itself and the ABL Secured Parties, acknowledges and agrees that, concurrently
herewith, the Term Agent, for the benefit of itself and the Term Secured
Parties, has been, or may be, granted Liens upon all of the Collateral in which
the ABL Agent has been granted Liens and the ABL Agent hereby consents thereto. 
The subordination of Liens by the Term Agent and the ABL Agent in favor of one
another as set forth herein shall not be deemed to subordinate the Term Agent’s
Liens or the ABL Agent’s Liens to the Liens of any other Person nor be affected
by the subordination of such Liens to any other Lien.

 

Section 2.2            Waiver of Right to Contest Liens.

 

(a)           The Term Agent, for and on behalf of itself and the Term Secured
Parties, agrees that it and they shall not (and hereby waives any right to) take
any action to contest or challenge (or assist or support any other Person in
contesting or challenging), directly or indirectly, whether or not in any
proceeding (including in any Insolvency Proceeding), the validity, priority,
enforceability, or perfection of the Liens of the ABL Agent and the ABL Secured
Parties in respect of the Collateral or the provisions of this Agreement.  The
Term Agent, for itself and on behalf of the Term Secured Parties, agrees that
none of the Term Agent or the Term Secured Parties will take any action that
would interfere with any Exercise of Secured Creditor Remedies undertaken by the
ABL Agent or any ABL Secured Party under the ABL Documents with respect to the
ABL Priority Collateral.  The Term Agent, for itself and on behalf of the Term
Secured Parties, hereby waives any and all rights it or the Term Secured Parties
may have as a junior lien creditor or otherwise to contest, protest, object to,
or interfere

 

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with the manner in which the ABL Agent or any ABL Lender seeks to enforce its
Liens in any ABL Priority Collateral.  The foregoing shall not be construed to
prohibit the Term Agent from enforcing the provisions of this Agreement.

 

(b)           The ABL Agent, for and on behalf of itself and the ABL Secured
Parties, agrees that it and they shall not (and hereby waives any right to) take
any action to contest or challenge (or assist or support any other Person in
contesting or challenging), directly or indirectly, whether or not in any
proceeding (including in any Insolvency Proceeding), the validity, priority,
enforceability, or perfection of the Liens of the Term Agent or the Term Secured
Parties in respect of the Collateral or the provisions of this Agreement. 
Except to the extent expressly set forth in this Agreement, the ABL Agent, for
itself and on behalf of the ABL Secured Parties, agrees that none of the ABL
Agent or the ABL Secured Parties will take any action that would interfere with
any Exercise of Secured Creditor Remedies undertaken by the Term Agent or any
Term Secured Party under the Term Documents with respect to the Term Priority
Collateral.  The ABL Agent, for itself and on behalf of the ABL Secured Parties,
hereby waives any and all rights it or the ABL Secured Parties may have as a
junior lien creditor or otherwise to contest, protest, object to, or interfere
with the manner in which the Term Agent or any Term Secured Party seeks to
enforce its Liens in any Term Priority Collateral.  The foregoing shall not be
construed to prohibit the ABL Agent from enforcing the provisions of this
Agreement.

 

Section 2.3            Remedies Standstill.

 

(a)           The Term Agent, on behalf of itself and the Term Secured Parties,
agrees that, from the date hereof until the date upon which the Discharge of ABL
Obligations shall have occurred, neither the Term Agent nor any Term Secured
Party will Exercise Any Secured Creditor Remedies with respect to any of the ABL
Priority Collateral without the written consent of the ABL Agent, and will not
take, receive or accept any Proceeds of ABL Priority Collateral, it being
understood and agreed that the temporary deposit of Proceeds of ABL Priority
Collateral in a Deposit Account controlled by the Term Agent shall not
constitute a breach of this Agreement so long as such Proceeds are promptly (but
in no event later than five Business Days after receipt) remitted to the ABL
Agent.  From and after the date upon which the Discharge of ABL Obligations
shall have occurred (or prior thereto upon obtaining the written consent of the
ABL Agent), the Term Agent or any Term Secured Party may Exercise Any Secured
Creditor Remedies under the Term Documents or applicable law as to any ABL
Priority Collateral; provided, however, that any Exercise of Secured Creditor
Remedies with respect to any Collateral by the Term Agent or the Term Secured
Parties is at all times subject to the provisions of this Agreement.

 

(b)           The ABL Agent, on behalf of itself and the ABL Secured Parties,
agrees that, from the date hereof until the date upon which the Discharge of
Term Obligations shall have occurred, neither the ABL Agent nor any ABL Secured
Party will Exercise Any Secured Creditor Remedies with respect to the Term
Priority Collateral without the written consent of the Term Agent, and will not
take, receive or accept any Proceeds of the Term Priority Collateral, it being
understood and agreed that the temporary deposit of Proceeds of Term Priority
Collateral in a Deposit Account controlled by the ABL Agent shall not constitute
a breach of this Agreement so long as such Proceeds are promptly (but in no
event later than five Business Days

 

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after receipt) remitted to the Term Agent.  From and after the date upon which
the Discharge of Term Obligations shall have occurred (or prior thereto upon
obtaining the written consent of the Term Agent), the ABL Agent or any ABL
Secured Party may Exercise Any Secured Creditor Remedies under the ABL Documents
or applicable law as to any Term Priority Collateral; provided, however, that
any Exercise of Secured Creditor Remedies with respect to any Collateral by the
ABL Agent or the ABL Secured Parties is at all times subject to the provisions
of this Agreement.

 

(c)           Notwithstanding the provisions of Sections 2.3(a), 2.3(b) or any
other provision of this Agreement, nothing contained herein shall be construed
to prevent (i) any Agent or any Secured Party from filing a claim or statement
of interest with respect to the ABL Obligations or Term Obligations owed to it
in any Insolvency Proceeding commenced by or against any Credit Party, (ii) take
any action (not adverse to the priority status of the Liens of the other Agent
or other Secured Parties on the Collateral in which such other Agent or other
Secured Party has a priority Lien or the rights of the other Agent or any of the
other Secured Parties to Exercise Any Secured Creditor Remedies in respect
thereof) in order to create, perfect, preserve or protect (but not enforce its
Lien) on any Collateral, (iii) file any necessary or responsive pleadings in
opposition to any motion, adversary proceeding or other pleading filed by any
Person objecting to or otherwise seeking disallowance of the claim or Lien of
such Agent or Secured Party, (iv) file any pleadings, objections, motions, or
agreements which assert rights available to unsecured creditors of the Credit
Parties arising under any Insolvency Proceeding or applicable non-bankruptcy
law, (vi) vote on any plan of reorganization or file any proof of claim in any
Insolvency Proceeding of any Credit Party, or (vii) object to the proposed
retention of Collateral by the other Agent or any other Secured Party in full or
partial satisfaction of any ABL Obligations or Term Obligations due to such
other Agent or Secured Party, in each case (i) through (vii) above to the extent
not inconsistent with the terms of this Agreement.

 

Section 2.4            Exercise of Rights.

 

(a)           No Other Restrictions.  Except as expressly set forth in this
Agreement, each Term Secured Party and each ABL Secured Party shall have any and
all rights and remedies it may have as a creditor under applicable law,
including the right to the Exercise of Secured Creditor Remedies; provided,
however, that the Exercise of Secured Creditor Remedies with respect to the
Collateral shall be subject to the Lien Priority and to the provisions of this
Agreement.  The ABL Agent may enforce the provisions of the ABL Documents, the
Term Agent may enforce the provisions of the Term Documents and each may
Exercise Any Secured Creditor Remedies, all in such order and in such manner as
each may determine in the exercise of its sole discretion, consistent with the
terms of this Agreement and mandatory provisions of applicable law; provided,
however, that each of the ABL Agent and the Term Agent agrees to provide to the
other (x) an Enforcement Notice prior to the commencement of an Exercise Any
Secured Creditor Remedies and (y) copies of any notices that it is required
under applicable law to deliver to any Borrower or any Guarantor; provided
further, however, that the ABL Agent’s failure to provide any such copies to the
Term Agent (but not the Enforcement Notice) shall not impair any of the ABL
Agent’s rights hereunder or under any of the ABL Documents and the Term Agent’s
failure to provide any such copies to the ABL Agent (but not the Enforcement
Notice) shall not impair any of the Term Agent’s rights hereunder or under any
of the Term Documents.  Each of the Term Agent, each Term Secured Party, the ABL
Agent and each ABL

 

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Secured Party agrees (i) that it will not institute any suit or other proceeding
or assert in any suit, Insolvency Proceeding or other proceeding any claim, in
the case of the Term Agent and each Term Secured Party, against either the ABL
Agent or any other ABL Secured Party, and in the case of the ABL Agent and each
other ABL Secured Party, against either the Term Agent or any other Term Secured
Party, seeking damages from or other relief by way of specific performance,
instructions or otherwise, with respect to, any action taken or omitted to be
taken by such Person with respect to the Collateral which is consistent with the
terms of this Agreement, and none of such Parties shall be liable for any such
action taken or omitted to be taken, or (ii) it will not be a petitioning
creditor or otherwise assist in the filing of an involuntary Insolvency
Proceeding.

 

(b)           Release of Liens.

 

(i)            In the event of (A) any private or public sale of all or any
portion of the ABL Priority Collateral in connection with any Exercise of
Secured Creditor Remedies by the ABL Agent or with the consent of the ABL Agent
(other than in connection with a refinancing as described in Section 5.2(c)), or
(B) any sale, transfer or other disposition of all or any portion of the ABL
Priority Collateral (other than in connection with a refinancing as described in
Section 5.2(c)), so long as such sale, transfer or other disposition is then
permitted by the ABL Documents or consented to by the requisite ABL Lenders,
irrespective of whether an Event of Default has occurred, the Term Agent agrees,
on behalf of itself and the Term Lenders that such sale, transfer or other
disposition will be free and clear of the Liens on such ABL Priority Collateral
securing the Term Obligations, and the Term Agent’s and the Term Secured
Parties’ Liens with respect to the ABL Priority Collateral so sold, transferred,
or disposed shall terminate and be automatically released without further action
concurrently with, and to the same extent as, the release of the ABL Secured
Parties’ Liens on such ABL Priority Collateral.  In furtherance of, and subject
to, the foregoing, the Term Agent agrees that it will promptly execute any and
all Lien releases or other documents reasonably requested by the ABL Agent in
connection therewith.  The Term Agent hereby appoints the ABL Agent and any
officer or duly authorized person of the ABL Agent, with full power of
substitution, as its true and lawful attorney-in-fact with full irrevocable
power of attorney in the place and stead of the Term Agent and in the name of
the Term Agent or in the ABL Agent’s own name, from time to time, in the ABL
Agent’s sole discretion, for the purposes of carrying out the terms of this
paragraph, to take any and all appropriate action and to execute and deliver any
and all documents and instruments as may be necessary or desirable to accomplish
the purposes of this paragraph, including any financing statements,
endorsements, assignments, releases or other documents or instruments of
transfer (which appointment, being coupled with an interest, is irrevocable).

 

(ii)           In the event of (A) any private or public sale of all or any
portion of the Term Priority Collateral in connection with any Exercise of
Secured Creditor Remedies by or with the consent of the Term Agent (other than
in connection with a refinancing as described in Section 5.2(c)), or (B) any
sale, transfer or other disposition of all or any portion of the Term Priority
Collateral (other than in connection with a refinancing as described in
Section 5.2(c)), so long as such sale, transfer or other disposition is then
permitted by the Term Documents or consented to by the requisite Term Lenders,
irrespective of whether an Event of Default has occurred, the ABL Agent agrees,
on behalf of itself and the ABL Lenders, that such sale, transfer or disposition
will be free and clear of the Liens on such Term Priority Collateral securing
the ABL Obligations and the ABL Agent’s and the ABL Secured Parties’ Liens with
respect to the

 

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ABL Priority Collateral so sold, transferred, or disposed shall terminate and be
automatically released without further action concurrently with, and to the same
extent as, the release of the Term Secured Parties’ Liens on such Term Priority
Collateral.  In furtherance of, and subject to, the foregoing, the ABL Agent
agrees that it will promptly execute any and all Lien releases or other
documents reasonably requested by the Term Agent in connection therewith.  The
ABL Agent hereby appoints the Term Agent and any officer or duly authorized
person of the Term Agent, with full power of substitution, as its true and
lawful attorney-in-fact with full irrevocable power of attorney in the place and
stead of the ABL Agent and in the name of the ABL Agent or in the Term Agent’s
own name, from time to time, in the Term Agent’s sole discretion, for the
purposes of carrying out the terms of this paragraph, to take any and all
appropriate action and to execute and deliver any and all documents and
instruments as may be necessary or desirable to accomplish the purposes of this
paragraph, including any financing statements, endorsements, assignments,
releases or other documents or instruments of transfer (which appointment, being
coupled with an interest, is irrevocable).

 

Section 2.5            No New Liens.  (a)  Until the date upon which the
Discharge of ABL Obligations shall have occurred, the parties hereto agree that
no Term Secured Party shall acquire or hold any Lien on any assets of any Credit
Party securing any Term Obligation which assets are not also subject to the Lien
of the ABL Agent under the ABL Documents.  If any Term Secured Party shall
(nonetheless and in breach hereof) acquire or hold any Lien on any assets of any
Credit Party securing any Term Obligation which assets are not also subject to
the Lien of the ABL Agent under the ABL Documents, then the Term Agent (or the
relevant Term Secured Party) shall, without the need for any further consent of
any other Term Secured Party, any Term Borrower or any Term Guarantor and
notwithstanding anything to the contrary in any other Term Document, be deemed
to also hold and have held such Lien as agent or bailee for the benefit of the
ABL Agent as security for the ABL Obligations (subject to the Lien Priority and
other terms hereof) and shall promptly notify the ABL Agent in writing of the
existence of such Lien.

 

(b)           Until the date upon which the Discharge of Term Obligations shall
have occurred, the parties hereto agree that no ABL Secured Party shall acquire
or hold any Lien on any assets of any Credit Party securing any ABL Obligation
which assets are not also subject to the Lien of the Term Agent under the Term
Documents.  If any ABL Secured Party shall (nonetheless and in breach hereof)
acquire or hold any Lien on any assets of any Credit Party securing any ABL
Obligation which assets are not also subject to the Lien of the Term Agent under
the Term Documents, then the ABL Agent (or the relevant ABL Secured Party)
shall, without the need for any further consent of any other ABL Secured Party,
any ABL Borrower or any ABL Guarantor and notwithstanding anything to the
contrary in any other ABL Document be deemed to also hold and have held such
Lien as agent or bailee for the benefit of the Term Agent as security for the
Term Obligations (subject to the Lien Priority and other terms hereof) and shall
promptly notify the Term Agent in writing of the existence of such Lien.

 

Section 2.6            Waiver of Marshalling.

 

(a)           Until the Discharge of ABL Obligations, the Term Agent, on behalf
of itself and the Term Secured Parties, agrees not to assert and hereby waives,
to the fullest extent permitted by law, any right to demand, request, plead or
otherwise assert or otherwise claim the benefit of, any marshalling, appraisal,
valuation or other similar right that may otherwise be

 

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available under applicable law with respect to the ABL Priority Collateral or
any other similar rights a junior secured creditor may have under applicable
law.

 

(b)           Until the Discharge of Term Obligations, the ABL Agent, on behalf
of itself and the ABL Secured Parties, agrees not to assert and hereby waives,
to the fullest extent permitted by law, any right to demand, request, plead or
otherwise assert or otherwise claim the benefit of, any marshalling, appraisal,
valuation or other similar right that may otherwise be available under
applicable law with respect to the Term Priority Collateral or any other similar
rights a junior secured creditor may have under applicable law.

 

ARTICLE 3
ACTIONS OF THE PARTIES

 

Section 3.1            Certain Actions Permitted. The Term Agent and the ABL
Agent may make such demands or file such claims in respect of the Term
Obligations or the ABL Obligations, as applicable, as are necessary to prevent
the waiver or bar of such claims under applicable statutes of limitations or
other statutes, court orders, or rules of procedure at any time.  Nothing in
this Agreement shall prohibit the receipt by the Term Agent or any Term Secured
Party of the required payments of interest, principal and other amounts owed in
respect of the Term Obligations so long as such receipt is not the direct or
indirect result of the exercise by the Term Agent or any Term Secured Party of
rights or remedies as a secured creditor (including set-off) with respect to ABL
Priority Collateral or enforcement in contravention of this Agreement of any
Lien held by any of them.  Nothing in this Agreement shall prohibit the receipt
by the ABL Agent or any ABL Secured Party of the required payments of interest,
principal and other amounts owed in respect of the ABL Obligations so long as
such receipt is not the direct or indirect result of the exercise by the ABL
Agent or any ABL Secured Party of rights or remedies as a secured creditor
(including set-off) with respect to Term Priority Collateral or enforcement in
contravention of this Agreement of any Lien held by any of them.

 

Section 3.2            Agent for Perfection. The ABL Agent, for and on behalf of
itself and each ABL Secured Party, and the Term Agent, for and on behalf of
itself and each Term Secured Party, as applicable, each agree to hold all
Collateral in their respective possession, custody, or control (or in the
possession, custody, or control of agents or bailees for either) as agent for
the other solely for the purpose of perfecting the security interest granted to
each in such Collateral, subject to the terms and conditions of this
Section 3.2.  None of the ABL Agent, the ABL Secured Parties, the Term Agent, or
the Term Secured Parties, as applicable, shall have any obligation whatsoever to
the others to assure that the Collateral is genuine or owned by any Borrower,
any Guarantor, or any other Person or to preserve rights or benefits of any
Person.  The duties or responsibilities of the ABL Agent and the Term Agent
under this Section 3.2 are and shall be limited solely to holding or maintaining
control of the Control Collateral as agent for the other Party for purposes of
perfecting the Lien held by the Term Agent or the ABL Agent, as applicable.  The
ABL Agent is not and shall not be deemed to be a fiduciary of any kind for the
Term Secured Parties or any other Person.  Without limiting the generality of
the foregoing, the ABL Secured Parties shall not be obligated to see to the
application of any Proceeds of the Term Priority Collateral deposited into any
Deposit Account or be answerable in any way for the misapplication thereof.  The
Term Agent is not and shall not be deemed to be a fiduciary of any kind for the
ABL Secured Parties, or any other Person.

 

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Section 3.3            Sharing of Information and Access.  In the event that the
ABL Agent shall, in the exercise of its rights under the ABL Collateral
Documents or otherwise, receive possession or control of any books and records
of any Term Credit Party which contain information identifying or pertaining to
the Term Priority Collateral, the ABL Agent shall, upon request from the Term
Agent and as promptly as practicable thereafter, either make available to the
Term Agent such books and records for inspection and duplication or provide to
the Term Agent copies thereof.  In the event that the Term Agent shall, in the
exercise of its rights under the Term Collateral Documents or otherwise, receive
possession or control of any books and records of any ABL Credit Party which
contain information identifying or pertaining to any of the ABL Priority
Collateral, the Term Agent shall, upon request from the ABL Agent and as
promptly as practicable thereafter, either make available to the ABL Agent such
books and records for inspection and duplication or provide the ABL Agent copies
thereof.

 

Section 3.4            Insurance.  Proceeds of Collateral include insurance
proceeds and, therefore, the Lien Priority shall govern the ultimate disposition
of casualty insurance proceeds.  The ABL Agent and the Term Agent shall each be
named as additional insured or loss payee, as applicable, with respect to all
insurance policies relating to the Collateral.  The ABL Agent shall have the
sole and exclusive right, as against the Term Agent, to adjust settlement of
insurance claims in the event of any covered loss, theft or destruction of ABL
Priority Collateral.  The Term Agent shall have the sole and exclusive right, as
against the ABL Agent, to adjust settlement of insurance claims in the event of
any covered loss, theft or destruction of Term Priority Collateral.  If any
insurance claim includes both ABL Priority Collateral and Term Priority
Collateral, the insurer will not settle such claim separately with respect to
ABL Priority Collateral and Term Priority Collateral, and if the Parties are
unable after negotiating in good faith to agree on the settlement for such
claim, either Party may apply to a court of competent jurisdiction to make a
determination as to the settlement of such claim, and the court’s determination
shall be binding upon the Parties.  All proceeds of such insurance shall be
remitted to the ABL Agent or the Term Agent, as the case may be, and each of the
Term Agent and ABL Agent shall cooperate (if necessary) in a reasonable manner
in effecting the payment of insurance proceeds in accordance with Section 4.1
hereof.

 

Section 3.5            No Additional Rights For the Credit Parties Hereunder. 
Except as provided in Section 3.6, if any ABL Secured Party or Term Secured
Party shall enforce its rights or remedies in violation of the terms of this
Agreement, the Credit Parties shall not be entitled to use such violation as a
defense to any action by any ABL Secured Party or Term Secured Party, nor to
assert such violation as a counterclaim or basis for set off or recoupment
against any ABL Secured Party or Term Secured Party.

 

Section 3.6            Inspection and Access Rights.  (a)  Without limiting any
rights the ABL Agent or any other ABL Secured Party may otherwise have under
applicable law or by agreement, in the event of any liquidation of the ABL
Priority Collateral (or any other Exercise of Any Secured Creditor Remedies by
the ABL Agent) and whether or not the Term Agent or any other Term Secured Party
has commenced and is continuing to Exercise Any Secured Creditor Remedies of the
Term Agent, the ABL Agent or any other Person (including any ABL Credit Party)
acting with the consent, or on behalf, of the ABL Agent, shall have the right
(a) during normal business hours on any Business Day, to access ABL Priority
Collateral that (i) is stored or located in or on, (ii) has become an accession
with respect to (within the meaning of

 

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Section 9-335 of the Uniform Commercial Code), or (iii) has been commingled with
(within the meaning of Section 9-336 of the Uniform Commercial Code), Term
Priority Collateral, and (b) during the Use Period, shall have the right to use
the Term Priority Collateral (including, without limitation, Equipment,
Fixtures, Intellectual Property, General Intangibles and Real Property), each of
the foregoing in order to assemble, inspect, copy or download information stored
on, take actions to perfect its Lien on, complete a production run of Inventory
involving, take possession of, move, prepare and advertise for sale, sell (by
public auction, private sale or a “store closing”, “going out of business” or
similar sale, whether in bulk, in lots or to customers in the ordinary course of
business or otherwise and which sale may include augmented Inventory of the same
type sold in the any ABL Credit Party’s business), store or otherwise deal with
the ABL Priority Collateral, in each case without notice to, the involvement of
or interference by any Term Secured Party or liability to any Term Secured
Party.  In the event that any ABL Secured Party has commenced and is continuing
the Exercise of Any Secured Creditor Remedies with respect to any ABL Priority
Collateral or any other sale or liquidation of the ABL Priority Collateral has
been commenced by an ABL Credit Party (with the consent of the ABL Agent), the
Term Agent may not sell, assign or otherwise transfer the related Term Priority
Collateral prior to the expiration of the Use Period, unless the purchaser,
assignee or transferee thereof agrees to be bound by the provisions of this
Section 3.6.

 

(b)           During the period of actual occupation, use and/or control by the
ABL Secured Parties and/or the ABL Agent (or their respective employees, agents,
advisers and representatives) of any Term Priority Collateral, the ABL Secured
Parties and the ABL Agent shall be obligated to repair at their expense any
physical damage (but not any diminution in value) to such Term Priority
Collateral resulting from such occupancy, use or control, and to leave such Term
Priority Collateral in substantially the same condition as it was at the
commencement of such occupancy, use or control, ordinary wear and tear
excepted.  Notwithstanding the foregoing, in no event shall the ABL Secured
Parties or the ABL Agent have any liability to the Term Secured Parties and/or
to the Term Agent pursuant to this Section 3.6 as a result of any condition
(including any environmental condition, claim or liability) on or with respect
to the Term Priority Collateral existing prior to the date of the exercise by
the ABL Secured Parties (or the ABL Agent, as the case may be) of their rights
under Section 3.6 and the ABL Secured Parties shall have no duty or liability to
maintain the Term Priority Collateral in a condition or manner better than that
in which it was maintained prior to the use thereof by the ABL Secured Parties,
or for any diminution in the value of the Term Priority Collateral that results
from ordinary wear and tear resulting from the use of the Term Priority
Collateral by the ABL Secured Parties in the manner and for the time periods
specified under this Section 3.6.  Without limiting the rights granted in this
Section 3.6, the ABL Secured Parties and the ABL Agent shall cooperate with the
Term Secured Parties and/or the Term Agent in connection with any efforts made
by the Term Secured Parties and/or the Term Agent to sell the Term Priority
Collateral.

 

(c)           The ABL Agent and the ABL Secured Parties shall not be obligated
to pay any amounts to the Term Agent or the Term Secured Parties (or any person
claiming by, through or under the Term Secured Parties, including any purchaser
of the Term Priority Collateral) or to the ABL Credit Parties, for or in respect
of the use by the ABL Agent and the ABL Secured Parties of the Term Priority
Collateral.

 

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(d)           The ABL Secured Parties shall (i) use the Term Priority Collateral
in accordance with applicable law; (ii) insure for damage to property and
liability to persons, including property and liability insurance for the benefit
of the Term Secured Parties; and (iii) indemnify the Term Secured Parties from
any claim, loss, damage, cost or liability arising from the ABL Secured Parties’
use of the Term Priority Collateral (except for those arising from the gross
negligence or willful misconduct of any Term Secured Party).

 

(e)           The Term Agent and the other Term Secured Parties shall use
commercially reasonable efforts to not hinder or obstruct the ABL Agent and the
other ABL Secured Parties from exercising the rights described in
Section 3.6(a) hereof.

 

(f)            Subject to the terms hereof, the Term Agent may advertise and
conduct public auctions or private sales of the Term Priority Collateral without
notice (except as required by applicable law) to any ABL Secured Party, the
involvement of or interference by any ABL Secured Party or liability to any ABL
Secured Party as long as, in the case of an actual sale, the respective
purchaser assumes and agrees to the obligations of the Term Agent and the Term
Secured Parties under this Section 3.6.

 

Section 3.7            Tracing of and Priorities in Proceeds. The ABL Agent, for
itself and on behalf of the ABL Secured Parties, and the Term Agent, for itself
and on behalf of the Term Secured Parties, further agree that prior to an
issuance of any notice of Exercise of Any Secured Creditor Remedies by such
Secured Party (unless a bankruptcy or insolvency Event of Default then exists),
any proceeds of Collateral, whether or not deposited under control agreements,
which are used by any Credit Party to acquire other property which is Collateral
shall not (solely as between the Agents and the Lenders) be treated as Proceeds
of Collateral for purposes of determining the relative priorities in the
Collateral which was so acquired.

 

Section 3.8            Payments Over.

 

(a)           So long as the Discharge of Term Obligations has not occurred, any
Term Priority Collateral or Proceeds thereof not constituting ABL Priority
Collateral received by the ABL Agent or any other ABL Secured Party in
connection with the exercise of any right or remedy (including set off) relating
to the Term Priority Collateral in contravention of this Agreement shall be
segregated and held in trust and forthwith paid over to the Term Agent for the
benefit of the Term Secured Parties in the same form as received, with any
necessary endorsements or as a court of competent jurisdiction may otherwise
direct.  The Term Agent is hereby authorized to make any such endorsements as
agent for the ABL Agent or any such other ABL Secured Parties.  This
authorization is coupled with an interest and is irrevocable until such time as
this Agreement is terminated in accordance with its terms.

 

(b)           So long as the Discharge of ABL Obligations has not occurred, any
ABL Priority Collateral or Proceeds thereof not constituting Term Priority
Collateral received by the Term Agent or any Term Secured Parties in connection
with the exercise of any right or remedy (including set off) relating to the ABL
Priority Collateral in contravention of this Agreement shall be segregated and
held in trust and forthwith paid over to the ABL Agent for the benefit of the
ABL Secured Parties in the same form as received, with any necessary
endorsements or as a court of competent jurisdiction may otherwise direct.  The
ABL Agent is hereby authorized to

 

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make any such endorsements as agent for the Term Agent or any such Term Secured
Parties.  This authorization is coupled with an interest and is irrevocable
until such time as this Agreement is terminated in accordance with its terms.

 

ARTICLE 4
APPLICATION OF PROCEEDS

 

Section 4.1            Application of Proceeds.

 

(a)           Revolving Nature of ABL Obligations.  The Term Agent, for and on
behalf of itself and the Term Secured Parties, expressly acknowledges and agrees
that (i) the ABL Credit Agreement includes a revolving commitment, that in the
ordinary course of business the ABL Agent and the ABL Lenders will apply
payments and make advances thereunder, and that no application of any Collateral
or the release of any Lien by the ABL Agent upon any portion of the Collateral
in connection with a permitted disposition by the ABL Credit Parties under any
ABL Credit Agreement shall constitute the Exercise of Secured Creditor Remedies
under this Agreement; (ii) the amount of the ABL Obligations that may be
outstanding at any time or from time to time may be increased or reduced and
subsequently reborrowed, and that the terms of the ABL Obligations may be
modified, extended or amended from time to time, and that the aggregate amount
of the ABL Obligations may be increased, replaced or refinanced, in each event,
without notice to or consent by the Term Secured Parties and without affecting
the provisions hereof; and (iii) all Collateral received by the ABL Agent may be
applied, reversed, reapplied, credited, or reborrowed, in whole or in part, to
the ABL Obligations at any time; provided, however, that from and after the date
on which the ABL Agent (or any ABL Secured Party) or the Term Agent (or any Term
Secured Party) commences the Exercise of Any Secured Creditor Remedies, all
amounts received by the ABL Agent or any ABL Lender shall be applied as
specified in this Section 4.1.  The Lien Priority shall not be altered or
otherwise affected by any such amendment, modification, supplement, extension,
repayment, reborrowing, increase, replacement, renewal, restatement or
refinancing of either the ABL Obligations or the Term Obligations, or any
portion thereof.

 

(b)           Application of Proceeds of ABL Priority Collateral.  The ABL Agent
and the Term Agent hereby agree that all ABL Priority Collateral, ABL Priority
Proceeds and all other Proceeds thereof, received by either of them in
connection with any Exercise of Secured Creditor Remedies with respect to the
ABL Priority Collateral shall be applied,

 

first, to the payment of costs and expenses of the ABL Agent in connection with
such Exercise of Secured Creditor Remedies,

 

second, to the payment of the ABL Obligations in accordance with the ABL
Documents until the Discharge of ABL Obligations shall have occurred,

 

third, to the payment of the Term Obligations, and

 

fourth, the balance, if any, to the Credit Parties or as a court of competent
jurisdiction may direct.

 

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provided that in connection with an Insolvency Proceeding, the Lien granted in
favor of the ABL Agent or the ABL Secured Parties in respect of such ABL
Priority Collateral has been voided, avoided, subordinated, or otherwise
invalidated by a court of competent jurisdiction and the provisions of
Section 5.3 would not be effective, the proceeds received with respect to the
ABL Priority Collateral subject to avoidance, subordination or invalidation
shall be applied, to the extent permitted under applicable law, to the payment
of the Term Obligations in accordance with the Term Documents until Discharge of
Term Obligations shall have occurred.

 

(c)           Application of Proceeds of Term Priority Collateral.  The ABL
Agent and the Term Agent hereby agree that all Term Priority Collateral, Term
Priority Proceeds and all other Proceeds thereof, received by either of them in
connection with any Exercise of Secured Creditor Remedies with respect to the
Term Priority Collateral shall be applied,

 

first, to the payment of costs and expenses of the Term Agent in connection with
such Exercise of Secured Creditor Remedies,

 

second, to the payment of the Term Obligations in accordance with the Term
Documents until the Discharge of Term Obligations shall have occurred,

 

third, to the payment of the ABL Obligations; and

 

fourth, the balance, if any, to the Credit Parties or as a court of competent
jurisdiction may direct.

 

provided that in connection with an Insolvency Proceeding, the Lien granted in
favor of the Term Agent or the Term Secured Parties in respect of such Term
Priority Collateral has been voided, avoided, subordinated, or otherwise
invalidated by a court of competent jurisdiction and the provisions of
Section 5.3 would not be effective, the proceeds received with respect to the
Term Priority Collateral subject to avoidance, subordination or invalidation
shall be applied, to the extent permitted under applicable law, to the payment
of the ABL Obligations in accordance with the ABL Documents until Discharge of
ABL Obligations shall have occurred.

 

(d)           Application of Proceeds of Shared Collateral.  The ABL Agent and
the Term Agent hereby agree that all Shared Collateral and all Proceeds thereof,
received by either of them shall be applied,

 

first, to the payment of costs and expenses of the Agents in connection with the
enforcement and realization upon such Shared Collateral, and

 

second, to the payment of the Term Obligations and the ABL Obligations Pro Rata.

 

(e)           Limited Obligation or Liability.  In exercising remedies, whether
as a secured creditor or otherwise, the ABL Agent shall have no obligation or
liability to the Term Agent or to any Term Secured Party, and the Term Agent
shall have no obligation or liability to the ABL Agent or any ABL Secured Party,
regarding the adequacy of any Proceeds or for any

 

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action or omission, except solely for an action or omission that breaches the
express obligations undertaken by each Party under the terms of this Agreement. 
Notwithstanding anything to the contrary herein contained, none of the Parties
hereto waives any claim that it may have against a Secured Party on the grounds
that any sale, transfer or other disposition by the Secured Party was not
commercially reasonable in every respect as required by the Uniform Commercial
Code or the PPSA.

 

(f)            Turnover of Collateral After Discharge.  Upon the Discharge of
ABL Obligations, the ABL Agent shall deliver to the Term Agent or shall execute
such documents as the Term Agent may reasonably request (at the expense of the
Term Borrower) to enable the Term Agent to have control over any Control
Collateral still in the ABL Agent’s possession, custody, or control in the same
form as received with any necessary endorsements, or as a court of competent
jurisdiction may otherwise direct.  Upon the Discharge of Term Obligations, the
Term Agent shall deliver to the ABL Agent or shall execute such documents as the
ABL Agent may reasonably request (at the expense of the ABL Borrowers) to enable
the ABL Agent to have control over any Control Collateral still in the Term
Agent’s possession, custody or control in the same form as received with any
necessary endorsements, or as a court of competent jurisdiction may otherwise
direct.

 

Section 4.2            Specific Performance.  Each of the ABL Agent and the Term
Agent is hereby authorized to demand specific performance of this Agreement,
whether or not any Borrower or any Guarantor shall have complied with any of the
provisions of any of the Credit Documents, at any time when the other Party
shall have failed to comply with any of the provisions of this Agreement
applicable to it.  Each of the ABL Agent, for and on behalf of itself and the
ABL Secured Parties, and the Term Agent, for and on behalf of itself and the
Term Secured Parties, hereby irrevocably waives any defense based on the
adequacy of a remedy at law that might be asserted as a bar to such remedy of
specific performance.

 

ARTICLE 5
INTERCREDITOR ACKNOWLEDGEMENTS AND WAIVERS

 

Section 5.1                                   Notice of Acceptance and Other
Waivers.

 

(a)                                 All ABL Obligations at any time made or
incurred by any Borrower or any Guarantor shall be deemed to have been made or
incurred in reliance upon this Agreement, and the Term Agent, on behalf of
itself and the Term Secured Parties, hereby waives notice of acceptance, or
proof of reliance by the ABL Agent or any ABL Secured Party of this Agreement,
and notice of the existence, increase, renewal, extension, accrual, creation, or
non-payment of all or any part of the ABL Obligations.  All Term Obligations at
any time made or incurred by any Borrower or any Guarantor shall be deemed to
have been made or incurred in reliance upon this Agreement, and the ABL Agent,
on behalf of itself and the ABL Secured Parties, hereby waives notice of
acceptance, or proof of reliance, by the Term Agent or any Term Secured Party of
this Agreement, and notice of the existence, increase, renewal, extension,
accrual, creation, or non-payment of all or any part of the Term Obligations.

 

(b)           None of the ABL Agent, any ABL Secured Party, or any of their
respective Affiliates, directors, officers, employees, or agents shall be liable
for failure to

 

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demand, collect, or realize upon any of the Collateral or any Proceeds, or for
any delay in doing so, or shall be under any obligation to sell or otherwise
dispose of any Collateral or Proceeds thereof or to take any other action
whatsoever with regard to the Collateral or any part or Proceeds thereof, except
as specifically provided in this Agreement.  If the ABL Agent or any ABL Secured
Party honors (or fails to honor) a request by any Borrower for an extension of
credit pursuant to any ABL Credit Agreement or any of the other ABL Documents,
whether the ABL Agent or any ABL Secured Party has knowledge that the honoring
of (or failure to honor) any such request would constitute a default under the
terms of any Term Credit Agreement or any other Term Document or an act,
condition, or event that, with the giving of notice or the passage of time, or
both, would constitute such a default, or if the ABL Agent or any ABL Secured
Party otherwise should exercise any of its contractual rights or remedies under
any ABL Documents (subject to the express terms and conditions hereof), neither
the ABL Agent nor any ABL Secured Party shall have any liability whatsoever to
the Term Agent or any Term Secured Party as a result of such action, omission,
or exercise (so long as any such exercise does not breach the express terms and
provisions of this Agreement).  The ABL Agent and the ABL Secured Parties shall
be entitled to manage and supervise their loans and extensions of credit under
any ABL Credit Agreement and any of the other ABL Documents as they may, in
their sole discretion, deem appropriate, and may manage their loans and
extensions of credit without regard to any rights or interests that the Term
Agent or any of the Term Secured Parties have in the Collateral, except as
otherwise expressly set forth in this Agreement.  The Term Agent, on behalf of
itself and the Term Secured Parties, agrees that neither the ABL Agent nor any
ABL Secured Party shall incur any liability as a result of a sale, lease,
license, application, or other disposition of all or any portion of the
Collateral or Proceeds thereof, pursuant to the ABL Documents, so long as such
disposition is conducted in accordance with mandatory provisions of applicable
law and does not breach the provisions of this Agreement.

 

(c)           None of the Term Agent, any Term Secured Party or any of their
respective Affiliates, directors, officers, employees, or agents shall be liable
for failure to demand, collect, or realize upon any of the Collateral or any
Proceeds, or for any delay in doing so, or shall be under any obligation to sell
or otherwise dispose of any Collateral or Proceeds thereof or to take any other
action whatsoever with regard to the Collateral or any part or Proceeds thereof,
except as specifically provided in this Agreement.  If the Term Agent or any
Term Secured Party honors (or fails to honor) a request by any Borrower for an
extension of credit pursuant to any Term Credit Agreement or any of the other
Term Documents, whether the Term Agent or any Term Secured Party has knowledge
that the honoring of (or failure to honor) any such request would constitute a
default under the terms of any ABL Credit Agreement or any other ABL Document or
an act, condition, or event that, with the giving of notice or the passage of
time, or both, would constitute such a default, or if the Term Agent or any Term
Secured Party otherwise should exercise any of its contractual rights or
remedies under the Term Documents (subject to the express terms and conditions
hereof), neither the Term Agent nor any Term Secured Party shall have any
liability whatsoever to the ABL Agent or any ABL Secured Party as a result of
such action, omission, or exercise (so long as any such exercise does not breach
the express terms and provisions of this Agreement).  The Term Agent and the
Term Secured Parties shall be entitled to manage and supervise their loans and
extensions of credit under the Term Documents as they may, in their sole
discretion, deem appropriate, and may manage their loans and extensions of
credit without regard to any rights or interests that the ABL Agent or any ABL
Secured Party has in the Collateral, except as otherwise expressly set forth in
this Agreement.

 

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The ABL Agent, on behalf of itself and the ABL Secured Parties, agrees that none
of the Term Agent or the Term Secured Parties shall incur any liability as a
result of a sale, lease, license, application, or other disposition of the
Collateral or any part or Proceeds thereof, pursuant to the Term Documents, so
long as such disposition is conducted in accordance with mandatory provisions of
applicable law and does not breach the provisions of this Agreement.

 

Section 5.2            Modifications to ABL Documents and Term Documents.

 

(a)           The Term Agent, on behalf of itself and the Term Secured Parties,
hereby agrees that, without affecting the obligations of the Term Agent and the
Term Secured Parties hereunder, the ABL Agent and the ABL Secured Parties may,
at any time and from time to time, in their sole discretion without the consent
of or notice to the Term Agent or any Term Secured Party (except to the extent
such notice or consent is required pursuant to the express provisions of this
Agreement), and without incurring any liability to the Term Agent or any Term
Secured Party or impairing or releasing the subordination provided for herein,
amend, restate, supplement, replace, refinance, extend, consolidate,
restructure, or otherwise modify any of the ABL Documents in any manner
whatsoever (other than in a manner which would contravene the provisions of this
Agreement), including, without limitation, to:

 

(i)            change the manner, place, time, or terms of payment or renew,
alter or increase, all or any of the ABL Obligations or otherwise amend,
restate, supplement, or otherwise modify in any manner, or grant any waiver or
release with respect to, all or any part of the ABL Obligations or any of the
ABL Documents;

 

(ii)           subject to Section 2.5, retain or obtain a Lien on any Property
of any Person to secure any of the ABL Obligations, and in connection therewith
to enter into any additional ABL Documents;

 

(iii)          amend, or grant any waiver, compromise, or release with respect
to, or consent to any departure from, any guaranty or other obligations of any
Person obligated in any manner under or in respect of the ABL Obligations;

 

(iv)          release its Lien on any Collateral or other Property;

 

(v)           exercise or refrain from exercising any rights against any
Borrower, any Guarantor, or any other Person;

 

(vi)          subject to Section 2.5, retain or obtain the primary or secondary
obligation of any other Person with respect to any of the ABL Obligations; and

 

(vii)         otherwise manage and supervise the ABL Obligations as the ABL
Agent shall deem appropriate.

 

(b)           The ABL Agent, on behalf of itself and the ABL Secured Parties,
hereby agrees that, without affecting the obligations of the ABL Agent and the
ABL Secured Parties hereunder, the Term Agent and the Term Secured Parties may,
at any time and from time to time, in their sole discretion without the consent
of or notice to the ABL Agent or any ABL Secured Party (except to the extent
such notice or consent is required pursuant to the express provisions

 

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of this Agreement), and without incurring any liability to the ABL Agent or any
ABL Secured Party or impairing or releasing the subordination provided for
herein, amend, restate, supplement, replace, refinance, extend, consolidate,
restructure, or otherwise modify any of the Term Documents in any manner
whatsoever (other than in a manner which would contravene the provisions of this
Agreement), including, without limitation, to:

 

(i)            change the manner, place, time, or terms of payment or renew,
alter or increase, all or any of the Term Obligations or otherwise amend,
restate, supplement, or otherwise modify in any manner, or grant any waiver or
release with respect to, all or any part of the Term Obligations or any of the
Term Documents;

 

(ii)           subject to Section 2.5, retain or obtain a Lien on any Property
of any Person to secure any of the Term Obligations, and in connection therewith
to enter into any additional Term Documents;

 

(iii)          amend, or grant any waiver, compromise, or release with respect
to, or consent to any departure from, any guaranty or other obligations of any
Person obligated in any manner under or in respect of the Term Obligations;

 

(iv)          exercise or refrain from exercising any rights against any
Borrower, any Guarantor, or any other Person;

 

(v)           subject to Section 2.5, retain or obtain the primary or secondary
obligation of any other Person with respect to any of the Term Obligations; and

 

(vi)          release its Lien on any Collateral or other Property;

 

(vii)         otherwise manage and supervise the Term Obligations as the Term
Agent shall deem appropriate.

 

(c)           The ABL Obligations and the Term Obligations may be refinanced, in
whole or in part, in each case, without notice to, or the consent (except to the
extent a consent is required to permit the refinancing transaction under any ABL
Document or any Term Document) of the ABL Agent, the ABL Secured Parties, the
Term Agent or the Term Secured Parties, as the case may be, all without
affecting the Lien Priorities provided for herein or the other provisions
hereof, provided, however, that the holders of such refinancing Indebtedness (or
an authorized agent or trustee on their behalf) bind themselves in writing to
the terms of this Agreement pursuant to such documents or agreements (including
amendments or supplements to this Agreement) as the ABL Agent or the Term Agent,
as the case may be, shall reasonably request and in form and substance
reasonably acceptable to the ABL Agent or the Term Agent, as the case may be,
and any such refinancing transaction shall be in accordance with any applicable
provisions of both the ABL Documents and the Term Documents (to the extent such
documents survive the refinancing).

 

Section 5.3            Reinstatement and Continuation of Agreement.

 

(a)           If the ABL Agent or any ABL Secured Party is required in any
Insolvency Proceeding or otherwise to turn over or otherwise pay to the estate
of any Borrower, any

 

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Guarantor, or any other Person any payment made in satisfaction of all or any
portion of the ABL Obligations (an  “ABL Recovery”), then the ABL Obligations
shall be reinstated to the extent of such ABL Recovery.  If this Agreement shall
have been terminated prior to such ABL Recovery, this Agreement shall be
reinstated in full force and effect in the event of such ABL Recovery, and such
prior termination shall not diminish, release, discharge, impair, or otherwise
affect the obligations of the Parties from such date of reinstatement.  All
rights, interests, agreements, and obligations of the ABL Agent, the Term Agent,
the ABL Secured Parties, and the Term Secured Parties under this Agreement shall
remain in full force and effect and shall continue irrespective of the
commencement of, or any discharge, confirmation, conversion, or dismissal of,
any Insolvency Proceeding by or against any Borrower or any Guarantor or any
other circumstance which otherwise might constitute a defense available to, or a
discharge of any Borrower or any Guarantor in respect of the ABL Obligations or
the Term Obligations.  No priority or right of the ABL Agent or any ABL Secured
Party shall at any time be prejudiced or impaired in any way by any act or
failure to act on the part of any Borrower or any Guarantor or by the
noncompliance by any Person with the terms, provisions, or covenants of any of
the ABL Documents, regardless of any knowledge thereof which the ABL Agent or
any ABL Secured Party may have.

 

(b)           If the Term Agent or any Term Secured Party is required in any
Insolvency Proceeding or otherwise to turn over or otherwise pay to the estate
of any Borrower, any Guarantor, or any other Person any payment made in
satisfaction of all or any portion of the Term Obligations (a “Term Recovery”),
then the Term Obligations shall be reinstated to the extent of such Term
Recovery.  If this Agreement shall have been terminated prior to such Term
Recovery, this Agreement shall be reinstated in full force and effect in the
event of such Term Recovery, and such prior termination shall not diminish,
release, discharge, impair, or otherwise affect the obligations of the Parties
from such date of reinstatement.  All rights, interests, agreements, and
obligations of the ABL Agent, the Term Agent, the ABL Secured Parties, and the
Term Secured Parties under this Agreement shall remain in full force and effect
and shall continue irrespective of the commencement of, or any discharge,
confirmation, conversion, or dismissal of, any Insolvency Proceeding by or
against any Borrower or any Guarantor or any other circumstance which otherwise
might constitute a defense available to, or a discharge of any Borrower or any
Guarantor in respect of the ABL Obligations or the Term Obligations.  No
priority or right of the Term Agent or any Term Secured Party shall at any time
be prejudiced or impaired in any way by any act or failure to act on the part of
any Borrower or any Guarantor or by the noncompliance by any Person with the
terms, provisions, or covenants of any of the Term Documents, regardless of any
knowledge thereof which the Term Agent or any Term Secured Party may have.

 

ARTICLE 6
INSOLVENCY PROCEEDINGS

 

Section 6.1            DIP Financing.

 

(a)           If any Borrower or any Guarantor shall be subject to any
Insolvency Proceeding at any time prior to the Discharge of ABL Obligations, and
the ABL Agent or the ABL Secured Parties shall seek to provide any Borrower or
any Guarantor with, or consent to a third party providing, any financing under
Section 364 of the Bankruptcy Code or consent to any

 

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order for the use of cash collateral constituting ABL Priority Collateral under
Section 363 of the Bankruptcy Code (or any similar provision of any foreign
Debtor Relief Laws or under a court order in respect of measures granted with
similar effect under any foreign Debtor Relief Laws) (each, a “DIP Financing”),
with such DIP Financing to be secured by all or any portion of the Collateral
(including assets that, but for the application of Section 552 of the Bankruptcy
Code (or any similar provision of any foreign Debtor Relief Laws) would be
Collateral), then the Term Agent, on behalf of itself and the Term Secured
Parties, agrees that it will raise no objection and will not support any
objection to such DIP Financing or use of cash collateral or to the Liens
securing the same on the grounds of a failure to provide “adequate protection”
for the Liens of the Term Agent securing the Term Obligations or on any other
grounds (and will not request any adequate protection solely as a result of such
DIP Financing or use of cash collateral that is ABL Priority Collateral except
as permitted by Section 6.3(c)(i)), so long as (i) the Term Agent retains its
Lien on the Collateral to secure the Term Obligations (in each case, including
Proceeds thereof arising after the commencement of the case under the any Debtor
Relief Laws) and, as to the Term Priority Collateral only, such Lien has the
same priority as existed prior to the commencement of the case under the subject
Debtor Relief Laws and any Lien on the Term Loan Priority Collateral securing
such DIP Financing is junior and subordinate to the Lien of the Term Agent on
the Term Priority Collateral, (ii) all Liens on ABL Priority Collateral securing
any such DIP Financing shall be senior to or on a parity with the Liens of the
ABL Agent and the ABL Secured Parties securing the ABL Obligations on ABL
Priority Collateral and (iii) the foregoing provisions of this
Section 6.1(a) shall not prevent the Term Agent and the Term Secured Parties
from objecting to any provision in any DIP Financing relating to any provision
or content of a plan of reorganization or other plan of similar effect under any
Debtor Relief Laws.

 

(b)           If any Borrower or any Guarantor shall be subject to any
Insolvency Proceeding at any time prior to the Discharge of Term Obligations,
and the Term Agent or the Term Secured Parties shall seek to provide any
Borrower or any Guarantor with, or consent to a third party providing, any DIP
Financing, with such DIP Financing to be secured by all or any portion of the
Term Priority Collateral (including assets that, but for the application of
Section 552 of the Bankruptcy Code would be Term Priority Collateral) (it being
understood that the Term Agent and the Term Secured Parties shall not propose
any DIP Financing with respect to the ABL Priority Collateral in competition
with the ABL Agent and the ABL Secured Parties without the consent of the ABL
Agent), then the ABL Agent, on behalf of itself and the ABL Secured Parties,
agrees that it will raise no objection and will not support any objection to
such DIP Financing or to the Liens securing the same on the grounds of a failure
to provide “adequate protection” for the Liens of the ABL Agent securing the ABL
Obligations or on any other grounds (and will not request any adequate
protection solely as a result of such DIP Financing), so long as (i) the ABL
Agent retains its Lien on the Collateral to secure the ABL Obligations (in each
case, including Proceeds thereof arising after the commencement of the case
under any Debtor Relief Law) and, as to the ABL Priority Collateral only, such
Lien has the same priority as existed prior to the commencement of the case
under the subject Debtor Relief Laws and any Lien on ABL Priority Collateral
securing such DIP Financing furnished by the Term Agent or Term Secured Parties
is junior and subordinate to the Lien of the ABL Agent on the ABL Priority
Collateral, (ii) all Liens on Term Priority Collateral securing any such DIP
Financing furnished by the Term Agent or Term Secured Parties shall be senior to
or on a parity with the Liens of the Term Agent and the Term Secured Parties
securing the Term Obligations on Term Priority Collateral and (iii) if the Term
Agent receives an adequate protection Lien on post-

 

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petition assets of the debtor to secure the Term Obligations, the ABL Agent also
may seek to obtain an adequate protection Lien on such post-petition assets of
the debtor to secure the ABL Obligations, provided that (x) such Liens in favor
of the Term Agent and the ABL Agent shall be subject to the provisions of
Section 6.1(c) hereof and (y) the foregoing provisions of this
Section 6.1(b) shall not prevent the ABL Agent and the ABL Secured Parties from
objecting to any provision in any DIP Financing relating to any provision or
content of a plan of reorganization or other plan of similar effect under any
Debtor Relief Laws.

 

(c)           All Liens granted to the ABL Agent or the Term Agent in any
Insolvency Proceeding, whether as adequate protection or otherwise, are intended
by the Parties to be and shall be deemed to be subject to the Lien Priority and
the other terms and conditions of this Agreement.

 

Section 6.2            Relief From Stay. Until the Discharge of ABL Obligations
has occurred, the Term Agent, on behalf of itself and the Term Secured Parties,
agrees not to seek relief from the automatic stay or any other stay in any
Insolvency Proceeding in respect of any portion of the ABL Priority Collateral
without the ABL Agent’s express written consent.  Until the Discharge of Term
Obligations has occurred, the ABL Agent, on behalf of itself and the ABL Secured
Parties, agrees not to seek relief from the automatic stay or any other stay in
any Insolvency Proceeding in respect of any portion of the Term Priority
Collateral without the Term Agent’s express written consent.  In addition,
neither the Term Agent nor the ABL Agent shall seek any relief from the
automatic stay with respect to any Collateral without providing three (3) days’
prior written notice to the other, unless such period is agreed by both the ABL
Agent and the Term Agent to be modified or unless the ABL Agent or Term Agent,
as applicable, makes a good faith determination that either (A) the ABL Priority
Collateral or the Term Priority Collateral, as applicable, will decline speedily
in value or (B) the failure to take any action will have a reasonable likelihood
of endangering the ABL Agent’s or the Term Agent’s ability to realize upon its
Collateral.

 

Section 6.3            No Contest; Adequate Protection. The Term Agent, on
behalf of itself and the Term Secured Parties, agrees that, prior to the
Discharge of ABL Obligations, none of them shall contest (or support any other
Person contesting) (i) any request by the ABL Agent or any ABL Secured Party for
adequate protection of its interest in the Collateral (unless in contravention
of Section 6.1(b) above), (ii) any proposed provision of DIP Financing by the
ABL Agent and the ABL Secured Parties (or any other Person proposing to provide
DIP Financing with the consent of the ABL Agent) or (iii) any objection by the
ABL Agent or any ABL Secured Party to any motion, relief, action, or proceeding
based on a claim by the ABL Agent or any ABL Secured Party that its interests in
the Collateral (unless in contravention of Section 6.1(b) above) are not
adequately protected (or any other similar request under any law applicable to
an Insolvency Proceeding), so long as any Liens granted to the ABL Agent as
adequate protection of its interests are subject to this Agreement.

 

(b)           The ABL Agent, on behalf of itself and the ABL Secured Parties,
agrees that, prior to the Discharge of Term Obligations, none of them shall
contest (or support any other Person contesting) (i) any request by the Term
Agent or any Term Secured Party for adequate protection of its interest in the
Collateral (unless in contravention of Section 6.1(a) above), (ii) any proposed
provision of DIP Financing by the Term Agent and the Term Secured Parties (or

 

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any other Person proposing to provide DIP Financing with the consent of the Term
Agent) or (iii) any objection by the Term Agent or any Term Secured Party to any
motion, relief, action or proceeding based on a claim by the Term Agent or any
Term Secured Party that its interests in the Collateral (unless in contravention
of Section 6.1(a) above) are not adequately protected (or any other similar
request under any law applicable to an Insolvency Proceeding), so long as any
Liens granted to the Term Agent as adequate protection of its interests are
subject to this Agreement.

 

(c)           Notwithstanding the foregoing provisions in this Section 6.3, in
any Insolvency Proceeding:

 

(i)            if the ABL Secured Parties (or any subset thereof) are granted
adequate protection with respect to the ABL Priority Collateral in the form of
additional collateral (even if such collateral is not of a type which would
otherwise have constituted ABL Priority Collateral), then the ABL Agent, on
behalf of itself and the ABL Secured Parties, agrees that the Term Agent, on
behalf of itself or any of the Term Secured Parties, may seek or request (and
the ABL Secured Parties will not oppose such request) adequate protection with
respect to its interests in such Collateral in the form of a Lien on the same
additional collateral, which Lien will be subordinated to the Liens securing the
ABL Obligations on the same basis as the other Liens of the Term Agent on ABL
Priority Collateral; and

 

(ii)           in the event the Term Agent, on behalf of itself or any of the
Term Secured Parties, are granted adequate protection in respect of Term
Priority Collateral in the form of additional collateral (even if such
collateral is not of a type which would otherwise have constituted Term Priority
Collateral), then the Term Agent, on behalf of itself and any of the Term
Secured Parties, agrees that the ABL Agent on behalf of itself or any of the ABL
Secured Parties, may seek or request (and the Term Secured Parties will not
oppose such request) adequate protection with respect to its interests in such
Collateral in the form of a Lien on the same additional collateral, which Lien
will be subordinated to the Liens securing the Term Obligations on the same
basis as the other Liens of the ABL Agent on Term Priority Collateral.

 

(iii)          Except as otherwise expressly set forth in Section 6.1 or in
connection with the exercise of remedies with respect to (A) the ABL Priority
Collateral, nothing herein shall limit the rights of the Term Agent or the Term
Secured Parties from seeking adequate protection with respect to their rights in
the Term Priority Collateral in any Insolvency Proceeding (including adequate
protection in the form of a cash payment, periodic cash payments or otherwise)
or (B) the Term Priority Collateral, nothing herein shall limit the rights of
the ABL Agent or the ABL Secured Parties from seeking adequate protection with
respect to their rights in the ABL Priority Collateral in any Insolvency
Proceeding (including adequate protection in the form of a cash payment,
periodic cash payments or otherwise).

 

Section 6.4            Asset Sales.  The Term Agent agrees, on behalf of itself
and the Term Secured Parties, that it will not oppose any sale consented to by
the ABL Agent of any ABL Priority Collateral pursuant to Section 363(f) of the
Bankruptcy Code (or any similar provision under the law applicable to any
Insolvency Proceeding or under a court order in respect of measures granted with
similar effect under any foreign Debtor Relief Laws) so long as the proceeds of
such sale are applied in accordance with this Agreement.  The ABL Agent agrees,
on

 

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behalf of itself and the ABL Secured Parties, that it will not oppose any sale
consented to by the Term Agent of any Term Priority Collateral pursuant to
Section 363(f) of the Bankruptcy Code (or any similar provision under the law
applicable to any Insolvency Proceeding or under a court order in respect of
measures granted with similar effect under any foreign Debtor Relief Laws) so
long as the proceeds of such sale are applied in accordance with this
Agreement.  If such sale of Collateral includes both ABL Priority Collateral and
Term Priority Collateral, the ABL Secured Parties shall be entitled to receive
net proceeds from such sale in an amount at least equal to the maximum amounts
available to be borrowed under the ABL Credit Agreement with respect to the
Inventory and Accounts included in such sale; as to the balance of the net
proceeds, if the Parties are unable after negotiating in good faith to agree on
the allocation of the purchase price between the ABL Priority Collateral and
Term Priority Collateral, either Party may apply to the court in such Insolvency
Proceeding to make a determination of such allocation, and the court’s
determination shall be binding upon the Parties.

 

Section 6.5            Separate Grants of Security and Separate Classification. 
Each Term Secured Party and each ABL Secured Party acknowledges and agrees that
(i) the grants of Liens pursuant to the ABL Security Documents and the Term
Security Documents constitute two separate and distinct grants of Liens and
(ii) because of, among other things, their differing rights in the Collateral,
the Term Obligations are fundamentally different from the ABL Obligations and
must be separately classified in any plan of reorganization (or other plan of
similar effect under any Debtor Relief Laws) proposed or adopted in an
Insolvency Proceeding.  To further effectuate the intent of the parties as
provided in the immediately preceding sentence, if it is held that the claims of
the ABL Secured Parties and the Term Secured Parties in respect of the
Collateral constitute only one secured claim (rather than separate classes of
senior and junior secured claims), then the ABL Secured Parties and the Term
Secured Parties hereby acknowledge and agree that all distributions shall be
made as if there were separate classes of ABL Obligation claims and Term
Obligation claims against the Credit Parties, with the effect being that, to the
extent that the aggregate value of the ABL Priority Collateral or Term Priority
Collateral is sufficient (for this purpose ignoring all claims held by the other
Secured Parties), the ABL Secured Parties or the Term Secured Parties,
respectively, shall be entitled to receive, in addition to amounts distributed
to them in respect of principal, pre-petition interest and other claims, all
amounts owing in respect of post-petition interest that is available from each
pool of Priority Collateral for each of the ABL Secured Parties and the Term
Secured Parties, respectively, before any distribution is made in respect of the
claims held by the other Secured Parties from such Priority Collateral, with the
other Secured Parties hereby acknowledging and agreeing to turn over to the
respective other Secured Parties amounts otherwise received or receivable by
them to the extent necessary to effectuate the intent of this sentence, even if
such turnover has the effect of reducing the aggregate recoveries.

 

Section 6.6            Enforceability.  The provisions of this Agreement are
intended to be and shall be enforceable under Section 510(a) of the Bankruptcy
Code.

 

Section 6.7            ABL Obligations Unconditional.  All rights of the ABL
Agent hereunder, and all agreements and obligations of the Term Agent and the
Credit Parties (to the extent applicable) hereunder, shall remain in full force
and effect irrespective of:

 

(i)            any lack of validity or enforceability of any ABL Document;

 

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(ii)           any change in the time, place or manner of payment of, or in any
other term of, all or any portion of the ABL Obligations, or any amendment,
waiver or other modification, whether by course of conduct or otherwise, or any
refinancing, replacement, refunding or restatement of any ABL Document;

 

(iii)          any exchange, release, voiding, avoidance or non perfection of
any security interest in any Collateral or any other collateral, or any release,
amendment, waiver or other modification, whether by course of conduct or
otherwise, or any refinancing, replacement, refunding, restatement or increase
of all or any portion of the ABL Obligations or any guarantee or guaranty
thereof; or

 

(iv)          any other circumstances that otherwise might constitute a defense
available to, or a discharge of, any Credit Party in respect of the ABL
Obligations, or of any of the Term Agent or any Credit Party, to the extent
applicable, in respect of this Agreement.

 

Section 6.8            Term Obligations Unconditional.  All rights of the Term
Agent hereunder, all agreements and obligations of the ABL Agent and the Credit
Parties (to the extent applicable) hereunder, shall remain in full force and
effect irrespective of:

 

(i)            any lack of validity or enforceability of any Term Document;

 

(ii)           any change in the time, place or manner of payment of, or in any
other term of, all or any portion of the Term Obligations, or any amendment,
waiver or other modification, whether by course of conduct or otherwise, or any
refinancing, replacement, refunding or restatement of any Term Document;

 

(iii)          any exchange, release, voiding, avoidance or non perfection of
any security interest in any Collateral, or any other collateral, or any
release, amendment, waiver or other modification, whether by course of conduct
or otherwise, or any refinancing, replacement, refunding, restatement or
increase of all or any portion of the Term Obligations or any guarantee or
guaranty thereof; or

 

(iv)          any other circumstances that otherwise might constitute a defense
available to, or a discharge of, any Credit Party in respect of the Term
Obligations, or of any of the ABL Agent or any Credit Party, to the extent
applicable, in respect of this Agreement.

 

Section 6.9            Adequate Protection.  Except to the extent expressly
provided in Sections 6.1 and 6.3, nothing in this Agreement shall limit the
rights of the ABL Agent and the ABL Secured Parties, on the one hand, and the
Term Agent and the Term Secured Parties, on the other hand, from seeking or
requesting adequate protection with respect to their respective interests in the
applicable Collateral in any Insolvency Proceeding, including adequate
protection in the form of a cash payment, periodic cash payments, cash payments
of interest, additional collateral or otherwise; provided that (a) in the event
that the ABL Agent, on behalf of itself or any of the ABL Secured Parties, seeks
or requests adequate protection in respect of the ABL Obligations and such
adequate protection is granted in the form of additional collateral comprising
assets of the type of assets that constitute Term Priority Collateral, then the
ABL

 

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Agent, on behalf of itself and each of the ABL Secured Parties, agrees that the
Term Agent shall have the right to seek or request a senior Lien on such
collateral as security for the Term Obligations and that any Lien on such
collateral securing the ABL Obligations shall be subordinate to the Lien on such
collateral securing the Term Obligations and (b) in the event that the Term
Agent, on behalf of itself or any of the Term Secured Parties, seeks or requests
adequate protection in respect of the Term Obligations and such adequate
protection is granted in the form of additional collateral comprising assets of
the type of assets that constitute ABL Priority Collateral, then the Term Agent,
on behalf of itself and each of the Term Secured Parties, agrees that the ABL
Agent shall have the right to seek or request a senior Lien on such collateral
as security for the ABL Obligations and that any Lien on such collateral
securing the Term Obligations shall be subordinate to the Lien on such
collateral securing the ABL Obligations.

 

ARTICLE 7
MISCELLANEOUS

 

Section 7.1            Rights of Subrogation.  The Term Agent, for and on behalf
of itself and the Term Secured Parties, agrees that no payment to the ABL Agent
or any ABL Secured Party pursuant to the provisions of this Agreement shall
entitle the Term Agent or any Term Secured Party to exercise any rights of
subrogation in respect thereof until the Discharge of ABL Obligations shall have
occurred.  Following the Discharge of ABL Obligations, the ABL Agent agrees to
execute such documents, agreements, and instruments as the Term Agent or any
Term Secured Party may reasonably request to evidence the transfer by
subrogation to any such Person of an interest in the ABL Obligations resulting
from payments to the ABL Agent by such Person, so long as all costs and expenses
(including all reasonable legal fees and disbursements) incurred in connection
therewith by the ABL Agent are paid by such Person upon request for payment
thereof.  The ABL Agent, for and on behalf of itself and the ABL Secured
Parties, agrees that no payment to the Term Agent or any Term Secured Party
pursuant to the provisions of this Agreement shall entitle the ABL Agent or any
ABL Secured Party to exercise any rights of subrogation in respect thereof until
the Discharge of Term Obligations shall have occurred.  Following the Discharge
of Term Obligations, the Term Agent agrees to execute such documents,
agreements, and instruments as the ABL Agent or any ABL Secured Party may
reasonably request to evidence the transfer by subrogation to any such Person of
an interest in the Term Obligations resulting from payments to the Term Agent by
such Person, so long as all costs and expenses (including all reasonable legal
fees and disbursements) incurred in connection therewith by the Term Agent are
paid by such Person upon request for payment thereof.

 

Section 7.2            Further Assurances.  The Parties will, at their own
expense and at any time and from time to time, promptly execute and deliver all
further instruments and documents, and take all further action, that may be
necessary or desirable, or that either Party may reasonably request, in order to
protect any right or interest granted or purported to be granted hereby or to
enable the ABL Agent or the Term Agent to exercise and enforce its rights and
remedies hereunder; provided, however, that no Party shall be required to pay
over any payment or distribution, execute any instruments or documents, or take
any other action referred to in this Section 7.2, to the extent that such action
would contravene any law, order or other legal requirement or any of the terms
or provisions of this Agreement, and in the event of a controversy or dispute,
such Party may interplead any payment or distribution in any court of

 

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competent jurisdiction, without further responsibility in respect of such
payment or distribution under this Section 7.2.

 

Section 7.3            Representations.  The Term Agent represents and warrants
to the ABL Agent that it has the requisite power and authority under the Term
Documents to enter into, execute, deliver, and carry out the terms of this
Agreement on behalf of itself and the Term Secured Parties and that this
Agreement shall be binding obligations of the Term Agent and the Term Secured
Parties, enforceable against the Term Agent and the Term Secured Parties in
accordance with its terms.  The ABL Agent represents and warrants to the Term
Agent that it has the requisite power and authority under the ABL Documents to
enter into, execute, deliver, and carry out the terms of this Agreement on
behalf of itself and the ABL Secured Parties and that this Agreement shall be
binding obligations of the ABL Agent and the ABL Secured Parties, enforceable
against the ABL Agent and the ABL Secured Parties in accordance with its terms.

 

Section 7.4            Amendments.  No amendment or waiver of any provision of
this Agreement nor consent to any departure by any Party hereto shall be
effective unless it is in a written agreement executed by the Term Agent and the
ABL Agent and then such waiver or consent shall be effective only in the
specific instance and for the specific purpose for which given.

 

Section 7.5            Addresses for Notices.  Unless otherwise specifically
provided herein, any notice or other communication herein required or permitted
to be given shall be in writing and may be personally served, telecopied, or
sent by overnight express courier service or United States mail and shall be
deemed to have been given when delivered in person or by courier service, upon
receipt of a telecopy or five (5) days after deposit in the United States mail
(certified, with postage prepaid and properly addressed).  For the purposes
hereof, the addresses of the parties hereto (until notice of a change thereof is
delivered as provided in this Section) shall be as set forth below or, as to
each party, at such other address as may be designated by such party in a
written notice to all of the other parties.

 

ABL Agent:

Bank of America, N.A.

 

40 Broad Street

 

Boston, Massachusetts 02109

 

Attention: David C. Storer

 

 

Term Agent:

Deutsche Bank AG New York Branch

 

60 Wall Street

 

New York, New York 10005

 

Attention: Meg Sutton

 

Section 7.6            No Waiver; Remedies.  No failure on the part of any Party
to exercise, and no delay in exercising, any right hereunder shall operate as a
waiver thereof; nor shall any single or partial exercise of any right hereunder
preclude any other or further exercise thereof or the exercise of any other
right.  The remedies herein provided are cumulative and not exclusive of any
remedies provided by law.

 

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Section 7.7            Continuing Agreement, Transfer of Secured Obligations. 
This Agreement is a continuing agreement and shall (a) remain in full force and
effect until the Discharge of ABL Obligations and the Discharge of Term
Obligations shall have occurred, (b) be binding upon the Parties and their
successors and assigns, and (c) inure to the benefit of and be enforceable by
the Parties and their respective successors, transferees and assigns.  Nothing
herein is intended, or shall be construed to give, any other Person any right,
remedy or claim under, to or in respect of this Agreement or any Collateral. 
All references to any Credit Party shall include any Credit Party as
debtor-in-possession and any receiver or trustee for such Credit Party in any
Insolvency Proceeding.  Without limiting the generality of the foregoing clause
(c), the ABL Agent, any ABL Secured Party, the Term Agent, or any Term Secured
Party may assign or otherwise transfer all or any portion of the ABL Obligations
or the Term Obligations, as applicable, to any other Person (other than any
Borrower, any Guarantor or any Affiliate of any Borrower or any Guarantor and
any Subsidiary of any Borrower or any Guarantor (except as provided in the ABL
Credit Agreement or the Term Credit Agreement, as applicable)), and such other
Person shall thereupon become vested with all the rights and obligations in
respect thereof granted to the ABL Agent, the Term Agent, any ABL Secured Party,
or any Term Secured Party, as the case may be, herein or otherwise.  The ABL
Secured Parties and the Term Secured Parties may continue, at any time and
without notice to the other parties hereto, to extend credit and other financial
accommodations, lend monies and provide Indebtedness to, or for the benefit of,
any Credit Party on the faith hereof.

 

Section 7.8            Governing Law; Entire Agreement.  The validity,
performance, and enforcement of this Agreement shall be governed by, and
construed in accordance with, the laws of the State of New York.  This Agreement
constitutes the entire agreement and understanding among the Parties with
respect to the subject matter hereof and supersedes any prior agreements,
written or oral, with respect thereto.

 

Section 7.9            Counterparts.  This Agreement may be executed in any
number of counterparts, and it is not necessary that the signatures of all
Parties be contained on any one counterpart hereof, each counterpart will be
deemed to be an original, and all together shall constitute one and the same
document.

 

Section 7.10         No Third Party Beneficiaries.  This Agreement is solely for
the benefit of the ABL Agent, ABL Secured Parties, Term Agent and Term Secured
Parties.  No other Person (including any Borrower, any Guarantor or any
Affiliate of any Borrower or any Guarantor, or any Subsidiary of any Borrower or
any Guarantor) shall be deemed to be a third party beneficiary of this
Agreement.

 

Section 7.11         Headings.  The headings of the articles and sections of
this Agreement are inserted for purposes of convenience only and shall not be
construed to affect the meaning or construction of any of the provisions hereof.

 

Section 7.12         Severability.  If any of the provisions in this Agreement
shall, for any reason, be held invalid, illegal or unenforceable in any respect,
such invalidity, illegality, or unenforceability shall not affect any other
provision of this Agreement and shall not invalidate the Lien Priority or the
application of Proceeds and other priorities set forth in this Agreement.

 

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Section 7.13         Attorneys’ Fees.  The Parties agree that if any dispute,
arbitration, litigation, or other proceeding is brought with respect to the
enforcement of this Agreement or any provision hereof, the prevailing party in
such dispute, arbitration, litigation, or other proceeding shall be entitled to
recover its reasonable attorneys’ fees and all other costs and expenses incurred
in the enforcement of this Agreement, irrespective of whether suit is brought.

 

Section 7.14         VENUE; JURY TRIAL WAIVER.

 

(a)           EACH PARTY HERETO HEREBY IRREVOCABLY AND UNCONDITIONALLY SUBMITS,
FOR ITSELF AND ITS PROPERTY, TO THE NONEXCLUSIVE JURISDICTION OF THE SUPREME
COURT OF THE STATE OF NEW YORK SITTING IN NEW YORK COUNTY AND OF THE UNITED
STATES DISTRICT COURT OF THE SOUTHERN DISTRICT OF NEW YORK, AND ANY APPELLATE
COURT FROM ANY THEREOF, IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING
TO THIS AGREEMENT, OR FOR RECOGNITION OR ENFORCEMENT OF ANY JUDGMENT, AND EACH
OF THE PARTIES HERETO HEREBY IRREVOCABLY AND UNCONDITIONALLY AGREES THAT ALL
CLAIMS IN RESPECT OF ANY SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED
IN SUCH NEW YORK STATE OR, TO THE EXTENT PERMITTED BY LAW, IN SUCH FEDERAL
COURT.  EACH OF THE PARTIES HERETO AGREES THAT A FINAL JUDGMENT IN ANY SUCH
ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER
JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW. 
NOTHING IN THIS AGREEMENT SHALL AFFECT ANY RIGHT THAT ANY ABL SECURED PARTY OR
ANY TERM SECURED PARTY MAY OTHERWISE HAVE TO BRING ANY ACTION OR PROCEEDING
RELATING TO THIS AGREEMENT, ANY TERM DOCUMENTS, OR ANY ABL DOCUMENTS AGAINST ANY
CREDIT PARTY OR ITS PROPERTIES IN THE COURTS OF ANY JURISDICTION.

 

(b)           EACH PARTY HERETO HEREBY WAIVES ITS RESPECTIVE RIGHTS TO A JURY
TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS
AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREIN, INCLUDING CONTRACT
CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR
STATUTORY CLAIMS.  EACH PARTY HERETO REPRESENTS THAT IT HAS REVIEWED THIS WAIVER
AND IT KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING
CONSULTATION WITH LEGAL COUNSEL.  IN THE EVENT OF LITIGATION, A COPY OF THIS
AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.

 

(c)           EACH PARTY TO THIS AGREEMENT IRREVOCABLY CONSENTS TO SERVICE OF
PROCESS IN THE MANNER PROVIDED FOR NOTICES IN SECTION 7.5.  NOTHING IN THIS
AGREEMENT WILL AFFECT THE RIGHT OF ANY PARTY TO THIS AGREEMENT TO SERVE PROCESS
IN ANY OTHER MANNER PERMITTED BY LAW.

 

Section 7.15         Intercreditor Agreement.  This Agreement is the
Intercreditor Agreement referred to in the ABL Credit Agreement and the Term
Credit Agreement.  Nothing

 

41

--------------------------------------------------------------------------------

 

in this Agreement shall be deemed to subordinate the obligations due to (i) any
ABL Secured Party to the obligations due to any Term Secured Party or (ii) any
Term Secured Party to the obligations due to any ABL Secured Party (in each
case, whether before or after the occurrence of an Insolvency Proceeding), it
being the intent of the Parties that this Agreement shall effectuate a
subordination of Liens but not a subordination of Indebtedness.

 

Section 7.16         No Warranties or Liability.  The Term Agent and the ABL
Agent acknowledge and agree that neither has made any representation or warranty
with respect to the execution, validity, legality, completeness, collectability
or enforceability of any other ABL Document or any Term Document.  Except as
otherwise provided in this Agreement, the Term Agent and the ABL Agent will be
entitled to manage and supervise their respective extensions of credit to any
Credit Party in accordance with law and their usual practices, modified from
time to time as they deem appropriate.

 

Section 7.17         Conflicts.  In the event of any conflict between the
provisions of this Agreement and the provisions of any ABL Document or any Term
Document, the provisions of this Agreement shall govern.

 

Section 7.18         Information Concerning Financial Condition of the Credit
Parties.  Each of the Term Agent and the ABL Agent hereby assumes responsibility
for keeping itself informed of the financial condition of the Credit Parties and
all other circumstances bearing upon the risk of nonpayment of the ABL
Obligations or the Term Obligations.  The Term Agent and the ABL Agent hereby
agree that no party shall have any duty to advise any other party of information
known to it regarding such condition or any such circumstances.  In the event
the Term Agent or the ABL Agent, in its sole discretion, undertakes at any time
or from time to time to provide any information to any other party to this
Agreement, (a) it shall be under no obligation (i) to provide any such
information to such other party or any other party on any subsequent occasion,
(ii) to undertake any investigation not a part of its regular business routine,
or (iii) to disclose any other information, or (b) it makes no representation as
to the accuracy or completeness of any such information and shall not be liable
for any information contained therein, and (c) the Party receiving such
information hereby to hold the other Party harmless from any action the
receiving Party may take or conclusion the receiving Party may reach or draw
from any such information, as well as from and against any and all losses,
claims, damages, liabilities, and expenses to which such receiving Party may
become subject arising out of or in connection with the use of such information.

 

[SIGNATURE PAGES FOLLOW]

 

42

--------------------------------------------------------------------------------

 

IN WITNESS WHEREOF, the ABL Agent, for and on behalf of itself and the ABL
Lenders, and the Term Agent, for and on behalf of itself and the Term Lenders,
have caused this Agreement to be duly executed and delivered as of the date
first above written.

 

 

 

BANK OF AMERICA, N.A., in its capacity as the ABL Agent

 

 

 

 

 

 

By:

/s/ Keith Vercauteren

 

 

 

Title:   Managing Director

 

 

 

 

 

 

 

 

 

 

DEUTSCHE BANK AG NEW YORK BRANCH, in its capacity as the Term Agent

 

 

 

 

 

 

By:

/s/ Marguerite Sutton

 

 

Title:

Director

 

 

 

 

 

 

 

 

 

 

By:

/s/ Omayra Laucella

 

 

 

Title: Vice President

 

43

--------------------------------------------------------------------------------

 

ACKNOWLEDGMENT

 

Each Borrower and each Guarantor hereby acknowledges that it has received a copy
of this Agreement and consents thereto, agrees to recognize all rights granted
thereby to the ABL Agent, the ABL Lenders, the Term Agent, and the Term Lenders
and will not do any act or perform any obligation which is not in accordance
with the agreements set forth in this Agreement. Each Borrower and each
Guarantor further acknowledges and agrees that it is not an intended beneficiary
or third party beneficiary under this Agreement and (i) as between the ABL
Secured Parties, the Borrowers and Guarantors, the ABL Documents remain in full
force and effect as written and are in no way modified hereby, and (ii) as
between the Term Secured Parties, the Borrowers and Guarantors, the Term
Documents remain in full force and effect as written and are in no way modified
hereby.

 

Without limiting the foregoing, the Parent and the other Credit Parties consent
to the performance by the Term Agent of the obligations set forth in Section 3.6
and acknowledge and agree that neither the Term Agent nor any other Term Secured
Party shall ever be accountable or liable for any action taken or omitted by the
ABL Agent or any other ABL Secured Party or its or any of their officers,
employees, agents successors or assigns in connection therewith or incidental
thereto or in consequence thereof, including any improper use or disclosure of
any proprietary information or other Intellectual Property by the ABL Agent or
any other ABL Secured Party or its or any of their officers, employees, agents,
successors or assigns or any other damage to or misuse or loss of any property
of the Credit Parties as a result of any action taken or omitted by the ABL
Agent or its officers, employees, agents, successors or assigns pursuant to
Section 3.6.

 

 

 

MICHAELS STORES, INC., as Borrower and as Guarantor

 

 

 

 

 

 

By:

/s/ Jeffrey N. Boyer

 

 

 

Title:   President and Chief Financial Officer

 

 

 

 

 

 

AARON BROTHERS, INC., as Borrower and Guarantor

 

 

 

 

 

 

By:

/s/ Lisa K. Klinger

 

 

 

Title:   Vice President and Treasurer

 

 

 

 

 

 

MICHAELS STORES PROCUREMENT COMPANY, INC., as Borrower and Guarantor

 

 

 

 

 

 

By:

/s/ Jeffrey N. Boyer

 

 

 

Title:   President and Chief Financial Officer

 

44

--------------------------------------------------------------------------------

 

 

ARTISTREE, INC., as Borrower and Guarantor

 

 

 

 

By:

/s/ Lisa K. Klinger

 

 

Title:    Vice President and Treasurer

 

 

 

 

MICHAELS STORES CARD SERVICES, LLC, as Guarantor

 

 

 

 

By:

/s/ Jeffrey N. Boyer

 

 

Name:  Jeffrey N. Boyer

 

 

Title:    President

 

 

 

 

MICHAELS OF CANADA, ULC, as Guarantor

 

 

 

 

By:

/s/ Jeffrey N. Boyer

 

 

Name:  Jeffrey N. Boyer

 

 

Title:    President

 

 

 

 

MICHAELS FINANCE COMPANY, INC., as Guarantor

 

 

 

 

By:

/s/ Jeffrey N. Boyer

 

 

Title:    President and Chief Financial Officer

 

45

--------------------------------------------------------------------------------

 

EXHIBIT I

 

OPINION MATTERS — COUNSEL TO THE LOAN PARTIES

 

[On file with Administrative Agent]

 

--------------------------------------------------------------------------------

 

EXHIBIT J

[CONFORMED AS EXECUTED]

 

FORM OF INTERCOMPANY NOTE

 

New York, New York
October 31, 2006

 

FOR VALUE RECEIVED, each of the undersigned, to the extent a borrower from time
to time from any other entity listed on the signature page hereto (each, in such
capacity, and together with any other entity that becomes a party hereto
pursuant to the penultimate paragraph of this Note, a “Payor”), hereby promises
to pay on demand to the order of each such other entity listed on the signature
page hereto (each, in such capacity, and together with any other entity that
becomes a party hereto pursuant to the penultimate paragraph of this Note, a
“Payee”), in lawful money of the United States of America in immediately
available funds, at such location in the United States of America as such Payee
shall from time to time designate, the unpaid principal amount of all loans and
advances made by such Payee to such Payor.  Each Payor promises also to pay
interest on the unpaid principal amount of all such loans and advances in like
money at said location from the date of such loans and advances until paid at
such rate per annum as shall be agreed upon from time to time by such Payor and
such Payee.

 

This Note is the “Intercompany Note” referred to in the Credit Agreement, dated
as of October 31, 2006 (as amended, modified, restated and/or supplemented from
time to time, the “Credit Agreement”), among Michaels Stores, Inc. (the
“Borrower”), Deutsche Bank AG New York Branch, as Administrative Agent, each
lender from time to time party thereto (collectively, the “Lenders” and
individually, a “Lender”), JPMorgan Chase Bank, N.A., as Syndication Agent, and
Bank of America, N.A. and Credit Suisse, as Co-Documentation Agents.  Unless
otherwise specified, capitalized terms used but not defined herein shall have
the meanings assigned to such terms in the Credit Agreement.  Each Payee hereby
acknowledges and agrees that the Administrative Agent and the Collateral Agent
may exercise all rights provided in the Credit Agreement and the Collateral
Documents with respect to this Note.

 

Anything in this Note to the contrary notwithstanding, all indebtedness and
other obligations evidenced by this Note (including interest hereon accruing
after the commencement of any proceedings referred to in clause (i) below,
whether or not such interest is an allowed claim in such proceeding) owed by any
Payor that is (x) a Guarantor (other than the Borrower) to any Payee (other than
a Loan Party) or (y) the Borrower to any Payee, shall, in each case, be
subordinate and junior in right of payment, to the extent and in the manner
hereinafter set forth, to all Obligations, including, without limitation, where
applicable, under such Payor’s guarantee of the Guaranteed Obligations under
(and as defined) in the Guaranty (such Obligations and other indebtedness and
obligations in connection with any renewal, refunding, restructuring or
refinancing thereof, including interest thereon accruing after the commencement
of any proceedings referred to in clause (i) below, whether or not such interest
is an allowed claim in such proceeding, being hereinafter collectively referred
to as “Senior Indebtedness”):

 

--------------------------------------------------------------------------------

 

(i)            In the event of any insolvency or bankruptcy proceedings, and any
receivership, liquidation, reorganization or other similar proceedings in
connection therewith, relative to any Payor or to its creditors, as such, or to
its property, and in the event of any proceedings for voluntary liquidation,
dissolution or other winding up of such Payor, whether or not involving
insolvency or bankruptcy, then (x) the holders of Senior Indebtedness shall be
paid in full in cash in respect of all amounts constituting Senior Indebtedness
before any Payee is entitled to receive (whether directly or indirectly), or
make any demands for, any payment or distribution of any kind or character on
account of this Note (whether in cash, property, securities or otherwise) and
(y) until the holders of Senior Indebtedness are paid in full in cash in respect
of all amounts constituting Senior Indebtedness, any payment or distribution of
any kind or character to which such Payee would otherwise be entitled shall be
made to the holders of Senior Indebtedness.

 

(ii)           In the event that any Event of Default pursuant to Sections
8.01(a), 8.01(f) or 8.01(g) of the Credit Agreement then exists or would result
therefrom, no payment by any Payor, or demand by any Payee, shall be made on
account of any amount owing in respect of this Note; provided that any Payor may
make such payments or distributions if such Payor has received written notice
approving such payment from the Collateral Agent.

 

(iii)          In the event that any Event of Default then exists or would
result therefrom, no payment by any Payor to a Payee that is a Restricted
Subsidiary which is not a Loan Party, or demand by any Payee that is a
Restricted Subsidiary which is not a Loan Party, shall be made on account of any
amount owning in respect of this Note; provided that any Payor may make such
payments or distributions if such Payor has received written notice approving
such payment from the Collateral Agent.

 

(iv)          If any payment or distribution of any kind or character (whether
in cash, securities or other property) in respect of this Note shall (despite
these subordination provisions) be received by any Payee in violation of clauses
(i) or (ii) above before all Senior Indebtedness shall have been paid in full in
cash, such payment or distribution shall be held in trust for the benefit of,
and shall be paid over or delivered to, the holders of Senior Indebtedness (or
their representatives), ratably according to the respective aggregate amounts
remaining unpaid thereon, to the extent necessary to pay all Senior Indebtedness
in full in cash.

 

To the fullest extent permitted by law, no present or future holder of Senior
Indebtedness shall be prejudiced in its right to enforce the subordination of
this Note by any act or failure to act on the part of any Payor or by any act or
failure to act on the part of such holder or any trustee or agent for such
holder.  Each Payee and each Payor hereby agrees that (x) the subordination of
this Note is for the benefit of the Collateral Agent and the other Secured
Parties, (y) the Collateral Agent and the other Secured Parties are obligees
under this Note to the same extent as if their names were written herein as
such, and (z) the Administrative Agent and/or the Collateral Agent may, on
behalf of itself and the other Secured Parties, proceed to enforce the
subordination provisions herein.

 

2

--------------------------------------------------------------------------------

 

If a Payee does not file a proper claim or proof of debt in the form required in
any proceeding or other action referred to in clause (i) of the second preceding
paragraph prior to 30 days before the expiration of the time to file such claim
or claims, then any of the holders of the Senior Indebtedness (or their
representative) is hereby authorized to file an appropriate claim for and on
behalf of such Payee.

 

Subject to the prior payment in full in cash of all Senior Indebtedness, each
Payee shall be subrogated to the rights of the holders of Senior Indebtedness to
receive payments or distributions of assets of the respective Payor applicable
to the Senior Indebtedness until all amounts owing on this Note shall be paid in
full, and for the purpose of such subrogation no payments or distributions to
the holders of the Senior Indebtedness by or on behalf of a Payor or by or on
behalf of the holder of this Note which otherwise would have been made to the
holder of this Note shall, as between such Payor, its creditors other than the
holders of Senior Indebtedness, and the holder of this Note, be deemed to be
payment by such Payor to or on account of amounts owing on this Note.

 

The holders of the Senior Indebtedness may, without in any way affecting the
obligations of any Payee with respect thereto, at any time or from time to time
and in their absolute discretion, change the manner, place or terms of payment
of, change or extend the time of payment of, or renew or alter, any Senior
Indebtedness, or amend, modify or supplement any agreement or instrument
governing or evidencing such Senior Indebtedness or any other document referred
to therein, or exercise or refrain from exercising any other of their rights
under the Senior Indebtedness including, without limitation, the waiver of
default thereunder and the release of any collateral securing such Senior
Indebtedness, all without notice to or assent from any Payee.

 

If any Payee shall acquire by indemnification, subrogation or otherwise, any
lien, estate, right or other interest in any of the assets or properties any
Payor, that lien, estate, right or other interest shall be subordinate in right
of payment to the Senior Indebtedness and the lien of the Senior Indebtedness as
provided herein or under any Loan Document, and each Payee hereby waives any and
all rights it may acquire by subrogation or otherwise to any lien of the Senior
Indebtedness or any portion thereof until such time as all Senior Indebtedness
has been indefeasibly repaid in full in cash.

 

If, at any time, all or part of any payment with respect to Senior Indebtedness
theretofore made (whether by any other Loan Party or any other Person or
enforcement of any right of setoff or otherwise) is rescinded or must otherwise
be returned by the holders of Senior Indebtedness for any reason whatsoever
(including, without limitation, the insolvency, bankruptcy or reorganization of
any other Loan Party or such other Persons), the subordination provisions set
forth herein shall continue to be effective or be reinstated, as the case may
be, all as though such payment had not been made.

 

The indebtedness evidenced by this Note owed by any Payor that is neither a
Guarantor nor the Borrower shall not be subordinated to, and shall rank pari
passu in right of payment with, any other obligation of such Payor.

 

3

--------------------------------------------------------------------------------

 

Nothing contained in the subordination provisions set forth above is intended to
or will impair, as between each Payor and each Payee, the obligations of such
Payor, which are absolute and unconditional, to pay to such Payee the principal
of and interest on this Note as and when due and payable in accordance with its
terms, or is intended to or will affect the relative rights of such Payee and
other creditors of such Payor other than the holders of Senior Indebtedness.

 

Each Payee is hereby authorized (but not required) to record all loans and
advances made by it to any Payor (all of which shall be evidenced by this Note),
and all repayments or prepayments thereof, in its books and records, such books
and records constituting prima facie evidence of the accuracy of the information
contained therein.

 

Each Payor hereby waives presentment, demand, protest or notice of any kind in
connection with this Note. All payments under this Note shall be made without
offset, counterclaim or deduction of any kind.

 

Any Restricted Subsidiary of the Borrower that wishes to become a party to this
Note after the date hereof shall become a Payor or Payee, as applicable,
hereunder by executing a counterpart hereof or a joinder agreement (and in form
and substance satisfactory to the Administrative Agent) and delivering same to
the Administrative Agent.  Each party to this Note on the date hereof agrees
that any such Restricted Party shall, at the time it becomes a Payor or Payee
pursuant to the forgoing provisions, be treated as if it were an original party
hereto.

 

THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF
THE STATE OF NEW YORK, WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF LAWS
THEREOF.

 

4

--------------------------------------------------------------------------------

 

THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF
THE STATE OF NEW YORK, WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF LAWS
THEREOF.

 

 

 

MICHAELS STORES, INC.,

 

 

as Payee

 

 

 

 

 

 

By:

/s/ Jeffrey N. Boyer

 

 

 

Title:

President and Chief Financial Officer

 

 

 

 

 

 

AARON BROTHERS, INC.,

 

 

as Payee

 

 

 

 

 

 

By:

/s/ Lisa K. Klinger

 

 

 

Title:

Vice President and Treasurer

 

 

 

 

 

 

MICHAELS FINANCE COMPANY, INC.,

 

 

as Payee

 

 

 

 

 

 

By:

/s/ Jeffrey N. Boyer

 

 

 

Title:

President and Chief Financial Officer

 

 

 

 

 

 

MICHAELS STORES CARD SERVICES, LLC,

 

 

as Payee

 

 

 

 

 

 

By:

/s/ Jeffrey N. Boyer

 

 

 

Title:

President

 

 

 

 

 

 

 

MICHAELS STORES PROCUREMENT COMPANY, INC., as Payee

 

 

 

 

 

 

By:

/s/ Jeffrey N. Boyer

 

 

 

Title:

President and Chief Financial Officer

 

 

 

 

 

 

ARTISTREE, INC.,

 

 

as Payee

 

 

 

 

 

 

By:

/s/ Lisa K. Klinger

 

 

 

Title:

Vice President and Treasurer

 

 

 

 

 

 

MICHAELS OF CANADA, ULC,

 

 

as Payee

 

 

 

 

 

 

By:

/s/ Jeffrey N. Boyer

 

 

 

Title:

President

 

5

--------------------------------------------------------------------------------

 

MICHAELS STORES, INC.,

 

 

as Payor

 

 

 

 

 

 

By:

/s/ Jeffrey N. Boyer

 

 

 

Title:   President and Chief Financial Officer

 

 

 

 

 

 

AARON BROTHERS, INC.,

 

 

as Payor

 

 

 

 

 

 

By:

/s/ Lisa K. Klinger

 

 

 

Title:   Vice President and Treasurer

 

 

 

 

 

 

MICHAELS FINANCE COMPANY, INC.,

 

 

as Payor

 

 

 

 

 

 

By:

/s/ Jeffrey N. Boyer

 

 

 

Title:   President and Chief Financial Officer

 

 

 

 

 

 

MICHAELS STORES CARD SERVICES, LLC,

 

 

as Payor

 

 

 

 

 

 

By:

/s/ Jeffrey N. Boyer

 

 

 

Title:   President

 

 

 

 

 

 

MICHAELS STORES PROCUREMENT COMPANY, INC., as Payor

 

 

 

 

 

 

By:

/s/ Jeffrey N. Boyer

 

 

 

Title:   President and Chief Financial Officer

 

 

 

 

 

 

ARTISTREE, INC.,

 

 

as Payor

 

 

 

 

 

 

By:

/s/ Lisa K. Klinger

 

 

 

Title:   Vice President and Treasurer

 

 

 

 

 

 

MICHAELS OF CANADA, ULC,

 

 

as Payor

 

 

 

 

 

 

By:

/s/ Jeffrey N. Boyer

 

 

 

Title:   President

 

 

 

6

--------------------------------------------------------------------------------

 

Schedule 1.01B

Collateral Documents

 

1.  Guarantee Agreement, dated as of October 31, 2006, among Michaels
Stores, Inc., a Delaware corporation (the “Borrower”), the Subsidiaries of the
Borrower identified therein and Deutsche Bank AG New York Branch, as
Administrative Agent (in such capacity, the “Administrative Agent”).

 

2.  Security Agreement, dated as of October 31, 2006, among the Borrower, the
Subsidiaries of the Borrower identified therein and Deutsche Bank AG New York
Branch, as Collateral Agent for the Secured Parties (in such capacity, the
“Collateral Agent”).

 

3.  Canadian Guarantee, dated as of October 31, 2006, among Michaels of Canada,
ULC, a Nova Scotia unlimited liability company (“Michaels Canada”), and the
Administrative Agent.

 

4.  Canadian Security Agreement, dated as of October 31, 2006, among Michaels
Canada  and the Collateral Agent.

 

5.  Grant of Security Interest in United States Trademarks, dated as of
October 31, 2006, between Aaron Brothers, Inc., a Delaware corporation, and the
Collateral Agent.

 

6.  Grant of Security Interest in United States Trademarks, dated as of
October 31, 2006, between Michaels Stores Procurement Company, Inc., a Delaware
corporation (“Michaels Procurement”), and the Collateral Agent.

 

7.  Grant of Security Interest in Canadian Trademarks, dated as of October 31,
2006, between Michaels Procurement and the Collateral Agent.

 

8.  Guarantor Consent and Reaffirmation, dated as of January 28, 2013, among the
Borrower, the subsidiaries of the Borrower identified therein, the Collateral
Agent and the Administrative Agent.

 

9.  Canadian Guarantor Consent and Reaffirmation, dated as of January 28, 2013,
among Michaels Canada, the Collateral Agent and the Administrative Agent.

 

1

--------------------------------------------------------------------------------

 

Schedule 1.01D

Mortgaged Properties

 

None.

 

2

--------------------------------------------------------------------------------

 

Schedule 1.01E

Excluded Subsidiary

 

None.

 

3

--------------------------------------------------------------------------------

 

Schedule 1.01F

Foreign Subsidiary

 

None.

 

4

--------------------------------------------------------------------------------

 

Schedule 2.01

Commitments

 

LENDER

 

COMMITMENT

 

DEUTSCHE BANK AG NEW YORK BRANCH

 

$

1,640,000,000

 

 

5

--------------------------------------------------------------------------------

 

Schedule 5.05

Financial Statements

 

None.

 

6

--------------------------------------------------------------------------------

 

Schedule 5.10

Taxes

 

None.

 

7

--------------------------------------------------------------------------------

 

Schedule 5.12

Subsidiaries and Other Equity Investments

 

Subsidiary

 

Jurisdiction

 

Owner

 

# of
Shares
Owned

 

Total Shares
Outstanding

 

% of
Interest

 

%
Pledged

 

Aaron Brothers Card Services, LLC

 

Virginia

 

Aaron Brothers, Inc.

 

100

 

100

 

100

%

100

%

Aaron Brothers, Inc.

 

Delaware

 

Michaels Stores, Inc.

 

100

 

100

 

100

%

100

%

Artistree of Canada, ULC

 

Nova Scotia

 

Artistree, Inc.

 

1,000

 

1,000

 

100

%

65

%

Artistree, Inc.

 

Delaware

 

Michaels Stores Procurement Company, Inc.

 

100

 

100

 

100

%

100

%

Michaels Finance Company, Inc.

 

Delaware

 

Michaels Stores, Inc.

 

100

 

100

 

100

%

100

%

Michaels of Canada, ULC

 

Nova Scotia

 

Michaels Stores, Inc.

 

1,000 Common

 

1,000

 

100

%

100

%

Michaels of Canada, ULC

 

Nova Scotia

 

Michaels Stores, Inc.

 

4,000 Class A Preferred

 

4,000

 

100

%

100

%

Michaels Stores Card Services, LLC

 

Virginia

 

Michaels Stores, Inc.

 

100

 

100

 

100

%

100

%

Michaels Stores of Puerto Rico, LLC

 

Puerto Rico

 

Michaels Stores, Inc.

 

100

 

100

 

100

%

65

%

Michaels Stores Procurement Company, Inc.

 

Delaware

 

Michaels Stores, Inc.

 

100

 

100

 

100

%

100

%

 

8

--------------------------------------------------------------------------------

 

Schedule 6.07

Insurance

 

See attached.

 

9

--------------------------------------------------------------------------------

 

Michaels Stores, Inc.

Insurance Summary

 

INSURANCE PLACED BY LOCKTON - 2012/2013

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Actual Premimum

 

 

 

 

 

 

 

 

 

 

 

 

 

Current

 

Expired

 

 

 

Actual

 

 

 

(Inclueds

 

Program

 

Carrier

 

Policy No.

 

Invoice #

 

Policy Period

 

Deductible

 

Limits

 

Limits

 

Coverage

 

Premium

 

Taxes/Fees

 

Taxes/Fees)

 

Boiler & Machinery

 

Travelers

 

BM2188X5443-TIL-12

 

909013

 

06/01/2012 - 06/01/2013

 

50,000

 

100,000,000

 

100,000,000

 

Sudden & accidental breakdown

 

40,901.00

 

0.00

 

40,901.00

 

Canada

 

Travelers

 

UXBLM00113

 

511774

 

06/01/2012 - 06/01/2013

 

 

 

 

 

0

 

 

 

3,122.00

 

112.01

 

3,234.01

 

 

 

 

 

 

 

 

 

 

 

 

 

100,000,000

 

100,000,000

 

 

 

44,023.00

 

112.01

 

44,135.01

 

Cargo

 

Lloyds

 

B0753PC1207577000

 

911981

 

06/01/2012 - 06/01/2013

 

100,000

 

15,000,000

 

 

 

 

 

100,000.00

 

0.00

 

100,000.00

 

 

 

 

 

 

 

 

 

 

 

 

 

15,000,000

 

 

 

 

 

100,000.00

 

0.00

 

100,000.00

 

Commercial Auto

 

Safety National

 

CAF 4044106

 

Monthly Invoices

 

06/01/2012 - 06/01/2013

 

1000 comp/coll

 

1,000,000

 

1,000,000

 

Per occurrence BI/PD CSL

 

11,382.00

 

0.00

 

11,382.00

 

 

 

 

 

 

 

 

 

 

 

 

 

10,000

 

10,000

 

Medical Payments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,000,000

 

1,000,000

 

Uninsured Motorist

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Statutory

 

Statutory

 

PIP

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,000,000

 

1,000,000

 

 

 

11,382.00

 

0.00

 

11,382.00

 

Crime

 

St. Paul Travelers

 

105621554

 

916194

 

07/30/2012 - 07/30/2013

 

100,000

 

5,000,000

 

5,000,000

 

 

 

40,243.00

 

0.00

 

40,243.00

 

 

 

 

 

 

 

 

 

 

 

 

 

5,000,000

 

5,000,000

 

 

 

40,243.00

 

0.00

 

40,243.00

 

Cyberliability

 

Lloyd’s Brit Syndicate

 

BO713MEDTE1100736

 

881433

 

11/18/2012 - 11/18//2013

 

1,000,000

 

0

 

10,000,000

 

Primary

 

310,000.00

 

15,221.00

 

325,221.00

 

 

 

CAN

 

425476958

 

881434

 

 

 

 

 

 

 

5,000,000

 

$5M x $10M

 

100,000.00

 

0.00

 

100,000.00

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

410,000.00

 

15,221.00

 

425,221.00

 

D&O

 

Chartis Primary (Multplie Layers)

 

 

 

917149

 

07/30/12 - 07/30/13

 

250,000

 

125,000,000

 

125,000,000

 

 

 

552,633.00

 

0.00

 

552,633.00

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

552,633.00

 

0.00

 

552,633.00

 

Umbrella Liability

 

XL Insurance America, Inc.

 

US00009002LI11A

 

907615

 

06/01/2012 - 06/01/2013

 

10,000

 

25,000,000

 

25,000,000

 

$25M x Primary

 

200,000.00

 

0.00

 

200,000.00

 

Canada

 

 

 

CA00002370LI11A

 

506134

 

06/01/2012 - 06/01/2013

 

 

 

 

 

 

 

 

 

25,000.00

 

2,000.00

 

27,000.00

 

 

 

 

 

 

 

 

 

 

 

 

 

25,000,000

 

25,000,000

 

 

 

225,000.00

 

2,000.00

 

227,000.00

 

Excess Umbrella Liability

 

Federal (Chubb) Insurance Co.

 

79818092

 

907617

 

06/01/2012 - 06/01/2013

 

 

 

25,000,000

 

25,000,000

 

$25M x $25M

 

38,584.00

 

0.00

 

38,584.00

 

 

 

Canada

 

 

 

907617

 

 

 

 

 

 

 

 

 

 

 

4,240.00

 

0.00

 

4,240.00

 

 

 

Fireman’s Fund

 

SHX-000-2423-5822

 

907618

 

06/01/2012 - 06/01/2013

 

 

 

50,000,000

 

50,000,000

 

$50M x $50M

 

51,000.00

 

0.00

 

51,000.00

 

 

 

TRIA

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

0.00

 

0.00

 

0.00

 

 

 

Excess Commission Deleted

 

 

 

907618

 

 

 

 

 

 

 

 

 

 

 

(5,100.00

)

0.00

 

(5,100.00

)

 

 

 

 

 

 

 

 

 

 

 

 

75,000,000

 

75,000,000

 

 

 

88,724.00

 

0.00

 

88,724.00

 

Excess Punitive Wrap

 

XL Europe

 

IE00014255LI11A

 

HC000797

 

06/01/2012 - 06/01/2013

 

 

 

25,000,000

 

25,000,000

 

$25M x $1MM

 

28,660.00

 

1,146.40

 

29,806.40

 

 

 

CHUBB

 

310-13-37

 

HC000798

 

06/01/2012 - 06/01/2013

 

 

 

25,000,000

 

25,000,000

 

$25M x $25M

 

13,010.00

 

520.40

 

13,530.40

 

 

 

 

 

 

 

 

 

 

 

 

 

50,000,000

 

50,000,000

 

 

 

41,670.00

 

1,666.80

 

43,336.80

 

EPL

 

Liberty

 

EPLNY873667003

 

831905

 

11/06/2012 - 11/06/2013

 

2,500,000

 

10,000,000

 

10,000,000

 

Claims Made / annual agg.

 

153,898.00

 

0.00

 

153,898.00

 

 

 

Returned Commission

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(23,084.70

)

0.00

 

(23,084.70

)

 

 

 

 

 

 

 

 

 

 

 

 

10,000,000

 

10,000,000

 

 

 

130,813.30

 

0.00

 

130,813.30

 

Event Cancellation Insurance

 

Lloyds (SCS 3334 & ARK 4020)

 

SPRAC1100068

 

859617

 

08/28/2012 - 09/01/2012

 

 

 

 

 

2,264,632

 

 

 

23,599.41

 

1,158.73

 

24,758.14

 

 

 

Returned Commission

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,359.94

)

0.00

 

(2,359.94

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

21,239.47

 

1,158.73

 

22,398.20

 

Fiduciary

 

Travelers

 

105621553

 

916194

 

07/30/2012 - 07/30/2013

 

$25K/$250K (SEC)

 

10,000,000

 

10,000,000

 

Per occurrence / annual agg.

 

18,146.00

 

0.00

 

18,146.00

 

 

 

RLI Insurance Company

 

EPG0010651

 

916194

 

 

 

 

 

10,000,000

 

10,000,000

 

 

 

15,033.00

 

0.00

 

15,033.00

 

 

 

 

 

 

 

 

 

 

 

 

 

20,000,000

 

20,000,000

 

 

 

33,179.00

 

0.00

 

33,179.00

 

Foreign Liability

 

ACE

 

PHFD3689801A

 

907649

 

06/01/2012 - 06/01/2013

 

 

 

1,000,000

 

1,000,000

 

Liability, per occurrence

 

5,364.00

 

0.00

 

5,364.00

 

 

 

 

 

 

 

910800 (credit invoice)

 

 

 

 

 

1,000,000

 

1,000,000

 

Auto DIC/Excess Liability

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,000,000

 

1,000,000

 

WC/EL

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

100,000

 

100,000

 

Repatriation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

50,000

 

50,000

 

Kidnap and Extortion

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,000,000

 

1,000,000

 

 

 

5,364.00

 

0.00

 

5,364.00

 

General Liability

 

Safety National

 

4044104

 

Monthly Invoices

 

06/01/2012 - 06/01/2013

 

500,000

 

10,000,000

 

10,000,000

 

Annual aggregate

 

249,506.00

 

469.00

 

249,975.00

 

 

 

 

 

 

 

 

 

 

 

 

 

1,000,000

 

1,000,000

 

Per occurrence

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,000,000

 

2,000,000

 

Products/Completed Operations ann. agg.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,000,000

 

1,000,000

 

Fire legal liability

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Medical expense

 

 

 

 

 

 

 

Canada

 

 

 

KGHOPC91960

 

506133

 

 

 

 

 

 

 

 

 

 

 

37,843.00

 

3,027.00

 

40,870.00

 

 

 

 

 

 

 

 

 

 

 

 

 

10,000,000

 

10,000,000

 

 

 

287,349.00

 

3,496.00

 

290,845.00

 

Property

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Includes CA EQ & Flood)

 

Allied World Assurance Co. Ltd. (AWAC)

 

P004898/008

 

P0004898/008

 

06/01/2012 - 06/01/2013

 

250,000/TIV5%

 

10,000,000

 

Primary $10M

 

30%

 

521,700.00

 

20,868.00

 

542,568.00

 

(Includes CA EQ & Flood)

 

Lloyds - BRIT 2987

 

BO753PP1204865000

 

908968

 

 

 

 

 

 

 

Primary $10M

 

3%

 

42,300.00

 

 

 

42,300.00

 

(Includes CA EQ & Flood)

 

ACE

 

GPAD37397957

 

908972

 

 

 

 

 

 

 

Primary $10M

 

20%

 

354,380.00

 

 

 

354,380.00

 

(Includes CA EQ & Flood)

 

Lloyds MSP318

 

B0753pp1204866000

 

908976

 

 

 

 

 

 

 

Primary $25M

 

5.81%

 

120,077.42

 

 

 

120,077.42

 

(Includes CA EQ & Flood)

 

Lloyds - Brit 2987

 

B0753pp1204866000

 

908976

 

 

 

 

 

 

 

Primary $25M

 

3.10%

 

60,908.83

 

 

 

60,908.83

 

(Includes CA EQ & Flood)

 

Lloyds - AFB (623/2623)

 

B0753pp1204866000

 

908976

 

 

 

 

 

 

 

Primary $25M

 

3.10%

 

64,041.29

 

 

 

64,041.29

 

(Includes CA EQ & Flood)

 

Lexington Insurance Company

 

25031605

 

908980

 

 

 

 

 

 

 

Primary $50M

 

35%

 

921,200.00

 

 

 

921,200.00

 

(Includes CA EQ & Flood)

 

Lloyds - MMX 2010

 

B0753PP1204868000

 

908982

 

 

 

 

 

 

 

 

 

$15M x $10M (3%)

 

17,550.00

 

 

 

17,550.00

 

(Includes CA EQ & Flood)

 

Maxum Indemnity Co.

 

MSP601586602

 

908986

 

 

 

 

 

 

 

 

 

$15M x $10M (10%)

 

40,000.00

 

1,964.00

 

41,964.00

 

(Includes CA EQ & Flood)

 

Ironshore Specialty Insurance Company

 

414302

 

908988

 

 

 

 

 

 

 

 

 

$40M x $10M (22.5%)

 

175,500.00

 

 

 

175,500.00

 

(Includes CA EQ & Flood)

 

Maiden Specialty

 

S1EPY0199802M

 

908991

 

 

 

 

 

 

 

 

 

$25M x $25M (5%)

 

38,500.00

 

 

 

38,500.00

 

(Includes CA EQ & Flood)

 

Maiden Speciality (NC)

 

S1EPY0199902M

 

908991

 

 

 

 

 

 

 

 

 

$25M x $25M (5%)

 

0.00

 

 

 

0.00

 

(Includes CA EQ & Flood)

 

Ironshore Specialty Insurance Company

 

1372000

 

908993

 

 

 

 

 

 

 

 

 

$25M x $25M (4%)

 

15,400.00

 

 

 

15,400.00

 

(Includes CA EQ & Flood)

 

Lloyds - AMLIN (AML 2001)

 

B0753PP1204872000

 

908999

 

 

 

 

 

 

 

 

 

$75M x $25M (6.7%)

 

56,960.74

 

 

 

56,960.74

 

(Includes CA EQ & Flood)

 

Lloyds - BRIT (BRT 2987)

 

B0753PP1204872000

 

908999

 

 

 

 

 

 

 

 

 

$75M x $25M (3.31%)

 

28,100.63

 

 

 

28,100.63

 

(Includes CA EQ & Flood)

 

Lloyds - Markel (MKL 3000)

 

B0753PP1204872000

 

908999

 

 

 

 

 

 

 

 

 

$75M x $25M (.99%)

 

8,438.63

 

 

 

8,438.63

 

(Includes CA EQ to 175 & Flood)

 

Westport Insurance Corporation

 

31-3-74834

 

909002

 

 

 

 

 

 

 

 

 

$165M x $10M (17.50%)

 

247,625.00

 

 

 

247,625.00

 

 

--------------------------------------------------------------------------------

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Actual Premimum

 

 

 

 

 

 

 

 

 

 

 

 

 

Current

 

Expired

 

 

 

Actual

 

 

 

(Inclueds

 

Program

 

Carrier

 

Policy No.

 

Invoice #

 

Policy Period

 

Deductible

 

Limits

 

Limits

 

Coverage

 

Premium

 

Taxes/Fees

 

Taxes/Fees)

 

(Includes CA EQ & Flood)

 

Lloyds - Argo (AMA 1200)

 

BO753PP1204869000

 

909006

 

 

 

 

 

 

 

 

 

$50M x $50M (7.21%)

 

26,656.04

 

 

 

26,656.04

 

(Includes CA EQ & Flood)

 

Lloyds - (ARK 4020)

 

BO753PP1204869000

 

909006

 

 

 

 

 

 

 

 

 

$50M x $50M (5.77%)

 

21,324.83

 

 

 

21,324.83

 

(Includes CA EQ & Flood)

 

Lloyds - Catlin (SJC 2003)

 

BO753PP1204869000

 

909006

 

 

 

 

 

 

 

 

 

$50M x $50M (9.61%)

 

35,541.38

 

 

 

35,541.38

 

(Includes CA EQ & Flood)

 

Lloyds - Traveles (TRV 5000)

 

BO753PP1204869000

 

909006

 

 

 

 

 

 

 

 

 

$50M x $50M (4.81%)

 

17,770.69

 

 

 

17,770.69

 

(Includes CA EQ & Flood)

 

Lloyds - Talbot (TAL 1183)

 

BO753PP1204869000

 

909006

 

 

 

 

 

 

 

 

 

$50M x $50M (4.81%)

 

17,770.69

 

 

 

17,770.69

 

(Includes CA EQ & Flood)

 

Lloyds - Sagicor (SAL 1206)

 

BO753PP1204869000

 

909006

 

 

 

 

 

 

 

 

 

$50M x $50M (2.88%)

 

10,662.42

 

 

 

10,662.42

 

(Includes CA EQ & Flood)

 

Lloyds - Barbican (BAR 1955)

 

BO753PP1204869000

 

909006

 

 

 

 

 

 

 

 

 

$50M x $50M (4.81%)

 

17,770.69

 

 

 

17,770.69

 

(Includes CA EQ & Flood)

 

Lloyds - Ren Re (RNR 1458)

 

BO753PP1204869000

 

909006

 

 

 

 

 

 

 

 

 

$50M x $50M (4.81%)

 

17,770.69

 

 

 

17,770.69

 

(Includes CA EQ & Flood)

 

Lloyds - Apollo (APL 1969)

 

BO753PP1204869000

 

909006

 

 

 

 

 

 

 

 

 

$50M x $50M (4.81%)

 

17,770.69

 

 

 

17,770.69

 

(Includes CA EQ & Flood)

 

Lloyds - Flagstone (FSR 1861)

 

GEP 3037

 

909007

 

 

 

 

 

 

 

 

 

$50M x $50M (10%)

 

37,000.00

 

 

 

37,000.00

 

(Includes CA EQ to 175 & Flood)

 

Lancashire Insurance Company (UK) Ltd.

 

B0753PP1204871000

 

909009

 

 

 

 

 

 

 

 

 

$125M x $50M (12%)

 

61,200.00

 

 

 

61,200.00

 

(AOP incl Flood and EQ except excl Flood Zone A)

 

Lloyds - ACE (AGM 2488)

 

B0753PP1204870000

 

909010

 

 

 

 

 

 

 

 

 

$75M x $100M (11.75%)

 

22,319.98

 

 

 

22,319.98

 

(AOP incl Flood and EQ except excl Flood Zone A)

 

Lloyds - AMLIN (AML 2001)

 

B0753PP1204870000

 

909010

 

 

 

 

 

 

 

 

 

$75M x $100M (5.87%)

 

11,159.99

 

 

 

11,159.99

 

(AOP incl Flood and EQ except excl Flood Zone A)

 

Lloyds - Torus (TUL 1301)

 

B0753PP1204870000

 

909010

 

 

 

 

 

 

 

 

 

$75M x $100M (3.92%)

 

7,439.99

 

 

 

7,439.99

 

(AOP incl Flood and EQ except excl Flood Zone A)

 

Lloyds - Canoplus (CNP 4444)

 

B0753PP1204870000

 

909010

 

 

 

 

 

 

 

 

 

$75M x $100M (3.92%)

 

7,439.99

 

 

 

7,439.99

 

(AOP incl Flood and EQ except excl Flood Zone A)

 

Lloyds - Hardy (HDU 382)

 

B0753PP1204870000

 

909010

 

 

 

 

 

 

 

 

 

$75M x $100M (5.22%)

 

9,910.07

 

 

 

9,910.07

 

(AOP incl Flood and EQ except excl Flood Zone A)

 

Lloyds - Liberty (LIB 4472)

 

B0753PP1204870000

 

909010

 

 

 

 

 

 

 

 

 

$75M x $100M (3.92%)

 

7,439.99

 

 

 

7,439.99

 

(AOP incl Flood and EQ except excl Flood Zone A)

 

Lloyds - Tokio (TKG 1880)

 

B0753PP1204870000

 

909010

 

 

 

 

 

 

 

 

 

$75M x $100M (3.92%)

 

7,439.99

 

 

 

7,439.99

 

(AOP incl Flood and EQ except excl Flood Zone A)

 

Westport Insurance Corporation

 

31-3-74834

 

909002

 

 

 

 

 

 

 

 

 

$75M x $100M (12%)

 

25,800.00

 

 

 

25,800.00

 

(AOP incl Flood and EQ except excl Flood Zone A)

 

Great Lakes Reinsurance (Munich RE)

 

BO753PP1204875000

 

909012

 

 

 

 

 

 

 

 

 

$75M x $100M (20%)

 

39,600.00

 

 

 

39,600.00

 

 

 

 

 

 

 

 

 

 

 

 

 

175,000,000

 

175,000,000

 

 

 

3,132,470.66

 

22,832.00

 

3,155,302.66

 

Property Canada

 

 

 

 

 

 

 

06/01/2012 - 06/01/2013

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Includes CA EQ & Flood)

 

Allied World Assurance Co. Ltd. (AWAC)

 

POO4989/008

 

B120054001RN

 

 

 

 

 

 

 

Primary $10M

 

30%

 

33,300.00

 

1,332.00

 

34,632.00

 

(Includes CA EQ & Flood)

 

Lloyds - BRIT 2987

 

BO753PP1204865000

 

514006

 

 

 

 

 

 

 

Primary $10M

 

3%

 

2,700.00

 

98.94

 

2,798.94

 

(Includes CA EQ & Flood)

 

ACE

 

N1033306

 

512301

 

 

 

 

 

 

 

Primary $10M

 

20%

 

22,620.00

 

828.97

 

23,448.97

 

(Includes CA EQ & Flood)

 

Lloyds MSP318

 

B0753pp1204866000

 

514013

 

 

 

 

 

 

 

Primary $25M

 

5.81%

 

15,065.16

 

552.10

 

15,617.26

 

(Includes CA EQ & Flood)

 

Lloyds - Brit 2987

 

B0753pp1204866000

 

514013

 

 

 

 

 

 

 

Primary $25M

 

3.10%

 

 

 

0.00

 

0.00

 

(Includes CA EQ & Flood)

 

Lloyds - AFB (623/2623)

 

B0753pp1204866000

 

514013

 

 

 

 

 

 

 

Primary $25M

 

3.10%

 

 

 

0.00

 

0.00

 

(Includes CA EQ & Flood)

 

Lexington Insurance Company

 

20418474

 

514770

 

 

 

 

 

 

 

Primary $50M

 

35%

 

58,800.00

 

2,812.01

 

61,612.01

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

100%

 

132,485.16

 

5,624.02

 

138,109.18

 

Workers’ Comp.

 

Safety National

 

LDS 4044102

 

Monthly Invoices

 

06/01/2012 - 06/01/2013

 

250K/250K/1.25M Corridor

 

Statutory

 

Statutory

 

Coverage A

 

799,659.00

 

392,857.00

 

1,192,516.00

 

 

 

Safety National

 

PS 4044105

 

 

 

 

 

 

 

1,000,000

 

1,000,000

 

Coverage B

 

9,047.00

 

0.00

 

9,047.00

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

No covg. for ND, OH, WA, WV

 

0.00

 

0.00

 

0.00

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

808,706.00

 

392,857.00

 

1,201,563.00

 

Insurance Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6,065,281.59

 

444,967.56

 

6,510,249.15

 

Broker Fees - Lockton

 

4 installments - Jun, Sep, Dec & Mar

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

350,000.00

 

0.00

 

350,000.00

 

D&O Broker Fee - Lockton

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

75,000.00

 

0.00

 

75,000.00

 

Broker Fees - JLT

 

 

 

 

 

HC000799

 

 

 

 

 

 

 

 

 

 

 

4,567.00

 

182.68

 

4,749.68

 

Broker Fees - BFL Canada

 

 

 

 

 

512300

 

 

 

 

 

 

 

 

 

 

 

9,500.00

 

760.00

 

10,260.00

 

Fees Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

439,067.00

 

942.68

 

440,009.68

 

Gallagher Bassett Claim Handling

 

12 Installments - June through May

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

821,772.00

 

50,000.00

 

871,772.00

 

CHF Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

821,772.00

 

50,000.00

 

871,772.00

 

TOTAL

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

7,326,120.59

 

495,910.24

 

7,822,030.83

 

 

--------------------------------------------------------------------------------

 

Schedule 7.03

Existing Indebtedness

 

Letters of Credit as follows:

 

Issuing Bank

 

Beneficiary

 

Amount

 

Bank of America, N.A.

 

Lumbermens Mutual Casualty Company

 

US$

3,813,000

 

 

 

 

 

 

 

 

 

 

Arch Insurance Company

 

US$

9,217,678

 

 

 

 

 

 

 

 

 

 

Arch Insurance Company

 

US$

14,100,000

 

 

 

 

 

 

 

 

 

 

Arch Insurance Company

 

US$

6,500,000

 

 

 

 

 

 

 

 

 

 

Arrowood Indemnity Company, On

 

US$

836,000

 

 

 

 

 

 

 

 

 

 

Hartford Fire Insurance Company

 

US$

260,000

 

 

 

 

 

 

 

 

 

 

Jevco Insurance Company

 

US$

400,000

 

 

 

 

 

 

 

 

 

 

Safety National Casualty

 

US$

18,500,000

 

 

 

 

 

 

 

 

 

 

Three Harbor Realty LLC

 

US$

324,000

 

 

 

 

 

 

 

 

 

 

XL Specialty Insurance Company

 

US$

3,866,000

 

 

 

 

 

 

 

 

Bank of America, N.A.

 

Zurich American Insurance Company

 

US$

1,000,000

 

 

 

 

 

 

 

 

Wells Fargo Bank

 

Avalon Risk Management

 

US$

2,195,000

 

 

 

 

 

 

 

 

 

 

Lincoln General Insurance Company

 

US$

400,000

 

 

10

--------------------------------------------------------------------------------

 

Schedule 7.04

Existing Liens

 

See attached.

 

11

--------------------------------------------------------------------------------

 

Schedule 7.04 (Existing Liens)

 

 

 

 

 

 

 

 

 

Secured Party

 

 

 

 

Name

 

Jurisdiction

 

Filing Reference #

 

Filing Date

 

(of Record)

 

Description

 

Type

 

 

 

 

 

 

 

 

 

 

 

 

 

Michaels Stores, Inc.

 

DE SOS

 

43018878

 

10/26/2004

 

Crown Lift Trucks

 

Equipment Lien

 

Original

Michaels Stores, Inc.

 

DE SOS

 

91344826

 

4/29/2009

 

Crown Lift Trucks

 

Equipment Lien

 

Continuation

Michaels Stores, Inc.

 

DE SOS

 

73700100

 

10/1/2007

 

IBM Credit LLC

 

Equipment Lien

 

Original

Michaels Stores, Inc.

 

DE SOS

 

83881396

 

11/20/2008

 

Crown Credit Company

 

Equipment Lien

 

Original

Michaels Stores, Inc.

 

DE SOS

 

83881412

 

11/20/2008

 

Crown Credit Company

 

Equipment Lien

 

Original

Michaels Stores, Inc.

 

DE SOS

 

02830317

 

8/13/2010

 

United Rentals (North America), Inc.

 

Equipment Lien

 

Original

Michaels Stores, Inc.

 

DE SOS

 

21477472

 

4/17/2012

 

IBM Credit LLC

 

Equipment Lien

 

Original

Michaels Stores, Inc.

 

DE SOS

 

21952763

 

5/21/2012

 

IBM Credit LLC

 

Equipment Lien

 

Original

Michaels Stores Procurement Company, Inc.

 

DE SOS

 

21665894

 

4/30/2012

 

Dell Financial Services LLC

 

Equipment Lien

 

Original

Michaels Stores Procurement Company, Inc.

 

DE SOS

 

23286533

 

8/23/2012

 

IBM Credit LLC

 

Equipment Lien

 

Original

 

--------------------------------------------------------------------------------

 

Schedule 10.02

Administrative Agent’s Office, Certain Addresses for Notices

 

Deutsche Bank AG New York Branch

DB Services New Jersey, Inc.
5022 Gate Parkway, Suite 200, 32256 Jacksonville, USA

Fax:   732-380-3355

Attn:  Vanessa Laird (vanessa.laird@db.com)

 

With a copy to:

 

White & Case LLP

1155 Avenue of the Americas

New York, New York

Fax:  212-354-8113

Attn:  Eric Leicht (eleicht@whitecase.com)

 

Michaels Stores, Inc.

8000 Bent Branch Drive

Irving, Texas  75063

Fax:  972-409-1556

Attn:  Charles M. Sonsteby (sonstebc@michaels.com)

 

With copies to:

 

Michaels Stores, Inc.

8000 Bent Branch Drive

Irving, Texas  75063

Fax:  972-409-1556

Attn:  Thomas A. Melito (melitot@michaels.com) and Navin Rao (raon@michaels.com)

 

Bain Capital Partners, LLC

John Hancock Tower

200 Clarendon Street

Boston, Massachusetts  02116

Fax:  617-516-2010

Attn:  John Kilgallon (jkilgallon@baincapital.com) and Todd Cook
(tcook@baincapital.com)

 

Blackstone Management Associates V LLC

345 Park Avenue

New York, New York  10154

Fax:  212-583-5717

Attn:  Peter Wallace (wallace@blackstone.com) and Vikrant Sawhney
(sawhney@blackstone.com)

 

--------------------------------------------------------------------------------

 

Ropes & Gray LLP

Prudential Tower

800 Boylston Street

Boston, Massachusetts 02199

Fax:  617-951-7050

Attn:  Byung Choi, Esquire (byung.choi@ropesgray.com)

 

--------------------------------------------------------------------------------