exv4w2



 



Exhibit 4.2


EXECUTION COPY


SECURITY AGREEMENT



     SECURITY AGREEMENT (this “Agreement”) dated as of July 23, 2003 by and
among each of:



		
	 	ZALE DELAWARE, INC., a corporation organized under the laws of the State
of Delaware having a place of business at 901 W. Walnut Hill Lane,
Irving, Texas 75038-1003 (“Zale Delaware”); and




		
	 	ZALE CORPORATION, a corporation organized under the laws of the State of
Delaware having a place of business at 901 W. Walnut Hill Lane, Irving,
Texas 75038-1003 (“Zale”); and




		
	 	DDCC, INC., a corporation organized under the laws of the State of
Delaware having a place of business at 101 Convention Center Drive, Suite
850 Las Vegas, Nevada 89109 (“DDCC”); and




		
	 	TXDC, L.P., a limited partnership organized under the laws of the State
of Texas, having a place of business at 901 W. Walnut Hill Lane, Irving,
Texas 75038-1003 (“TXDC” and collectively with Zale Delaware, Zale and
DDCC, the “Grantors”, and each such Person, individually, a “Grantor”);
and




		
	 	FLEET RETAIL FINANCE INC., a Delaware corporation, as collateral agent
(in such capacity, the “Collateral Agent”) for the Secured Parties (as
defined herein), in consideration of the mutual covenants contained
herein and benefits to be derived herefrom.



WITNESSETH:



     Reference is made to the Credit Agreement of even date herewith (as such
may be amended, modified, supplemented or restated hereafter, the “Credit
Agreement”) by and among (i) the Grantors, as Borrowers (ii) the Lenders named
therein, (iii) Fleet National Bank, a national banking association, as
Administrative Agent, for itself and the Lenders, and the Issuing Bank, (iv)
Fleet Retail Finance Inc., as Collateral Agent for the Lenders, (v) Fleet
Securities, Inc., as Arranger, (vi) Bank One, NA and Congress Financial
Corporation (Southwest), as Syndication Agents, and (vii) JPMorgan Chase Bank
and Bank of America, N.A. as Documentation Agents.


     The Lenders have agreed to make Loans to the Grantors, and the Issuing
Bank has agreed to issue Letters of Credit for the account of the Grantors,
pursuant to, and upon the terms and subject to the conditions specified in, the
Credit Agreement. The obligations of the Lenders to


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make Loans and of the Issuing Bank to issue Letters of Credit are each
conditioned upon, among other things, the execution and delivery by the
Grantors of this Agreement to secure the Secured Obligations (as defined
herein).


     Accordingly, the Grantors and the Collateral Agent, on behalf of itself
and each other Secured Party (as defined herein) (and each of their respective
successors or assigns), hereby agree as follows:


ARTICLE I



Definitions



     SECTION 1.1 Definition of Terms Used Herein. Unless the context otherwise
requires, all capitalized terms used but not defined herein shall have the
meanings set forth in the Credit Agreement, and all references to the UCC shall
mean the Uniform Commercial Code as in effect from time to time in the State of
New York.


     SECTION 1.2 Definition of Certain Terms Used Herein. As used herein, the
following terms shall have the following meanings:


     “Account Debtor” shall have the meaning given that term in the UCC.


     “Accounts” shall mean all accounts, accounts receivable, receivables, and
rights to payment (whether or not earned by performance) arising out of the
sale, lease, license, assignment or other disposition of Inventory and/or
arising out of the use of a credit or charge card or information contained on
or used with that card.


     “Chattel Paper” shall have the meaning given that term in the UCC.


     “Collateral” shall mean the following assets of each Grantor: (a) all
Accounts, (b) all Inventory, (c) all Deposit and Concentration Accounts, (d)
all Documents relating to the Grantors’ Inventory, (e) all Chattel Paper
arising from the sale of the Grantors’ Inventory, (f) all Instruments, General
Intangibles, Supporting Obligations and Letter-of-Credit Rights arising from
the sale of Inventory, (g) all policies and certificates of insurance and all
insurance proceeds, refunds, and premium rebates, including, without
limitation, proceeds of fire and credit insurance, with respect to any of the
foregoing, (h) all books, records, and information relating to any of the
foregoing, and all rights of access to such books, records, and information,
(i) all liens, guaranties, rights, remedies, and privileges pertaining to any
of the foregoing ((a) through (h)), including the right of stoppage in transit,
and (j) any of the foregoing whether now owned or now due, or in which any
Grantor has an interest, or hereafter acquired, arising, or to become due, or
in which any Grantor obtains an interest, and all products, Proceeds,
substitutions, and accessions of or to any of the foregoing. Notwithstanding
the foregoing, the term “Collateral” shall expressly exclude any Inventory or
other Goods that have been delivered to any Grantor on


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a consignment basis (“Consigned Inventory”), or any Accounts, Documents,
Chattel Paper, Instruments, General Intangibles, Supporting Obligations, Letter
of Credit rights or any other assets or properties described in this
definition, to the extent that any of the foregoing relate to, or arise out of
the sale or other disposition of, any of the Consigned Inventory or Proceeds
thereof.


     “Collateral Agent’s Rights and Remedies” shall have the meaning assigned
to such term in Section 8.9(a).


     “Concentration Account” shall have the meaning assigned to such term in
the Credit Agreement.


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


     “Deposit Account” shall mean any checking or other demand deposit account
into which proceeds of Collateral are deposited.


     “Documents” shall have the meaning given that term in the UCC.


     “General Intangibles” shall have the meaning given that term in the UCC,
and shall also include, without limitation, all: Payment Intangibles; rights to
payment for credit extended; deposits; amounts due to any Grantor; credit
memoranda in favor of any Grantor, tax refunds and abatements; insurance
refunds and premium rebates; records; customer lists; telephone numbers; causes
of action; judgments; payments under any settlement or other agreement;
licenses; internet addresses and domain names; computer software programs;
trade names, trademarks, service marks, together with all goodwill connected
with and symbolized by any of the foregoing; all other general intangible
property of any Grantor in the nature of intellectual property, and any
warranty claims.


     “Goods” shall have the meaning given that term in the UCC.


     “Instruments” shall have the meaning given that term in the UCC.


     “Inventory” shall include, without limitation, “inventory” as defined in
the UCC and also all: (a) Goods which (i) are leased by a Person as lessor,
(ii) are held by a Person for sale or lease or to be furnished under a contract
of service, (iii) are furnished by a Person under a contract of service, or
(iv) consist of raw materials, work in process, or materials used or consumed
in a business; (b) Goods of said description in transit; (c) Goods of said
description which are returned, repossessed and rejected; (d) packaging and
shipping materials related to any of the foregoing; and (e) all Documents which
represent any of the foregoing. Notwithstanding the foregoing, the term
“Inventory” shall not include any Inventory located anywhere other than any
State of the United States of America or the District of Columbia.


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     “Letter of Credit Rights” shall have the meaning given that term in the
UCC.


     “Payment Intangible” shall have the meaning given that term in the UCC,
and shall also refer to any General Intangible under which the Account Debtor’s
primary obligation is a monetary obligation.


     “Perfection Certificate” shall mean a certificate substantially in the
form of Annex 1 hereto, completed and supplemented with the schedules and
attachments contemplated thereby, and duly executed by a Financial Officer of
the each of the Grantors.


     “Proceeds” shall have the meaning given that term in the UCC.


     “Secured Obligations” shall mean the Obligations as defined in the Credit
Agreement.


     “Secured Parties” shall mean (a) the Lenders, (b) the Agents and their
Affiliates, (c) the Issuing Bank, (d) the Arranger, (e) the beneficiaries of
each indemnification obligation undertaken by any Grantor under any Loan
Document, (f) any other Person to whom Secured Obligations are owed, and (g)
the successors and assigns of each of the foregoing.


     “Security Interest” shall have the meaning assigned to such term in
Section 2.1 of this Agreement.


     “Supporting Obligation” shall have the meaning given that term in the UCC.


     SECTION 1.3 Rules of Interpretation. The rules of interpretation
specified in Section 1.2 of the Credit Agreement shall be applicable to this
Agreement.


ARTICLE II



Security Interest



     SECTION 2.1 Security Interest. As security for the payment or
performance, as the case may be, in full of the Secured Obligations, each
Grantor hereby bargains, assigns, mortgages, pledges, hypothecates and
transfers 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
the Collateral (the “Security Interest”), provided, however, that the Liens
granted pursuant to this Section 2.1 shall not attach to the Collateral until
the earlier of (1) redemption of the senior notes issued pursuant to the Note
Indenture and (2) the date the Lenders make the initial Loans under the Credit
Agreement. Without limiting the foregoing, each Grantor hereby designates the
Collateral Agent as such Grantor’s true and lawful attorney,


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exercisable by the Collateral Agent whether or not an Event of Default
exists, with full power of substitution, at the Collateral Agent’s option, to
file one or more financing statements or continuation statements, or to sign
other documents for the purpose of perfecting, confirming, continuing, or
protecting the Security Interest granted by each Grantor, without the signature
of any Grantor (each Grantor hereby appointing the Collateral Agent as such
Person’s attorney to sign such Person’s name to any such document, whether or
not an Event of Default exists), and naming any Grantor or the Grantors as
debtors and the Collateral Agent as secured party, provided, that the
Collateral Agent shall have the same rights as the Grantor’s true and lawful
attorney referred to above to enforce the Security Interest granted by each
Grantor, but only if an Event of Default exists.


     SECTION 2.2 No Assumption of Liability. 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 Collateral.


ARTICLE III



Representations and Warranties



     The Grantors jointly and severally represent and warrant to the Collateral
Agent and the Secured Parties that:


     SECTION 3.1 Title and Authority. Each Grantor has good and valid rights
in, and title to, the Collateral with respect to which it has purported to
grant a Security Interest hereunder and has full power and authority to grant
to the Collateral Agent the Security Interest in such 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 which has been obtained.


     SECTION 3.2 Filings. Each Perfection Certificate has been duly prepared,
completed and executed, and the information set forth therein is correct and
complete in all material respects. Fully executed UCC financing statements or
other appropriate filings, recordings or registrations containing a description
of the Collateral have been, or will be, filed in each governmental, municipal
or other office as is necessary to publish notice and protect the validity of,
and to establish a legal, valid and perfected security interest in favor of the
Collateral Agent (for the benefit of the Secured Parties) with respect to all
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.


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     SECTION 3.3 Validity and Priority of Security Interest. The Security
Interest constitutes (a) a legal and valid security interest in all of the
Collateral securing the payment and performance of the Secured Obligations, and
(b) subject to the filings described in Section 3.2 above, a perfected security
interest in all of the Collateral, to the extent that perfection of the
Security Interest can be achieved by filings or recordings. The Security
Interest is and shall be prior to any other Lien on any of the Collateral,
subject only to those Liens expressly permitted pursuant to Section 6.2 of the
Credit Agreement.


     SECTION 3.4 Absence of Other Liens. The Collateral is owned by the
Grantors free and clear of any Lien, except for Liens expressly permitted
pursuant to Section 6.2 of the Credit Agreement. Except as provided herein and
in the Credit Agreement or disclosed in the Perfection Certificates, no Grantor
has filed or consented to the filing of (a) any financing statement or
analogous document under the UCC or any other applicable law covering any
Collateral, (b) any assignment in which any Grantor assigns any 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 (c) any assignment in which any Grantor assigns any Collateral or
any security agreement or similar instrument covering any 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 6.2 of the Credit Agreement.


     SECTION 3.5 Bailees, Warehousemen, Etc. Except as otherwise disclosed in
the Perfection Certificate, no Inventory of any Grantor is in the care or
custody of any third party or stored or entrusted with a bailee or other third
party and none shall hereafter be placed under such care, custody, storage, or
entrustment except for goods in transit.


ARTICLE IV



Covenants



     SECTION 4.1 Change of Name; Location of Collateral; Records; Place of
Business.


          (a)     Each Grantor agrees to furnish to the Collateral Agent (a) prompt
written notice of any change in (i) any Grantor’s trade name used to identify
it in the conduct of its business or in the ownership of its properties, (ii)
any office in which it maintains books or records relating to Collateral owned
by it and having a value in excess of $10,000,000 or any office or facility at
which Collateral owned by it and having a value in excess of $10,000,000 is
located (including the establishment of any such new office or facility) or
(iii) the acquisition by any Grantor of any property for which additional
filings or recordings are necessary to perfect and maintain the Collateral
Agent’s Security Interest therein, and (b) prior written notice of any



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change in (i) any Grantor’s corporate name or the location of any
Grantor’s chief executive office or its principal place of business, (ii) any
Grantor’s identity or corporate structure or (iii) any Grantor’s jurisdiction
of incorporation, Federal Taxpayer Identification Number or state
organizational number. Zale also agrees promptly to notify the Collateral
Agent if any material portion of the Collateral is damaged, destroyed, or lost,
stolen or otherwise unaccounted for. Notwithstanding the foregoing, if any
Grantor’s Federal Taxpayer Identification Number or organizational
identification number assigned to it by its state of organization is changed by
the applicable Governmental Authority, such Grantor will furnish to the
Collateral Agent prompt written notice of any such change not later than ten
(10) days from the date such Grantor has been notified by such Governmental
Authority of such change. Each Grantor agrees not to effect or permit any
change referred to in the preceding sentence unless all necessary filings have
been made under the UCC or otherwise in order for the Collateral Agent to
continue at all times following such change to have a valid, legal and
perfected first priority security interest in all of the Collateral.


          (b)     Each Grantor agrees to maintain, or cause to be maintained, at its own
cost and expense, such complete and accurate records with respect to the
Collateral owned by it as is consistent with its current practices, but in any
event to include complete accounting records indicating all payments and
proceeds received with respect to any part of the Collateral.



     SECTION 4.2 Periodic Certification. Each year, at the time of delivery
of annual financial statements with respect to the preceding fiscal year
pursuant to Section 5.1 of the Credit Agreement, each Grantor shall deliver, or
cause to be delivered, to the Collateral Agent a certificate executed by a
Financial Officer of such Grantor confirming that there has been no change in
the information contained in the Perfection Certificate since the date of the
Perfection Certificate delivered on the Closing Date or the date of the most
recent certificate delivered pursuant to this Section 4.2 or, if any such
change has occurred specifying such revised information.


     SECTION 4.3 Protection of Security. Each Grantor shall, at its own cost
and expense, take any and all actions reasonably necessary to defend title to
the Collateral against all Persons and to defend the Security Interest of the
Collateral Agent in the Collateral and the priority thereof against any Lien
not expressly permitted pursuant to Section 6.2 of the Credit Agreement.


     SECTION 4.4 Further Assurances. Each Grantor agrees, at its own expense,
to execute, acknowledge, deliver and cause to be filed all such further
instruments and documents and to take all such actions as the Collateral Agent
may from time to time reasonably request to 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 or other documents in connection
herewith or therewith. If any amount payable under or in connection with any
of the Collateral shall be or become evidenced by any promissory note


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or other instrument in an amount in excess of $5,000,000, such note or
instrument shall be immediately pledged and delivered to the Collateral Agent,
duly endorsed in a manner satisfactory to the Collateral Agent.


     SECTION 4.5 Taxes; Encumbrances. At its option during the continuance of
an Event of Default, the Collateral Agent may discharge past due taxes,
assessments, charges, fees or Liens (other than Liens permitted under the
Credit Agreement), at any time levied or placed on the Collateral, and may take
any other action which the Collateral Agent may deem necessary or desirable to
repair, maintain or preserve any of the Collateral to the extent any Grantor
fails to do so as required by the Credit Agreement or this Agreement, and each
Grantor jointly and severally agrees to reimburse the Collateral Agent on
demand for any payment made or any expense incurred by the Collateral Agent
pursuant to the foregoing authorization; provided, however, that the Collateral
Agent shall not have any obligation to undertake any of the foregoing and shall
have no liability on account of any action so undertaken except to the extent
that any liability on account of any such action resulted from the gross
negligence, bad faith, or breach of the contractual obligations of the
Collateral Agent; and provided further that the making of any such payments or
the taking of any such action by the Collateral Agent shall not be deemed to
constitute a waiver of any Default or Event of Default arising from the
Grantor’s failure to have made such payments or taken such action. Nothing in
this Section 4.6 shall be interpreted as excusing any Grantor from the
performance of 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.


     SECTION 4.6 Assignment of Security Interest.



		
	 	     (a)     If at any time any Grantor shall take a security interest in any
property of an Account Debtor or any other Person to secure payment and
performance of an Account and the property securing payment and
performance of the Account has a value in excess of $5,000,000, such
Grantor shall promptly assign such security interest to the Collateral
Agent. 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.




		
	 	     (b)     To the extent that any Grantor is a beneficiary under any
written letter of credit relating to the Collateral in an amount in
excess of $5,000,000 now or hereafter issued in favor of such Grantor,
such Grantor shall deliver such letter of credit to the Collateral Agent.
The Collateral Agent shall from time to time, at the request and expense
of such Grantor, make such arrangements with such Grantor as are in the
Collateral Agent’s reasonable judgment necessary and appropriate so that
such Grantor may make any drawing to which such Grantor is entitled under
such letter of credit, without impairment of the Collateral Agent’s
perfected security interest in such Grantor’s rights to proceeds of such
letter of credit or in the actual proceeds of such drawing. At the
Collateral Agent’s request, such Grantor shall, for any letter of credit
relating to the



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	 	Collateral in an amount in excess of $5,000,000, whether or not
written, now or hereafter issued in favor of such Grantor as beneficiary,
execute and deliver to the issuer and any confirmer of such letter of
credit an assignment of proceeds form, in favor of the Collateral Agent
and satisfactory to the Collateral Agent and such issuer or (as the case
may be) such confirmer, requiring the proceeds of any drawing under such
letter of credit to be paid directly to the Collateral Agent.




     SECTION 4.7 Continuing Obligations of the Grantors. Each Grantor shall
remain liable 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 Collateral, all in accordance with the terms and conditions
thereof, except where the failure to do so would not have a Material Adverse
Effect, 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 4.8 Limitation on Modification of Accounts. None of the Grantors
will, without the Collateral Agent’s prior written consent, grant any extension
of the time of payment of any of the Accounts, compromise, compound or settle
the same for less than the full amount thereof, release, wholly or partly, any
Person liable for the payment thereof or allow any credit or discount
whatsoever thereon, other than extensions, releases, credits, discounts,
compromises or settlements granted or made in the ordinary course of business
and consistent with its current practices.


     SECTION 4.9 Insurance. Each Grantor hereby 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), exercisable after the occurrence and during the
continuance of any Event of Default, for the purpose of making, settling and
adjusting claims in respect of 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 and for making
all determinations and decisions with respect thereto. In the event that any
Grantor at any time or times shall fail to obtain or maintain any of the
policies of insurance required hereby or to pay any premium in whole or part
relating thereto, the Collateral Agent may, without waiving or releasing any
obligation or liability of the Grantors hereunder or any Default or Event of
Default, in its sole discretion, obtain and maintain such policies of insurance
and pay such premium and take any other actions with respect thereto as the
Collateral Agent deems advisable. All sums disbursed by the Collateral Agent
in connection with this Section 4.11, including reasonable attorneys’ fees,
court costs, expenses and other charges relating thereto, shall be payable,
upon demand, by the Grantors to the Collateral Agent and shall be additional
Secured Obligations secured hereby.


     SECTION 4.10 Legend. At the request of the Collateral Agent if an Event
of Default shall occur and be continuing, each Grantor shall legend, in form
and manner satisfactory to the


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Collateral Agent, its Accounts and its books, records and documents
evidencing or pertaining thereto with an appropriate reference to the fact that
such Accounts have been assigned to the Collateral Agent for the benefit of the
Secured Parties and that the Collateral Agent has a security interest therein.


ARTICLE V



Collections



     SECTION 5.1 Collections.


          (a)      Each Grantor shall at all times comply with the Cash Receipts
provisions of Section 2.21 of the Credit Agreement including, without
limitation, after the occurrence and during the continuation of an Event of
Default or Cash Control Event, the provisions of Section 2.21(f) causing the
sweep on each Business Day of all Cash Receipts into the Fleet Concentration
Account.



          (b)      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. So long as no Event of
Default or Cash Control Event has occurred and is then continuing, each Grantor
shall have sole control over the manner of disposition of the funds in the
Accounts (except for the Fleet Concentration Account), for the benefit and on
behalf of the Collateral Agent and the other Secured Parties; provided,
however, that such privilege may, at the option of the Collateral Agent, be
terminated upon the occurrence and during the continuance of any Event of
Default or Cash Control Event in accordance with Section 2.21 of the Credit
Agreement.



     SECTION 5.2 Power of Attorney. Each Grantor hereby 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, and in such capacity the Collateral Agent shall
have the right, with power of substitution for each Grantor and in each
Grantor’s name or otherwise, for the use and benefit of the Collateral Agent
and the Secured Parties, (a) at any time, whether or not a Default or Event of
Default has occurred, to take actions required to be taken by the Grantors
under Section 2.1 of this Agreement, (b) upon the occurrence and during the
continuance of an Event of Default or Cash Control Event or as otherwise
permitted under the Credit Agreement, (i) to take actions required to be taken
by the Grantors under Section 5.1 of this Agreement, (ii) 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; (iii) to demand, collect, receive payment of, give receipt for and
give discharges and releases of all or any of the Collateral; and (c) upon the
occurrence and during the continuance of an Event of Default or as otherwise
permitted in the Credit Agreement (i) to sign the name of any Grantor on any
invoices, schedules of Collateral, freight or express


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receipts, or bills of lading storage receipts, warehouse receipts or other
documents of title relating to any of the Collateral; (ii) to sign the name of
any Grantor on any notice to such Grantor’s Account Debtors; (iii) to sign the
name of any Grantor on any proof of claim in bankruptcy against Account
Debtors; (iv) to the extent relating to the Collateral, to sign change of
address forms to change the address to which each Grantor’s mail is to be sent
to such address as the Collateral Agent shall designate; (v) to receive and
open each Grantor’s mail, remove any Proceeds of Collateral therefrom and turn
over the balance of such mail either to any of the Grantors or to any trustee
in bankruptcy or receiver of a Grantor, or other legal representative of a
Grantor whom the Collateral Agent determines to be the appropriate person to
whom to so turn over such mail; (vi) 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; (vii) to settle,
compromise, compound, adjust or defend any actions, suits or proceedings
relating to all or any of the Collateral; (viii) to take all such action as may
be necessary to obtain the payment of any letter of credit and/or banker’s
acceptance of which any Grantor is a beneficiary to the extent relating to
Collateral; (ix) to repair, manufacture, assemble, complete, package, deliver,
alter or supply goods, if any, necessary to fulfill in whole or in part the
purchase order of any customer of any Grantor; (x) to use for the purposes
permitted by Section 6.1 hereof, any or all General Intangibles of any Grantor
relating to the Collateral, provided that the Collateral Agent’s use of such
General Intangibles will comply with all applicable law; and (xi) 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, however, that nothing herein contained shall be
construed as requiring or obligating the Collateral Agent or any other Secured
Party to make any commitment or to make any inquiry as to the nature or
sufficiency of any payment received by the Collateral Agent or any other
Secured Party, or to present or file any claim or notice. It is understood and
agreed that the appointment of the Collateral Agent as the agent and
attorney-in-fact of the Grantors for the purposes set forth above is coupled
with an interest and is irrevocable.


     SECTION 5.3 No Obligation to Act. The Collateral Agent shall not be
obligated to do any of the acts or to exercise any of the powers authorized by
Section 5.2, but if the Collateral Agent elects to do any such act or to
exercise any of such powers, it shall not be accountable for more than it
actually receives as a result of such exercise of power, and shall not be
responsible to any Grantor for any act or omission to act except for any act or
omission to act which constitutes gross negligence, bad faith, or breach of the
contractual obligations of the Collateral Agent. The provisions of Section 5.2
shall in no event relieve any Grantor of any of its obligations hereunder or
under any other Loan Document with respect to the Collateral or any part
thereof or impose any obligation on the Collateral Agent or any other Secured
Party to proceed in any particular manner with respect to the Collateral or any
part thereof, or in any way limit the exercise by the Collateral Agent or any
other Secured Party of any other or further right


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which it may have on the date of this Agreement or hereafter, whether
hereunder, under any other Loan Document, by law or otherwise.


ARTICLE VI



Remedies



     SECTION 6.1 Remedies upon Default. Upon the occurrence and during the
continuance of an Event of Default, it is agreed that the Collateral Agent
shall have in any jurisdiction in which enforcement hereof is sought, in
addition to all other rights and remedies, the rights and remedies of a secured
party under the UCC or other applicable law. The rights and remedies of the
Collateral Agent shall include, without limitation, the right to take any of or
all the following actions at the same or different times upon the occurrence
and during the continuance of an Event of Default:



		
	 	     (a)      With respect to any Collateral consisting of Accounts, General
Intangibles, (including Payment Intangibles), Letter-of-Credit Rights,
Chattel Paper, Instruments and Documents, the Collateral Agent may
collect the Collateral with or without the taking of possession of any of
the Collateral.




		
	 	     (b)      With respect to any Collateral consisting of Inventory, 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. Each purchaser at any such going out of business sale
shall hold the property sold absolutely, free from any claim or right on
the part of any Grantor.




		
	 	     (c)      With or without legal process and with or without prior notice
or demand for performance, the Collateral Agent may enter upon, occupy,
and use any premises owned or occupied by each Grantor, and may exclude
the Grantors from such premises or portion thereof as may have been so
entered upon, occupied, or used by the Collateral Agent. The Collateral
Agent shall not be required to remove any of the Collateral from any such
premises upon the Collateral Agent’s taking possession thereof, and may
render any Collateral unusable to the Grantors. In no event shall the
Collateral Agent be liable to any Grantor for use or occupancy by the
Collateral Agent of any premises pursuant to this Section 6.1, nor for
any charge (such as wages for the Grantors’ employees and



12






 







		
	 	utilities) incurred in connection with the Collateral Agent’s
exercise of the Collateral Agent’s Rights and Remedies (as defined
herein) hereunder.




		
	 	     (d)      The Collateral Agent may require any Grantor to assemble the
Collateral and make it available to the Collateral Agent at the Grantor’s
sole risk and expense at a place or places which are reasonably
convenient to both the Collateral Agent and such Grantor.




		
	 	     (e)      Each Grantor agrees that the Collateral Agent shall have the
right, subject to applicable law, to sell or otherwise dispose of all or
any part of the Collateral, at public or private sale, for cash, upon
credit or for future delivery as the Collateral Agent shall deem
appropriate. Each purchaser at any such sale shall hold the property
sold absolutely, free from any claim or right on the part of any Grantor.




		
	 	     (f)      Unless the Collateral is perishable or threatens to decline
speedily in value, or is of a type customarily sold on a recognized
market (in which event the Collateral Agent shall provide the Grantors
such notice as may be practicable under the circumstances), the
Collateral Agent shall give the Grantors at least ten (10) days’ prior
written notice, by authenticated record, of the date, time and place of
any proposed public sale, and of the date after which any private sale or
other disposition of the Collateral may be made. Each Grantor agrees
that such written notice shall satisfy all requirements for notice to
that Grantor which are imposed under the UCC or other applicable law with
respect to the exercise of the Collateral Agent’s rights and remedies
upon default. The Collateral Agent shall not be obligated to make any
sale or other disposition of any Collateral if it shall determine not to
do so, regardless of the fact that notice of sale or other disposition 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.




		
	 	     (g)      Any 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 of such sale. At any sale or other
disposition, 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. If any of the
Collateral is sold, leased, or otherwise disposed of by the Collateral
Agent on credit, the Secured Obligations shall not be deemed to have been
reduced as a result thereof unless and until payment is finally received
thereon by the Collateral Agent.




		
	 	     (h)      At any public (or, to the extent permitted by applicable law,
private) sale made pursuant to this Section 6.1, the Collateral Agent or
any other Secured Party may bid for or purchase, free (to the extent
permitted by applicable law) from any right of



13






 







		
	 	redemption, stay, valuation or appraisal on the part of any Grantor,
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 the
Collateral Agent or such other Secured Party from any Grantor on account
of the Secured Obligations as a credit against the purchase price, and
the Collateral Agent or such other Secured Party may, upon compliance
with the terms of sale, hold, retain and dispose of such property without
further accountability to any Grantor therefor.




		
	 	     (i)      For purposes hereof, 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.




		
	 	     (j)      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 upon the Collateral 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.




		
	 	     (k)      To the extent permitted by applicable law, each Grantor hereby
waives all rights of redemption, stay, valuation 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.



     SECTION 6.2 Grant of Non-Exclusive License. For the purpose of enabling
the Collateral Agent to exercise the Collateral Agent’s Rights and Remedies
under Section 6.1 (including, without limitation, in order to take possession
of, hold, preserve, process, assemble, prepare for sale, market for sale, sell
or otherwise dispose of the Collateral) at such time as the Collateral Agent
shall be lawfully entitled to exercise the Collateral Agent’s Rights and
Remedies under Section 6.1, each Grantor hereby (i) grants to the Collateral
Agent, for the benefit of the Collateral Agent and the other Secured Parties, a
royalty free, non-exclusive, irrevocable license, such license being with
respect to the Collateral Agent’s exercise of the Collateral Agent’s Rights and
Remedies under Section 6.1 including, without limitation, in connection with
any completion of the manufacture of Inventory or any sale or other disposition
of Inventory (a) to use, apply, and affix any trademark, trade name, logo, or
the like in which any Grantor now or hereafter has rights, (b) to use, license
or sublicense any intellectual property, computer software now owned, held or
hereafter acquired by such Grantor, including in such license access to all
media such and to the extent to which any of the licensed items may be recorded
or stored and to all computer software programs such and to the extent used for
the compilation or print out thereof, provided that the Collateral Agent’s use
of the property described in subclauses (a) and (b) above will comply with all
applicable law, and (c) to use any


14






 


and all furniture, fixtures and equipment contained in any premises owned
or occupied by any Grantor in connection with the exercise of the Collateral
Agent’s Rights and Remedies under Section 6.1, and (ii) without limiting the
provisions of Section 6.1(c), above, agrees to provide the Collateral Agent
and/or its agents with access to, and the right to use, any such premises owned
or occupied by any Grantor.


     SECTION 6.3 Application of Proceeds. After the occurrence of an Event of
Default and acceleration of the Secured Obligations, the Collateral Agent shall
apply the proceeds of any collection or sale of the Collateral, as well as any
Collateral consisting of cash, or any Collateral granted under any other of the
Security Documents in the manner set forth in Section 7.4 of the Credit
Agreement.


ARTICLE VII



Perfection of Security Interest



     SECTION 7.1 Perfection by Filing. This Agreement constitutes an
authenticated record, and each Grantor hereby authorizes the Collateral Agent,
pursuant to the provisions of Sections 2.1 and 5.2, to file one or more
financing or continuation statements, and amendments thereto, relative to all
or any part of the Collateral, in such filing offices as the Collateral Agent
shall deem appropriate, and the Grantors shall pay the Collateral Agent’s
reasonable costs and expenses incurred in connection therewith. Each Grantor
hereby further agrees that a carbon, photographic, or other reproduction of
this Agreement shall be sufficient as a financing statement and may be filed as
a financing statement in any and all jurisdictions.


     SECTION 7.2 Other Perfection, etc. The Grantors shall at any time and
from time to time take such steps as the Collateral Agent may reasonably
request for the Collateral Agent (a) to obtain an acknowledgment, in form and
substance reasonably satisfactory to the Collateral Agent, of any bailee having
possession of any of the Collateral that the bailee holds such Collateral for
the Collateral Agent, (b) to obtain “control” of any Deposit Accounts and
Concentration Accounts, Letter-of-Credit Rights, or electronic Chattel Paper,
with any agreements establishing control to be in form and substance
satisfactory to the Collateral Agent, and (c) otherwise to insure the continued
perfection of the Collateral Agent’s security interest in any of the Collateral
with the priority described in Section 3.3 and of the preservation of its
rights therein.


     SECTION 7.3 Savings Clause. Nothing contained in this Article VII shall be
construed to narrow the scope of the Collateral Agent’s Security Interest in
any of the Collateral or the perfection or priority thereof or to impair or
otherwise limit any of the Collateral Agent’s Rights and Remedies hereunder
except (and then only to the extent) as mandated by the UCC.


15






 


ARTICLE VIII



Miscellaneous



     SECTION 8.1 Notices. All communications and notices hereunder shall
(except as otherwise expressly permitted herein) be in writing and given as
provided in Section 9.1 of the Credit Agreement.


     SECTION 8.2 Security Interest Absolute. All rights of the Collateral
Agent hereunder, the Security Interest and all obligations of the Grantors
hereunder shall be absolute and unconditional irrespective of (a) any lack of
validity or enforceability of the Credit Agreement, any other Loan Document,
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, or any other
agreement or instrument, (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) 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 8.3 Suretyship Waivers by Grantors. The Grantors waive demand,
notice, protest, notice of acceptance of this Agreement, notice of loans made,
credit extended, Collateral received or delivered or other action taken in
reliance hereon and all other demands and notices of any description. With
respect to both the Secured Obligations and the Collateral, each Grantor
assents to any extension or postponement of the time of payment or any other
indulgence, to any substitution, exchange or release of or failure to perfect
any security interest in any Collateral, to the addition or release of any
party or person primarily or secondarily liable, to the acceptance of partial
payment thereon and the settlement, compromising or adjusting of any thereof,
all in such manner and at such time or times as the Collateral Agent may deem
advisable. The Collateral Agent shall have no duty as to the collection or
protection of the Collateral or any income therefrom, the preservation of
rights against prior parties, or the preservation of any rights pertaining
thereto. Each of the Grantors further waives any and all other suretyship
defenses.


     SECTION 8.4 Marshalling. Neither the Collateral Agent nor any Lender
shall be required to marshal any present or future collateral security
(including but not limited to the Collateral) for, or other assurances of
payment of, the Secured Obligations or any of them or to resort to such
collateral security or other assurances of payment in any particular order, and
all of the rights and remedies of the Collateral Agent or any Lender hereunder
and of the Collateral Agent or any Lender in respect of such collateral
security and other assurances of payment shall be cumulative and in addition to
all other rights and remedies, however existing or arising. To


16






 


the extent that it lawfully may, each Guarantor hereby agrees that it will
not invoke any law relating to the marshalling of collateral which might cause
delay in or impede the enforcement of the Collateral Agent’s Rights and
Remedies under this Agreement or under any other instrument creating or
evidencing any of the Secured Obligations or under which any of the Secured
Obligations is outstanding or by which any of the Secured Obligations is
secured or payment thereof is otherwise assured, and, to the extent that it
lawfully may, each Grantor hereby irrevocably waives the benefits of all such
laws.


     SECTION 8.5 Survival of Agreement. All covenants, agreements,
representations and warranties made by the Grantors herein 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 Collateral Agent and the other Secured Parties and
shall survive the execution and delivery of this Agreement and the other Loan
Documents and the making of any Loans and the issuance of any Letters of
Credit, and shall continue in full force and effect as long as the Secured
Obligations are outstanding and unpaid or the Letter of Credit Outstandings do
not equal zero, or are not fully cash collateralized in a manner satisfactory
to the Issuing Bank and the Administrative Agent, and as long as the
Commitments have not expired or terminated.


     SECTION 8.6 Binding Effect; Several Agreement; Assignments. Whenever in
this Agreement any of the parties hereto is referred to, such reference shall
be deemed to include the successors and assigns of such party (subject to the
provisions of the Credit Agreement), and all covenants, promises and agreements
by or on behalf of the Grantors that are contained in this Agreement shall bind
and inure to the benefit of each Grantor and its respective successors and
assigns. This Agreement shall be binding upon each Grantor and the Collateral
Agent and their respective successors and assigns, and shall inure to the
benefit of each Grantor, the Collateral Agent and the other Secured Parties and
their respective successors and assigns, except that no Grantor shall have the
right to assign or transfer its rights or obligations hereunder or any interest
herein or in the Collateral (and any such attempted assignment or transfer
shall be void) except as expressly permitted by this Agreement or the Credit
Agreement. This Agreement shall be construed as a separate agreement with
respect to each Grantor and may be amended, modified, supplemented, waived or
released with respect to any Grantor without the approval of any other Grantor
and without affecting the obligations of any other Grantor hereunder.


     SECTION 8.7 Collateral Agent’s Fees and Expenses; Indemnification.


               (a)      Without limiting any of their obligations under the Credit Agreement
or the other Loan Documents, the Grantors jointly and severally agree to pay
all reasonable out-of-pocket expenses reasonably incurred by the Collateral
Agent, including the reasonable and documented fees, charges and disbursements
of any counsel and any outside consultants for the Collateral Agent, in
connection with (i) the administration of this Agreement, (ii) the custody or
preservation of, or the sale of, collection from or other realization upon any
of the Collateral, (iii) the exercise, enforcement or protection of any of the Collateral
Agent’s Rights and



17






 





Remedies hereunder or (iv) the failure of any Grantor to perform or
observe any of the provisions hereof.


               (b)      Without limiting any of their indemnification obligations under the
Credit Agreement or the other Loan Documents, the Grantors shall jointly and
severally agree to indemnify each Secured Party and their respective Affiliates
(each such Person being called an “Indemnitee”), and hold each Indemnitee
harmless from, any and all losses, claims, damages, liabilities and related
expenses, including the reasonable and documented 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,
(i) the execution or delivery or performance of this Agreement or any other
Loan Document, the performance by any Grantor of its obligations under this
Agreement or any other Loan Document, or the consummation of the transactions
contemplated by the Loan Documents or any other transactions contemplated
hereby, or (ii) any actual or prospective claim, litigation, investigation or
proceeding relating to any of the foregoing or to the Collateral, whether based
on contract, tort or any other theory and regardless of whether 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 resulted from the gross negligence, willful
misconduct, bad faith, or breach of the contractual obligations of such
Indemnitee or any Affiliate of such Indemnitee (or of any officer, director,
employee, advisor or agent of such Indemnitee or any such Indemnitee’s
Affiliates) or with respect to a claim by one Indemnified Party against another
Indemnified Party.



               (c)      Any such amounts payable as provided hereunder shall be additional
Secured Obligations secured hereby and by the other Security Documents. All
amounts due under this Section 8.7 shall be payable on written demand therefor.



     SECTION 8.8 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK INCLUDING,
WITHOUT LIMITATION, SECTIONS 5-1401 AND 5-1402 OF THE NEW YORK GENERAL
OBLIGATIONS LAW.


     SECTION 8.9 Waivers; Amendment.


               (a)      The rights, remedies, powers, privileges, and discretions of the
Collateral Agent hereunder (herein, the “Collateral Agent’s Rights and
Remedies”) shall be cumulative and not exclusive of any rights or remedies
which it would otherwise have. No delay or omission by the Collateral Agent in
exercising or enforcing any of the Collateral Agent’s Rights and Remedies shall
operate as, or constitute, a waiver thereof. No waiver by the Collateral Agent
of any Event of Default or of any Default under any other agreement shall
operate as a waiver of any other Event of Default or other Default hereunder or
under any other agreement. No single or partial exercise of any of the
Collateral Agent’s Rights or Remedies, and no express or implied agreement or
transaction of whatever nature entered into between the Collateral Agent



18






 





and any Person, at any time, shall
preclude the other or further exercise of and
Collateral Agent’s Rights and Remedies. No waiver by the Collateral Agent of
any of the Collateral Agent’s Rights and Remedies on any one occasion shall be
deemed a waiver on any subsequent occasion, nor shall it be deemed a continuing
waiver. The Collateral Agent’s Rights and Remedies may be exercised at such
time or times and in such order of preference as the Collateral Agent may
determine. The Collateral Agent’s Rights and Remedies may be exercised without
resort or regard to any other source of satisfaction of the Secured
Obligations. No waiver of any provisions of this Agreement or any other Loan
Document or consent to any departure by any Grantor therefrom shall in any
event be effective unless the same shall be permitted by paragraph (b) below,
and then such waiver or consent shall be effective only in the specific
instance and for the purpose for which given. No notice to or demand on any
Grantor in any case shall entitle such Grantor or any other Grantor 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 a written agreement entered into between the
Collateral Agent and the Grantor or Grantors with respect to whom such waiver,
amendment or modification is to apply, subject to any consent required in
accordance with Section 9.2 of the Credit Agreement.



     SECTION 8.10 WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO
THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A
TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR
RELATING TO THIS AGREEMENT, ANY OTHER LOAN DOCUMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY).
EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF
ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY
WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND
(B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO
ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND
CERTIFICATIONS SET FORTH IN THIS SECTION 8.10.


     SECTION 8.11 Severability. In the event any one or more of the provisions
contained in this Agreement should be held invalid, illegal or unenforceable in
any respect, the validity, legality and enforceability of the remaining
provisions contained herein 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).


     SECTION 8.12 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall constitute an original but all of which, when
taken together, shall constitute a single contract. Delivery of an executed
counterpart of a signature page to this


19






 


Agreement by facsimile transmission shall be effective as delivery of a
manually executed counterpart hereof.


     SECTION 8.13 Headings. Article and Section headings used herein are for
the purpose 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 8.14 Jurisdiction; Consent to Service of Process.



		
	 	     (a)      Each Grantor agrees that any suit for the enforcement of this
Agreement or any other Loan Document may be brought in the courts of the
State of New York or any federal court sitting therein and consent to the
non-exclusive jurisdiction of such courts. Each Grantor hereby waives
any objection which it may now or hereafter have to the venue of any such
suit or any such court or that such suit is brought in an inconvenient
forum.




		
	 	     (b)      Each party to this Agreement irrevocably consents to service of
process in the manner provided for notices in Section 8.1. Nothing in
this Agreement or any other Loan Document will affect the right of any
party to this Agreement to serve process in any other manner permitted by
law.



     SECTION 8.15 Termination; Release of Collateral. Except for those
provisions which expressly survive the termination thereof, the Credit
Agreement, this Agreement and the Security Interest shall terminate when all
the Secured Obligations have been paid in full, the Lenders have no further
commitment to lend, the Letter of Credit Outstandings have been reduced to zero
or fully cash collateralized in a manner reasonably satisfactory to the Issuing
Bank and the Administrative Agent, and the Issuing Bank has no further
obligation to issue Letters of Credit under the Credit Agreement, and any Other
Liabilities have been fully cash collateralized in a manner reasonably
satisfactory to the respective Lender to whom such Other Liabilities are owed,
at which time the Collateral Agent shall execute and deliver to the Grantors,
at the Grantors’ expense, all UCC termination statements and similar documents
that the Grantors shall reasonably request to evidence such termination. Any
execution and delivery of termination statements or documents pursuant to this
Section 8.15 shall be without recourse to, or warranty by, the Collateral
Agent.


[SIGNATURE PAGES FOLLOW]



20






 




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



	 	 	 	 	 
	GRANTORS:	 	
ZALE DELAWARE, INC.
	 	 	 	 	 
	 	 	
By: 	 	/s/ Mark R. Lenz
	 	 	 	 	

	 	 	
Name: Mark R. Lenz
	 	 	
Title:   Group Senior Vice President & Chief
	 	 	 	 	
    Financial Officer
	 	 	 
	 	 	
ZALE CORPORATION
	 	 	 
	 	 	
By:	 	/s/ Mark R. Lenz
	 	 	 	 	

	 	 	
Name: Mark R. Lenz
	 	 	
Title:   Group Senior Vice President & Chief
	 	 	 	 	
    Financial Officer
	 	 	 
	 	 	
DDCC, Inc.
	 	 	 
	 	 	
By: 	 	/s/ Mark R. Lenz
	 	 	 	 	

	 	 	
Name: Mark R. Lenz
	 	 	
Title:   Group Service Vice President & Chief
	 	 	 	 	
    Financial Officer
	 	 	 	 
	 	 	
TXDC, L.P.
	 	 	 
	 	 	
By: ZALE DELAWARE, INC.
	 	 	 	 	
Its General Partner
	 	 	 
	 	 	
By:	 	/s/ Mark R. Lenz
	 	 	 	 	

	 	 	
Name: Mark R. Lenz
	 	 	
Title:   Group Senior Vice President & Chief
	 	 	 	 	
    Financial Officer



 






 




	 	 	 	 	 
	COLLATERAL AGENT:	 	
FLEET RETAIL FINANCE, INC.
	 
	 	 	
By:	 	/s/ Betsy Ratto
	 	 	 	 	

	 	 	
Name: Betsy Ratto
	 	 	
Title:   Managing Director



 






 



Annex 1 to the

Security Agreement


Form of Perfection Certificate