Exhibit
10.5


 


AMENDED AND
RESTATED CREDIT AGREEMENT


 


dated as of

May 10, 2010


 


among


 


ZALE DELAWARE, INC.,

ZALE CORPORATION,

ZGCO, LLC.,

TXDC, L.P.,

ZALE PUERTO RICO, INC.


 


as 

Borrowers


 


ZALE CANADA CO.

and the other Facility Guarantors named herein


 


as Facility Guarantors


 


The LENDERS Party Hereto,


 


BANK OF AMERICA, N.A.

as Administrative Agent and Collateral Agent,


 


BANK OF AMERICA, N.A. 

WELLS FARGO RETAIL FINANCE, LLC

GENERAL ELECTRIC CAPITAL CORPORATION

as Co-Borrowing Base Agents


 


BANC OF AMERICA SECURITIES
LLC

WELLS FARGO RETAIL FINANCE, LLC

GE CAPITAL MARKETS, INC.

as Joint Lead Arrangers and Joint Bookrunners


 


and


 


WELLS FARGO RETAIL
FINANCE, LLC

GE CAPITAL MARKETS, INC.

as Co-Syndication Agents


 





















 


TABLE
OF CONTENTS


 


	
   

  	
   

  	
  Page

  
	
   

  	
   

  
	
  ARTICLE
  I DEFINITIONS

  	
  3

  
	
   

  	
   

  	
   

  
	
  SECTION 1.1

  	
  Defined Terms

  	
  3

  
	
  SECTION 1.2

  	
  Terms Generally

  	
  35

  
	
   

  	
   

  
	
  ARTICLE
  II AMOUNT AND TERMS OF CREDIT

  	
  36

  
	
   

  	
   

  
	
  SECTION 2.1

  	
  Commitment
  of the Lenders

  	
  36

  
	
  SECTION 2.2

  	
  Reserves;
  Changes to Reserves

  	
  36

  
	
  SECTION 2.3

  	
  Making
  of Loans

  	
  37

  
	
  SECTION 2.4

  	
  Overadvances

  	
  38

  
	
  SECTION 2.5

  	
  Swingline
  Loans

  	
  38

  
	
  SECTION 2.6

  	
  Letters
  of Credit

  	
  39

  
	
  SECTION 2.7

  	
  Settlements
  Amongst Lenders

  	
  43

  
	
  SECTION 2.8

  	
  Notes;
  Repayment of Loans

  	
  44

  
	
  SECTION 2.9

  	
  Interest
  on Loans

  	
  45

  
	
  SECTION 2.10

  	
  Default
  Interest

  	
  46

  
	
  SECTION 2.11

  	
  Certain
  Fees

  	
  46

  
	
  SECTION 2.12

  	
  Unused
  Commitment Fee

  	
  46

  
	
  SECTION 2.13

  	
  Letter
  of Credit Fees

  	
  46

  
	
  SECTION 2.14

  	
  Nature
  of Fees

  	
  47

  
	
  SECTION 2.15

  	
  Termination
  or Reduction of Commitments

  	
  47

  
	
  SECTION 2.16

  	
  Alternate
  Rate of Interest

  	
  48

  
	
  SECTION 2.17

  	
  Conversion
  and Continuation of Loans

  	
  48

  
	
  SECTION 2.18

  	
  Mandatory
  Prepayment; Cash Collateral

  	
  49

  
	
  SECTION 2.19

  	
  Optional
  Prepayment of Loans; Reimbursement of Lenders

  	
  51

  
	
  SECTION 2.20

  	
  Maintenance
  of Loan Account; Statements of Account

  	
  52

  
	
  SECTION 2.21

  	
  Cash
  Receipts

  	
  53

  
	
  SECTION 2.22

  	
  Application
  of Payments

  	
  55

  
	
  SECTION 2.23

  	
  Increased
  Costs

  	
  55

  
	
  SECTION 2.24

  	
  Change
  in Legality

  	
  57

  
	
  SECTION 2.25

  	
  Payments;
  Sharing of Setoff

  	
  58

  
	
  SECTION 2.26

  	
  Taxes

  	
  59

  
	
  SECTION 2.27

  	
  Security
  Interests in Collateral

  	
  61

  
	
  SECTION 2.28

  	
  Mitigation
  Obligations; Replacement of Lenders

  	
  62

  
	
  SECTION 2.29

  	
  Increase
  in Revolving Credit Facility

  	
  63

  
	
  SECTION 2.30

  	
  Canadian
  Loan Parties

  	
  64

  
	
   

  	
   

  	
   

  
	
  ARTICLE
  III REPRESENTATIONS AND WARRANTIES

  	
  65

  
	
   

  	
   

  	
   

  
	
  SECTION 3.1

  	
  Organization;
  Powers

  	
  65

  
	
  SECTION 3.2

  	
  Authorization;
  Enforceability

  	
  65

  
	
  SECTION 3.3

  	
  Governmental
  Approvals; No Conflicts

  	
  65

  
	
  SECTION 3.4

  	
  Financial
  Condition

  	
  65

  
	
  SECTION 3.5

  	
  Properties

  	
  66

  



 


ii





















 


TABLE OF CONTENTS

(Continued)


 


	
  SECTION 3.6

  	
  Litigation and Environmental Matters

  	
  66

  
	
  SECTION 3.7

  	
  Compliance with Laws and Agreements

  	
  67

  
	
  SECTION 3.8

  	
  Investment Company Status

  	
  67

  
	
  SECTION 3.9

  	
  Taxes

  	
  67

  
	
  SECTION 3.10

  	
  ERISA; No Canadian Plans

  	
  67

  
	
  SECTION 3.11

  	
  Disclosure

  	
  69

  
	
  SECTION 3.12

  	
  Subsidiaries

  	
  70

  
	
  SECTION 3.13

  	
  Insurance

  	
  70

  
	
  SECTION 3.14

  	
  Accounts; Credit Cards

  	
  70

  
	
  SECTION 3.15

  	
  Labor Matters

  	
  70

  
	
  SECTION 3.16

  	
  Security Documents

  	
  70

  
	
  SECTION 3.17

  	
  Federal Reserve Regulations

  	
  71

  
	
  SECTION 3.18

  	
  Solvency

  	
  71

  
	
  SECTION 3.19

  	
  Foreign Assets Control Regulations,
  Etc.

  	
  71

  
	
  SECTION 3.20

  	
  Excluded Subsidiaries

  	
  71

  
	
  SECTION 3.21

  	
  ZC Partnership

  	
  71

  
	
   

  	
   

  
	
  ARTICLE IV CONDITIONS

  	
  72

  
	
   

  	
   

  
	
  SECTION 4.1

  	
  Effective Date

  	
  72

  
	
  SECTION 4.2

  	
  Conditions Precedent to Each Loan and Each Letter of Credit

  	
  74

  
	
   

  	
   

  
	
  ARTICLE V AFFIRMATIVE COVENANTS

  	
  75

  
	
   

  	
   

  
	
  SECTION 5.1

  	
  Financial Statements and Other Information

  	
  75

  
	
  SECTION 5.2

  	
  Notices of Material Events

  	
  77

  
	
  SECTION 5.3

  	
  Information Regarding Collateral

  	
  78

  
	
  SECTION 5.4

  	
  Existence; Conduct of Business

  	
  78

  
	
  SECTION 5.5

  	
  Payment of Obligations

  	
  79

  
	
  SECTION 5.6

  	
  Maintenance of Properties

  	
  79

  
	
  SECTION 5.7

  	
  Insurance

  	
  79

  
	
  SECTION 5.8

  	
  Casualty and Condemnation

  	
  80

  
	
  SECTION 5.9

  	
  Books and Records; Inspection and Audit Rights; Appraisals;
  Consultants for the Agents and Lenders

  	
  80

  
	
  SECTION 5.10

  	
  Compliance with Laws

  	
  82

  
	
  SECTION 5.11

  	
  Employee Benefit Plans

  	
  82

  
	
  SECTION 5.12

  	
  Use of Proceeds and Letters of Credit

  	
  82

  
	
  SECTION 5.13

  	
  New Subsidiaries

  	
  82

  
	
  SECTION 5.14

  	
  Further Assurances

  	
  82

  
	
  SECTION 5.15

  	
  Private Label Credit Cards

  	
  83

  
	
   

  	
   

  
	
  ARTICLE VI NEGATIVE COVENANTS

  	
  83

  
	
   

  	
   

  
	
  SECTION 6.1

  	
  Indebtedness and Other Obligations

  	
  83

  
	
  SECTION 6.2

  	
  Liens

  	
  84

  
	
  SECTION 6.3

  	
  Fundamental Changes

  	
  86

  
	
  SECTION 6.4

  	
  Investments, Loans, Advances, Guarantees and Acquisitions

  	
  86

  
	
  SECTION 6.5

  	
  Asset Sales

  	
  89

  



 


iii





















 


TABLE OF CONTENTS

(Continued)


 


	
  SECTION 6.6

  	
  Restricted Payments; Certain Payments of Indebtedness

  	
  90

  
	
  SECTION 6.7

  	
  Transactions with Affiliates

  	
  91

  
	
  SECTION 6.8

  	
  Financial Covenants

  	
  91

  
	
  SECTION 6.9

  	
  Hedging Agreement

  	
  92

  
	
  SECTION 6.10

  	
  Excluded Subsidiaries

  	
  92

  
	
  SECTION 6.11

  	
  Canadian Plans. None of the Loan Parties nor any of their
  Subsidiaries will permit any of the following:

  	
  92

  
	
   

  	
   

  
	
  ARTICLE VII EVENTS OF DEFAULT

  	
  93

  
	
   

  	
   

  
	
  SECTION 7.1

  	
  Events of Default

  	
  93

  
	
  SECTION 7.2

  	
  When Continuing

  	
  96

  
	
  SECTION 7.3

  	
  Remedies on Default

  	
  96

  
	
  SECTION 7.4

  	
  Application of Proceeds

  	
  96

  
	
   

  	
   

  
	
  ARTICLE VIII THE AGENTS

  	
  97

  
	
   

  	
   

  	
   

  
	
  SECTION 8.1

  	
  Administration by the Agents

  	
  97

  
	
  SECTION 8.2

  	
  The Collateral Agent

  	
  97

  
	
  SECTION 8.3

  	
  The Co-Borrowing Base Agents

  	
  98

  
	
  SECTION 8.4

  	
  Sharing of Excess Payments

  	
  98

  
	
  SECTION 8.5

  	
  Agreement of Applicable Lenders

  	
  99

  
	
  SECTION 8.6

  	
  Liability of Agents

  	
  99

  
	
  SECTION 8.7

  	
  Reimbursement and Indemnification

  	
  100

  
	
  SECTION 8.8

  	
  Rights of Agents

  	
  100

  
	
  SECTION 8.9

  	
  Independent Lenders and Issuing Bank

  	
  101

  
	
  SECTION 8.10

  	
  Notice of Transfer

  	
  101

  
	
  SECTION 8.11

  	
  Relation Among the Lenders

  	
  101

  
	
  SECTION 8.12

  	
  Successor Agent

  	
  101

  
	
  SECTION 8.13

  	
  Reports and Financial Statements

  	
  101

  
	
  SECTION 8.14

  	
  Agency for Perfection

  	
  102

  
	
  SECTION 8.15

  	
  Delinquent Lender

  	
  102

  
	
  SECTION 8.16

  	
  Collateral Matters

  	
  103

  
	
  SECTION 8.17

  	
  Syndication Agent, Documentation Agent and Arrangers

  	
  104

  
	
   

  	
   

  
	
  ARTICLE IX MISCELLANEOUS

  	
  104

  
	
   

  	
   

  	
   

  
	
  SECTION 9.1

  	
  Notices

  	
  104

  
	
  SECTION 9.2

  	
  Waivers; Amendments

  	
  105

  
	
  SECTION 9.3

  	
  Expenses; Indemnity; Damage Waiver

  	
  107

  
	
  SECTION 9.4

  	
  Successors and Assigns

  	
  109

  
	
  SECTION 9.5

  	
  Reserved

  	
  111

  
	
  SECTION 9.6

  	
  Survival

  	
  111

  
	
  SECTION 9.7

  	
  Counterparts; Integration; Effectiveness

  	
  111

  
	
  SECTION 9.8

  	
  Severability

  	
  112

  
	
  SECTION 9.9

  	
  Right of Setoff

  	
  112

  
	
  SECTION 9.10

  	
  Governing Law; Jurisdiction; Consent to Service of Process

  	
  112

  
	
  SECTION 9.11

  	
  Waiver of Jury Trial

  	
  113

  



 


iv





















 


TABLE OF CONTENTS

(Continued)


 


	
  SECTION 9.12

  	
  Headings

  	
  113

  
	
  SECTION 9.13

  	
  Interest Rate Limitation

  	
  113

  
	
  SECTION 9.14

  	
  Confidentiality

  	
  114

  
	
  SECTION 9.15

  	
  Additional Waivers

  	
  114

  
	
  SECTION 9.16

  	
  Press Releases and Related Matters

  	
  115

  
	
  SECTION 9.17

  	
  Patriot Act; Proceeds of Crime Act

  	
  115

  
	
  SECTION 9.18

  	
  Judgment Currency

  	
  116

  
	
  SECTION 9.19

  	
  Intercreditor Agreement

  	
  117

  
	
  SECTION 9.20

  	
  Existing Credit Agreement Amended and Restated

  	
  117

  



 


EXHIBITS


 


	
  A.

  	
  Assignment
  and Acceptance

  
	
  B-1.

  	
  Revolving
  Note

  
	
  B-2.

  	
  Swingline
  Note

  
	
  C-1.

  	
  Security
  Agreement

  
	
  C-2.

  	
  General
  Security Agreement

  
	
  D.

  	
  Borrowing
  Base Certificate

  
	
  E.

  	
  Co-Borrowing
  Base Agent Rights Agreement

  



 


SCHEDULES


 


	
  1.1

  	
   

  	
  Lenders
  and Commitments

  
	
  1.1(a)

  	
   

  	
  Existing
  Letters of Credit

  
	
  1.1(b)

  	
   

  	
  Existing
  Bank Products

  
	
  2.21(a)(i)

  	
   

  	
  DDAs
  and Concentration Accounts

  
	
  2.21(a)(ii)

  	
   

  	
  Credit
  Card Arrangements

  
	
  3.5(b)

  	
   

  	
  Intellectual
  Property

  
	
  3.6

  	
   

  	
  Litigation
  and Environmental Matters

  
	
  3.12

  	
   

  	
  Subsidiaries

  
	
  3.13

  	
   

  	
  Insurance

  
	
  5.1(l)

  	
   

  	
  Financial
  Reporting Requirements

  
	
  6.1

  	
   

  	
  Indebtedness

  
	
  6.2

  	
   

  	
  Liens

  
	
  6.4

  	
   

  	
  Investments

  
	
  6.7

  	
   

  	
  Transactions
  with Affiliates

  



 


v
















 


AMENDED AND RESTATED
CREDIT AGREEMENT dated as of May 10, 2010 (this “Agreement”) among


 


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


 


ZGCO,
LLC, a limited liability company organized under the laws of the Commonwealth
of Virginia having a place of business at 901 W. Walnut Hill Lane,
Irving, Texas 75038-1003 (“ZGCO”); 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


 


ZALE
PUERTO RICO, INC., a Puerto Rico corporation having a place of business at
901 W. Walnut Hill Lane, Irving, Texas 75038-1003 (“Zale PR”)
and together with Zale Delaware, Zale, ZGCO and TXDC, the “Initial Borrowers”);
and


 


ZALE
CANADA CO., an unlimited company organized under the laws of Nova Scotia having
a place of business at 901 W. Walnut Hill Lane, Irving, Texas
75038-1003 (“Zale Canada”); and


 


ZALE
CANADA DIAMOND SOURCING INC., a limited company organized under the laws of
Nova Scotia having a place of business at 901 W. Walnut Hill Lane,
Irving, Texas 75038-1003 (“ZCDS”); and


 


ZAP,
INC., a Delaware corporation having a place of business at
901 W. Walnut Hill Lane, Irving, Texas 75038-1003 (“Zap”); and


 


ZCSC,
LLC, a Delaware limited liability company having a place of business at
901 W. Walnut Hill Lane, Irving, Texas 75038-1003 (“ZCSC”);
and


 


ZALE
INTERNATIONAL, INC., a Delaware corporation having a place of business at
901 W. Walnut Hill Lane, Irving, Texas 75038-1003 (“Zale
International”); and


 


ZALE
EMPLOYEES’  CHILD CARE ASSOCIATION, INC.,
a Texas corporation having a place of business at 901 W. Walnut Hill
Lane, Irving, Texas 75038-1003 (“ZECCA”); and


 


ZALE
CANADA HOLDING LP, a limited partnership organized under the laws of New
Brunswick having a place of business at 901 W. Walnut Hill Lane,
Irving, Texas 75038-1003 (“ZC Holding”)


 


1

















 


ZALE
CANADA FINCO 1, INC., a limited company organized under the laws of Nova Scotia
having a place of business at 901 W. Walnut Hill Lane, Irving, Texas
75038-1003 (“Finco 1”); and


 


ZALE
CANADA FINCO 2, INC., a limited company organized under the laws of Nova Scotia
having a place of business at 901 W. Walnut Hill Lane, Irving, Texas
75038-1003 (“Finco 2”); and


 


FINCO
HOLDING LP, a limited partnership organized under the laws of New Brunswick
having a place of business at 901 W. Walnut Hill Lane, Irving, Texas
75038-1003 (“Finco Holding”); and


 


FINCO
PARTNERSHIP LP, a limited partnership organized under the laws of New Brunswick
having a place of business at 901 W. Walnut Hill Lane, Irving, Texas
75038-1003 (“Finco Partnership”); and


 


ZALE
CANADA FINCO, LLC, a limited liability company organized under the laws of Nova
Scotia having a place of business at 901 W. Walnut Hill Lane, Irving,
Texas 75038-1003 (“ZC Finco”, and together with Zale Canada, ZCDS, Zap,
ZCSC, Zale International, Zecca, ZC Holding, Finco 1, Finco 2, Finco Holding,
and Finco Partnership, the “Initial Facility Guarantors”); and


 


the
LENDERS party hereto; and


 


BANK
OF  AMERICA, N.A., as Administrative
Agent, Collateral Agent, and as a Co-Borrowing Base Agent, a national banking
association having a place of business at 100 Federal Street, Boston, Massachusetts
02110; and


 


WELLS
FARGO RETAIL FINANCE, LLC (“Wells Fargo”) and GENERAL ELECTRIC CAPITAL
CORPORATION (“GE Capital”), each as a Co-Borrowing Base Agent; and


 


WELLS
FARGO RETAIL FINANCE, LLC (“Wells Fargo”) and GE CAPITAL MARKETS, INC.,
each as a Co-Syndication Agent; and


 


BANC
OF AMERICA SECURITIES LLC, WELLS FARGO RETAIL FINANCE, LLC and GE CAPITAL
MARKETS, INC., as Joint Lead Arrangers and Joint Bookrunners.


 


W  I  T  N  E  S  S
E  T  H:


 


WHEREAS, the Borrowers have
entered into a Credit Agreement, dated as of July 23, 2003 (as amended and
in effect, the “Existing Credit Agreement”), between, among others, the
Borrowers, the “Lenders” as defined therein, and Bank of America, N.A. as “Administrative
Agent”, “Collateral Agent” and “Issuing Bank” each as defined therein; and


 


2

















 


WHEREAS, in accordance with SECTION 9.02
of the Existing Credit Agreement, the Borrowers, the Required Lenders, and the
Agents desire to amend and restate the Existing Credit Agreement as provided
herein.


 


NOW, THEREFORE, in
consideration of the mutual conditions and agreements set forth in this
Agreement, and for good and valuable consideration, the receipt of which is
hereby acknowledged, the undersigned hereby agree that the Existing Credit
Agreement shall be amended and restated in its entirety (except to the extent
that definitions from the Existing Credit Agreement are incorporated herein by
reference) to read as follows (it being agreed that this Agreement shall not be
deemed to evidence or result in a novation or repayment and reborrowing of the
Loan Agreement Obligations under (and as defined in) the Existing Credit
Agreement):


 


ARTICLE I


DEFINITIONS


 


SECTION 1.1                                             Defined Terms.  As used in this Agreement, the following
terms have the meanings specified below:


 


“Account” means any right to payment for goods sold
or leased or for services rendered, whether or not earned by performance, or
any right to payment for credit extended for goods sold or leased or services
rendered.


 


“ACH” means automated clearing house transfers.


 


“Activation Notice” has the meaning set forth in Section 2.21(b).


 


“Adjusted Excess Availability” means, for purposes
of calculation of the Applicable Commitment Fee Rate and the Applicable Margin
for Non-Extending Lenders, as of any date of determination, the excess, if any,
of (a) the Borrowing Base minus (b) the outstanding Credit
Extensions.


 


“Adjusted LIBO Rate” means, with respect to any
LIBOR Borrowing for any Interest Period, an interest rate per annum (rounded
upwards, if necessary, to the next 1/16 of 1%) equal to (a) the LIBO Rate
for such Interest Period multiplied by (b) the Statutory Reserve Rate.


 


“Administrative Agent” means Bank of America, in its
capacity as administrative agent for the Lenders hereunder.


 


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


 


“Agents” means collectively, the Administrative
Agent and the Collateral Agent.


 


“Agreement” has the meaning set forth in the
preamble.


 


3

















 


“Alternate Base Rate” means, for any day, the higher
of (a) the annual rate of interest then most recently announced by Bank of
America at its head office in Boston, Massachusetts as its “Base Rate”
and (b) the Federal Funds Effective Rate in effect on such day plus
1⁄2 of 1% (0.50%) per annum.  If for any
reason the Administrative Agent shall have determined (which determination
shall be conclusive absent manifest error) that it is unable to ascertain the
Federal Funds Effective Rate for any reason, including the inability of the
Administrative Agent to obtain sufficient quotations thereof in accordance with
the terms hereof, the Alternate Base Rate shall be determined without regard to
clause (b) of the first sentence of this definition, until the
circumstances giving rise to such inability no longer exist.  Any change in the Alternate Base Rate due to
a change in Bank of America’s Base Rate or the Federal Funds Effective Rate
shall be effective on the effective date of such change in Bank of America’s
Base Rate or the Federal Funds Effective Rate, respectively.


 


“Applicable Commitment Fee Rate” means the following
rates per annum:


 




	
  Level

  	
   

  	
  Adjusted Excess Availability

  	
   

  	
  Commitment Fee

  	
   

  
	
  I

  	
   

  	
  Greater
  than or equal to $250,000,000

  	
   

  	
  0.20

  	
  %

  
	
  II

  	
   

  	
  Less
  than $250,000,000 but greater than or equal to $100,000,000

  	
   

  	
  0.20

  	
  %

  
	
  III

  	
   

  	
  Less
  than $100,000,000

  	
   

  	
  0.25

  	
  %

  






 


The Applicable Commitment Fee Rate (which shall apply only
to the Non-Extending Lenders) shall be adjusted quarterly as of the first day
of each fiscal quarter of the Borrowers, based upon the average Adjusted Excess
Availability for the immediately preceding fiscal quarter.


 


“Applicable Lenders” means the Required Lenders, the
Required Supermajority Lenders, or all Lenders, as applicable.


 


“Applicable Lending Office” means with respect to
each Lender, its domestic lending office in the case of a Loan that is a Base
Rate Loan and its LIBOR lending office in the case of a LIBOR Loan.


 


“Applicable Margin” means the rates for Base
Rate Loans and LIBOR Loans set forth below:


 




	
  Level

  	
   

  	
  Adjusted Excess
  Availability

  	
   

  	
  Base Rate 

  Loans

  	
   

  	
  LIBOR Loans

  	
   

  
	
  I

  	
   

  	
  Greater than or equal to $250,000,000

  	
   

  	
  0

  	
  %

  	
  1.00

  	
  %

  
	
  II

  	
   

  	
  Less than $250,000,000 but greater than or equal to $100,000,000

  	
   

  	
  0

  	
  %

  	
  1.25

  	
  %

  
	
  III

  	
   

  	
  Less than $100,000,000

  	
   

  	
  0

  	
  %

  	
  1.50

  	
  %

  






 


4

















 


The Applicable Margin
(which shall apply only to the Non-Extending Lenders) shall be adjusted
quarterly as of the first day of each fiscal quarter of the Borrowers, based
upon the average Adjusted Excess Availability for the immediately preceding
fiscal quarter.


 


“Applicable Termination Date” means (a) in the
case of the Non-Extending Lenders, the Termination Date, and (b) in the
case of the Extending Lenders, the Extended Termination Date.


 


“Appraisal Percentage” means (a) 90% from the
Effective Date through December 31, 2010, and (b) 87.5% at all times
thereafter.


 


“Appraised Inventory Liquidation Value” means the
product of (a) the Cost of Eligible Inventory, minus Inventory Reserves multiplied
by (b) that percentage determined from the then most recent appraisal of
the Borrowers’ Inventory undertaken at the request of the Administrative Agent,
to reflect the appraiser’s estimate of the net recovery on the Borrowers’
Inventory in the event of an in-Store net orderly liquidation of that
Inventory.


 


“Arranger” means, collectively, Banc of America
Securities, LLC, Wells Fargo Retail Finance, LLC and GE Capital Markets, Inc.,
in their capacities as joint lead arrangers.


 


“Assignment and Acceptance” means an assignment and
acceptance entered into by a Lender and an assignee (with the consent of each
party whose consent is required by SECTION 9.4), and accepted by the
Administrative Agent, in the form of Exhibit A or any other form
approved by the Administrative Agent.


 


“Bank of America” means Bank of America, N.A., a
national banking association, its Subsidiaries, Affiliates and branches.


 


“Bank Products” means any services or facilities
provided to any Borrower or any of its Subsidiaries by the Administrative
Agent, any Extending Lender, or any of their respective Affiliates, including,
without limitation, on account of (a) Hedging Agreements, (b) purchase
cards, (c) merchant card services, and (d) leasing, but excluding
Cash Management Services.  For purposes
hereof (x) if a Person who is an Extending Lender ceases to be a Lender,
or (y) if a Lender fails to provide the Administrative Agent with written
notice of any Bank Products furnished by such Lender or its Affiliates on the
earlier of ten (10) days after the effective date of such Bank Product or
the delivery of the first Borrowing Base Certificate after such effective date,
then, in either such event, the Bank Products furnished by such Person or its
Affiliates shall no longer be deemed to constitute “Bank Products” for purposes
of this Agreement and the other Loan Documents. 
As of the Effective Date, all Bank Products are as set forth on Schedule
1.1(b) and all such Bank Products shall at all times be deemed to be
within the “Ancillary Cap” (as defined in the Intercreditor Agreement)
regardless of any new Bank Products which may hereafter be furnished.


 


“Base Rate Loan” means any Loan to the Borrowers
bearing interest at a rate determined by reference to the Alternate Base Rate
or the Extended Term Prime Rate in accordance with the provisions of Article II.


 


5

















 


“Blocked Account Agreements” has the meaning set
forth in Section 2.21(b).


 


“Board” means the Board of Governors of the Federal
Reserve System of the United States of America.


 


“Borrowers” means the Initial Borrowers and any
other Subsidiary of Zale which becomes a Borrower under this Agreement pursuant
to a joinder agreement to this Agreement and the Loan Documents, as applicable,
with the other parties hereto and thereto, in form and substance satisfactory
to the Administrative Agent.


 


“Borrowing” means (a) the incurrence of Loans
of a single Type, on a single date and having, in the case of LIBOR Loans, a
single Interest Period, or (b) a Swingline Loan.


 


“Borrowing Base” means at any time of
calculation, an amount equal to


 


(a)                                  the lesser of


 


(i)                                     the Inventory
Advance Rate multiplied by the difference between the Cost of Eligible
Inventory and Inventory Reserves;


 


or


 


(ii)                                  the Appraisal
Percentage multiplied by the Appraised Inventory Liquidation Value;


 


plus


 


(b)                                 eighty-five percent (85%) of
the Loan Parties’ Eligible Credit Card Receivables;


 


minus


 


(c)                                  the Reserves
(other than Inventory Reserves and the Term Reserve), but including a Reserve
for Texas ad valorem taxes;


 


minus


 


(d)                                 the Term
Reserve, if then in effect.


 


“Borrowing Base Certificate” has the meaning set
forth in Section 5.1(f).


 


“Breakage Costs” has the meaning set forth in SECTION 2.19(b).


 


“Business Day” means any day that is not a Saturday,
Sunday or other day on which commercial banks in Boston, Massachusetts, New
York, New York or Dallas, Texas are authorized or required by law to remain
closed, provided, that, when used in connection with a LIBOR Loan, the
term “Business Day” shall also exclude any day on which banks are not
open for dealings in dollar deposits in the London interbank market.


 


6

















 


“Canadian Loan Party” or “Canadian Loan Parties”
means each Loan Party organized under organized
under the laws of Canada or any province or territory thereof.


 


“Canadian Plan” means an employee pension benefit
plan or pension plan that is covered by the Laws of any jurisdiction in Canada
including the Pension Benefits Act (Ontario) and the Income Tax Act (Canada) or
subject to minimum funding standards and that is either (a) maintained or
sponsored by any Canadian Loan Party for its employees, (b) maintained
pursuant to a collective bargaining agreement, or other arrangement under which
more than one employer makes contributions and to which any Canadian Loan Party
is making or accruing an obligation to make contributions or has within the
preceding five years made or accrued such contributions or (c) any other
plan with respect to which any Canadian Loan Party has incurred or may incur
liability, including contingent liability either to such plan or to any Person,
administration or Governmental Authority.


 


“Canadian Priority Payables Reserve” means on
any date of determination, a reserve established from time to time in
accordance with SECTION 2.2 for amounts payable by any Canadian Loan Party
and secured by any Liens, choate or inchoate, which rank or which would
reasonably be expected to rank in priority to or pari passu
with the Collateral Agent’s Liens and/or for amounts which represent costs in
connection with the preservation, protection, collection or realization of the
Collateral, including any such amounts due and not paid for wages, vacation
pay, severance pay, amounts payable under the Wage Earner Protection Program
Act (Canada), amounts due and not paid under any legislation relating to workers’
compensation or to employment insurance, all amounts deducted or withheld and
not paid and remitted when due under the Income Tax Act (Canada), sales tax,
goods and services tax, value added tax, harmonized tax, excise tax, tax
payable pursuant to Part IX of the Excise Tax Act (Canada) or similar
applicable provincial legislation, government royalties, amounts currently or
past due and not paid for realty, municipal or similar taxes and all amounts
currently or past due and not contributed, remitted or paid to any Canadian
Plan under any applicable law or otherwise as required to be contributed
pursuant to any applicable law relating to Canadian Plans, or any similar
statutory or other claims that would have or would reasonably be expected to
have priority over or pari passu with
any Liens granted to the Collateral Agent in the future.


 


“Capital Expenditures” means, for any period, (a) the
additions to property, plant and equipment and other capital expenditures of
the Borrowers and their Subsidiaries that are (or would be) set forth in a
consolidated statement of cash flows of the Borrowers and their Subsidiaries
for such period prepared in accordance with GAAP and (b) Capital Lease
Obligations incurred by the Borrowers and their Subsidiaries during such
period.


 


“Capital Lease Obligations” means of any Person, the
obligations of such Person to pay rent or other amounts under any lease of (or
other arrangement conveying the right to use) real (immovable) or personal
(movable) property, or a combination thereof, which obligations are required to
be classified and accounted for as capital leases on a balance sheet of such
Person under GAAP, and the amount of such obligations shall be the capitalized
amount thereof determined in accordance with GAAP.


 


7
















 


“Cash Collateral Account” means an interest-bearing
account established by the Borrowers with the Collateral Agent at Bank of
America under the sole and exclusive dominion and control of the Collateral
Agent designated as the “Zale Cash Collateral Account”.


 


“Cash Control Event” means that either: (a) an
Event of Default exists and is continuing, or (b) Excess Availability is
less than $60,000,000 at any time.  For
purposes of this Agreement, the occurrence of a Cash Control Event shall be
deemed continuing, notwithstanding that Excess Availability may after the Cash
Control Event exceed the applicable amount set forth in clause (b), above,
unless and until the Event of Default giving rise to the Cash Control Event has
been waived and Excess Availability exceeds the applicable amount set forth in
clause (b), above for sixty (60) consecutive days, in which case a Cash Control
Event shall no longer be deemed to be continuing for purposes of this
Agreement, provided that a Cash Control Event shall be deemed continuing
(even if an Event of Default is no longer continuing and/or Excess Availability
exceeds the required amount for sixty (60) consecutive days) at all times after
a Cash Control Event has occurred and been discontinued on two (2) occasions
in any twelve (12) month period or on five (5) occasions at any time after the
Effective Date.


 


“Cash Management Services” means any one or
more of the following types or services or facilities provided to any Borrower
or any of its Subsidiaries by the Administrative Agent or any Extending Lender
or any of their respective Affiliates: (a) ACH transactions, (b) cash
management services, including, without limitation, controlled disbursement
services, treasury, depository, overdraft, and electronic funds transfer services,
(c) foreign exchange facilities, (d) credit card processing services,
and (e) credit or debit cards.  For
purposes hereof, if a Person who is an Extending Lender ceases to be a Lender,
the Cash Management Services previously furnished by such Extending Lender or
its Affiliates shall no longer be deemed to constitute “Cash Management
Services” for purposes of this Agreement and the other Loan Documents.


 


“Cash Receipts” has the meaning set forth in Section 2.21(b).


 


“CDN$” means Canadian Dollars.


 


“CERCLA” means the Comprehensive Environmental
Response, Compensation, and Liability Act, 42 U.S.C. § 9601 et seq.


 


“Change in Control” means, at any time, (a) occupation
of a majority of the seats (other than vacant seats) on the board of directors
of Zale by Persons who were neither (i) nominated by the board of
directors of Zale or (ii) appointed by directors so nominated; or (b) the
acquisition of fifty percent (50%) or more of the capital stock of Zale by any
Person or group of Persons, or (c) the failure of  Zale or another
Borrower to own directly 100% of the capital stock or other ownership interest
of Zale Delaware, ZGCO, TXDC, Zale PR and Zale Canada.


 


“Change in Law” means (a) the adoption of any
law, rule or regulation after the date of this Agreement, (b) any
change in any law, rule or regulation or in the interpretation or 


 


8

















 


application thereof by any Governmental Authority
after the date of this Agreement or (c) compliance by any Lender or any
Issuing Bank (or, for purposes of SECTION 2.23(b), by any lending office
of such Lender or by such Lender’s or such Issuing Bank’s holding company, if
any) with any request, guideline or directive (whether or not having the force
of law) of any Governmental Authority made or issued after the date of this
Agreement.


 


“Charges” has the meaning set forth in SECTION 9.13.


 


“Closing Date” means July 23, 2003.


 


“Co-Borrowing Base Agent Rights Agreement” means
that certain letter agreement, in the form of Exhibit E attached
hereto, entered into as of the date hereof by and among the Agents, the
Co-Borrowing Base Agents and the Loan Parties.


 


“Co-Borrowing Base Agents” means Bank of America,
Wells Fargo and GE Capital.


 


“Co-Syndication Agents” means Wells Fargo and GE Capital
Markets, Inc.


 


“Code” means the Internal Revenue Code of 1986, as
amended from time to time.


 


“Collateral” means any and all “Collateral”
as defined in any applicable Security Document.


 


“Collateral Agent” means Bank of America, in its
capacity as collateral agent under the Security Documents.


 


“Collection Account” has the meaning set forth in Section 2.21(b) hereof.


 


“Commercial Letter of Credit” means any Letter of
Credit issued for the purpose of providing the primary payment mechanism in
connection with the purchase of any materials, goods or services by a Borrower
in the ordinary course of business of such Borrower.


 


“Commitment Fee” has the meaning set forth in Section 2.12(a).


 


“Commitment Percentage” means, with respect to each
Lender, the percentage of the Commitments of all Lenders hereunder in the
amount set forth opposite its name on Schedule 1.1 or as may subsequently
be set forth in the Register from time to time, as the same may be reduced
pursuant to SECTION 2.15, provided  that unless the
Commitments of all Lenders shall have then expired or been terminated,
after the Commitments of the Non-Extending Lenders shall have expired or been
terminated and all Loan Agreement Obligations owed to the Non-Extending Lenders
shall have been paid in full, the Commitment Percentages of the Extending
Lenders shall be appropriately adjusted to reflect the expiration or
termination of the Commitments of the Non-Extending Lenders.


 


“Commitments” means, with respect to each Lender,
the commitment of such Lender hereunder in the amount set forth opposite its
name on Schedule 1.1 or as may subsequently 


 


9

















 


be set forth in the Register from time to time, as
the same may be reduced from time to time pursuant to SECTION 2.15.


 


“Concentration Accounts” has the meaning set forth
in Section 2.21(a).


 


“Consignment A/R Reserve” means (a) prior to
the occurrence of a Cash Control Event, an amount, determined on a monthly
basis, equal to (i) that percentage determined by dividing the total sales
arising from the Loan Parties’ sale of Inventory consisting of consigned goods
during the immediately preceding month (the “Subject Month”) by the
total sales arising from the Loan Parties’ sale of Inventory (including but not
limited to consigned goods) during the Subject Month, multiplied by (ii) the
credit card receivables arising from the Loan Parties’ sale of Inventory
(including but not limited to consigned goods) during the Subject Month
multiplied by (iii) fifty percent (50%), and (b) after the occurrence and
during the continuance of a Cash Control Event, an amount equal to 100% of the
outstanding accounts payable to all of the consignment vendors of the Loan
Parties.


 


“Consolidated EBITDA” means Consolidated Net Income
for any period plus (a) without duplication, the sum of the
following expenses of Zale and its Subsidiaries for such period, in each case
to the extent included in determining said Consolidated Net Income: (i) depreciation
expense, (ii) amortization expense, excluding amortization expense
attributable to a prepaid cash item, (iii)  interest expense, (iv) total
United States and foreign federal, state, provincial and local income tax
expense, (v) charges relating to the valuation of inventory by application
of the LIFO (last in/first out) method of inventory valuation, (vi) non-cash
compensation expense arising out of the grant or exercise of stock options or
other equity based compensation, (vii) the effect of any non-cash
impairment charges related to the write-off of goodwill, property or equipment
resulting from the application of GAAP, (viii) non-cash restructuring
charges, (ix) to the extent incurred or reserved for between the Effective
Date and July 31, 2011, cash restructuring charges in an aggregate amount
not to exceed $15,000,000 and (x) all other non-cash charges less (b) without
duplication, in each case to the extent included in determining Consolidated
Net Income, the sum of (i) income earned during such period relating to
the valuation of inventory by the application of the LIFO method of inventory
valuation, (ii) interest income for such period, (iii) non-cash gains
for such period and (iv) total United States and foreign federal, state,
provincial and local income tax benefits provided during such period.


 


“Consolidated Net Income” means the consolidated net
income (or loss) of Zale and its Subsidiaries, after eliminating therefrom all
non-cash extraordinary items of income and all non-cash extraordinary items of
loss, all determined on a consolidated basis in accordance with GAAP; provided,
however, that there shall be excluded from Consolidated Net Income (a) the
income (or loss) of any Person in which Zale or any of its Subsidiaries has a
joint interest except to the extent of any cash dividends actually paid to the
Borrower or its Subsidiaries, (b) the income (or loss) of any Person
accrued prior to the date it becomes a Subsidiary of Zale or is merged into or
consolidated with Zale or any of its Subsidiaries or that Person’s assets are
acquired by Zale or any of its Subsidiaries and (c) the income of any
direct or indirect Subsidiary of Zale that is not a Loan Party or a Zale
Insurance Subsidiary to the extent that, on the date of determination, the
declaration or payment of cash dividends or similar cash distributions by such
Subsidiary is not permitted 


 


10

















 


without any prior approval of any Governmental
Authority that has not been obtained or is not permitted by the operation of
the terms of its charter, by-laws or other organizational documents or any
agreement or other instrument binding upon such Subsidiary or any law
applicable to such Subsidiary, unless such restrictions with respect to the
payment of cash dividends and other similar cash distributions have been
legally and effectively waived.


 


“Consolidated Total Interest Expense” means for any
period, the aggregate amount of interest required to be paid or payable in cash
by Zale and its Subsidiaries in respect of such period on all Indebtedness of
Zale and its Subsidiaries outstanding during all or any part of such period in
accordance with GAAP (including payments consisting of interest in respect of
Capital Lease Obligations or Synthetic Leases), but excluding all non-cash
interest expense including, but not limited to: (i) the amortization of
original issue discount associated with Indebtedness, (ii) the
amortization of capitalized issuance costs associated with Indebtedness, (iii) the
amortization of discount resulting from the valuation of any warrants issued in
connection with any Indebtedness, (iv) interest expense resulting from
remaining capitalized issuance costs associated with the Existing Credit
Agreement, and (v) interest paid in the form of additional Indebtedness.


 


“Control” means the possession, directly or
indirectly, of the power 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.


 


“Cost” means the cost of Inventory as reported on
the Loan Parties’ financial stock ledger using the retail method of accounting
based on practices which are in effect on the date of this Agreement.


 


“Credit Card Notifications” has the meaning set
forth in Section 2.21(b)(ii).


 


“Credit Extensions” means as of any day, the sum of (a) the
principal balance of all Loans then outstanding, and (b) the then amount
of the Letter of Credit Outstandings.


 


“Customer Credit Reserve” means 50% of the aggregate
face value at such time of (a) outstanding gift certificates and gift
cards of the Loan Parties entitling the holder thereof to use all or a portion
of the certificate to pay all or a portion of the purchase price for any
Inventory, and (b) outstanding merchandise credits of the Loan Parties.


 


“DDAs” means any checking or other demand
deposit account maintained by the Loan Parties.


 


“Default” means any event or condition that
constitutes an Event of Default or that upon notice, lapse of time or both
would, unless cured or waived, become an Event of Default.


 


“Delinquent Lender” has the meaning provided in SECTION 8.15.


 


“Deteriorating Lender” means any Delinquent Lender
or any Lender as to which (a) any of the Issuing Banks or the Swingline
Lender has reasonably ascertained that such 


 


11

















 


Lender or its Subsidiary has, without cause,
defaulted in fulfilling its obligations under one or more other syndicated
credit facilities, unless such default is being disputed by such Lender in good
faith, or (b) such Lender or a Person that controls such Lender has been
deemed insolvent by the Administrative Agent in its reasonable judgment or
become the subject of a bankruptcy, insolvency or similar proceeding.


 


“Dollars” or “$” means lawful money of
the United States of America.


 


“Effective Date” means the date on which the
conditions specified in SECTION 4.1 are satisfied (or waived by the
Administrative Agent).


 


“Eligible Credit Card Receivables” means (a) Accounts
of the Loan Parties due in four (4) Business Days or less on a
non-recourse basis from major credit card processors and (b) Eligible
Private Label Credit Card Receivables, in each case to the extent that it
constitutes Collateral.


 


“Eligible Inventory” means, as of the date of
determination thereof, items of Inventory of the Loan Parties that are finished
goods (including, but not limited to, unmounted gemstones and shanks or mounts
for which no stone has been mounted to the extent such goods are listed in the
stock ledger or inventory systems), merchantable and readily saleable to the
public in the ordinary course deemed by the Administrative Agent in accordance
with its customary credit and collateral considerations and policies to be eligible
for inclusion in the calculation of the Borrowing Base.  Without limiting the foregoing, unless
otherwise approved in writing by the Administrative Agent, none of the
following shall be deemed to be Eligible Inventory:


 


(a)           Inventory that is
not owned solely by the Loan Parties, or is leased or on consignment or such
Loan Parties do not have good and valid title thereto;


 


(b)           Inventory (i) that
is not located at a warehouse facility or Store that is owned or leased by a
Loan Party, unless it is in-transit (in the United States and its territories
and possessions, or Canada) between warehouse facilities and Stores leased or
owned by a Loan Party and (ii) that is located at a warehouse facility,
unless a landlord, bailee or other access or custodial agreement in favor of
the Collateral Agent, and in form and substance reasonably satisfactory to the
Collateral Agent and the Co-Borrowing Base Agents, has been executed and
delivered by the applicable landlord, bailee or other Person;


 


(c)           Inventory that represents
(i) goods damaged, defective or otherwise unmerchantable, except in the
case of each of the foregoing to the extent that the Administrative Agent has
determined a recoverable value and (ii) goods that do not conform in all
material respects to the representations and warranties contained in this
Agreement or any of the Security Documents;


 


(d)           Inventory
that is not located in the United States of America (excluding, except as
otherwise specifically provided, territories and possessions thereof), Puerto
Rico or Canada;


 


12

















 


(e)           Inventory that is
not subject to a perfected first-priority Lien in favor of the Collateral Agent
for the benefit of the Secured Parties;


 


(f)            Inventory which
consists of samples, labels, bags, packaging, and other similar non-merchandise
categories;


 


(g)           Inventory as to
which insurance in compliance with the provisions of SECTION 5.7 hereof is
not in effect;


 


(h)           Inventory, other
than layaway inventory, which has been sold but not yet delivered or as to
which any Loan Party has accepted a deposit;


 


(i)            Inventory acquired
in permitted acquisitions in compliance with the provisions of Section 6.4,
unless and until the Administrative Agent shall have received (i) the
results of appraisals of the Inventory acquired in such acquisition and (ii) such
other due diligence related to such acquisition by the Administrative Agent
that the Administrative Agent may require, all of the results of the foregoing
to be reasonably satisfactory to the Administrative Agent;


 


(j)            Inventory
of a Subsidiary that becomes a Loan Party hereunder in compliance with the
provisions of Section 5.13, unless and until the Administrative Agent
shall have received (i) the results of appraisals of the Inventory of such
Subsidiary and (ii) such other due diligence related to such Subsidiary by
the Administrative Agent that the Administrative Agent may require, all of the
result of the foregoing to be reasonably satisfactory to the Administrative
Agent.


 


“Eligible Private Label Credit Card Receivables”
means Accounts of the Loan Parties due in four (4) Business Days or less
on (a) private label credit cards issued by Citibank USA, N.A. on
substantially the terms as in effect on the Effective Date or as otherwise
modified in a manner reasonably acceptable to the Administrative Agent and (b) other
private label credit cards issued by other Persons reasonably acceptable to the
Administrative Agent.


 


“Environmental Laws” means all laws, rules,
regulations, codes, ordinances, orders, decrees, judgments, injunctions,
notices or binding agreements issued, promulgated or entered into by or with
any Governmental Authority, relating in any way to the environment,
preservation or reclamation of natural resources, handling, treatment, storage,
disposal, Release or threatened Release of any Hazardous Material or to health
and safety matters.


 


“Environmental Liability” means any liability,
contingent or otherwise (including any liability for damages, natural resource
damage, costs of environmental remediation, administrative oversight costs,
fines, penalties or indemnities), of any Loan Party directly or indirectly
resulting from or based upon a violation of any Environmental Law,
including those resulting from (a) the generation, use, handling,
transportation, storage, treatment or disposal of any Hazardous Materials, (b) exposure
to any Hazardous Materials, (c) the release or threatened release of any
Hazardous Materials into the environment or (d) any 


 


13

















 


contract, agreement or other consensual arrangement
pursuant to which liability is assumed or imposed with respect to any of the
foregoing.


 


“Equivalent Amount” means, on any date, the rate at
which Canadian dollars may be exchanged into Dollars, determined by reference
to the Bank of Canada noon rate as published on the Reuters Screen BOFC on the
immediately preceding Business Day.  In
the event that such rate does not appear on such Reuters page, “Equivalent
Amount” shall mean, on any date, the amount of Dollars into which an amount of
Canadian dollars may be converted or the amount of Canadian dollars into which
an amount of Dollars may be converted, in either case, at the Administrative
Agent’s spot buying rate in New York as at approximately 12:00 noon (New York
City time) on the immediately preceding Business Day.


 


“ERISA” means the Employee Retirement Income
Security Act of 1974, as amended from time to time.


 


“ERISA Affiliate” means any trade or business
(whether or not incorporated) that, together with the Loan Parties, is treated
as a single employer under Section 414(b) or (c) of the Code or,
solely for purposes of Section 302 of ERISA and Section 412 of the
Code, is treated as a single employer under Section 414 of the Code.


 


“ERISA Event” means (a) any “reportable
event”, as defined in Section 4043 of ERISA or the regulations issued
thereunder with respect to a Plan (other than an event for which the 30-day
notice period is waived); (b) the failure to satisfy the minimum funding standard
with respect to any Plan resulting in an “accumulated funding deficiency”
(as provided in Section 412 of the Code or Section 302 of ERISA),
whether or not waived; (c) the filing pursuant to Section 412(d) of
the Code or Section 303(d) of ERISA of an application for a waiver of
the minimum funding standard with respect to any Plan; (d) the incurrence
by the Loan Parties or any of their ERISA Affiliates of any liability under
Title IV of ERISA with respect to the termination of any Plan; (e) the
receipt by the Loan Parties or any ERISA Affiliate from the PBGC or a plan
administrator of any notice relating to an intention to terminate any Plan or
Plans or to appoint a trustee to administer any Plan; (f) the incurrence
by the Loan Parties or any of their ERISA Affiliates of any liability with
respect to the withdrawal or partial withdrawal from any Plan or Multiemployer
Plan; or (g) the receipt by the Loan Parties or any ERISA Affiliate of any
notice, or the receipt by any Multiemployer Plan from the Loan Parties or any
ERISA Affiliate of any notice, concerning the imposition of Withdrawal
Liability or a determination that a Multiemployer Plan is, or is expected to
be, insolvent or in reorganization, within the meaning of Title IV of
ERISA.


 


“Event of Default” has the meaning set forth in SECTION 7.1.


 


“Excess Availability” means, as of any date of
determination, the excess, if any, of (a) the Line Cap, minus (b) the
outstanding Credit Extensions.


 


“Excluded Subsidiaries” means, collectively, Zale
Life Insurance Company, an Arizona corporation, Zale Indemnity Company, a Texas
corporation, Jewel Re-Insurance 


 


14

















 


Ltd., a Barbados corporation, Zale Funding Trust, a
Delaware trust, Zale Disaster Relief Fund, Inc. a Texas corporation, ZC
Partnership LP, a New Brunswick limited partnership, and Dobbins Jewelers, Inc.,
a Guam corporation.


 


“Excluded Taxes” means, with respect to the Agents,
any Lender, any Issuing Bank or any other recipient of any payment to be made
by or on account of any obligation of the Loan Parties hereunder, (a) income
or franchise taxes, levies, imposts, deductions, charges or withholdings
imposed on (or measured by) its gross or net income or profit by the United
States of America, or by the jurisdiction under the laws of which such
recipient is organized, in which such recipient is resident for tax purposes,
or in which its principal office is located or, in the case of any Lender, in
which its Applicable Lending Office is located or in which it otherwise is
deemed to be engaged in a trade or business for tax purposes, (b) any
branch profits taxes imposed by the United States of America or any similar tax
imposed by any other jurisdiction in which any Loan Party is located and (c) in
the case of a Lender (other than an assignee pursuant to a request by a
Borrower under SECTION 2.28(b)), any withholding tax that is imposed on
amounts payable to such Lender at the time such Lender becomes a party to this
Agreement (or designates a new lending office) or is attributable to such
Lender’s failure to comply with SECTION 2.26(e) except to the extent
that such Lender (or its assignor, if any) was entitled, at the time of
designation of a new lending office (or assignment), to receive additional
amounts from the Loan Parties with respect to such withholding tax pursuant to SECTION 2.26(a).


 


“Existing Letters of Credit” means those letters of
credit issued and outstanding under the Existing Credit Agreement which are
identified on Schedule 1.1(a).


 


“Extended Term Applicable
Margin” means:


 


(a)           From and after the Effective Date until July 31,
2010, the percentages set forth in Level II of the pricing grid below; and


 


(b)           On the first day of each of the fiscal quarters of each
year (each, an “Adjustment Date”), commencing with the fiscal quarter
beginning on or about August 1, 2010, the Extended Term Applicable Margin
shall be determined from the pricing grid below based upon average daily Excess
Availability for the most recently ended fiscal quarter immediately preceding
such Adjustment Date, provided that in no event shall the Extended Term
Applicable Margin be established at Level I prior to July 31, 2010 (even
if the conditions for the application of Level I are met); provided
further if any Borrowing Base Certificates are at any time restated or
otherwise revised (including as a result of an audit) or if the information set
forth in any Borrowing Base Certificates otherwise proves to be false or
incorrect such that the Extended Term Applicable Margin would have been higher
than was otherwise in effect during any period, without constituting a waiver
of any Default or Event of Default arising as a result thereof, interest due
under this Agreement shall be immediately recalculated at such higher rate for
any applicable periods and shall be due and payable on demand.


 


15

















 




	
  Level

  	
   

  	
  Average Daily Excess 

  Availability

  	
   

  	
  LIBOR Loan

  	
   

  	
  Base Rate

  Loan

  	
   

  
	
  I

  	
   

  	
  Greater than or equal
  to $250,000,000

  	
   

  	
  3.50

  	
  %

  	
  2.50

  	
  %

  
	
  II

  	
   

  	
  Greater than or equal
  to 100,000,000 but less than $250,000,000

  	
   

  	
  3.75

  	
  %

  	
  2.75

  	
  %

  
	
  III

  	
   

  	
  Less than $100,000,000

  	
   

  	
  4.00

  	
  %

  	
  3.00

  	
  %

  






 


Notwithstanding
anything to the contrary herein contained, upon the occurrence and during the
continuance of an Event of Default, the Extended Term Applicable Margin shall
be at the percentages set forth in Level III of the pricing grid.  The foregoing shall be supplemental of, and
shall not be deemed to modify or waive, any rights of the Administrative Agent
or the Required Lenders under Section 2.10 hereof.


 


“Extended Term Maturity Date” means April 30,
2014.


 


“Extended Term Prime Rate” means, for any day, the
highest of: (a) the variable annual rate of interest then most recently
announced by Bank of America, N.A. at its head office in Charlotte, North
Carolina as its “prime rate”; (b) the Federal Funds Effective Rate in
effect on such day plus one-half of one percent (0.50%) per annum; or (c) the
Adjusted LIBO Rate (calculated utilizing the LIBOR Rate for a one-month
Interest Period) plus one percent (1.00%) per annum.  The “prime rate” is a reference rate and does
not necessarily represent the lowest or best rate being charged by Bank of
America to any customer.  If for any
reason the Administrative Agent shall have determined (which determination
shall be conclusive absent manifest error) that it is unable to ascertain the
Federal Funds Effective Rate or the LIBOR Rate for any reason, including the
inability or failure of the Administrative Agent to obtain sufficient
quotations thereof in accordance with the terms hereof, the Extended Term Prime
Rate shall be determined without regard to clauses (b) or (c) of the
first sentence of this definition, as applicable, until the circumstances
giving rise to such inability no longer exist. Any change in the Extended Term
Prime Rate due to a change in Bank of America’s “prime rate”, the Federal Funds
Effective Rate or the Adjusted LIBO Rate shall be effective on the effective
date of such change in Bank of America’s Prime Rate, the Federal Funds Effective
Rate or the Adjusted LIBO Rate, respectively.


 


“Extended Term Unused Commitment” means, on any day,
(a) the then Total Commitment (which for purposes of this calculation
shall include the Seasonal Commitments, whether or not then in effect) minus (b) the
sum of (i) the principal amount of Loans then outstanding and (ii) the
then Letter of Credit Outstandings.


 


“Extended Term Unused Fee” has the meaning provided
in Section 2.12(b).


 


“Extended Termination Date” means the earliest to
occur of (i) the Extended Term Maturity Date, (ii) the date on which
the maturity of the Loans is accelerated and the Commitments are terminated in
accordance with SECTION 7.1, (iii) the date of the 


 


16

















 


occurrence of any Event of Default pursuant to SECTION 7.1(h) or
(i), or (iv) the date on which the Borrowers permanently terminate all
Commitments pursuant to SECTION 2.15.


 


“Extending Lender” means each Lender listed on Schedule
1.1 under the heading “Extending Lenders”, whose Commitment shall terminate
on the Extended Termination Date.


 


“Facility Guarantee” means each Guarantee executed
by each of the Facility Guarantors in favor of the Agents and the other Secured
Parties, as amended and in effect from time to time.


 


“Facility Guarantor” means the Initial Facility
Guarantors and each other Subsidiary of any Loan Party that is required to from
time to time to execute and deliver a Facility Guarantee pursuant to SECTION 5.13.


 


“Facility Guarantor Collateral Documents” means all
security agreements, mortgages, pledge agreements, deeds of trust, and other
instruments, documents or agreements executed and delivered by any Facility
Guarantor to secure the Facility Guarantee and repayment and performance of the
Obligations.


 


“Federal Funds Effective Rate” means, for any day,
the weighted average (rounded upwards, if necessary, to the next 1/100 of 1%)
of the rates on overnight Federal funds transactions with members of the
Federal Reserve System arranged by Federal funds brokers, as published on the
next succeeding Business Day by the Federal Reserve Bank of New York, or,
if such rate is not so published for any day that is a Business Day, the
average (rounded upwards, if necessary, to the next 1/100 of 1%) of the
quotations for such day for such transactions received by Bank of America from
three Federal funds brokers of recognized standing selected by it.


 


“Fee Letter” means the letters entitled “Fee Letter”
among the Borrowers, the Administrative Agent and the Arranger dated on or
about the Effective Date, as such letter may from time to time be amended.


 


“Fidelity Investment Account” means Account No. 487498743
maintained with Fidelity Brokerage Services LLC or any other account which
replaces such securities account with Fidelity Brokerage Services LLC and used
for short term investments for cash management purposes (including in order to
minimize LIBOR breakage costs).


 


“Financial Officer” means, with respect to any
Borrower, the chief financial officer, controller, treasurer or assistant
treasurer of such Borrower.


 


“Finco 1” has the meaning set forth in the preamble.


 


“Finco 2” has the meaning set forth in the preamble.


 


“Finco Holding” has the meaning set forth in the
preamble.


 


“Finco Partnership” has the meaning set forth in the
preamble.


 


17
















 


“Fixed Charge Coverage Ratio” means for any
Reference Period the ratio of (a)(i) Consolidated EBITDA for such period less
(ii) the sum of (A) Capital Expenditures for such period and (B) federal
income tax paid in cash during such period to (b) the sum of (i) Consolidated
Total Interest Expense for such period, (ii) the sum of all scheduled
payments of principal on Indebtedness of Zale and its Subsidiaries (including
without limitation, the principal component of amounts paid on account of
Capital Lease Obligations) made or required to be made during such period, and (iii) Restricted
Payments consisting of dividends made during such period.


 


“Foreign Lender” means any Lender 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.


 


“FSCO” means the Financial Services Commission of
Ontario and any Person succeeding to the functions thereof and includes the
Superintendent under such statute and any other Governmental Authority empowered
or created by the Supplemental Pensions Act
(Québec) or the Pension Benefits Act (Ontario) or
any Governmental Authority of any other Canadian jurisdiction exercising
similar functions in respect of any Canadian Plan of the Canadian Loan Parties or
any of their Subsidiaries or Affiliates and any Governmental Authority
succeeding to the functions thereof.


 


“GAAP” means generally accepted accounting
principles in the United States of America.


 


“Governmental Authority” means the government of the
United States of America, Canada, any other nation or any political subdivision
thereof, whether state, provincial, territorial, municipal, or local, and any
agency, authority, instrumentality, regulatory body, court, central bank or
other entity exercising executive, legislative, judicial, taxing, regulatory or
administrative powers or functions of or pertaining to government.


 


“Guarantee” means, of or by any Person (the “guarantor”),
any obligation, contingent or otherwise, of the guarantor guaranteeing or having
the economic effect of guaranteeing any Indebtedness of any other Person (the “primary
obligor”) in any manner, whether directly or indirectly, and including any
obligation of the guarantor, direct or indirect, (a) to purchase or pay
(or advance or supply funds for the purchase or payment of) such Indebtedness
or to purchase (or to advance or supply funds for the purchase of) any security
for the payment thereof, (b) to purchase or lease property, securities or
services for the purpose of assuring the owner of such Indebtedness or of the
payment thereof, (c) to maintain working capital, equity capital or any
other financial statement condition or liquidity of the primary obligor so as
to enable the primary obligor to pay such Indebtedness or (d) as an account
party in respect of any letter of credit or letter of guaranty issued to
support such Indebtedness, provided, that the term “Guarantee”
shall not include endorsements for collection or deposit in the ordinary course
of business.  The amount of any Guarantee
shall be deemed to be an amount equal to the maximum stated or determinable
amount of the related primary obligation, or portion thereof, in respect of
which such Guarantee is made or, if not stated or determinable, the maximum
reasonably 


 


18

















 


anticipated liability in respect thereof.  The term “Guarantee” as a verb has a
corresponding meaning.


 


“Guaranteed Pension Plan” means any employee pension
benefit plan within the meaning of §3(2) of ERISA maintained or
contributed to by any of the Loan Parties or any ERISA Affiliate the benefits
of which are guaranteed on termination in full or in part by the PBGC pursuant
to Title IV of ERISA.


 


“Hazardous Materials” means all explosive or
radioactive substances or wastes and all hazardous or toxic substances, wastes
or other pollutants, including petroleum or petroleum distillates, asbestos or
asbestos containing materials, polychlorinated biphenyls, radon gas, infectious
or medical wastes and all other substances or wastes of any nature regulated
pursuant to any Environmental Law, including any material listed as a hazardous
substance under Section 101(14) of CERCLA.


 


“Hedging Agreement” means any interest rate
protection agreement, foreign currency exchange agreement, commodity price
protection agreement, or other interest or currency exchange rate or commodity
price hedging arrangement.


 


“Inadvertent
Overadvance” means the funding of any Loan or the issuance, renewal or
amendment of a Letter of Credit by an Issuing Bank which did not result in an
Overadvance when made based upon the most recent Borrowing Base Certificate
received by the ABL Agent prior to such funding or issuance, renewal or
amendment of a Letter of Credit but which has, on the relevant date of
determination, become an Overadvance as the result of (i) a decline in the
value of the Borrowing Base or the Collateral, (ii) errors or fraud on a
Borrowing Base Certificate, (iii) components of the Borrowing Base on any
date thereafter being deemed ineligible, (iv) the return of uncollected
checks or other items of payment applied to the reduction of Loans or other
similar involuntary or unintentional actions, (v) the imposition or
modification of any Reserve or a reduction in advance rates after the funding
of any loan or advance or the issuance, renewal or amendment of a Letter of
Credit by an Issuing Bank or (vi) any other circumstance beyond the
reasonable control of the ABL Agent or the ABL Secured Parties that results in
the reduction of the realizable value of the Borrowing Base. An Inadvertent
Overadvance shall be deemed outstanding until such time as no Overadvance is
outstanding.


 


“Indebtedness” means, of any Person, without
duplication, (a) all obligations of such Person for borrowed money, (b) all
obligations of such Person evidenced by bonds, debentures, notes or similar
instruments, (c) all obligations of such Person under conditional sale or
other title retention agreements relating to property acquired by such Person, (d) all
obligations of such Person in respect of the deferred purchase price of
property or services (excluding trade payables not more than 60 days past due
or other current accounts payable incurred in the ordinary course of business,
deferred compensation and any purchase-price adjustment or earn-out
obligation), (e) all Indebtedness of others secured by (or for which the
holder of such Indebtedness has an existing right, contingent or otherwise, to
be secured by) any Lien on property owned or acquired by such Person, whether
or not the Indebtedness secured thereby has been assumed, (f) all
Guarantees by such Person of Indebtedness of others (including under any
Synthetic Leases), (h) all Capital Lease Obligations of such Person, (h) all
obligations, contingent or otherwise, of such Person as an 


 


19

















 


account party in respect of letters of credit and
letters of guaranty and (i) all obligations, contingent or otherwise, of
such Person in respect of bankers’ acceptances. 
The Indebtedness of any Person shall include the Indebtedness of any
other entity (including any partnership in which such Person is a general
partner) to the extent such Person is liable therefor as a result of such
Person’s ownership interest in or other relationship with such entity, except
to the extent the terms of such Indebtedness provide that such Person is not
liable therefor.


 


“Indemnified Taxes” means Taxes other than Excluded
Taxes.


 


“Indemnitee” has the meaning set forth in Section 9.3(b).


 


“Initial Borrowers” has the meaning set forth in the
preamble hereto.


 


“Initial Facility Guarantors” has the meaning set
forth in the preamble hereto.


 


“Intercompany Subordination Agreement” means the
Intercompany Subordination Agreement, dated as of the Effective Date, by and
among the obligors party thereto, in favor of the Administrative Agent and the
Secured Parties, as amended and in effect from time to time.


 


“Intercreditor Agreement” means that certain
Intercreditor Agreement dated as of May 10, 2010 by and between the Agents
and Z Investment Holdings LLC as administrative agent for the holders of the
Term Loan, as amended and in effect from time to time.


 


“Interest Payment Date” means (a) with respect
to any Base Rate Loan (including a Swingline Loan), the last day of each
calendar month, and (b) with respect to any LIBOR Loan, the last day of
each Interest Period and, in the case of any Interest Period longer than three
months, on each successive date three months after the first day of such
Interest Period.


 


“Interest Period” means, with respect to any LIBOR
Borrowing, the period commencing on the date of such Borrowing and ending on
the numerically corresponding day in the calendar month that is one, two,
three or six months thereafter, as any Borrower may elect, provided,
that (a) if any Interest Period would end on a day other than a Business
Day, such Interest Period shall be extended to the next succeeding Business Day
unless such next succeeding Business Day would fall in the next calendar month,
in which case such Interest Period shall end on the next preceding Business
Day, and (b) any Interest Period that commences on the last Business Day
of a calendar month (or on a day for which there is no numerically
corresponding day in the last calendar month of such Interest Period) shall end
on the last Business Day of the last calendar month of such Interest Period,
and (c) (i) until such time as the Commitments of the Non-Extending
Lenders shall have expired or been terminated and all Loan Agreement Obligations
owed to the Non-Extending Lenders shall have been paid in full, no Interest
Period shall extend beyond the Maturity Date, and (ii) thereafter, no
Interest Period shall extend beyond the Extended Term Maturity Date.  For purposes hereof, the date of a Borrowing
initially shall be the date on which such Borrowing is made and thereafter
shall be the effective date of the most recent conversion or continuation of
such Borrowing.


 


20

















 


“Inventory” has the meaning set forth in the
Security Agreement.


 


“Inventory Advance Rate” means (i) 69.4% for
the months of January through September and (ii) 73.1% for the
months of October through December.


 


“Inventory Reserves” means such reserves as may be
established from time to time by the Administrative Agent, either in its
reasonable commercial discretion, or at the direction of any Co-Borrowing Base
Agent acting in its reasonable discretion, exercised in good faith, with
respect to changes in the determination of the saleability of the Eligible
Inventory or which reflect such other factors as negatively affect the value of
the Eligible Inventory.  Inventory
Reserves shall include, without limitation, the Shrink Reserve.


 


“Issuing Bank” means each of Bank of America and Wells
Fargo Bank (an Affiliate of Wells Fargo Retail Finance, LLC), each in its
capacity as the issuer of Letters of Credit hereunder, and any successor to
either of them in such capacity (which may only be a Lender selected by the
Borrowers and approved by the Administrative Agent in its reasonable
discretion).  Each Issuing Bank may, in
its reasonable discretion, arrange for one or more Letters of Credit to be
issued by Affiliates of such Issuing Bank, in which case the term “Issuing
Bank” shall include any such Affiliate with respect to Letters of Credit
issued by such Affiliate.  Each Issuing
Bank shall act commercially reasonably and otherwise in accordance with the
standard of care set forth in SECTION 2.6(i).


 


“Judgment Conversion Date”
has the meaning set forth in Section 9.18.


 


“Judgment Currency”
has the meaning set forth in Section 9.18.


 


“Landlord Lien Reserve” means two (2) month’s
base rent for each of the Loan Parties’ facilities at which inventory is stored
and located in the States of Washington, Pennsylvania, Virginia and such other
state(s), province(s), and other jurisdiction(s) in which a landlord’s
claim for rent may have priority over the Lien of the Collateral Agent in any
of the Collateral. The Landlord Lien Reserve shall be calculated quarterly.


 


“Layaway Reserve” means 100% of the aggregate amount
deposited by customers with the Loan Parties including, without limitation,
amounts deposited on account of layaway or similar programs.


 


“L/C Disbursement” means a payment made by any
Issuing Bank pursuant to a Letter of Credit.


 


“Lenders” means the Persons identified on
Schedule 1.1 (including, in each case, Extending Lenders and Non-Extending
Lenders) and each assignee that becomes a party to this Agreement as set forth
in SECTION 9.4.


 


“Letter of Credit” means a letter of credit that is (i) issued
pursuant to this Agreement for the account of any Borrower, (ii) a Standby
Letter of Credit or Commercial Letter of Credit, (iii) issued in
connection with the purchase of Inventory by any Borrower or for any other
purpose that is reasonably acceptable to the Administrative Agent, and 


 


21

















 


(iv) in form and substance reasonably
satisfactory to the applicable Issuing Bank. 
The term “Letter of Credit” shall also include any banker’s acceptance
issued by any Issuing Bank.


 


“Letter of Credit Fees” means the fees payable in
respect of Letters of Credit pursuant to SECTION 2.13.


 


“Letter of Credit Outstandings” means, at any time,
the sum of (a) with respect to Letters of Credit outstanding at such time,
the aggregate maximum amount that then is or at any time thereafter may become
available for drawing or payment thereunder plus (b) all amounts
theretofore drawn or paid under Letters of Credit for which any Issuing Bank
has not then been reimbursed.


 


“LIBOR Borrowing” means a Borrowing comprised of
LIBOR Loans.


 


“LIBOR Loan” means any Loan bearing interest at a
rate determined by reference to the Adjusted LIBO Rate in accordance with the
provisions of Article II.


 


“LIBOR Rate” means, with respect to any LIBOR
Borrowing for any Interest Period, the rate of interest (rounded upwards, if
necessary to the next 1/16 of 1%) determined by the Administrative Agent to be
the prevailing rate per annum at which deposits in Dollars are offered by banks
in the London interbank market based on information presented on Reuters Screen
FRBD or Telerate at 11:00 a.m. (London time) not less than two Business
Days before the first day of the Interest Period for the subject LIBOR Borrowing,
for a deposit approximately in the amount of the subject Borrowing and for a
period of time approximately equal to such Interest Period.


 


“Lien” means, with respect to any asset, (a) any
mortgage, deed of trust, statutory or deemed trust, lien, pledge,
hypothecation, encumbrance, 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.


 


“Line Cap” means, at any time of determination, the
lesser of (a) the Total Commitment or (b) the Borrowing Base., provided
that for purposes of determining the amount of Permitted Overadvances which may
be made only, the Borrowing Base shall be calculated without giving effect to
the Term Reserve, if any.


 


“Loan Account” has the meaning set forth in SECTION 2.20(a).


 


“Loan Agreement Obligations” means (a) the
payment by the Loan Parties of (i) the principal of, and interest on the
Loans (including all interest that accrues after the commencement of any case
or proceeding by or against any Loan Party under the Bankruptcy Code or any
state, federal, provincial or foreign bankruptcy, insolvency, receivership,
reorganization or similar law, whether or not allowed or allowable in such case
or proceeding), when and as due, whether at maturity, by acceleration, upon one
or more dates set for prepayment or otherwise, (ii) each payment required
to be made by the Loan 


 


22

















 


Parties under this Agreement in respect of any Letter
of Credit, when and as due, including payments in respect of reimbursement of
disbursements, interest thereon and obligations to provide cash collateral and (iii) all
other monetary obligations, including fees, costs, expenses and indemnities,
whether primary, secondary, direct, contingent, fixed or otherwise (excluding
obligations under clauses (b) and (c) of the definition of “Obligations”),
of the Loan Parties to the Secured Parties under this Agreement and the other
Loan Documents (in each case, including all such amounts that accrue after the
commencement of any case or proceeding by or against any Loan Party under the
Bankruptcy Code or any state, federal, provincial, or foreign bankruptcy,
insolvency, receivership, organization or similar law, whether or not allowed
or allowable in such case or proceeding), and (b) the payment and
performance of all the covenants, agreements, obligations and liabilities of
each Loan Party under or pursuant to this Agreement, and the other Loan
Documents.


 


“Loan Documents” means this Agreement, the Notes,
the Letters of Credit, the Fee Letters, all Borrowing Base Certificates, the
Blocked Account Agreements, the Credit Card Notifications, the Security
Documents, the Facility Guarantee, the Facility Guarantor Collateral Documents,
the Intercreditor Agreement, the Intercompany Subordination Agreement, and any
other instrument or agreement executed and delivered in connection herewith or
therewith.


 


“Loan Party” or “Loan Parties” means each
Borrower and each Facility Guarantor.


 


“Loans” means all loans (including, without
limitation, Revolving Loans and Swingline Loans) at any time made to the
Borrowers or for account of the Borrowers pursuant to this Agreement.


 


“Margin Stock” has the meaning set forth in
Regulation U.


 


“Material Adverse Effect” means a material adverse
effect on (a) the business, operations, property, assets, or financial
condition of the Loan Parties and their Subsidiaries taken as a whole, or (b) the
validity or enforceability of this Agreement or any of the other Loan Documents
or any of the material rights or remedies of the Administrative Agent, the
Collateral Agent, the Co-Borrowing Base Agents, the Lenders or the Issuing
Banks hereunder or thereunder; provided, however, that no Material
Adverse Effect shall be deemed to exist with respect to the Loan Parties solely
as a result of (i) the loss by any Loan Party of its investment in an
Excluded Subsidiary; (ii) the loss of that portion of the Loan Parties’
consolidated results of operations generated by any Excluded Subsidiary; or (iii) any
liability of an Excluded Subsidiary that is not, on an unconsolidated basis, a
liability of a Loan Party.


 


“Material Indebtedness” means Indebtedness
(other than the Loans and Letters of Credit) of any one or more of the Loan
Parties in an aggregate principal amount exceeding $25,000,000.


 


“Maturity Date” means, with respect to Loan
Agreement Obligations due to Non-Extending Lenders, August 11, 2011.


 


23

















 


“Maximum Rate” has the meaning set forth in SECTION 9.13.


 


“Minority Lenders” has the meaning set forth in Section 9.2(c).


 


“Moody’s” means Moody’s Investors Service, Inc.


 


“Multiemployer Plan” means a multiemployer plan as
defined in Section 4001(a)(3) of ERISA.


 


“Net Proceeds” means with respect to any sale,
transfer or other disposition by any Loan Party or any Subsidiary thereof, the
excess, if any, of (i) the sum of cash and cash equivalents actually
received in connection with such transaction (including any cash or cash
equivalents received by way of deferred payment pursuant to, or by monetization
of, a note receivable or otherwise, but only as and when so received) over (ii) the
sum of (A) the principal amount of (and accrued and unpaid interest on,
and other amounts payable in connection with) any Indebtedness that is secured
by a Lien on the applicable asset which Lien is permitted hereunder and which
Lien is senior to the Collateral Agent’s Lien on such asset and that is
required to be paid or repaid (or to establish an escrow for the future
repayment thereof) in connection with such transaction (other than Indebtedness
under the Loan Documents), (B) the reasonable and customary out-of-pocket
expenses incurred by such Loan Party in connection with such transaction
(including, without limitation, appraisals, brokerage, title and recording or
transfer tax expenses and commissions, legal, accounting and other professional
fees) paid or payable by such Loan Party to third parties (other than
Affiliates)), (C) cash taxes paid or reasonably estimated to be actually
payable in cash in connection therewith (provided that, to the extent and at
the time any such amounts are determined to not be payable, such amounts shall
constitute Net Proceeds), (D) amounts provided as a reserve against any
liabilities under any indemnification obligations or purchase price adjustment
associated with such asset disposition (provided that, to the extent and at the
time any such amounts are released from such reserve, such amounts shall constitute
Net Proceeds), and (E) any liabilities relating to the property subject to
such asset disposition that are retained by any Loan Party or its Subsidiaries,
provided that, at all times such liabilities remain outstanding, the Loan
Parties shall maintain an amount sufficient to satisfy such liabilities in a
segregated account established with the Administrative Agent to be used by the
Loan Parties solely to satisfy such liabilities as they become due.


 


“Noncompliance Notice” has the meaning set forth in Section 2.5(b).


 


“Non-Extending Lender” means each Lender listed on Schedule
1.1 under the heading “Non-Extending Lenders”, whose Commitment shall
terminate on the Termination Date.


 


“Notes” means (i) the promissory notes
of the Borrowers substantially in the form of Exhibit B-1, each payable to
the order of a Lender, evidencing the Revolving Loans, and (ii) the
promissory note of the Borrowers substantially in the form of Exhibit B-2,
payable to the Swingline Lender, evidencing the Swingline Loans.


 


24

















 


“Obligations” means (a) Loan Agreement
Obligations, (b) the payment and performance of any transaction which
arises out of any Cash Management Services, and (c) the payment and
performance of any transaction which arises out of any Bank Products.


 


“Other Taxes” means any and all current or future
stamp or documentary taxes or any other excise or property taxes, charges or
similar levies arising from any payment made under any Loan Document or from
the execution, delivery or enforcement of, or otherwise with respect to, any
Loan Document.


 


“Overadvance” means, at any time of calculation, a
circumstance in which the Credit Extensions exceed the Line Cap.


 


“Payment Conditions” means, at the time of
determination with respect to a specified transaction or payment, that (a) no
Default or Event of Default then exists or would arise as a result of the
entering into of such transaction or the making of such payment and (b) after
giving effect to such transaction or payment, the Pro Forma Availability
Condition has been satisfied and the Consolidated Fixed Charge Coverage Ratio,
on a pro-forma basis for the Reference Period immediately preceding such
transaction or payment, will be equal to or greater than 1.15:1.00.  Prior to undertaking any transaction or
payment which is subject to the Payment Conditions, the Loan Parties shall
deliver to the Administrative Agent a certificate certifying as to the absence
of any Event of Default and setting forth the calculations of the Pro Forma
Availability Condition and the Consolidated Fixed Charge Coverage Ratio which
evidences satisfaction of the conditions contained in clause (b) above on
a basis reasonably satisfactory to the Administrative Agent and the
Co-Borrowing Base Agents.


 


“PBGC” means the Pension Benefit Guaranty
Corporation referred to and defined in ERISA and any successor entity
performing similar functions.


 


“Permitted Asset Sales” means sales and dispositions
of assets that are deemed appropriate by the Loan Parties for fair market value
not to exceed $30,000,000 in any fiscal year and for which not less than
seventy-five percent (75%) of the aggregate purchase price is paid in cash.


 


“Permitted Encumbrances” means:


 


(a)                                  Liens imposed
by law for taxes that are not yet delinquent or are being contested in
compliance with SECTION 5.5;


 


(b)                                 carriers’,
warehousemen’s, landlord’s, mechanics’, materialmen’s, repairmen’s and other
like Liens, arising in the ordinary course of business and securing obligations
that are not overdue by more than ninety (90) days or are being contested
in compliance with SECTION 5.5;


 


(c)                                  pledges and
deposits made in the ordinary course of business in compliance with workers’
compensation, unemployment insurance, old-age pension and other social security
laws or regulations;


 


25

















 


(d)                                 deposits to
secure the performance of bids, trade contracts, leases, contracts (other than
for the repayment of borrowed money), statutory obligations, surety and appeal
bonds, performance bonds and other obligations of a like nature, in each case
in the ordinary course of business;


 


(e)                                  judgment liens
in respect of judgments that do not constitute an Event of Default under SECTION 7.1(k);
and


 


(f)                                    easements,
zoning restrictions, rights-of-way and similar encumbrances (and with respect
to leasehold interests, mortgages, obligations, liens and other encumbrances
incurred, created, assumed or permitted to exist and arising by, through or
under or asserted by a landlord or owner of leased property, with or without
the consent of the lessee) on real property imposed by law or arising in the
ordinary course of business that do not secure any monetary obligations and do
not materially detract from the value of the affected property or materially
interfere with the ordinary conduct of business of the Loan Parties, and such
other minor title defects or survey matters that are disclosed by current
surveys that, in each case, do not materially interfere with the ordinary
conduct of business of the Loan Parties.


 


provided, that except as provided in any one or
more of clauses (a) through (f) above, the term “Permitted
Encumbrances” shall not include any Lien securing Indebtedness.


 


“Permitted Investments” means each of the
following:


 


(a)                                  marketable
direct or guaranteed obligations of the United States of America that mature
within two (2) years from the date of purchase by such Loan Party or such
Subsidiary;


 


(b)                                 demand
deposits, certificates of deposit, Eurodollar deposits, time deposits and
bankers acceptances issued by banking institutions provided, that such
banks have a long-term credit rating of at least “AA” (or its then equivalent)
if rated by S&P or any successor service thereto having a substantially
similar rating system or “Aa” (or its then equivalent) if rated by Moody’s or
any successor service thereto having a substantially similar rating system, or
an equivalent rating from either Dominion Bond Rating Services Limited or CBRS, Inc.;
provided, however, the Loan Parties’ investment in any one bank
shall not exceed 5% of the primary capital of such bank;


 


(c)                                  securities
commonly known as “commercial paper” issued by the Administrative Agent, or a
corporation or any other financial institution that at the time of purchase
have been rated and the ratings for which are not less than “P1” (or its then
equivalent) if rated by Moody’s or any successor service thereto having a
substantially similar rating system, or not less than “A1” (or its then
equivalent) if rated by S&P or any successor service thereto having a
substantially similar rating system, or an equivalent rating from either
Dominion Bond Rating Services Limited or CBRS, Inc.; provided, however,
the Loan Parties may invest up to 20% of their Permitted Investments measured
at the time of investment made pursuant to paragraphs (a)-(i) hereof
in commercial paper with a combined rating of “A-2/P-2” (or its then
equivalent);


 


26

















 


(d)                                 demand notes
issued by a corporation organized and existing under the laws of the United
States of America or any state thereof that at that time of purchase have a
rating of at least “AA” (or its then equivalent) if rated by S&P or any
successor service thereto having a substantially similar rating system, or its
equivalent by at least two (2) nationally recognized rating services, or an
equivalent rating from either Dominion Bond Rating Services Limited or CBRS, Inc.,
and have a maturity date that does not exceed one (1) year beyond the date
of purchase; provided, however, such investments will be limited
to the greater of $20 million per obligor or 20% of investments made
pursuant to paragraphs (a)-(i) hereof measured at the time of investment;


 


(e)                                  repurchase
agreements, purchased through the Administrative Agent, or a corporation
organized and existing under the laws of the United States of America or any
state thereof that at the time of purchase have been rated and the ratings for
which are not less than “P1” (or its then equivalent) if rated by Moody’s or
any successor service thereto having a substantially similar rating system, or
not less than “A1” (or its then equivalent) if rated by S&P or any
successor service thereto having a substantially similar rating system, or an
equivalent rating from either Dominion Bond Rating Services Limited or CBRS, Inc.,
which repurchase agreements are collateralized by securities of the United
States of America or any agency thereof in an amount equal to at least 102% of
the amount of such investment;


 


(f)                                    shares of any
so-called “money market fund” advised, serviced or sold by any of the Lenders
or by any other financial institution provided, that such fund is
registered under the Investment Company Act of 1940, has net assets of at least
$250,000,000, has an investment portfolio with an average maturity of
365 days or less and is not considered to be a “high-yield” fund;


 


(g)                                 municipal fixed
and variable rate short-term securities that mature within one (1) year
from the date of purchase by any Loan Party or such Subsidiary that at the time
of purchase have been rated and the ratings for which are not less than “MIG-1/VMIG-1”
(or its then equivalent) if rated by Moody’s or any successor service thereto
having a substantially similar rating system or not less than “SP-1+/A-1” (or
its then equivalent) if rated by S&P or any successor service thereto
having a substantially similar rating system, or an equivalent rating from
either Dominion Bond Rating Services Limited or CBRS, Inc.;


 


(h)                                 municipal fixed
and variable rate medium-term securities that mature between one (1) and
two (2) years from the date of purchase by such Loan Party or such
Subsidiary that at the time of purchase have been rated and the ratings for
which are not less than “Aa” (or its then equivalent) if rated by Moody’s or
any successor service thereto having a substantially similar rating system or
not less than “AA” (or its then equivalent) if rated by S&P or any
successor service thereto having a substantially similar rating system, or an
equivalent rating from either Dominion Bond Rating Services Limited or CBRS, Inc.;


 


(i)                                     Reserved; and


 


27
















 


(j)                                     marketable
direct obligations of the State of Texas or its agencies and instrumentalities
that at the time of purchase have been rated and the ratings for which are not
less than “P” (or its then equivalent) if rated by Moody’s or any successor
service thereto having a substantially similar rating system or not less than “A”
(or its then equivalent) if rated by S&P or any successor service thereto
having a substantially similar rating system.


 


“Permitted Overadvance” means an Overadvance
determined by the Administrative Agent, in its reasonable discretion, (a) which
is made to maintain, protect or preserve the Collateral, and/or the Lenders’
rights under the Loan Documents, including to preserve the Loan Parties’
business assets and infrastructure (such as the payment of insurance premiums,
taxes, necessary suppliers, rent and payroll), (b) to fund an orderly
liquidation or wind-down of the Loan Parties’ assets or business or a
bankruptcy or other insolvency proceeding (whether or not occurring prior to or
after the commencement of such a bankruptcy or insolvency proceeding), (iv) to
enhance the likelihood, or maximize, the repayment of the Obligations, or (v) which
is otherwise in the Lenders’ interests; provided, that Permitted
Overadvances shall not (i) exceed five percent (5%) of the Line Cap
(without giving effect to the Term Reserve) or (ii) unless a liquidation of any of the Collateral is occurring, remain outstanding for more than thirty consecutive Business Days, unless
in case of clause (ii), the Required Supermajority Lenders otherwise
agree; and provided, further, that the foregoing shall not (1) modify
or abrogate any of the provisions of SECTION 2.6(g) regarding the
Lenders’ obligations with respect to L/C Disbursements, or (2) result
in any claim or liability against the Administrative Agent (regardless of the
amount of any Overadvance) for Inadvertent Overadvances, and further provided,
that in no event shall the Administrative Agent make an Overadvance, if after
giving effect thereto, the principal amount of the Credit Extensions would
exceed the Total Commitment.


 


“Permitted Refinancing” means, with respect to any Person, any Indebtedness issued in exchange for, or
the net proceeds of which are used to extend, refinance, renew, replace, defease
or refund (collectively, to “Refinance”), the Indebtedness being
Refinanced (or previous refinancings thereof constituting a Permitted
Refinancing); provided, that (a) the principal amount (or accreted
value, if applicable) of such Permitted Refinancing does not exceed the
principal amount (or accreted value, if applicable) of the Indebtedness so
Refinanced (plus unpaid accrued interest and premiums thereon and underwriting
discounts, defeasance costs, fees, commissions and expenses), (b) the
weighted average life to maturity of such Permitted Refinancing is greater than
or equal to the weighted average life to maturity of the Indebtedness being
Refinanced, (c) such Permitted Refinancing shall not require any scheduled
principal payments due prior to the Extended Term Maturity Date in excess of,
or prior to, the scheduled principal payments due prior to such Extended Term
Maturity Date for the Indebtedness being Refinanced, (d) if the
Indebtedness being Refinanced is subordinated in right of payment to the
Obligations under this Agreement, such Permitted Refinancing shall be
subordinated in right of payment to such Obligations on terms at least as
favorable to the Lenders as those contained in the documentation governing the
Indebtedness being Refinanced, (e) no Permitted Refinancing shall have
different direct or indirect obligors, or greater guarantees or security, than
the Indebtedness being Refinanced, (f) the
interest rate applicable to any such Permitted Refinancing shall not exceed the
then applicable market interest rate, and (g) at
the time thereof, both before and 


 


28

















 


after giving effect to such Refinancing, no Default
or Event of Default shall have occurred and be continuing.


 


“Person” means any natural person, corporation,
limited liability company, unlimited liability company, trust, joint venture,
association, company, partnership, Governmental Authority or other entity.


 


“Plan” means any employee pension benefit plan
(other than a Multiemployer Plan) subject to the provisions of Title IV of
ERISA or Section 412 of the Code or Section 302 of ERISA, and in
respect of which the Loan Parties or any ERISA Affiliate is (or, if such plan
were terminated, would under Section 4069 of ERISA be deemed to be) an “employer”
as defined in Section 3(5) of ERISA.


 


“PPSA” means the Personal Property Security
Act of Ontario (or any successor statute) 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 or hypothecs.


 


“Prepayment Event”
means the occurrence of any of the following events:


 


(a)                                  Any sale,
transfer or other disposition (including pursuant to a sale and leaseback
transaction, other than (i) sales of Inventory or equipment in the ordinary
course of business, (ii) sales or assignments of leasehold interests in
real property, and (iii) dispositions of other property resulting in net
proceeds of not more than $1,000,000 in any transaction or series of related
transactions) of any asset of a Loan Party, unless the proceeds therefrom are
required to be paid to the holder of a Lien on such property or asset having
priority over the Lien of the Collateral Agent;


 


(b)                                 Any casualty or
other insured damage to, or any taking under power of eminent domain or by
condemnation, expropriation or similar proceeding of, any asset of a Loan Party
or any Subsidiary thereof, unless the proceeds therefrom are required to be
paid to the holder of a Lien on such property or asset having priority over the
Lien of the Collateral Agent;


 


(c)                                  Any incurrence
of any Indebtedness by any Loan Party or any Subsidiary thereof (excluding
Indebtedness permitted to be incurred under SECTION 6.1, other than clause
(l) thereof) to the extent that the proceeds of any such incurrence are
not used to prepay the Term Loan; or


 


(d)                                 Any issuance by
any Loan Party of any Stock (other than Stock issued to another Loan Party and
Stock issued upon the exercise of options, warrants or other similar rights to
purchase Stock), to the extent that the proceeds of any such issuance are not
used to prepay the Term Loan.


 


“Pro
Forma Availability Condition” shall mean, for any date of calculation with
respect to any transaction or payment, the Pro Forma Availability for each of
the twelve months


 


29

















 


following,
and after giving effect to, such transaction or payment, will be equal to or
greater than the greater of (i) $75,000,000 or (ii) twenty percent (20%)
of the Line Cap.


 


“Pro
Forma Availability” shall mean, for any date of calculation, the projected
monthly Excess Availability for each month during any projected twelve (12)
months (and measured at the end of each such month).


 


“PRUCC” means the
Puerto Rico Commercial Transactions act, Ley de Transacciones
Comerciales, Act #214 of September 19, 1996, as amended from
time to time.


 


“Real Estate” means all land, together with the
buildings, structures, fixtures, parking areas, and other improvements thereon,
now or hereafter owned by any Loan Party, including all easements,
rights-of-way, and similar rights relating thereto and all leases, tenancies,
and occupancies thereof.


 


“Reference Period” means as of any date of
determination, the period of twelve (12) consecutive fiscal months of Zale and
its Subsidiaries ending on such date, or if such date is not a fiscal month end
date, the period of twelve (12) consecutive fiscal months most recently ended
(in each case treated as a single accounting period).


 


“Record” means the grid attached to a Note, or the
continuation of such grid, or any other similar record, including computer
records, maintained by a Lender with respect to any Loan, whether referred to
in such Note or otherwise.


 


“Register” has the meaning set forth in Section 9.4(c).


 


“Regulation U” means Regulation U of the
Board as from time to time in effect and all official rulings and
interpretations thereunder or thereof.


 


“Regulation X” means Regulation X of the
Board as from time to time in effect and all official rulings and
interpretations thereunder or thereof.


 


“Related Parties” means, with respect to any
specified Person, such Person’s Affiliates and the respective directors,
officers, employees, agents and advisors of such Person and such Person’s
Affiliates.


 


“Release” has the meaning set forth in Section 101(22)
of CERCLA.


 


“Required Lenders” means, at any time, Lenders having
Commitments equal to 51% of the Total Commitment, or if the Commitments have
been terminated, Lenders whose percentage of the Credit Extensions (after
settlement and repayment of all Swingline Loans by the Lenders) aggregate not
less than 51% of all such Credit Extensions, provided that the
Commitment of, and the portion of the Credit Extensions held or deemed held by,
any Delinquent Lender or Deteriorating Lender shall be excluded for purposes of
making a determination of Required Lenders.


 


“Required Supermajority Lenders” means, at any time,
Lenders having Commitments equal to 75% of the Total Commitment, or if the
Commitments have been terminated, 


 


30

















 


Lenders whose percentage of the Credit Extensions
(after settlement and repayment of all Swingline Loans by the Lenders)
aggregate not less than 75% of all such Credit Extensions, provided that
the Commitment of, and the portion of the Credit Extensions held or deemed held
by, any Delinquent Lender or Deteriorating Lender shall be excluded for
purposes of making a determination of Required Supermajority Lenders.


 


“Reserves” means, without duplication, Inventory
Reserves, the Shrink Reserve, Layaway Reserve, Customer Credit Reserve, the
Landlord Lien Reserve, the Consignment A/R Reserve, the Canadian Priority
Payables Reserve, the Term Reserve and such other reserves established from
time to time in accordance with SECTION 2.2(b).


 


“Responsible Officer” means the chief executive
officer, president, chief financial officer, treasurer or assistant treasurer
of a Loan Party or any of the other individuals designated in writing to the
Administrative Agent by an existing Responsible Officer of a Loan Party as an
authorized signatory of any certificate or other document to be delivered
hereunder. Any document delivered hereunder that is signed by a Responsible
Officer of a Loan Party shall be conclusively presumed to have been authorized
by all necessary corporate, partnership and/or other action on the part of such
Loan Party and such Responsible Officer shall be conclusively presumed to have
acted on behalf of such Loan Party.


 


“Restricted Payment” means any dividend or other
distribution (whether in cash, securities or other property) with respect to
any shares of any class of capital stock of any Loan Party other than dividends
payable solely in shares of common stock of such Loan Party, or any payment
(whether in cash, securities or other property), including any sinking fund or
similar deposit, on account of the purchase, redemption, retirement,
acquisition, cancellation or termination of any such shares of capital stock of
any Loan Party or any option, warrant or other right to acquire any such shares
of capital stock of any Loan Party, other than any such payment made solely in
shares of common stock of such Loan Party.


 


“Revolving Credit Increase Effective Date” has the
meaning set forth in Section 2.29(e).


 


“Revolving Loans” means all Loans at any time made
by a Lender pursuant to Section 2.1.


 


“S&P” means Standard & Poor’s Ratings
Service, a division of The McGraw-Hill Companies, Inc.


 


“Seasonal Commitments” means the Commitments
described as “Seasonal Commitments” and set forth on Schedule 1.1 hereto.  As of the Effective Date, the sum of the
Seasonal Commitments is $108,600,000.


 


“Secured Parties” has the meaning set forth in the
Security Agreement.


 


“Security Agreement” means, collectively, the
Security Agreement, in the form of Exhibit C-1 attached hereto and
incorporated herein, among the Loan Parties and the Collateral Agent for the
benefit of the Secured Parties, and the General Security Agreement, 


 


31

















 


in the form of Exhibit C-2 attached
hereto and incorporated herein, among each Canadian Loan Party and the
Collateral Agent for the benefit of the Secured Parties, in each case as
amended and in effect from time to time.


 


“Security Documents” means the Security Agreement
and each other security agreement or other instrument or document executed and
delivered pursuant to Section 5.13 to secure any of the Obligations.


 


“Settlement Date” has the meaning set forth in SECTION 2.7(b).


 


“Shrink” means Inventory which has been lost,
misplaced, stolen, or is otherwise unaccounted for.


 


“Shrink Reserve” means from time to time the Loan
Parties’ then current general ledger reserve for Shrink provided that the
determination of such current general ledger reserve is consistent with the
methodologies used in the Loan Parties’ most recent physical Inventory results
delivered to the Administrative Agent prior to the Effective Date.


 


“Solvent” means, with respect to any Person on a
particular date, that on such date (a) at fair valuations, all of the
properties and assets of such Person are greater than the sum of the debts, including
contingent liabilities, of such Person, (b) the present fair saleable
value of the properties and assets of such Person is not less than the amount
that would be required to pay the probable liability of such Person on its
debts as they become absolute and matured, (c) such Person is able to
realize upon its properties and assets and pay its debts and other liabilities,
contingent obligations and other commitments as they mature in the normal
course of business, (d) such Person does not intend to, and does not
believe that it will, incur debts beyond such Person’s ability to pay as such
debts mature, and (e) such Person is not engaged in a business or a
transaction, and is not about to engage in a business or transaction, for which
such Person’s properties and assets would constitute unreasonably small capital
after giving due consideration to the prevailing practices in the industry in
which such Person is engaged.


 


“Standby Letter of Credit” means any Letter of
Credit other than a Commercial Letter of Credit.


 


“Statutory Reserve Rate” means a fraction (expressed
as a decimal), the numerator of which is the number one and the denominator of
which is the number one minus the aggregate of the maximum reserve percentages
(including any marginal, special, emergency or supplemental reserves) expressed
as a decimal established by the Board to which the Administrative Agent is
subject with respect to the Adjusted LIBO Rate, for eurocurrency funding
(currently referred to as “Eurocurrency Liabilities” in Regulation D
of the Board).  Such reserve percentages
shall include those imposed pursuant to such Regulation D.  LIBOR Loans shall be deemed to constitute
eurocurrency funding and to be subject to such reserve requirements without
benefit of or credit for pro ration, exemptions or offsets that may be
available from time to time to any Lender under such Regulation D or any
comparable regulation.  The Statutory
Reserve Rate shall be adjusted automatically on and as of the effective date of
any change in any reserve percentage.


 


32

















 


“Stock” means all shares of capital stock (whether
denominated as common stock or preferred stock), equity interests, beneficial,
partnership or membership interests, joint venture interests, participations or
other ownership or profit interests in or equivalents (regardless of how
designated) of or in a Person (other than an individual), whether voting or
non-voting.


 


“Store” means any retail store (including kiosk)
leased, owned or operated, or to be leased, owned or operated, by any Loan
Party or any of its Subsidiaries.


 


“Subsidiary” means, with respect to any Person (the “parent”)
at any date, any corporation, limited liability company, unlimited liability
company, partnership, association or other entity the accounts of which would
be consolidated with those of the parent in the parent’s consolidated financial
statements if such financial statements were prepared in accordance with GAAP
as of such date, as well as any other corporation, limited liability company,
partnership, association or other entity of which securities or other ownership
interests representing more than 50% of the equity or 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.


 


“Swingline Lender” means Bank of America, in its
capacity as lender of Swingline Loans hereunder.


 


“Swingline Loan” means a Loan made by the Swingline
Lender to the Borrowers pursuant to SECTION 2.5.


 


“Synthetic Lease” means any lease or other
agreement for the use or possession of property creating obligations which do
not appear as Indebtedness on the balance sheet of the lessee thereunder but
which, upon the insolvency or bankruptcy of such Person, would be characterized
as Indebtedness of such lessee without regard to the accounting treatment.


 


“Taxes” means any and all current or future taxes,
levies, imposts, duties, deductions, charges or withholdings imposed by any Governmental
Authority.


 


“Term Loan” means the term loan facility in favor of
Zale, as borrower, in the original principal amount of $150,000,000 made under
that certain Credit Agreement dated as of May 10, 2010 among Zale, the
lenders party thereto, and Z Investment Holdings LLC as administrative agent,
as amended and in effect from time to time in accordance with the terms of the
Intercreditor Agreement.


 


“Term Priority Collateral” has the meaning set forth
in the Intercreditor Agreement.


 


“Term Reserve” means a Reserve requested by the Term
Agent (as defined in the Intercreditor Agreement) in the amounts and at the
times set forth in the Intercreditor, but in no event in excess of two and
one-half percent (2.5%) of the Borrowing Base (without giving effect to clause (d) of
the definition thereof) at any time. The Term Reserve, once established, may be
reduced or eliminated only with the prior written consent of the Term Agent or
upon receipt of written certification from the Borrowers that the conditions
set 


 


33

















 


forth in the credit agreement governing the Term
Loan with respect to such reduction or elimination have been satisfied.


 


“Term Securities Accounts” means one or more
securities accounts (other than the Fidelity Investment Account) into which
Permitted Investments and/or proceeds of ABL Priority Collateral are deposited
from time to time; provided that the maximum amount deposited in such
securities accounts shall in no event exceed $10,000,000 in the aggregate
outstanding at any time.


 


“Termination Date” means the earliest to occur of (i) the
Maturity Date, (ii) the date on which the maturity of the Loans is
accelerated and the Commitments are terminated in accordance with SECTION 7.1,
(iii) the date of the occurrence of any Event of Default pursuant to SECTION 7.1(h) or
(i) or (iv) the date on which the Borrowers permanently terminate all
Commitments pursuant to SECTION 2.15.


 


“Total Commitment” means, as of any date of
determination, (a) an amount equal to the sum of the Commitments in effect
on such date, as reduced by the Borrowers pursuant to Section 2.15 or
increased pursuant to Section 2.29, plus (b) for the period of
October 15 through December 15 of each year, the sum of the Seasonal
Commitments in effect on such date.


 


“TXDC” has the meaning set forth in the preamble.


 


“Type”, when used in reference to any Loan or
Borrowing, refers to whether the rate of interest on such Loan, or on the Loans
comprising such Borrowing, is determined by reference to the Adjusted LIBO
Rate, the Extended Term Prime Rate or the Alternate Base Rate.


 


“Uncapped Availability” means as of any date of
determination, the excess, if any, of (a) the Borrowing Base minus (b) the
outstanding Credit Extensions.


 


“Uniform Customs” means with respect to any Letter
of Credit, the Uniform Customs and Practice for Documentary Credits (1993
Revision), International Chamber of Commerce Publication No. 500 or any
successor version thereto adopted by the Administrative Agent in the ordinary
course of its business as a letter of credit issuer and in effect at the time
of issuance of such Letter of Credit.


 


“Unused Commitment” means, on any day, (a) the
then Total Commitment minus (b) the sum of (i) the principal amount
of Loans then outstanding and (ii) the then Letter of Credit Outstandings.


 


“Withdrawal Liability” means liability to a
Multiemployer Plan as a result of a complete or partial withdrawal from such
Multiemployer Plan, as such terms are defined in Part I of Subtitle E
of Title IV of ERISA.


 


“Zale” has the meaning set forth in the preamble.


 


“Zale Canada” has the meaning set forth in the
preamble.


 


34

















 


“Zale Delaware” has the meaning set forth in the
preamble.


 


“Zale Insurance Subsidiaries” means Zale Life
Insurance Company, an Arizona corporation, Zale Indemnity Company, a Texas
corporation, and Jewel Re-Insurance Ltd., a Barbados corporation.


 


“Zale
International” has the meaning set forth in the preamble.


 


“Zale PR” has the meaning set forth in the preamble.


 


“Zap”
has the meaning set forth in the preamble.


 


“ZCDS”
has the meaning set forth in the preamble.


 


“ZC
Finco” has the meaning set forth in the preamble.


 


“ZC
Holding” has the meaning set forth in the preamble.


 


“ZC
Partnership” means ZC Partnership LP, a New Brunswick partnership.


 


“ZCSC”
has the meaning set forth in the preamble.


 


“ZECCA” has the meaning set forth in the preamble.


 


“ZGCO” has the meaning set forth in the preamble.


 


SECTION 1.2                                             Terms Generally. The
definitions of terms herein shall apply equally to the singular and plural
forms of the terms defined.  Whenever the
context may require, any pronoun shall include the corresponding masculine,
feminine and neuter forms.  The words “include”,
“includes” and “including” shall be deemed to be followed by the
phrase “without limitation”.  The
word “will” shall be construed to have the same meaning and effect as
the word “shall”.  Unless the
context requires otherwise (a) any definition of or reference to any
agreement, instrument or other document herein shall be construed as referring
to such agreement, instrument or other document as from time to time amended,
supplemented or otherwise modified (subject to any restrictions on such
amendments, supplements or modifications set forth herein), (b) any
reference herein to any Person shall be construed to include such Person’s
successors and permitted assigns, (c) the words “herein”, “hereof”
and “hereunder”, and words of similar import, shall be construed to
refer to this Agreement in its entirety and not to any particular provision
hereof, (d) all references herein to Articles, Sections, Exhibits and
Schedules shall be construed to refer to Articles and Sections of, and Exhibits
and Schedules to, this Agreement (e) the words “asset” and “property”
shall be construed to have the same meaning and effect and to refer to any and
all tangible (corporeal) and intangible (incorporeal) assets and properties,
including cash, securities, accounts and contract rights, and (f) all
references to “$” or “Dollars” or to amounts of money and all calculations of
the Borrowing Base, Excess Availability, permitted “baskets” and other similar
matters shall be deemed to be references to the lawful currency of the United
States of America at the Equivalent Amount.


 


35

















 


Except as otherwise
expressly provided herein, all terms of an accounting or financial nature shall
be construed in accordance with GAAP, as in effect from time to time, provided
that if any Borrower notifies the Administrative Agent that the Borrowers
request an amendment to any provision hereof to reflect the effect of any
change occurring after the date hereof in GAAP or in the application thereof on
the operation of such provision (or if the Administrative Agent notifies the
Borrowers that the Required Lenders request an amendment to any provision
hereof for such purpose), regardless of whether any such notice is given before
or after such change in GAAP or in the application thereof, then such provision
shall be interpreted on the basis of GAAP as in effect and applied immediately
before such change shall have become effective until such provision shall have
been amended in accordance herewith.


 


Unless otherwise specified,
all references herein to times of day shall be references to Eastern time
(daylight or standard, as applicable).


 


ARTICLE II


AMOUNT AND TERMS OF CREDIT


 


SECTION 2.1                          Commitment of
the Lenders.


 


(a)                                  Each Lender severally and not jointly
with any other Lender, agrees, upon the terms and subject to the conditions
herein set forth, to extend credit to the Borrowers, or any of them, on a
revolving basis, in the form of Revolving Loans and Letters of Credit and in an
amount not to exceed the lesser of such Lender’s Commitment or such Lender’s
Commitment Percentage of the Borrowing Base, subject to the following
limitations:


 


(i)                                     The aggregate outstanding amount of the
Credit Extensions shall not at any time exceed the Line Cap.


 


(ii)                                  No Lender shall be obligated to issue any
Letter of Credit, and Letters of Credit shall be available from the Issuing
Banks, subject to the ratable participation of all Lenders, as set forth in SECTION 2.6.  The Borrowers will not at any time permit the
aggregate Letter of Credit Outstandings to exceed $20,000,000.


 


(iii)                               Subject to all of the other provisions of this
Agreement, Revolving Loans that are repaid may be reborrowed prior to the
Extended Termination Date.  However, no
new Loans shall be made to the Borrowers and no new Letter of Credit shall be
issued for the account of the Borrowers, after the Extended Termination Date.


 


(b)                                 Each Borrowing of Revolving Loans shall
be made by the Lenders ratably in accordance with their respective Commitment
Percentages.  The failure of any Lender
to make any Loan shall neither relieve any other Lender of its obligation to
fund its Loan in accordance with the provisions of this Agreement nor increase
the obligation of any such other Lender.


 


SECTION 2.2                          Reserves;
Changes to Reserves.


 


(a)                                  The initial Reserves as of the date of
this Agreement are (i) the Shrink Reserve, (ii) the Customer Credit
Reserve, (iii) the Layaway Reserve, (iv) the Landlord Lien Reserve (v) the
Consignment A/R Reserve, (vi) other Inventory Reserves for (A) point of
sale and permanent 


 


36





















 


markdowns, (B) Form 400 and Damaged
Inventory, and (C) Texas ad valorem taxes, (vii) a Reserve for
customer refund liabilities, and (viii) the Canadian Priority Payables
Reserve, and (ix) a Canadian Store rent Reserve.


 


(b)                                 The Administrative Agent may, or at the
direction of any Co-Borrowing Base Agent (or with respect to the Term Reserve,
the Term Agent), shall, hereafter establish additional Reserves or change any
of the foregoing Reserves without consent from the Borrowers.  The Administrative Agent shall endeavor to
consult with the Borrower prior to the establishment or change of any such
Reserves, provided that the failure of the Administrative Agent to so
consult with the Borrower shall not limit, delay or impair any of the rights of
the Administrative Agent or any Co-Borrowing Base Agent hereunder (or with
respect to the Term Reserve, the rights of the Term Agent), or postpone the
date of the effectiveness of any such Reserves (or changes thereto).  The Administrative Agent shall furnish the
Borrowers with prompt written notice of the establishment of or change to any
Reserves.


 


SECTION 2.3                          Making of
Loans.


 


(a)                                  Except as set forth in SECTION 2.16
and SECTION 2.24, Loans (other than Swingline Loans) by the Lenders shall
be either Base Rate Loans or LIBOR Loans as the relevant Borrower may request
subject to and in accordance with this SECTION 2.3, provided, that
all Swingline Loans shall be only Base Rate Loans.  All Loans made pursuant to the same Borrowing
shall, unless otherwise specifically provided herein, be Loans of the same
Type.  Each Lender may fulfill its
Commitment with respect to any Loan by causing any lending office of such
Lender to make such Loan; but any such use of a lending office shall not affect
the obligation of the Borrowers to repay such Loan in accordance with the terms
of the applicable Note.  Subject to the
other provisions of this Section 2.3 and the provisions of SECTION 2.24,
Borrowings of Loans of more than one Type may be incurred at the same time, but
no more than six (6) Borrowings of LIBOR Loans may be outstanding at any
time.


 


(b)                                 The Borrowers requesting a Borrowing
shall give the Administrative Agent telephonic notice (thereafter confirmed in
writing) of each Borrowing of (i) LIBOR Loans not later than 12:00 p.m.
on the third Business Day prior to the date on which such Borrowing is to be
made and (ii) Base Rate Loans not later than 12:00 p.m. on the
Business Day on which such Borrowing is to be made. Such notice shall be
irrevocable and binding on each of the Borrowers and shall specify the amount
of the proposed Borrowing (which shall be in an integral multiple of
$1,000,000, but not less than $5,000,000 in the case of LIBOR Loans) and the
date thereof (which shall be a Business Day) and shall contain disbursement
instructions.  Such notice shall specify
whether the Borrowing then being requested is to be a Borrowing of Base Rate
Loans or LIBOR Loans and, if LIBOR Loans, the Interest Period with respect
thereto.  If no election of Interest
Period is specified in any such notice for a Borrowing of LIBOR Loans, such
notice shall be deemed a request for an Interest Period of one month.  If no election is made as to the Type of Loan,
such notice shall be deemed a request for a Borrowing of Base Rate Loans.  The Administrative Agent shall promptly
notify each Lender of its proportionate share of such Borrowing, the date of
such Borrowing, the Type of Borrowing being requested and the Interest Period
or Interest Periods applicable thereto, as appropriate.  On the borrowing date specified in such
notice, each Lender shall make its share of the Borrowing available at the
office of the Administrative Agent at 100 Federal Street, Boston,
Massachusetts 02110, not later than 4:00 


 


37





















 


p.m. in immediately available funds.  Unless the
Administrative Agent shall have received notice from a Lender prior to the
proposed date of any Borrowing of LIBOR Loans and no less than one (1) hour
prior to the proposed Borrowing of Base Rate Loans that such Lender will not
make available to the Administrative Agent such Lender’s share of such
Borrowing, the Administrative Agent may assume that such Lender has made such
share available on such date in accordance with this Section and may, in
reliance upon such assumption, make available to the Borrowers a corresponding
amount.  In such event, if a Lender has
not in fact made its share of the applicable Borrowing available to the
Administrative Agent, then the applicable Lender and the Borrowers severally
agree to pay to the Administrative Agent forthwith on demand such corresponding
amount with interest thereon, for each day from and including the date such
amount is made available to the Borrowers to but excluding the date of payment
to the Administrative Agent, at (i) in the case of such Lender, the
greater of the Federal Funds Effective Rate and a rate determined by the
Administrative Agent in accordance with banking industry rules on
interbank compensation or (ii) in the case of the Borrowers, the interest
rate applicable to Base Rate Loans for Extending and Non-Extending Lenders,
respectively.  If such Lender pays such
amount to the Administrative Agent, then such amount shall constitute such
Lender’s Loan included in such Borrowing. 
Upon receipt of the funds made available by the Lenders to fund any
Borrowing hereunder, the Administrative Agent shall disburse such funds in the
manner specified in the notice of borrowing delivered by the Borrowers and shall
use reasonable efforts to make the funds so received from the Lenders available
to the Borrowers not later than 4:00 p.m.


 


SECTION 2.4                          Overadvances


 


.  The Agents, the Lenders and the Issuing Banks
have no obligation to make any Loan or to provide any Letter of Credit to the
extent an Overadvance would result.  The
Administrative Agent may, in its discretion, make Permitted Overadvances
without the consent of the Lenders and each Lender shall be bound thereby.  Any Permitted Overadvances may constitute
Swingline Loans.  The making of any
Permitted Overadvance is for the benefit of the Borrowers; such Permitted
Overadvances constitute Revolving Loans and Obligations.  The making of any such Permitted Overadvances
on any one occasion shall not obligate the Administrative Agent or any Lender
to make or permit any Permitted Overadvances on any other occasion or to permit
such Permitted Overadvances to remain outstanding.


 


SECTION 2.5                          Swingline
Loans.


 


(a)                                  The Swingline Lender is authorized by the
Lenders and shall, subject to the provisions of this Section, make Swingline
Loans up to $50,000,000 in the aggregate outstanding at any time, consisting
only of Base Rate Loans at the Extended Term Prime Rate, upon a notice of
Borrowing received by the Administrative Agent and the Swingline Lender (which
notice, at the Swingline Lender’s discretion, may be submitted prior to 1:00 p.m.
on the Business Day on which such Swingline Loan is requested).  Swingline Loans shall be subject to periodic
settlement with the Lenders under SECTION 2.7 below provided  that
the Swingline Lender shall not be obligated to make any Swingline Loan in its
reasonable discretion if any Lender at such time is a Deteriorating Lender,
unless the Swingline Lender has entered into satisfactory arrangements
with the Borrowers or such Lender to eliminate the Swingline Lender’s risk of
full reimbursement with respect to such Swingline Loan.


 


38




















 


(b)                                 Swingline Loans may be made only in the
following circumstances: (A) for administrative convenience, the Swingline
Lender shall, at the Borrowers’ request, make Swingline Loans in reliance upon
the Borrowers’ actual or deemed representations under SECTION 4.2, that
the applicable conditions for borrowing are satisfied or (B) for Permitted
Overadvances.  If the conditions for
borrowing under SECTION 4.2 cannot be fulfilled, the Borrowers shall give
immediate notice thereof to the Administrative Agent and the Swingline Lender
(a “Noncompliance Notice”), and the Administrative Agent shall promptly
provide each Lender with a copy of the Noncompliance Notice.  If the conditions for borrowing under SECTION 4.2
cannot be fulfilled, the Required Lenders may direct the Swingline Lender to,
and the Swingline Lender thereupon shall, cease making Swingline Loans (other
than Permitted Overadvances) until such conditions can be satisfied or are
waived in accordance with SECTION 9.2. 
Unless the Required Lenders so direct the Swingline Lender, the
Swingline Lender may, but is not obligated to, continue to make Swingline Loans
beginning one Business Day after the Noncompliance Notice is furnished to the
Lenders.  Notwithstanding the foregoing,
no Swingline Loans shall be made pursuant to this Subsection (b) (other
than Permitted Overadvances) if the aggregate outstanding amount of the Credit
Extensions would exceed the Line Cap.


 


SECTION 2.6                          Letters of
Credit.


 


(a)                                  Upon the terms and subject to the
conditions herein set forth, the Borrowers may request any Issuing Bank, at any
time and from time to time after the date hereof and prior to the Termination
Date, to issue, and subject to the terms and conditions contained herein, such
Issuing Bank shall issue, for the account of the relevant Borrower one or more
Letters of Credit; provided, that no Letter of Credit shall be issued if
after giving effect to such issuance (i) the aggregate Letter of Credit
Outstandings shall exceed $20,000,000, or (ii) the aggregate Credit Extensions
would exceed the limitations set forth in Section 2.1(a)(i); and provided,
further, that no Letter of Credit shall be issued if such Issuing Bank
shall have received notice from the Administrative Agent or the Required
Lenders that the conditions to such issuance have not been met; provided
further that an Issuing Bank shall not be required to issue any such
Letter of Credit in its reasonable discretion if: (A) any order,
judgment or decree of any Governmental Authority or arbitrator shall by its
terms purport to enjoin or restrain the applicable Issuing Bank from issuing
such Letter of Credit, or any applicable law relating to such Issuing Bank or
any request or directive (whether or not having the force of law) from any
Governmental Authority with jurisdiction over the applicable Issuing Bank shall
prohibit, or request that such Issuing Bank refrain from, the issuance of
letters of credit generally or such Letter of Credit in particular or shall
impose upon such Issuing Bank with respect to such Letter of Credit any
restriction, reserve or capital requirement (for which such Issuing Bank is not
otherwise compensated hereunder) not in effect on the Effective Date, or shall
impose upon the applicable Issuing Bank any unreimbursed loss, cost or expense
which was not applicable on the Effective Date and which such Issuing Bank in
good faith deems material to it, (B) the issuance of such Letter of Credit would violate
one or more policies of the applicable Issuing Bank applicable to letters of
credit generally, or (C) any Lender is at such time a
Deteriorating Lender hereunder, unless such Issuing Bank has entered into
satisfactory arrangements with the Borrowers or such Lender to eliminate such
Issuing Bank’s risk of full reimbursement with respect to such Letter of
Credit.  Any Issuing Bank (other than Bank of America
or any of its Affiliates) shall notify the Administrative Agent in writing on
each Business Day of all Letters of Credit issued on the prior Business Day by
such Issuing Bank; provided  that (A) until the
Administrative Agent advises 


 


39





















 


any such Issuing Bank that Excess Availability is less
than $80,000,000, or (B) the aggregate amount of the Letters of Credit
issued in any such week exceeds such amount as shall be agreed by the
Administrative Agent and such Issuing Bank, such Issuing Bank shall be required
to so notify the Administrative Agent in writing only once each week of the
Letters of Credit issued by such Issuing Bank during the immediately preceding
week as well as the daily amounts outstanding for the prior week, such notice
to be furnished on such day of the week as the Administrative Agent and such
Issuing Bank may agree.


 


(b)                                 Each Standby Letter of Credit shall
expire at or prior to the close of business on the earlier of (i) the date
one year after the date of the issuance of such Letter of Credit (or, in the
case of any renewal or extension thereof, one year after such renewal or
extension) and (ii) the date that is five Business Days prior to the
Extended Term Maturity Date, provided, that each Standby Letter of
Credit may, upon the request of the Borrowers, include a provision whereby such
Letter of Credit shall be renewed automatically for additional consecutive
periods of 12 months or less (but not beyond the date that is five Business
Days prior to the Extended Term Maturity Date) unless the applicable Issuing
Bank notifies the beneficiary thereof at least 30 days prior to the then
applicable expiration date that such Letter of Credit will not be renewed.


 


(c)                                  Each Commercial Letter of Credit shall
expire at or prior to the close of business on the earlier of (i) the date
that is 120 days after the date of the issuance of such Commercial Letter of
Credit and (ii) the date that is five Business Days prior to the Extended
Term Maturity Date.


 


(d)                                 Drafts drawn under any Letter of Credit
shall be reimbursed by the Borrowers in Dollars on the next Business Day of any
such payment thereof by an Issuing Bank by paying to the Administrative Agent
an amount equal to such drawing not later than 3:00 p.m. on such date, provided,
that the Borrowers may, subject to the conditions to borrowing set forth
herein, request in accordance with SECTION 2.3 that such payment be
financed with a Revolving Loan consisting of a Base Rate Loan or Swingline Loan
in an equivalent amount and, to the extent so financed, the Borrowers’
obligation to make such payment shall be discharged and replaced by the
resulting Base Rate Loan or Swingline Loan. 
Each Issuing Bank shall, promptly following its receipt thereof, examine
all documents purporting to represent a demand for payment under a Letter of
Credit.  Each Issuing Bank shall promptly
notify the Administrative Agent and the Borrowers by telephone (confirmed by
telecopy) of such demand for payment and whether such Issuing Bank has made or
will make payment thereunder (which payment shall not be made until two (2) Business
Days after such notice from such Issuing Bank to the Borrowers), provided,
that any failure to give or delay in giving such notice shall not relieve the
Borrowers of their obligation to reimburse such Issuing Bank and the Lenders
with respect to any such payment.


 


(e)                                  If any Issuing Bank shall make any L/C
Disbursement, then, unless the Borrowers shall reimburse such Issuing Bank in
full on the date such payment is made, the unpaid amount thereof shall bear
interest, for each day from and including the date such payment is made to but
excluding the date that the Borrowers reimburse such Issuing Bank therefor, at
the rate per annum then applicable to Base Rate Loans for Extending Lenders, provided,
that if the Borrowers fail to reimburse such Issuing Bank when due pursuant to
paragraph (d) of this Section, then SECTION 2.10 shall
apply.  Interest accrued pursuant to this
paragraph shall be for the account of the applicable Issuing Bank, except that
interest accrued on and after the date of 


 


40





















 


payment by any Lender pursuant to paragraph (g) of
this Section to reimburse an Issuing Bank shall be (i) in the case of
any such Lender which is a Non-Extending Lender, paid to such Non-Extending
Lender calculated based upon the rate per annum then applicable to Base Rate
Loans for Non-Extending Lenders and (ii) in the case of any such Lender
which is an Extending Lender, paid to such Extending Lender calculated based
upon the rate per annum then applicable to Base Rate Loans for Extending
Lenders.


 


(f)                                    Immediately upon the issuance of any
Letter of Credit by an Issuing Bank (or the amendment of a Letter of Credit
increasing the amount thereof), and without any further action on the part of
such Issuing Bank, such Issuing Bank shall be deemed to have sold to each
Lender, and each such Lender shall be deemed unconditionally and irrevocably to
have purchased from such Issuing Bank, without recourse or warranty, an
undivided interest and participation, to the extent of such Lender’s Commitment
Percentage, in such Letter of Credit, each drawing thereunder and the obligations
of the Borrowers under this Agreement and the other Loan Documents with respect
thereto.  Upon any change in the
Commitments pursuant hereto, it is hereby agreed that with respect to all
Letter of Credit Outstandings, there shall be an automatic adjustment to the
participations hereby created to reflect the new Commitment Percentages of the
assigning and assignee Lenders.  Any
action taken or omitted by any Issuing Bank under or in connection with a
Letter of Credit, if taken or omitted in the absence of gross negligence or
willful misconduct, shall not create for any Issuing Bank any resulting
liability to any Lender.


 


(g)                                 In the event that an Issuing Bank makes
any L/C Disbursement and the Borrowers shall not have reimbursed such amount in
full to such Issuing Bank pursuant to Section 2.6(d), such Issuing Bank
shall promptly notify the Administrative Agent, which shall promptly notify
each Lender of such failure, and each Lender shall promptly and unconditionally
pay to the Administrative Agent for the account of such Issuing Bank the amount
of such Lender’s Commitment Percentage of such unreimbursed payment in Dollars
(or, if such L/C Disbursement is made in CDN$, the Equivalent Amount thereof in
Dollars) and in same day funds.  If an
Issuing Bank so notifies the Administrative Agent, and the Administrative Agent
so notifies the Lenders prior to 11:00 a.m. on any Business Day, each such
Lender shall make available to such Issuing Bank such Lender’s Commitment
Percentage of the amount of such payment on such Business Day in same day
funds.  If and to the extent such Lender
shall not have so made its Commitment Percentage of the amount of such payment
available to such Issuing Bank, such Lender agrees to pay to such Issuing Bank,
forthwith on demand such amount, together with interest thereon, for each day
from such date until the date such amount is paid to the Administrative Agent
for the account of the applicable Issuing Bank at the Federal Funds Effective
Rate.  Each Lender agrees to fund its
Commitment Percentage of such unreimbursed payment notwithstanding a failure to
satisfy any applicable lending conditions or the provisions of SECTION 2.1
or SECTION 2.6, or the occurrence of the Termination Date or the Extended
Termination Date.  The failure of any
Lender to make available to an Issuing Bank its Commitment Percentage of any
payment under any Letter of Credit shall neither relieve any Lender of its
obligation hereunder to make available to such Issuing Bank its Commitment
Percentage of any payment under any Letter of Credit on the date required, as
specified above, nor increase the obligation of such other Lender.  Whenever any Lender has made payments to an
Issuing Bank in respect of any reimbursement obligation for any Letter of
Credit, such Lender shall be entitled to share ratably, based on its Commitment
Percentage, in all payments and collections thereafter received on account of
such reimbursement obligation.


 


41





















 


(h)                                 Whenever a Borrower desires that an
Issuing Bank issue a Letter of Credit (or the amendment, renewal or extension
of an outstanding Letter of Credit), such Borrower shall give to the applicable
Issuing Bank and the Administrative Agent at least two Business Days’ prior
written (including telegraphic, telex, facsimile or cable communication) notice
(or such shorter period as may be agreed upon in writing by an Issuing Bank and
such Borrower) specifying the date on which the proposed Letter of Credit is to
be issued, amended, renewed or extended (which shall be a Business Day), the
stated amount of the Letter of Credit so requested, the expiration date of such
Letter of Credit, the name and address of the beneficiary thereof, and the
provisions thereof.  If requested by an
Issuing Bank, the Borrowers shall also submit a letter of credit application on
such Issuing Bank’s standard form in connection with any request for the
issuance, amendment, renewal or extension of a Letter of Credit.


 


(i)                                     The obligations of the Borrowers to
reimburse each Issuing Bank for any L/C Disbursement shall be unconditional and
irrevocable and shall be paid strictly in accordance with the terms of this
Agreement under all circumstances, including, without limitation: (i) any
lack of validity or enforceability of any Letter of Credit; (ii) the
existence of any claim, setoff, defense or other right which the Borrowers may
have at any time against a beneficiary of any Letter of Credit or against any
of the Lenders, whether in connection with this Agreement, the transactions
contemplated herein or any unrelated transaction; (iii) any draft, demand,
certificate or other document presented under any Letter of Credit proving to
be forged, fraudulent, invalid or insufficient in any respect or any statement
therein being untrue or inaccurate in any respect; (iv) any other
circumstance or happening whatsoever, whether or not similar to any of the
foregoing, that might, but for the provisions of this Section, constitute a
legal or equitable discharge of, or provide a right of setoff against, the
Borrowers’ obligations hereunder; or (v) the fact that any Event of
Default shall have occurred and be continuing. 
None of the Administrative Agent, the Lenders, the Issuing Banks or any
of their Affiliates shall have any liability or responsibility by reason of or
in connection with the issuance or transfer of any Letter of Credit or any
payment or failure to make any payment thereunder (irrespective of any of the
circumstances referred to in the preceding sentence), or any error, omission,
interruption, loss or delay in transmission or delivery of any draft, notice or
other communication under or relating to any Letter of Credit (including any
document required to make a drawing thereunder), any error in interpretation of
technical terms or any consequence arising from causes beyond the control of an
Issuing Bank, provided, that the foregoing shall not be construed to
excuse any Issuing Bank from liability to the Borrowers to the extent of any
direct damages (as opposed to consequential damages, claims in respect of which
are hereby waived by the Borrowers to the extent permitted by applicable law)
suffered by the Borrowers that are caused by an Issuing Bank’s failure to
exercise care when determining whether drafts and other documents presented
under a Letter of Credit comply with the terms thereof.  The parties hereto expressly agree that, in
the absence of gross negligence or willful misconduct on the part of an Issuing
Bank (as finally determined by a court of competent jurisdiction), such Issuing
Bank shall be deemed to have exercised care in each such determination.  In furtherance of the foregoing and without
limiting the generality thereof, the parties agree that, with respect to
documents presented that appear on their face to be in compliance with the
terms of a Letter of Credit, an Issuing Bank may, in its reasonable discretion,
either accept and make payment upon such documents without responsibility for
further investigation, regardless of any notice or information to the contrary,
or refuse to accept and make payment upon such documents if such documents are
not in strict compliance with the terms of such Letter of Credit.


 


42





















 


(j)                                     If any Event of Default shall occur and
be continuing, on the Business Day that the Borrowers receive notice from the
Administrative Agent or the Required Lenders demanding the deposit of cash
collateral pursuant to this paragraph, the Borrowers shall deposit in the Cash
Collateral Account an amount in cash equal to 103% of the Letter of Credit
Outstandings as of such date plus any accrued and unpaid interest
thereon.  Each such deposit shall be held
by the Collateral Agent as collateral for the payment and performance of the
Obligations of the Borrowers under this Agreement.  The Collateral Agent shall have exclusive
dominion and control, including the exclusive right of withdrawal, over such
Cash Collateral Account.  Other than any
interest earned on the investment of such deposits, which investments shall be
made at the option and sole discretion of the Administrative Agent at the
request of the Borrowers and at the Borrowers’ risk and expense, such deposits
shall not bear interest.  Interest or
profits, if any, on such investments shall accumulate in such account.  Moneys in such Cash Collateral Account shall
be applied by the Administrative Agent to reimburse the Issuing Banks for
payments on account of drawings under Letters of Credit for which it has not
been reimbursed and, to the extent not so applied, shall be held for the
satisfaction of the reimbursement obligations of the Borrowers for the Letter
of Credit Outstandings at such time or, if the Loans have matured or the
maturity of the Loans has been accelerated, be applied to satisfy other Obligations
of the Borrowers under this Agreement.


 


(k)                                  All Existing Letters of Credit shall,
from and after the Effective Date, be deemed for all purposes to be Letters of
Credit under this Agreement.


 


SECTION 2.7                          Settlements
Amongst Lenders.


 


(a)                                  The Swingline Lender may (but shall not
be obligated to), at any time, on behalf of the Borrowers (which hereby
authorize the Swingline Lender to act in their behalf in that regard) request
the Administrative Agent to cause the Lenders to make a Revolving Loan (which shall
be a Base Rate Loan) in an amount equal to such Lender’s Commitment Percentage
of the outstanding amount of Swingline Loans made in accordance with SECTION 2.5,
which request may be made regardless of whether the conditions set forth in Article IV
have been satisfied.  Upon such request,
each Lender shall make available to the Administrative Agent the proceeds of
such Revolving Loan for the account of the Swingline Lender.  If the Swingline Lender requires a Revolving
Loan to be made by the Lenders and the request therefor is received prior to
12:00 Noon on a Business Day, such transfers shall be made in immediately
available funds not later than 4:00 p.m. that day; and, if the request
therefor is received after 12:00 Noon then not later than 4:00 p.m. on the
next Business Day.  The obligation of
each Lender to transfer such funds is irrevocable, unconditional and without
recourse to or warranty by the Administrative Agent or the Swingline Lender.  If and to the extent any Lender shall not
have so made its transfer to the Administrative Agent, such Lender agrees to
pay to the Administrative Agent, forthwith on demand such amount, together with
interest thereon, for each day from such date until the date such amount is
paid to the Administrative Agent at the Federal Funds Effective Rate.


 


(b)                                 The amount of each Lender’s Commitment
Percentage of outstanding Revolving Loans and Swingline Loans shall be computed
weekly (or more frequently in the Administrative Agent’s discretion) and shall
be adjusted upward or downward based on all Revolving Loans, Swingline Loans
and repayments of Revolving Loans and Swingline Loans  received by the 


 


43





















 


Administrative Agent as of 4:00 p.m. on the first
Business Day following the end of the period specified by the Administrative
Agent (such date, the “Settlement Date”).


 


(c)                                  The Administrative Agent shall deliver to
each of the Lenders promptly after the Settlement Date a summary statement of
the amount of outstanding Revolving Loans and Swingline Loans for the period
and the amount of repayments received for the period.  As reflected on the summary statement: (x) the
Administrative Agent shall transfer to each Lender its applicable Commitment
Percentage of repayments, and (y) each Lender shall transfer to the
Administrative Agent (as provided below), or the Administrative Agent shall
transfer to each Lender, such amounts as are necessary to insure that, after
giving effect to all such transfers, the amount of Revolving Loans made by each
Lender shall be equal to such Lender’s applicable Commitment Percentage of
Revolving Loans outstanding as of such Settlement Date.  If the summary statement requires transfers
to be made to the Administrative Agent by the Lenders and is received prior to
12:00 Noon on a Business Day, such transfers shall be made in immediately
available funds not later than 4:00 p.m. that day; and, if received after
12:00 Noon then not later than 4:00 p.m. on the next Business Day.  The obligation of each Lender to transfer
such funds is irrevocable, unconditional and without recourse to or warranty by
the Administrative Agent.  If and to the
extent any Lender shall not have so made its transfer to the Administrative
Agent, such Lender agrees to pay to the Administrative Agent, forthwith on
demand such amount, together with interest thereon, for each day from such date
until the date such amount is paid to the Administrative Agent at the Federal
Funds Effective Rate.


 


SECTION 2.8                          Notes;
Repayment of Loans.


 


(a)                                  The Loans made by each Lender (and by the
Swingline Lender, with respect to Swingline Loans) shall be evidenced by a Note
duly executed by the Borrowers, dated the Effective Date, in substantially the
form attached hereto as Exhibit B-1 or B-2, as applicable, payable to the
order of each such Lender (or the Swingline Lender, as applicable) in an
aggregate principal amount equal to such Lender’s Commitment (or, in the case
of the Note evidencing the Swingline Loans, $50,000,000).


 


(b)                                 The outstanding principal balance of all
Swingline Loans shall be repaid on the earlier of the Extended Termination Date
or, on the date otherwise required in accordance with the provisions of
Sections 2.5(a) and 2.5(b).  The
outstanding principal balance of (i) all other Loan Agreement Obligations
shall be payable, with respect to the Non-Extending Lenders, on the Termination
Date or, (ii) all other Loan Agreement Obligations shall be payable, with
respect to the Extending Lenders, and all other Obligations then due and owing,
on the Extended Termination Date (subject, in each case, to earlier repayment
as provided below).  Each Note shall bear
interest from the date thereof on the outstanding principal balance thereof as
set forth in this Article II.  Each
Lender is hereby authorized by the Borrowers to endorse on a schedule attached
to each Note delivered to such Lender (or on a continuation of such schedule
attached to such Note and made a part thereof), or otherwise to record in such
Lender’s internal records, an appropriate notation evidencing the date and
amount of each Loan from such Lender, each payment and prepayment of principal
of any such Loan, each payment of interest on any such Loan and the other
information provided for on such schedule; provided, however,
that the failure of any Lender to make such a notation or any error therein
shall not affect the obligation 


 


44





















 


of the Borrowers to repay the Loans made by such
Lender in accordance with the terms of this Agreement and the applicable Notes.


 


SECTION 2.9                          Interest on
Loans.


 


(a)                                  Interest on Loans of Non-Extending
Lenders.


 


(i)                                     Subject to SECTION 2.10, each Base
Rate Loan made by a Non-Extending Lender shall bear interest (computed on the
basis of the actual number of days elapsed over a year of 365 or 366 days,
as applicable) at a rate per annum that shall be equal to the then Alternate
Base Rate, plus the Applicable Margin for Base Rate Loans.


 


(ii)                                  Subject to SECTION 2.10, each LIBOR
Loan made by a Non-Extending Lender shall bear interest (computed on the basis
of the actual number of days elapsed over a year of 360 days) at a rate per
annum equal, during each Interest Period applicable thereto, to the Adjusted
LIBO Rate for such Interest Period, plus the Applicable Margin for LIBOR
Loans.


 


(iii)                               Accrued interest on all Loans shall be payable in
arrears on each Interest Payment Date applicable thereto, on the Termination
Date, after the Termination Date on demand and (with respect to LIBOR Loans)
upon any repayment or prepayment thereof (on the amount prepaid).


 


(b)                                 Interest on Loans of Extending Lenders.


 


(i)                                     Subject to SECTION 2.10, each Base
Rate Loan made by an Extending Lender shall bear interest (computed on the
basis of the actual number of days elapsed over a year of 365 or 366 days,
as applicable) at a rate per annum that shall be equal to the then Extended
Term Prime Rate, plus the Extended Term Applicable Margin for Base Rate
Loans.


 


(ii)                                  Subject to SECTION 2.10, each LIBOR
Loan made by an Extending Lender shall bear interest (computed on the basis of
the actual number of days elapsed over a year of 360 days) at a rate per annum
equal, during each Interest Period applicable thereto, to the Adjusted LIBO
Rate for such Interest Period, plus the Extended Term Applicable Margin
for LIBOR Loans.


 


(iii)                               Accrued interest on all Loans shall be payable in
arrears on each Interest Payment Date applicable thereto, on the Extended
Termination Date, after the Extended Termination Date on demand and (with
respect to LIBOR Loans) upon any repayment or prepayment thereof (on the amount
prepaid).


 


(c)                                  For the purposes of the Interest Act (Canada) and disclosure thereunder, whenever
interest to be paid hereunder is to be calculated on the basis of a year of 360
days or any other period of time that is less than a calendar year, the yearly
rate of interest to which the rate determined pursuant to such calculation is
equivalent is the rate so determined multiplied by the actual number of days in
the calendar year in which the same is to be ascertained and divided by either
360 or such other period of time, as the case may be. Calculations of interest
shall be made 


 


45





















 


using the nominal rate method of calculation, and will
not be calculated using the effective rate method of calculation or any other
basis that gives effect to the principle of deemed reinvestment of interest.


 


SECTION 2.10                                       Default
Interest.  Effective
upon the occurrence of any Event of Default and at all times thereafter while
such Event of Default is continuing, at the option of the Administrative Agent
or upon the direction of the Required Lenders, interest shall accrue on all
outstanding Loans (including Swingline Loans) (after as well as before
judgment, as and to the extent permitted by law) at a rate per annum equal to
the rate (including the Applicable Margin for Loans made by Non-Extending
Lenders or the Extended Term Applicable Margin for Loans made by Extending
Lenders) in effect from time to time plus 2.00% per annum, and such
interest shall be payable on demand.


 


SECTION 2.11                                       Certain Fees.  The Borrowers shall pay to the Arranger (or
its Affiliates or designees), the fees set forth in the Fee Letter as and when
payment of such fees is due as therein set forth.


 


SECTION 2.12                                       Unused
Commitment Fee.  (a)                 The Borrowers shall pay to
the Administrative Agent for the account of the Non-Extending Lenders, a
commitment fee (the “Commitment Fee”) equal to the Applicable Commitment
Fee Rate (on the basis of actual days elapsed in a year of 360 days) of the
average daily balance of the Unused Commitment for each day commencing on and
including the Closing Date and ending on but excluding the Termination
Date.  The Commitment Fee so accrued in
any fiscal quarter shall be payable on the first Business Day of the
immediately succeeding fiscal quarter, except that all Commitment Fees so
accrued as of the Termination Date shall be payable on the Termination Date.


 


(b)                                 The Borrowers shall pay to the
Administrative Agent for the account of the Extending Lenders, a commitment fee
(the “Extended Term Unused Fee”) equal to 0.50% per annum (on the basis
of actual days elapsed in a year of 360 days) of the average daily balance of
the Extended Term Unused Commitment for each day commencing on and including
the Effective Date and ending on but excluding the Extended Termination
Date.  The Extended Term Unused Fee so
accrued in any fiscal quarter shall be payable on the first Business Day of the
immediately succeeding fiscal quarter, except that all Extended Term Unused
Fees so accrued as of the Extended Termination Date shall be payable on the
Extended Termination Date.


 


SECTION 2.13                    Letter of
Credit Fees.


 


(a)                                  The Borrowers shall pay the
Administrative Agent, for the account of the Lenders, on the first day of each
fiscal quarter, in arrears, a fee (each, a “Letter of Credit Fee”) equal to the
following per annum percentages of the average face amount of the following
categories of Letters of Credit outstanding during the subject quarter (each
computed on the basis of the actual number of days elapsed over a year of 360
days):


 


(i)                                     Standby Letters of Credit:  (A) For the account of each
Non-Extending Lender, at the then Applicable Margin per annum for LIBOR Loans,
and (B) for the 


 


46





















 


account of each Extending Lender at a per annum rate equal to the then
Extended Term Applicable Margin for LIBOR Loans.


 


(ii)                                  Commercial Letters of Credit: (A) For
the account of each Non-Extending Lender, at the rate equal to fifty percent
(50%) of then Applicable Margin per annum for LIBOR Loans, (B) for the
account of each Extending Lender at a per annum rate equal to fifty percent
(50%) of the then Extended Term Applicable Margin for LIBOR Loans.


 


(iii)                               After the occurrence and during the continuance of an
Event of Default, at the option of the Administrative Agent or upon the
direction of the Required Lenders, the Letter of Credit Fee set forth in
clauses (i) and (ii) above, shall be increased by an amount
equal to two percent (2%) per annum.


 


(b)                                 The Borrowers shall pay to the
Administrative Agent, for the account of each Issuing Bank, and in addition to
all Letter of Credit Fees otherwise provided for hereunder, such fees and
charges in connection with the issuance, negotiation, settlement, amendment and
processing of each Letter of Credit issued by such Issuing Bank as are
customarily imposed by each Issuing Bank from time to time in connection with
letter of credit transactions and such fronting fees as are agreed upon by the
Borrowers and each Issuing Bank, and upon receipt thereof the Administrative
Agent shall promptly remit such fees to the applicable Issuing Bank.


 


SECTION 2.14                                       Nature of Fees.  All fees shall be paid on the dates due, in
immediately available funds, to the Administrative Agent, for the respective
accounts of the Administrative Agent, the Issuing Banks, and the Lenders, as
provided herein.  Once paid, all fees
shall be fully earned and shall not be refundable under any circumstances.


 


SECTION 2.15                                       Termination or Reduction of Commitments


 


(a)                                  Upon the Effective Date, a portion of the
Commitments of certain Extending Lenders may be reduced, in each case, without
a pro rata reduction of the Commitments of any other Lenders.  After such reduction, the Commitments of the
Lenders shall be as set forth on Schedule 1.1 hereto.


 


(b)                                 Upon at least five (5) Business Days’
prior written notice to the Administrative Agent, the Borrowers may at any time
in whole permanently terminate, or from time to time in part permanently
reduce, the Commitments; provided that, no termination or partial
reduction of the Commitments of the Non-Extending Lenders shall be permitted
unless the Borrowers shall have (i) provided at least thirty
(30) days prior written notice to the Administrative Agent and (ii) satisfied
the requirements of SECTION 6.8(a). 
Each such reduction or termination shall first be applied, if no Default
or Event of Default then exists or would arise therefrom, ratably to the
Commitments of each Non-Extending Lender and, after the Commitments of the
Non-Extending Lenders have been terminated in full, shall be applied ratably to
the Commitments of each Extending Lender. 
If such a Default or Event of Default exists or would arise from the
termination of any portion of the Commitments, each such reduction or
termination shall be applied ratably to the Commitments of each Lender. Each
such reduction shall be in the principal amount of $5,000,000 or any integral
multiple of $1,000,000 in excess thereof. 
Each notice of such reduction or termination shall be irrevocable when
given.  At the effective time of each 


 


47





















 


such reduction or
termination, the Borrowers shall pay to the Administrative Agent for
application as provided herein (i) all Commitment Fees and Extended Term
Unused Fees accrued on the unused portion of the Commitments so terminated or
reduced through the date thereof, and (ii) any amount by which the Credit
Extensions outstanding on such date exceed the amount to which the Commitments
are to be reduced effective on such date, in each case pro rata based on the
amount prepaid.  Upon the termination of
all Commitments by the Borrowers hereunder and the Borrowers’ payment and
satisfaction in full of all Obligations, all Letters of Credit shall have
expired or terminated (or been collateralized in a manner satisfactory to the
Issuing Banks) and all Letter of Credit Outstandings have been reduced to zero
(or collateralized in a manner satisfactory to the Issuing Banks), the
Collateral Agent and Administrative Agent shall, subject to SECTION 9.6,
release their respective Liens in the Collateral and, subject to the
Intercreditor Agreement, deliver any possessory Collateral to the Borrowers or
their designee.


 


SECTION 2.16                                       Alternate Rate
of Interest.  If prior to
the commencement of any Interest Period for a LIBOR Borrowing:


 


(a)                                  the Administrative Agent reasonably
determines (which determination shall be conclusive absent manifest error) that
adequate and reasonable means do not exist for ascertaining the Adjusted LIBO
Rate for such Interest Period; or


 


(b)                                 the Administrative Agent is advised by
the Required Supermajority Lenders that the Adjusted LIBO Rate for such
Interest Period will not adequately and fairly reflect the cost to such Lenders
(or Lender) of making or maintaining their Loans (or its Loan) included in such
Borrowing for such Interest Period;


 


then the Administrative
Agent shall give notice thereof to the Borrowers and the Lenders by telephone
or telecopy as promptly as practicable thereafter (but in any event, within two
(2) Business Days) and, until the Administrative Agent notifies the
Borrowers and the Lenders that the circumstances giving rise to such notice no
longer exist, (i) any Borrowing Request that requests the conversion of
any Borrowing to, or continuation of any Borrowing as, a LIBOR Borrowing shall
be ineffective and (ii) if any Borrowing Request requests a LIBOR
Borrowing, such Borrowing shall be made as a Borrowing of Base Rate Loans.


 


SECTION 2.17                                       Conversion and
Continuation of Loans.  The
Borrowers shall have the right at any time,


 


(a)                                  on three (3) Business
Days’ prior irrevocable notice to the Administrative Agent (which notice, to be
effective, must be received by the Administrative Agent not later than 11:00 a.m.
on the third Business Day preceding the date of any conversion), (x) to convert
any outstanding Borrowings of  Base Rate
Loans (but in no event Swingline Loans) to Borrowings of LIBOR Loans or (y) to
continue an outstanding Borrowing of LIBOR Loans for an additional Interest
Period,


 


(b)                                 on one (1) Business
Day’s prior irrevocable notice to the Administrative Agent (which notice, to be
effective, must be received by the Administrative Agent not later than 11:00 


 


48

















 


a.m. on the first Business
Day preceding the date of any conversion), to convert any outstanding
Borrowings of LIBOR Loans to a Borrowing of 
Base Rate Loans, subject to the following:


 


(i)                                     no Borrowing of Loans may be converted
into, or continued as, LIBOR Loans at any time when an Event of Default has
occurred and is continuing;


 


(ii)                                  if less than a full Borrowing of Loans is
converted, such conversion shall be made pro rata among the
Lenders, as applicable, in accordance with the respective principal amounts of
the Loans comprising such Borrowing held by such Lenders immediately prior to
such conversion;


 


(iii)                               the aggregate principal amount of Loans being
converted into or continued as LIBOR Loans shall be in an integral of
$1,000,000 and at least $5,000,000;


 


(iv)                              the Interest Period with respect to a
Borrowing of LIBOR Loans effected by a conversion or in respect to the
Borrowing of LIBOR Loans being continued as LIBOR Loans shall commence on the
date of conversion or the expiration of the current Interest Period applicable
to such continuing Borrowing, as the case may be;


 


(v)                                 a Borrowing of LIBOR Loans may be
converted only on the last day of an Interest Period applicable thereto;


 


(vi)                              each request for a conversion or
continuation of a Borrowing of LIBOR Loans which fails to state an applicable
Interest Period shall be deemed to be a request for an Interest Period of one
month; and


 


(vii)                           no more than six (6) Borrowings of LIBOR Loans
may be outstanding at any time.


 


If any of the Borrowers
does not give notice to convert any Borrowing of Base Rate Loans, or does not
give notice to continue, or does not have the right to continue, any Borrowing
as LIBOR Loans, in each case as provided above, such Borrowing shall automatically
be converted to, or continued as, as applicable, a Borrowing of Base Rate Loans
at the expiration of the then-current Interest Period.  The Administrative Agent shall, after it
receives notice from any Borrower, promptly give each Lender notice of any
conversion, in whole or part, of any Loan made by such Lender.


 


SECTION 2.18                                       Mandatory
Prepayment; Cash Collateral.  The outstanding Obligations shall be subject
to mandatory prepayment as follows:


 


(a)                                  If at any time the amount of the Credit
Extensions exceeds the Line Cap, the Borrowers will immediately (A) prepay
the Loans in an amount necessary to eliminate such excess, and (B) if,
after giving effect to the prepayment in full of all outstanding Loans such
excess has not been eliminated, deposit cash into the Cash Collateral Account
in an amount equal to such excess.


 


(b)                                 To the extent required pursuant to Section 2.21(b),
the Revolving Loans shall be repaid daily in accordance with the provisions of
said Section 2.21(b).


 


49




















 


(c)           Subject to the terms of the
Intercreditor Agreement, any Net Proceeds received from a Prepayment Event,
whether or not a Cash Control Event then exists, shall be paid over to the
Administrative Agent on receipt by the Borrowers and shall be utilized to
prepay the Loans in the order of priority set forth in Section 2.22 or Section 7.4,
as applicable.  The Agents shall not be
obligated to release their Liens on any Collateral included in such Prepayment
Event until such Net Proceeds have been so received.  The application of such Net Proceeds to the
Loans shall not reduce the Commitments. 
If all Loan Agreement Obligations are paid, any excess Net Proceeds
shall be remitted to the operating account of the Borrowers maintained with the
Administrative Agent.


 


(d)           Subject to the foregoing, outstanding
Base Rate Loans shall be prepaid before outstanding LIBOR Loans are
prepaid.  Each partial prepayment of
LIBOR Loans shall be in an integral multiple of $5,000,000.  No prepayment of LIBOR Loans shall be permitted
pursuant to this SECTION 2.18 other than on the last day of an Interest
Period applicable thereto, unless the Borrowers simultaneously reimburse the
Lenders for all “Breakage Costs” (as defined in SECTION 2.19, below)
associated therewith.  In order to avoid
such Breakage Costs, as long as no Event of Default has occurred and is
continuing, at the request of the Borrowers, the Administrative Agent shall
hold all amounts required to be applied to LIBOR Loans in the Cash Collateral
Account and will apply such funds to the applicable LIBOR Loans at the end of
the then pending Interest Period therefor (provided, that the foregoing
shall in no way limit or restrict the Agents’ rights upon the subsequent
occurrence of an Event of Default).  No
partial prepayment of a Borrowing of LIBOR Loans shall result in the aggregate
principal amount of the LIBOR Loans remaining outstanding pursuant to such
Borrowing being less than $5,000,000 (unless all such outstanding LIBOR Loans
are being prepaid in full).  Any prepayment
of the Revolving Loans shall not permanently reduce the Commitments.


 


(e)           All amounts required to be applied to
all Loans hereunder (other than Swingline Loans) shall be applied ratably in
accordance with each Lender’s Commitment Percentage.


 


(f)            Upon the Termination Date, the
Commitments of the Non-Extending Lenders shall be terminated in full and the
Borrowers shall pay, in full and in cash, all outstanding Loans and all other
outstanding Loan Agreement Obligations then owing by them to the Non-Extending
Lenders.


 


(g)           Upon the Extended Termination Date,
the Commitments of the Extending Lenders shall be terminated in full, and the
Borrowers shall pay, in full and in cash, all outstanding Loans and all other
outstanding Loan Agreement Obligations then owing by them to the Extending
Lenders, and all other Obligations then due and owing by them to the Secured
Parties.


 


(h)           For clarity, without limiting the
provisions of Section 9.6 hereof, except as otherwise set forth herein,
all Obligations due or to become due under any Cash Management Services or Bank
Products provided to any Borrower or any of its Subsidiaries, shall be
terminated and paid by the Borrowers and their Subsidiaries (to the extent
liable therefor) in accordance with the terms of the documents, instruments and
agreements evidencing such Obligations.


 


50

















 


SECTION 2.19       Optional Prepayment of Loans;
Reimbursement of Lenders.


 


(a)           The Borrowers shall have the right at
any time and from time to time to prepay outstanding Loans in whole or in part,
(x) with respect to LIBOR Loans, upon at least two Business Days’ prior
written or facsimile notice to the Administrative Agent prior to 11:00 a.m.,
Boston time, and (y) with respect to Base Rate Loans, on the same Business
Day if written, telex or facsimile notice is received by the Administrative
Agent prior to 1:00 p.m. subject to the following limitations:


 


(i)            Subject
to SECTION 2.18, all prepayments shall be paid to the Administrative Agent
for application, first, to the prepayment of outstanding Swingline
Loans, second, to the prepayment of other outstanding Loans ratably in
accordance with each Lender’s Commitment Percentage, and third, to the
funding of a cash collateral deposit in the Cash Collateral Account in an
amount equal to 103% of all Letter of Credit Outstandings.


 


(ii)           Subject
to the foregoing, outstanding Base Rate Loans shall be prepaid before
outstanding LIBOR Loans are prepaid. 
Each partial prepayment of LIBOR Loans shall be in an integral multiple
of $5,000,000.  No prepayment of LIBOR
Loans shall be permitted pursuant to this SECTION 2.19 other than on the
last day of an Interest Period applicable thereto, unless the Borrowers
simultaneously reimburse the Lenders for all “Breakage Costs” (as defined
below) associated therewith.  No partial
prepayment of a Borrowing of LIBOR Loans shall result in the aggregate
principal amount of the LIBOR Loans remaining outstanding pursuant to such
Borrowing being less than $5,000,000 (unless all such outstanding LIBOR Loans
are being prepaid in full).


 


(iii)          Each
notice of prepayment shall specify the prepayment date, the principal amount
and Type of the Loans to be prepaid and, in the case of LIBOR Loans, the
Borrowing or Borrowings pursuant to which such Loans were made.  The Administrative Agent shall, promptly
after receiving notice from the Borrowers hereunder, notify each Lender of the
principal amount and Type of the Loans held by such Lender which are to be
prepaid, the prepayment date and the manner of application of the prepayment.


 


(b)           The Borrowers shall reimburse each
Lender on demand for any loss incurred or to be incurred by it in the
reemployment of the funds released (i) resulting from any prepayment (for
any reason whatsoever, including, without limitation, conversion to Base Rate
Loans or acceleration by virtue of, and after, the occurrence of an Event of
Default) of any LIBOR Loan required or permitted under this Agreement, if such
Loan is prepaid other than on the last day of the Interest Period for such Loan
or (ii) in the event that after the Borrowers deliver a notice of
borrowing under SECTION 2.3 in respect of LIBOR Loans, such Loans are not
borrowed on the first day of the Interest Period specified in such notice of
borrowing for any reason.  Such loss
shall be the amount as reasonably determined by such Lender as the excess, if
any, of (A) the amount of interest which would have accrued to such Lender
on the amount so paid or not borrowed at a rate of interest equal to the Adjusted
LIBO Rate for such Loan, for the period from the date of such payment or
failure to borrow to the last day (x) in the case of a payment or
refinancing of a LIBOR Loan other than on the last day of the Interest Period
for such Loan, of the then current Interest Period for such Loan or (y) in
the case of such failure to borrow, of the


 


51

















 


Interest Period for such LIBOR Loan which would have
commenced on the date of such failure to borrow, over (B) the amount of
interest which would have accrued to such Lender on such amount by placing such
amount on deposit for a comparable period with leading banks in the London
interbank market (collectively, “Breakage Costs”).  Any Lender demanding reimbursement for such
loss shall deliver to the Borrowers simultaneously with such demand one or more
certificates setting forth the amount of such loss as determined by such Lender
and setting forth in reasonable detail the manner in which such amount was
determined.


 


(c)           In the event the Borrowers fail to
prepay any Loan on the date specified in any prepayment notice delivered
pursuant to SECTION 2.19(a), the Borrowers on demand by any Lender shall
pay to the Administrative Agent for the account of such Lender any amounts required
to compensate such Lender for any actual loss incurred by such Lender as a
result of such failure to prepay, including, without limitation, any loss, cost
or expenses incurred by reason of the acquisition of deposits or other funds by
such Lender to fulfill deposit obligations incurred in anticipation of such
prepayment.  Any Lender demanding such
payment shall deliver to the Borrowers simultaneously with such demand one or
more certificates setting forth the amount of such loss as determined by such Lender
and setting forth in reasonable detail the manner in which such amount was
determined.


 


(d)           Whenever any partial prepayment of
Loans is to be applied to LIBOR Loans, such LIBOR Loans shall, unless the
Borrowers otherwise direct, be prepaid in the chronological order of their
Interest Payment Dates.


 


SECTION 2.20       Maintenance of Loan Account;
Statements of Account.


 


(a)           The Administrative Agent shall
maintain an account on its books in the name of the Borrowers (the “Loan
Account”) which will reflect (i) all Loans made by the Lenders to the
Borrowers or for the Borrowers’ account, (ii) all L/C Disbursements, fees
and interest that have become payable as herein set forth, and (iii) any
and all other monetary Obligations that have become payable.


 


(b)           The Loan Account will be credited
with all amounts received by the Administrative Agent from the Borrowers,
including all amounts received in the Collection Account from any Concentration
Account, on the date such amounts are received and the amounts so credited
shall be applied as set forth in SECTION 2.22(a) and (b).  After the end of each month, the
Administrative Agent shall send to the Borrowers a statement accounting for the
charges, loans, advances and other transactions occurring among and between the
Administrative Agent, the Lenders and the Borrowers during that month.  The monthly statements shall, absent manifest
error, be an account stated, which is final, conclusive and binding on the Loan
Parties.


 


(c)           The Administrative Agent, without the
consent or request of the Borrowers, may advance any interest, fee, service
charge, cost, charge, expense, or other payment to which any Lender or any
Agent is entitled from the Loan Parties pursuant to this Agreement or any other
Loan Document and may charge the same to the Loan Account by adding such amount
to the principal balance of the Loan Account, notwithstanding that an
Overadvance may result thereby.  The
Administrative Agent shall advise the Borrowers of any such advance or charge
promptly after the making thereof.  Such
action on the part of the Administrative Agent shall not constitute


 


52

















 


a waiver of either the Administrative Agent’s or any
Lender’s rights under, or the Loan Parties’ obligations to make any payment
required pursuant to, this Agreement or any other Loan Document.


 


SECTION 2.21       Cash Receipts.


 


(a)           (i) Annexed hereto as Schedule
2.21(a)(i) is a list of all DDAs and accounts maintained by the Loan
Parties into which more than one DDA deposits or transfers funds (the “Concentration
Accounts”) as of the date hereof, which Schedule includes, with respect to
each Concentration Account depository (1) the name and address of that
depository; (2) the account number(s) maintained with such depository;
and (3) to the extent known, a contact person at such depository.


 


(ii) Annexed
hereto as Schedule 2.21(a)(ii) is a list describing all arrangements to
which any Loan Party is a party with respect to the payment to any Loan Party
of the proceeds of all credit card charges for sales by any Loan Party.


 


(b)           (i) Within 45 days after the
Effective Date, to the extent not previously furnished to the Agents, the Loan
Parties shall have entered into agency agreements with the banks maintaining
the Concentration Accounts, which agreements (the “Blocked Account
Agreements”) shall be in form and substance reasonably satisfactory to the
Administrative Agent.


 


(ii)           On the Effective Date, to the extent
not previously furnished to the Agents, the Loan Parties shall deliver to the
Administrative Agent notifications (the “Credit Card Notifications”)
executed on behalf of the Loan Parties to each of their major credit card
processors instructing such credit card processors to remit all proceeds of all
credit card charges to a Concentration Account. 
On the Effective Date, the Administrative Agent may deliver the Credit
Card Notifications to such credit card processors.


 


(iii)          The Blocked Account Agreements shall
provide that, after the occurrence and during the continuance of a Cash Control
Event, the Administrative Agent may, or at the request of the Required Lenders
shall, provide a notice to each bank (with a copy to the Borrowers) maintaining
a Concentration Account (an “Activation Notice”) requiring the sweep on
each Business Day of all available cash receipts and other proceeds from the
sale of Inventory, including, without limitation, the proceeds of all credit
card charges (all such cash receipts and proceeds, “Cash Receipts”), to
an account maintained by the Administrative Agent at Bank of America (the “Collection
Account”).  At such time as such Cash
Control Event no longer exists, the Activation Notice shall cease to be
effective and the Administrative Agent shall give notice thereof to each bank
maintaining a Concentration Account rescinding such Activation Notice
previously given to such bank. 
Furthermore, during the continuance of a Cash Control Event, the Loan
Parties shall cease making Permitted Investments and depositing amounts in the
Fidelity Investment Account or any other securities account (other than the
Term Securities Accounts) and shall sweep any and all proceeds thereof and
deposits therein to the Collection Account.


 


53

















 


(c)           The Loan Parties may close Concentration
Accounts and/or open new Concentration Accounts, subject to the execution and
delivery to the Administrative Agent of appropriate Blocked Account Agreements
consistent with the provisions of this SECTION 2.21. The Loan Parties may
close DDAs and/or open new DDAs, subject to the Borrowers updating Schedule
2.21(a)(i) and otherwise complying with the terms of this Agreement.  The Loan Parties may not enter into any
agreement with any credit card processors unless contemporaneously therewith, a
Credit Card Notification is executed and delivered to the Administrative Agent.
The Loan Parties shall each cause each of their credit card processors to remit
all proceeds of all credit card charges to a Concentration Account.


 


(d)           The Collection Account is, and shall
remain, under the sole dominion and control of the Administrative Agent.  Each Loan Party acknowledges and agrees that (i) such
Loan Party has no right of withdrawal from the Collection Account, (ii) the
funds on deposit in the Collection Account, if any, shall continue to be
collateral security for all of the Obligations and (iii) the funds on
deposit in the Collection Account shall be applied as provided in SECTION 2.22(a).


 


(e)           The Loan Parties shall cause the ACH
or wire transfer to a Concentration Account, no less frequently then daily, of
the then contents of each DDA, each such transfer to be net of any minimum
balance, not to exceed $10,000, as may be required to be maintained in the
subject DDA by the bank at which such DDA is maintained; provided, however, to
the extent a DDA is maintained for the deposit of the receipts of a Store, such
DDA is maintained with a bank that either does not provide daily balance
information for such DDA or cannot accommodate daily ACH or wire transfers and
there is not a suitable replacement bank reasonably available for such Store,
then such DDA may be swept on a monthly, rather than daily basis; provided,
further, that (x) the number of such DDAs swept on a monthly basis shall
not exceed five percent (5%) of all of the Store DDAs and (y) the
aggregate amounts maintained in such DDAs shall not exceed $5,000,000 at any
time.


 


(f)            So long as no Activation Notice
shall have been given and remain in effect, the Loan Parties may direct, and
shall have sole control over, the manner of disposition of the funds in the
Concentration Accounts.  After the
delivery of an Activation Notice and during the effectiveness thereof, the Loan
Parties shall cause the ACH or wire transfer to the Collection Account, no less
frequently than daily of the then contents of each Concentration Account, each
such transfer to be net of any minimum balance, not to exceed $10,000, as may
be required to be maintained in the subject Concentration Account by the bank
at which such Concentration Account is maintained, and, in connection with each
such transfer, the Loan Parties shall also provide the Administrative Agent
with an accounting of the contents of each Concentration Account.


 


In the event that,
notwithstanding the provisions of this SECTION 2.21, after the delivery of
an Activation Notice and during the effectiveness thereof, the Borrowers
receive or otherwise have dominion and control of any such proceeds or
collections, such proceeds and collections shall be held in trust by the Borrowers
for the Administrative Agent and shall not be commingled with any of the
Borrowers’ other funds or deposited in any account of any Borrower other than
as instructed by the Administrative Agent.


 


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Effective upon delivery
of an Activation Notice to the Borrowers from the Administrative Agent (which
notice may be given by telephone if promptly confirmed in writing), after the
occurrence and during the continuation of a Cash Control Event, each Concentration
Accounts will, without any further action on the part of any Borrower or the
Administrative Agent convert into  closed
accounts under the exclusive dominion and control of the Administrative Agent
in which funds are held subject to the rights of the Administrative Agent
hereunder.  In such event, all amounts in
the Collection Account from time to time may be applied to the Obligations in
such order and manner as provided in SECTION 2.22 hereof.


 


SECTION 2.22       Application of Payments.


 


(a)           Subject to the provisions of SECTION 2.21,
as long as no Event of Default then exists, all amounts received in the
Collection Account from any source, including the Concentration Accounts, shall
be applied, on the day of receipt, in the following order: first, to pay
interest due and payable on Credit Extensions and to pay fees and expense
reimbursements and indemnification then due and payable to the Administrative
Agent, the Arrangers, the Issuing Banks, the Collateral Agent, the Co-Borrowing
Base Agents and the Lenders; second, to repay outstanding Swingline
Loans; third, to repay other outstanding Revolving Loans that are Base
Rate Loans and all outstanding reimbursement obligations under Letters of
Credit; fourth, to repay outstanding Revolving Loans that are LIBOR Loans
and all Breakage Costs due in respect of such repayment pursuant to SECTION 2.19(b) or,
at the Borrowers’ option, to fund a cash collateral deposit to the Cash
Collateral Account sufficient to pay, and with direction to pay, all such
outstanding LIBOR Loans on the last day of the then pending Interest Period
therefor; fifth, to pay all amounts then due for Cash Management
Services, sixth, to pay all amounts then due on account of Bank
Products, and seventh, to pay all other Obligations that are then outstanding
and then due and payable (it being understood that undrawn Letters of Credit
shall not be required to be cash collateralized if no Event of Default has
occurred and is continuing).  If all
amounts set forth in clauses first through and including seventh above are
paid, any excess amounts shall be deposited in the operating account of the
Borrowers maintained with the Administrative Agent.  Any other amounts received by the
Administrative Agent, any Issuing Bank, the Collateral Agent, or any Lender as
contemplated by SECTION 2.21 shall also be applied in the order set forth
above in this SECTION 2.22.


 


(b)           All credits against the Obligations
shall be effective on the day of receipt thereof, and shall be conditioned upon
final payment to the Administrative Agent of the items giving rise to such
credits.  If any item deposited to the
Collection Account and credited to the Loan Account is dishonored or returned
unpaid for any reason, whether or not such return is rightful or timely, the
Administrative Agent shall have the right to reverse such credit and charge the
amount of such item to the Loan Account and the Borrowers shall indemnify the
Administrative Agent, the Collateral Agent, each Co-Borrowing Base Agent, each
Issuing Bank and the Lenders against all claims and losses resulting from such
dishonor or return.


 


SECTION 2.23       Increased Costs.


 


(a)           If any Change in Law shall:


 


55

















 


(i)            impose,
modify or deem applicable any reserve, special deposit, compulsory loan,
insurance charge or similar requirement against assets of, deposits with or for
the account of, or credit extended or participated in by, any Lender (except
any reserve requirement reflected in the LIBOR Rate) or any Issuing Bank;


 


(ii)           subject
any Lender or any Issuing Bank to any tax of any kind whatsoever with respect
to this Agreement, any Letter of Credit, any participation in a Letter of
Credit or any LIBOR Loan made by it, or change the basis of taxation of
payments to such Lender or such Issuing Bank in respect thereof (except for
Indemnified Taxes or Other Taxes covered by SECTION 2.26 and the
imposition of, or any change in the rate of, any Excluded Taxes payable by such
Lender or such Issuing Bank); or


 


(iii)          impose
on any Lender or any Issuing Bank or the London interbank market any other
condition, cost or expense affecting this Agreement or LIBOR Loans made by such
Lender or any Letter of Credit or participation therein;


 


and the result of any of
the foregoing shall be to increase the cost to such Lender of making or
maintaining any LIBOR Loan (or of maintaining its obligation to make any such
Loan), or to increase the cost to such Lender or such Issuing Bank of
participating in, issuing or maintaining any Letter of Credit (or of maintaining
its obligation to participate in or to issue any Letter of Credit), or to
reduce the amount of any sum received or receivable by such Lender or such
Issuing Bank hereunder (whether of principal, interest or any other amount)
then, upon request of such Lender or such Issuing Bank, the Borrowers will pay
to such Lender or such Issuing Bank, as the case may be, such additional amount
or amounts as will compensate such Lender or such Issuing Bank, as the case may
be, for such additional costs incurred or reduction suffered.


 


(b)           If any Lender or any Issuing Bank
determines that any Change in Law affecting such Lender or such Issuing Bank or
any lending office of such Lender or such Lender’s or such Issuing Bank’s
holding company, if any, regarding capital requirements has or would have the
effect of reducing the rate of return on such Lender’s or such Issuing Bank’s
capital or on the capital of such Lender’s or such Issuing Bank’s holding
company, if any, as a consequence of this Agreement, the Commitments of such
Lender or the Loans made by, or participations in Letters of Credit held by,
such Lender, or the Letters of Credit issued by such Issuing Bank, to a level
below that which such Lender or such Issuing Bank or such Lender’s or such
Issuing Bank’s holding company could have achieved but for such Change in Law
(taking into consideration such Lender’s or such Issuing Bank’s policies and
the policies of such Lender’s or such Issuing Bank’s holding company with
respect to capital adequacy), then from time to time the Borrowers will pay to
such Lender or such Issuing Bank, as the case may be, such additional amount or
amounts as will compensate such Lender or such Issuing Bank or such Lender’s or
such Issuing Bank’s holding company for any such reduction suffered.


 


(c)           A certificate of a Lender or any
Issuing Bank setting forth the amount or amounts necessary to compensate such
Lender or such Issuing Bank or its holding company, as the case may be, as
specified in subsection (a) or (b) of this SECTION 2.23 and delivered
to the Borrowers shall be conclusive absent manifest error.  The Borrowers shall pay such Lender or such
Issuing Bank, as the case may be, the amount shown as due on any such
certificate within 10 days after receipt thereof.


 


56

















 


(d)           Failure or delay on the part of any
Lender or any Issuing Bank to demand compensation pursuant to the foregoing
provisions of this SECTION 2.23 shall not constitute a waiver of such
Lender’s or such Issuing Bank’s right to demand such compensation, provided
that the Borrowers shall not be required to compensate a Lender or any Issuing
Bank pursuant to the foregoing provisions of this SECTION 2.23  for any increased costs incurred or
reductions suffered more than six months prior to the date that such Lender or
such Issuing Bank, as the case may be, notifies the Borrowers of the Change in
Law giving rise to such increased costs or reductions and of such Lender’s or
such Issuing Bank’s intention to claim compensation therefor (except that, if
the Change in Law giving rise to such increased costs or reductions is
retroactive, then the six-month period referred to above shall be extended to
include the period of retroactive effect thereof).


 


(e)           The Borrowers shall pay to each Lender,
as long as such Lender shall be required to maintain reserves with respect to
liabilities or assets consisting of or including Eurocurrency funds or deposits
(currently known as “Eurocurrency liabilities”), additional interest on the
unpaid principal amount of each LIBOR Loan equal to the actual costs of such
reserves allocated to such Loan by such Lender (as determined by such Lender in
good faith, which determination shall be conclusive), which shall be due and
payable on each date on which interest is payable on such Loan, provided the
Borrowers shall have received at least 10 days’ prior notice (with a copy to
the Administrative Agent) of such additional interest from such Lender.  If a Lender fails to give notice 10 days
prior to the relevant Interest Payment Date, such additional interest shall be
due and payable 10 days from receipt of such notice.


 


SECTION 2.24       Change in Legality.


 


(a)           Notwithstanding anything to the
contrary contained elsewhere in this Agreement, if (x) any Change in Law
shall make it unlawful for a Lender to make or maintain a LIBOR Loan or to give
effect to its obligations as contemplated hereby with respect to a LIBOR Loan
or (y) at any time any Lender determines that the making or continuance of
any of its LIBOR Loans has become impracticable as a result of a contingency
occurring after the date hereof which adversely affects the London interbank
market or the position of such Lender in the London interbank market, then, by
written notice to the Borrowers, such Lender may (i) declare that LIBOR
Loans will not thereafter be made by such Lender hereunder, whereupon any
request by the Borrowers for a LIBOR Borrowing shall, as to such Lender only,
be deemed a request for a Base Rate Loan unless such declaration shall be
subsequently withdrawn; and (ii) require that all outstanding LIBOR Loans
made by it be converted to Base Rate Loans, in which event all such LIBOR Loans
shall be automatically converted to Base Rate Loans as of the effective date of
such notice as provided in paragraph (b) below. 
In the event any Lender shall exercise its rights under clause (i) or
(ii) of this paragraph (a), all payments and prepayments of principal
which would otherwise have been applied to repay the LIBOR Loans that would
have been made by such Lender or the converted LIBOR Loans of such Lender shall
instead be applied to repay the Base Rate Loans made by such Lender in lieu of,
or resulting from the conversion of, such LIBOR Loans.


 


(b)           For purposes of this SECTION 2.24,
a notice to the Borrowers by any Lender pursuant to paragraph (a) above
shall be effective, if lawful, and if any LIBOR Loans shall then


 


57

















 


be outstanding, on the last day of the then-current
Interest Period; and otherwise such notice shall be effective on the date of
receipt by the Borrowers.


 


SECTION 2.25       Payments; Sharing of Setoff.


 


(a)           The Borrowers shall make each payment
required to be made by it hereunder or under any other Loan Document (whether
of principal, interest, fees or reimbursement of drawings under Letters of
Credit, or of amounts payable under SECTION 2.19(b), SECTION 2.23 or SECTION 2.26,
or otherwise) prior to 12:00 noon on the date when due, in immediately
available funds, without setoff or counterclaim.  Any amounts received after such time on any
date may, in the discretion of the Administrative Agent, be deemed to have been
received on the next succeeding Business Day for purposes of calculating
interest thereon.  All such payments
shall be made to the Administrative Agent at its offices at 100 Federal
Street, Boston, Massachusetts, except payments to be made directly to the
applicable Issuing Bank or Swingline Lender as expressly provided herein and
except that payments pursuant to SECTION 2.19(b), SECTION 2.23, SECTION 2.26
and SECTION 9.3 shall be made directly to the Persons entitled thereto and
payments pursuant to other Loan Documents shall be made to the Persons
specified therein.  The Administrative
Agent shall distribute any such payments received by it for the account of any
other Person to the appropriate recipient promptly following receipt
thereof.  If any payment under any Loan
Document (other than payments with respect to LIBOR Borrowings) shall be due on
a day that is not a Business Day, the date for payment shall be extended to the
next succeeding Business Day, and, in the case of any payment accruing
interest, interest thereon shall be payable for the period of such
extension.  All payments under each Loan
Document shall be made in Dollars.


 


(b)           If at any time insufficient funds are
received by and available to the Administrative Agent to pay fully all amounts
of principal, unreimbursed drawings under Letters of Credit, interest and fees
then due hereunder, such funds shall be applied (i) first, towards payment
of interest and fees then due hereunder, ratably among the parties entitled
thereto in accordance with the amounts of interest and fees then due to such
parties, and (ii) second, towards payment of principal and unreimbursed
drawings under Letters of Credit then due hereunder, ratably among the parties
entitled thereto in accordance with the amounts of principal and unreimbursed
drawings under Letters of Credit then due to such parties.


 


(c)           If any Lender shall, by exercising
any right of setoff or counterclaim or otherwise, obtain payment in respect of
any principal of or interest on any of its Loans or participations in drawings
under Letters of Credit or Swingline Loans resulting in such Lender’s receiving
payment of a greater proportion of the aggregate amount of its Loans and
participations in drawings under Letters of Credit and Swingline Loans and
accrued interest thereon than the proportion received by any other Lender, then
the Lender receiving such greater proportion shall purchase (for cash at face
value) participations in the Loans and participations in drawings under Letters
of Credit and Swingline Loans of other Lenders to the extent necessary so that
the benefit of all such payments shall be shared by the Lenders ratably in accordance
with the aggregate amount of principal of and accrued interest on their
respective Loans and participations in drawings under Letters of Credit and
Swingline Loans, provided, that (i) if any such participations are
purchased and all or any portion of the payment giving rise thereto is
recovered, such participations shall be rescinded and the purchase price
restored to the extent of


 


58

















 


such recovery, without interest, and (ii) the
provisions of this paragraph shall not be construed to apply to any payment
made by the Borrowers pursuant to and in accordance with the express terms of
this Agreement or any payment obtained by a Lender as consideration for the
assignment of or sale of a participation in any of its Loans or participations
in drawings under Letters of Credit to any assignee or participant, other than
to the Borrowers or any Affiliate thereof (as to which the provisions of this
paragraph shall apply).  The Borrowers
consent to the foregoing and agree, to the extent they may effectively do so
under applicable law, that any Lender acquiring a participation pursuant to the
foregoing arrangements may exercise against the Borrowers rights of setoff and
counterclaim with respect to such participation as fully as if such Lender were
a direct creditor of the Borrowers in the amount of such participation.


 


(d)           Unless the Administrative Agent shall
have received notice from the Borrowers prior to the date on which any payment
is due to the Administrative Agent for the account of the Lenders or an Issuing
Bank hereunder that the Borrowers will not make such payment, the
Administrative Agent may assume that the Borrowers have made such payment on
such date in accordance herewith and may, in reliance upon such assumption,
distribute to the Lenders or the applicable Issuing Bank, as the case may be,
the amount due.  In such event, if the
Borrowers have not in fact made such payment, then each of the Lenders or the
applicable Issuing Bank, as the case may be, severally agrees to repay to the
Administrative Agent forthwith on demand the amount so distributed to such
Lender or Issuing Bank with interest thereon, for each day from and including
the date such amount is distributed to it to but excluding the date of payment
to the Administrative Agent, at the greater of the Federal Funds Effective Rate
and a rate determined by the Administrative Agent in accordance with banking
industry rules on interbank compensation.


 


(e)           If any Lender shall fail to make any
payment required to be made by it pursuant to this Agreement, then the
Administrative Agent may, in its discretion (notwithstanding any contrary
provision hereof), apply any amounts thereafter received by the Administrative
Agent for the account of such Lender to satisfy such Lender’s obligations under
this Agreement until all such unsatisfied obligations are fully paid.


 


SECTION 2.26       Taxes.


 


(a)           Any and all payments by or on account
of any obligation of the Loan Parties hereunder or under any other Loan
Document shall be made free and clear of and without reduction or withholding
for any Indemnified Taxes or Other Taxes, provided that if the Loan Parties
shall be required by applicable law to deduct any Indemnified Taxes (including
any Other Taxes) from such payments, then (i) the sum payable shall be
increased as necessary so that after making all required deductions (including
deductions applicable to additional sums payable under this SECTION 2.26(a))
the Administrative Agent, such Lender or such Issuing Bank, as the case may be,
receives an amount equal to the sum it would have received had no such
deductions been made, (ii) the Loan Parties shall make such deductions and
(iii) the Loan Parties shall timely pay the full amount deducted to the
relevant Governmental Authority in accordance with applicable law.


 


59
















 


(b)           Without limiting the provisions of
subsection (a) above, the Loan Parties shall timely pay any Other Taxes to
the relevant Governmental Authority in accordance with applicable law.


 


(c)           The Loan Parties shall indemnify the
Administrative Agent, each Lender and each Issuing Bank, within 10 days after
demand therefor, for the full amount of any Indemnified Taxes or Other Taxes
(including Indemnified Taxes or Other Taxes imposed or asserted on or
attributable to amounts payable under this SECTION 2.26) paid by the
Administrative Agent, such Lender or the Issuing Bank, as the case may be, and
any penalties, interest and reasonable expenses arising therefrom or with
respect thereto (other than penalties and interest arising from the gross
negligence or willful misconduct of the Administrative Agent, any Co-Borrowing
Base Agent, such Lender or the Issuing Bank, as applicable), whether or not
such Indemnified Taxes or Other Taxes were correctly or legally imposed or
asserted by the relevant Governmental Authority.  A certificate as to the amount of such
payment or liability delivered to the Loan Parties by a Lender or an Issuing
Bank (with a copy to the Administrative Agent), or by the Administrative Agent
on its own behalf or on behalf of a Lender or an Issuing Bank, shall be
conclusive absent manifest error.


 


(d)           As soon as practicable after any
payment of Indemnified Taxes or Other Taxes by the Loan Parties to a
Governmental Authority, the Loan Parties shall deliver to the Administrative
Agent the original or a certified copy of a receipt issued by such Governmental
Authority evidencing such payment, a copy of the return reporting such payment
or other evidence of such payment reasonably satisfactory to the Administrative
Agent.


 


(e)           Any Lender that is entitled to an
exemption from or reduction of withholding tax under the law of the
jurisdiction in which any Loan Party is resident for tax purposes, or any
treaty to which such jurisdiction is a party, with respect to payments
hereunder or under any other Loan Document shall deliver to the Loan Parties
(with a copy to the Administrative Agent), at the time or times prescribed by
applicable law or reasonably requested by the Loan Parties or the
Administrative Agent, such properly completed and executed documentation
prescribed by applicable law as will permit such payments to be made without
withholding or at a reduced rate of withholding.  Such delivery shall be provided on the
Effective Date and on or before such documentation expires or becomes obsolete
or after the occurrence of an event requiring a change in the documentation
most recently delivered.   In addition,
any Lender, if requested by the Loan Parties or the Administrative Agent, shall
deliver such other documentation prescribed by applicable law or reasonably
requested by the Loan Parties or the Administrative Agent as will enable the
Loan Parties or the Administrative Agent to determine whether or not such
Lender is subject to backup withholding or information reporting requirements.


 


Without limiting the generality of the foregoing, in
the event that any Loan Party is resident for tax purposes in the United
States, any Foreign Lender shall deliver to the Loan Parties and the
Administrative Agent (in such number of copies as shall be requested by the recipient)
on or prior to the date on which such Foreign Lender becomes a Lender under
this Agreement (and from time to time thereafter upon the request of the Loan
Parties or the Administrative Agent, but only if such Foreign Lender is legally
entitled to do so), whichever of the following is applicable:


 


60

















 


(i)            duly
completed copies of Internal Revenue Service Form W-8BEN claiming
eligibility for benefits of an income tax treaty to which the United States is
a party,


 


(ii)           duly
completed copies of Internal Revenue Service Form W-8ECI,


 


(iii)          in
the case of a Foreign Lender claiming the benefits of the exemption for
portfolio interest under section 881(c) of the Code, (x) a
certificate to the effect that such Foreign Lender is not (A) a “bank”
within the meaning of section 881(c)(3)(A) of the Code, (B) a “10
percent shareholder” of the Loan Parties within the meaning of section
881(c)(3)(B) of the Code, or (C) a “controlled foreign corporation”
described in section 881(c)(3)(C) of the Code and (y) duly completed
copies of  Internal Revenue Service Form W-8BEN,
or


 


(iv)          any
other form prescribed by applicable law as a basis for claiming exemption from
or a reduction in United States Federal withholding tax duly completed together
with such supplementary documentation as may be prescribed by applicable law to
permit the Loan Parties to determine the withholding or deduction required to
be made.


 


(f)            If the Administrative Agent, any
Lender or any Issuing Bank determines, in its sole discretion, that it has
received a refund of any Taxes or Other Taxes as to which it has been
indemnified by the Loan Parties or with respect to which the Loan Parties have
paid additional amounts pursuant to this SECTION 2.26, it shall pay to the
Loan Parties an amount equal to such refund (but only to the extent of
indemnity payments made, or additional amounts paid, by the Loan Parties under
this SECTION 2.26 with respect to the Taxes or Other Taxes giving rise to
such refund), net of all out-of-pocket expenses of the Administrative Agent,
such Lender or such Issuing Bank, as the case may be, and without interest
(other than any interest paid by the relevant Governmental Authority with
respect to such refund), provided that the Loan Parties, upon the request of
the Administrative Agent, such Lender or such Issuing Bank, agree to repay the
amount paid over to the Loan Parties (plus any penalties, interest or other
charges imposed by the relevant Governmental Authority) to the Administrative
Agent, such Lender or such Issuing Bank in the event that the Administrative
Agent, such Lender or such Issuing Bank is required to repay such refund to
such Governmental Authority.  Upon
reasonable request of the Loan Parties, the Administrative Agent, Lenders, or
any Issuing Bank, as applicable, shall in its sole discretion exercised in good
faith, use reasonable efforts to cooperate with the Loan Parties with a view to
obtaining a refund of any taxes with respect to which any Loan Party has paid
any amount pursuant to this SECTION 2.26 and which such Loan Party
reasonably believes were not correctly or legally asserted by the relevant
Governmental Authority. This subsection shall not be construed to require the
Administrative Agent, any Lender or any Issuing Bank to make available its tax
returns (or any other information relating to its taxes that it deems
confidential) to the Loan Parties or any other Person.


 


SECTION 2.27       Security Interests in Collateral.  To secure their Obligations under this Agreement
and the other Loan Documents, the Loan Parties shall grant to the Collateral
Agent, for its benefit and the ratable benefit of the other Secured Parties, a
first-priority Lien in all of the Collateral 
pursuant hereto and to the Security Documents, subject to the terms of
the Intercreditor Agreement with respect to the Term Priority Collateral.


 


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SECTION 2.28       Mitigation Obligations; Replacement of
Lenders.


 


(a)           If any Lender requests compensation
under SECTION 2.23, or if any Lender is not required to make LIBOR Loans
under Section 2.24 or if the Borrowers are required to pay any additional
amount to any Lender or any Governmental Authority for the account of any
Lender pursuant to SECTION 2.26, then such Lender shall use reasonable
efforts to designate a different lending office for funding or booking its
Loans hereunder or to assign its rights and obligations hereunder to another of
its offices, branches or affiliates, if, in the reasonable judgment of such
Lender, such designation or assignment (i) would eliminate or reduce
amounts payable pursuant to SECTION 2.23 or SECTION 2.26 or would
permit such Lender to make LIBOR Loans, as the case may be, in the future and (ii) would
not subject such Lender to any material unreimbursed cost or expense and would
not otherwise be materially disadvantageous to such Lender.  The Borrowers hereby agree to pay all
reasonable costs and expenses incurred by any Lender in connection with any
such designation or assignment; provided, however, that the
Borrowers shall not be liable for such costs and expenses of a Lender
requesting compensation if (i) such Lender becomes a party to this
Agreement on a date after the Effective Date and (ii) the relevant Change
in Law occurs on a date prior to the date such Lender becomes a party hereto.


 


(b)           If any Lender requests compensation
under SECTION 2.23, or if any Lender is not required to make LIBOR Loans
under SECTION 2.24, or if the Borrowers are required to pay any additional
amount to any Lender or any Governmental Authority for the account of any
Lender pursuant to SECTION 2.26, or if any Lender is a Delinquent Lender,
then the Borrowers may upon notice to such Lender and the Administrative Agent
either (i) terminate the Commitment of such Lender or (ii) require
such Lender to assign and delegate, without recourse (in accordance with and
subject to the restrictions contained in SECTION 9.4), all its interests,
rights and obligations under this Agreement to an assignee that shall assume
such obligations (which assignee may be another Lender, if a Lender accepts
such assignment), provided, that (A) except in the case of an
assignment to another Lender, the Borrowers shall have received the prior
written consent of the Administrative Agent, which consent shall not
unreasonably be withheld, (B) such Lender shall have received payment of
an amount equal to the outstanding principal of its Loans and participations in
unreimbursed drawings under Letters of Credit and Swingline Loans, accrued
interest thereon, accrued fees and all other amounts payable to it hereunder,
from the assignee (to the extent of such outstanding principal and accrued
interest and fees) or the Borrowers (in the case of all other amounts) and (C) in
the case of any such assignment resulting from a claim for compensation under SECTION 2.23
or payments required to be made pursuant to SECTION 2.26, such assignment
will result in a reduction in such compensation or payments.  A Lender shall not be required to make any such
assignment and delegation if, prior thereto, as a result of a waiver by such
Lender or otherwise, the circumstances entitling the Borrowers to require such
assignment and delegation cease to apply.


 


(c)           If any Issuing Bank fails, in its
discretion, to issue a Letter of Credit pursuant to SECTION 2.6(a), then
the Borrowers may, upon notice to such Issuing Bank and the Administrative
Agent, replace such Issuing Bank with a Lender (if agreed to by such Lender in
its sole discretion) selected by the Borrowers and approved by the
Administrative Agent in its reasonable discretion.


 


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SECTION 2.29       Increase in Revolving Credit Facility.


 


(a)           Request for Increase Prior to
Maturity Date.  Prior to the Maturity
Date, provided no Default or Event of Default then exists or would arise
therefrom, upon notice to the Administrative Agent (which shall promptly notify
the Lenders), the Borrowers may from time to time, request an increase in the
Total Commitments by an amount (for all such requests) not exceeding
$100,000,000; provided that (i) any such request for an increase
shall be in a minimum amount of $10,000,000 and (ii) after giving effect
to any such increase, the Total Commitments shall not exceed $750,000,000.  At the time of sending such notice, the
Borrowers (in consultation with the Administrative Agent) shall specify the
time period within which each Lender is requested to respond (which shall in no
event be less than ten Business Days from the date of delivery of such notice
to the Lenders).


 


(b)           Request for Increase After
Maturity Date.  At any time and from
time to time on or after the Maturity Date and payment in full of all Loan
Agreement Obligations of the Non-Extending Lenders, provided no Default or Event
of Default then exists or would arise therefrom, upon notice to the
Administrative Agent (which shall promptly notify the Lenders), the Borrowers
may from time to time, request an increase in the Total Commitments by an
amount (for all such requests) not exceeding $100,000,000; provided that
(i) any such request for an increase shall be in a minimum amount of
$10,000,000 and (ii) after giving effect to any such increase, the Total
Commitments shall not exceed $750,000,000. 
At the time of sending such notice, the Borrowers (in consultation with
the Administrative Agent) shall specify the time period within which each
Lender is requested to respond (which shall in no event be less than ten
Business Days from the date of delivery of such notice to the Lenders).


 


(c)           Lender Elections to Increase.  Each Lender shall notify the Administrative
Agent within such time period whether or not it agrees to increase its
Commitment and, if so, whether by an amount equal to, greater than, or less
than its Commitment Percentage of such requested increase.  Any Lender not responding within such time
period shall be deemed to have declined to increase its Commitment.  No Lender shall be obligated to provide an
increase of its Commitment as a result of any such request by the Borrowers and
nothing contained herein shall constitute the unconditional obligation of the
Administrative Agent or any Lender to provide or obtain commitments for such
requested increase.


 


(d)           Notification by Administrative
Agent; Additional Lenders.  The
Administrative Agent shall notify the Borrowers and each Lender of the Lenders’
responses to each request made hereunder. 
To achieve the full amount of a requested increase, and subject to the
approval of the Administrative Agent (which approvals shall not be unreasonably
withheld), the Borrowers may also invite additional Persons to become Lenders
pursuant to a joinder agreement in form and substance satisfactory to the
Administrative Agent and its counsel.


 


(e)           Effective Date and Allocations.  If the Total Commitments are increased in
accordance with this Section, the Administrative Agent and the Borrowers shall
determine the effective date (the “Revolving Credit Increase Effective Date”) and the final allocation of such
increase.  The Administrative Agent shall
promptly notify the Borrowers and the Lenders of the final allocation of such
increase and the Revolving Credit Increase Effective Date. Each Extending
Lender agreeing to provide an increased Commitment and each additional Person
becoming Lenders shall be entitled to receive interest, letter of credit fees
and unused fees at the rates provided for Extending Lenders.  Moreover, that portion of the increased Commitment of


 


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each Extending Lender and each such other Person (i) shall
terminate on the Extended Termination Date, and (ii) shall otherwise be on
the same terms as set forth in, and be entitled to the benefits of, this
Agreement and the other Loan Documents.


 


(f)            Conditions to Effectiveness of
Increase.  As a condition precedent
to such increase, the Borrowers shall deliver to the Administrative Agent a
certificate of each Borrower dated as of the Revolving Credit Increase
Effective Date (in sufficient copies for each Lender) signed by an authorized
officer of such Borrower (i) certifying and attaching the resolutions
adopted by such Borrower approving or consenting to such increase, and (ii) certifying
that, before and after giving effect to such increase, (A) the
representations and warranties made by such Borrower in Article III
and the other Loan Documents are true and correct on and as of the Revolving
Credit Increase Effective Date, other than representations and warranties that
relate solely to an earlier date (in which case they are true and correct as of
such earlier date) and except for changes thereto which are not prohibited by
the other terms of this Agreement or the other Loan Documents, and except that
for purposes of this Section 2.29, the representations and warranties
contained in subsections (a) of Section 3.4 shall be deemed to
refer to the most recent statements furnished pursuant to clause (a) of Section 5.1,
and (B) no Default exists.  The
Borrowers shall prepay any Revolving Loans outstanding on the Revolving Credit
Increase Effective Date (and pay any additional amounts required pursuant to Section 2.19(b))
to the extent necessary to keep the outstanding Revolving Loans ratable with
any revised Commitment Percentages arising from any nonratable increase in the
Commitments under this Section.  In
addition, the Borrowers shall pay such fees and other compensation as the
Borrowers, the Administrative Agent and each such Lender may agree.


 


SECTION 2.30       Canadian Loan Parties.       Following the Maturity Date, Zale may,
upon not less than 30 days’ notice to the Administrative Agent and the
Co-Borrowing Base Agents (or such shorter period as may be agreed by the
Administrative Agent and the Co-Borrowing Base Agents in their sole
discretion), request that the Administrative Agent and the Co-Borrowing Base
Agents consent (in their sole discretion) to the termination of each Canadian
Loan Party’s status as a Facility Guarantor and a Loan Party hereunder,
provided that, any such consent (if given) shall be conditioned upon, among
other terms, the satisfaction of the following: (a) all Letters of Credit
issued for the account of each Canadian Loan Party shall have expired or
terminated (or been collateralized in a manner satisfactory to the Issuing
Banks) and all Letter of Credit Outstandings with respect to all Letters of
Credit issued for the account of the Canadian Loan Parties have been reduced to
zero (or collateralized in a manner satisfactory to the Issuing Banks), as of
the effective date of such termination (unless such Obligations have been
assumed by a Borrower upon terms satisfactory to the Administrative Agent), (b) after
giving effect to such termination and to the release of the Liens held by the
Collateral Agent in the assets of the Canadian Loan Parties and the removal of
all assets of the Canadian Loan Parties from the Borrowing Base and all
component definitions thereof, Excess Availability shall not be less than
$100,000,000 and (c) the Term Loan has been paid in full and all Liens on,
and security interests in, the assets of the Canadian Loan Parties to secure
the Term Loan have been terminated and released to the reasonable satisfaction
of the Administrative Agent. The Administrative Agent will promptly notify the
Lenders of any such termination of the Canadian Loan Parties status as Facility
Guarantors and Loan Parties hereunder. Upon such termination, each Canadian
Loan Party shall be released from its obligations hereunder and under the Loan
Documents and the Administrative Agent and/or Collateral Agent shall, subject
to SECTION


 


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9.6, release all Liens on, and security interests held by them in, the
assets of the Canadian Loan Parties.


 


ARTICLE
III

REPRESENTATIONS AND WARRANTIES


 


Each
Loan Party, represents and warrants to the Agents and the Lenders that:


 


SECTION 3.1         Organization; Powers.  Each Loan Party, and each of its
Subsidiaries, is duly organized, validly existing and in good standing under
the laws of the jurisdiction of its organization, and each such Person has all requisite
power and authority to carry on its business as now conducted and, except where
the failure to do so, individually or in the aggregate, could not reasonably be
expected to result in a Material Adverse Effect, is qualified to do business
in, and is in good standing in, every jurisdiction where such qualification is
required.


 


SECTION 3.2         Authorization; Enforceability.  The transactions contemplated hereby, by the
other Loan Documents and by the Co-Borrowing Base Agent Rights Agreement to be
entered into by each Loan Party are within such Loan Party’s corporate or
partnership powers and have been duly authorized by all necessary corporate or
partnership, and, if required, stockholder action.  This Agreement and the Co-Borrowing Base
Agent Rights Agreement have been duly executed and delivered by each Loan Party
that is a party hereto and thereto and constitutes, and each other Loan
Document to which any Loan Party is a party, when executed and delivered by
such Loan Party will constitute, a legal, valid and binding obligation of such
Loan Party (as the case may be), enforceable in accordance with its terms,
subject to applicable bankruptcy, insolvency, reorganization, moratorium or
other laws affecting creditors’ rights generally and subject to general
principles of equity, regardless of whether considered in a proceeding in
equity or at law.


 


SECTION 3.3         Governmental Approvals; No Conflicts.  The transactions to be entered into
contemplated by the Loan Documents (a) do not require any consent or
approval of, registration or filing with, or any other action by, any
Governmental Authority, except (i) for such as have been obtained or made
and are in full force and effect, (ii) for those which could not
reasonably be expected to have a Material Adverse Effect, and (iii) for  filings and recordings necessary to perfect
Liens created under the Loan Documents, (b) will not violate any
applicable law or regulation or the charter, by-laws or other organizational
documents of any Loan Party or any order of any Governmental Authority, except
for such violation which could not reasonably be expected to have a Material
Adverse Effect, (c) will not violate or result in a default under any
indenture, agreement or other instrument binding upon any Loan Party or any of
its Subsidiaries or their respective assets, except for such violation or
default which could not reasonably be expected to have a Material Adverse
Effect, or give rise to a right thereunder to require any payment to be made by
any Loan Party, and (d) will not result in the creation or imposition of
any Lien on any asset of any Loan Party, except Liens created under the Loan
Documents or otherwise permitted hereby or thereby.


 


SECTION 3.4         Financial Condition. (a) There
have been furnished to each of the Lenders (i) consolidated balance sheets
of Zale and its Subsidiaries as of July 31, 2009, and a consolidated
statement of operations and consolidated statement of cash flow of Zale and its


 


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Subsidiaries for the fiscal year then ended, certified by Ernst &
Young  and (ii) an unaudited consolidated
and consolidating balance sheet of Zale and its Subsidiaries as of January 31,
2010, and an unaudited consolidated statement of operations and consolidated
statement of cash flow of Zale and its Subsidiaries for the period then
ended.  Such balance sheets, statements
of operations and statements of cash flow have been prepared in accordance with
GAAP and fairly present in all material respects the financial condition of
Zale and its Subsidiaries as at the close of business on the dates thereof and
the results of operations for the periods then ended, subject, in the case of
such unaudited consolidated balance sheet, unaudited consolidated statement of
operations and unaudited consolidated statement of cash flow, to year-end
adjustments, and except that there are no notes to such financial
statements.  There are no contingent
liabilities that are likely to become fixed obligations of Zale or any of its
Subsidiaries as of such dates involving material amounts, known to the
Financial Officers of the Loan Parties, which were not disclosed in such
balance sheets and the notes related thereto.


 


(b)           The projected consolidated balance
sheets and cash flow statements of Zale and its Subsidiaries have been prepared
in good faith, are based upon estimates and assumptions which the Borrowers
deem reasonable as of the date hereof, have been prepared on the basis of the
assumptions stated therein and reflect the reasonable estimates of Zale and its
Subsidiaries of the results of operations and other information projected
therein.


 


(c)           From January 31, 2010, there has
been no event or occurrence which has had a Material Adverse Effect.


 


SECTION 3.5         Properties


 


(a)           As of the date hereof, the Loan
Parties and their Subsidiaries own all of the material assets reflected in the
consolidated balance sheet of Zale and its Subsidiaries as of January 31,
2010 or acquired since that date (except property or assets sold or otherwise
disposed of in the ordinary course of business and other property sold as
permitted by SECTION 6.5 hereof since that date), subject to no Liens
except Liens permitted by SECTION 6.2.


 


(b)           Each Loan Party owns, or is licensed
to use, all trademarks, trade names, copyrights, patents and other intellectual
property material to its business, and the use thereof by such Person does not
infringe upon the rights of any other Person, except for any such infringements
that, individually or in the aggregate, could not reasonably be expected to
result in a Material Adverse Effect. 
Schedule 3.5(b) sets forth, as of the Effective Date, a listing of
all such Intellectual Property which has been registered with any Governmental
Authority including, in each case, the name of the Loan Party that is the owner
or licensee thereof.


 


SECTION 3.6         Litigation and Environmental
Matters.


 


(a)           There are no actions, suits or
proceedings by or before any arbitrator or Governmental Authority pending
against or, to the knowledge of any Loan Party or any of its Subsidiaries,
threatened against or affecting any such Person (i)  as to which there is
a reasonable possibility of an adverse determination and that, if adversely
determined, could reasonably be expected, individually or in the aggregate, to
result in a Material Adverse Effect (other than those set forth on
Schedule 3.6) or (ii) that involve any of the Loan Documents.


 


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(b)           Except for the matters set forth on
Schedule 3.6, and except as could not reasonably be expected to have a Material
Adverse Effect, no Loan Party or any of its Subsidiaries (i) has failed to
comply with any Environmental Law or to obtain, maintain or comply with any
permit, license or other approval required under any Environmental Law, (ii) has
become subject to any Environmental Liability, (iii) has received notice
of any claim with respect to any Environmental Liability or (iv) knows of
any basis for any Environmental Liability.


 


(c)           Since the date of this Agreement,
there has been no change in the status of the matters set forth on Schedule 3.6
that, individually or in the aggregate, has resulted in, or could reasonably be
expected to result in, a Material Adverse Effect.


 


SECTION 3.7         Compliance with Laws and Agreements.  Each Loan Party, and each of its
Subsidiaries, is in compliance with all laws, regulations and orders of any
Governmental Authority applicable to it or its property and all indentures,
material agreements and other instruments binding upon it or its property, except
where the failure to do so, individually or in the aggregate, could not
reasonably be expected to result in a Material Adverse Effect.  No Default or Event of Default has occurred
and is continuing.


 


SECTION 3.8         Investment Company Status.  None of the Loan Parties or any of their Subsidiaries is an “investment company” as defined in, or
subject to regulation under, the Investment Company Act of 1940.


 


SECTION 3.9         Taxes.  Each Loan Party, and each of its
Subsidiaries, has timely filed or caused to be filed all tax returns and
reports required to have been filed by it and has paid or caused to be paid all
Taxes required to have been paid by it, except (a) Taxes that are being
contested in good faith by appropriate proceedings, for which such Person has
set aside on its books adequate reserves, and as to which no Lien has arisen,
or (b) to the extent that the failure to do so could not reasonably be
expected to result in a Material Adverse Effect.


 


SECTION 3.10       ERISA; No Canadian Plans.


 


(a)           Each Plan and each Guaranteed Pension
Plan has been maintained and operated in compliance with the provisions of
ERISA and, to the extent applicable, the Code, including but not limited to the
provisions thereunder respecting prohibited transactions and the bonding of fiduciaries
and other persons handling plan funds as required by §412 of ERISA, except
where the failure to so comply would not reasonably be expected to have a
Material Adverse Effect.  The Borrowers
have heretofore delivered to the Administrative Agent the most recently
completed, prior to the date hereof, annual report, Form 5500, with all
required attachments, and actuarial statement required to be submitted under
§103(d) of ERISA, with respect to each Guaranteed Pension Plan.


 


(b)           Under each Plan which is an employee
welfare benefit plan within the meaning of §3(1) or §3(2)(B) of
ERISA, no benefits are due unless the event giving rise to the benefit
entitlement occurs prior to plan termination (except as required by Title I, Part 6
of ERISA).  One of the Loan Parties or an
ERISA Affiliate, as appropriate, may terminate each such Plan at any time (or
at any time subsequent to the expiration of any applicable bargaining
agreement) in


 


67

















 


the discretion of such Loan Party or such ERISA
Affiliate without liability to any Person, except for benefit entitlements
which have accrued prior to such termination.


 


(c)           Each contribution required to be made
to a Guaranteed Pension Plan, whether required to be made to avoid the
incurrence of an accumulated funding deficiency, the notice or lien provisions
of §302(f) of ERISA, or otherwise, has been timely made.  No waiver of an accumulated funding
deficiency or extension of amortization periods has been received with respect
to any Guaranteed Pension Plan, and none of the Loan Parties nor any ERISA
Affiliate is obligated to or has posted security in connection with an
amendment to a Guaranteed Pension Plan pursuant to §307 of ERISA or §401(a)(29)
of the Code.  No liability to the PBGC
(other than required insurance premiums, all of which have been paid) has been
incurred by any Loan Party or any ERISA Affiliate with respect to any
Guaranteed Pension Plan and there has not been any ERISA Event (other than an
ERISA Event as to which the requirement of thirty (30) days notice has been
waived), or any other event or condition which presents a material risk of
termination of any Guaranteed Pension Plan by the PBGC.  Based on the latest valuation of each
Guaranteed Pension Plan (which in each case occurred within twelve months of
the date of this representation), and on the actuarial methods and assumptions
employed for that valuation, the aggregate benefit liabilities of all such
Guaranteed Pension Plans within the meaning of §4001 of ERISA did not exceed
the aggregate value of the assets of all such Guaranteed Pension Plans,
disregarding for this purpose the benefit liabilities and assets of any
Guaranteed Pension Plan with assets in excess of benefit liabilities, by more
than $1,000,000.


 


(d)           None of the Loan
Parties nor any ERISA Affiliate has incurred any material liability (including
secondary liability) to any Multiemployer Plan as a result of a complete or
partial withdrawal from such Multiemployer Plan under §4201 of ERISA or as a
result of a sale of assets described in §4204 of ERISA.  None of the Loan Parties nor any ERISA
Affiliate has been notified that any Multiemployer Plan is in reorganization or
insolvent under and within the meaning of §4241 or §4245 of ERISA or is at risk
of entering reorganization or becoming insolvent, or that any Multiemployer
Plan intends to terminate or has been terminated under §4041A of ERISA.


 


(e)           (i)           None of the Loan Parties has any Canadian Plan.  Furthermore, no Canadian Plan has been
terminated or partially terminated by any such Person, nor is it insolvent or
in reorganization, nor have any proceedings been instituted to terminate, in
whole or in part, or reorganize any Canadian Plan.


 


(ii)           None
of the Loan Parties nor any of their Subsidiaries has ceased to participate (in
whole or in part) as a participating employer in any Canadian Plan which is a
pension plan or has withdrawn from any Canadian Plan which is a pension plan in
a complete or partial withdrawal, nor has a condition occurred which if
continued would result in a complete or partial withdrawal.


 


(iii)          None
of the Loan Parties nor any of their Subsidiaries has any unfunded liability on
windup or withdrawal liability, including contingent withdrawal or windup
liability, to any Canadian Plan or any solvency deficiency in respect of any
Canadian Plan.


 


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(iv)          None
of the Loan Parties nor any of their Subsidiaries has any unfunded liability on
windup or any liability in respect of any Canadian Plan (including to the FSCO)
other than for required insurance premiums or contributions or remittances
which have been paid, contributed and remitted when due.


 


(v)           The
Loan Parties and their Subsidiaries have made all contributions to any Canadian
Plan required by law or the terms thereof to be made by it when due, and it is
not in arrears in the payment of any contribution, payment, remittance or
assessment or in default in filing any reports, returns, statements, and
similar documents in respect of such Canadian Plan required to be made or paid
by it pursuant to said Canadian Plan, any law, act, regulation, directive or
order or any employment, union, pension, deferred profit sharing, benefit,
bonus or other similar agreement or arrangement.


 


(vi)          None
of the Loan Parties nor any of their Subsidiaries is liable or, to the best of
the Loan Parties’ knowledge, alleged to be liable, to any employee or former
employee, director or former director, officer or former officer or other
Person resulting from any violation or alleged violation of any Canadian Plan,
any fiduciary duty, any law or agreement in relation to any Canadian Plan or
has any unfunded pension or like obligations or solvency deficiency (including
any past service or experience deficiency funding liabilities), other than
accrued obligations not yet due, for which it has made full provision in its
books and records.


 


(vii)         All
vacation pay, bonuses, salaries and wages, to the extent accruing due, are
properly reflected in the Loan Parties’ and their Subsidiaries’ books and
records.


 


(viii)        None
of the Loan Parties nor any of their Subsidiaries has made any application for
a funding waiver or extension of any amortization period in respect of any
Canadian Plan.


 


(ix)           There
has been no prohibited transaction or violation of any fiduciary
responsibilities with respect to any Canadian Plan.


 


(x)            There
are no outstanding or pending or threatened investigations, claims, suits or
proceedings in respect of any Canadian Plans (including to assert rights or
claims to benefits) that could give rise to a Material Adverse Effect.


 


SECTION 3.11       Disclosure.  The Borrowers have disclosed to the Lenders
all agreements, instruments and corporate or other restrictions to which any
Loan Party is subject, and all other matters known to any of them, that,
individually or in the aggregate, in each case, could reasonably be expected to
result in a Material Adverse Effect. 
None of the reports, financial statements, certificates or other
information furnished by or on behalf of any Loan Party to the Administrative
Agent or any Lender in connection with the negotiation of this Agreement or any
other Loan Document or delivered hereunder or thereunder (other than
projections), taken as a whole, contains any material misstatement of fact or
omits to state any material fact necessary to make the statements therein, in
the light of the circumstances under which they were made, not materially
misleading.


 


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SECTION 3.12       Subsidiaries.  Schedule 3.12 (as the same may be
supplemented from time to time pursuant to the provisions of this Agreement)
sets forth the name of, and the ownership interest of each Loan Party in each
Subsidiary as of the Effective Date and designates those Subsidiaries which are
Excluded Subsidiaries.  No other
Subsidiaries of Zale own Inventory generally consisting of watches, gemstones,
jewelry, and giftware other than the Subsidiaries which are Loan Parties
hereunder and under the other Loan Documents. Except as set forth on
Schedule 3.12 (as the same may be supplemented from time to time pursuant
to the provisions of this Agreement), the Loan Parties are not and each of
their respective Subsidiaries is not party to any joint venture, general or
limited partnership, or limited liability company, agreements or any other
business ventures or entities.


 


SECTION 3.13       Insurance.  Schedule 3.13 sets forth a description
of all policies of insurance which covers the Collateral maintained by or on
behalf of the Loan Parties and their Subsidiaries as of the Effective
Date.  As of the Effective Date, all
premiums in respect of such insurance that are due and payable have been paid.


 


SECTION 3.14       Accounts; Credit Cards.


 


(a)           Schedule 2.21(a)(i) lists all
DDAs and Concentration Accounts maintained by any of the Loan Parties or their
Subsidiaries as of the Effective Date, and such Schedule correctly identifies
the name and address of each depository, the account number(s) maintained
with such depository, and to the extent known, a contact person at such
depository.


 


(b)           Schedule 2.21(a)(ii) lists all
arrangements to which any Loan Party or any Subsidiary thereof is a party with
respect to the payment to any Loan Party of the proceeds of all credit card charges
for sales by any Loan Party, as of the Effective Date.


 


SECTION 3.15       Labor Matters.  As of the Effective Date, there are no
strikes, lockouts or slowdowns against any Loan Party or any Subsidiary thereof
pending or, to the knowledge of the Borrowers, threatened.  The hours worked by and payments made to
employees of the Loan Parties and their Subsidiaries have not been in violation
of the Fair Labor Standards Act or any other applicable federal, state,
provincial, municipal, local or foreign law dealing with such matters to the
extent that any such violation could reasonably be expected to have a Material
Adverse Effect.  All material payments
due from any Loan Party or any Subsidiary thereof, or for which any claim may
be made against any such Person, on account of wages and employee health and
welfare insurance and other benefits, have been paid or accrued as a liability
on the books of such member.  The
consummation of the transactions contemplated by the Loan Documents will not
give rise to any right of termination or right of renegotiation on the part of
any union under any collective bargaining agreement to which any Loan Party or
any Subsidiary thereof is bound.


 


SECTION 3.16       Security Documents.  The Security Documents create in favor of the
Collateral Agent, for the ratable benefit of the Secured Parties, a legal,
valid and enforceable security interest in the Collateral, and the Security
Documents constitute, or will upon the filing of Uniform Commercial Code, PPSA
and PRUCC financing statements or equivalent forms and the obtaining of “control”,
in each case with respect to the relevant Collateral as required under the
applicable Uniform Commercial Code, PPSA and PRUCC, the creation of a fully
perfected


 


70

















 


first priority Lien on, and security interest in, all right, title and
interest of the Loan Parties thereunder in such Collateral, in each case prior
and superior in right to any other Person, except as permitted hereunder or
under any other Loan Document or as provided by applicable law.


 


SECTION 3.17       Federal Reserve Regulations.  Neither the Loan Parties nor any of their
respective Subsidiaries is engaged principally, or as one of its important
activities, in the business of extending credit for the purpose of buying or
carrying Margin Stock.  No part of the
proceeds of any Loan or any Letter of Credit will be used, whether directly or
indirectly, and whether immediately, incidentally or ultimately, (i) to
buy or carry Margin Stock or to extend credit to others for the purpose of
buying or carrying Margin Stock or to refund indebtedness originally incurred
for such purpose or (ii) for any purpose that entails a violation of, or
that is inconsistent with, the provisions of the Regulations of the Board,
including Regulations U or X.


 


SECTION 3.18       Solvency.  The
Loan Parties and their Subsidiaries on
a consolidated basis are Solvent. 
No transfer of property is being made by any Loan Party and no
obligation is being incurred by any Loan Party in connection with the
transactions contemplated by this Agreement or the other Loan Documents with
the intent to hinder, delay, or defraud either present or future creditors of
any Loan Party.


 


SECTION 3.19       Foreign Assets Control Regulations,
Etc.


 


None
of the requesting or borrowing of the Loans, the requesting or issuance,
extension or renewal of any Letters of Credit or the use of the proceeds of any
thereof will violate the Trading With the Enemy Act (50 U.S.C. § 1 et seq., as
amended) (the “Trading With the Enemy Act”) or any of the foreign assets
control regulations of the United States Treasury Department (31 CFR, Subtitle
B, Chapter V, as amended) (the “Foreign Assets Control Regulations”) or
any enabling legislation or executive order relating thereto (which for the
avoidance of doubt shall include, but shall not be limited to (a) Executive
Order 13224 of September 21, 2001 Blocking Property and Prohibiting
Transactions With Persons Who Commit, Threaten to Commit, or Support Terrorism
(66 Fed. Reg. 49079 (2001)) (the “Executive
Order”) and (b) the Uniting and
Strengthening America by Providing Appropriate Tools Required to Intercept and
Obstruct Terrorism Act of 2001 (Public Law 107-56)).  Furthermore, none of the Loan Parties nor any
of their respective Subsidiaries or other Affiliates (a) is or will become
a “blocked person” as described in the Executive Order, the Trading With the
Enemy Act or the Foreign Assets Control Regulations or (b) engages or will
engage in any dealings or transactions, or be otherwise associated, with any
such “blocked person”.


 


SECTION 3.20       Excluded
Subsidiaries.  No Excluded Subsidiary
owns or has rights in any credit card receivables, Inventory generally
consisting of watches, gemstones, jewelry and giftware or other Eligible
Inventory, or the proceeds of any of the foregoing.


 


SECTION 3.21       ZC Partnership. The ZC Partnership
has no outstanding Indebtedness or other material obligations and no assets
other than Investments in Zale Canada Co. permitted hereunder.


 


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ARTICLE
IV

CONDITIONS


 


SECTION 4.1         Effective Date.  The effectiveness of this Agreement is
subject to the satisfaction of the following conditions precedent:


 


(a)           The Administrative Agent (or its
counsel) shall have received from each Loan Party and the Required Lenders
either (i) a counterpart of this Agreement and all other Loan Documents
signed on behalf of such party or (ii) written evidence satisfactory to
the Administrative Agent (which may include telecopy transmission of a signed
signature page of this Agreement) that such party has signed a counterpart
of this Agreement and all other Loan Documents.


 


(b)           The Administrative Agent shall have
received a favorable written opinion (addressed to each Agent, the Co-Borrowing
Base Agents and the Lenders on the Effective Date and dated the Effective Date)
of (i) Troutman Sanders LLP, US counsel to the Loan Parties, (ii) Stikeman
Elliott LLP, Canadian counsel to the Loan Parties and (iii) Goldman
Antonetti & Cordova, PSC, Puerto Rican counsel to the Loan Parties in
form and covering such matters as the Administrative Agent may reasonably
request.  The Loan Parties hereby request
such counsel to deliver such opinion.


 


(c)           The Administrative Agent shall have
received such documents and certificates as the Administrative Agent or its
counsel may reasonably request relating to the organization, existence and good
standing of each Loan Party, the authorization of the transactions contemplated
by the Loan Documents and any other legal matters relating to the Loan Parties,
the Loan Documents or the transactions contemplated thereby, all in form and
substance reasonably satisfactory to the Administrative Agent and its counsel.


 


(d)           After giving effect to any of the
Loans to be made on, or immediately subsequent to, the Effective Date and all
Letters of Credit to be issued (or deemed issued) at, or immediately subsequent
to, the Effective Date, Excess Availability shall be not less than
$200,000,000.  The Administrative Agent
and each Co-Borrowing Base Agent shall have received a Borrowing Base
Certificate dated the Effective Date, relating to the month ended on March 31,
2010 (but the amount of the Loan Agreement Obligations shall be as of May 10,
2010), and executed by a Financial Officer of Zale.


 


(e)           The Administrative Agent shall have
received a certificate from a Financial Officer of Zale, reasonably
satisfactory in form and substance to the Administrative Agent, with respect to
the solvency of Zale and its Subsidiaries on a consolidated basis, as of the
Effective Date.


 


(f)            All necessary consents and approvals
to the transactions contemplated hereby shall have been obtained and shall be
reasonably satisfactory to the Administrative Agent.


 


(g)           Lenders having Commitments (including
Seasonal Commitments) aggregating more than $500,000,000 shall have become
Extending Lenders.


 


(h)           The Borrowers shall have received at
least $150,000,000 of gross proceeds from the Term Loan and the Intercreditor
Agreement shall have been executed and in full force and effect. The
Intercreditor Agreement and all other documents, instruments and agreements
evidencing, guaranteeing, or securing the Term Loan shall be generally
consistent with terms


 


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previously disclosed to the Co-Borrowing Base Agents
and shall be otherwise reasonably satisfactory in form and substance to the
Administrative Agent and the Co-Borrowing Base Agents.


 


(i)            The Administrative Agent shall be
reasonably satisfied that any financial statements delivered to it fairly
present the business and financial condition of Zale and its Subsidiaries, and
that there has been no material adverse change in the assets, business,
financial condition, or income of Zale and its Subsidiaries since the date of
the most recent financial information delivered to the Administrative Agent.


 


(j)            The Administrative Agent shall have
received and be satisfied with detailed financial projections and business
assumptions for Zale and its Subsidiaries (x) a monthly basis for the
twelve month period following the Effective Date, and (y) on an annual
basis for each fiscal year thereafter through the Extended Term Maturity Date,
including, in each case, a consolidated income statement, balance sheet,
statement of cash flows and the Borrowing Base availability analysis, giving
pro forma effect to the Term Loan.


 


(k)           No event shall have occurred after January 31,
2010 that could reasonably be expected to have a Material Adverse Effect.


 


(l)            The Administrative Agent shall have
received results of searches or other evidence reasonably satisfactory to the
Administrative Agent (in each case dated as of a date reasonably satisfactory
to the Administrative Agent) indicating the absence of Liens on the Collateral,
except for Liens permitted by SECTION 6.2 and Liens which termination
statements and releases reasonably satisfactory to the Administrative Agent are
being tendered concurrently with such extension of credit.


 


(m)          The Collateral Agent shall have
received all documents and instruments, including Uniform Commercial Code, PPSA
and PRUCC financing statements and Blocked Account Agreements or Assignment of
Bank Account with respect to the Concentration Accounts required by law or
reasonably requested by the Collateral Agent to be filed, registered or
recorded to create or perfect the first priority Liens intended to be created
under the Loan Documents (except with respect to the Term Priority Collateral,
as to which the Collateral Agent’s Lien shall be a second priority Lien) and
all such financing statements shall have been so filed, registered or recorded
to the satisfaction of the Collateral Agent.


 


(n)           All fees due at or immediately after
the Effective Date, and all reasonable costs and expenses payable hereunder or
under the Fee Letter (including the reasonable fees and expenses of appraisers,
auditors and counsel), shall have been paid in full.


 


(o)           The consummation of the transactions
contemplated hereby shall not (a) violate any applicable law, statute, rule or
regulation, or (b) conflict with, or result in a default or event of
default under, any material agreement of any Loan Party (and the Administrative
Agent and the Lenders shall receive a satisfactory opinion of Loan Parties’
counsel to that effect).


 


(p)           No material changes in governmental
regulations or policies affecting the Loan Parties, the Agents, the Arrangers
or any Lender involved in this transaction shall have occurred


 


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prior to the Effective Date which could, individually
or in the aggregate, materially adversely affect the transaction contemplated
by this Agreement.


 


(q)          The Administrative Agent shall have
received a certificate of Zale stating that the representations and warranties
made by the Loan Parties to the Agents and the Lenders in the Loan Documents
are true and correct in all material respects as of the date of such
Certificate, and that no event has occurred which is or which, solely with the
giving of notice or passage of time (or both) would be an Event of Default.


 


(r)           There shall be no Default or Event of
Default on the Effective Date.


 


(s)           There shall have been delivered to
the Administrative Agent such additional instruments and documents as the
Administrative Agent or counsel to the Administrative Agent may reasonably
require or request.


 


The Administrative Agent
shall notify the Borrowers and the Lenders of the Effective Date, and such
notice shall be conclusive and binding.


 


SECTION 4.2         Conditions Precedent to Each Loan
and Each Letter of Credit.  In
addition to those conditions described in SECTION 4.1, the obligation of
the Lenders to make any Loan and of the Issuing Banks to issue, amend, renew,
extend or increase each Letter of Credit, is subject to the following
conditions precedent:


 


(a)           Notice.  The Administrative Agent shall have received
a notice with respect to such Borrowing or issuance, as the case may be, as
required by Article II.


 


(b)           Representations and Warranties.  All representations and warranties contained
in this Agreement and the other Loan Documents or otherwise made in writing in
connection herewith or therewith shall be true and correct in all material
respects on and as of the date of each Borrowing or the issuance, amendment,
renewal, extension or increase of a Letter of Credit hereunder with the same
effect as if made on and as of such date, other than representations and
warranties that relate solely to an earlier date and except for changes thereto
which are not prohibited by the other terms of this Agreement or the other Loan
Documents.


 


(c)           No Default.  On the date of each Borrowing hereunder and
the issuance, amendment, renewal, extension or increase of each Letter of
Credit, no Default or Event of Default shall have occurred and be continuing.


 


(d)           Borrowing Base Certificate.  The Administrative Agent shall have received
the  most recently required Borrowing
Base Certificate.


 


The request by the
Borrowers for, and the acceptance by the Borrowers of, each extension of credit
hereunder shall be deemed to be a representation and warranty by the Borrowers
that the conditions specified in this SECTION 4.2 have been satisfied at
that time and that after giving effect to such extension of credit the
aggregate of all Credit Extensions shall not exceed the amounts set forth in Section 2.1(a) hereof.  The conditions set forth in this SECTION 4.2
are for the sole benefit of the Administrative Agent, each Issuing Bank and
each Lender and 


 


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may be waived by
the Administrative Agent in whole or in part without prejudice to the
Administrative Agent or any Lender.


 


ARTICLE
V

AFFIRMATIVE COVENANTS


 


So long as any Lender shall have any outstanding
Commitment hereunder, any Letter of Credit is outstanding, or any Loan or any
other Loan Agreement Obligation hereunder shall remain unpaid or unsatisfied
(other than contingent indemnification claims for which a claim has not then
been asserted), each
Loan Party covenants and agrees with the Agents, the Issuing Banks and the
Lenders that:


 


SECTION 5.1         Financial Statements and Other
Information.  The Borrowers will
furnish to the Administrative Agent (and, in the case of SECTION 5.1(f),
(g), (h) and (i), the Co-Borrowing Base Agents):


 


(a)           as soon as practicable, but in any
event not later than ninety-five (95) days after the end of each fiscal
year of Zale, (i) the consolidated balance sheet of Zale and its
Subsidiaries  as at the end of such year,
and the related consolidated statements of operations, stockholders’ equity and
cash flows for such year, setting forth in each case in comparative form the
figures for the previous fiscal year, all audited and reported on by Ernst &
Young LLP or by another independent public accountants of recognized national
standing (without a “going concern” or like qualification or exception
and without a qualification or exception as to the scope of such audit) to the
effect that such consolidated financial statements present fairly in all
material respects the financial condition and results of operations of Zale and
its consolidated Subsidiaries on a consolidated basis in accordance with GAAP
consistently applied, and (ii) the annual 10-K reports of Zale filed with
the Securities and Exchange Commission;


 


(b)           as soon as practicable, but in any
event not later than fifty (50) days after the end of each of the first three
fiscal quarters of each fiscal year of Zale, (i) copies of the unaudited
consolidated balance sheet of Zale and its Subsidiaries as at the end of such
quarter, and the related consolidated statement of operations for such quarter
and for the portion of Zale’s fiscal year then elapsed, and the related
consolidated statement of cash flow for the portion of Zale’s fiscal year then
elapsed, all in reasonable detail and prepared in accordance with GAAP (subject
to year-end adjustments and except for the absence of notes), and (ii) the
quarterly 10-Q reports of Zale filed with the Securities and Exchange
Commission;


 


(c)           as
soon as practicable, but in any event not later than thirty (30) days after the
end of each month (which is not a fiscal quarter end), copies of the unaudited
consolidated balance sheet of Zale and its Subsidiaries as at the end of such
month, and the related consolidated statement of operations for such month and
for the Reference Period then ended, and the related consolidated statement of
cash flow for the Reference Period then ended, all in reasonable detail and
prepared in accordance with GAAP (subject to year-end adjustments and except
for the absence of notes);


 


(d)           (i) concurrently with any
delivery of financial statements under clause (a), (b) or (c) above
a certificate of a Financial Officer of Zale (A) certifying as to whether
a Default or 


 


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Event of Default has occurred and, if a Default has
occurred, specifying the details thereof and any action taken or proposed to be
taken with respect thereto, (B) stating whether any change in GAAP or in
the application thereof has occurred since the date of Zale’s audited financial
statements referred to in SECTION 3.4 and, if any such change has
occurred, specifying the effect of such change on the financial statements
accompanying such certificate and (C) a compliance certificate, certified
by a Financial Officer of Zale, setting forth in reasonable detail the
computation of the Fixed Charge Coverage Ratio (even if compliance with Section 6.8
is not then required), and (ii) within three (3) Business Days after
the occurrence of a Cash Control Event, a compliance certificate, certified by
a Financial Officer of Zale, setting forth in reasonable detail the computation
evidencing compliance with Section 6.8 based upon the most recent monthly
financial statements delivered in accordance with clause (c) above.


 


(e)           on the last day of each fiscal year
of Zale, (i) a detailed consolidated budget by quarter for the immediately
following fiscal year (including a projected consolidated balance sheet and
related statements of projected operations and cash flow as of the end of and
for such fiscal year) and (ii) a monthly detail of projected Inventory
levels and Credit Extensions and the projected Borrowing Base and Excess
Availability for such fiscal year; and, promptly when available, any
significant revisions to the budget and the projections; provided that,
the Borrowers shall, by no later than February 15th of each
calendar year, reforecast and update the projections delivered pursuant to the
foregoing clauses (i) and (ii) for the remaining period of each such
fiscal year;


 


(f)            except as provided below, within
fifteen (15) days after the end of each month, a certificate in the form of Exhibit D
(a “Borrowing Base Certificate”) showing the Borrowing Base as of the
close of business on the last day of the immediately preceding month, each such
Certificate to be certified as complete and correct on behalf of the Borrowers
by a Financial Officer of Zale, provided, however, (i) for the
period of November 30 of each year through January 15 of the
subsequent year, such Borrowing Base Certificate (showing the Borrowing Base as
of the close of business on the last day of the immediately preceding week)
shall be furnished weekly on Wednesday of each week, (ii) if, (A) Excess
Availability is less than $75,000,000 at any time, or (B) an Event of
Default exists, such Borrowing Base Certificate (showing the Borrowing Base as
of the close of business on the last day of the immediately preceding week)
shall be furnished weekly on Wednesday of each week; and (iii) if the
Borrowers notify the Administrative Agent in writing that the Borrowers have
elected, during any period of any year other than the periods set forth in
clauses (i) and (ii) above, to furnish Borrowing Base Certificates on
a weekly basis, such Borrowing Base Certificate (showing the Borrowing Base as
of the close of business on the last day of the immediately preceding week)
shall be furnished weekly on Wednesday of each week from the date of such
notice and continuing during the entire ninety (90) day period thereafter;


 


(g)           Reserved;


 


(h)           within seven (7) Business Days
after the end of the month of December of each calendar year, a modified
Borrowing Base Certificate evidencing a roll-forward of Inventory from the
preceding month’s end;


 


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(i)            weekly, on Wednesday of each week, a
rolling 13 week cash flow, reflecting actual results from the prior week period
compared to the immediately preceding rolling 13 week cash flow delivered to
the Administrative Agent and to the budget delivered to the Administrative
Agent pursuant to Section 5.1(e) hereof, and projected results for
the subsequent 13 week period, together with management’s discussion of any
variances from the prior cash flow or the budget, provided that such
weekly cash flow report shall not be required as long as (i) no Default or
Event of Default exists and (ii) Excess Availability is greater than (A) $75,000,000,
or (B) if and so long as the Fixed Charge Coverage Ratio for the most
recent Reference Period is greater than 1.1:1.0; $60,000,000;


 


(j)            promptly after the same become
publicly available, copies of all periodic and other reports, proxy statements
and other materials filed by Zale or any of its Subsidiaries with the
Securities and Exchange Commission, or any Governmental Authority succeeding to
any or all of the functions of said Commission, or with any national securities
exchange, as the case may be;


 


(k)           promptly upon receipt thereof, copies
of all reports submitted to Zale or any of its Subsidiaries by independent
certified public accountants in connection with each annual, interim or special
audit of the books of Zale and its Subsidiaries made by such accountants,
including any management letter commenting on the Borrowers’ and their
Subsidiaries’ internal controls submitted by such accountants to management in
connection with their annual audit;


 


(l)            the financial and collateral reports
described on Schedule 5.1(l), at the times set forth in such Schedule; and


 


(m)          promptly following any request
therefor, such other information regarding the operations, business affairs and
financial condition of any Loan Party, or compliance with the terms of any Loan
Document, as the Administrative Agent or any Lender may reasonably request.


 


Any document required to be furnished pursuant to this
SECTION 5.1 shall be deemed to have been furnished if such document shall
have timely been made available on the SEC’s Electronic Data Gathering Analysis
and Retrieval System, or its successor (in each case, provided that each Lender
and each Agent has access thereto) and shall be deemed to have been delivered
on the date when so made available; provided that, the Borrowers shall
deliver paper copies (which may be electronic pdf copies) of such documents to
the Administrative Agent if the Administrative Agent or a Lender so requests.


 


SECTION 5.2         Notices of Material Events.  The Borrowers will furnish to the
Administrative Agent, the Issuing Banks, the Collateral Agent, the Co-Borrowing
Base Agents and each Lender written notice of the following promptly following
a Responsible Officer’s obtaining knowledge thereof:


 


(a)           the occurrence of any Default or
Event of Default;


 


(b)           the filing or commencement of any
action, suit or proceeding by or before any arbitrator or Governmental
Authority against or affecting any Loan Party thereof that, if adversely
determined, could reasonably be expected to result in a Material Adverse
Effect;


 


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(c)           the occurrence of any material
violation of any applicable Environmental Law that any of the Loan Parties
reports in writing or is reportable by such Person in writing (or for which any
written report supplemental to any oral report is made) to any U.S. and any
foreign federal, state or local environmental agency which violation could
reasonably be expected to result in a Material Adverse Effect;


 


(d)           the occurrence of any ERISA Event
that, alone or together with any other ERISA Events that have occurred (or
similar event or events in respect of any Canadian Plans), could reasonably be
expected to result in a Material Adverse Effect occurrence of certain events
related to Canadian Plans, if applicable;


 


(e)           any other development that results
in, or could reasonably be expected to result in, a Material Adverse Effect;
and


 


(f)            the discharge by any Loan Party of
its present independent accountants or any withdrawal or resignation by such
independent accountants.


 


Each notice delivered
under this Section shall be accompanied by a statement of a Financial
Officer or other executive officer of Zale setting forth the details of the
event or development requiring such notice and, if applicable, any action taken
or proposed to be taken with respect thereto.


 


SECTION 5.3         Information Regarding Collateral.  The Borrowers will furnish to the Administrative
Agent (a) prompt written notice of any change in (i) any Loan Party’s
trade name used to identify it in the conduct of its business or in the
ownership of its properties or (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); and (b) prior written notice of any
change in (i) any Loan Party’s corporate name or  the
location of any Loan Party’s chief executive office or its principal place of
business, (ii) any Loan Party’s identity or corporate structure or (iii) any
Loan Party’s jurisdiction of incorporation, Federal Taxpayer Identification
Number or state organizational number or similar taxation or organizational
number; provided, however, that if any of the occurrences
referred to in clauses (a) and (b) shall occur with respect to any
Canadian Loan Party or any of its assets, the Borrowers shall furnish the
Administrative Agent with thirty (30) days’ prior written notice thereof.  Zale also agrees promptly to notify the
Administrative Agent and the Co-Borrowing Base Agents if any material portion
of the Collateral is damaged, destroyed, or lost, stolen or otherwise
unaccounted for.


 


SECTION 5.4         Existence; Conduct of Business.


 


Except as otherwise
permitted by this Agreement (including pursuant to SECTION 6.4), each Loan
Party will do or cause to be done, and will cause each of its Subsidiaries to
do or cause to be done, all things necessary to comply with its respective
charter, certificate of incorporation, articles of organization, and/or other
organizational documents, as applicable; and by-laws and/or other instruments
which deal with corporate governance, and to preserve, renew and keep in full
force and effect its legal existence and the rights, licenses, permits,
privileges, 


 


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franchises, patents,
copyrights, trademarks and trade names material to the conduct of its business.


 


SECTION 5.5         Payment of Obligations.


 


Each Loan Party will, and
will cause each of its Subsidiaries to, pay its Material Indebtedness,
obligations in connection with Hedging Agreements and Cash Management Services,
and Tax liabilities, before the same shall become delinquent or in default,
except where (a) the validity or amount thereof is being contested in good
faith by appropriate proceedings, (b) such Loan Party has set aside on its
books adequate reserves with respect thereto in accordance with GAAP, (c) such
contest effectively suspends collection of the contested obligation, (d) no
Lien (other than a Lien permitted by SECTION 6.2) secures such obligation
and (e) the failure to make payment pending such contest could not
reasonably be expected to result in a Material Adverse Effect; provided
that any payment made by a Loan Party in good faith with respect to any of its
Tax liabilities which is subsequently determined by a Governmental Authority to
be less than the payment deemed to be owed by such Governmental Authority shall
not constitute a breach of this SECTION 5.5, provided such
Governmental Authority has not levied any Lien (other than a Permitted
Encumbrance) to secure such obligation. 
The Loan Parties will cause each of their respective Subsidiaries to pay
its Tax liabilities, except to the extent that the failure to do so could not
reasonably be expected to result in a Material Adverse Effect.


 


SECTION 5.6         Maintenance of Properties.


 


Each Loan Party will, and
will cause each of its Subsidiaries to, keep and maintain all property material
to the conduct of its business in good working order and condition, ordinary
wear and tear excepted and with the exception of asset dispositions permitted
hereunder.


 


SECTION 5.7         Insurance.


 


(a)           Each Loan Party will maintain the
following insurance under this Agreement (or, to the extent consistent with
prudent business practice, a program of self insurance): (i) worker’s
compensation and employer’s liability insurance affording (A) protection under
the workers’ compensation laws of the state(s) or province(s) in
which the service is to be provided and (B) employers’ liability protection
subject to a limit of not less than $500,000; (ii) comprehensive
automobile liability insurance providing limits of not less than $2,000,000
each occurrence for bodily injury and property damage combined; (iii) commercial
general liability insurance providing not less than $2,000,000 each occurrence
for bodily injury and property damage combined; and (iv) umbrella
liability insurance in amounts not less than $3 million in excess of primary
liability coverage.  All such insurance
policies required to be maintained under this Agreement shall be procured from
insurance companies rated at least A-VIII or better by the then current edition
of Best’s Insurance Reports published by A.M. Best Co.  The Borrowers shall provide Administrative
Agent with certificates of insurance evidencing the required coverage
concurrently with the execution of this Agreement and upon each renewal of such
policies thereafter, and, in addition to the notices required under Section 5.7(b),
the Loan Parties shall furnish prompt written notice of any material change or
cancellation of such policies.  Each of
the Loan Parties will maintain with financially sound and reputable insurers
insurance with 


 


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respect to the Collateral and its other properties
against such casualties as shall be consistent with past practices and in
accordance with the general practices of businesses engaged in similar
activities in similar geographic areas and in amounts, containing such terms,
in such forms and for such periods as may be reasonable and prudent.


 


(b)           Fire and extended coverage policies
maintained with respect to any Collateral shall be endorsed or otherwise
amended to include (i) a provision to the effect that none of the Loan
Parties, the Administrative Agent, the Collateral Agent, or any other party
shall be a coinsurer and (ii) such other provisions as the Administrative
Agent may reasonably require from time to time to protect the interests of the
Lenders. Each such policy referred to in this paragraph also shall provide that
it shall not be canceled, modified or not renewed (i) by reason of
nonpayment of premium except upon not less than ten (10) days’ prior
written notice thereof by the insurer to the Administrative Agent (giving the
Administrative Agent the right to cure defaults in the payment of premiums) or (ii) for
any other reason except upon not less than thirty (30) days’ prior written
notice thereof by the insurer to the Administrative Agent. The Borrowers shall
deliver to the Administrative Agent, prior to the cancellation, modification or
nonrenewal of any such policy of insurance, a copy of a renewal or replacement
policy (or other evidence of renewal of a policy previously delivered to the
Administrative Agent) together with evidence satisfactory to the Administrative
Agent of payment of the premium therefor.


 


(c)           Each insurance policy shall include
an endorsement (in form and substance reasonably satisfactory to the
Administrative Agent) naming the Administrative Agent as “loss payee”, “mortgagee”
or “additional insured” as the Administrative Agent may reasonably request and
providing that the insurer shall pay all proceeds otherwise payable
to the Loan Party under the policies directly to the Administrative Agent, subject to the terms of the Intercreditor
Agreement.


 


SECTION 5.8         Casualty and Condemnation.


 


Each Borrower will
furnish to the Administrative Agent and the Lenders prompt written notice of
any casualty or other insured damage to any material portion of the Collateral
having a value in excess of $10,000,000 or the commencement of any action or
proceeding for the taking of any material portion of the Collateral having a
value in excess of $10,000,000 under power of eminent domain or by condemnation
or similar proceeding.


 


SECTION 5.9         Books and Records; Inspection and Audit
Rights; Appraisals; Consultants for the Agents and Lenders


 


(a)           Each Loan Party will, and will cause
each of its Subsidiaries to, keep proper books of record and account in which
full, true and correct entries are made of all dealings and transactions in
relation to its business and activities. Each Loan Party will, and will cause
each of its Subsidiaries to, permit any representatives designated by any
Agent, upon reasonable prior notice, to visit and inspect its properties, to
examine and make extracts from its books and records, and to discuss its
affairs, finances and condition with its officers and independent accountants,
all at such reasonable times and as often as reasonably requested.


 


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(b)           Each Loan Party will from time to
time upon such Loan Party’s election or the reasonable request of the
Administrative Agent, any Co-Borrowing Base Agent (after consultation with the
Administrative Agent) or the Required Lenders through the Administrative Agent,
permit any Agent or professionals (including investment bankers, consultants,
accountants, lawyers and appraisers) retained (in all events) by the
Administrative Agent to conduct appraisals, commercial finance examinations and
other evaluations, including, without limitation, of (i) the Loan Parties’
practices in the computation of the Borrowing Base and (ii) the assets
included in the Borrowing Base and related financial information such as, but
not limited to, sales, gross margins, payables, accruals and reserves, and pay
the reasonable fees and expenses of the Administrative Agent or such
professionals with respect to such evaluations and appraisals; provided,
however, so long as there exists no Event of Default, the Loan Parties
shall not be required to pay for more than three (3) Inventory appraisals
and three (3) commercial finance examinations during any period of twelve
(12) consecutive fiscal months; provided that from and after the date
that the Borrowers’ Fixed Charge Ratio for any Measurement Period is greater
than or equal to 1.1:1.0, as long as Excess Availability is not less than
$75,000,000 for any five (5) consecutive days, the Loan Parties shall not
be required to pay for more than two (2) Inventory appraisals and two (2) commercial
finance examinations during any period of twelve (12) consecutive fiscal
months; provided further that, in all events, any appraisal, commercial
finance examination and other evaluation conducted upon the election of any
Loan Party, shall be at the sole cost and expense of the Loan Parties and shall
not count towards the number of Inventory appraisals and commercial finance
examinations for which the Loan Parties are required to pay as set forth
above.  In addition to the foregoing, the
Administrative Agent, acting on its own behalf or at the direction of any
Co-Borrowing Base Agent (after consultation with the Administrative Agent), (A) may,
at any time, undertake additional Inventory appraisals and commercial finance
examinations at the sole expense of the Lenders, and (B) after the
occurrence and during the continuance of any Default or Event of Default, may
cause such additional Inventory appraisals and commercial finance examinations
to be taken as the Administrative Agent or any Co-Borrowing Base Agent (after
consultation with the Administrative Agent) determines, all at the expense of
the Loan Parties.


 


(c)           The Administrative Agent or its
counsel may retain any Person the Administrative Agent and the Lenders deem
appropriate, as consultant for the Administrative Agent and the Lenders, to
assist them in connection with the administration and enforcement of this
Agreement, including, without limitation, the analysis of all financial
information and business plans prepared by the Loan Parties.  The Loan Parties shall reasonably cooperate
with such consultants in order that they may fulfill their obligations under
the terms of their engagement.  Without
limiting the provisions of Section 9.3 hereof, the Borrowers shall
reimburse the Administrative Agent and the Lenders for all fees and expenses
incurred by any such consultants. 
Notwithstanding the Borrowers’ obligations to so reimburse the
Administrative Agent, the Borrowers acknowledge and agree that the Loan Parties
are not entitled to receive or review any work product prepared by any such
consultants and that such work product is for the sole and exclusive benefit of
the Agents and the Lenders.  If,
notwithstanding the foregoing, any of such work product is furnished to any of
the Loan Parties, such Loan Parties shall maintain such work product as
confidential and may not disclose such work product in connection with any
litigation or dispute amongst the parties hereto or otherwise.  The receipt by the Loan Parties of any such
work product on any one occasion shall not obligate the consultants or any
other Person to furnish any work product on any other occasion.


 


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SECTION 5.10       Compliance with Laws.


 


Each Loan Party will, and
will cause each of its Subsidiaries to, comply with all laws, rules,
regulations, and orders of any Governmental Authority applicable to it or its
property except where the failure to do so, individually or in the aggregate,
could not reasonably be expected to result in a Material Adverse Effect.


 


SECTION 5.11       Employee Benefit Plans.  The Loan Parties will, and will cause each of
its Subsidiaries to, (a) promptly upon any request of the Administrative
Agent therefor, furnish to the Administrative Agent a copy of the most recent
actuarial statement required to be submitted under §103(d) of ERISA and
Annual Report, Form 5500, with all required attachments, in respect of
each Guaranteed Pension Plan, (b) within ten (10) days of receipt or
dispatch, furnish to the Administrative Agent any notice, report or demand sent
or received in respect of a Guaranteed Pension Plan under Sections 302,
4041, 4042, 4043, 4063, 4065, 4066 and 4068 of ERISA, or in respect of a
Multiemployer Plan under Sections 4041A, 4202, 4219, 4242 or 4245 of
ERISA.


 


SECTION 5.12       Use of Proceeds and Letters of Credit.  The proceeds of Loans made hereunder and
Letters of Credit issued hereunder will be used only (a) to finance the
acquisition of working capital assets of the Borrowers and their respective
Subsidiaries, including the purchase of inventory and equipment, in each case
in the ordinary course of business, (c) to finance Capital Expenditures of
the Borrowers and their respective Subsidiaries, and (d) for general
corporate purposes, all to the extent permitted herein. No part of the proceeds
of any Loan will be used, whether directly or indirectly, for any purpose that
entails a violation of the Regulations of the Board, including
Regulations U and X.


 


SECTION 5.13       New Subsidiaries.


 


The Loan Parties shall
each cause any Subsidiary of the Loan Parties (other than an Excluded
Subsidiary) to immediately become a Loan Party hereunder by the execution and
delivery of a Facility Guarantee and all other Facility Guarantor Collateral
Documents and a joinder agreement to this Agreement (in the case of a
Subsidiary which shall be a Borrower hereunder (as determined by the Agents))
and, in each case, a joinder to the other Loan Documents, as applicable, with
the other parties hereto and thereto, in form and substance satisfactory to the
Administrative Agent.


 


SECTION 5.14       Further Assurances.


 


Each Loan Party will execute any and all further
documents, agreements and instruments, and take all such further actions
(including the filing and recording of financing statements and other
documents), that may be required under any applicable law, or which any Agent,
any Co-Borrowing Base Agent or the Required Lenders may reasonably request, to
effectuate the transactions contemplated by the Loan Documents or to grant,
preserve, protect or perfect the Liens created or intended to be created by the
Security Documents or the validity or priority of any such Lien, all at the
expense of the Loan Parties. The Loan Parties also agree to provide to the
Agents, from time to time upon request, evidence reasonably satisfactory to the
Agents as to 


 


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the perfection and
priority of the Liens created or intended to be created by the Security
Documents.


 


SECTION 5.15       Private Label Credit Cards


 


The Borrowers shall enter
into an agreement to replace their existing domestic private label credit card
facility with Citibank, N.A. or its Affiliates (with a processor and on terms
reasonably satisfactory to the Administrative Agent, whose consent shall not be
unreasonably withheld) at least 30 days prior to the earlier of: (i) the
scheduled expiration of such facility, or (ii) any earlier termination
thereof.


 


ARTICLE
VI

NEGATIVE COVENANTS


 


So long as any Lender
shall have any outstanding Commitment hereunder, any Letter of Credit is
outstanding or any Loan or any other Loan Agreement Obligation hereunder shall
remain unpaid or unsatisfied (other than contingent indemnification claims for
which a claim has not then been asserted), each Loan Party covenants and agrees
with the Agents and the Lenders that:


 


SECTION 6.1         Indebtedness and Other Obligations.  The Loan Parties will not create, incur,
assume or permit to exist any Indebtedness, except:


 


(a)           Indebtedness created under the Loan
Documents;


 


(b)           Indebtedness set forth in Schedule
6.1 and extensions, renewals and replacements of any such Indebtedness that do
not increase the outstanding principal amount thereof or result in an earlier
maturity date or decreased weighted average life thereof;


 


(c)           Indebtedness of any Loan Party to any
other Loan Party, and any guarantee by a Loan Party of Indebtedness of another
Loan Party, in each case to the extent otherwise permitted hereunder, provided
that the parties thereto are party to the Intercompany Subordination Agreement;


 


(d)           Indebtedness of any of the Borrowers
to any Excluded Subsidiary in an aggregate amount of all such Indebtedness for
all Excluded Subsidiaries not to exceed $10,000,000;


 


(e)           So long as the Intercreditor
Agreement is in effect, Indebtedness on account of the Term Loan (including the
accrual of interest and the accretion or amortization of original issue
discount (as applicable) on such Indebtedness and the payment of interest in
the form of additional Indebtedness originally incurred on the Term Loan) and
any Permitted Refinancing thereof;


 


(f)            Indebtedness of any Loan Party to
finance the acquisition of any fixed or capital assets, including Capital Lease
Obligations and any Indebtedness assumed in connection with the acquisition of
any such assets or secured by a Lien on any such assets prior to the
acquisition thereof, and extensions, renewals and replacements of any such
Indebtedness that do not increase the outstanding principal amount thereof or
result in an earlier maturity date or decreased 


 


83

















 


weighted average life thereof, provided, that
the aggregate principal amount of Indebtedness permitted by this clause (f) shall
not exceed $50,000,000 at any time outstanding;


 


(g)           Indebtedness consisting of Capital
Lease Obligations and guaranties thereof by the Loan Parties, or any of them;


 


(h)           Indebtedness incurred to purchase or
refinance any Real Estate owned or being acquired by any Loan Party;


 


(i)            Indebtedness in respect of
performance bonds, bid bonds, customs and appeal bonds, surety bonds,
performance and completion guarantees and similar obligations related thereto,
or, to the extent incurred in connection with purchases from suppliers,
Indebtedness in respect of letters of credit, bank guarantees or similar
instruments related thereto, in each case provided in the ordinary course of
business;


 


(j)            Indebtedness in respect of cash
management services, netting services, automatic clearinghouse arrangements,
overdraft protections and similar arrangements, in each case in connection with
deposit accounts and incurred in the ordinary course or business;


 


(k)           Indebtedness in respect of letters of
credit, bank guarantees, bankers’ acceptances or similar instruments issued or
created in the ordinary course of business in respect of workers compensation
claims, health, disability or other employee benefits or property, casualty or
liability insurance or self-insurance or other Indebtedness with respect to
reimbursement-type obligations regarding workers compensation claims; provided
that any reimbursement obligations in respect thereof are reimbursed within
thirty (30) days following the incurrence thereof;


 


(l)            Indebtedness of Zale Canada Co. to
ZC Partnership consistent with past practice; and


 


(m)          other unsecured Indebtedness in an
aggregate principal amount not exceeding $150,000,000 at any time outstanding, provided,
that the terms of such Indebtedness do not contain any covenants or events of
default which may be interpreted to be or are deemed to be in, the reasonable
discretion of the Administrative Agent, more restrictive than the covenants and
Events of Default contained in this Agreement.


 


Notwithstanding anything to the contrary in this Agreement, the Loan
Parties shall cause the ZC Partnership not to incur any Indebtedness or any
other material obligations.


 


SECTION 6.2         Liens. The Loan Parties will not
create, incur, assume or permit to exist any Lien on any property or asset now
owned or hereafter acquired by it, or assign or sell any income or revenues
(including accounts receivable) or rights in respect of any thereof, except:


 


(a)           Liens created under the Loan
Documents;


 


(b)           Permitted Encumbrances;


 


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(c)           any Lien on any property or asset of
any Loan Party set forth in Schedule 6.2, and any extensions or renewals
thereof; provided, that (i) such Lien shall not apply to any other
property or asset of any Loan Party other than after-acquired property affixed
or incorporated thereto and the proceeds or products thereof, and (ii) such
Lien shall secure only those obligations (including commitments in respect
thereof) that it secures as of the Effective Date, and any Permitted
Refinancing thereof;


 


(d)           Liens on fixed or capital assets
acquired, constructed or improved by any Loan Party, provided, that (i) such
Liens secure Indebtedness permitted by clause (f) of SECTION 6.1,
(ii) such Liens and the Indebtedness secured thereby are incurred prior to
or within one hundred eighty (180) days after such acquisition or the
completion of such construction or improvement, (iii) the Indebtedness
secured thereby does not exceed 100% of the cost of acquiring, constructing or
improving such fixed or capital assets and (iv) such Liens shall not apply
to any other property or assets of the Loan Parties;


 


(e)           Liens to secure Indebtedness
permitted by clause (h) of SECTION 6.1 provided, that
such Liens shall not apply to any property or assets of the Loan Parties other
than the Real Estate so purchased or refinanced or which is the subject of a
sale-leaseback transaction;


 


(f)            Liens on Inventory and proceeds
thereof (up to the Cost to such Loan Party of such Inventory) held on
consignment from trade vendors securing obligations to return or pay the
purchase price of such Inventory;


 


(g)           Voluntary options in favor of any of
the Loan Parties and their respective Subsidiaries to purchase real property
subject to operating leases;


 


(h)           Liens (if any) in favor of any credit
card processor on any credit card receivables in the nature of chargebacks or
reserves for claims, credits or credits pending, promotional program
allowances, price adjustments, finance charges or other allowances, to the
extent arising under or in connection with the Loan Parties’ private label
credit card facility, as amended or restated from time to time, and any
replacement facilities thereof and any proceeds of the foregoing;


 


(i)            Sales, assignments or transfers of
assets to the extent permitted by SECTION 6.5 hereof;


 


(j)            Liens securing the Term Loan and any
Permitted Refinancings thereof, if and for so long as the Intercreditor
Agreement is in effect;


 


(k)           Liens arising solely by virtue of any
statutory or common law provisions relating to banker’s liens, liens in favor
of securities intermediaries, rights of setoff or similar rights and remedies
as to deposit accounts or securities accounts or other funds maintained with
depository institutions or securities intermediaries;


 


(l)            Liens (if any) arising from
precautionary UCC, PPSA or PRUCC filings regarding “true” operating leases or
consignment of goods to a Loan Party; and


 


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(m)          Liens on property in existence at the
time such property is acquired by a Loan Party or on property of a Subsidiary
of a Loan Party in existence at the time such Subsidiary is acquired by a Loan
Party; provided that such Liens are not incurred in connection with, or in
anticipation of, such acquisitions and do not attach to any other assets of any
Loan Party; and


 


(n)           Other Liens on assets of the Loan
Parties (other than Inventory or accounts receivable) to the extent not
otherwise included in paragraphs (a) through (m) of this Section securing
Indebtedness and other liabilities in an aggregate amount not to exceed
$10,000,000 at any time outstanding.


 


Notwithstanding anything to the contrary in this Agreement, the Loan
Parties shall not, and shall not permit any of its Subsidiaries to, create,
incur, assume or permit to exist any Lien securing Indebtedness (other than
under the Loan Documents and the Term Loan) on any Stock of (i) any Zale
Insurance Subsidiary or (ii) the ZC Partnership.


 


SECTION 6.3         Fundamental Changes


 


(a)           The Loan Parties will not merge into,
amalgamate or consolidate with any other Person, or permit any other Person to
merge into, amalgamate or consolidate with it, or liquidate or dissolve, except
that, if at the time thereof and immediately after giving effect thereto, no
Default or Event of Default shall have occurred and be continuing, (i) any
Subsidiary may merge into or amalgamate with a Loan Party in a transaction in
which such Loan Party is the surviving corporation, (ii) any Loan Party
may merge or amalgamate with any other Person as long as such Loan Party is the
surviving corporation, and (iii) any Subsidiary that is not a Loan Party
may merge into or amalgamate with any other Subsidiary that is not a Loan
Party, provided, that any such merger or amalgamate involving a Person
that is not a wholly owned Subsidiary immediately prior to such merger or amalgamate
shall not be permitted unless also permitted by SECTION 6.4.


 


(b)           The Loan Parties will not engage to
any material extent in any business other than businesses of the type conducted
by the Loan Parties on the date of execution of this Agreement and businesses
reasonably related thereto.


 


SECTION 6.4         Investments, Loans, Advances,
Guarantees and Acquisitions.  The
Loan Parties will not purchase, hold or acquire (including pursuant to any
merger or amalgamation with any Person that was not a wholly owned Subsidiary
prior to such merger or amalgamation) any capital stock, evidences of
indebtedness or other securities (including any option, warrant or other right
to acquire any of the foregoing) of, make or permit to exist any loans or
advances to, guarantee any obligations of, or make or permit to exist any
investment or any other interest in, any other Person, or purchase or otherwise
acquire (in one transaction or a series of transactions) any assets of any
other Person constituting a business unit, except for:


 


(a)           Permitted Investments;


 


(b)           investments existing on the Effective
Date, and set forth on Schedule 6.4, and any modification, renewal or
extension thereof; provided that the amount of any investment permitted
pursuant to this clause is not increased from the amount of such investment on
the 


 


86

















 


Effective Date except pursuant to the terms of such
investment as of the Effective Date or as otherwise permitted by this SECTION 6.4;


 


(c)           loans, advances, and investments by
any Loan Party to or in, and guaranties by any Loan Party of the obligations
of, any other Loan Party or purchases by a Loan Party of stock of another Loan
Party (other than Zale) or of assets constituting a business unit from another
Borrower, provided that any Loan Party or other Subsidiary of the
Borrower (except the ZC Partnership) making a loan or advance to another Loan
Party is subject to the Intercompany Subordination Agreement;


 


(d)           loans, advances, or other investments
by any of the Loan Parties to or in, and guaranties by any Loan Party of the
obligations of, any of its respective Subsidiaries or purchases by a Loan Party
of stock of any Subsidiary or of assets constituting a business unit of a
Subsidiary, all in an amount not to exceed $20,000,000 in the aggregate for all
such loans, advances, guaranties, stock or asset purchases or other investments
made since the Closing Date;


 


(e)           Reserved;


 


(f)            investments consisting of transfers
of stock or other ownership interest in a Excluded Subsidiary to any other
Excluded Subsidiary, together with any note or other securities issued by such
other Excluded Subsidiary in consideration of such transfer;


 


(g)           investments in registered investment
companies which invest solely in investments otherwise permitted by this SECTION 6.4;


 


(h)           investments consisting of promissory
notes received as proceeds of asset dispositions permitted by SECTION 6.5;


 


(i)            Reserved;


 


(j)            investments in Zale stock, whether
or not permitted under SECTION 6.6 in connection with the satisfaction of
the Borrowers’ or a Subsidiary’s obligations under a 401(k) plan and/or
the Zale Omnibus Stock Incentive Plan or similar employee benefit plans
maintained by the Borrowers and their respective Subsidiaries, or any of them;


 


(k)           investments consisting of
Indebtedness permitted by Section 6.1;


 


(l)            investments received in connection
with the bankruptcy or reorganization of, or settlement of delinquent accounts
and disputes with, customers and suppliers, in each case in the ordinary course
of business;


 


(m)          loans or advances to employees,
officers or directors for the purpose of travel, entertainment or relocation in
the ordinary course of business not to exceed $2,000,000 in the aggregate at
any time outstanding;


 


(n)           acquisitions of assets or stock
(other than the stock of any of the Loan Parties) so long as (i) such
assets or stock acquired are related to the business of one of the Loan Parties
or their Subsidiaries, (ii) the Payment Conditions are satisfied at the
time of and after giving effect 


 


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to such acquisition, and (iii) with respect to
any such acquisitions of stock, simultaneously with the occurrence of such
acquisition, the entity so acquired shall if it owns Inventory (A) be
merged, amalgamated or consolidated with and into one of the Loan Parties, (B) transfer
all of its assets (other than those required to satisfy liabilities) to the
Loan Parties, or (C) become a Loan Party under this Agreement and the other Loan
Documents in accordance with Section 5.13 hereof;


 


(o)           acquisitions of Zale stock permitted
by Section 6.4(j) or repurchases of Zale stock otherwise permitted by
SECTION 6.6;


 


(p)           Guarantees of obligations of a
Subsidiary other than any Canadian Loan Party in an amount not to exceed
$10,000,000 in the aggregate for all such Guarantees at any time outstanding;


 


(q)           Guarantees of the foreign currency and hedging obligations of
Zale Canada to meet the operating needs of the business consistent with past practices;


 


(r)            Guarantees and warranties of
Inventory sold to customers in the ordinary course of business consistent with
past practices;


 


(s)           Guarantees by any Loan Party of
obligations of one or more Excluded Subsidiaries under repair, warranty or
diamond bond contracts in connection with such Loan Party’s and its
Subsidiaries’ ordinary course jewelry warranty programs;


 


(t)            investments consisting of extensions
of credit in the nature of accounts receivable or notes receivable arising from
the grant of trade credit in the ordinary course of business or consisting of
and loans and advances by a Loan Party to consignment vendors, secured by a
Lien on the inventory which has been, or will be, consigned to a Loan Party, in
a principal amount not to exceed the value of such consigned inventory, and
which are repayable out of the proceeds of the sale of such consigned inventory
or upon the return of such consigned inventory to the consignment vendor;


 


(u)           investments consisting of Hedging
Agreements permitted under SECTION 6.9;


 


(v)           investments in any Person existing at
the time such Person becomes a Subsidiary of any Loan Party pursuant to an
investment otherwise permitted under this SECTION 6.4, so long as such
investments were not made in contemplation of such Person becoming a
Subsidiary;


 


(w)          Guarantees of leases that do not
constitute Indebtedness, in each case entered into in the ordinary course of
business;


 


(x)            Contingent obligations under leases
transferred as part of the sale of the Bailey Banks & Biddle division
of Zale Delaware; and


 


(y)           Other investments in an aggregate
amount not to exceed $5,000,000.


 


Notwithstanding anything in this Agreement to the
contrary, (a) exclusive of Indebtedness of Zale Canada Co. to ZC
Partnership permitted hereunder and contractual
liability 


 


88

















 


insurance policies incurred in the ordinary course
of business, the aggregate outstanding amount of any and all transactions between
any or all of the Loan Parties, on the one hand, and any or all of the Excluded
Subsidiaries, on the other hand, that are covered by any of the clauses (a) through
(y) of this SECTION 6.4 shall not exceed $10,000,000 at any one time,
(b) in no event may proceeds of the ABL Priority Collateral be invested in
Permitted Investments or otherwise deposited in securities accounts, in each
case other than those Permitted Investments and deposits maintained in the
Fidelity Investment Account and in the Term Securities Accounts, and (c) the
Loan Parties shall cause the ZC Partnership not to make any Investments in any
other Person, other than Investments in Zale Canada Co. consistent with past
practice and otherwise permitted hereunder.


 


SECTION 6.5         Asset Sales.  (a) The Loan Parties will not sell,
transfer, lease or otherwise dispose of any asset, including any capital stock,
nor will the Loan Parties issue any additional shares of its capital stock or
other ownership interest in such Loan Party, except:


 


(i)            (A) sales
of Inventory in the ordinary course of business (other than in connection with
the closure of Stores), or (B) used or surplus equipment, or (C) Permitted
Investments and investments permitted pursuant to Sections 6.4(g), (h), (i),
and (j), in each case in the ordinary course of business;


 


(ii)           sales,
transfers and dispositions among the Loan Parties and their respective
Subsidiaries (excluding, however, any sales, transfers and dispositions of
Inventory or proceeds thereof, from any Loan Party except to another Loan
Party), provided, that any such sales, transfers or dispositions
involving a Subsidiary that is not a Loan Party shall be made in compliance
with SECTION 6.7 and otherwise in compliance with this Agreement and the
other Loan Documents;


 


(iii)          Reserved;


 


(iv)          Reserved;


 


(v)           issuances
of shares of capital stock of any Loan Party to any other Loan Party or the
issuance by Zale of shares of its capital stock;


 


(vi)          the
natural expiration of intellectual property licenses in accordance with the
terms thereof;


 


(vii)         transfers
of assets permitted as investments under Section 6.4;


 


(viii)        Permitted
Asset Sales provided that no Event of Default or Cash Control Event has
occurred and is continuing or would occur as a result thereof; and


 


(ix)           bulk
sales or other dispositions of the Loan Parties’ Inventory and Store fixtures
not in the ordinary course of business in connection with Store closures, at
arm’s length; provided  that such Store closures and related
Inventory dispositions shall not exceed (i) for the first twelve months
after the Effective Date, 200 of the Loan Parties’ Stores on terms and subject
to conditions to be agreed by the Borrowers and the Administrative Agent and
the Co-Borrowing Base Agents, and (ii) thereafter, in any 


 


89

















 


fiscal year of the Borrowers, ten percent (10%) of the number of the
Loan Parties’ Stores as of the beginning of such fiscal year (net of new Store
openings) on terms and subject to conditions to be agreed by the Borrowers and
the Administrative Agent and the Co-Borrowing Base Agents and (iii) in the
aggregate from and after the first anniversary of the Effective Date,
twenty-five percent (25%) of the number of the Loan Parties’ Stores in
existence as of the first anniversary of the Effective Date (net of new Store openings);
provided  further that all sales of Inventory in connection with
Store closings shall be conducted at Store locations (provided that, in
conjunction with any such sales, Inventory having an aggregate Cost of up to
$15,000,000 in the aggregate in any fiscal year, may be transferred to other
Store locations or distribution centers of the Loan Parties) pursuant to a
going out of business, liquidation or similar sale, in accordance with
liquidation agreements and with professional liquidators reasonably acceptable
to the Administrative Agent; provided  further that all Net
Proceeds received in connection therewith, whether or not a Cash Control Event
then exists, shall be paid over to the Administrative Agent on receipt by any
Loan Party and shall be utilized to prepay the Obligations in the order of
priority set forth in Section 2.22 or Section 7.4, as applicable;


 


(x)            leases,
subleases, or space leases, in each case in the ordinary course of business and
which do not materially interfere with the business of any Loan Party; and


 


(xi)           following
the acquisition of a Person or business permitted by Section 6.4(n) hereof,
the sale or other disposition (other than any sale or other disposition of the
type described in SECTION 6.5(a)(ix)) above of (A) assets of such
Person or business which are deemed by the Loan Parties to be surplus or
unnecessary or (B) the assets of the Loan Party which overlap with the
assets of such Person or business or which such Loan Party deems to have become
surplus or unnecessary as a result of such acquisition; provided that
the fair market value of such assets shall not exceed $10,000,000 in the
aggregate in any fiscal year;


 


provided, that all
sales, transfers, leases and other dispositions permitted hereby shall be made
at arm’s length and for fair value (other than sales, transfers and other
dispositions permitted under clause (ii)); and further provided,
that the authority granted hereunder may be terminated in whole or in part by
the Administrative Agent upon the occurrence and during the continuance of any
Event of Default.


 


(b)           The Loan Parties will not sell,
transfer, lease or otherwise dispose of receipts from credit card processors of
the Loan Parties.


 


SECTION 6.6         Restricted Payments; Certain
Payments of Indebtedness


 


(a)           The Loan Parties will not declare or
make, or agree to pay or make, directly or indirectly, any Restricted Payment,
except that the Loan Parties may make Restricted Payments so long as the Payment Conditions are
satisfied at the time of the making of and after giving effect to such
Restricted Payment; provided that for purposes of determining compliance
with the Payment Conditions with respect to this SECTION 6.6(a) only,
the percentage used for the Pro Forma Availability Condition shall be
twenty-five percent (25%).


 


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(b)           Any Loan Party may make a Restricted
Payment to any other Loan Party.


 


(c)           Zale may make repurchases of stock or other equity interests in Zale deemed to occur
upon exercise of stock options or warrants if such stock or equity interests
represent a portion of the exercise price of such options or warrants, in each
case, to the extent not made in cash;


 


(d)           The
Loan Parties will not at any time, make or agree to pay or make, directly or
indirectly any payment or other distribution (whether in cash, securities or
other property) of or in respect of principal of or interest on any
Indebtedness, or any payment or other distribution (whether in cash, securities
or other property), including any sinking fund or similar deposit, on account
of the purchase, redemption, retirement, acquisition, cancellation or
termination of any Indebtedness, except (i) payment of regularly scheduled
payments or mandatory prepayments of principal, interest and premium, if any,
arising solely with respect to such payment in respect of any Indebtedness
permitted under Section 6.1 hereof, (ii) if the Payment Conditions
are satisfied at the time of the making of and after giving effect to such
payment (provided that for purposes of determining compliance with the
Payment Conditions with respect to this Section 6.6(d)(ii) only, the
required Consolidated Fixed Charge Coverage Ratio shall be equal to or greater
than 1.0:1.0), and (iii) Permitted Refinancings of Indebtedness.


 


Notwithstanding anything to the contrary in this Agreement, the Loan
Parties shall cause the ZC Partnership to not make any Restricted Payment to
any other Person, other than Restricted Payments to any Loan Party consistent
with past practice.


 


SECTION 6.7         Transactions with Affiliates.  Except as set forth on Schedule 6.7 hereto,
the Loan Parties will not at any time sell, lease or otherwise transfer any
property or assets to, or purchase, lease or otherwise acquire any property or
assets from, or otherwise engage in any other transactions with, any of their
respective Affiliates, except (a) transactions in the ordinary course of
business that are at prices and on terms and conditions not less favorable to
the Loan Parties than could be obtained on an arm’s length basis from unrelated
third parties, (b) transactions among the Borrowers and (c) transactions
in the ordinary course of business, consistent with past practices, between or
among the Loan Parties and/or their respective Subsidiaries not involving any
other Affiliate, which would not otherwise violate the provisions of the Loan
Documents.


 


SECTION 6.8         Financial Covenants.


 


(a)           The Borrowers shall maintain (i) for
each of the thirty (30) consecutive days immediately preceding the Maturity
Date (or, if earlier, the date of any proposed partial reduction of the Commitments
of the Non-Extending Lenders pursuant to SECTION 2.15) on a pro forma
basis after giving effect to, the termination (or reduction, as applicable) and
repayment of the Commitments of the Non-Extending Lenders on the Maturity Date
(or, if earlier, the date of any proposed partial reduction of the Commitments
of the Non-Extending Lenders pursuant to SECTION 2.15), Excess
Availability of not less than $60,000,000, and (ii) on a pro forma and
projected basis for each of the six (6) months immediately following, and
after giving effect to, the termination (or reduction, as applicable) and
repayment of the Commitments of the Non-Extending Lenders on the Maturity Date
(or, if earlier, the date of any proposed partial reduction 


 


91

















 


of the Commitments of the Non-Extending Lenders
pursuant to SECTION 2.15), Excess Availability of not less than
$60,000,000.  The Borrowers shall deliver
to the Administrative Agent evidence of satisfaction of the conditions contained
in clause (ii) above on a basis reasonably satisfactory to the
Administrative Agent, which evidence shall be delivered to the Administrative
Agent not less than thirty (30) days prior to the Maturity Date (or, if
earlier, the date of any proposed partial reduction of the Commitments of the
Non-Extending Lenders pursuant to SECTION 2.15).


 


(b)           For all periods other than any period
described in SECTION 6.8(a), the Borrowers shall not permit Excess
Availability to be less than $50,000,000, provided that (i) on two occasions
only during the period September 1 through November 30 of each
year, Excess Availability may be less than $50,000,000 for up to three (3) consecutive
Business Days, but in no event may Uncapped Availability be less than
$40,000,000, at any time during any such period; and (ii) on one occasion
in each four month period not including the period September 1 through November 30
of each year, Excess Availability may be less than $50,000,000 for a period of
up to three (3) consecutive Business Days but in no event shall Excess
Availability be less than $40,000,000, at any time during any such period;
provided further that in no event may Excess Availability be less than
$50,000,000 for a period of three (3) or more consecutive Business Days on
more than four (4) occasions in any twelve consecutive month period.


 


SECTION 6.9         Hedging Agreement.  No Loan Party shall enter into any Hedging
Agreement except for Hedging Agreements used solely as a part of its normal
business operations as a risk management strategy and/or hedge against changes
resulting from market operations in accordance with its customary policies.


 


SECTION 6.10       Excluded Subsidiaries.  No Loan Party shall permit any Excluded
Subsidiary to own or have any rights in any credit card receivables, Inventory
generally consisting of watches, gemstones, jewelry and giftware or other
Eligible Inventory, or the proceeds of any of the foregoing.


 


SECTION 6.11       Canadian Plans.  None of the Loan Parties nor any of their
Subsidiaries will permit any of the following:


 


(a)           the existence of any unfunded,
solvency, or deficiency on windup liability or any accumulated funding
deficiency (whether or not waived), or of any amount of unfunded benefit
liabilities in respect of any Canadian Plan;


 


(b)           failure to pay any amounts required
to be paid by it or them when due;


 


(c)           the existence of any liability upon
it or them or Lien on any of its or their property in respect of any Canadian
Plan;


 


(d)           failure to make all required
contributions to any Canadian Plan when due; and


 


(e)           engaging in a prohibited transaction
or violation of the fiduciary responsibility rules with respect to any
Canadian Plan that could reasonably be expected to result in liability.


 


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ARTICLE
VII

EVENTS OF DEFAULT


 


SECTION 7.1         Events of Default.  If any of the following events (“Events of
Default”) shall occur:


 


(a)           the Loan Parties shall fail to pay
any principal of any Loan or any reimbursement obligation in respect of any L/C
Disbursement when and as the same shall become due and payable, whether at the
due date thereof or at a date fixed for prepayment thereof or otherwise;


 


(b)           the Loan Parties shall fail to pay
any interest on any Loan or fee or any other amount (other than an amount
referred to in clause (a) of this Article) payable under this
Agreement or any other Loan Document, within three (3) Business Days of
the date when the same shall become due and payable;


 


(c)           any representation or warranty made
or deemed made by or on behalf of any Loan Party in or in connection with any
Loan Document or any amendment or modification thereof or waiver thereunder, or
in any report, certificate, financial statement or other document furnished
pursuant to or in connection with any Loan Document or any amendment or
modification thereof or waiver thereunder, shall prove to have been incorrect
in any material respect when made or deemed made;


 


(d)           the Loan Parties shall fail to
observe or perform any covenant, condition or agreement contained:


 


(i)            in
SECTION 2.21, SECTION 5.7, SECTION 5.9, SECTION 5.12,  SECTION 5.15 or in ARTICLE VI; and


 


(ii)           in
SECTION 5.1(f), and such failure shall continue unremedied for a period of
one Business Day after notice thereof from the Administrative Agent to the
Borrowers;


 


(e)           any Loan Party shall fail to observe
or perform any covenant, condition or agreement contained in any Loan Document
(other than those specified in clause (a), (b), (c), or (d) of this
Article), and such failure shall continue unremedied for a period of thirty
(30) days after notice thereof from the Administrative Agent to Zale
(which notice will be given at the request of any Lender);


 


(f)            any Loan Party shall fail to
make any payment (whether of principal or interest and regardless of amount) in
respect of any Material Indebtedness when and as the same shall become due and
payable (after giving effect to the expiration of any grace or cure period set
forth therein);


 


(g)           any event or condition occurs that
results in any Material Indebtedness becoming due prior to its scheduled
maturity or that enables or permits (with or without the giving of notice, the
lapse of time or both) the holder or holders of any such Material Indebtedness
or any trustee or agent on its or their behalf to cause any such Material
Indebtedness to become due, or to require the prepayment, repurchase,
redemption or defeasance thereof, prior to its scheduled 


 


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maturity; provided, however, that this clause (g) shall
not apply to (x) secured Indebtedness that becomes due as a result of the
voluntary sale or transfer of the property or assets securing such
Indebtedness, if such sale or transfer is permitted under this Agreement and
under the documents providing for such Indebtedness, or (y) to mandatory
prepayments under Material Indebtedness that are not due as a result of a
default under the documents providing for such Indebtedness;


 


(h)           an involuntary proceeding shall be
commenced or an involuntary petition shall be filed seeking (i) liquidation,
reorganization, arrangement or other relief in respect of any Loan Party or its
debts, or of a substantial part of its assets, under any federal, state,
provincial or foreign bankruptcy, insolvency, receivership or similar law now
or hereafter in effect or (ii) the appointment of a receiver, interim
receiver, national receiver, monitor, trustee, custodian, sequestrator,
conservator or similar official for any Loan Party or for a substantial part of
its assets, and, in any such case, such proceeding or petition shall continue
undismissed for 60 days or an order or decree approving or ordering any of
the foregoing shall be entered and continue unstayed and in effect for 30 days;


 


(i)            any Loan Party shall (i) voluntarily
commence any proceeding or file any petition or notice seeking liquidation,
reorganization or other relief under any federal, state, provincial or foreign
bankruptcy, insolvency, receivership or similar law now or hereafter in effect,
(ii) consent to the institution of, or fail to contest in a timely and
appropriate manner, any proceeding or petition described in clause (h) of
this Article, (iii) apply for or consent to the appointment of a receiver,
interim receiver, national receiver, monitor, trustee, custodian, sequestrator,
conservator or similar official for any Loan Party or for a substantial part of
its assets, (iv) file an answer admitting the material allegations of a
petition filed against it in any such proceeding, (v) make a general
assignment for the benefit of creditors or (vi) take any action for the
purpose of effecting any of the foregoing;


 


(j)            any Loan Party shall become unable,
admit in writing its inability or fail generally to pay its debts as they
become due;


 


(k)           one or more uninsured judgments for
the payment of money in an aggregate amount in excess of $10,000,000 shall be
rendered against any Loan Party or any combination thereof and the same shall
remain undischarged for a period of 30 consecutive days during which
execution shall not be effectively stayed, or any action shall be legally taken
by a judgment creditor to attach or levy upon any material assets of any Loan
Party to enforce any such judgment;


 


(l)            (i)           any
challenge by or on behalf of any Loan Party to the validity of any Loan Document
or the applicability or enforceability of any Loan Document strictly in
accordance with the subject Loan Document’s terms or which seeks to void,
avoid, limit, or otherwise adversely affect any security interest created by or
in any Loan Document or any payment made pursuant thereto.


 


(ii)           any
challenge by or on behalf of any other Person to the validity of any Loan
Document or the applicability or enforceability of any Loan Document strictly
in accordance with the subject Loan Document’s terms, or which seeks to void,
avoid, limit, or otherwise adversely affect the Agents’ and the Lenders’ rights
under the Intercreditor 


 


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Agreement or any security
interest created by or in any Loan Document or any payment made pursuant
thereto, in each case, as to which an order or judgment has been entered
adverse to the Agents and the Lenders.


 


(iii)          any
Lien purported to be created under any Security Document shall cease to be, or
shall be asserted by any Loan Party not to be, a valid and perfected Lien on
any Collateral, with the priority required by the applicable Security Document,
except as a result of the sale or other disposition of the applicable
Collateral in a transaction permitted under the Loan Documents;


 


(m)          a Change in Control shall occur;


 


(n)           the occurrence of any uninsured loss
to the Collateral in an amount equal to $10,000,000 or greater;


 


(o)           the indictment of, or institution of
any legal process or proceeding against, any Loan Party, under any federal,
state, provincial, municipal, foreign and other civil or criminal statute,
rule, regulation, order, or other requirement having the force of law where the
relief, penalties, or remedies sought or available include the forfeiture of
any material property of any Loan Party and/or the imposition of any stay or
other order, the effect of which could reasonably be to restrain in any
material way the conduct by the Loan Parties, taken as a whole, of their
business in the ordinary course;


 


(p)           the termination or attempted
termination of any Facility Guarantee except as expressly permitted hereunder
or under any other Loan Document;


 


(q)           except as otherwise permitted
hereunder, the determination by any Loan Party, whether by vote of such Loan
Party’s board of directors or otherwise to: generally suspend the operation of
such Loan Party’s business in the ordinary course, liquidate all or a material
portion of such Loan Party’s assets or Store locations, or employ an agent or
other third party to conduct any so-called store closing, store liquidation or “Going-Out-Of-Business”
sales for such Loan Party’s Stores generally; or


 


(r)            any event shall occur with regard to
the Excluded Subsidiaries which has a Material Adverse Effect on the Loan
Parties, taken as a whole;


 


(s)           then, and in every such event (other
than an event with respect to any Loan Party described in clause (h) or
(i) of this SECTION 7.1), and at any time thereafter during the
continuance of such event, the Administrative Agent may, and at the request of the
Required Lenders shall, by notice to the Borrowers, take either or both of the
following actions, at the same or different times: (i) terminate the
Commitments, and thereupon the Commitments shall terminate immediately, and (ii) declare
the Loans then outstanding to be due and payable in whole (or in part, in which
case any principal not so declared to be due and payable may thereafter be
declared to be due and payable), and thereupon the principal of the Loans so
declared to be due and payable, together with accrued interest thereon and all
fees and other obligations of the Loan Parties accrued hereunder, shall become
due and payable immediately, without presentment, demand, protest or other
notice of any kind, all of which are hereby waived by the Loan Parties; and (iii) require
the Loan Parties to furnish cash collateral in an amount 


 


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equal to 103% of the Letter of Credit Outstandings,
and in case of any event with respect to any Loan Party described in
clause (h) or (i) of this SECTION 7.1, the Commitments
shall automatically terminate and the principal of the Loans then outstanding,
together with accrued interest thereon and all fees and other obligations of
the Loan Parties accrued hereunder, shall automatically become due and payable,
without presentment, demand, protest or other notice of any kind, all of which
are hereby waived by the Loan Parties.


 


SECTION 7.2         When Continuing.  For all purposes under this Agreement, each
Default and Event of Default that has occurred shall be deemed to be continuing
at all times thereafter unless it either (a) is cured or corrected or (b) is
waived in writing by the Lenders in accordance with SECTION 9.2.


 


SECTION 7.3         Remedies on Default.  In case any one or more of the Events of
Default shall have occurred and be continuing, and whether or not the maturity
of the Loans shall have been accelerated pursuant hereto, the Agents may
proceed to protect and enforce their rights and remedies under this Agreement,
the Notes or any of the other Loan Documents by suit in equity, action at law
or other appropriate proceeding, whether for the specific performance of any
covenant or agreement contained in this Agreement and the other Loan Documents
or any instrument pursuant to which the Obligations are evidenced, and, if such
amount shall have become due, by declaration or otherwise, proceed to enforce
the payment thereof or any other legal or equitable right of the Agents or the
Lenders. No remedy herein is intended to be exclusive of any other remedy and
each and every remedy shall be cumulative and shall be in addition to every
other remedy given hereunder or now or hereafter existing at law or in equity
or by statute or any other provision of law.


 


SECTION 7.4         Application of Proceeds. In the
event that an Event of Default exists and the Administrative Agent, Collateral
Agent, any Co-Borrowing Base Agent or any Lender, as the case may be, receives
any monies in connection with the enforcement of this Agreement or any of the
Security Documents, or otherwise with respect to the realization upon, or
disposition of, any of the Collateral, such monies shall be distributed for
application as follows:


 


(a)           First, to the payment of, or (as the
case may be) the reimbursement of the Administrative Agent, the Collateral
Agent and any Co-Borrowing Base Agent for or in respect of all reasonable
costs, expenses, disbursements and losses which shall have been incurred or
sustained by the Administrative Agent, the Collateral Agent or such Co-Borrowing
Base Agent in connection with the collection of such monies by the
Administrative Agent, the Collateral Agent or such Co-Borrowing Base Agent for
the exercise, protection or enforcement by the Administrative Agent, the
Collateral Agent or such Co-Borrowing Base Agent of all or any of the rights,
remedies, powers and privileges of the Administrative Agent, the Collateral
Agent or such Co-Borrowing Base Agent under this Agreement or any of the other
Loan Documents or in respect of the Collateral or in support of any provision
of adequate indemnity to the Administrative Agent, the Collateral Agent or such
Co-Borrowing Base Agent against any taxes or liens which by law shall have, or
may have, priority over the rights of the Administrative Agent,  the Collateral Agent or such Co-Borrowing
Base Agent to such monies;


 


(b)           Second, to all Loan Agreement
Obligations owing to the Lenders and the Administrative Agent and Collateral
Agent (including the allowance to take into account for any 


 


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Loan Agreement Obligations not then due and payable
(i.e., to cash collateralize up to 103% of Letter of Credit Outstandings)), in
such order or preference as the Required Lenders may determine; provided,
however, that (i) distributions shall be made (A) pari  passu
among Loan Agreement Obligations with respect to fees owed to the
Administrative Agent, the Collateral Agent and the Co-Borrowing Base Agents and
all other Loan Agreement Obligations owed to the Lenders and (B) with
respect to each type of Loan Agreement Obligation owing to the Lenders, such as
interest, principal, reasonable fees and expenses, among the Lenders pro
rata, and (ii) the Administrative Agent may in its reasonable
discretion make proper allowance to take into account any Loan Agreement
Obligations not then due and payable;


 


(c)           Third, to all other Obligations owing
to the Lenders pro  rata;


 


(d)           Fourth, upon payment and satisfaction
in full, or other provisions for payment in full satisfactory to the Lenders
and the Administrative Agent,
the Collateral Agent and the Co-Borrowing Base Agents of all of the
Obligations, to the payment of any obligations required to be paid pursuant to
§9-608(a)(1)(C) or 9-615(a)(3) of the Uniform Commercial Code of the
State of New York and Section 64(1)(a) and (b) of the PPSA
(Ontario) and all equivalent provisions of any other PPSA legislation; and


 


(e)           Last, the balance, if any, after all
of the Obligations have been indefeasibly paid in full, to the Borrowers or as
otherwise required by law or contract.


 


ARTICLE
VIII

THE AGENTS


 


SECTION 8.1         Administration by the Agents.  The Collateral Agent, each Co-Borrowing Base
Agent, each Lender and each Issuing Bank hereby irrevocably designates Bank of
America as Administrative Agent under this Agreement and the other Loan
Documents. The general administration of the Loan Documents shall be by the
Administrative Agent. The Collateral Agent, the Co-Borrowing Base Agents, the
Lenders and the Issuing Banks each hereby irrevocably authorizes the
Administrative Agent (i) to enter into the Loan Documents to which it is a
party and (ii) at its discretion, to take or refrain from taking such
actions as agent on its behalf and to exercise or refrain from exercising such
powers under the Loan Documents and the Notes as are delegated by the terms
hereof or thereof, as appropriate, together with all powers reasonably
incidental thereto.  The Administrative
Agent shall have no duties or responsibilities except as set forth in this
Agreement and the remaining Loan Documents, nor shall it have any fiduciary
relationship with any other Secured Party, and no implied covenants,
responsibilities, duties, obligations, or liabilities shall be read into the
Loan Documents or otherwise exist against the Administrative Agent.


 


SECTION 8.2         The Collateral Agent.  Each Lender, each Co-Borrowing Base Agent,
the Administrative Agent and each Issuing Bank hereby irrevocably (a) designate
Bank of America as Collateral Agent under this Agreement and the other Loan
Documents, (b) authorize the Collateral Agent to enter into the other Loan
Documents to which it is a party and to perform its duties and obligations
thereunder and (c) agree and consent to all of the provisions of the
Security Documents.  All Collateral shall
be held or administered by the Collateral Agent (or its duly-appointed agent)
for its benefit and for the ratable benefit of the other Secured Parties. Any 


 


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proceeds
received by the Collateral Agent from the foreclosure, sale, lease or other
disposition of any of the Collateral and any other proceeds received pursuant
to the terms of the Security Documents or the other Loan Documents shall be
paid over to the Administrative Agent for application as provided in SECTION 2.18,
SECTION 2.22, or SECTION 7.4, as applicable. The Collateral Agent
shall have no duties or responsibilities except as set forth in this Agreement
and the other Loan Documents, nor shall it have any fiduciary relationship with
any other Secured Party, and no implied covenants, responsibilities, duties,
obligations, or liabilities shall be read into the Loan Documents or otherwise
exist against the Collateral Agent.


 


SECTION 8.3         The Co-Borrowing Base Agents.  Each Lender, the Administrative Agent, the
Collateral Agent and each Issuing Bank hereby irrevocably designates each of
Bank of America, Wells Fargo and GE Capital individually, as a Co-Borrowing
Base Agent, and collectively, as the Co-Borrowing Base Agents under this
Agreement and the other Loan Documents and hereby irrevocably authorizes each
of the Co-Borrowing Base Agents at its discretion, to take or refrain from
taking such actions as agent on its behalf and to exercise or refrain from
exercising such powers under the Loan Documents as are delegated by the terms
hereof or thereof, as appropriate, together with all powers reasonably
incidental thereto.  No Co-Borrowing Base
Agent shall have any duties or responsibilities except as set forth in this
Agreement and the Co-Borrowing Base Agent Rights Agreement, nor shall it have
any fiduciary relationship with any other Secured Party, and no implied
covenants, responsibilities, duties, obligations, or liabilities shall be read
into the Loan Documents or otherwise exist against any Co-Borrowing Base
Agent.  The rights of each Co-Borrowing
Base Agent are set forth in the Co-Borrowing Base Agent Rights Agreement.


 


SECTION 8.4         Sharing of Excess Payments.  Each of the Lenders, the Agents, the
Co-Borrowing Base Agents, the Issuing Banks and the other Secured Parties
agrees that if it shall, through payment, foreclosure, counterclaim, the
exercise of a right of banker’s lien, setoff or counterclaim against the Loan
Parties or otherwise, including, but not limited to, a secured claim under Section 506
of the Bankruptcy Code or other security or interest arising from, or in lieu
of, such secured claim and received by such Secured Party under any applicable
bankruptcy, insolvency or other similar law, or otherwise, obtain payment in
respect of the Obligations owed it (an “excess payment”) as a result of
which such Lender, such Agent, such Co-Borrowing Base Agent or such Issuing
Bank has received payment of any Loans or other Obligations outstanding to it
in excess of the amount that it would have received if all payments at any time
applied to the Loans and other Obligations had been applied in the order of
priority set forth in SECTION 2.22, then such Secured Party shall promptly
purchase at par, without recourse or warranty, (and shall be deemed to have
thereupon purchased) from the other Lenders, such Agent, such Co-Borrowing Base
Agent and the applicable Issuing Bank, as applicable, a participation in the
Loans and Obligations outstanding to such other Persons, in an amount
determined by the Administrative Agent in good faith as the amount necessary to
ensure that the economic benefit of such excess payment is reallocated in such
manner as to cause such excess payment and all other payments at any time
applied to the Loans and other Obligations to be effectively applied in the
order of priority set forth in SECTION 2.22 pro rata in proportion to
its Commitment; provided, that if any such excess payment is thereafter
recovered or otherwise set aside such purchase of participations shall be
correspondingly rescinded (without interest). The Loan Parties expressly
consent to the foregoing arrangements and agree that any Lender, any Agent, any
Co-Borrowing Base Agent or any Issuing Bank holding (or deemed to be holding) a
participation in 


 


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any
Loan or other Obligation may exercise any and all rights of banker’s lien,
setoff or counterclaim with respect to any and all moneys owing by such Loan
Party to such Lender, such Agent, such Co-Borrowing Base Agent or such Issuing
Bank as fully as if such Lender, Agent, Co-Borrowing Base Agent or Issuing Bank
held a Note and was the original obligee thereon, in the amount of such
participation. In no event shall the provisions of this SECTION 8.4 be
construed to apply to any payment made by the Borrowers pursuant to and in
accordance with the express terms of this Agreement or any payment obtained by
a Lender as consideration for the assignment of or sale of a participation in
any of its Loans or participations in drawings under Letters of Credit to any
assignee or participant, other than to the Borrowers or any Affiliate(s) thereof.


 


SECTION 8.5         Agreement of Applicable Lenders.


 


(a)           Upon any occasion requiring or
permitting an approval, consent, waiver, election or other action on the part
of only the Applicable Lenders, action shall be taken by the Agents for and on
behalf or for the benefit of all Lenders upon the direction of the Applicable
Lenders, and any such action shall be binding on all Lenders.  No amendment, modification, consent, or
waiver shall be effective except in accordance with the provisions of SECTION 9.2.


 


(b)           Upon the occurrence of an Event of
Default, the Agents shall (subject to the provisions of SECTION 9.2) take
such action with respect thereto as may be reasonably directed by the Required
Lenders; provided, that unless and until the Agents shall have received
such directions, the Agents may (but shall not be obligated to) take such
action as they shall deem advisable in the best interests of the Lenders. In no
event shall the Agents be required to comply with any such directions to the
extent that the Agents believe that the Agents’ compliance with such directions
would be unlawful.


 


SECTION 8.6         Liability of Agents.


 


(a)           Each of the Agents and each of the
Co-Borrowing Base Agents, when acting on behalf of the Lenders and the Issuing
Banks, may execute any of its respective duties under this Agreement by or
through any of its respective officers, agents and employees, and none of the
Agents, the Co-Borrowing Base Agents nor their respective directors, officers,
agents or employees shall be liable to the Lenders or the Issuing Banks or any
of them for any action taken or omitted to be taken in good faith, or be
responsible to the Lenders or the Issuing Banks or to any of them for the
consequences of any oversight or error of judgment, or for any loss, except to
the extent of any liability imposed by law by reason of such Agent’s or such
Co-Borrowing Base Agent’s own gross negligence or willful misconduct. The
Agents, the Co-Borrowing Base Agents and their respective directors, officers,
agents and employees shall in no event be liable to the Lenders or the Issuing
Banks or to any of them for any action taken or omitted to be taken by them
pursuant to instructions received by them from the Applicable Lenders, or in
reliance upon the advice of counsel selected by it. Without limiting the
foregoing, none of the Agents or the Co-Borrowing Base Agents, nor any of their
respective directors, officers, employees, or agents shall be responsible to
any Lender or any Issuing Bank for the due execution, validity, genuineness,
effectiveness, sufficiency, or enforceability of, or for any statement,
warranty or representation in, this Agreement, any Loan Document or any related
agreement, document or order, or shall be required to ascertain or to make any
inquiry concerning the performance or 


 


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observance by any Loan Party of any of the terms,
conditions, covenants, or agreements of this Agreement or any of the Loan
Documents.


 


(b)           None of the Agents, the Co-Borrowing
Base Agents, nor any of their respective directors, officers, employees, or
agents shall have any responsibility to the Loan Parties on account of the failure
or delay in performance or breach by any Lender (other than by the Agent or any
Co-Borrowing Base Agent in its capacity as a Lender) or any Issuing Bank of any
of their respective obligations under this Agreement or the Notes or any of the
Loan Documents or in connection herewith or therewith.


 


(c)           The Administrative Agent, the
Collateral Agent and each Co-Borrowing Base Agent, each in such capacities
hereunder, shall be entitled to rely on any communication, instrument, or
document reasonably believed by such Person to be genuine or correct and to
have been signed or sent by a person or persons believed by such Person to be
the proper Person or Persons, and, such Person shall be entitled to rely on
advice of legal counsel, independent public accountants, and other professional
advisers and experts selected by such Person.


 


SECTION 8.7         Reimbursement and Indemnification.  Each Lender agrees (a) to reimburse (x) each
Agent and each Co-Borrowing Base Agent (in such capacities and not solely as a
Lender) for such Lender’s Commitment Percentage of any expenses and fees
incurred by such Agent or Co-Borrowing Base Agent for the benefit of the
Lenders or any Issuing Bank under this Agreement, the Notes and any of the Loan
Documents, including, without limitation, counsel fees and compensation of
agents and employees paid for services rendered on behalf of the Lenders or the
Issuing Banks, and any other expense incurred in connection with the operations
or enforcement thereof in each case not reimbursed by the Loan Parties and (y) each
Agent and each Co-Borrowing Base Agent (in such capacities and not solely as a
Lender) for such Lender’s Commitment Percentage of any expenses of such Agent
or Co-Borrowing Base Agent incurred for the benefit of the Lenders or the Issuing
Banks that the Loan Parties have agreed to reimburse pursuant to SECTION 9.3
and have failed to so reimburse and (b) to indemnify and hold harmless
each Agent and each Co-Borrowing Base Agent and any of its directors, officers,
employees, or agents, on demand, in the amount of such Lender’s Commitment
Percentage, from and against any and all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses, or
disbursements of any kind or nature whatsoever which may be imposed on,
incurred by, or asserted against it or any of them in any way relating to or
arising out of this Agreement, the Notes or any of the Loan Documents or any
action taken or omitted by it or any of them under this Agreement, the Notes or
any of the Loan Documents to the extent not reimbursed by the Loan Parties
(except such as shall result from their respective gross negligence or willful
misconduct).


 


SECTION 8.8         Rights of Agents.  It is understood and agreed that any Person
serving as the Administrative Agent, the Collateral Agent or a Co-Borrowing
Base Agent shall have the same rights and powers hereunder (including the right
to give such instructions) in its capacity as a Lender as the other Lenders and
may exercise such rights and powers, as well as its rights and powers under
other agreements and instruments to which it is or may be party, and engage in
other transactions with the Borrowers, as though it were not the Administrative
Agent, the Collateral Agent or a Co-Borrowing Base Agent, as applicable, of the
Lenders under this Agreement.  Such
Persons and their Affiliates may accept deposits from, lend money to, and


 


100
















 


generally engage in any kind of commercial or investment banking,
trust, advisory or other business with the Loan Parties and their Affiliates as
if such Persons were not the Administrative Agent, the Collateral Agent or a
Co-Borrowing Base Agent hereunder.


 


SECTION 8.9                          Independent
Lenders and Issuing Bank.  The
Lenders and the Issuing Banks each acknowledge that they have decided to enter
into this Agreement and to make the Loans or issue the Letters of Credit
hereunder based on their own analysis of the transactions contemplated hereby
and of the creditworthiness of the Loan Parties and agrees that the Agents and
the Co-Borrowing Base Agents shall bear no responsibility therefor.


 


SECTION 8.10                    Notice of
Transfer.  The Agents
may deem and treat a Lender party to this Agreement as the owner of such Lender’s
portion of the Loans for all purposes, unless and until, and except to the
extent, an Assignment and Acceptance shall have become effective as set forth
in Section 9.4(b).


 


SECTION 8.11                    Relation Among
the Lenders.  The Lenders
are not partners or co-venturers, and no Lender shall be liable for the acts or
omissions of, or (except as otherwise set forth herein in case of any Agent or
any Co-Borrowing Base Agent) authorized to act for, any other Lender.


 


SECTION 8.12                    Successor Agent.  Any Agent may resign at any time by giving
five (5) Business Days’ written notice thereof to the Lenders, each
Issuing Bank, the other Agent, the Co-Borrowing Base Agents and the Borrowers.
Upon any such resignation of any Agent, the Required Lenders shall have the
right to appoint a successor Agent, which so long as there is no Event of
Default shall be reasonably satisfactory to the Borrowers (whose consent shall
not be unreasonably withheld or delayed). 
If no successor Agent shall have been so appointed by the Required
Lenders and shall have accepted such appointment, within 30 days after the
retiring Agent’s giving of notice of resignation, the retiring Agent may, on
behalf of the Lenders, the other Agent, the Co-Borrowing Base Agents and the
Issuing Banks, appoint a successor Agent which shall be (a) a financial
institution having a rating of not less than A or its equivalent by S&P or,
(b) a Lender capable of complying with all of the duties of such Agent
hereunder (in the opinion of the retiring Agent and as certified to the Lenders
in writing by such successor Agent) which, in the case of (a) and (b) above,
so long as there is no Event of Default shall be reasonably satisfactory to the
Borrowers (whose consent shall not be unreasonably withheld or delayed). Upon
the acceptance of any appointment as Agent by a successor Agent, such successor
Agent shall thereupon succeed to and become vested with all the rights, powers,
privileges and duties of the retiring Agent and the retiring Agent shall be
discharged from its duties and obligations under this Agreement. After any
retiring Agent’s resignation hereunder as such Agent, the provisions of this Article VIII
shall inure to its benefit as to any actions taken or omitted to be taken by it
while it was such Agent under this Agreement. 
Any Co-Borrowing Base Agent may resign at any time by giving five (5) Business
Days’ written notice thereof to the Administrative Agent and the Borrowers; provided
that, upon any such resignation of any Co-Borrowing Base Agent, no Person
shall be appointed as a successor to such Co-Borrowing Base Agent.


 


SECTION 8.13                    Reports and
Financial Statements.. 
Promptly after receipt thereof from the Borrowers, the Administrative
Agent shall remit to each Lender and, to the extent not 


 


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previously
delivered to such Person by the Borrowers, each Co-Borrowing Base Agent copies
of (a) all financial statements, compliance certificates and Borrowing
Base Certificates, as required to be delivered by the Borrowers hereunder, (b) all
commercial finance examinations and appraisals of the Collateral received by
the Administrative Agent and (c) such other information regarding the
operations, business affairs and financial condition of any Borrower, or
compliance with the terms of any Loan Document, as any Lender or Co-Borrowing
Base Agent may reasonably request. 
Without limiting the requirements of the definition of Bank Products,
each Lender agrees to furnish the Administrative Agent, at such frequency as
the Administrative Agent may reasonably request, with a summary of all
Obligations due or to become due to such Lender under and arising out of any
Cash Management Services and Bank Products provided by such Person to any Loan
Party or any of its Subsidiaries, and, in connection with any distributions to
be made hereunder, the Administrative Agent shall be entitled to assume that no
amounts are due to any Lender on account of such Obligations unless the
Administrative Agent has received written notice thereof from such Lender.


 


SECTION 8.14                    Agency for
Perfection.  Each Lender
hereby appoints each other Lender as agent for the purpose of perfecting Liens
for the benefit of the Agents and the other Secured Parties, in assets which,
in accordance with Article 9 of the UCC or any other applicable law of the
United States of America or Canada can be perfected only by possession.  Should any Lender (other than the Agents)
obtain possession of any such Collateral, such Lender shall notify the
Administrative Agent thereof, and, promptly upon the Administrative Agent’s
request therefor, shall deliver such Collateral to the Collateral Agent, or
otherwise deal with such Collateral in accordance with the Administrative Agent’s
or Collateral Agent’s (as applicable) instructions.


 


SECTION 8.15                    Delinquent
Lender.  If for any reason any Lender (a) shall
fail or refuse to abide by its material obligations under this Agreement,
including, without limitation, its obligation to make available to the
Administrative Agent its Commitment Percentage of any Loans, expenses or setoff
or purchase its Commitment Percentage of a participation interest in the
Swingline Loans or Letter of Credit Outstandings and such failure is not cured
within one Business Day after receipt from the Administrative Agent of written
notice thereof, (b) shall fail, within three (3) Business Days after
request by the Administrative Agent, to confirm that it will comply with the
terms of this Agreement relating to its Commitments or (c) has, without
cause, defaulted in fulfilling its obligations under one or more other
syndicated credit facilities (unless such default is being disputed by such
Lender in good faith) or has become the subject of a bankruptcy, insolvency or
similar proceeding (each, a “Delinquent Lender”), then, in addition to
the rights and remedies that may be available to the other Secured Parties, the
Loan Parties or any other party at law or in equity, and not at limitation
thereof, (i) such Delinquent Lender’s right to participate in the
administration of, or decision-making rights related to, the Loans, this
Agreement or the other Loan Documents shall be suspended during the pendency of
such failure, refusal, insolvency or proceeding (provided that the Commitment
of such Delinquent Lender may not be increased or extended without the written
consent of such Delinquent Lender), and (ii) subject to the provisions of
clause (iii) below, such Delinquent Lender shall be deemed to have
assigned any and all payments due to it from the Loan Parties in connection
with this Agreement, whether on account of outstanding Loans, interest, fees or
otherwise, to the remaining non-delinquent Lenders for application to, and
reduction of, their proportionate shares of all outstanding Obligations until,
as a result of application of such assigned payments the Lenders’ respective
Commitment Percentages of all outstanding Obligations shall have returned 


 


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to
those in effect immediately prior to such delinquency and without giving effect
to the nonpayment causing such delinquency, and (iii) at the option of the
Administrative Agent, any amounts payable to such Delinquent Lender hereunder
(whether on account of principal, interest, fees or otherwise) shall, in lieu
of being distributed to such Delinquent Lender, be retained by the
Administrative Agent as cash collateral for future funding obligations of the
Delinquent Lender in respect of any Loan or existing or future participating
interest in any Swingline Loan or Letter of Credit.  The Delinquent Lender’s decision-making and
participation rights and rights to payments as set forth in clauses (i) and
(ii) hereinabove shall be restored only upon the payment by the Delinquent
Lender of its Commitment Percentage of any Obligations, any participation
obligation, or expenses as to which it is delinquent, together with interest
thereon at the rate set forth in Section 2.10, from the date when
originally due until the date upon which any such amounts are actually paid.


 


(a)                                  The non-Delinquent Lenders shall also
have the right, but not the obligation, in their respective, sole and absolute
discretion, to cause the termination and assignment without any further action
by the Delinquent Lender for no cash consideration (pro rata, based on the
respective Commitments electing to exercise such right), the Delinquent Lender’s
Commitment, to fund future Loans.  Upon
any such purchase of the Commitment of any Delinquent Lender, the Delinquent Lender’s
share in future Loans and its rights under the Loan Documents with respect
thereto shall terminate on the date of purchase, and the Delinquent Lender
shall promptly execute all documents reasonably requested to surrender and
transfer such interest, including, if so requested, an Assignment and
Acceptance.


 


(b)                                 Each Delinquent Lender shall indemnify
the Agents, each Issuing Bank which is not a Delinquent Lender and each
non-Delinquent Lender from and against any and all loss, damage or expenses,
including, but not limited to, reasonable attorneys’ fees and funds advanced by
any Agent, any Issuing Bank which is not a Delinquent Lender or by any
non-Delinquent Lender, on account of a Delinquent Lender’s failure to timely
fund its Commitment Percentage of a Loan or to otherwise perform its
obligations under the Loan Documents.


 


SECTION 8.16                    Collateral
Matters.


 


(a)                                  The Lenders hereby irrevocably authorize
the Agents to release any Lien upon any Collateral: (i) upon the
termination of the Commitments and payment and satisfaction in full of all
Obligations, all Letters of Credit shall have expired or terminated (or been
collateralized in a manner satisfactory to the Issuing Banks) and all Letter of
Credit Outstandings have been reduced to zero (or collateralized in a manner
satisfactory to the Issuing Banks); or (ii) constituting property being
sold, transferred or disposed of in a disposition permitted under Section 6.5
hereof upon receipt by the Administrative Agent of the Net Proceeds thereof to
the extent required by this Agreement. 
Except as provided above, the Agents will not release any of the
Collateral Agent’s Liens without the prior written authorization of the
Applicable Lenders. Upon request by the any Agent or any Borrower at any time,
the Lenders will confirm in writing the Collateral Agent’s authority to release
any Liens upon particular types or items of Collateral pursuant to this SECTION 8.16.


 


(b)                                 Upon at least two (2) Business Days’
prior written request by the Borrowers, the Collateral Agent shall (and is
hereby irrevocably authorized by the Lenders to) execute such 


 


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documents as may be necessary to evidence the release
of the Liens upon any Collateral described in Section 8.10(a); provided,
however, that (i) the Agents shall not be required to execute any
such document on terms which, in their reasonable opinion, would, under
applicable law, expose either Agent to liability or create any obligation or
entail any adverse consequence other than the release of such Liens without
recourse or warranty, and (ii) such release shall not in any manner
discharge, affect or impair the Obligations or any Liens (other than those
expressly being released) upon (or obligations of any Loan Party in respect of)
all interests retained by any Loan Party, including (without limitation) the
proceeds of any sale, all of which shall continue to constitute part of the
Collateral.


 


SECTION 8.17                                       Syndication
Agent, Documentation Agent and Arrangers.  Notwithstanding the provisions of this
Agreement or any of the other Loan Documents, the Co-Syndication Agents, the
Documentation Agents and the Arrangers shall have no powers, rights, duties,
responsibilities or liabilities with respect to this Agreement and the other Loan
Documents.


 


ARTICLE IX


MISCELLANEOUS


 


SECTION 9.1                          Notices.  Except in the case of notices and other
communications expressly permitted to be given by telephone, all notices and
other communications provided for herein shall be in writing and shall be delivered
by hand or overnight courier service, mailed by certified or registered mail or
sent by telecopy or e-mail, as follows:


 


(a)                                  if to any Borrower (or any other Loan
Party), to such Person at Zale Corporation, 901 W. Walnut Hill Lane,
Irving, Texas 75038-1003 Attention: General Counsel (Telecopy No. (972)
580-4934), e-mail hmolay@zalecorp.com, with copies to (i) Zale
Corporation, 901 W. Walnut Hill Lane, Irving, Texas 75038-1003
Attention: Treasurer (Telecopy No. (972) 580-5547), e-mail smassane@zalecorp.com
and (ii) Troutman Sanders LLP, 600 Peachtree Street, N.E., Suite 5200,
Atlanta, Georgia 30308-2216, Attention: Hazen H. Dempster, Esq (Telecopy No. (404) 962-6544),
e-mail hazen.dempster@troutmansanders.com;


 


(b)                                 If to the
Administrative Agent, the Collateral Agent or the Swingline Lender to Bank of
America, N.A., 100 Federal Street, Boston, Massachusetts 02110, Attention:
Andrew Cerussi (Telecopy No. (617) 310-2686), e-mail andrew.cerussi@baml.com, with a copy to
Riemer & Braunstein, LLP, Three Center Plaza, Boston, Massachusetts
02108, Attention: David S. Berman, Esq. (Telecopy No. (617)
880-3456), e-mail
dberman@riemerlaw.com;


 


(c)                                  If to Bank of
America, as a Co-Borrowing Base Agent, to Bank of America, N.A., 100 Federal
Street, Boston, Massachusetts 02110, Attention: Andrew Cerussi (Telecopy No. (617)
310-2686), e-mail
andrew.cerussi@baml.com, with a copy to Riemer & Braunstein,
LLP, Three Center Plaza, Boston, Massachusetts 02108, Attention: David S.
Berman, Esq. (Telecopy No. (617) 880-3456), e-mail dberman@riemerlaw.com;


 


(d)                                 If to Wells
Fargo, as a Co-Borrowing Base Agent, to Wells Fargo Retail Finance, LLC, One
Boston Place, 18th Floor, Boston, Massachusetts 02108, Boston,
Massachusetts, Attention: Connie Liu (Telecopy No. (866) 303-3944), e-mail Connie.Liu@wellsfargo.com, with 


 


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a copy to Brown Rudnick LLP,
Seven Times Square, New York, New York 10036, Attention: Christopher J. Carolan, Esq.
(Telecopy No. (212) 938-2871), e-mail ccarolan@brownrudnick.com;


 


(e)                                  (e)                                  If to GE
Capital, as a Co-Borrowing Base Agent, to General Electric Capital Corporation,
777 Long Ridge Road, Building A, Stamford, Connecticut 06927, Attention: Zale
Corporation Account Manager (Telecopy No. (203)585-2647, e-mail Domenica.Simone@ge.com,
with a copy to General Electric Capital Corporation, 201 Merritt 7, Norwalk,
Connecticut 08651, Attention: Corporate Counsel (Telecopy No. (203)
956-4003) with a second copy to Kilpatrick Stockton LLP, 1100 Peachtree Street,
Suite 2800, Atlanta, Georgia 30309 Attention: Hilary P. Jordan, Esq.
(Telecopy No. (404)815-6555, e-mail hjordan@kilpatrickstockton.com;


 


(f)                                    If to any other Lender, to it at its
address (or telecopy number or e-mail) set forth on the signature pages hereto
or on any Assignment and Acceptance for such Lender.


 


(g)                                 All notices and other communications
given to any party hereto in accordance with the provisions of this Agreement
shall be deemed to have been given on the date of receipt.


 


(h)                                 Unless the Administrative Agent otherwise
prescribes in writing, notices and other communications sent to an e-mail
address shall be deemed received upon the sender’s receipt of an
acknowledgement from the intended recipient (such as by the “return receipt
requested” function, as available, return e-mail or other written
acknowledgement), provided that if such notice or other communication is not
sent during the normal business hours of the recipient, such notice or
communication shall be deemed to have been sent at the opening of business on
the next Business Day for the recipient.


 


(i)                                     Each of the Borrowers, the Administrative
Agent, the Collateral Agent and the Co-Borrowing Base Agents may change its
address, telecopier or telephone number for notices and other communications
hereunder by notice to the Administrative Agent. Each Lender may change its
address, telecopier or telephone number for notices and other communications
hereunder by notice to the Borrowers, the Administrative Agent, the Collateral
Agent and the Co-Borrowing Base Agents. In addition, each Lender agrees to
notify the Administrative Agent from time to time to ensure that the
Administrative Agent has on record (i) an effective address, contact name,
telephone number, telecopier number and electronic mail address to which
notices and other communications may be sent and (ii) accurate wire
instructions for such Lender.


 


SECTION 9.2                          Waivers;
Amendments.


 


(a)                                  No failure or delay by the Agents, any
Issuing Bank or any Lender in exercising any right or power hereunder or under
any other Loan Document shall operate as a waiver thereof, nor shall any single
or partial exercise of any such right or power, or any abandonment or
discontinuance of steps to enforce such a right or power, preclude any other or
further exercise thereof or the exercise of any other right or power. The
rights and remedies of the Agents, the Issuing Banks and the Lenders hereunder
and under the other Loan Documents are cumulative and are not exclusive of any
rights or remedies that they would otherwise have. No waiver of any provision
of any Loan Document or consent to any departure by any Loan Party therefrom
shall 


 


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in any event be effective unless the same shall be
permitted by paragraph (b) of this Section, 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 or issuance of a Letter of Credit shall not be construed as a waiver
of any Default, regardless of whether the Agents, any Lender or any Issuing
Bank may have had notice or knowledge of such Default at the time.


 


(b)                                 Neither this Agreement nor any other Loan
Document nor any provision hereof or thereof may be waived, amended or modified
except, in the case of this Agreement, pursuant to an agreement or agreements
in writing entered into by the Borrowers and the Required Lenders or, in the
case of any other Loan Document, pursuant to an agreement or agreements in
writing entered into by the Agents and the Borrowers that are parties thereto,
in each case with the consent of the Required Lenders, provided, that no
such agreement shall (i) increase the Commitment of any Lender without the
written consent of each Lender affected, (ii) reduce the rate of interest
on any Loan or L/C Disbursement, or reduce any fees payable hereunder, without
the written consent of each Lender affected thereby, (iii) postpone the
scheduled date of payment of the principal amount of any Loan or L/C
Disbursement, or any interest thereon, or any fees payable hereunder, or reduce
the amount of, waive or excuse any such payment, or postpone the scheduled date
of expiration of the Commitments, the Maturity Date or the Extended Term
Maturity Date, without the written consent of each Lender affected thereby, (iv) change
any of the provisions of this SECTION 9.2 or the definition of the term “Required
Lenders”, “Required Supermajority Lenders” or any other provision of
any Loan Document specifying the number or percentage of Lenders required to
waive, amend or modify any rights thereunder or make any determination or grant
any consent thereunder, without the written consent of each Lender, (v) except
for sales described in SECTION 6.5 or as permitted in the Security
Documents, release any material portion of the Collateral from the Liens of the
Security Documents, without the written consent of each Lender; provided,
that the foregoing shall not limit the discretion of the Required Supermajority
Lenders to change the definition of the term “Permitted Asset Sales”, (vi) change
the definition of the term “Borrowing Base” or any component definition
thereof (other than changes to the Inventory Advance Rate) if as a result
thereof the amounts available to be borrowed by the Borrowers would be
increased, without the written consent of each Lender, provided, that
the foregoing shall not limit the discretion of the Administrative Agent to
change, establish or eliminate any Reserves in accordance with SECTION 2.2
or to determine whether Inventory or Accounts are Eligible Inventory or
Eligible Credit Card Receivables, respectively, (vii) increase the
Permitted Overadvance, without the written consent of each Lender, and  provided, further, that no such
agreement shall amend, modify or otherwise affect the rights or duties of the
Agents, or the Issuing Banks without the prior written consent of the Agents,
or the Issuing Banks, as the case may be, and (viii) increase the
principal amount of the Swingline Loan, without the written consent of the
Required Supermajority Lenders.


 


(c)                                  Notwithstanding anything to the contrary
contained in this SECTION 9.2, in the event that the Borrowers request
that this Agreement or any other Loan Document be modified, amended or waived
in a manner which would require the consent of the Lenders pursuant to SECTION 9.2(b) and
such amendment is approved by the Required Lenders, but not by the requisite
percentage of the Lenders, the Borrowers, and the Required Lenders shall be
permitted to amend this Agreement without the consent of the Lender or Lenders
which did not agree to the modification or amendment requested by the Borrowers
(such Lender or Lenders,


 


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collectively the “Minority Lenders”) to provide
for (w) the termination of the Commitment of each of the Minority Lenders,
(x) the addition to this Agreement of one or more other financial
institutions, or an increase in the Commitment of one or more of the Required
Lenders, so that the aggregate Commitments after giving effect to such
amendment shall be in the same amount as the aggregate Commitments immediately
before giving effect to such amendment, (y) if any Loans are outstanding
at the time of such amendment, the making of such additional Loans by such new
or increasing Lender or Lenders, as the case may be, as may be necessary to
repay in full the outstanding Loans (including principal, interest, and fees)
of the Minority Lenders immediately before giving effect to such amendment and (z) such
other modifications to this Agreement or the Loan Documents as may be
appropriate and incidental to the foregoing.


 


(d)                                 No notice to or demand on any Loan Party
shall entitle any Loan Party to any other or further notice or demand in the
same, similar or other circumstances. Each holder of a Note shall be bound by
any amendment, modification, waiver or consent authorized as provided herein,
whether or not a Note shall have been marked to indicate such amendment,
modification, waiver or consent and any consent by a Lender, or any holder of a
Note, shall bind any Person subsequently acquiring a Note, whether or not a
Note is so marked. No amendment to this Agreement shall be effective against
the Borrowers unless signed by the Borrowers or other applicable Loan Party.


 


SECTION 9.3                          Expenses;
Indemnity; Damage Waiver.


 


(a)                                  The Loan Parties shall jointly and
severally pay (i) all reasonable and documented third-party out-of-pocket
expenses incurred by the Agents and their Affiliates, including the reasonable
and documented fees, charges and disbursements of counsel for the Agents,
outside consultants for the Agents, appraisers, and for commercial finance
examinations, in connection with the syndication of the credit facilities
provided for herein, the preparation and administration of the Loan Documents
or any amendments, modifications or waivers of the provisions thereof (whether
or not the transactions contemplated hereby or thereby shall be consummated), (ii) all
reasonable and documented third-party out-of-pocket expenses incurred by each
Issuing Bank in connection with any demand for payment under any Letter of
Credit, and (iii) all reasonable and documented third-party out-of-pocket
expenses incurred by the Agents, each Issuing Bank or any Lender, including the
reasonable fees, charges and disbursements of any counsel and any outside
consultants for the Agents, each Issuing Bank or any Lender, for appraisers,
commercial finance examinations, and environmental site assessments, in
connection with the enforcement or protection of its rights in connection with
the Loan Documents, including its rights under this Section, or in connection
with the Loans made or Letters of Credit issued hereunder, including all such
reasonable and documented third-party out-of-pocket expenses incurred during
any workout, restructuring or negotiations in respect of such Loans or Letters
of Credit; provided, that the Lenders who are not the Agents or an
Issuing Bank shall be entitled to reimbursement for no more than one counsel
representing all such Lenders (absent a conflict of interest in which case the
Lenders may engage and be reimbursed for additional counsel).


 


(b)                                 The Loan Parties shall, jointly and
severally, indemnify the Agents, each Co-Borrowing Base Agent, each Issuing
Bank and each Lender, and each Related Party of any of the foregoing Persons
(each such Person being called an “Indemnitee”) against, and hold each 


 


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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 of any Loan Document
or any other agreement or instrument contemplated hereby, the performance by
the parties to the Loan Documents of their respective obligations thereunder or
the consummation of the transactions contemplated by the Loan Documents or any
other transactions contemplated hereby, (ii) any Loan or Letter of Credit
or the use of the proceeds therefrom (including any refusal by an Issuing Bank
to honor a demand for payment under a Letter of Credit if the documents
presented in connection with such demand do not strictly comply with the terms
of such Letter of Credit), (iii) any actual or alleged presence or release
of Hazardous Materials on or from any property currently or formerly owned or
operated by any Loan Party or any of its Subsidiaries, or any Environmental
Liability related in any way to any Loan Party or any of its Subsidiaries, or (iv) any
actual or prospective claim, litigation, investigation or proceeding relating
to any of the foregoing, 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 or willful misconduct of such Indemnitee or with
respect to a claim by one Indemnitee against another Indemnitee.


 


(c)                                  If, for any reason, the indemnification
under paragraph (b) of this Section is unenforceable as a matter
of law or with respect to a claim by one Indemnitee against another Indemnitee,
then the Loan Parties shall contribute to the amount paid or payable by such
Indemnitee as a result of such loss, claim, damage or liability to the maximum
amount legally permissible.  The Loan
Parties also agree that no Indemnitee shall have any liability to the Loan
Parties, any Person asserting claims on behalf of or in right of the Loan
Parties or any other Person in connection with or as a result of this Agreement
or any agreement or instrument contemplated hereby, the transactions
contemplated by the Loan Documents, any Loan or Letter of Credit or the use of
the proceeds thereof, except to the extent that the losses, claims, damages,
liabilities or expenses incurred by the Loan Parties resulted from the gross
negligence, willful misconduct, bad faith or breach of contractual obligations
of such Indemnitee.


 


(d)                                 To the extent that any Loan Party fails
to pay any amount required to be paid by it to the Agents or any Issuing Bank
under paragraph (a) or (b) of this Section, each Lender
severally agrees to pay to the Agents or the applicable Issuing Bank, as the
case may be, such Lender’s Commitment Percentage of such unpaid amount, provided,
that the unreimbursed expense or indemnified loss, claim, damage, liability or
related expense, as the case may be, was incurred by or asserted against the
Agents or an Issuing Bank.


 


(e)                                  To the extent permitted by applicable
law, no Loan Party shall assert, and each hereby waives, any claim against any
Indemnitee, on any theory of liability, for special, indirect, consequential or
punitive damages (as opposed to direct or actual damages) arising out of, in
connection with, or as a result of, this Agreement or any agreement or instrument
contemplated hereby, the transactions contemplated by the Loan Documents, any
Loan or Letter of Credit or the use of the proceeds thereof.


 


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(f)                                    All amounts due under this Section shall
be payable promptly after written demand therefor.


 


(g)                                 The covenants contained in this SECTION 9.3
shall survive payment or satisfaction in full of all other Obligations.


 


SECTION 9.4                          Successors and
Assigns.


 


(a)                                  The provisions of this Agreement shall be
binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns permitted hereby (including any Affiliate of
an Issuing Bank that issues any Letter of Credit), except that no Loan Party
may assign or otherwise transfer any of its rights or obligations hereunder
without the prior written consent of each Lender (and any such attempted
assignment or transfer without such consent shall be null and void). Nothing in
this Agreement, expressed or implied, shall be construed to confer upon any
Person (other than the parties hereto, their respective successors and assigns
permitted hereby (including any Affiliate of an Issuing Bank that issues any
Letter of Credit) and, to the extent expressly contemplated hereby, the Related
Parties of each of the Agents, each Issuing Bank and the Lenders) any legal or
equitable right, remedy or claim under or by reason of this Agreement.


 


(b)                                 Any Lender may assign to one or more
assignees all or a portion of its rights and obligations under this Agreement
(including all or a portion of its Commitment and the Loans at the time owing
to it), provided, that (i) except in the case of an assignment to a
Lender or an Affiliate of a Lender, (1) the Administrative Agent must give
its prior written consent to such assignment (which consent shall not be
unreasonably withheld or delayed) and (2) so long as no Default or Event
of Default has occurred and is continuing, the Borrowers shall give their prior
written consent to such assignment (which consent shall not be unreasonably
withheld or delayed), (ii) except in the case of an assignment to a Lender
or an Affiliate of a Lender or an assignment of the entire remaining amount of
the assigning Lender’s Commitment or Loans, the amount of the Commitment or
Loans of the assigning Lender subject to each such assignment (determined as of
the date the Assignment and Acceptance with respect to such assignment is
delivered to the Administrative Agent) shall not be less than $5,000,000 unless
the Administrative Agent and the Borrowers otherwise consent, (iii) each
partial assignment shall be made as an assignment of a proportionate part of
all the assigning Lender’s rights and obligations, (iv) any assignment by
an Extending Lender to a Non-Extending Lender shall not modify the tenor or
maturity of, or pricing for, the Commitment and Loans so assigned, (v) any
assignment by a Non-Extending Lender to an Extending Lender shall not modify
the tenor or maturity of, or pricing for, the Commitment and Loans so assigned
unless agreed to by such Extending Lender and consented to by the
Administrative Agent in writing, and (vi) the parties to each assignment
shall execute and deliver to the Administrative Agent an Assignment and
Acceptance, together with (unless waived by the Administrative Agent or unless
such assignment is to an Affiliate of a Lender) a processing and recordation
fee of $3,500 (which shall not be payable or reimbursable by the
Borrowers).  Subject to acceptance and
recording thereof pursuant to paragraph (d) of this Section, from and
after the effective date specified in each Assignment and Acceptance the
assignee thereunder shall be a party hereto and, to the extent of the interest
assigned by such Assignment and Acceptance, have the rights and obligations of
a Lender under this Agreement, and the assigning Lender thereunder shall, to
the extent of the 


 


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interest assigned by such Assignment and Acceptance,
be released from its obligations under this Agreement (and, in the case of an
Assignment and Acceptance covering all of the assigning Lender’s rights and
obligations under this Agreement, such Lender shall cease to be a party hereto
but shall continue to be entitled to the benefits of SECTION 9.3).  Any assignment or transfer by a Lender of
rights or obligations under this Agreement that does not comply with this
paragraph shall be treated for purposes of this Agreement as a sale by such
Lender of a participation in such rights and obligations in accordance with
paragraph (e) of this Section.


 


(c)                                  The Administrative Agent, acting for this
purpose as an agent of the Loan Parties, shall maintain at one of its offices
in Boston, Massachusetts a copy of each Assignment and Acceptance delivered to
it and a register for the recordation of the names and addresses of the
Lenders, and the Commitment of, and principal amount of the Loans and L/C
Disbursements owing to, each Lender pursuant to the terms hereof from time to
time (the “Register”). The entries in the Register shall be conclusive
absent manifest error and the Loan Parties, the Administrative Agent, each
Issuing Bank and the Lenders may treat each Person whose name is recorded in
the Register pursuant to the terms hereof as a Lender hereunder for all
purposes of this Agreement, notwithstanding notice to the contrary. The
Register shall be available for inspection by the Borrowers, each Issuing Bank
and any Lender, at any reasonable time and from time to time upon reasonable
prior notice.


 


(d)                                 Upon its receipt of a duly completed Assignment
and Acceptance executed by an assigning Lender and an assignee, the processing
and recordation fee referred to in paragraph (b) of this Section and
any written consent to such assignment required by paragraph (b) of
this Section, the Administrative Agent shall accept such Assignment and
Acceptance and record the information contained therein in the Register. No
assignment shall be effective for purposes of this Agreement unless it has been
recorded in the Register as provided in this paragraph.


 


(e)                                  Any Lender may sell participations to one
or more banks or other entities (a “Participant”) in all or a portion of
such Lender’s rights and obligations under this Agreement (including all or a
portion of its Commitment and the Loans owing to it), provided, that (i) such
Lender’s obligations under this Agreement shall remain unchanged, (ii) such
Lender shall remain solely responsible to the other parties hereto for the
performance of such obligations and (iii) the Loan Parties, the Agents,
each Issuing Bank and the other Lenders shall continue to deal solely and
directly with such Lender in connection with such Lender’s rights and
obligations under this Agreement. Any agreement or instrument pursuant to which
a Lender sells such a participation in the Commitments, the Loans and the
Letters of Credit Outstandings shall provide that such Lender shall retain the
sole right to enforce the Loan Documents and to approve any amendment,
modification or waiver of any provision of the Loan Documents, provided,
that such agreement or instrument may provide that such Lender will not,
without the consent of the Participant, agree to any amendment, modification or
waiver described in the first proviso to SECTION 9.2(b) that affects
such Participant. Subject to paragraph (f) of this Section, the Loan
Parties agree that each Participant shall be entitled to the benefits of SECTION 2.23,
SECTION 2.25 and SECTION 2.26 to the same extent as if it were a
Lender and had acquired its interest by assignment pursuant to paragraph (b) of
this Section. To the extent permitted by law, each Participant also shall be
entitled to the benefits of SECTION 9.9 as though it were a Lender, provided,
such Participant agrees to be subject to SECTION 2.25(c) and Section 2.28
as though it were a Lender.


 


110




















 


(f)                                    A Participant shall not be entitled to
receive any greater payment under SECTION 2.23 or SECTION 2.26 than
the applicable Lender would have been entitled to receive with respect to the
participation sold to such Participant, unless the sale of the participation to
such Participant is made with the Borrowers’ prior written consent. A
Participant that would be a Foreign Lender if it were a Lender shall not be
entitled to the benefits of SECTION 2.26 unless (i) the Borrowers are
notified of the participation sold to such Participant and such Participant
agrees, for the benefit of the Borrowers, to comply with SECTION 2.26(e)as
though it were a Lender and (ii) such Participant is eligible for complete
exemption from the withholding tax referred to therein, following compliance
with SECTION 2.26(e).


 


(g)                                 Any Lender may, without obtaining the
consent of any Loan Party, at any time pledge or assign a security interest in
all or any portion of its rights under this Agreement to secure obligations of
such Lender, including any pledge or assignment to secure obligations to a
Federal Reserve Bank, and this Section shall not apply to any such pledge
or assignment of a security interest, provided, that no such pledge or
assignment of a security interest shall release a Lender from any of its
obligations hereunder or substitute any such pledgee or assignee for such
Lender as a party hereto.


 


SECTION 9.5                          Reserved.


 


SECTION 9.6                          Survival.  All covenants, agreements, representations
and warranties made by the Loan Parties in the Loan Documents and in the
certificates or other instruments delivered in connection with or pursuant to
this Agreement or any other Loan Document shall be considered to have been
relied upon by the other parties hereto and shall survive the execution and
delivery of the Loan Documents and the making of any Loans and issuance of any
Letters of Credit, regardless of any investigation made by any such other party
or on its behalf and notwithstanding that the Agents, any Issuing Bank or any
Lender may have had notice or knowledge of any Default or incorrect
representation or warranty at the time any credit is extended hereunder, 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 this
Agreement is outstanding and unpaid or any Letter of Credit is outstanding and
so long as the Commitments have not expired or terminated. The provisions of SECTION 2.23,
SECTION 2.26 and SECTION 9.3 and Article VIII shall survive and
remain in full force and effect regardless of the consummation of the
transactions contemplated hereby, the repayment of the Loans, the expiration or
termination of the Letters of Credit and the Commitments or the termination of
this Agreement or any provision hereof. 
In connection with the termination of this Agreement and the release and
termination of the security interests in the Collateral, the Administrative
Agent on behalf of itself and the other Secured Parties, may require such
indemnities or collateral as it shall reasonably deem necessary or appropriate
to protect the Secured Parties against loss on account of such release and
termination, including, without limitation, with respect to credits previously
applied to the Obligations that may subsequently be reversed or revoked, and
any Obligations that may thereafter arise, including without limitation under SECTION 9.3.


 


SECTION 9.7                          Counterparts;
Integration; Effectiveness.  This Agreement 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 Agreement and the other Loan Documents
constitute the entire contract among the 


 


111

















 


parties relating to the subject matter hereof and supersede any and all
previous agreements and understandings, oral or written, relating to the
subject matter hereof. Except as provided in SECTION 4.1, this Agreement
shall become effective when it shall have been executed by the Agents and the
Lenders and when the Administrative Agent shall have received counterparts
hereof that, when taken together, bear the signatures of each of the other
parties hereto, and thereafter shall be binding upon and inure to the benefit
of the parties hereto and their respective successors and assigns. Delivery of
an executed counterpart of a signature page of this Agreement by telecopy
shall be effective as delivery of a manually executed counterpart of this
Agreement.


 


SECTION 9.8                          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.


 


SECTION 9.9                          Right of Setoff.  If an Event of Default shall have occurred
and be continuing, each Lender, each Participant and each of their respective
Affiliates is hereby authorized at any time and from time to time, to the
fullest extent permitted by law, to set off and apply any and all deposits
(general or special, time or demand, provisional or final) at any time held and
other obligations at any time owing by such Lender, Participant or Affiliate to
or for the credit or the account of the Loan Parties against any of and all the
obligations of the Loan Parties now or hereafter existing under this Agreement
held by such Lender, irrespective of whether or not such Lender shall have made
any demand under this Agreement and although such obligations may be unmatured
and/or such Obligations may be otherwise fully secured. The rights of each
Lender, Participant and Affiliate under this Section are in addition to
other rights and remedies (including other rights of setoff) that such Lender,
Participant or Affiliate may have.  No
Lender will, or will permit its Participant to, exercise its rights under this Section 9.8
without the consent of the Administrative Agent or the Required Lenders.  ANY AND ALL RIGHTS TO REQUIRE ANY AGENT TO
EXERCISE ITS RIGHTS OR REMEDIES WITH RESPECT TO ANY OTHER COLLATERAL WHICH
SECURES ANY OF THE OBLIGATIONS PRIOR TO THE EXERCISE BY ANY LENDER, PARTICIPANT
OR AFFILIATE OF ITS RIGHT OF SETOFF UNDER THIS SECTION ARE HEREBY
KNOWINGLY, VOLUNTARILY AND IRREVOCABLY WAIVED.


 


SECTION 9.10                    Governing Law;
Jurisdiction; Consent to Service of Process


 


(a)                                  EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN
ANY OF THE LOAN DOCUMENTS, IN ALL RESPECTS, INCLUDING ALL MATTERS OF
CONSTRUCTION, VALIDITY AND PERFORMANCE, THIS AGREEMENT AND EACH OTHER LOAN
DOCUMENTS AND THE OBLIGATIONS SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED
IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK INCLUDING, WITHOUT
LIMITATION, SECTIONS 5-1401 AND 5-1402 OF THE NEW YORK GENERAL OBLIGATIONS LAW,
AND ANY APPLICABLE LAWS OF THE UNITED STATES OF AMERICA.


 


112





















 


(b)                                 Each party to this Agreement irrevocably
consents to service of process in the manner provided for notices in SECTION 9.1.
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.


 


(c)                                  EACH OF THE LOAN PARTIES, EACH OF THE
AGENTS, EACH OF THE CO-BORROWING BASE AGENTS AND EACH LENDER AGREES THAT ANY
SUIT FOR THE ENFORCEMENT OF THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS MAY BE
BROUGHT IN THE COURTS OF THE STATE OF NEW YORK SITTING IN THE BOROUGH OF
MANHATTAN OR ANY FEDERAL COURT SITTING THEREIN AND CONSENTS TO THE NONEXCLUSIVE
JURISDICTION THAT 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 COURT.


 


SECTION 9.11                    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 IN THIS SECTION.


 


SECTION 9.12                    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 shall not affect the construction of, or be
taken into consideration in interpreting, this Agreement.


 


SECTION 9.13                    Interest Rate
Limitation. 
Notwithstanding anything herein to the contrary, if at any time the
interest rate applicable to any Loan, together with all fees, charges and other
amounts that are treated as interest on such Loan under applicable law
(collectively the “Charges”), shall exceed the maximum lawful rate (the “Maximum
Rate”) that may be contracted for, charged, taken, received or reserved by the
Lender holding such Loan in accordance with applicable law, the rate of
interest payable in respect of such Loan hereunder, together with all Charges
payable in respect thereof, shall be limited to the Maximum Rate and, to the
extent lawful, the interest and Charges that would have been payable in respect
of such Loan but were not payable as a result of the operation of this Section shall
be cumulated and the interest and Charges payable to such Lender in respect of
other Loans or periods shall be increased (but not above the Maximum Rate
therefor) until such cumulated amount, together with interest thereon at the
Federal Funds Effective Rate to the date of repayment, shall have been received
by such Lender.


 


113

















 


SECTION 9.14                    Confidentiality.


 


Each of the Lenders, the
Agents and the Co-Borrowing Base Agents agrees, on behalf of itself and each of
its affiliates, directors, officers, employees and representatives, to use
reasonable precautions to keep confidential, in accordance with their customary
procedures for handling confidential information of the same nature and in
accordance with safe and sound practices, any non-public information supplied
to it by the Loan Parties or of their Subsidiaries pursuant to this Agreement
that is identified by such Person as being confidential at the time the same is
delivered to such Lender, such Agent, or such Co-Borrowing Base Agent provided
that nothing herein shall limit the disclosure of any such information (a) after
such information shall have become public other than through a violation of
this Section 9.14 (b) to the extent required by statute, rule,
regulation or judicial process, (c) to counsel for any of the Lenders, or
the Administrative Agent, the Collateral Agent, or any of the Co-Borrowing Base
Agents, (d) to bank examiners, the National Association of Insurance
Commissioners or any other U.S. federal or foreign regulatory authority having
jurisdiction over any Lender, the Administrative Agent,  the Collateral Agent, any Co-Borrowing Base
Agent, or to auditors or accountants, (e) to the Administrative Agent, the
Collateral Agent, any Co-Borrowing Base Agent, or any Lender, (f) in
connection with any litigation to which the Administrative Agent, the
Collateral Agent, any Co-Borrowing Base Agent, or any Lender is a party, or in
connection with the enforcement of rights or remedies hereunder or under any
other Loan Document, or (g) to any assignee or participant (or prospective
assignee or participant) so long as such assignee or participant agrees to be
bound by the provisions of this SECTION 9.14.


 


SECTION 9.15                    Additional
Waivers.


 


(a)                                  The Obligations are the joint and several
obligations of each Loan Party. To the fullest extent permitted by applicable
law, the obligations of each Loan Party hereunder shall not be affected by (i) the
failure of any Agent or any other Secured Party to assert any claim or demand
or to enforce or exercise any right or remedy against any other Loan Party
under the provisions of this Agreement, any other Loan Document or otherwise, (ii) any
rescission, waiver, amendment or modification of, or any release from any of
the terms or provisions of, this Agreement, any other Loan Document, or any other
agreement, including with respect to any other Loan Party of the Obligations
under this Agreement, or (iii) the failure to perfect any security
interest in, or the release of, any of the security held by or on behalf of the
Collateral Agent or any other Secured Party.


 


(b)                                 The obligations of each Loan Party
hereunder shall not be subject to any reduction, limitation, impairment or
termination for any reason (other than the indefeasible payment in full in cash
of the Obligations), including any claim of waiver, release, surrender,
alteration or compromise of any of the Obligations, 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 Obligations or
otherwise. Without limiting the generality of the foregoing, the obligations of
each Loan Party hereunder shall not be discharged or impaired or otherwise
affected by the failure of any Agent or any other Secured Party to assert any
claim or demand or to enforce any remedy under this Agreement, any other Loan
Document or any other agreement, by any waiver or modification of any provision
of any thereof, by any default, failure or delay, willful or otherwise, in the
performance of the Obligations, or by any other act or omission that may or
might in any manner or to any extent vary the risk of any Loan Party or 


 


114





















 


that would otherwise operate as a discharge of any
Loan Party as a matter of law or equity (other than the indefeasible payment in
full in cash of all the Obligations).


 


(c)                                  To the fullest extent permitted by
applicable law, each Loan Party waives any defense based on or arising out of
any defense of any other Loan Party or the unenforceability of the Obligations
or any part thereof from any cause, or the cessation from any cause of the
liability of any other Loan Party, other than the indefeasible payment in full
in cash of all the Obligations. The Collateral Agent and the other Secured Parties
may, 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
Obligations, make any other accommodation with any other Loan Party, or
exercise any other right or remedy available to them against any other Loan
Party, without affecting or impairing in any way the liability of any Loan
Party hereunder except to the extent that all the Obligations have been
indefeasibly paid in full in cash. Pursuant to applicable law, each Loan Party
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 Loan Party
against any other Loan Party, as the case may be, or any security.


 


(d)                                 Upon payment by any Loan Party of any
Obligations, all rights of such Loan Party against any other Loan Party arising
as a result thereof by way of right of subrogation, contribution,
reimbursement, indemnity or otherwise shall in all respects be subordinate and
junior in right of payment to the prior indefeasible payment in full in cash of
all the Obligations. In addition, any indebtedness of any Loan Party now or
hereafter held by any other Loan Party is hereby subordinated in right of
payment to the prior payment in full of the Obligations. None of the Loan
Parties will demand, sue for, or otherwise attempt to collect any such
indebtedness. If any amount shall erroneously be paid to any Loan Party on
account of (a) such subrogation, contribution, reimbursement, indemnity or
similar right or (b) any such indebtedness of any Loan Party, 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 against the payment of
the Obligations, whether matured or unmatured, in accordance with the terms of
the Loan Documents.


 


SECTION 9.16                    Press Releases
and Related Matters.


 


Each Loan Party consents to
the publication by the Administrative Agent of customary trade advertising
material in tombstone format relating to the financing transactions
contemplated by this Agreement using any Loan Party’s name logo or
trademark.  The Administrative Agent
shall provide a draft reasonably in advance of any advertising material to the
Borrowers for review and comment prior to the publication thereof.  The Administrative Agent reserves the right
to provide to industry trade organizations information necessary and customary
for inclusion in league table measurements.


 


SECTION 9.17                    Patriot Act;
Proceeds of Crime Act.


 


Each Lender hereby notifies
the Loan Parties that, pursuant to the requirements of the USA PATRIOT Act (Title
III of Pub. L. 107-56 (signed into law October 26, 2001)) (the “Act”)
(including all applicable “know your customer” rules, regulations and
procedures applicable to 


 


115

















 


such
Lender in Canada), it is required to obtain, verify and record information that
identifies the Loan Parties, which information includes the name and address of
each Loan Party and other information that will allow such Lender to identify
such Loan Party in accordance with the Act. 
Each Loan Party is in compliance, in all material respects, with the
Patriot Act and the Proceeds of Crime (Money
Laundering) and Terrorist Financing Act (Canada) (together with any
successor statue, the “Proceeds of Crime Act”).  No part of the proceeds of the Loans will be
used by the Loan Parties, directly or indirectly, for any purpose which would
contravene or breach the Proceeds of Crime Act or for any payments to any
governmental official or employee, political party, official of a political party,
candidate for political office, or anyone else acting in an official capacity,
in order to obtain, retain or direct business or obtain any improper advantage,
in violation of the United States Foreign Corrupt Practices Act of 1977, as
amended.


 


SECTION 9.18                    Judgment
Currency.


 


(a)                                  If, for the purpose of obtaining or
enforcing judgment against Zale Canada in any court in any jurisdiction, it
becomes necessary to convert into any other currency (such other currency being
hereinafter in this Section 9.18 referred to as the “Judgment Currency”)
an amount due in Canadian dollars or Dollars under this Agreement, the
conversion will be made at the rate of exchange prevailing on the Business Day
immediately preceding:


 


(i)                                     the date of actual payment of the amount due,
in the case of any proceeding in the courts of the Province of Ontario or in
the courts of any other jurisdiction that will give effect to such conversion
being made on such date; or


 


(ii)                                  the date on which the judgment is given,
in the case of any proceeding in the courts of any other jurisdiction (the date
as of which such conversion is made pursuant to this Section 9.18 being
hereinafter in this Section 9.18 referred to as the “Judgment
Conversion Date”).


 


(b)                                 If, in the case of any proceeding in the
court of any jurisdiction referred to in Section 9.18(a)(i), there is a
change in the rate of exchange prevailing between the Judgment Conversion Date
and the date of actual payment of the amount due, Zale Canada will pay such
additional amount (if any, but in any event not a lesser amount) as may be
necessary to ensure that the amount paid in the Judgment Currency, when
converted at the rate of exchange prevailing on the date of payment, will
produce the amount of Canadian dollars or Dollars, as the case may be, which
could have been purchased with the amount of Judgment Currency stipulated in
the judgment or judicial order at the rate of exchange prevailing on the
Judgment Conversion Date.


 


(c)                                  Any amount due from Zale Canada under the
provisions of this Section 9.18 will be due as a separate debt and will
not be affected by judgment being obtained for any other amounts due under or
in respect of this Agreement.


 


(d)                                 The term “rate of exchange” in this Section 9.18
means:


 


(i)                                     for a conversion of Canadian dollars to
the Judgment Currency, the reciprocal of the official noon rate of exchange
published by the Bank of Canada for the date in question for the conversion of
the Judgment Currency to Canadian dollars;


 


116





















 


(ii)                                  for a conversion of Dollars to the
Judgment Currency when the Judgment Currency is Canadian dollars, the official
noon rate of exchange published by the Bank of Canada for the date in question
for the conversion of Dollars to Canadian dollars;


 


(iii)                               for a conversion of Dollars to the
Judgment Currency when the Judgment Currency is not Canadian dollars, the
effective rate obtained when a given amount of Dollars is converted to Canadian
dollars at the rate determined pursuant to this Section 9.18 and the
result thereof is then converted to the Judgment Currency pursuant to this Section 9.18;
or


 


(iv)                              if a required rate is not so published by
the Bank of Canada for any such date, the spot rate quoted by the Bank of
America (acting through its Canada branch) at Toronto, Canada at approximately
noon (Toronto time) on that date in accordance with its normal practice for the
applicable currency conversion in the wholesale market.


 


SECTION 9.19                    Intercreditor
Agreement.


 


The Loan Parties, the Agents
and the Lenders acknowledge that the exercise of certain of the Agents’ rights
and remedies hereunder may be subject to, and restricted by, the provisions of
the Intercreditor Agreement. Except as specified herein, nothing contained in
the Intercreditor Agreement shall be deemed to modify any requirement or shall
be deemed to modify any of the provisions of this Agreement and the other Loan
Documents, which, among the Loan Parties, the Agents and the Lenders shall
remain in full force and effect.


 


SECTION 9.20                    Existing Credit
Agreement Amended and Restated.


 


(a)                                  Upon satisfaction of the conditions
precedent to the effectiveness of this Agreement, (a) this Agreement shall
amend and restate the Existing Credit Agreement in its entirety (except to the
extent that definitions from the Existing Credit Agreement are incorporated
herein by reference) and (b) the rights and obligations of the parties
under the Existing Credit Agreement shall be subsumed within, and be governed
by, this Agreement; provided, however, that the Loan Parties
hereby agree that (i) the Letter of Credit Outstandings under, and as
defined in, the Existing Credit Agreement on the Effective Date shall be Letter
of Credit Outstandings hereunder, and (ii) all Obligations of the Loan
Parties under, and as defined in, the Existing Credit Agreement shall remain
outstanding, shall constitute continuing Obligations secured by the Collateral,
and this Agreement shall not be deemed to evidence or result in a novation or
repayment and reborrowing of such obligations and other liabilities.


 


[balance
of page left intentionally blank; signature pages follow]


 


117
















 


IN WITNESS WHEREOF, the
parties hereto have caused this Agreement to be duly executed by their
respective authorized officers as a sealed instrument as of the day and year
first above written.


 


 


	
   

  	
  ZALE
  DELAWARE, INC.

  
	
   

  	
  as
  Borrower

  
	
   

  	
  By:

  	
  /s/
  Matthew W. Appel

  
	
   

  	
  Name:
  Matthew W. Appel

  
	
   

  	
  Title:
  Executive Vice President and Chief Financial Officer

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  ZALE
  CORPORATION

  
	
   

  	
  as
  Borrower

  
	
   

  	
  By:

  	
  /s/
  Matthew W. Appel

  
	
   

  	
  Name:
  Matthew W. Appel

  
	
   

  	
  Title:
  Executive Vice President and Chief Financial Officer

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  ZGCO,
  LLC

  
	
   

  	
  as
  Borrower

  
	
   

  	
  By:

  	
  /s/
  Matthew W. Appel

  
	
   

  	
  Name:
  Matthew W. Appel

  
	
   

  	
  Title:
  Executive Vice President and Chief Financial Officer

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  TXDC,
  L.P.

  
	
   

  	
  as
  Borrower

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  ZALE
  DELAWARE, INC.

  
	
   

  	
   

  	
  Its
  General Partner

  
	
   

  	
   

  	
   

  
	
   

  	
  By:
  

  	
  /s/
  Matthew W. Appel

  
	
   

  	
  Name:
  Matthew W. Appel

  
	
   

  	
  Title:
  Executive Vice President and Chief Financial Officer

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  ZALE
  PUERTO RICO, INC.

  
	
   

  	
  as
  Borrower

  
	
   

  	
  By:
  

  	
  /s/
  Matthew W. Appel

  
	
   

  	
  Name:
  Matthew W. Appel

  
	
   

  	
  Title:
  Executive Vice President and Chief Financial Officer

  



 

















 


	
   

  	
  ZALE
  CANADA CO.

  
	
   

  	
  as
  a Facility Guarantor

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:
  

  	
  /s/
  Matthew W. Appel

  
	
   

  	
  Name:
  Matthew W. Appel

  
	
   

  	
  Title:
  Executive Vice President and Chief Financial Officer

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  ZALE
  CANADA DIAMOND SOURCING, INC.

  
	
   

  	
  as
  a Facility Guarantor

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:
  

  	
  /s/
  Matthew W. Appel

  
	
   

  	
  Name:
  Matthew W. Appel

  
	
   

  	
  Title:
  Executive Vice President and Chief Financial Officer

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  ZAP,
  INC.

  
	
   

  	
  as
  a Facility Guarantor

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:
  

  	
  /s/
  Matthew W. Appel

  
	
   

  	
  Name:
  Matthew W. Appel

  
	
   

  	
  Title:
  Executive Vice President and Chief Financial Officer

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  ZALE
  CANADA DIAMOND SOURCING, INC.

  
	
   

  	
  as
  a Facility Guarantor

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:
  

  	
  /s/
  Matthew W. Appel

  
	
   

  	
  Name:
  Matthew W. Appel

  
	
   

  	
  Title:
  Executive Vice President and Chief Financial Officer

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  ZALE
  CANADA HOLDING, LP.

  
	
   

  	
  as
  a Facility Guarantor

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:
  

  	
  /s/
  Matthew W. Appel

  
	
   

  	
  Name:
  Matthew W. Appel

  
	
   

  	
  Title:
  Executive Vice President and Chief Financial Officer

  



 

















 


	
   

  	
  ZCSC,
  LLC

  
	
   

  	
  as
  a Facility Guarantor

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:
  

  	
  /s/
  Matthew W. Appel

  
	
   

  	
  Name:
  Matthew W. Appel

  
	
   

  	
  Title:
  Executive Vice President and Chief Financial Officer

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  ZALE
  INTERNATIONAL, INC.

  
	
   

  	
  as
  a Facility Guarantor

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:
  

  	
  /s/
  Matthew W. Appel

  
	
   

  	
  Name:
  Matthew W. Appel

  
	
   

  	
  Title:
  Executive Vice President and Chief Financial Officer

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  ZALE
  EMPLOYEES’ CHILD CARE ASSOCIATION, INC.

  
	
   

  	
  as
  a Facility Guarantor

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:
  

  	
  /s/
  Matthew W. Appel

  
	
   

  	
  Name:
  Matthew W. Appel

  
	
   

  	
  Title:
  Executive Vice President and Chief Financial Officer

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  ZALE
  CANADA FINCO 2, INC.

  
	
   

  	
  as
  a Facility Guarantor

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:
  

  	
  /s/
  Matthew W. Appel

  
	
   

  	
  Name:
  Matthew W. Appel

  
	
   

  	
  Title:
  Executive Vice President and Chief Financial Officer

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  FINCO
  HOLDING LP.

  
	
   

  	
  as
  a Facility Guarantor

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:
  

  	
  /s/
  Matthew W. Appel

  
	
   

  	
  Name:
  Matthew W. Appel

  
	
   

  	
  Title:
  Executive Vice President and Chief Financial Officer

  



 

















 


	
   

  	
  FINCO
  PARTNERSHIP LP.

  
	
   

  	
  as
  a Facility Guarantor

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:
  

  	
  /s/
  Matthew W. Appel

  
	
   

  	
  Name:
  Matthew W. Appel

  
	
   

  	
  Title:
  Executive Vice President and Chief Financial Officer

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  ZALE
  CANADA FINCO, LLC

  
	
   

  	
  as
  a Facility Guarantor

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:
  

  	
  /s/
  Matthew W. Appel

  
	
   

  	
  Name:
  Matthew W. Appel

  
	
   

  	
  Title:
  Executive Vice President and Chief Financial Officer

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  ZALE
  CANADA FINCO 1, INC.

  
	
   

  	
  as
  a Facility Guarantor

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:
  

  	
  /s/
  Matthew W. Appel

  
	
   

  	
  Name:
  Matthew W. Appel

  
	
   

  	
  Title:
  Executive Vice President and Chief Financial Officer

  



 

















 


	
   

  	
  BANK
  OF AMERICA, N.A., as Administrative Agent, Collateral Agent and Co-Borrowing
  Base Agent and as a Lender

  
	
   

  	
   

  	
   

  
	
   

  	
  By:
  

  	
  /s/
  Andrew Cerussi

  
	
   

  	
  Name:
  Andrew Cerussi

  
	
   

  	
  Title:
  SVP

  



 

















 


	
   

  	
  JPMORGAN
  CHASE BANK, as Documentation Agent and as a Lender

  
	
   

  	
   

  	
   

  
	
   

  	
  By:
  

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  



 

















 


	
   

  	
  GENERAL
  ELECTRIC CAPITAL CORPORATION, as Co-Borrowing Base Agent and a Lender

  
	
   

  	
   

  	
   

  
	
   

  	
  By:
  

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  



 
















 


	
   

  	
  THE
  CIT GROUP/BUSINESS CREDIT, INC., as a Lender

  
	
   

  	
   

  
	
   

  	
  By:
  

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  



 

















 


	
   

  	
  NATIONAL
  CITY COMMERCIAL FINANCE, INC., as a Lender

  
	
   

  	
   

  
	
   

  	
  By:
  

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  



 

















 


	
   

  	
  WELLS
  FARGO RETAIL FINANCE, LLC, as Co-Borrowing Base Agent and a Lender

  
	
   

  	
   

  
	
   

  	
  By:
  

  	
  /s/
  Connie Liu

  
	
   

  	
  Name:
  Connie Liu

  
	
   

  	
  Title:
  Vice President

  



 

















 


	
   

  	
  KEYBANK
  NATIONAL ASSOCIATION, as a Lender

  
	
   

  	
   

  
	
   

  	
  By:
  

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  



 

















 


	
   

  	
  THE
  BANK OF NEW YORK, as a Lender

  
	
   

  	
   

  
	
   

  	
  By:
  

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  



 

















 


	
   

  	
  ABN/AMRO
  BANK, as a Lender

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:
  

  	
  /s/
  An Blommaert

  
	
   

  	
  Name:
  An Blommaert

  
	
   

  	
  Title:
  Head Credit Administration ID & JG

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:
  

  	
  /s/
  Frank Coenegrachts

  
	
   

  	
  Name:
  Frank Coenegrachts

  
	
   

  	
  Title:
  Chief Risk Officer

  



 

















 


	
   

  	
  HIBERNIA
  NATIONAL BANK, as a Lender

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:
  

  	
   

  
	
   

  	
  Name:
  

  
	
   

  	
  Title:
  

  



 
















 


EXHIBIT A


 


FORM OF 

ASSIGNMENT AND ACCEPTANCE


 


This Assignment and Acceptance (the “Assignment
and Acceptance”) is dated as of the Assignment Effective Date set forth
below and is entered into by and between
                                
(the “Assignor”) and
                        
(the “Assignee”).  Capitalized
terms used but not defined herein shall have the meanings given to them in the
Credit Agreement identified below (as amended, the “Credit Agreement”),
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 Acceptance 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 Assignment Effective Date inserted by the Administrative Agent as
contemplated below (a) 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 respective facilities identified below
(including without limitation any Letters of Credit and Swingline Loans
included in such facilities) and (b) 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 (a) above
(the rights and obligations sold and assigned pursuant to clauses (a) and (b) 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
Acceptance, without representation or warranty by the Assignor.


 


	
  1.             Assignor:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  2.             Assignee:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  3.             Borrowers:

  	
   

  	
  Zale
  Delaware, Inc.  

  Zale
  Corporation  

  ZGCO,
  LLC  

  TXDC,
  L.P.  

  Zale
  Puerto Rico, Inc.

  
	
   

  	
   

  	
   

  
	
  4.             Administrative Agent:

  	
   

  	
  Bank
  of America, N.A., as the administrative agent under the Credit Agreement

  



 

















 


	
  5.             Credit Agreement:

  	
   

  	
  The
  Amended and Restated Credit Agreement dated as of May 10, 2010 by, among
  others, Zale Delaware, Inc., Zale Corporation, ZGCO, LLC, TXDC, L.P.,
  and Zale Puerto Rico, Inc. (collectively, the “Borrowers”), the
  Facility Guarantors party thereto, the Lenders party thereto, and Bank of
  America, N.A. as Administrative Agent and Collateral Agent

  
	
   

  	
   

  	
   

  
	
  6.             Assigned Interest:

  	
   

  	
   

  



 


	
  Percentage Interest of
  Total Commitments being assigned:

  	
   

  	
   

  	
  %

  
	
   

  	
   

  	
   

  	
   

  
	
  Amount of Commitment being
  assigned:

  	
   

  	
  $

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  After Giving Effect to the
  Assignment:

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Assignor’s Commitment:

  	
   

  	
  $

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Assignee’s Commitment:

  	
   

  	
  $

  	
   

  	
   

  



 


	
  [7.            Trade Date:

  	
   

  	
                              ]
  (1)

  



 


Effective date:
                      
      , 201   .


 


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


 


	
   

  	
  ASSIGNOR

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  
	
   

  	
  ASSIGNEE

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  



 






(1) To be completed if
the Assignor and the Assignee intend that the minimum assignment amount is to
be determined as of the Trade Date.


 

















 


	
   

  	
  Consented
  to and Accepted:

  
	
   

  	
   

  
	
   

  	
  BANK
  OF AMERICA, N.A., as Administrative Agent

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  



 

















 


	
   

  	
  [Consented
  to:](2)

  
	
   

  	
   

  
	
   

  	
  [ZALE
  DELAWARE, INC.]

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  
	
   

  	
  [ZALE
  CORPORATION]

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  
	
   

  	
  [ZGCO,
  LLC]

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  
	
   

  	
  [TXDC,
  L.P.]

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  [ZALE
  PUERTO RICO, INC.]

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  



 






(2) In
accordance with Section 9.4 of the Credit Agreement, so long as no Default
or Event of Default has occurred and is continuing, the Borrowers shall give
their prior written consent to such assignment.


 

















 


ANNEX 1


 


The Amended and Restated
Credit Agreement dated as of May 10, 2010 by, among others, ZALE DELAWARE,
INC., a Delaware corporation (“Zale Delaware”), ZALE CORPORATION, a Delaware
corporation (“Zale”), ZGCO, LLC, a Virginia limited liability company (“ZGCO”),
TXDC, L.P., a Texas limited partnership (“TXDC”), and ZALE PUERTO RICO, INC., a
Puerto Rico corporation (“Zale Puerto Rico”, and together with Zale Delaware,
Zale, ZGCO, and TXDC, the “Borrowers”), the Facility Guarantors, the Lenders
party thereto, and BANK OF AMERICA, N.A., as Administrative Agent, and the
other agents parties thereto.


 


STANDARD TERMS AND CONDITIONS
FOR 

ASSIGNMENT AND ACCEPTANCE


 


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 Acceptance 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 or any other Loan Document, (ii) the
execution, legality, validity, enforceability, genuineness, sufficiency or
value of the Loan Documents or any collateral thereunder, (iii) the
financial condition of the Borrowers, any of their respective Subsidiaries or
Affiliates or any other Person obligated in respect of any Loan Document or (iv) the
performance or observance by the Borrowers, any of their respective
Subsidiaries or Affiliates or any other Person of any of their respective
obligations under the Loan Document.


 


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 Acceptance and to
consummate the transactions contemplated hereby and to become a Lender under
the Credit Agreement, (ii) from and after the Assignment Effective Date,
it shall be bound by the provisions of the Credit Agreement as a Lender
thereunder and, to the extent of the Assignment Interest, shall have the
obligations of a Lender thereunder, and (iii) it has received a copy of
the Credit Agreement, together with copies of the most recent financial
statements delivered pursuant to § 5.1 thereof, as applicable, 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 Acceptance and
to purchase the Assigned Interest on the basis of which it has made such
analysis and decision independently and without reliance on the Administrative
Agent or any other Lender, and (iv) if it is a Foreign Lender, attached to
the Assignment and Acceptance is any documentation required to be delivered by
it pursuant to the terms of the Credit Agreement, duly completed and executed
by the Assignee; and (b) agrees that (i) it will, independently and
without reliance on the Administrative Agent, the Assignor 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 Loan Documents, and (ii) it will perform in accordance with
their terms all of the obligations which by the terms of the Loan Documents are
required to be performed by it as a Lender.


 


2.             Joint
Representations of Assignor and Assignee.        The
Assignor and Assignee each hereby represent and warrant that: (i) this
assignment is (a) being made to a Lender or an Affiliate of a Lender, (b) is
an assignment of the entire remaining amount of the Assignor’s Commitment, (c) is
an assignment of not less than $5,000,000, or (d) the Administrative Agent
and Borrowers have otherwise consented below; (ii) this assignment is not being made by an
Extending Lender to a Non-


 

















 


Extending Lender; (iii) if this is an
assignment that is being made by a Non-Extending Lender to an Extending Lender,
this assignment shall not modify the tenor or maturity of, or pricing for, the
Commitment and Loans so assigned unless agreed to by such Assignee and
consented to by the Administrative Agent in a separate writing; and (vi) to
the extent required under the Credit Agreement, the Assignor and Assignee have
delivered, or caused to be delivered, a processing and recording fee of $3,500
to the Administrative Agent.


 


3.             Payments.  From and after the Assignment Effective Date,
the Administrative Agent shall make all payments in respect of the Assigned
Interest (including payments of principal, interest, fees and other amounts) to
the Assignee whether such amounts have accrued prior to, on or after the
Assignment Effective Date.  The Assignor
and the Assignee shall make all appropriate adjustments in payments by the
Administrative Agent for periods prior to the Assignment Effective Date or with
respect to the making of this assignment directly between themselves.


 


4.             General
Provisions.  This Assignment and
Acceptance shall be binding upon, and inure to the benefit of the parties
hereto and their respective successors and assigns.  This Assignment and Acceptance may be
executed in any number of counterparts, which together shall constitute one
instrument.  Delivery of any executed
counterpart of a signature page of this Assignment and Acceptance by
telecopy shall be effective as delivery of a manually executed counterpart of
this Assignment and Acceptance.  This
Assignment and Acceptance shall be governed by, and construed in accordance
with, the laws of the State of New York, without regard to principles of
conflict of laws, but including Sections 5-1401 and 5-1402 of the General
Obligations Law.


 
















 


EXHIBIT B-1


 


[AMENDED
AND RESTATED](1) REVOLVING LOAN NOTE


 


as of                             ,
2010


 


FOR VALUE RECEIVED, the undersigned, ZALE
DELAWARE, INC. , a Delaware corporation (“Zale Delaware”), ZALE CORPORATION, a Delaware corporation (“Zale”),
ZGCO, LLC, a Virginia limited
liability company (f/k/a DDCC, Inc., a Delaware corporation) (“ZGCO”), TXDC, L.P., a Texas limited partnership (“TXDC”)
and ZALE PUERTO RICO, INC. (“Zale
Puerto Rico”, and together with Zale Delaware, Zale, ZGCO, and TXDC, the “Borrowers”),
hereby jointly and severally promise to pay to the order of [                                                        ]
(the “Lender”) at the Administrative Agent’s office at 100 Federal Street, 9th Floor, Boston, Massachusetts 02110:


 


(a)           prior to or on the [Extended] Termination Date the
principal amount of
                        
                            
                    
Dollars
($                            )
or, if less, the aggregate unpaid principal amount of Revolving Loans advanced
by the Lender to the Borrowers pursuant to the Amended and Restated Credit
Agreement dated as of May 10, 2010 (as amended, modified, supplemented or
restated and in effect from time to time, the “Credit Agreement”), by, among
others, the Borrowers, the Facility Guarantors party thereto, the Lender, the
other Lenders party thereto, the Collateral Agent, and the Administrative
Agent;


 


(b)           the principal outstanding hereunder from time to time at
the times provided in the Credit Agreement; and


 


(c)           interest on the principal balance hereof from time to time
outstanding from the Closing Date under the Credit Agreement through and
including the [Extended] Termination Date, fees, expenses, and costs at the
times and at the rates provided in the Credit Agreement.


 


[This
Amended and Restated Revolving Note replaces in its entirety that certain
Revolving Loan Note dated
                  ,
by certain of the Borrowers, payable to the Lender.] This [Amended and
Restated] Revolving Loan Note (“Note”) evidences borrowings under and has been
issued by the Borrowers in accordance with the terms of the Credit Agreement.
The Lender and any holder hereof is entitled to the benefits of the Credit
Agreement, the Security Documents and the other Loan Documents, and may enforce
the agreements of the Borrowers contained therein, and any holder hereof may
exercise the respective remedies provided for thereby or otherwise available in
respect thereof, all in accordance with the respective terms thereof. All
capitalized terms used in this Note and not otherwise defined herein shall have
the same meanings herein as in the Credit Agreement.


 


The Borrowers irrevocably
authorize the Lender to make or cause to be made, at or about the time of the
Borrowing of any Revolving Loan or at the time of receipt of any payment of
principal of this Note, an appropriate notation on the grid attached to this
Note, or the continuation of such grid, or any other similar record, including
computer records, reflecting the making of such Revolving Loan or (as the case
may be) the receipt of such payment. The outstanding amount of the Revolving
Loans set forth on the grid attached to this Note, or the continuation of such
grid, or any other similar record, including computer records, maintained by
the Lender with respect to any Revolving Loans shall be prima
facie evidence of the principal amount thereof owing and unpaid
to the Lender, but the failure to record, or any error in so recording, any
such amount on any such grid, continuation or other record shall not limit or 


 






(1) Insert
bracketed language as appropriate


 

















 


otherwise
affect the obligation of the Borrowers hereunder or under the Credit Agreement
to make payments of principal of and interest on this Note when due.


 


The Borrowers have the right
in certain circumstances and the obligation under certain other circumstances
to prepay the whole or part of the principal of this Note on the terms and
conditions specified in the Credit Agreement.


 


If any one or more of the
Events of Default shall occur, the entire unpaid principal amount of this Note
and all of the unpaid interest accrued thereon may become or be declared due
and payable in the manner and with the effect provided in the Credit Agreement.


 


No delay or omission on the
part of the Lender or any holder hereof in exercising any right hereunder shall
operate as a waiver of such right or of any other rights of the Lender or such
holder, nor shall any delay, omission or waiver on any one occasion be deemed a
bar or waiver of the same or any other right on any further occasion.


 


The Borrowers and every
endorser and guarantor of this Note or the obligation represented hereby waives
presentment, demand, notice, protest and all other demands and notices in
connection with the delivery, acceptance, performance, default or enforcement
of this Note, and assents to any extension or postponement of the time of
payment or any other indulgence, to any substitution, exchange or release of
collateral and to the addition or release of any other party or person primarily
or secondarily liable.


 


THIS NOTE AND THE
OBLIGATIONS OF THE BORROWERS HEREUNDER SHALL FOR ALL PURPOSES BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK WITHOUT
REGARD TO PRINCIPLES OF CONFLICT OF LAWS, BUT INCLUDING SECTIONS 5-1401 AND
5-1402 OF THE GENERAL OBLIGATIONS LAW. THE BORROWERS AGREE THAT ANY SUIT FOR
THE ENFORCEMENT OF THIS NOTE MAY BE BROUGHT IN THE COURTS OF THE STATE OF
NEW YORK OR ANY FEDERAL COURT SITTING THEREIN AND THE CONSENT TO THE
NONEXCLUSIVE JURISDICTION OF SUCH COURT AND THE SERVICE OF PROCESS IN ANY SUCH
SUIT BEING MADE UPON THE BORROWERS BY MAIL AT THE ADDRESS SPECIFIED IN §9.1 OF
THE CREDIT AGREEMENT. THE BORROWERS HEREBY WAIVE ANY OBJECTION THAT THEY 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 COURT.


 


[Signature
Page Follows]


 


2

















 


IN WITNESS WHEREOF, each of
the undersigned has caused this Note to be signed on its behalf by its duly
authorized officer as of the day and year first above written.


 


	
   

  	
  ZALE
  DELAWARE, INC.

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  ZALE
  CORPORATION

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  ZGCO,
  LLC

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  TXDC,
  L.P.

  
	
   

  	
   

  
	
   

  	
  By:

  	
  ZALE
  DELAWARE, INC.

  
	
   

  	
   

  	
  Its
  General Partner

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  ZALE
  PUERTO RICO, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  



 


Signature Page to [Amended and
Restated] Revolving Loan Note


 

















 


EXHIBIT B-2


 


AMENDED
AND RESTATED SWINGLINE NOTE


 


	
  $50,000,000

  	
  as of May 10, 2010

  



 


FOR VALUE RECEIVED, the
undersigned, ZALE DELAWARE, INC., a Delaware
corporation (“Zale Delaware”), ZALE CORPORATION,
a Delaware corporation (“Zale”), ZGCO, LLC, a
Virginia limited liability company (f/k/a DDCC, Inc., a Delaware
corporation) (“ZGCO”), TXDC, L.P., a
Texas limited partnership (“TXDC”) and ZALE PUERTO RICO, INC.
(“Zale Puerto Rico”, and together with Zale Delaware, Zale, ZGCO, and TXDC, the
“Borrowers”), hereby jointly and severally, absolutely and unconditionally
promise to pay to the order of BANK OF AMERICA, N.A.
(the “Swingline Lender”), without offset or counterclaim, with offices at 100
Federal Street, 9th Floor, Boston, Massachusetts 02110:


 


(a)           on the Extended Termination Date, the principal amount of
FIFTY MILLION DOLLARS ($50,000,000) or, if less, the then outstanding aggregate
unpaid principal amount of Swingline Loans made by the Swingline Lender to the
Borrowers pursuant to the Amended and Restated Credit Agreement, dated as of May 10,
2010 (as amended, modified, supplemented or restated and in effect from time to
time, the “Credit Agreement”), by and between, among others, (i) the
Borrowers, (ii) the Facility Guarantors party thereto, (iii) the
lending institutions identified as Lenders therein, (iv) the
Administrative Agent, and (v) the Collateral Agent; and


 


(b)           interest on the principal balance hereof from time to time
outstanding from the Closing Date under the Credit Agreement through and
including the Extended Termination Date, fees, expenses, and costs at the times
and at the rates provided in the Credit Agreement.


 


This Amended and Restated
Swingline Note (the “Swingline Note”) replaces in its entirety that certain
Swingline Note dated July 23, 2003, by certain of the Borrowers, payable
to the Lender. This Swingline Note evidences borrowings under, is subject to
the terms and conditions of, and has been issued by the Borrowers in accordance
with the Credit Agreement and is the Swingline Note referred to therein. The
Swingline Lender and any holder hereof are entitled to the benefits of the
Credit Agreement and may enforce the agreements of the Borrowers contained
therein, and any holder hereof may exercise the respective remedies provided
for thereby or otherwise available in respect thereof, all in accordance with
the respective terms thereof. All capitalized terms used in this Swingline Note
and not otherwise defined herein shall have the same meanings herein as in the
Credit Agreement.


 


The Swingline Lender shall
endorse, and is hereby irrevocably authorized by the Borrowers to endorse, on
its records and/or on the schedule attached to this Swingline Note or a
continuation of such schedule attached hereto and made a part hereof, an
appropriate notation evidencing advances to the Borrowers and repayments by the
Borrowers of principal of this Swingline Note, provided that failure by the
Swingline Lender to make any such notations shall not affect any of the
Borrowers’ obligations or the validity of any repayments made by the Borrowers
in respect of this Swingline Note.


 


The Borrowers have the right
in certain circumstances and the obligation in certain other circumstances to
prepay the whole or part of the principal of this Swingline Note on the terms
and conditions specified in the Credit Agreement.


 


If any one or more Events of
Default shall occur, the entire unpaid principal amount of this Swingline Note
and all of the unpaid interest accrued thereon may become or be declared due
and payable in the manner and with the effect provided in the Credit Agreement.


 

















 


The Borrowers and every
endorser of this Swingline Note or the obligation represented hereby waive
presentment, demand, notice, protest, notice of intent to accelerate, notice of
acceleration and all other demands and notices in connection with the delivery,
acceptance, performance, default or enforcement of this Swingline Note and
assent to any extension or postponement of the time of payment or any other
indulgence, to any substitution, exchange or release of collateral and to the
addition or release of any other party or person primarily or secondarily
liable.


 


THIS SWINGLINE NOTE AND
THE OBLIGATIONS OF THE BORROWERS HEREUNDER SHALL FOR ALL PURPOSES BE GOVERNED
BY AND CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK WITHOUT REGARD
TO PRINCIPLES OF CONFLICT OF LAWS, BUT INCLUDING SECTIONS 5-1401 AND
5-1402 OF THE GENERAL OBLIGATIONS LAW. THE BORROWERS AGREE THAT ANY SUIT FOR
THE ENFORCEMENT OF THIS SWINGLINE NOTE MAY BE BROUGHT IN THE COURTS OF THE
STATE OF NEW YORK OR ANY FEDERAL COURT SITTING THEREIN AND THE CONSENT TO THE
NONEXCLUSIVE JURISDICTION OF SUCH COURT AND THE SERVICE OF PROCESS IN ANY SUCH
SUIT BEING MADE UPON THE BORROWERS BY MAIL AT THE ADDRESS SPECIFIED IN §9.1 OF
THE CREDIT AGREEMENT. THE BORROWERS HEREBY WAIVE ANY OBJECTION THAT THEY 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 COURT.


 


[Signature
Page Follows]


 


2

















 


IN WITNESS WHEREOF, each of
the undersigned has caused this Swingline Note to be signed on its behalf by
its duly authorized officer as of the day and year first above written.


 


	
   

  	
  ZALE
  DELAWARE, INC.

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  
	
   

  	
  ZALE
  CORPORATION

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  ZGCO,
  LLC

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  TXDC,
  L.P.

  
	
   

  	
   

  
	
   

  	
  By:

  	
  ZALE
  DELAWARE, INC.

  
	
   

  	
   

  	
  Its
  General Partner

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  
	
   

  	
  ZALE
  PUERTO RICO, INC.

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  



 


Signature
Page to Amended and Restated Swingline Note


 
















 


Exhibit C-1


 


AMENDED
AND RESTATED SECURITY AGREEMENT


 


This AMENDED AND RESTATED SECURITY AGREEMENT
(this “Agreement”) dated as of May 10, 2010 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


 


Each
of the entities list on Schedule 1 attached hereto (each such Person,
individually, a “Grantor” and, collectively with Zale Delaware, the “Grantors”);
and


 


BANK OF AMERICA, N.A., a national
association, 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 July 23,
2003 (as amended and in effect, the “Existing Credit Agreement”) by and
among (i) certain of the Grantors, as Borrowers (ii) the Lenders
named therein, (iii) Bank of America, N.A., as successor by merger to
Fleet National Bank, a national banking association, as Administrative Agent,
for itself and the Lenders, (iv) Bank of America, N.A., as successor to
Fleet Retail Group, LLC (f/k/a Fleet Retail Finance Inc.), as Collateral Agent
for the Lenders, (v) Banc of America Securities LLC, as successor to Fleet
Securities, Inc., as Arranger, (vi) JPMorgan Chase Bank, N.A. and
Wachovia Capital Finance Corporation (Southwest), as Co-Syndication Agents, and
(vii) JPMorgan Chase Bank and Bank of America, N.A. as Documentation
Agents.


 


Reference is also made to that certain
Security Agreement dated as of July 23, 2003, by and between certain of
the Grantors and the Collateral Agent (as amended and in effect, the “Existing
Security Agreement”), pursuant to which such Grantors granted a Lien in
favor of the Collateral Agent, for the benefit of the Secured Parties, to
secure their obligations under the Existing Credit Agreement.


 


The Grantors and Collateral Agent, among
others, have agreed to amend and restate the Existing Credit Agreement in its
entirety pursuant to that certain Amended and Restated Credit Agreement of even
date herewith by and between, among others: (i) the Grantors, as either
Borrowers or Facility Guarantors, (ii) the Lenders from time to time party
thereto (individually, a “Lender” and, collectively, the “Lenders”),
(iii) Bank of America, N.A. as Collateral Agent and Administrative Agent
for the Secured Parties, and (iv) Bank of America, N.A., General Electric
Capital Corporation and Wells Fargo Retail Finance, LLC, as Co-Borrowing Base
Agents (as amended, restated, supplemented, or otherwise modified from time to
time, the “Credit Agreement”).


 


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


 

















 


Issuing Banks 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 that the
Existing Security Agreement shall be amended and restated in its entirety to
read 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 or in the Credit Agreement shall
have the meanings set forth in the UCC, 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; provided, however, that if a term is defined in Article 9
of the UCC differently than in another Article thereof, the term shall
have the meaning set forth in Article 9; and provided  further
that if by reason of mandatory provisions of law, perfection, or the effect of
perfection or non-perfection, of the Security Interest in any Collateral or the
availability of any remedy hereunder is governed by the Uniform Commercial Code
as in effect in a jurisdiction other than New York, “UCC” means the Uniform
Commercial Code as in effect in such other jurisdiction for purposes of the
provisions hereof relating to such perfection or effect of perfection or
non-perfection or availability of such remedy, as the case may be. Capitalized
terms used but not otherwise defined herein that are defined in the Credit
Agreement shall have the meanings given to them in the Credit Agreement.


 


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


 


“Collateral” shall mean the following
assets of each Grantor: (a) all Accounts, (b) all Inventory, (c) all
Deposit Accounts, Concentration Accounts and cash, (d) all Documents, (e) all
Chattel Paper, (f) all Instruments, General Intangibles, Supporting
Obligations and Letter-of-Credit Rights, (g) all Goods, (h) Equipment
and Fixtures, (i) all Investment Property, (j) all Securities
Accounts and Commodity Accounts, (k) all Commercial Tort Claims, (l) all
Intellectual Property, (m) all other personal property not otherwise
described above, whether tangible or intangible and wherever located (except
for any property expressly excluded in this definition of “Collateral”), (n) all
policies and certificates of insurance and all insurance proceeds, refunds and
premium rebates, including proceeds of fire and credit insurance, with respect
to any of the foregoing, (o) all books, records, and information relating
to any of the foregoing, and all rights of access to such books, records, and information,
(p) all liens, guaranties, rights, remedies, and privileges pertaining to
any of the foregoing ((a) through (o)), including the right of stoppage in
transit, and (q) 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 the following: (i) any Trademark applications
filed on an “intent to use” basis until the earlier of the filing of a
statement of use thereon or the first use in commerce thereof, (ii) any
Inventory or other Goods that have been delivered to any Grantor on a
consignment basis to the extent that the rights of such consignor have been
properly perfected under applicable law, (iii) any property to the extent
that such grant of a security interest is prohibited by any valid enforceable
law or regulation applicable thereto, requires a consent not obtained of any 


 


2

















 


Governmental Authority pursuant to such law or regulation or is
prohibited by, or constitutes a breach or default under or results in the
termination of or gives rise to a right on the part of the parties thereto
other than such Grantor to terminate (or materially modify) or requires any
consent not obtained under, any contract, license, agreement, instrument or
other document evidencing or giving rise to such property, except to the extent
that such law or regulation or the term in such contract, license, agreement,
instrument or other document or similar agreement providing for such
prohibition, breach, default or right of termination or modification or
requiring such consent is ineffective under applicable law, provided, however,
that such security interest shall attach immediately at such time as the
condition causing such prohibition, breach, default or right of termination or modification
or requiring such consent, as the case may be, shall be remedied and, to the
extent severable, shall attach immediately to any portion of such contract,
license, agreement, instrument or other document that does not result in any of
such consequences, including any proceeds of such contract, license, agreement,
instrument or other document, (iv) the Equity Interests of Dobbins
Jewelers, Inc., (v) the Equity Interests of Jewel Re-Insurance Ltd.
in excess of 65% of the issued and outstanding shares of any class of Equity
Interests of such Subsidiary and (vi) the voting Equity Interests of ZC
Partnership, LP in excess of 65% of the general partnership Equity Interests of
such Subsidiary; provided, further, that in all events, all Proceeds,
substitutions or replacements of the foregoing shall constitute “Collateral”
hereunder.


 


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


 


“Copyright Licenses” shall mean
exclusive Licenses in respect of Copyrights where a Grantor is a licensee.


 


“Copyrights” shall mean, with respect
to any Person, all of such Person’s right, title and interest, now or hereafter
acquired, in and to the following:  (a) all
copyrights, rights and interests in copyrights, works protectable by copyright,
copyright registrations and copyright applications; (b) all extensions and
renewals of any of the foregoing; (c) all income, royalties, damages, and
payments now or hereafter due and/or payable under any of the foregoing,
including damages or payments for past, present or future infringements for any
of the foregoing; (d) the right to sue for past, present and future
infringements of any of the foregoing; and (e) all rights corresponding to
any of the foregoing.


 


“Deposit Account” shall have the
meaning given that term in the UCC, and shall also refer to any checking or
other demand deposit account into which proceeds of Collateral are deposited,
and shall include any time, savings, passbook, or similar accounts maintained
with a bank or other financial institution.


 


“Distribution” shall have the meaning
assigned to such term in Section 6.4(a).


 


“Equity Interests” means, with respect
to any Person, all of the shares of capital stock of (or other ownership or
profit interests in) such Person, and all of the warrants or options for the
purchase or acquisition from such Person of shares of capital stock of (or
other ownership or profit interests in) such Person (including partnership,
member or trust interests therein), whether voting or nonvoting (but excluding,
for avoidance of doubt, any Indebtedness convertible into or exchangeable for
Equity Interests).


 


3

















 


“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; all 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.


 


“Industrial Designs”
shall mean, with respect to any Person, all of such Person’s right, title and
interest, now owned or hereafter acquired, in and to: (a) any and all
Canadian industrial designs and industrial design applications; (b) all
income, royalties, damages, claims, and payments now or hereafter due or
payable under and with respect thereto, including damages and payments for
past, present and future infringements thereof; (c) all rights to sue for
past, present and future infringements thereof; and (d) all rights
corresponding to any of the foregoing.


 


“Intellectual Property” shall mean all
intellectual property and similar property of every kind and nature now owned
or hereafter acquired by any Person, including inventions, designs, Patents,
Copyrights, Trademarks, Industrial Designs, Licenses, trade secrets,
confidential or proprietary technical and business information, know-how,
show-how or other data or information and all related documentation, and all
additions and improvements to any of the foregoing.


 


“Inventory” shall include all “inventory”
as defined in the UCC and also, without limitation, 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.


 


“Investment Property”
shall have the meaning given that term in the UCC and shall also include all
Pledged Collateral, Pledged Operating Agreements and Pledged Partnership
Agreements.


 


“License” shall mean, with respect to
any Person, all of such Person’s right, title and interest in and to (a) any
and all licensing agreements or similar arrangements in and to any other Person’s
Intellectual Property, (b) all income, royalties, damages, claims and
payments now or hereafter due or payable under and with respect thereto,
including damages and payments for past, present and future breaches thereof,
and (c) all rights to sue for past, present and future breaches thereof.


 


“Material Trademark” shall mean any
Trademark of a Grantor that is material to the conduct of such Grantor’s
business.


 


“Patents” shall mean, with respect to
any Person, all of such Person’s right, title and interest, now owned or
hereafter acquired, in and to:  (a) any
and all patents and patent applications or Canadian industrial design
registrations and applications; (b) all inventions and improvements
described and claimed therein, including the right to make, use and/or sell the
inventions disclosed or claimed therein; (c) all reissues, divisions,
continuations, renewals, extensions, and continuations-in-part thereof; (d) all



 


4

















 


income, royalties, damages, claims, and payments now or hereafter due
or payable under and with respect thereto, including damages and payments for
past, present and future infringements thereof; (e) all rights to sue for
past, present and future infringements thereof; and (f) all rights
corresponding to any of the foregoing.


 


“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 Schedule 2 hereto, completed
and supplemented with the schedules and attachments contemplated thereby, and
duly executed by a Financial Officer of each of the Grantors.


 


“Pledged Collateral” shall mean all
Pledged Interests and Pledged Notes.


 


“Pledged Collateral Addendum” shall
mean a Pledged Collateral Addendum substantially in the form of Annex 2 to this
Agreement.


 


“Pledged Companies” shall mean each
Person listed on Schedule 4 hereto as a “Pledged Company”, together with each
other Person, all or a portion of whose equity interests, is acquired or
otherwise owned by a Grantor after the Effective Date.


 


“Pledged Interests” shall mean all of
each Grantor’s right, title and interest in and to all of the equity interests
now or hereafter owned by such Grantor (other than such equity interests in
Dobbins Jewelers, Inc.), regardless of class or designation, including in
each of the Pledged Companies owned by it, and all substitutions therefor and
replacements thereof, all proceeds thereof and all rights relating thereto,
also including any certificates representing the equity interests, the right to
receive any certificates representing any of the Equity Interests, all
warrants, options, share appreciation rights and other rights, contractual or
otherwise in respect thereof, and the right to receive dividends, distributions
of income, profits, surplus, or other compensation by way of income or
liquidating distributions, in cash or in kind, and all cash, instruments, and
other property from time to time received, receivable, or otherwise distributed
in respect of or in addition to, in substitution of, on account of, or in
exchange for any or all of the foregoing.


 


“Pledged Notes” shall mean, with
respect to any Grantor, all of the debt securities now or hereafter owned by
such Grantor and the promissory notes evidencing such debt securities.


 


“Pledged Operating Agreements” shall
mean all of each Grantor’s rights, powers, and remedies under the limited
liability company operating agreements of each of the Pledged Companies that
are limited liability companies.


 


“Pledged Partnership Agreements” shall
mean all of each Grantor’s rights, powers, and remedies under the partnership
agreements of each of the Pledged Companies that are partnerships.


 


“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 Banks, (d) the
Arranger, (e) the Co-Borrowing Base Agents, (f) the beneficiaries of
each indemnification 


 


5

















 


obligation undertaken by any Grantor under any Loan Document, (g) any
other Person to whom Secured Obligations are owed or may become due and owing,
and (h) 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.


 


“Trademarks” shall mean, with respect
to any Person, all of such Person’s right, title and interest, now owned or
hereafter acquired, in and to the following: 
(a) all trademarks (including service marks), trade names, trade
dress, trade styles and other source indicators and the registrations and
applications for registration thereof and the goodwill of the business
symbolized by the foregoing; (b) all licenses of the foregoing, whether as
licensee or licensor; (c) all renewals of the foregoing; (d) all
income, royalties, damages and payments now or hereafter due or payable with
respect thereto, including damages, claims and payments for past and future
infringements thereof; (e) all rights to sue for past, present and future
infringements of the foregoing, including the right to settle suits involving
claims and demands for royalties owing; and (f) all rights corresponding
to any of the foregoing.


 


“ULC” shall mean an unlimited company
under the Companies Act (Nova Scotia).


 


“ULC Pledgor” has the meaning assigned
to such term in Section 6.05.


 


“ULC Shares” shall mean shares of
stock or other Equity Interests of one or more ULCs.


 


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, mortgages, pledges, hypothecates,
and (except in the case of ULC Shares) transfers and assigns, 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 wherever located,
whether now owned or hereafter acquired (the “Security Interest”).  Without limiting the foregoing, each Grantor
hereby designates the Collateral Agent as such Grantor’s true and lawful
attorney, 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, to file with
the United States Patent and Trademark Office, United States Copyright Office,
Canadian Intellectual Property Office or Canadian Industrial Design Office (or
any successor office or any similar office in any other country) such documents
as may be necessary or advisable, 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), 


 


6

















 


and
naming any Grantor or the Grantors as debtors and the Collateral Agent as
secured party.  Any such financing
statement may indicate the Collateral as “all assets of the Grantor” or words
of similar effect, regardless of whether any particular asset comprised in the
Collateral falls within the scope of Article 9 of the UCC.


 


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.


 


SECTION 2.3                 Perfection
Regarding Certain Term Priority Collateral.  In the event that the Term Agent (as defined
in the Intercreditor Agreement) shall determine in its reasonable discretion
that the cost (including adverse tax consequences) of perfecting a security
interest in any Term Priority Collateral would be excessive in relation to the
value of the security to be afforded thereby, then the Collateral Agent shall
not require the perfection of its security interest in such Term Priority
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.  The Perfection Certificate has been duly
prepared, completed and executed, and the information set forth therein is
correct and complete in all material respects. UCC and PRUCC financing
statements (other than fixture filings), 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 pursuant to the UCC or the PRUCC 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 (other than filings required to be made in the United States
Patent and Trademark Office, the United States Copyright Office, the Canadian
Intellectual Property Office and the Canadian Industrial Design Office in order
to perfect the Security Interest in Collateral consisting of United States and
Canadian Patents, Industrial Designs, Trademarks, Copyrights and Copyright
Licenses, as the case may be) is necessary in any such jurisdiction, except as
provided under applicable law with respect to the filing of continuation
statements.  A fully executed Patent,
Industrial Design and Trademark Security Agreement, in the form attached as
Annex 3 hereto, and a fully executed 


 


7

















 


Copyright
Security Agreement, in the form attached as Annex 4 hereto (such agreements
being collectively referred to as the “IP Agreements”), covering the
United States and Canadian registered Patents, Industrial Designs, United
States and Canadian registered Trademarks and United States and Canadian
registered Copyrights (and applications for any of the foregoing) and Copyright
Licenses, as applicable, have been delivered to the Collateral Agent for
recording by the United States Patent and Trademark Office and the United
States Copyright Office pursuant to 35 U.S.C. § 261, 15 U.S.C. § 1060 or 17
U.S.C. § 205 and the regulations thereunder, and the Canadian Intellectual
Property Office and the Canadian Industrial Design Office, as applicable, as is
necessary to 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) in respect of all Collateral consisting of Intellectual
Property in which a security interest may be perfected by filing, recording or
registration in the United States or Canada (or any political subdivision,
province or territory thereof) and its territories and possessions, and no
further or subsequent filing, refiling, recording, rerecording, registration or
reregistration is necessary (other than such actions as are necessary to
perfect the Security Interest with respect to any Intellectual Property
acquired or developed after the date hereof).


 


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 filing or recording a financing statement or analogous document in
the United States or Canada (or any political subdivision, province or territory
thereof) and its territories and possessions pursuant to the UCC or the PRUCC
or by recording of the IP Agreements with the United States Patent and
Trademark Office, the United States Copyright Office, the Canadian Intellectual
Property Office and the Canadian Industrial Design Office, as applicable, and (c) subject
to the obtaining of Control, a perfected security interest in all the
Collateral, to the extent that perfection of the Security Interest in such
Collateral is required by the terms hereof or the Credit Agreement and may only
be accomplished through Control.  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 and which have priority by operation of law.


 


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 Certificate, no Grantor
has filed or consented to the filing of (a) any financing statement or
analogous document under the UCC or the PRUCC 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, the United
States Copyright Office, the Canadian Intellectual Property Office or the
Canadian Industrial Design 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 or Equipment 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, 


 


8

















 


storage,
or entrustment except for Equipment and Inventory (i) out for repair or
replacement in the ordinary course of business, (ii) being shipped, or in
transit, from a supplier or to a customer or between suppliers, in the ordinary
course of business or (iii) in the possession of suppliers, subcontractors
and licensees, in the ordinary course of business, unless the applicable
Grantor complies with Section 4.1(c) below.


 


SECTION 3.6                 Intellectual
Property.   Schedule 3
hereto sets forth, as of the date hereof, (i) all of each Grantor’s
registered Patents and Patent applications (and for greater certainty,
registered Industrial Designs and Industrial Design applications), including
the name of the registered owner, type, registration or application number and
the expiration date (if already registered) of each such Patent and Patent
application owned by any Grantor, (ii) all of each Grantor’s
registered Industrial Designs and Industrial Design applications, including the
name of the registered owner, registration or application number and the
expiration date (if already registered) of such industrial design and
industrial design application owned by any Grantor, (iii) all of each
Grantor’s registered Trademarks and Trademark applications, including the
name of the registered owner, the registration or application number and the
expiration date (if already registered) of each such Trademark and Trademark
application owned by any Grantor and (iv) all of each Grantor’s
registered Copyrights, Copyright applications and Copyright Licenses, including
the name of the registered owner, title and, if applicable, the registration
number of each such Copyright, Copyright application or Copyright License owned
by any Grantor.


 


SECTION 3.7                 Commercial Tort
Claims.  Except as otherwise disclosed
in the Perfection Certificate, none of the Collateral consists of Commercial
Tort Claims seeking damages in an amount of $1,000,000 or more.


 


SECTION 3.8                 Pledged
Collateral.


 


(a)           Each Grantor is the holder
of record and the legal and beneficial owner, free and clear of all Liens other
than the Security Interest granted to the Collateral Agent for the benefit of
the Secured Parties hereunder and Liens permitted by Section 6.2 of the
Credit Agreement, of the Pledged Collateral indicated on Schedule 4 as being
owned by such Grantor and any Pledged Collateral owned by such Grantor and
acquired after the Effective Date.


 


(b)           All of the Pledged
Collateral constituting Pledged Interests is duly authorized, validly issued,
fully paid and nonassessable (provided that Pledged Interests which are
ULC Shares will be assessable in accordance with the provisions of the
Companies Act (Nova Scotia)) and such Pledged Interests constitute or will
constitute the percentage of the issued and outstanding Equity Interests of the
Pledged Companies of each applicable Grantor identified on Schedule 4, any
Pledged Collateral Addendum or any Supplement to this Agreement.  All of the Pledged Collateral constituting
Pledged Notes is duly authorized, validly issued and delivered by the issuer of
such Pledged Note and is the legal, valid and binding obligation of such issuer
and such issuer is not in default thereunder. 
Each Grantor has the right and requisite authority to pledge the Pledged
Collateral pledged by such Grantor to the Collateral Agent as provided herein.


 


(c)           All actions necessary to
perfect or establish the first priority of the Collateral Agent’s Liens
(subject to Permitted Encumbrances which have priority by operation of law) in
the Pledged Collateral, and the proceeds thereof, have been duly taken, (A) upon
the execution and delivery of this Agreement; (B)(i) upon the taking of
possession by the Collateral Agent of 


 


9

















 


any certificates constituting the Pledged
Interests, to the extent such Pledged Interests are represented by
certificates, together with undated powers endorsed in blank by the applicable
Grantor and (ii) upon the taking of possession by the Collateral Agent of
any promissory notes constituting the Pledged Notes, together with undated
powers endorsed in blank by the applicable Grantor; and (C) upon the
filing of Uniform Commercial Code financing statements in the applicable jurisdiction
for such Grantor with respect to the Pledged Interests of such Grantor that are
not represented by certificates.  Subject
to Section 8.17, each Grantor has delivered to and deposited with the
Collateral Agent (or, with respect to any Pledged Collateral created or
obtained after the Effective Date, will deliver and deposit in accordance with Section 4.12
hereof) all certificates representing the Pledged Interests owned by such
Grantor to the extent such Pledged Interests are represented by certificates,
all promissory notes representing the Pledged Notes owned by such Grantor, and
undated powers endorsed in blank with respect to such certificates or
promissory notes.


 


(d)           None of the Pledged
Collateral owned or held by such Grantor has been issued or transferred in
violation of any securities registration, securities disclosure, or similar
laws of any jurisdiction to which such issuance or transfer may be subject.


 


SECTION 3.9                 Nature of Certain Consignment
Filings.  Each of the Liens and other
filings set forth on Schedule 6.2 of the Credit Agreement which purports to
cover goods delivered to a Grantor on a consignment basis (a) evidences
arrangements entered into with such Grantor and its trade vendors in the
ordinary course of business, intended by such Grantor and vendor to be a “true”
consignment, (b) does not encumber any assets of such Grantor other than
the consigned goods to which its relates and the proceeds thereof, to the
extent owing to the vendor and (c) secures solely the obligation of such
Grantor to either return such consigned goods or pay the purchase price for
such consigned goods, in each case, pursuant to a written consignment agreement
on terms substantially similar to those set forth in the Grantors’ standard
form of consignment agreement as in effect on or about the Effective Date (with
the exception of any such Liens and other filings made by any trade vendors in
connection with or relating to that certain Amendment to Existing Agreements
dated as of March 3, 2010 by and among Zale Delaware, Inc., TXDC,
L.P., Rosy Blue Jewelry, Inc. and Rosy Blue, Inc., relating to
consigned goods for such Grantor’s 2010 Spring season), a copy of which has
been provided to the Collateral Agent.


 


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 (i) prompt written notice of any change in
(A) any Grantor’s trade name used to identify it in the conduct of its
business or in the ownership of its properties, (B) any office in which it
maintains books or records relating to Collateral owned by it and having a
value in excess of $1,000,000 or any office or facility at which Collateral
owned by it and having a value in excess of $1,000,000 is located (including
the establishment of any such new office or facility), other than, in each
case, (I) retail Store locations or (II) Equipment and Inventory (1) out
for repair or replacement in the ordinary course of business, (2) being
shipped, or in transit, from a supplier or to a customer or between suppliers,
in the ordinary course of business or (3) in the possession of suppliers,
subcontractors and licensees, 


 


10

















 


in the ordinary course of business, or (C) 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 (ii) prior written notice of any change in (i) any
Grantor’s corporate or partnership name or  the location
of any Grantor’s chief executive office or its principal place of business, (ii) any
Grantor’s identity or corporate or partnership structure or (iii) any
Grantor’s jurisdiction of incorporation, amalgamation or formation, Federal
Taxpayer Identification Number or state organizational number or similar
taxation or organization number; provided, however, that if any of the
occurrences referred to in clauses (i) and (ii) shall occur with
respect to any Canadian Loan Party or any of its assets, Canadian Loan Party
shall furnish the Collateral Agent with 30 days prior written notice
thereof.  The Grantors also agree
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 the PRUCC 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.  Each of the Grantors
which is a Canadian Loan Party acknowledges and agrees that, except as
disclosed on the Perfection Certificate, such Grantor does not currently, nor
will it in the future, have any assets that constitute Collateral located in
the United States.


 


(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.


 


(c)           Each Grantor agrees that, to
the extent it acquires any additional leased warehouses or distribution centers
after the Effective Date, the Grantors shall provide the Collateral Agent with
prompt notice thereof, and shall obtain a waiver and collateral access
agreement in form and substance reasonably satisfactory to the Collateral
Agent.


 


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(a) 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 Effective 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.


 


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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 or the validity or priority of such Security Interest, 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, as well as causing the Collateral Agent to have Control of any such
Collateral to the extent required perfection is required under this Agreement
or the Credit Agreement and can only be accomplished through Control.  If any amount payable under or in connection
with any of the Collateral shall be or become evidenced by any promissory note,
Document, draft, Chattel paper, or other Instrument in an amount in excess of
$1,000,000, such note, Document, draft, Chattel paper, or other 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.  The
Collateral Agent may, at its option, 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 that, so long as no Event of Default
shall have occurred and be continuing, if such taxes, assessments, charges,
fees or Liens are being contested in good faith and by appropriate proceedings
by such Grantor, the Collateral Agent shall consult with such Grantor before
making any such payment or taking any such action; 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; 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 4.5 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
$1,000,000, 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 $1,000,000 now or hereafter issued in
favor of 


 


12





















 


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 Collateral in an amount in excess of $1,000,000, 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.


 


(c)           If any amount payable under
or in connection with any of the Collateral shall become evidenced by any
Electronic chattel paper or any “transferable record” (as that term is defined
in Section 201 of the Federal Electronic Signatures in Global and National
Commerce Act, or in Section 16 of the Uniform Electronic Transactions Act,
as in effect in any relevant jurisdiction) in an amount in excess of $250,000,
other than such Electronic chattel paper and transferable records listed in the
Perfection Certificate attached hereto, the Grantor acquiring such Electronic chattel
paper or transferable record shall promptly notify the Collateral Agent thereof
and shall take such action as the Collateral Agent may reasonably request to
vest in the Collateral Agent “control” of such Electronic chattel paper under Section 9-105
of the UCC, under Section 201 of the Federal Electronic Signatures in
Global and National Commerce Act or under Section 16 of the Uniform
Electronic Transactions Act, as the case may be, as in effect in such
jurisdiction, of such transferable record.


 


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                 Reserved.


 


SECTION 4.9                 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 4.10               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 


 


13





















 


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 4.10,
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 4.11               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 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.


 


SECTION 4.12               Intellectual
Property.


 


(a)           Each Grantor agrees that it
will not do any act or omit to do any act (and will exercise commercially
reasonable efforts to prevent its licensees and sub-licensees from doing any
act or omitting to do any act) whereby any Patent or Industrial Design may
become invalidated or dedicated to the public, and agrees that it shall
continue to mark any products covered by a Patent or Industrial Design that is
material to the conduct of such Grantor’s business with the relevant patent
number as necessary and sufficient to establish and preserve its maximum rights
under applicable patent laws.


 


(b)           Each Grantor (either itself
or through its licensees or its sublicensees) will, for each Material
Trademark, (i) maintain such Material Trademark in full force free from
any claim of abandonment or invalidity for non-use, (ii) maintain the
quality of products and services offered under such Material Trademark
including where applicable policing the use of such Material Trademarks by its
licensees and sublicensees, (iii) display such Material Trademark with
notice of Federal or foreign registration to the extent necessary and
sufficient to establish and preserve its maximum rights under applicable law
and (iv) not knowingly use or knowingly permit the use of such Material
Trademark in violation of any third party rights.


 


(c)           Each Grantor (either itself
or through its licensees or sublicensees) will, for each work covered by a
Copyright material to the conduct of such Grantor’s business, continue to
publish, reproduce, display, adopt and distribute the work with appropriate
copyright notice as necessary and sufficient to establish and preserve its
maximum rights under applicable copyright laws.


 


(d)           Each Grantor shall notify
the Collateral Agent promptly if it knows or has reason to know that any
Material Trademark or any Patent, Copyright or Industrial Design material to the
conduct of its business may become abandoned, lost or dedicated to the public,
or of any materially adverse determination or development (including the
institution of, or any such 


 


14

















 


determination or development in, any
proceeding in the United States Patent and Trademark Office, United States
Copyright Office, the Canadian Intellectual Property Office, the Canadian
Industrial Design Office or any court or similar office of any country)
regarding such Grantor’s ownership of any Patent, Material Trademark, Copyright
or Industrial Design material to the conduct of its business, its right to
register the same, or its right to keep and maintain the same.


 


(e)           At the time of delivery of
quarterly financial statements with respect to each Fiscal Quarter pursuant to Section 5.1(b) of
the Credit Agreement, each Grantor shall inform the Collateral Agent of any
application for any Patent, Trademark, Industrial Design or Copyright (or any
registration of any Patent, Trademark, Industrial Design or Copyright) such
Grantor has filed with the United States Patent and Trademark Office, United
States Copyright Office, the Canadian Intellectual Property Office, the
Canadian Industrial Design Office or any office or agency in any political
subdivision of the United States, Canada or in any other country or any
political subdivision, province or territory thereof or any Copyright License
for which such Grantor has become the licensee, in each case, during such
Fiscal Quarter, and, upon request of the Collateral Agent, execute and deliver
any and all agreements, instruments, documents and papers as the Collateral
Agent may reasonably request to evidence the Collateral Agent’s Security
Interest in any of the foregoing, and each Grantor hereby appoints the
Collateral Agent as its attorney-in-fact to execute and file such writings for
the foregoing purposes, all acts of such attorney being hereby ratified and
confirmed; such power, being coupled with an interest, is irrevocable.


 


(f)            Each Grantor will take all
necessary steps that are consistent with the practice in any proceeding before
the United States Patent and Trademark Office, United States Copyright Office,
the Canadian Intellectual Property Office, the Canadian Industrial Design
Office or any office or agency in any political subdivision of the United
States, Canada or in any other country or any political subdivision, province
or territory thereof, to maintain and pursue each application relating to
Material Trademarks and each material application relating to the Patents
and/or Copyrights and/or Industrial Designs (and to obtain the relevant grant
or registration) and to maintain each issued Patent and each registration of
Copyrights and/or Industrial Designs that is material to the conduct of any
Grantor’s business and each registration of Material Trademarks, including
timely filings of applications for renewal, affidavits of use, affidavits of
incontestability and payment of maintenance fees, and, if consistent with good
business judgment, to initiate opposition, interference and cancelation
proceedings against third parties.


 


(g)           In the event that any
Grantor has reason to believe that any Collateral consisting of a Patent,
Industrial Design or Copyright material to the conduct of any Grantor’s
business or a Material Trademark has been or is likely to be infringed,
misappropriated or diluted by a third party, such Grantor promptly shall notify
the Collateral Agent and shall, if consistent with reasonable business
judgment, promptly sue for infringement, misappropriation or dilution and to
recover any and all damages for such infringement, misappropriation or
dilution, and take such other actions as are appropriate under the
circumstances to protect such Collateral. 
Each Grantor further agrees not to abandon any Material Trademark or any
Patent, Industrial Design, Copyright or Copyright License that in such Grantor’s
reasonable business judgment is material to the operation of such Grantor’s
business without the prior written consent of the Collateral Agent.


 


15





















 


(h)           Upon and during the
continuance of an Event of Default, each Grantor shall use its best efforts to
obtain all requisite consents or approvals by the licensor of each Copyright
License, Patent License, Industrial Design License or Material Trademark
License under which such Grantor is a licensee to effect the assignment of all
such Grantor’s right, title and interest thereunder to the Collateral Agent or
its designee.


 


(i)            Without limiting the
generality of any of the foregoing, each Grantor hereby authorizes the
Collateral Agent, with prompt notice thereof to the Grantors, to supplement
this Agreement by supplementing Schedule 3 or adding additional schedules
hereto to identify specifically any asset or item that may constitute
Copyrights, Copyright Licenses, Patents, and/or Industrial Design or Material
Trademarks; provided that any Grantor shall, within ten (10) days after it
has been notified by the Collateral Agent of the specific identification of
such Collateral, advise the Collateral Agent in writing of any inaccuracy of
the representations and warranties made by such Grantor hereunder with respect
to such Collateral.


 


SECTION 4.13               Pledged
Collateral.


 


(a)           Subject to Section 4.04
and Section 4.12(c), if any Grantor shall receive or become entitled to
receive any Pledged Collateral after the Effective Date, it shall deliver to
the Collateral Agent (i) a duly executed Pledged Collateral Addendum
identifying such Pledged Collateral and (ii) to the extent such Pledged
Collateral is represented by certificates or promissory notes, such
certificates or promissory notes, together with undated powers endorsed in
blank by such Grantor.


 


(b)           Upon the occurrence and
continuance of an Event of Default, each Grantor shall promptly deliver to the
Collateral Agent a copy of each material written notice or other material
written communication received by it in respect of any Pledged Collateral.


 


(c)           No Grantor shall make or
consent to any amendment or other modification or waiver with respect to any
Pledged Collateral, Pledged Operating Agreement, or Pledged Partnership
Agreement, or enter into any agreement or agree to any restriction with respect
to any Pledged Collateral which would materially adversely affect either the
rights of Collateral Agent or the other Secured Parties pursuant to the Loan
Documents or the value of the Pledged Collateral, or that would result in a
material violation of any provision of the Credit Agreement or any other Loan
Document.


 


(d)           Each Grantor agrees that it
will assist the Collateral Agent in obtaining all necessary approvals and
making all necessary filings under federal, state, local, or foreign law in
connection with the Collateral Agent’s Liens on the Pledged Collateral or any
sale or transfer thereof.


 


(e)           As to all limited liability
company or partnership interests owned by a Grantor and issued under any
Pledged Operating Agreement or Pledged Partnership Agreement which are not
certificated (the “Uncertificated Interests”), each Grantor hereby
represents, warrants and covenants that such Uncertificated Interests issued
pursuant to such agreement (A) are not and shall not be dealt in or traded
on securities exchanges or in securities markets, (B) do not and will not
constitute investment company securities, and (C) are not and will not be
held by such Grantor in a securities account. 
In addition, none of the Pledged Operating Agreements, the 


 


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Pledged Partnership Agreements, or any other
agreements governing any of the Uncertificated Interests issued under any
Pledged Operating Agreement or Pledged Partnership Agreement, provide or shall
provide that such Pledged Interests are securities governed by Article 8
of the Uniform Commercial Code as in effect in any relevant jurisdiction.


 


SECTION 4.14               Commercial Tort
Claims.             If any Grantor
shall at any time after the date hereof hold or acquire a Commercial Tort Claim
in respect of which a complaint or counterclaim has been filed seeking damages
in an amount in excess of $1,000,000, the Grantor shall promptly notify the
Collateral Agent thereof in a writing signed by such Grantor, including a
summary description of such claim, and grant to the Collateral Agent in such
writing a security interest therein and in the proceeds thereof, all upon the
terms of this Agreement, with such writing to be in form and substance
reasonably satisfactory to the Collateral Agent.


 


SECTION 4.15               Securities
Accounts.   With respect to
(i) the Securities Accounts (other than Securities Accounts with an
aggregate value of less than $10,000) and (ii) any Collateral that
constitutes a Security Entitlement as to which the financial institution acting
as Collateral Agent hereunder is not the Securities Intermediary, the relevant
Grantor will cause the Securities Intermediary with respect to each such
account or Security Entitlement to either (A) to identify in its records
the Collateral Agent as the Entitlement Holder thereof or (B) to agree
with such Grantor and the Collateral Agent that such Securities Intermediary
will comply with Entitlement Orders originated by the Collateral Agent without
further consent of such Grantor, such agreement to be in form and substance
reasonably satisfactory to the applicable Grantor and the Collateral Agent
(which agreement may also be for the benefit of the agent for the Term Loan);
provided that the Collateral Agent will not give any such orders except after a
Cash Control Event; provided further that no Grantor shall be required to take
the foregoing actions with respect to any Securities Account until the later of
(A) sixty (60) days after the Effective Date and (B) in the case of
Securities Accounts opened after the Effective Date, at the time of establishment
of such Securities Account (or, in each case, such later date as the Collateral
Agent shall in its reasonable discretion agree).


 


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 Collection 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 Collection 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 


 


17

















 


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 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; (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, license, or transfer, for the
purposes permitted by Section 6.1 hereof, any or all General Intangibles
of any Grantor, 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.  Notwithstanding the
provisions of this Section 5.2, the power of the Collateral Agent to act
in any name other than the name of the Grantor shall not apply to any Pledged
Collateral that is ULC Shares.


 


18

















 


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


 


SECTION 5.4                 The Collateral
Agent’s Duty of Care.  Other than
the exercise of reasonable care to assure the safe custody of the Collateral
while being held by the Collateral Agent hereunder, the Collateral Agent shall
have no duty or liability to preserve rights pertaining thereto, it being
understood and agreed that the Grantors shall be responsible for preservation
of all rights in the Collateral, and the Collateral Agent shall be relieved of
all responsibility for the Collateral upon surrendering it or tendering the
surrender of it to the Grantors.  The
Collateral Agent shall be deemed to have exercised reasonable care in the
custody and preservation of the Collateral in its possession if such Collateral
is accorded treatment substantially equal to that which the Collateral Agent
accords its own property, which shall be no less than the treatment employed by
a reasonable and prudent agent in the industry, it being understood that the
Collateral Agent shall not have responsibility for taking any necessary steps
to preserve rights against any parties with respect to any of the Collateral.


 


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, the PRUCC 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 Accounts, the Collateral Agent may: (i) demand,
collect and receive any amounts relating thereto, as the Collateral Agent may
determine; (ii) commence and prosecute any actions in any court for the
purposes of collecting any such Accounts and enforcing any other rights in
respect thereof; (iii) defend, settle or compromise any action brought
and, in connection therewith, give such discharges or releases as the
Collateral Agent may reasonably deem appropriate; (iv) without limiting
the Collateral 


 


19

















 


Agent’s rights set forth in Section 5.2
hereof, receive, open and dispose of mail addressed to any Grantor and endorse
checks, notes, drafts, acceptances, money orders, bills of lading, warehouse
receipts or other instruments or documents evidencing payment, shipment or
storage of the goods giving rise to such Accounts or securing or relating to
such Accounts, on behalf of and in the name of such Grantor; and (v) sell,
assign, transfer, make any agreement in respect of, or otherwise deal with or
exercise rights in respect of, any such Accounts or the goods or services which
have given rise thereto, as fully and completely as though the Collateral Agent
was the absolute owner thereof for all purposes.


 


(c)           With respect to any
Collateral consisting of Investment Property, the Collateral Agent may: (i) exercise
all rights of any Grantor with respect thereto, including without limitation,
the right to exercise all voting and corporate rights at any meeting of the
shareholders of the Issuer of any Investment Property and to exercise any and
all rights of conversion, exchange, subscription or any other rights,
privileges or options pertaining to any Investment Property as if the
Collateral Agent was the absolute owner thereof, including the right to
exchange, at its discretion, any and all of any Investment Property upon the
merger, consolidation, reorganization, recapitalization or other readjustment
of the Issuer thereof, all without liability except to account of or property
actually received as provided in Section 5.2 hereof; (ii) transfer
such Collateral at any time to itself, or to its nominee, and receive the
income thereon and hold the same as Collateral hereunder or apply it to the
Secured Obligations; and (iii) demand, sue for, collect or make any
compromise or settlement it deems desirable. 
The Grantors recognize that (a) the Collateral Agent may be unable
to effect a public sale of all or a part of the Investment Property by reason
of certain prohibitions contained in applicable 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 the Investment
Property 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 the Investment
Property 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
Investment Property for the period of time necessary to permit the Investment
Property to be registered for public sale under applicable law, and (d) that
private sales made under the foregoing circumstances shall be deemed to have
been made in a commercially reasonable manner.


 


(d)           With respect to any
Collateral consisting of Inventory, Goods, and Equipment, 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.


 


20
















 


(e)           With respect to any
Collateral consisting of Intellectual Property: on demand, to cause the
Security Interest granted herein to become an assignment, transfer and
conveyance of any of or all such Collateral by the applicable Grantors to the
Collateral Agent or to license or sublicense, whether general, special or
otherwise, and whether on an exclusive or a nonexclusive basis, any such
Collateral throughout the world on such terms and conditions and in such manner
as the Collateral Agent shall reasonably determine (other than in violation of
any then-existing licensing arrangements to the extent that waivers thereunder
cannot be obtained).


 


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


 


(g)           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.


 


(h)           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.


 


(i)            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, the
PRUCC, 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.


 


(j)            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 


 


21





















 


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.  In the event that the purchaser fails to pay
for the Collateral, the Collateral Agent may resell the Collateral and apply
the proceeds from such resale in accordance with the terms of the Credit
Agreement.


 


(k)           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 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.


 


(l)            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.


 


(m)          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.


 


(n)           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 and to the extent to which any of the licensed items may be recorded
or stored and to all such computer 


 


22

















 


software
programs 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 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(f), 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.


 


SECTION 6.4                 Voting Rights.


 


(a)           So long as no Event of
Default shall have occurred and be continuing:


 


(i)            Each Grantor shall be entitled to exercise any and
all voting and other consensual rights pertaining to the Pledged Collateral of
such Grantor or any part thereof for any purpose.  For so long as any Grantor shall have the
right to vote the Pledged Interests of such Grantor, such Grantor covenants and
agrees that it will not, without the prior written consent of the Collateral
Agent, vote or take any consensual action with respect to the Pledged Interests
which would materially affect the rights of the Collateral Agent, any other
Secured Party or the value of the Pledged Interests.  The Collateral Agent shall 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 this Section 6.04(a)(i).


 


(ii)           Each Grantor shall be entitled to receive and retain
any and all dividends, cash, options, warrants, rights, instruments,
distributions, returns of capital or principal, income, interest, profits and
other property, interests (debt or equity) or proceeds, including as a result
of a split, revision, reclassification or other like change of the Pledged
Collateral, from time to time received, receivable or otherwise distributed to
such Grantor in respect of or in exchange for any or all of the Pledged
Collateral (any of the foregoing, a “Distribution” and collectively the “Distributions”)
paid in respect of the Pledged Collateral of such Grantor to the extent that
the payment thereof is not otherwise prohibited by the terms of the Loan
Documents; provided, however, that any and all Distributions paid
or payable other than in cash (other than in connection with a partial or total
liquidation or dissolution or in connection with a reduction of capital,
capital surplus or paid-in-surplus) in respect of, and instruments and other
property received, receivable or otherwise distributed in respect of, or in
exchange for, any Pledged Collateral, shall be, and, subject to the limitations
in the definition of “Collateral”, be promptly delivered to the Collateral
Agent to hold as Pledged Collateral and shall, if received by such Grantor, be
received in trust for the benefit of the Collateral Agent, be segregated from
the other property or funds of such Grantor and be promptly delivered to the
Collateral Agent as 


 


23

















 


Pledged
Collateral in the same form as so received (with any necessary endorsement).


 


(b)           Upon the occurrence and
during the continuance of an Event of Default:


 


(i)            All rights of each Grantor (x) to exercise or
refrain from exercising the voting and other consensual rights that it would
otherwise be entitled to exercise pursuant to Section 6.04(a)(i) shall
automatically cease and (y) to receive Distributions that it would
otherwise be authorized to receive and retain pursuant to 6.04(a)(ii) shall
automatically cease, and all such rights shall thereupon become vested in the
Collateral Agent, which shall thereupon have the sole right to exercise or
refrain from exercising such voting and other consensual rights and to receive
and hold as Pledged Collateral such dividends, interest and other
distributions; 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.  Any and all money
and other property paid over to or received by the Collateral Agent pursuant to
the provisions of this Section 6.04(b)(i) 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 the Credit Agreement. 
After all Events of Default have been cured or waived and the Borrowers
have delivered to the Collateral Agent a certificate to that effect, the
Collateral Agent shall promptly repay to each Grantor (without interest) all
dividends or interest that such Grantor would otherwise be permitted to retain
pursuant to the terms of this Section 6.04 and that remain in such
account.


 


(ii)           All Distributions that are received by any Grantor
contrary to the provisions of paragraph (i) of this Section 6.04(b) shall
be received in trust for the benefit of the Collateral Agent, shall be
segregated from other funds of such Grantor and shall be promptly paid over to
the Collateral Agent as Pledged Collateral in the same form as so received
(with any necessary endorsement).


 


(c)           This Section 6.4 shall
not apply to any Pledged Collateral that is ULC Shares or to any Distributions
that are paid in respect of ULC Shares.


 


SECTION 6.5       ULC Shares.


 


(a)           Notwithstanding any
provisions to the contrary contained in this Agreement or any other document or
agreement among all or some of the parties hereto, each Grantor that is the
registered and beneficial owner of any Pledged Collateral which are ULC Shares
(“ULC Pledgor”) will remain so until such time as such ULC Shares are
effectively transferred into the name of the Collateral Agent, any Secured
Party or any other Person on the books and records of such ULC.  Accordingly, each ULC Pledgor shall be
entitled to receive and retain for its own account any Distribution in respect
of such Pledged Collateral (except insofar as such ULC Pledgor has granted a
security interest in such Distribution, and any shares which are Pledged
Collateral shall be delivered to the Collateral Agent to hold as Pledged
Collateral hereunder) and shall  have the
right to vote such Pledged Collateral and to control the direction, management
and policies of the applicable ULC issuer to the same extent as such ULC
Pledgor would if such Pledged Collateral were not pledged to the Collateral
Agent (for its own benefit and for the 


 


24

















 


benefit of the Secured Parties) pursuant
hereto.  Nothing in this Agreement or any
other document or agreement among all or some of the parties hereto is intended
to, and nothing in this Agreement or any other document or agreement among all
or some of the parties hereto shall, constitute the Collateral Agent, any
Secured Party or any other Person other than a ULC Pledgor a member of a ULC
for the purposes of the Companies Act (Nova Scotia) until such time as notice
is given to such ULC Pledgor and further steps are taken pursuant hereto or
thereto so as to register the Collateral 
Agent, any Secured Party or any other Person as holder of the applicable
ULC Shares.  To the extent any provision
hereof would have the effect of constituting the Collateral  Agent or any Secured Party as a member of any
ULC prior to such time, such provision shall be severed therefrom and shall be
ineffective with respect to Pledged Collateral which are ULC Shares without
otherwise invalidating or rendering unenforceable this Agreement or
invalidating or rendering unenforceable such provision insofar as it relates to
Pledged Collateral which are not ULC Shares.


 


(b)           Except upon the exercise of
rights to sell, transfer or otherwise dispose of the Pledged Stock issued by a
ULC following the occurrence of an Event of Default pursuant to Article VI,
no ULC Pledgor shall cause or permit, or enable any ULC in which they hold ULC
Shares to cause or permit, the Collateral Agent or any other Secured Party
to:  (i) be registered as shareholder
or member of such ULC; (ii) accept or request stock powers of attorney in
respect of such Person endorsed or assigned in favor of the Collateral Agent or
other Secured Party; (iii) have any notation entered in its favor in the
share register of such ULC; (iv) be held out as a shareholder or member of
such ULC; (v) receive, directly or indirectly, any dividends, property or
other distributions from such ULC by reason of the Collateral Agent or any
other Secured Party holding a security interest in such ULC; or (vi) act
as a shareholder or member of such ULC, or exercise any rights of a shareholder
or member including the right to attend a meeting of, or to vote the shares of,
such ULC.


 


SECTION 6.6                 Disposition of
Pledged Collateral by Collateral Agent.  None of the Pledged Collateral existing as of
the date of this Agreement is, and none of the Pledged Collateral hereafter
acquired on the date of acquisition thereof will be, registered or qualified
under the various federal or state securities laws of the United States and
disposition thereof after an Event of Default has occurred and is continuing
may be restricted to one or more private (instead of public) sales in view of
the lack of such registration.  Each Grantor
understands that in connection with such disposition, the Collateral Agent may
approach only a restricted number of potential purchasers and further
understands that a sale under such circumstances may yield a lower price for
the Pledged Collateral than if the Pledged Collateral were registered and
qualified pursuant to federal and state securities laws and sold on the open
market.  Each Grantor, therefore, agrees
that:  (a) if the Collateral Agent
shall, pursuant to the terms of this Agreement, sell or cause the Pledged
Collateral or any portion thereof to be sold at a private sale, the Collateral
Agent shall have the right to rely upon the advice and opinion of any
nationally recognized brokerage or investment firm (but shall not be obligated
to seek such advice and the failure to do so shall not be considered in
determining the commercial reasonableness of such action) as to the best manner
in which to offer the Pledged Collateral or any portion thereof for sale and as
to the best price reasonably obtainable at the private sale thereof; and (b) such
reliance shall be conclusive evidence that the Collateral Agent has handled the
disposition in a commercially reasonable manner.


 


25





















 


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, including
recording of the IP Agreements with the United States Patent and Trademark
Office,  the United States Copyright
Office, the Canadian Intellectual Property Office and the Canadian Industrial
Design Office, 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,
Securities Accounts, Concentration Accounts, Letter-of-Credit Rights,
Investment Property, or Electronic chattel paper, with any agreements
establishing control to be in form and substance satisfactory to the Collateral
Agent (and which may also be for the benefit of the agent for the Term Loan),
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. The Grantors
acknowledge that notwithstanding anything to the contrary contained therein,
the Blocked Account Agreements, Credit Card Notifications, and landlord waivers
and consents previously executed and delivered to, or for the benefit of, the
Collateral Agent shall remain in full force and effect until all Secured
Obligations (including, without limitation, on account of the obligations owed
by the Facility Guarantors under the Facility Guarantor Security Documents) are
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 Banks and the Administrative
Agent, and the Issuing Banks have no further obligation to issue Letters of
Credit under the Credit Agreement, and any Obligations related to Letters of
Credit, Cash Management Services or Bank Products have been fully cash
collateralized in a manner reasonably satisfactory to the respective Lender to
whom such Obligations are owed.


 


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 or the PRUCC.


 


26





















 


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 the extent that it lawfully may, each
Grantor 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.


 


27





















 


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 subject to
the provisions of Section 9.6 of the Credit Agreement and 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 Banks 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 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 


 


28

















 


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 with respect to a claim by
one Indemnified Party against another Indemnified Party.


 


(d)           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.  EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN ANY
OF THE LOAN DOCUMENTS, IN ALL RESPECTS, INCLUDING ALL MATTERS OF CONSTRUCTION,
VALIDITY AND PERFORMANCE, THIS AGREEMENT AND EACH OTHER LOAN DOCUMENT AND THE
SECURED OBLIGATIONS SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK INCLUDING, WITHOUT
LIMITATION, SECTIONS 5-1401 AND 5-1402 OF THE NEW YORK GENERAL OBLIGATIONS LAW,
AND ANY APPLICABLE LAWS OF THE UNITED STATES OF AMERICA.


 


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 and
any Person, at any time, shall preclude the other or further exercise of the
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.


 


29
















 


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 (and by different parties on different 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 Agreement by
telecopy or other electronic image scan transmission (e.g., “pdf” or “tif” via
e-mail) shall be as effective as delivery of a manually executed counterpart to
this Agreement.


 


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.


 


(a)           Upon any disposition of
Collateral in connection with any disposition permitted under the Credit
Agreement or any other Loan Document (other than a sale or transfer to a
Grantor), or upon the effectiveness of any written consent to the release of
the Security Interest 


 


30

















 


granted hereby in any Collateral pursuant to Section 9.2
of the Credit Agreement, the Security Interest in such Collateral shall be
automatically released.


 


(b)           Except for those provisions
which expressly survive the termination thereof, the Credit Agreement, this
Agreement and the Security Interest shall, subject to Section 9.6 of the
Credit Agreement, terminate when all the Secured Obligations (other than any of
the Secured Obligations which are not Loan Agreement Obligations, and which are
not then due and owing) 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
Banks and the Administrative Agent, and the Issuing Banks have no further
obligation to issue Letters of Credit under the Credit Agreement, and any
Obligations related to Letters of Credit, Cash Management Services or Bank
Products have been fully cash collateralized in a manner reasonably
satisfactory to the respective Lender to whom such Obligations are owed, at
which time the Collateral Agent shall execute and deliver to the Grantors, at
the Grantors’ expense, all UCC or PRUCC 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; provided, however,
that the Credit Agreement, this Agreement, and the Security Interest granted
herein shall be reinstated if at any time payment, or any part thereof, of any
Secured Obligation is rescinded or must otherwise be restored by any Secured
Party upon the bankruptcy or reorganization of any Grantor; and provided
further that the Security Interest granted herein shall not terminate as
to any indemnification obligation of any Grantor which expressly survives the
termination of the Credit Agreement and this Agreement, including, without
limitation, the obligations of the Grantors set forth in Section 9.3 of
the Credit Agreement and the obligations of the Grantors set forth in Section 8.7
of this Agreement (in each case with respect to obligations other than
contingent obligations with respect to then unasserted claims) unless such
obligations have been cash collateralized or otherwise provided for to the
satisfaction of the Collateral Agent. 
Any execution and delivery of termination statements or other documents
pursuant to this Section 8.15 shall be at the expense of the
Grantors and without recourse to, or warranty by, the Collateral Agent or any
other Secured Party.


 


SECTION 8.16               Additional
Grantors.    Pursuant to Section 5.13
of the Credit Agreement, the Grantors shall each cause any new direct or
indirect Subsidiary (other than an Excluded Subsidiary) of any Grantor to enter
into this Agreement as a Grantor.  Upon
execution and delivery by the Collateral Agent and a Subsidiary of an
instrument in the form of Annex 1 hereto, such Subsidiary shall become a
Grantor hereunder with the same force and effect as if originally named as a
Grantor 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 8.17               Intercreditor
Agreement. 
Notwithstanding anything herein to the contrary, the Lien and Security
Interest granted pursuant to this Agreement and the exercise of any right or
remedy hereunder are subject to the provisions of the Intercreditor
Agreement.  In the event of any conflict
between the terms of the Intercreditor Agreement and this Agreement, the terms
of the Intercreditor Agreement shall govern and control.  Without limiting the generality of the
foregoing, and notwithstanding anything herein to the contrary, all rights and
remedies of the Collateral Agent (and the 


 


31

















 


other
Secured Parties) with respect to the “Term Priority Collateral” (as defined in
the Intercreditor Agreement) shall be subject to the terms of the Intercreditor
Agreement, and until the discharge of the “Term Obligations” (as defined in the
Intercreditor Agreement), any obligation of any Grantor hereunder or under any
other Loan Document with respect to the delivery or control of any Term
Priority Collateral, the novation of any lien on any certificate of title, bill
of lading or other document, the giving of any notice to any bailee or other
Person, the provision of voting rights, the obtaining of any consent of any
Person or otherwise, in each case in connection with any Term Priority
Collateral, shall be deemed to be satisfied if such Grantor, as applicable,
complies with the requirements of the similar provision of the applicable “Term
Document” (as defined in the Intercreditor Agreement). Until the discharge of
the Term Obligations, the delivery of any Term Priority Collateral to the “Term
Priority Agent” (as defined in the Intercreditor Agreement) pursuant to the
Term Documents shall satisfy any delivery requirement hereunder or under any
other Loan Document.


 


SECTION 8.18               Amendment and
Restatement.  This
Agreement shall be deemed to amend, restate and replace the Existing Security
Agreement in its entirety.  It is
expressly understood and agreed by each of the parties hereto that this
Agreement is in no way intended and shall not be deemed or construed to
constitute a novation agreement.  Each
Grantor acknowledges and agrees that (i) each reference in the Loan Documents
to the “Security Agreement” shall be a reference to this Agreement and (ii) with
respect to matters prior to the date of this Agreement, all terms of the
Existing Security Agreement are ratified and confirmed.


 


SECTION 8.19               Grantor Consent.          Each Grantor which is not a
ULC hereby consents to the security interests granted herein by each other
Grantor, including any security interests in Equity Interests issued by such
Grantor or Equity Interests issued by any Person in which such Grantor owns any
Equity Interest.  Each Grantor which is
not a ULC hereby waives any rights of such Grantor to notice in connection with
the grant of any Security Interests by any Grantor hereunder.


 


[SIGNATURE PAGES FOLLOW]


 


32

















 


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:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  ZALE
  CORPORATION

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  ZGCO,
  LLC

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  TXDC,
  L.P.

  
	
   

  	
  By:

  	
  ZALE
  DELAWARE, INC.

  
	
   

  	
   

  	
  Its
  General Partner

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  ZALE
  PUERTO RICO, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  ZALE
  CANADA CO.

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  



 

















 


	
   

  	
  ZALE
  CANADA DIAMOND SOURCING INC.

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  ZAP,
  INC.

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  ZCSC,
  LLC

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  ZALE
  INTERNATIONAL, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  ZALE
  EMPLOYEES’ CHILD CARE ASSOCIATION, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  ZALE
  CANADA HOLDING LP

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  ZALE
  CANADA FINCO 1, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  



 

















 


	
   

  	
  ZALE
  CANADA FINCO 2, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  FINCO
  HOLDING LP

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  FINCO
  PARTNERSHIP LP

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  ZALE
  CANADA FINCO, LLC

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  



 

















 


	
  COLLATERAL
  AGENT:

  	
  BANK
  OF AMERICA, N.A.

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  



 

















 


SCHEDULE 1


 


Other Grantors


 


Zale Corporation


ZGCO, LLC


TXDC, L.P.


Zale Puerto Rico, Inc.


Zale Canada Co.


Zale Canada Diamond Sourcing Inc.


ZAP, Inc.


ZCSC, LLC


Zale International, Inc.


Zale Employees’ Child Care
Association, Inc.


Zale Canada Holding, LP


Zale Canada Finco 1, Inc.


Zale Canada Finco 2, Inc.


Finco Holding LP


Finco Partnership LP


Zale Canada Finco, LLC


 

















 


SCHEDULE 2


 


Form of Perfection Certificate


 


(See attached)


 

















 


SCHEDULE 3


 


INTELLECTUAL PROPERTY


 


PATENTS


 


PATENT APPLICATIONS


 


INDUSTRIAL DESIGNS


 


INDUSTRIAL DESIGN APPLICATIONS


 


TRADEMARKS


 


TRADEMARK APPLICATIONS


 


COPYRIGHTS


 


COPYRIGHT APPLICATIONS


 


COPYRIGHT LICENSES


 


(to be provided by Company)


 
















 


SCHEDULE 4


 


Pledged
Interests


 


	
  Name of Grantor

  	
   

  	
  Name of
  Pledged

  Company

  	
   

  	
  Number of

  Shares/Units

  	
   

  	
  Class of

  Interests

  	
   

  	
  Percentage
  of

  Class Owned

  	
   

  	
  Certificate

  Nos.

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  



 


Pledged Notes


 


	
  Name of Grantor

  	
   

  	
  Name of
  Issuer

  	
   

  	
  Amount

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  



 

















 


ANNEX 1


 


FORM OF SUPPLEMENT


 


SUPPLEMENT NO.      dated as of
[                    ]
(this “Supplement”), to the Amended and Restated Security Agreement dated as of
May 10, 2010 (as such may be amended, modified, supplemented or restated,
the “Security Agreement”), among ZALE CORPORATION, as a Borrower, the
other Borrowers party thereto from time to time, the Facility Guarantors party
thereto from time to time (each, including the Borrowers, a “Grantor”,
and collectively, the “ Grantors”) and Bank of America, N.A., in its
capacity as  Collateral Agent (in such
capacity, the “Collateral Agent”).


 


Reference is made to the Amended and Restated Credit Agreement dated as
of May 10, 2010 (as such may be amended, modified, supplemented or restated,
the “Credit Agreement”) by and between, among others, (i) the
Borrowers, (ii) the Facility Guarantors party thereto, (iii) the
Lenders party thereto and (iii) the Collateral Agent.


 


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.


 


The Grantors have entered into the Security Agreement in order to
induce the Lenders to make Loans.  Section 8.16
of the Security Agreement provides that new direct and indirect Subsidiaries of
the Grantors may become Grantors under the Security Agreement by execution and
delivery of an instrument in the form of this Supplement.  The undersigned Subsidiary (the “New
Subsidiary”) is executing this Supplement in accordance with the
requirements of the Credit Agreement to become a Grantor under the Security
Agreement as consideration for Loans previously under made the Credit
Agreement.


 


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


 


SECTION 1.  In accordance with Section 8.16 of the
Security Agreement, the New Subsidiary by its signature below becomes a Grantor
under the Security Agreement with the same force and effect as if originally
named therein as a Grantor and the New Subsidiary hereby (a) agrees to all
the terms and provisions of the Security Agreement applicable to it as a
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.  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, 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 telecopy or other electronic image scan transmission (e.g., “pdf”
or “tif” via e-mail) shall be effective as delivery of a manually signed
counterpart to this Supplement.


 


SECTION 4.  The New Subsidiary hereby represents and
warrants that, as of the date hereof, (a) set forth on Schedule i
attached hereto is a fully executed Perfection Certificate in the form annexed
to the Security Agreements, (b) set forth on Schedule 2
attached hereto is a true and correct schedule of Intellectual Property
consisting (i) all of the New Subsidiary’s United States registered
Patents and Patent applications, including the name of the registered owner,
type, registration or application number and the expiration date (if already
registered) of each such Patent and Patent application owned by the New
Subsidiary, (ii) all of the New Subsidiary’s Canadian registered
Industrial Designs and Industrial Design applications including the name of the
registered owner, registration or application number and the expiration date
(if already registered) of each Industrial Design and Industrial Design application
owned by the New Subsidiary, (iii) all of the New Subsidiary’s United
States registered Trademarks and Trademark applications, including the name of
the registered owner, the registration or application number and the expiration
date (if already registered) of each such Trademark and Trademark application
owned by the New Subsidiary and (iv) all of the New Subsidiary’s United
States registered Copyrights, Copyright applications and Copyright Licenses,
including the name of the registered owner, title and, if applicable, the
registration number of each such Copyright, Copyright application or Copyright
License owned by the New Subsidiary, and (c) set forth on Schedule 3
attached hereto is the Pledged Collateral held by the New Subsidiary.


 


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


 


SECTION 6.  EXCEPT AS OTHERWISE EXPRESSLY PROVIDED
HEREIN, IN ALL RESPECTS, INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND
PERFORMANCE, THIS SUPPLEMENT AND THE SECURED OBLIGATIONS SHALL BE GOVERNED BY,
AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW
YORK, INCLUDING SECTIONS 5-1401 AND 5-1402 OF THE NEW YORK GENERAL OBLIGATIONS
LAW, AND ANY APPLICABLE LAWS OF THE UNITED STATES OF AMERICA.


 


SECTION 7.  In the event 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).


 


SECTION 8.  All communications and notices hereunder
shall be in writing and given as provided in Section 8.01 of the Security
Agreement.


 


SECTION 9.  The New Subsidiary agrees to reimburse the
Collateral Agent for its reasonable out-of-pocket expenses reasonably incurred
in connection with this Supplement, including the reasonable fees, other
charges and disbursements 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.


 


 


	
  COLLATERAL AGENT:

  	
  BANK OF AMERICA, N.A.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  NEW SUBSIDIARY:

  	
  [                                                            ]

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  



 

















 


Annex 2


 


Form of
Pledged Collateral Addendum


 


This Pledged Collateral Addendum, dated as of
                  
      , 20      ,
is delivered pursuant to Section 4.12 of the Security Agreement referred
to below.  The undersigned hereby agrees
that this Pledged Collateral Addendum may be attached to that certain Amended
and Restated Security Agreement, dated as of May 10, 2010, (as amended,
restated, supplemented or otherwise modified from time to time, the “Security
Agreement”), among the undersigned, the other Grantors named therein, to
Bank of America, N.A., as Collateral Agent. 
Initially capitalized terms used but not defined herein shall have the
meaning ascribed to such terms in the Security Agreement or the Credit Agreement.  The undersigned hereby agrees that the
additional interests listed on this Pledged Collateral Addendum as set forth
below shall be and become part of the Pledged Collateral pledged by the
undersigned to the Collateral Agent in the Security Agreement and any pledged
company set forth on this Pledged Collateral Addendum as set forth below shall
be and become a “Pledged Company” under the Security Agreement, each with the
same force and effect as if originally named therein.


 


The undersigned hereby certifies that the representations and
warranties set forth in Section 3.08 of the Security Agreement of the
undersigned are true and correct as to the Pledged Collateral listed herein on
and as of the date hereof.


 


	
   

  	
  [                                      ]

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  



 

















 


Pledged Interests


 


	
  Name of Grantor

  	
   

  	
  Name of Pledged

  Company

  	
   

  	
  Number of

  Shares/Units

  	
   

  	
  Class of

  Interests

  	
   

  	
  Percentage

  of Class

  Owned

  	
   

  	
  Certificate

  Nos.

  

  

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  



 


Pledged Notes


 


	
  Name
  of Grantor

  	
   

  	
  Name of Issuer

  	
   

  	
  Amount

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  



 
















 


EXHIBIT C-2


 


EXECUTION VERSION


 


AMENDED AND RESTATED CANADIAN SECURITY AGREEMENT


 


EXECUTED by the parties hereto as of the 10 day of May,
2010.


 


TO:                                                                                                                          BANK OF AMERICA, N.A., a national banking
association organized under the federal laws of the United States of America,
having an office at 100 Federal Street, Floor 9, Boston, Massachusetts 02110,
U.S.A., as administrative agent and collateral agent (in such capacity,
including its successors and assigns, hereinafter the “Collateral
Agent”) for the Secured Parties (as defined herein), in
consideration of the mutual covenants contained herein and benefits derived
herefrom;


 


GRANTED BY:                  ZALE CANADA CO., a Nova Scotia
unlimited liability company, having its registered office at 1959
Upper Water Street, Suite 900, Halifax, Nova Scotia, B3J 2X2 and its
chief executive office and principal place of business at 901 West Walnut Hill
Lane, Irving, Texas 75038


 


ZALE CANADA DIAMOND SOURCING INC., a Nova Scotia limited liability company, having its registered
office at 1959 Upper Water Street, Suite 900, Halifax, Nova Scotia,
B3J 2X2 and its chief executive office and principal place of business at
901 West Walnut Hill Lane, Irving, Texas 75038


 


ZALE CANADA FINCO 1, INC., a Nova Scotia limited liability company, having its registered
office at 1959 Upper Water Street, Suite 900, Halifax, Nova Scotia,
B3J 2X2 and its chief executive office and principal place of business at
901 West Walnut Hill Lane, Irving, Texas 75038


 


ZALE CANADA FINCO 2, INC., a Nova Scotia limited liability company, having its registered
office at 1959 Upper Water Street, Suite 900, Halifax, Nova Scotia,
B3J 2X2 and its chief executive office and principal place of business at
901 West Walnut Hill Lane, Irving, Texas 75038


 


FINCO HOLDING LP, a New Brunswick limited partnership, having its registered
office at 44 Chipman Hill, Suite 1000, Saint-John, New Brunswick, E2L 4S6
and its chief executive office and principal place of business at 901 West
Walnut Hill Lane, Irving, Texas 75038


 


FINCO PARTNERSHIP LP, a New Brunswick limited partnership, having its registered
office at 44 Chipman Hill, Suite 1000, Saint-John, New Brunswick, E2L 4S6
and its chief executive office and principal place of business at 901 West
Walnut Hill Lane, Irving, Texas 75038


 

















 


and


 


ZALE CANADA HOLDING LP, a New Brunswick limited partnership, having its registered
office at 44 Chipman Hill, Suite 1000, Saint-John, New Brunswick, E2L 4S6
and its chief executive office and principal place of business at 901 West
Walnut Hill Lane, Irving, Texas 75038


 


(each a “Grantor”, and collectively, the “Grantors”)


 


WITNESSETH


 


WHEREAS, the Grantors are party to the Amended and Restated Credit
Agreement of even date herewith (as such may be amended, modified, supplemented
or restated hereafter, the “Credit Agreement”)
between, among others, Zale Delaware, Inc., Zale Corporation, ZGCO, LLC,
TXDC, L.P. and Zale Puerto Rico, Inc. (collectively, the “Borrowers”), as borrowers, each of the Grantors, as
guarantors, the Lenders (as defined in the Credit Agreement) party thereto from
time to time as lenders, and Bank of America, N.A., in its capacity as
Administrative Agent and Collateral Agent (as such terms are defined in the
Credit Agreement);


 


AND WHEREAS, the Lenders have agreed to make Loans to the Borrowers
pursuant to, and upon the terms and subject to the conditions specified in, the
Credit Agreement, and the obligations of the Lenders to make Loans are each
conditioned upon, among other things, the execution and delivery by the
Grantors of a guarantee granted by the Grantors in favour of the Collateral
Agent dated the date hereof and this Security Agreement;


 


NOW THEREFORE, the Grantors and the Collateral Agent, for and on behalf
of itself and the Lenders (and each of their respective successors or assigns),
hereby agree as follows:


 


SECTION 1 — GRANT OF SECURITY INTEREST


 


1.1           Security
Interest


 


As a general and
continuing security for the payment and performance, as the case may be, in
full of the Secured Obligations, each Grantor, IN CONSIDERATION THEREOF, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
hereby bargains, mortgages, pledges, hypothecates and (except in the case of
ULC Shares) assigns and transfers to the Collateral Agent, including its
successors and assigns, for the benefit of the Secured Parties, and hereby
grants to the Collateral Agent, including its successors and assigns, for the
benefit of the Secured Parties, a continuing security interest (the “Security Interest”) in, all of its right, title and interest
in, to and under all of its property, assets and undertakings, whether now
owned


 


2

















 


or
hereafter-acquired by it or on its behalf, wherever located (hereinafter,
collectively, the “Collateral”),
including, without limitation, all of the its present and after acquired
personal property and including without limitation:


 


(a)           Accounts Receivable


 


All debts, book debts,
accounts, Deposit Accounts, Concentration Accounts, Supporting Obligations,
Letter of Credit Rights, 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 it or which may  hereafter be
owned by or become due, owing or accruing due to it together with all
contracts, investment property, bills, notes, lien notes, judgments, chattel
mortgages, mortgages and all other rights, benefits and documents now or
hereafter taken, vested in or held by such Corporation in respect of or as
security for the same and the full benefit and advantage thereof, and all
rights of action or claims which such Corporation now has or may at any time
hereafter have against any Person 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 such Corporation or in which such Corporation
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 such Corporation (all of the foregoing being herein collectively
called the “Inventory”);


 


(c)           Equipment


 


All goods now or hereafter
owned by such Corporation 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, 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 property leased by such Corporation and all of such Corporation’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, share, stock, security


 


3

















 


entitlements, warrants,
bonds, debentures, debenture stock or other securities or investment property
and financial assets now or hereafter owned by such Corporation;


 


(e)           Intangibles


 


All intangibles now or
hereafter owned by such Corporation including, without limitation, Intellectual
Property, all goodwill connected with or symbolized by any of such general
intangibles; all contract rights, documents, applications, licenses, materials
and other matters related to such general intangibles; all tangible property
embodying or incorporating any such general intangibles; and all chattel paper
and instruments relating to such general intangibles (collectively, the “Intangibles”).


 


(f)            Books and Accounts, etc.


 


With respect to the personal
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;


 


(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 personal
property described in Paragraphs (a) to (g) inclusive, all
substitutions and replacements thereof, increases, additions and accessions
thereto and any interest of such Corporation therein; and


 


(i)            Proceeds


 


With respect to the personal
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           Additional
Specification with respect to Security Interest


 


(a)           Notwithstanding
anything in Section 1.1, the term “Collateral” shall expressly exclude the
following: (i) any trademark applications filed on an “intent to use”
basis until the earlier of the filing of a statement of use thereon or the
first use in commerce thereof, (ii) any Inventory or other goods that have
been delivered to any Grantor on a consignment basis to the extent that the
rights of such consignor have been properly perfected under applicable law, (iii) any
property (including any goods, investment property, instruments, documents of
title, chattel paper, intangibles or money) to the extent that such grant of a
Security Interest is prohibited by any valid enforceable law or regulation
applicable thereto, requires a consent not obtained of any Governmental
Authority pursuant to such law or


 


4

















 


regulation or is prohibited
by, or constitutes a breach or default under or results in the termination of
or gives rise to a right on the part of the parties thereto other than such
Grantor to terminate (or materially modify) or requires any consent not
obtained under, any contract, license, agreement, instrument or other document
evidencing or giving rise to such property, except to the extent that such law
or regulation or the term in such contract, license, agreement, instrument or other
document or similar agreement providing for such prohibition, breach, default
or right of termination or modification or requiring such consent is
ineffective under applicable law, provided, however, that such
security interest shall attach immediately at such time as the condition
causing such prohibition, breach, default or right of termination or
modification or requiring such consent, as the case may be, shall be remedied
and, to the extent severable, shall attach immediately to any portion of such contract,
license, agreement, instrument or other document that does not result in any of
such consequences, including any proceeds of such contract, license, agreement,
instrument or other document, and (iv) the voting Equity Interests of ZC
Partnership, LP in excess of 65% of the general partnership Equity Interests of
such Subsidiary; provided  further  that, in all events, all
Proceeds, substitutions or replacements of the foregoing shall constitute “Collateral”
hereunder.


 


(b)           Without limiting
the foregoing and in addition to Section 4.2 herein, each Grantor hereby
designates the Collateral Agent as such Grantor’s true and lawful attorney,
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, to file one or more
financing statements or continuation statements, to file with the Canadian
Intellectual Property Office such documents as may be necessary or advisable,
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 such 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.  Any such financing statement may
indicate the Collateral as “all assets of the Grantor” or words of similar
effect.


 


(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 Collateral.


 


(d)           The Security
Interest with respect to Trademarks constitutes a Security Interest in, and a
charge, hypothecation and pledge of, such Collateral in favour of the
Collateral Agent, but does not constitute an assignment or mortgage of such
Collateral to the Collateral Agent.


 


(e)           Until the
Security Interest is enforceable, the grant of the Security Interest in the
Intellectual Property does not affect in any way any Grantor’s rights to
commercially exploit the Intellectual Property, defend it, enforce any Grantor’s


 


5

















 


rights in it or with respect
to it against third parties in any court or claim and be entitled to receive
any damages with respect to any infringement of it.


 


(f)            The Security
Interest does not extend to consumer goods.


 


(g)           The Security
Interest does not extend or apply to the last day of the term of any lease or
sublease of real property or any agreement for a lease or sublease of real
property, now held or hereafter acquired by any Grantor, but any Grantor will
stand possessed of any such last day upon trust to assign and dispose of it as
the Collateral Agent may reasonably direct.


 


1.3           Definition
of Terms Used Herein


 


(a)           Terms defined in
the Personal Property Security Act (Ontario)
(as amended from time to time, the “PPSA”) and used
in this security agreement have the same meanings.  Any reference to the “STA”
is a reference to the Securities Transfer Act,
2006 (Ontario) or, to the extent applicable, similar legislation of any other
jurisdiction, as amended from time to time. 
Where a reference is made to the Collateral Agent, it includes, as
applicable, any nominee appointed by the Collateral Agent to hold or otherwise
take possession of the Collateral;


 


(b)           Capitalized terms
not otherwise defined herein shall have the same meanings as ascribed to them
in the Credit Agreement;


 


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


 


(d)           The grant of the
Security Interest shall include, without limitation, a mortgage, hypothecation,
pledge, charge and assignment of the Collateral in favour of the Collateral
Agent (for itself and on behalf of the Secured Parties);


 


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


 


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


 


(g)           “Copyrights” shall mean, with respect to any Person, all of
such Person’s right, title and interest, now or hereafter acquired, in and to
the following:  (a) all copyrights,
rights and interests in copyrights, works protectable by copyright, copyright
registrations and copyright applications; (b) all extensions and renewals
of any of the foregoing; (c) all income, royalties, damages, and payments
now or hereafter due and/or payable under any of the foregoing, including
damages or payments for past, present or future infringements for any of the
foregoing; (d) the right to sue for past, present and future infringements
of any of the foregoing; and (e) all rights corresponding to any of the
foregoing.


 


(h)           “Copyright Licenses” shall mean exclusive Licenses in respect
of Copyrights where a Grantor is a licensee.


 


6

















 


(i)            “Concentration Account” shall have the meaning assigned to
such term in the Credit Agreement;


 


(j)            “Deposit Account” shall mean any chequing or other demand
deposit account into which proceeds of Collateral are deposited, and shall
include any time, savings, passbook, or similar accounts maintained with a bank
or other financial institution;


 


(k)           “Equity Interests” means, with respect to any Person, all of
the shares of capital stock of (or other ownership or profit interests in) such
Person, and all of the warrants or options for the purchase or acquisition from
such Person of shares of capital stock of (or other ownership or profit
interests in) such Person (including partnership, member or trust interests
therein), whether voting or nonvoting (but excluding, for avoidance of doubt,
any Indebtedness convertible into or exchangeable for Equity Interests).


 


(l)            “Industrial Designs” shall mean, with respect to any Person,
all of such Person’s right, title and interest, now owned or hereafter
acquired, in and to: (a) any and all Canadian industrial designs and
industrial design applications; (b) all income, royalties, damages, claims,
and payments now or hereafter due or payable under and with respect thereto,
including damages and payments for past, present and future infringements
thereof; (c) all rights to sue for past, present and future infringements
thereof; and (d) all rights corresponding to any of the foregoing.


 


(m)          “Intellectual Property” shall mean all intellectual property
and similar property of every kind and nature now owned or hereafter acquired
by any Person, including inventions, designs, Patents, Copyrights, Trademarks,
Industrial Designs, Licenses, trade secrets, confidential or proprietary
technical and business information, know-how, show-how or other data or
information and all related documentation, and all additions and improvements
to any of the foregoing.


 


(n)           “Letter of Credit Right” shall mean a right to payment or
performance under a letter of credit, whether or not the beneficiary has
demanded or is at the time entitled to demand payment or performance;


 


(o)           “License” shall mean, with respect to any Person, all of such
Person’s right, title and interest in and to (a) any and all licensing
agreements or similar arrangements in and to any other Person’s Intellectual
Property, (b) all income, royalties, damages, claims and payments now or
hereafter due or payable under and with respect thereto, including damages and
payments for past, present and future breaches thereof, and (c) all rights
to sue for past, present and future breaches thereof.


 


(p)           “Material Trademark” shall mean any Trademark of a Grantor
that is material to the conduct of such Grantor’s business.


 


(q)           “Patents” shall mean, with respect to any Person, all of such
Person’s right, title and interest, now owned or hereafter acquired, in and
to:  (a) any and all patents and
patent applications or industrial design registrations and applications; (b) all
inventions and improvements described and claimed therein, including the right
to make, use and/or sell the inventions disclosed or claimed therein; (c) all
reissues,


 


7

















 


divisions, continuations,
renewals, extensions, and continuations-in-part thereof; (d) all income,
royalties, damages, claims, and payments now or hereafter due or payable under
and with respect thereto, including damages and payments for past, present and
future infringements thereof; (e) all rights to sue for past, present and
future infringements thereof; and (f) all rights corresponding to any of
the foregoing.


 


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


 


(s)           “Pledged Collateral” shall mean all Pledged Interests and
Pledged Notes.


 


(t)            “Pledged Collateral Addendum” shall mean a Pledged Collateral
Addendum substantially in the form of Annex 2 to this Security Agreement.


 


(u)           “Pledged Companies” shall mean each Person listed on Schedule
3 hereto as a “Pledged Company”, together with each other Person, all or a
portion of whose Equity Interests, is acquired or otherwise owned by a Grantor
after the Effective Date.


 


(v)           “Pledged Interests” shall mean all of each Grantor’s right,
title and interest in and to all of the Equity Interests now or hereafter owned
by such Grantor (other than such Equity Interests in Dobbins Jewelers, Inc.),
regardless of class or designation, including in each of the Pledged Companies
owned by it, and all substitutions therefor and replacements thereof, all proceeds
thereof and all rights relating thereto, also including any certificates
representing the Equity Interests, the right to receive any certificates
representing any of the Equity Interests, all warrants, options, share
appreciation rights and other rights, contractual or otherwise in respect
thereof, and the right to receive dividends, distributions of income, profits,
surplus, or other compensation by way of income or liquidating distributions,
in cash or in kind, and all cash, instruments, and other property from time to
time received, receivable, or otherwise distributed in respect of or in
addition to, in substitution of, on account of, or in exchange for any or all
of the foregoing.


 


(w)          “Pledged Notes” shall mean, with respect to any Grantor, all
of the debt securities now or hereafter owned by such Grantor and the
promissory notes evidencing such debt securities.


 


(x)            “Secured Obligations” shall mean the Obligations and shall
include any obligations owed by the Facility Guarantors under the Facility
Guarantor Collateral Documents;


 


(y)           “Secured Parties” shall mean the Lenders, (b) the Agents
and their Affiliates, (c) the Issuing Banks, (d) the Arranger, (e) the
Co-Borrowing Base Agents, (f) the beneficiaries of each indemnification
obligation undertaken by any Grantor under any Loan Document, (g) any
other Person to whom Secured Obligations are owed or may become due and owing,
and (h) the successors and assigns of each of the foregoing.


 


8

















 


(z)            “Supplement” shall mean a Supplement substantially in the
form of Annex 1 to this Security Agreement.


 


(aa)         “Supporting Obligations” shall mean a Letter of Credit Right
and all other secondary obligation, including, namely, lien notes, judgments,
chattel mortgages, mortgages, security interests, hypothecs, assignments,
guarantees, suretyships, accessories, bills of exchange, negotiable
instruments, invoices, that supports the payment or performance of an Account
Receivable, chattel paper, a document of title, an intangible, an instrument or
investment property, and all other rights, benefits and documents now or
hereafter taken, vested in or held by a Grantor in respect of or as security
for the same and the full benefit and advantage thereof.


 


(bb)         “Term Priority Collateral” shall have the meaning given to it
the Intercreditor Agreement.


 


(cc)         “Trademarks” shall mean, with respect to any Person, all of
such Person’s right, title and interest, now owned or hereafter acquired, in
and to the following:  (a) all trademarks
(including service marks), trade names, trade dress, trade styles and other
source indicators and the registrations and applications for registration
thereof and the goodwill of the business symbolized by the foregoing; (b) all
licenses of the foregoing, whether as licensee or licensor; (c) all
renewals of the foregoing; (d) all income, royalties, damages and payments
now or hereafter due or payable with respect thereto, including damages, claims
and payments for past and future infringements thereof; (e) all rights to
sue for past, present and future infringements of the foregoing, including the
right to settle suits involving claims and demands for royalties owing; and (f) all
rights corresponding to any of the foregoing.


 


(dd)         “ULC” means an unlimited company under the Companies Act (Nova Scotia).


 


(ee)         “ULC Pledgor” has the meaning assigned to such term in Section 6.17.


 


(ff)           “ULC Shares” means shares of stock or other Equity Interests
in one or more ULCs.


 


1.4           Rules of
Interpretation.


 


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


 


1.5           Grantors
Remain Liable


 


Notwithstanding anything herein to the contrary:


 


(a)           each Grantor
shall remain liable under the contracts and agreements included in the
Collateral to the extent set forth therein to perform all its duties and
obligations thereunder to the same extent as if this Security Agreement had not
been executed;


 


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


 


9
















 


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


 


1.6                                 Perfection
Regarding Certain Term Priority Collateral


 


In the event that the Term Agent (as defined in the Intercreditor
Agreement) shall determine in its reasonable discretion that the cost
(including adverse tax consequences) of perfecting a security interest in any
Term Priority Collateral would be excessive in relation to the value of the
security to be afforded thereby, then the Collateral Agent shall not require
the perfection of its security interest in such Term Priority Collateral.


 


SECTION 2 — REPRESENTATIONS AND WARRANTIES


 


Each Grantor does hereby
represent and warrant that each representation, warranty, covenant and
agreement made in the Credit Agreement by the Grantor is hereby reiterated as
if incorporated by reference herein, and is hereby confirmed as true and
correct,  and further represents and warrants to the Collateral
Agent:


 


2.1                                 Title and Authority


 


The Grantor has good and valid
rights in, and title to, the Collateral with respect to which it has purported
to grant the Security Interest 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 Security Agreement, without the consent or approval of any other Person
other than any consent or approval which has been obtained.


 


2.2                                 Filings


 


The 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 PPSA
financing statements or other appropriate filings, recordings or registrations
containing a description of the Collateral (as and if required) have been filed
in each governmental, municipal or other office as is necessary to publish
notice of and protect the validity of and to establish a legal, valid and
perfected security interest in favour of the Collateral Agent (for the benefit
of the Secured Parties) in respect of all Collateral in which the security
interest may be perfected by filing, recording or registration in all the
Provinces, other than Québec, and Territories of Canada (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.  A fully executed Canadian Patent, Industrial
Design and Trademark Security Agreement, in the form attached as Annex 3
hereto, and a fully executed Copyright Security


 


10

















 


Agreement, in the form attached
as Annex 4 hereto, covering its Canadian registered Patents, Canadian
registered Industrial Designs, Canadian registered Trademarks and Canadian
registered Copyrights (and applications for any of the foregoing) and Copyright
Licenses, as applicable, have been delivered to the Collateral Agent for
recording by any relevant offices of the Canadian Intellectual Property Office,
as is necessary to protect the validity of and to establish a legal and valid
security interest in favour of the Collateral Agent (for the benefit of the
Credit Parties) in respect of all Collateral consisting of Intellectual
Property in which a security interest may be perfected by filing, recording or
registration in Canada (or any Province or Territory thereof), and no further
or subsequent filing, refiling, recording, rerecording, registration or
reregistration is necessary (other than such actions as are necessary to
perfect the Security Interest with respect to any Intellectual Property
acquired or developed after the date hereof).


 


2.3                                 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, (b) subject
to the filings described in Section 2.2 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 and (c) subject
to the obtaining of “control”, a perfected security interest in all the
Collateral, to the extent that perfection of the security interest in such
Collateral is required by the terms hereof or the Credit Agreement and may only
be accomplished through “control”. 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 and
which have priority by operation of law.


 


2.4                                 Absence of Other Liens


 


The Collateral is owned by the Grantor 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 Certificate, the Grantor has not filed or
consented to the filing of (a) a registration application, financing
statement or analogous document under the Civil Code of Québec,
the PPSA (or any successor statute) or similar legislation of any other
jurisdiction, the Uniform Commercial Code, or any other applicable law covering
any Collateral, (b) any assignment or hypothecation in which the Grantor
assigns or hypothecates any Collateral or any security agreement or similar
instrument covering any Collateral with the United States Patent and Trademark
Office, the United States Copyright Office or the Canadian Intellectual
Property Office, or (c) any assignment or hypothecation in which the
Grantor assigns or hypothecates any Collateral or any security agreement or
similar instrument covering any Collateral with any foreign governmental,
municipal or other office, which registration application, financing statement
or analogous document, assignment, hypothecation, 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.


 


11

















 


2.5                                 Bailees, Warehousemen, Etc.


 


Except as otherwise disclosed in
the Perfection Certificate, no Inventory or Equipment 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 Equipment and Inventory (i) out for
repair or replacement in the ordinary course of business, (ii) being
shipped, or in-transit, from a supplier or to a customer or between suppliers,
in the ordinary course of business or (iii) in the possession of
suppliers, subcontractors and licensees, in the ordinary course of business,
unless the applicable Grantor complies with Section 3.1(c) below.


 


2.6                                 Intellectual Property


 


Schedule 2 hereto sets forth, as
of the date hereof, (i) all of each Grantor’s registered Patents and
Patent applications, including the name of the registered owner, type,
registration or application number and the expiration date (if already
registered) of each such Patent and Patent application owned by any Grantor, (ii) all
of each Grantor’s registered Industrial Designs and Industrial Design
applications, including the name of the registered owner, registration or
application number and the expiration date (if already registered) of each such
Industrial Design and Industrial Design application owned by any Grantor, (iii) all
of each Grantor’s registered Trademarks and Trademark applications, including
the name of the registered owner, the registration or application number and
the expiration date (if already registered) of each such Trademark and
Trademark application owned by any Grantor and (iv) all of each Grantor’s
registered Copyrights, Copyright applications and Copyright Licenses, including
the name of the registered owner, title and, if applicable, the registration
number of each such Copyright, Copyright application or Copyright License owned
by any Grantor.


 


2.7                                 Pledged Collateral


 


(a)                                  Each
Grantor is the holder of record and the legal and beneficial owner, free and
clear of all Liens other than the Security Interest granted to the Collateral
Agent for the benefit of the Secured Parties hereunder and Liens permitted by Section 6.2
of the Credit Agreement, of the Pledged Collateral indicated on Schedule 3 as
being owned by such Grantor and any Pledged Collateral owned by such Grantor
and acquired after the Effective Date. 
Except as otherwise disclosed on Schedule 3 attached hereto or the
Perfection Certificate attached hereto, no amounts payable under or in
connection with any of the Collateral are evidenced by any instruments or
chattel paper as of the Effective Date.


 


(b)                                 All
of the Pledged Collateral constituting Pledged Interests is duly authorized,
validly issued, fully paid and nonassessable (provided that Pledged Interests
which are ULC Shares will be assessable in accordance with the provisions of
the Companies Act (Nova Scotia)) and such
Pledged Interests constitute or will constitute the percentage of the issued
and outstanding Equity Interests of the Pledged Companies of each applicable
Grantor identified on Schedule 3, any Pledged Collateral Addendum or any
Supplement to this Agreement.  All of the
Pledged Collateral constituting Pledged Notes is duly authorized, validly
issued and delivered by the issuer of such Pledged Note and is the legal, valid
and binding obligation of such issuer and such issuer is not in default
thereunder.


 


12

















 


Each Grantor has
the right and requisite authority to pledge the Pledged Collateral pledged by
such Grantor to the Collateral Agent as provided herein.


 


(c)                                  All
actions necessary to perfect or establish the first priority of the Collateral
Agent’s Liens (subject to Permitted Encumbrances which have priority by
operation of law or as provided in the Intercreditor Agreement) in the Pledged
Collateral, and the proceeds thereof, have been duly taken, (A) upon the
execution and delivery of this Security Agreement; (B)(i) upon the taking
of possession by the Collateral Agent of any certificates constituting the
Pledged Interests, to the extent such Pledged Interests are represented by
certificates, together with undated powers endorsed in blank by the applicable
Grantor and (ii) upon the taking of possession by the Collateral Agent of
any promissory notes constituting the Pledged Notes, together with undated
powers endorsed in blank by the applicable Grantor; and (C) upon the
filing of PPSA financing statements in the applicable jurisdiction for such
Grantor with respect to the Pledged Interests of such Grantor that are not
represented by certificates.  Each
Grantor has delivered to and deposited with the Collateral Agent (or, with
respect to any Pledged Collateral created or obtained after the Effective Date,
will deliver and deposit in accordance with Section 3.13 hereof) all
certificates representing the Pledged Interests owned by such Grantor to the
extent such Pledged Interests are represented by certificates, all promissory
notes representing the Pledged Notes owned by such Grantor, and undated powers
endorsed in blank with respect to such certificates or promissory notes.


 


(d)                                 None
of the Pledged Collateral owned or held by such Grantor has been issued or
transferred in violation of any securities registration, securities disclosure,
or similar laws of any jurisdiction to which such issuance or transfer may be
subject.


 


2.8                                 Nature of Certain Consignment Filings


 


Each of the Liens and other
filings set forth on Schedule 6.2 of the Credit Agreement which purports to
cover goods delivered to a Grantor on a consignment basis (a) evidences
arrangements entered into with such Grantor and its trade vendors in the
ordinary course of business, intended by such Grantor and vendor to be a “true”
consignment, (b) does not encumber any assets of such Grantor other than
the consigned goods to which its relates and the proceeds thereof, to the
extent owing to the vendor and (c) secures solely the obligation of such
Grantor to either return such consigned goods or pay the purchase price for
such consigned goods, in each case, pursuant to a written consignment agreement
on terms substantially similar to those set forth in the Grantors’ standard
form of consignment agreement as in effect on or about the Effective Date (with
the exception of any such Liens and other filings made by any trade vendors in
connection with or relating to that certain Amendment to Existing Agreements
dated as of March 3, 2010 by and among Zale Delaware, Inc., TXDC,
L.P., Rosy Blue Jewelry, Inc. and Rosy Blue, Inc., relating to
consigned goods for such Grantors’ 2010 Spring season), a copy of which has
been provided to the Collateral Agent.


 


13

















 


SECTION 3 — COVENANTS OF THE GRANTORS


 


Each Grantor covenants and agrees with the Collateral Agent that so
long as there shall remain any Secured Obligations:


 


3.1                                 Change of Name; Location of Collateral;
Records; Place of Business


 


(a)                                  Each
Grantor agrees to furnish to the Collateral Agent (i) prompt written
notice of any change in (A) any Grantor’s trade name used to identify it
in the conduct of its business or in the ownership of its properties, (B) any
office in which it maintains books or records relating to Collateral owned by
it and having a value in excess of $1,000,000 or any office or facility at
which Collateral owned by it and having a value in excess of $1,000,000 is
located (including the establishment of any such new office or facility), other
than, in each case, (I) retail store locations or (II) Equipment and
Inventory (1) out for repair or replacement in the ordinary course of
business, (2) being shipped, or in transit, from a supplier or to a
customer or between suppliers, in the ordinary course of business or (3) in
the possession of suppliers, subcontractors and licensees, in the ordinary
course of business, or (C) 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 (ii) (x) 30
days prior written notice of any change in (A) any Grantor’s corporate or
partnership name or the location of any Grantor’s chief executive office or its
principal place of business, (B) any Grantor’s identity or corporate or
partnership structure, and (y) prior written notice of any Grantor’s
jurisdiction of incorporation, amalgamation or formation, Federal Taxpayer
Identification Number or organizational number or similar taxation
identification or organizational number. 
Each Grantor 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.  Each Grantor
acknowledges and agrees that, except as disclosed on the Perfection
Certificate, it does not currently, nor will it in the future, have any assets
that constitute Collateral located in the United States.


 


(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.


 


(c)                                  Each
Grantor agrees that, to the extent it acquires any additional leased warehouses
or distribution centers after the Effective Date, the Grantors shall provide
the Collateral Agent with prompt notice thereof, and shall obtain a waiver and
collateral access agreement in form and substance reasonably satisfactory to
the Collateral Agent.


 


14

















 


3.2                                 Periodic Certification


 


Each Grantor shall deliver to
the Collateral Agent, at least thirty (30) days prior to setting up a location
in the Province of Québec in which it intends on maintaining tangible property,
a deed of movable hypothec in form and substance and on terms and conditions
reasonably satisfactory to the Collateral Agent which has been published in
each governmental, municipal or other appropriate office in the Province of
Québec to the extent necessary to protect, perfect and set-up the security
interest and hypothec.


 


Without limiting the scope of the
foregoing, 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 date hereof or the date of the most recent certificate delivered
pursuant to this Section 3.2 or, if any such change has occurred
specifying such revised information.


 


3.3                                 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.


 


3.4                                 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 or the validity or priority of such Security Interest, including the
payment of any fees and taxes required in connection with the execution and
delivery of this Security Agreement, the granting of the Security Interest and
the filing of any financing statements or other documents in connection
herewith or therewith, as well as causing the Collateral Agent to have “control”
(as defined in the STA) of any such Collateral to the extent required
perfection is required under this Agreement and can only be accomplished
through Control.  If any amount payable
under or in connection with any of the Collateral shall be or become evidenced
by any promissory note, document, draft, chattel paper, or other instrument in
an amount in excess of $1,000,000, such note, document, draft, chattel paper,
or other Instrument shall be immediately pledged and delivered to the
Collateral Agent, duly endorsed in a manner satisfactory to the Collateral
Agent.


 


3.5                                 Taxes; Encumbrances


 


The Collateral Agent may, at its
option, 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


 


15

















 


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 that, so long as no Event of Default shall have occurred and be
continuing, if such taxes, assessments, charges, fees or Liens are being
contested in good faith and by appropriate proceedings by such Grantor, the
Collateral Agent shall consult with such Grantor before making any such payment
or taking any such action; 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; 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
any Grantor’s failure to have made such payments or taken such action.  Nothing in this Section 3.5 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.


 


3.6                                 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 Receivable and the property securing payment and performance of the
Account Receivable has a value in excess of $1,000,000, 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 $1,000,000 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 Collateral in an amount in excess of $1,000,000, whether
or not written, now or hereafter issued in favour 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 favour 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.


 


16

















 


3.7                                 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.


 


3.8                                 Use and Disposition of the Collateral


 


None of the Grantors shall make
or permit to be made an assignment, pledge or hypothecation of the Collateral
or shall grant any other Lien in respect of the Collateral or shall grant “control”
(as defined in the STA) over any Collateral to any Person, except as expressly
permitted by Section 6.2 of the Credit Agreement.  Except as expressly permitted in the Credit
Agreement, none of the Grantors shall make or permit to be made any transfer of
the Collateral, and each Grantor shall remain at all times in possession of the
Collateral owned by it, except that the Grantors may use and dispose of the
Collateral in any lawful manner permitted by the terms of and not otherwise
inconsistent with the provisions of this Agreement, the Credit Agreement or any
other Loan Document.


 


3.9                                 Limitation on Modification of Accounts


 


No Grantor shall, 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.


 


3.10                           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 3.10, including


 


17

















 


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.


 


3.11                           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 Collateral Agent, its Accounts
Receivable 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.


 


3.12                           Intellectual Property


 


(a)                                  Each
Grantor agrees that it will not do any act or omit to do any act (and will
exercise commercially reasonable efforts to prevent its licensees and
sub-licensees from doing any act or omitting to do any act) whereby any Patent
or Industrial Design may become invalidated or dedicated to the public, and
agrees that it shall continue to mark any products covered by a Patent or Industrial
Design that is material to the conduct of such Grantor’s business with the
relevant patent number as necessary and sufficient to establish and preserve
its maximum rights under applicable patent laws.


 


(b)                                 Each
Grantor (either itself or through its licensees or its sublicensees) will, for
each Material Trademark, (i) maintain such Material Trademark in full
force free from any claim of abandonment or invalidity for non use, (ii) maintain
the quality of products and services offered under such Material Trademark
including where applicable policing the use of such Material Trademarks by its
licensees and sublicensees, (iii) display such Material Trademark with
notice of registration to the extent necessary and sufficient to establish and
preserve its maximum rights under applicable law and (iv) not knowingly
use or knowingly permit the use of such Material Trademark in violation of any
third party rights.


 


(c)                                  Each
Grantor (either itself or through its licensees or sublicensees) will, for each
work covered by a Copyright material to the conduct of such Grantor’s business,
continue to publish, reproduce, display, adopt and distribute the work with
appropriate copyright notice as necessary and sufficient to establish and
preserve its maximum rights under applicable copyright laws.


 


(d)                                 Each
Grantor shall notify the Collateral Agent promptly if it knows or has reason to
know that any Material Trademark or any Patent, Copyright or Industrial Design
material to the conduct of its business may become abandoned, lost or dedicated
to the public, or of any materially adverse determination or development
(including the institution of, or any such determination or development in, any
proceeding in the Canadian Intellectual Property Office or any court or similar
office of any country) regarding such Grantor’s ownership of any Patent,
Material Trademark, Copyright or Industrial Design material to the conduct of
its business, its right to register the same, or its right to keep and maintain
the same.


 


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(e)                                  At
the time of delivery of quarterly financial statements with respect to each
Fiscal Quarter pursuant to Section 5.1(b) of the Credit Agreement,
each Grantor shall inform the Collateral Agent of any application for any
Patent, Trademark, Copyright or Industrial Design (or any registration of any
Patent, Trademark, Copyright or Industrial Design) such Grantor has filed with
the Canadian Intellectual Property Office or any office or agency in any
political subdivision of the Canada or in any other country or any political
subdivision thereof or any Copyright License for which such Grantor has become
the licensee, in each case, during such Fiscal Quarter, and, upon request of
the Collateral Agent, execute and deliver any and all agreements, instruments,
documents and papers as the Collateral Agent may reasonably request to evidence
the Collateral Agent’s Security Interest in any of the foregoing, and each
Grantor hereby appoints the Collateral Agent as its attorney-in-fact to execute
and file such writings for the foregoing purposes, all acts of such attorney
being hereby ratified and confirmed; such power, being coupled with an
interest, is irrevocable.


 


(f)                                    Each
Grantor will take all necessary steps that are consistent with the practice in
any proceeding before the Canadian Intellectual Property Office or any office
or agency in any political subdivision of the Canada or in any other country or
any political subdivision thereof, to maintain and pursue each application
relating to Material Trademarks and each material application relating to the
Patents and/or Copyrights and/or Industrial Designs (and to obtain the relevant
grant or registration) and to maintain each issued Patent and each registration
of Copyrights and/or Industrial Designs that is material to the conduct of any
Grantor’s business and each registration of Material Trademarks, including
timely filings of applications for renewal, affidavits of use, affidavits of
incontestability and payment of maintenance fees, and, if consistent with good
business judgment, to initiate opposition, interference and cancelation
proceedings against third parties.


 


(g)                                 In
the event that any Grantor has reason to believe that any Collateral consisting
of a Patent, Copyright or Industrial Design material to the conduct of any
Grantor’s business or a Material Trademark has been or is likely to be
infringed, misappropriated or diluted by a third party, such Grantor promptly
shall notify the Collateral Agent and shall, if consistent with reasonable
business judgment, promptly sue for infringement, misappropriation or dilution
and to recover any and all damages for such infringement, misappropriation or
dilution, and take such other actions as are appropriate under the
circumstances to protect such Collateral. 
Each Grantor further agrees not to abandon any Material Trademark or any
Patent, Copyright, Industrial Design or Copyright License that in such Grantor’s
reasonable business judgment is material to the operation of such Grantor’s
business without the prior written consent of the Collateral Agent.


 


(h)                                 Upon
and during the continuance of an Event of Default, each Grantor shall use its
best efforts to obtain all requisite consents or approvals by the licensor of
each Copyright License, Patent License, Industrial Design licence or Material
Trademark License under which such Grantor is a licensee to effect the


 


19

















 


assignment of all
such Grantor’s right, title and interest thereunder to the Collateral Agent or
its designee.


 


(i)                                     Without
limiting the generality of any of the foregoing, each Grantor hereby authorizes
the Collateral Agent, with prompt notice thereof to the Grantors, to supplement
this Agreement by supplementing Schedule 2 or adding additional schedules hereto
to identify specifically any asset or item that may constitute Copyrights,
Copyright Licenses, Patents and/or Industrial Designs or Material Trademarks;
provided that any Grantor shall within ten (10) days after it has been
notified by the Collateral Agent of the specific identification of such
Collateral, advise the Collateral Agent in writing of any inaccuracy of the
representations and warranties made by such Grantor hereunder with respect to
such Collateral.


 


3.13                           Pledged
Collateral


 


Subject to the Intercreditor Agreement:


 


(a)                                  If
any Grantor acquires Collateral consisting of chattel paper, instruments or
negotiable documents of title (collectively, “Negotiable
Collateral”), such Grantor shall, immediately upon receipt thereof,
deliver to the Collateral Agent the Negotiable Collateral and shall, at the
request of the Lender (i) endorse the same for transfer in blank or as the
Collateral Agent may direct, (ii) cause any transfer to be registered
wherever, in the opinion of the Lender, such registration may be required or
advisable, and (iii) deliver to the Collateral Agent any and all consents
or other documents which may be necessary or desirable to transfer the
Negotiable Collateral.


 


(b)                                 Each
Grantor shall not cause or permit any Person other than the Collateral Agent to
have control (as defined in the STA) of any investment property constituting
part of the Collateral, other than control in favour of a depositary bank or
securities intermediary which has subordinated its lien to the lien of the
Collateral Agent pursuant to documentation in form and substance satisfactory
to the Collateral Agent.


 


(c)                                  Provided
no Event of Default has occurred and is continuing, any Grantor has the right
to exercise all voting, consensual and other powers of ownership pertaining to
Collateral which is investment property (the “Pledged
Investment Property”) for all purposes not inconsistent with the
terms of this Security Agreement and each Grantor agrees that it will not vote
the Pledged Investment Property in any manner that is inconsistent with such
terms.


 


(d)                                 Provided
no Event of Default has occurred and is continuing, any Grantor may receive and
retain any dividends, distributions or proceeds on the Pledged Investment
Property.


 


(e)                                  If
an Event of Default has occurred and is continuing, whether or not the
Collateral Agent exercises any right to declare any Obligations due and payable
or seeks or pursues any other relief or remedy available to it under applicable
law or under this security agreement or otherwise, all dividends and other
distributions on the Pledged Investment Property shall be paid directly to the
Collateral Agent and retained by it as part of the Collateral, and, if the
Collateral Agent so requests


 


20

















 


in writing, the Corporation
will execute and deliver to the Collateral Agent any instruments or other
documents necessary or desirable to ensure that the Pledged Investment Property
is paid directly to the Collateral Agent.


 


(f)                                    With
respect to (i) the securities accounts (other than securities accounts
with an aggregate value of less than $10,000) and (ii) any Collateral that
constitutes a security entitlement as to which the financial institution acting
as Collateral Agent hereunder is not the securities intermediary, the relevant
Grantor will cause the securities intermediary with respect to each such
account or security entitlement to enter into a control agreement, such
agreement to be in form and substance reasonably satisfactory to the applicable
Grantor and the Collateral Agent (which agreement may also be for the benefit
of the agent for the Term Loan); provided that the Collateral Agent will not
exercise exclusive control over such accounts except after a Cash Control
Event; provided further that no Grantor shall be required to take the foregoing
actions with respect to any securities account until the later of (A) sixty
(60) days after the Effective Date and (B) in the case of securities
accounts opened after the Effective Date, at the time of establishment of such
securities account (or, in each case, such later date as the Collateral Agent
shall in its reasonable discretion agree).


 


3.14                           Payment


 


Each Grantor will pay duly and punctually all sums of money owed by it
to the Collateral Agent or any other Secured Party under this Security
Agreement at the times and places and in the manner provided for herein, the
Credit Agreement or any other Loan Document, as applicable.


 


3.15                           Credit Agreement


 


Each Grantor acknowledges having reviewed the covenants contained in
the Credit Agreement which relate to such Grantor and its business, and hereby
covenants and agrees to observe and perform all covenants provided for in the
Credit Agreement which relate to it and to do all things necessary or
appropriate to ensure that it is in compliance with such covenants at all
times.


 


SECTION 4 — COLLECTIONS


 


4.1                                 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 Collection 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


 


21

















 


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 Collection 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.


 


4.2                                 Power of Attorney


 


(a)                                  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 1.1 of this Security 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 4.1 of
this Security 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 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; (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


 


22

















 


Grantor; (x) to use,
license, or transfer, for the purposes permitted by Section 6 hereof, any
or all Intangibles of any Grantor, provided that the Collateral Agent’s use of
such 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 Security 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.


 


(b)                                 Notwithstanding
the provisions of Section 4.2, the power of the Collateral Agent to act in
any name other than the name of a Grantor shall not apply to any Pledged
Collateral that is ULC Shares.


 


4.3                                 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 4.2 hereof, 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 4.2 hereof 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 which it may have on the date of this Agreement or
hereafter, whether hereunder, under any other Loan Document, by law or
otherwise


 


SECTION 5 — DEFAULT


 


Each Grantor agrees that, upon the occurrence and during the
continuance of an Event of Default, the security interests hereby constituted
shall become enforceable and the Collateral Agent shall be entitled to exercise
and enforce any or all of the remedies herein provided or which may otherwise
be available to the Collateral Agent by statute, at law or in equity and all
amounts secured hereby shall immediately be paid to the Collateral Agent (for
itself and on behalf of the Secured Parties) by such Grantor.


 


23

















 


SECTION 6 — REMEDIES
ON DEFAULT


 


If the security interests hereby constituted become
enforceable, the Collateral 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 (the “Code”) (whether
or not the CCQ or the Code applies to the affected Collateral), the following
rights, remedies and powers:


 


6.1                                 Power of Entry


 


Each Grantor shall forthwith upon demand assemble and deliver to the
Collateral Agent possession of all of the Collateral at such place as may be
specified by the Collateral Agent. The Collateral 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, each Grantor agrees that the Collateral 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 the purpose of taking possession of and/or removing the Collateral
or any part thereof. In the event of the Collateral Agent taking possession of
the Collateral, or any part thereof, the Collateral Agent shall have the right
to maintain the same upon the premises on which the Collateral may then be
situate.


 


6.2                                 Power of Sale


 


The Collateral 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 each Grantor. 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 Collateral Agent, in
its sole discretion, may deem advantageous. If such sale, transfer or
disposition is made on credit or part cash and part credit, the Collateral
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 Collateral Agent may buy in or rescind or vary any contract for
sale of all or any of the Collateral and may reasonably resell without being
answerable for any loss occasioned thereby. Any such sale, lease or disposition
may take place whether or not the Collateral Agent has taken possession of the
Collateral. The Collateral Agent may, before any 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 Grantors by the Collateral Agent, shall become part of the
Secured Obligations, shall bear interest at the highest rate per annum charged
by the Collateral Agent on the Secured Obligations or any part thereof and shall
be secured by this Security Agreement.


 


6.3                                 Validity of Sale


 


No person dealing with the Collateral Agent or its servants or agents
shall be concerned to inquire whether the security hereby constituted has
become enforceable, whether the powers which the Collateral 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 Collateral


 


24

















 


Agent with the Collateral or to see to the application of any money
paid to the Collateral 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 Collateral Agent may, in addition to any other rights it may have,
appoint by instrument in writing a receiver, an interim receiver or receiver
and manager (each 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 Collateral Agent has under this
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 applicable Grantor and the
Collateral Agent and the other Secured Parties shall not be responsible for any
act or default of any such Receiver. The Collateral 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 Collateral Agent. A court
need not appoint, ratify the appointment by the Collateral Agent of or
otherwise supervise in any manner the actions of any Receiver. Upon a Grantor
receiving notice from the Collateral 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 such Grantor with respect
to the Collateral shall cease, unless specifically continued by the written
consent of the Collateral Agent.


 


6.5                                 Carrying on Business


 


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


 


6.6                                 Dealing with Collateral


 


The Collateral 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 any Grantor
except as otherwise required by any applicable law. The Collateral Agent may
demand, sue for and receive any Accounts Receivable with or without notice to
any Grantor, give such receipts, discharges and extensions of time and make
such compromises in respect of any Accounts Receivable which may, in the
Collateral Agent’s absolute discretion, seem bad or doubtful. The Collateral
Agent may charge on its own behalf and pay to others, sums for costs and
expenses incurred including, without limitation, legal fees and expenses on a
solicitor and his own client scale 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 Collateral Agent hereunder


 


25

















 


including, without limitation, in connection with advice with respect
to any of the foregoing. The amount of such sums shall be deemed advanced to
such Grantor by the Collateral Agent, shall become part of the Secured
Obligations, shall bear interest at the highest rate per annum charged by the
Collateral Agent on the Secured Obligations or any part thereof and shall be
secured by this Security Agreement.


 


6.7                                 Right to Use


 


For the purpose of enabling the Collateral Agent to exercise the
Collateral Agent’s Rights and Remedies under Section 6 (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, 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
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 such
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 and to the
extent to which any of the licensed items may be recorded or stored and to all
such computer software programs 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 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, and (ii) without limiting the provisions of Section 6.1,
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.


 


6.8                                 Retention of Collateral


 


Upon notice to any Grantor and subject to any obligation to dispose of
any of the Collateral, as provided in the PPSA, the Collateral Agent may 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 Collateral Agent may pay any encumbrance that may exist or be
threatened against the Collateral. In addition, the Collateral Agent may borrow
money, at standard commercial rates, required for the maintenance, preservation
or protection of the Collateral or for the carrying on of the business or
undertaking of any Grantor 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 each Grantor by the Collateral Agent,
shall become part of the Secured Obligations, shall bear interest at the
highest rate per annum charged by the Collateral Agent on the Secured
Obligations or any part thereof and shall be secured by this Security
Agreement.


 


26

















 


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 realized on the Collateral may be
applied to such part or parts of the Secured Obligations as the Collateral
Agent may see fit, subject to the terms of the Credit Agreement. The Collateral
Agent shall, at all times and from time to time, have the right to change any
appropriation as it may see fit, subject to the terms of the Credit Agreement.
Any insurance moneys received by the Collateral Agent pursuant to this Security
Agreement may, at the option of the Collateral 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 each Grantor without regard to
any equities between such Grantor and the Collateral Agent and/or any other
Secured Party or any right of set-off or cross-claim. Any indebtedness owing by
the Collateral Agent and/or any other Secured Party to any Grantor may be set
off and applied by the Collateral 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 Collateral Agent and the other Secured Parties all moneys due to
them, each Grantor shall forthwith pay or cause to be paid to the Collateral
Agent (either for itself or on behalf of the Secured Parties) such deficiency.


 


6.13                           Collateral Agent Not Liable


 


Neither the Collateral Agent nor any of the other Secured Parties shall
be liable or accountable for any failure to seize, collect, realize, dispose
of, enforce or otherwise deal with the Collateral. The Collateral Agent and the
other Secured Parties shall not be bound to institute proceedings for any such
purposes or for the purpose of preserving any rights of the Collateral Agent,
any Grantor 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 including, without
limitation, resulting from the negligence of the Collateral Agent or any of its
officers, servants, agents, solicitors, attorneys, Receivers or otherwise other
than for any loss, cost or damage arising as a result of any such person’s
wilful misconduct or gross negligence. Neither the Collateral Agent nor any of
the other Secured Parties, nor their respective 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
any Grantor as provided in Section 6.5 or for any loss, cost, damage or
expense whatsoever which may arise in respect of any such actions, omissions or
negligence other than for any loss, cost or damage arising as a result of any
such person’s wilful misconduct or gross negligence.


 


6.14                           Extensions of Time


 


The Collateral Agent and any of the other Secured Parties may grant
renewals, extensions of time and other indulgences, take and give up
securities, accept compositions, grant releases and


 


27

















 


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 any
Grantor, debtors of any Grantor, guarantors, sureties and others and with the
Collateral and other securities as the Collateral Agent may see fit, all without
prejudice to the liability of any Grantor to the Collateral Agent and the other
Secured Parties or the Collateral Agent’s and the other Secured Parties’ rights
and powers under this Security Agreement.


 


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 Collateral Agent may have from time to time under this Security
Agreement or under applicable law. The Collateral 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 Collateral 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.


 


6.16                           Voting Rights


 


(a)                                  So
long as no Event of Default shall have occurred and be continuing:


 


(i)                                     Each
Grantor shall be entitled to exercise any and all voting and other consensual
rights pertaining to the Pledged Collateral of such Grantor or any part thereof
for any purpose.  For so long as any
Grantor shall have the right to vote the Pledged Interests of such Grantor,
such Grantor covenants and agrees that it will not, without the prior written consent
of the Collateral Agent, vote or take any consensual action with respect to the
Pledged Interests which would materially affect the rights of the Collateral
Agent, any other Secured Party or the value of the Pledged Interests.  The Collateral Agent shall 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 this
Section 6.16(a)(i).


 


(ii)                                  Each
Grantor shall be entitled to receive and retain any and all dividends, cash,
options, warrants, rights, instruments, distributions, returns of capital or
principal, income, interest, profits and other property, interests (debt or
equity) or proceeds, including as a result of a split, revision,
reclassification or other like change of the Pledged Collateral, from time to
time received, receivable or otherwise distributed to such Grantor in respect
of or in exchange for any or all of the Pledged Collateral (any of the
foregoing, a “Distribution” and collectively the “Distributions”) paid in
respect of the Pledged Collateral of such Grantor to the extent that the
payment thereof is not otherwise prohibited by the terms of the Loan Documents;
provided, however, that any and all Distributions paid or payable other than in
cash (other than in connection with a partial or total liquidation or dissolution
or in connection with a reduction of capital,


 


28

















 


capital surplus
or paid in surplus) in respect of, and instruments and other property received,
receivable or otherwise distributed in respect of, or in exchange for, any
Pledged Collateral, shall be, and, subject to the limitations in the definition
of “Collateral”, be promptly delivered to the Collateral Agent to hold as
Pledged Collateral and shall, if received by such Grantor, be received in trust
for the benefit of the Collateral Agent, be segregated from the other property
or funds of such Grantor and be promptly delivered to the Collateral Agent as
Pledged Collateral in the same form as so received (with any necessary
endorsement).


 


(b)                                 Upon
the occurrence and during the continuance of an Event of Default:


 


(i)                                     All
rights of each Grantor (x) to exercise or refrain from exercising the
voting and other consensual rights that it would otherwise be entitled to
exercise pursuant to Section 6.16(a)(i) shall automatically cease and
(y) to receive Distributions that it would otherwise be authorized to
receive and retain pursuant to 6.16(a)(ii) shall automatically cease, and
all such rights shall thereupon become vested in the Collateral Agent, which
shall thereupon have the sole right to exercise or refrain from exercising such
voting and other consensual rights and to receive and hold as Pledged
Collateral such dividends, interest and other distributions; 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.  Any and all money and other property paid
over to or received by the Collateral Agent pursuant to the provisions of this Section 6.16(b)(i) 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 the Credit Agreement.  After all Events of Default have been cured
or waived and the Borrowers have delivered to the Collateral Agent a
certificate to that effect, the Collateral Agent shall promptly repay to each
Grantor (without interest) all dividends or interest that such Grantor would
otherwise be permitted to retain pursuant to the terms of this Section 6.16
and that remain in such account.


 


(ii)                                  All
Distributions that are received by any Grantor contrary to the provisions of
paragraph (i) of this Section 6.16(b) shall be received in trust
for the benefit of the Collateral Agent, shall be segregated from other funds
of such Grantor and shall be promptly paid over to the Collateral Agent as
Pledged Collateral in the same form as so received (with any necessary
endorsement).


 


(c)                                  This
Section 6.16 shall not apply to any Pledged Collateral that is ULC Shares
or to any Distributions that are paid in respect of ULC Shares


 


29

















 


6.17                           ULC Shares


 


(a)                                  Notwithstanding
any provisions to the contrary contained in this Security Agreement or any
other document or agreement among all or some of the parties hereto, each
Grantor that is the registered and beneficial owner of any Pledged Collateral
which are ULC Shares (“ULC Pledgor”)
will remain so until such time as such ULC Shares are effectively transferred
into the name of the Collateral Agent, any Secured Party or any other Person on
the books and records of such ULC. 
Accordingly, each ULC Pledgor shall be entitled to receive and retain
for its own account any Distribution in respect of such Pledged Collateral
(except insofar as such ULC Pledgor has granted a security interest in such
Distribution, and any shares which are Pledged Collateral shall be delivered to
the Collateral Agent to hold as Pledged Collateral hereunder) and shall have
the right to vote such Pledged Collateral and to control the direction,
management and policies of the applicable ULC issuer to the same extent as such
ULC Pledgor would if such Pledged Collateral were not pledged to the Collateral
Agent (for its own benefit and for the benefit of the Credit Parties) pursuant
hereto.  Nothing in this Security
Agreement or any other document or agreement among all or some of the parties
hereto is intended to, and nothing in this Security Agreement or any other
document or agreement among all or some of the parties hereto shall constitute,
the Collateral Agent, any Secured Party or any other Person other than a ULC
Pledgor a member of a ULC for the purposes of the Companies
Act (Nova Scotia) until such time as notice is given to such ULC
Pledgor and further steps are taken pursuant hereto or thereto so as to
register the Collateral Agent, any Secured Party or any other Person as holder
of the applicable ULC Shares.  To the
extent any provision hereof would have the effect of constituting the
Collateral Agent or any Secured Party as a member of any ULC prior to such
time, such provision shall be severed therefrom and shall be ineffective with
respect to Pledged Collateral which are ULC Shares without otherwise
invalidating or rendering unenforceable this Security Agreement or invalidating
or rendering unenforceable such provision insofar as it relates to Pledged
Collateral which are not ULC Shares.


 


(b)                                 Except
upon the exercise of rights to sell, transfer or otherwise dispose of the
Pledged Collateral issued by a ULC following the occurrence of an Event of
Default pursuant to Section 6, no ULC Pledgor shall cause or permit, or
enable any ULC in which they hold ULC Shares to cause or permit, the Collateral
Agent or any other Secured Party to:  (a) be
registered as shareholder or member of such ULC; (b) accept or request
stock powers of attorney in respect of such Person endorsed or assigned in
favour of the Collateral Agent or other Secured Party; (c) have any
notation entered in its favour in the share register of such ULC; (d) be
held out as a shareholder or member of such ULC; (e) receive, directly or
indirectly, any dividends, property or other distributions from such ULC by
reason of the Collateral Agent or any other Secured Party holding a security
interest in such ULC; or (f) to act as a shareholder or member of such
ULC, or exercise any rights of a shareholder or member including the right to
attend a meeting of, or to vote the shares of, such ULC.


 


30
















 


SECTION 7 — PERFECTION
OF SECURITY INTEREST


 


7.1           Perfection by Filing.


 


Each Grantor hereby authorizes the Collateral Agent, pursuant to the
provisions of Section 1 and Section 4.2, 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,
where applicable, a carbon, photographic, or other reproduction of this
Security Agreement shall be sufficient as a financing statement and may be
filed as a financing statement in any and all jurisdictions.


 


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”
(as defined in the STA) of any Deposit Accounts, securities accounts,
Concentration Accounts, Letter-of-Credit Rights, investment property, or
electronic chattel paper, with any agreements establishing control to be in
form and substance satisfactory to the Collateral Agent (and which may also be
for the benefit of the agent for the Term Loan), 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 2.3 and of the
preservation of its rights therein. The Grantors acknowledge that
notwithstanding anything to the contrary contained therein, the Blocked Account
Agreements, Credit Card Notifications, and landlord waivers and consents
previously executed and delivered to, or for the benefit of, the Collateral
Agent shall remain in full force and effect until all Secured Obligations
(including, without limitation, on account of the obligations owed by the
Facility Guarantors under the Facility Guarantor Security Documents) are 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 Banks and the Collateral Agent, and the
Issuing Banks have no further obligation to issue Letters of Credit under the
Credit Agreement, and any Obligations related to Letters of Credit, Cash
Management Services or Bank Products have been fully cash collateralized in a
manner reasonably satisfactory to the respective Lender to whom such
Obligations are owed.


 


7.3           Savings
Clause.


 


Nothing contained in this Section 7 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 (as hereinafter defined) hereunder
except (and then only to the extent) as mandated by the PPSA.


 


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SECTION 8 — GENERAL


 


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.


 


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 SecurityAgreement.


 


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.


 


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 the extent that it lawfully may, each
Grantor hereby agrees that it will not invoke any law relating to the
marshalling of 


 


32

















 


collateral which might cause delay in or
impede the enforcement of the Collateral Agent’s Rights and Remedies under this
Security 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.


 


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 Security 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 subject to the provisions
of Section 9.6 of the Credit Agreement and 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 Banks and the Collateral Agent, and as long as the Commitments
have not expired or terminated.


 


8.6           Binding
Effect; Several Agreement; Assignments


 


Whenever in this Security 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 Security 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 Security 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.


 


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 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 Security 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 Remedies 


 


33

















 


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 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 Security Agreement or any other Loan Document, the
performance by any Grantor of its obligations under this Security 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 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.


 


8.8           Governing
Law


 


This 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.


 


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 and
any Person, at any time, shall preclude the other 


 


34

















 


or further
exercise of the 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 Security 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


 


8.10         Severability


 


In the event any one or more of the provisions
contained in this Security 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).


 


8.11         Counterparts.


 


This Security Agreement may be executed in
two or more counterparts (and by different parties on different 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 Security Agreement by telecopy,
facsimile or other electronic image scan transmission (e.g.
“pdf” or “tif” via e-mail) shall be as effective as delivery of a manually
executed counterpart to this Security Agreement.


 


8.12         Sections
and Headings


 


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


 


8.13         Jurisdiction


 


(a)           Each
Grantor agrees that any suit for the enforcement of this Security Agreement may
be brought in the courts of the Province of Ontario and consent to the non-


 


35

















 


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


 


8.14         Termination;
Release of Collateral


 


(a)           (a)           Upon
any disposition of Collateral in connection with any disposition permitted
under the Credit Agreement or any other Loan Document (other than a sale or
transfer to a Grantor), or upon the effectiveness of any written consent to the
release of the security interest granted hereby in any Collateral pursuant to Section 9.2
of the Credit Agreement, the security interest in such Collateral shall be
automatically released.


 


(b)           Except
for those provisions which expressly survive the termination thereof, the
Credit Agreement, this Security Agreement and the security interest shall,
subject to Section 9.6 of the Credit Agreement, terminate when all the
Secured Obligations (other than any of the Secured Obligations which are not
Loan Agreement Obligations, and which are not then due and owing) 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 Banks and the Collateral Agent,
and the Issuing Banks have no further obligation to issue Letters of Credit
under the Credit Agreement, and any Obligations related to Letters of Credit,
Cash Management Services or Bank Products have been fully cash collateralized
in a manner reasonably satisfactory to the respective Lender to whom such
Obligations are owed, at which time the Collateral Agent shall execute and
deliver to the Grantors, at the Grantors’ expense, all PPSA discharges,
releases and similar documents that the Grantors shall reasonably request to
evidence such termination. Any execution and delivery of discharges or
documents pursuant to this Section 8.14 shall be without recourse to, or
warranty by, the Collateral Agent; provided, however, that the
Credit Agreement, this Security Agreement, and the Security Interest granted
herein shall be reinstated if at any time payment, or any part thereof, of any
Secured Obligation is rescinded or must otherwise be restored by any Secured
Party upon the bankruptcy or reorganization of any Grantor; and provided
further that the Security Interest granted herein shall not terminate as to any
indemnification obligation of any Grantor which expressly survives the
termination of the Credit Agreement and this Security Agreement, including,
without limitation, the obligations of the Grantors set forth in Section 9.3
of the Credit Agreement and the obligations of the Grantors set forth in Section 8.7
of this Agreement (in each case with respect to obligations other than
contingent obligations with respect to then unasserted claims) unless such
obligations have been cash collateralized or otherwise provided for to the


 


36

















 


satisfaction
of the Collateral Agent.  Any execution
and delivery of discharges or other documents pursuant to this Section 8.14
shall be at the expense of the Grantors and without recourse to, or warranty
by, the Collateral Agent or any other Secured Party.


 


8.15         Additional
Grantors


 


Pursuant to Section 5.13 of the Credit
Agreement, the Grantors shall each cause any new direct or indirect Subsidiary
(other than an Excluded Subsidiary) of any Grantor incorporated, formed or
becoming resident in Canada to enter into this Security Agreement as a Grantor.  Upon execution and delivery by the Collateral
Agent and a Subsidiary of an instrument in the form of Annex 1 hereto, such
Subsidiary shall become a Grantor hereunder with the same force and effect as
if originally named as a Grantor 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 Security Agreement.


 


8.16         Intercreditor
Agreement


 


Notwithstanding anything herein to the
contrary, the Lien and Security Interest granted pursuant to this Security
Agreement and the exercise of any right or remedy hereunder are subject to the
provisions of the Intercreditor Agreement. 
In the event of any conflict between the terms of the Intercreditor
Agreement and this Security Agreement, the terms of the Intercreditor Agreement
shall govern and control. Without limiting the generality of the foregoing, and
notwithstanding anything herein to the contrary, all rights and remedies of the
Collateral Agent (and the other Secured Parties) with respect to the Term
Priority Collateral shall be subject to the terms of the Intercreditor
Agreement, and until the discharge of the “Term Obligations” (as defined in the
Intercreditor Agreement), any obligation of any Grantor hereunder or under any
other Loan Document with respect to the delivery or control of any Term
Priority Collateral, the novation of any lien on any certificate of title, bill
of lading or other document, the giving of any notice to any bailee or other
Person, the provision of voting rights, the obtaining of any consent of any
Person or otherwise, in each case in connection with any Term Priority
Collateral, shall be deemed to be satisfied if such Grantor, as applicable,
complies with the requirements of the similar provision of the applicable “Term
Document” (as defined in the Intercreditor Agreement). Until the discharge of
the Term Obligations, the delivery of any Term Priority Collateral to the “Term
Priority Agent” (as defined in the Intercreditor Agreement) pursuant to the
Term Documents shall satisfy any delivery requirement hereunder or under any
other Loan Document.


 


8.17         Grantor
Consent


 


Each Grantor which is not a ULC hereby
consents to the security interests granted herein by each other Grantor,
including any security interests in Equity Interests issued by such Grantor or
Equity Interests issued by any Person in which such Grantor owns any Equity
Interest.  Each Grantor which is not a
ULC hereby waives any rights of such Grantor to notice in connection with the
grant of any Security Interests by any Grantor hereunder.


 


37

















 


8.18         Amendment
and Restatement


 


This Security Agreement shall be deemed to
amend, restate and replace in its entirety the security agreement in existence
between the Collateral Agent and any Grantor prior to the date hereof.  It is expressly understood and agreed by each
of the parties hereto that this Security Agreement is in no way intended and
shall not be deemed or construed to constitute a novation agreement.  Each Grantor acknowledges and agrees that
each reference in the Loan Documents to the “Security Agreement” shall be a
reference to this Security Agreement.


 


8.19         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 any Grantor 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.


 


8.20         Security
Interest Effective Immediately


 


Neither the execution or registration of this
Security Agreement nor any partial advances by the Collateral Agent shall bind
the Collateral Agent to advance any other amounts to any Grantor. The parties
intend the security interest created hereby to attach and take effect forthwith
upon execution of this Security Agreement by each Grantor and each Grantor
acknowledges that value has been given and that each Grantor has rights in its
Collateral.


 


8.21         Provisions
Reasonable


 


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


 


8.22         Number
and Gender


 


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


 


8.23         Precedence


 


Except as limited herein, in the event that
any provisions of this Security Agreement contradict and are otherwise
incapable of being construed in conjunction with the provisions of the Credit
Agreement, the provisions of the Credit Agreement, as applicable, shall take
precedence over those contained in this Security Agreement.


 


8.24         Receipt
of Copy


 


Each Grantor acknowledges receipt of an
executed copy of this Security Agreement.


 


38

















 


8.25         Judgment
Currency


 


If, for the purposes of obtaining or
enforcing judgment in any court or for any other purpose hereunder or in
connection herewith, it is necessary to convert a sum due hereunder in any
currency into another currency, such conversion shall be carried out to the
extent and in the manner provided in the Credit Agreement.


 


8.26         Waiver
of The Limitation of Civil Rights Act
(Saskatchewan)


 


Without limiting the generality of the
foregoing, each Grantor agrees that The Limitation of Civil
Rights Act (Saskatchewan) will not apply to this Security Agreement
or any rights, remedies or powers of the Collateral Agent, any Secured Party or
any Receiver hereunder.


 


8.27         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 page follows]


 


39
















 


IN
WITNESS WHEREOF, the parties hereto have duly
executed this Security Agreement as of the date first above written.


 


 


	
  ZALE
  CANADA CO.

  	
   

  	
  ZALE CANADA DIAMOND SOURCING INC

  
	
   

  	
   

  	
   

  
	
  Per:

  	
   

  	
   

  	
  Per:

  	
   

  
	
   

  	
  Name: 

  	
   

  	
   

  	
  Name: 

  
	
   

  	
  Title: 

  	
   

  	
   

  	
  Title: 

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ZALE CANADA FINCO 1, INC.

  	
   

  	
  ZALE CANADA FINCO 2, INC.

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Per:

  	
   

  	
   

  	
  Per:

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  Name: 

  
	
   

  	
   

  	
   

  	
   

  	
  Title: 

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  FINCO HOLDING LP by its general
  partner ZALE CANADA FINCO 2, INC.

  	
   

  	
  FINCO PARTNERSHIP LP by
  its general partner ZALE CANADA FINCO 2,
  INC.

  
	
   

  	
   

  	
   

  
	
  Per:

  	
   

  	
   

  	
  Per:

  	
   

  
	
   

  	
  Name: 

  	
   

  	
   

  	
  Name: 

  
	
   

  	
  Title: 

  	
   

  	
   

  	
  Title: 

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ZALE CANADA HOLDING LP
  by its general partner ZALE INTERNATIONAL, INC.

  	
   

  	
  FINCO PARTNERSHIP LP by
  its general partner ZALE CANADA FINCO 2,
  INC.

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Per:

  	
   

  	
   

  	
  Per:

  	
   

  
	
   

  	
  Name: 

  	
   

  	
   

  	
  Name: 

  
	
   

  	
  Title: 

  	
   

  	
   

  	
  Title: 

  



 


40

















 


	
   

  	
   

  	
  BANK OF AMERICA, N.A.
  on its own behalf and as Collateral Agent  

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  Per:

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  Name: 

  
	
   

  	
   

  	
   

  	
   

  	
  Title: 

  



 


41

















 


SCHEDULE  1


 


FORM OF PERFECTION CERTIFICATE


 


Attached.


 


42

















 


SCHEDULE  2


 


INTELLECTUAL PROPERTY


 


PATENTS


 


None


 


PATENT APPLICATIONS


 


None.


 


INDUSTRIAL DESIGNS


 


	
  OWNER

  	
   

  	
  COUNTRY

  	
   

  	
  TYPE

  	
   

  	
  REG. NO.

  	
   

  	
  EXPIRATION

  DATE

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ZALE CANADA CO.

  	
   

  	
  CANADA

  	
   

  	
  DESIGN PATENT

  	
   

  	
  111,357

  	
   

  	
  09/29/2016

  



 


INDUSTRIAL DESIGN APPLICATIONS


 


None.


 


TRADEMARKS


 


	
  OWNER

  	
   

  	
  COUNTRY

  	
   

  	
  MARK

  	
   

  	
  APP. 

  NO.

  	
   

  	
  REG. NO.

  	
   

  	
  EXPIRATION

  DATE

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ZALE  CANADA CO.

  	
   

  	
  CANADA

  	
   

  	
  ARCTIC IDEAL

  	
   

  	
  1,187,773

  	
   

  	
  645,250

  	
   

  	
  08/02/2020

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ZALE CANADA CO.

  	
   

  	
  CANADA

  	
   

  	
  ARIANNA

  	
   

  	
  1,121,991

  	
   

  	
  601,375

  	
   

  	
  02/04/2019

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ZALE CANADA CO.

  	
   

  	
  CANADA

  	
   

  	
  COLLECTORS 1

  	
   

  	
  444,488

  	
   

  	
  247,729

  	
   

  	
  7/4/2010

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ZALE CANADA CO.

  	
   

  	
  CANADA

  	
   

  	
  CROWN DESIGN

  	
   

  	
  661,766

  	
   

  	
  407,911

  	
   

  	
  2/12/2023

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ZALE CANADA CO.

  	
   

  	
  CANADA

  	
   

  	
  FASHION COMES FULL CIRCLE

  	
   

  	
  1,307,824

  	
   

  	
  743,567

  	
   

  	
  7/26/2024

  



 


43

















 


	
  OWNER

  	
   

  	
  COUNTRY

  	
   

  	
  MARK

  	
   

  	
  APP. 

  NO.

  	
   

  	
  REG. NO.

  	
   

  	
  EXPIRATION

  DATE

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ZALE CANADA CO.

  	
   

  	
  CANADA

  	
   

  	
  FOR PEOPLE WHO
  LOVE DIAMONDS

  	
   

  	
  705,458

  	
   

  	
  433,001

  	
   

  	
  09/09/2024

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ZALE CANADA CO.

  	
   

  	
  CANADA

  	
   

  	
  JEWELLER’S
  WORKSHOP & Design

  	
   

  	
  1,012,025

  	
   

  	
  546,105

  	
   

  	
  6/1/2016

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ZALE CANADA CO.

  	
   

  	
  CANADA

  	
   

  	
  LES BIJOUTIERS DIAMANTAIRES PEOPLES

  	
   

  	
  435,725

  	
   

  	
  278,507

  	
   

  	
  3/31/2013

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ZALE CANADA CO.

  	
   

  	
  CANADA

  	
   

  	
  MACKENZIE

  	
   

  	
  174,250

  	
   

  	
  UCA11718

  	
   

  	
  9/30/2013

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ZALE CANADA CO.

  	
   

  	
  CANADA

  	
   

  	
  MACKENZIE’S & Design

  	
   

  	
  284,953

  	
   

  	
  140,778

  	
   

  	
  6/11/2010

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ZALE CANADA CO.

  	
   

  	
  CANADA

  	
   

  	
  Maple Leaf & Circular Geometric Design

  	
   

  	
  1,417,833

  	
   

  	
  758,355

  	
   

  	
  1/29/2025

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ZALE CANADA CO.

  	
   

  	
  CANADA

  	
   

  	
  MAPPINS

  	
   

  	
  1,176,161

  	
   

  	
  605,395

  	
   

  	
  3/16/2019

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ZALE CANADA CO.

  	
   

  	
  CANADA

  	
   

  	
  MAPPIN’S

  	
   

  	
  380,832

  	
   

  	
  574,844

  	
   

  	
  1/31/2018

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ZALE CANADA CO.

  	
   

  	
  CANADA

  	
   

  	
  MAPPINS & Design

  	
   

  	
  1,176,162

  	
   

  	
  605,424

  	
   

  	
  3/16/2019

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ZALE CANADA CO.

  	
   

  	
  CANADA

  	
   

  	
  MAPPINS & CHINESE CHARACTERS &
  Design

  	
   

  	
  1,159,767

  	
   

  	
  605,118

  	
   

  	
  3/15/2019

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ZALE CANADA CO.

  	
   

  	
  CANADA

  	
   

  	
  PEOPLES

  	
   

  	
  342,965

  	
   

  	
  183,418

  	
   

  	
  5/26/2017

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ZALE CANADA CO.

  	
   

  	
  CANADA

  	
   

  	
  PEOPLES II

  	
   

  	
  1,217,230

  	
   

  	
  645,031

  	
   

  	
  7/28/2020

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ZALE CANADA CO.

  	
   

  	
  CANADA

  	
   

  	
  PEOPLES ANGELS FOUNDATION & Design

  	
   

  	
  874,111

  	
   

  	
  520,666

  	
   

  	
  12/16/2014

  



 


44

















 


	
  OWNER

  	
   

  	
  COUNTRY

  	
   

  	
  MARK

  	
   

  	
  APP. 

  NO.

  	
   

  	
  REG. NO.

  	
   

  	
  EXPIRATION

  DATE

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ZALE CANADA CO.

  	
   

  	
  CANADA

  	
   

  	
  PEOPLES - BRINGING PEOPLE CLOSER FOR OVER 75 YEARS

  	
   

  	
  770,596

  	
   

  	
  448,734

  	
   

  	
  10/6/2010

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ZALE CANADA CO.

  	
   

  	
  CANADA

  	
   

  	
  PEOPLES CANADA’S DIAMOND STORE SINCE
  1919 & Design

  	
   

  	
  1,403,666

  	
   

  	
  750,553

  	
   

  	
  10/20/2024

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ZALE CANADA CO.

  	
   

  	
  CANADA

  	
   

  	
  PEOPLES CANADIAN DIAMOND

  	
   

  	
  1,162,325

  	
   

  	
  639,719

  	
   

  	
  5/12/2020

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ZALE CANADA CO.

  	
   

  	
  CANADA

  	
   

  	
  PEOPLES & CHINESE CHARACTERS DESIGN

  	
   

  	
  853,462

  	
   

  	
  501,614

  	
   

  	
  9/30/2013

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ZALE CANADA CO.

  	
   

  	
  CANADA

  	
   

  	
  PEOPLES CREDIT

  	
   

  	
  175,515

  	
   

  	
  UCA12368

  	
   

  	
  4/18/2014

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ZALE CANADA CO.

  	
   

  	
  CANADA

  	
   

  	
  PEOPLES & Design

  	
   

  	
  342,969

  	
   

  	
  183,249

  	
   

  	
  5/19/2017

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ZALE CANADA CO.

  	
   

  	
  CANADA

  	
   

  	
  PEOPLES DIAMOND

  	
   

  	
  1,159,626

  	
   

  	
  605,256

  	
   

  	
  3/16/2019

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ZALE CANADA CO.

  	
   

  	
  CANADA

  	
   

  	
  PEOPLES — FOR EVERYONE

  	
   

  	
  740,555

  	
   

  	
  445,967

  	
   

  	
  8/11/2010

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ZALE CANADA CO.

  	
   

  	
  CANADA

  	
   

  	
  PEOPLES JEWELLERS

  	
   

  	
  436,328

  	
   

  	
  246,037

  	
   

  	
  6/6/2010

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ZALE CANADA CO.

  	
   

  	
  CANADA

  	
   

  	
  PEOPLES
  JEWELLERS THE DIAMOND PEOPLE

  	
   

  	
  466,248

  	
   

  	
  278,511

  	
   

  	
  3/31/2013

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ZALE CANADA CO.

  	
   

  	
  CANADA

  	
   

  	
  PEOPLES THE DIAMOND STORE

  	
   

  	
  793,592

  	
   

  	
  466,305

  	
   

  	
  11/26/2011

  



 


45

















 


	
  OWNER

  	
   

  	
  COUNTRY

  	
   

  	
  MARK

  	
   

  	
  APP. 

  NO.

  	
   

  	
  REG. NO.

  	
   

  	
  EXPIRATION

  DATE

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ZALE CANADA CO.

  	
   

  	
  CANADA

  	
   

  	
  ROYAL PAIR

  	
   

  	
  175,514

  	
   

  	
  UCA11770

  	
   

  	
  4/18/2014

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ZALE CANADA CO.

  	
   

  	
  CANADA

  	
   

  	
  THE DIAMOND PEOPLE PEOPLES

  	
   

  	
  672,154

  	
   

  	
  401,130

  	
   

  	
  8/7/2022

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ZALE CANADA CO.

  	
   

  	
  CANADA

  	
   

  	
  THE EXCLUSIVE MAPPINS CANADIAN DIAMOND

  	
   

  	
  1,174,742

  	
   

  	
  644,129

  	
   

  	
  7/12/2020

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ZALE CANADA CO.

  	
   

  	
  CANADA

  	
   

  	
  THE EXCLUSIVE PEOPLES LOVE BAND

  	
   

  	
  1,175.569

  	
   

  	
  639,609

  	
   

  	
  5/11/2020

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ZALE CANADA CO.

  	
   

  	
  CANADA

  	
   

  	
  THE MAPPINS PREMIER DIAMOND

  	
   

  	
  1,205,545

  	
   

  	
  645,133

  	
   

  	
  7/29/2020

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ZALE CANADA CO.

  	
   

  	
  CANADA

  	
   

  	
  THE MAPPINS ROYAL DIAMOND

  	
   

  	
  1,205,543

  	
   

  	
  645,436

  	
   

  	
  8/8/2020

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ZALE CANADA CO.

  	
   

  	
  CANADA

  	
   

  	
  THE MAPPINS SUPERIOR DIAMOND

  	
   

  	
  1,205,544

  	
   

  	
  645,279

  	
   

  	
  8/3/2020

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ZALE CANADA CO.

  	
   

  	
  CANADA

  	
   

  	
  THE PEOPLES CROWN DIAMOND

  	
   

  	
  1,205,540

  	
   

  	
  645,195

  	
   

  	
  8/2/2020

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ZALE CANADA CO.

  	
   

  	
  CANADA

  	
   

  	
  THE PEOPLES ELITE DIAMOND

  	
   

  	
  1,205,542

  	
   

  	
  639,537

  	
   

  	
  5/10/2020

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ZALE CANADA CO.

  	
   

  	
  CANADA

  	
   

  	
  THE PEOPLES PRESTIGE DIAMOND

  	
   

  	
  1,205,541

  	
   

  	
  639,538

  	
   

  	
  5/10/2020

  



 


46
















 


	
  OWNER

  	
   

  	
  COUNTRY

  	
   

  	
  MARK

  	
   

  	
  APP.

  NO.

  	
   

  	
  REG. NO.

  	
   

  	
  EXPIRATION

  DATE

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ZALE CANADA CO.

  	
   

  	
  CANADA

  	
   

  	
  WHEN WORDS ARE NOT ENOUGH

  	
   

  	
  708,059

  	
   

  	
  416,756

  	
   

  	
  9/10/2023

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ZALE CANADA CO.

  	
   

  	
  CANADA

  	
   

  	
  YOUNG’S JEWELLERS

  	
   

  	
  1,012,026

  	
   

  	
  541,076

  	
   

  	
  2/12/2016

  



 


TRADEMARK APPLICATIONS


 


	
  OWNER

  	
   

  	
  COUNTRY

  	
   

  	
  MARK

  	
   

  	
  APP. NO.

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ZALE CANADA CO.

  	
   

  	
  CANADA

  	
   

  	
  BRILLIANT VALUE

  	
   

  	
  1,446,083

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ZALE CANADA CO.

  	
   

  	
  CANADA

  	
   

  	
  BRILLIANT VALUE

  	
   

  	
  1,445,055

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ZALE CANADA CO.

  	
   

  	
  CANADA

  	
   

  	
  CELEBRATION CANADIAN DIAMOND & Design

  	
   

  	
  1,403,667

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ZALE CANADA CO.

  	
   

  	
  CANADA

  	
   

  	
  LOVE CHANGES EVERYTHING

  	
   

  	
  1,456,672

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ZALE CANADA CO.

  	
   

  	
  CANADA

  	
   

  	
  PEOPLES THE DIAMOND STORE SINCE 1919 &
  Design

  	
   

  	
  1,475,161

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ZALE
  CANADA CO.

  	
   

  	
  CANADA

  	
   

  	
  PEOPLES
  LE MAGASIN DE DIAMANT DU CANADA DEPUIS 1919 & DESIGN

  	
   

  	
  1,406,481

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ZALE CANADA CO.

  	
   

  	
  CANADA

  	
   

  	
  SAY “I LOVE YOU” LIKE NEVER BEFORE

  	
   

  	
  1,457,149

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ZALE CANADA CO.

  	
   

  	
  CANADA

  	
   

  	
  THIS HOLIDAY SAY “I LOVE YOU” LIKE NEVER BEFORE

  	
   

  	
  1,457,144

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ZALE CANADA CO.

  	
   

  	
  CANADA

  	
   

  	
  WEDDING DAY

  	
   

  	
  1,270,667

  



 


COPYRIGHTS


 


None.


 


COPYRIGHT APPLICATIONS


 


None.


 


47

















 


COPYRIGHT LICENSES


 


None.


 


48

















 


SCHEDULE  3


 


Pledged
Interests


 


	
  Name of Grantor

  	
   

  	
  Name of Pledged

  Company

  	
   

  	
  Number of

  Shares/Units

  	
   

  	
  Class of

  Interests

  	
   

  	
  Percentage of

  Class Owned

  	
   

  	
  Certificate

  Nos.

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ZALE CANADA CO.

  	
   

  	
  ZALE CANADA DIAMOND SOURCING INC.

  	
   

  	
  100

  	
   

  	
  Common

  	
   

  	
  100%

  	
   

  	
  C2

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  FINCO HOLDING LP

  	
   

  	
  ZALE CANADA CO.

  	
   

  	
  21,536,297

  	
   

  	
  Common

  	
   

  	
  11.44%

  	
   

  	
  C1

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  FINCO HOLDING LP

  	
   

  	
  FINCO PARTNERSHIP LP

  	
   

  	
  99

  	
   

  	
  Limited Partner Units

  	
   

  	
  100%

  	
   

  	
  1

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  FINCO HOLDING LP

  	
   

  	
  ZC PARTNERSHIP, LP

  	
   

  	
  65

  	
   

  	
  General Partner Units

  	
   

  	
  100%(1)

  	
   

  	
  1

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  FINCO PARTNERSHIP LP

  	
   

  	
  ZALE CANADA CO.

  	
   

  	
  166,753,858

  	
   

  	
  Common

  	
   

  	
  88.56%

  	
   

  	
  C2

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  FINCO PARTNERSHIP LP

  	
   

  	
  ZC PARTNERSHIP, LP

  	
   

  	
  9900

  	
   

  	
  Limited Partner Units

  	
   

  	
  100%

  	
   

  	
  1 & 2

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ZALE CANADA FINCO 2, INC.

  	
   

  	
  FINCO HOLDING LP

  	
   

  	
  1

  	
   

  	
  General Partner Units

  	
   

  	
  100%

  	
   

  	
  1

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ZALE CANADA FINCO 2, INC.

  	
   

  	
  FINCO PARTNERSHIP LP

  	
   

  	
  1

  	
   

  	
  General Partner Units

  	
   

  	
  100%

  	
   

  	
  1

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ZALE CANADA FINCO 1, INC.

  	
   

  	
  FINCO HOLDING LP

  	
   

  	
  99

  	
   

  	
  Limited Partner Units

  	
   

  	
  100%

  	
   

  	
  1

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ZALE CANADA
  HOLDING LP

  	
   

  	
  ZALE CANADA
  FINCO 1, INC.

  	
   

  	
  100,000

  	
   

  	
  Common

  	
   

  	
  100%

  	
   

  	
  2 & 3

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ZALE CANADA
  HOLDING LP

  	
   

  	
  ZALE CANADA
  FINCO LLC

  	
   

  	
  —

  	
   

  	
  LLC

  	
   

  	
  100%

  	
   

  	
  —

  



 






(1) Finco Holding LP holds all of the General
Partner Units, for a total of 100, but will only be pledging 65 General Partner
Units in connection herewith.


 


49

















 


Pledged Notes


 


	
  Name of Grantor

  	
   

  	
  Name of Issuer

  	
   

  	
  Amount

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ZALE CANADA CO.

  	
   

  	
  ZALE CORPORATION

  	
   

  	
  $

  	
  100,000,000

  	
   

  
							



 


50

















 


ANNEX 1


 


FORM OF SUPPLEMENT


 


SUPPLEMENT NO.      dated as of
[                    ]
(this “Supplement”), to the Amended and Restated Security Agreement dated as of
May 10, 2010 (as such may be amended, modified, supplemented or restated
hereafter, the “Security Agreement”), among ZALE CANADA CO., ZALE CANADA
DIAMOND SOURCING INC., ZALE CANADA FINCO 1, INC., ZALE CANADA FINCO 2, INC.,
FINCO HOLDING LP, FINCO PARTNERSHIP LP and ZALE CANADA HOLDING LP (each, a “Grantor”,
and collectively, the “ Grantors”) and the other grantors party thereto
from time to time, as grantors, and Bank of America, N.A., in its capacity
as  Collateral Agent (in such capacity,
the “Collateral Agent”).


 


Reference is made to the Amended and Restated Credit Agreement dated as
of May 10, 2010 (as such may be amended, modified, supplemented or
restated hereafter, the “Credit Agreement”) by and between, among
others, Zale Corporation and certain of its subsidiaries, as borrowers, the
Grantors and certain of their affiliates, as guarantors, the Lenders party
thereto and the Collateral Agent.


 


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.


 


The Grantors have entered into the Security Agreement in order to
induce the Lenders to make Loans.  Section 8.15
of the Security Agreement provides that new direct and indirect Subsidiaries of
the Grantors may become Grantors under the Security Agreement by execution and
delivery of an instrument in the form of this Supplement.  The undersigned Subsidiary (the “New
Subsidiary”) is executing this Supplement in accordance with the
requirements of the Credit Agreement to become a Grantor under the Security
Agreement as consideration for Loans previously under made the Credit
Agreement.


 


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


 


SECTION 1.  In accordance
with Section 8.15 of the Security Agreement, the New Subsidiary by its
signature below becomes a Grantor under the Security Agreement with the same
force and effect as if originally named therein as a Grantor and the New
Subsidiary hereby (a) agrees to all the terms and provisions of the
Security Agreement applicable to it as a 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.  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, 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 


 


51

















 


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 telecopy or other electronic
image scan transmission (e.g., “pdf” or “tif” via e-mail) shall be effective as
delivery of a manually signed counterpart to this Supplement.


 


SECTION 4.  The New
Subsidiary hereby represents and warrants that, as of the date hereof, (a) set
forth on Schedule 1 attached hereto is a fully executed Perfection
Certificate in the form annexed to the Security Agreements, (b) set forth
on Schedule 2 attached hereto is a true and correct schedule of
Intellectual Property consisting (i) all of the New Subsidiary’s Canadian
registered Patents and Patent applications, including the name of the
registered owner, type, registration or application number and the expiration
date (if already registered) of each such Patent and Patent application owned
by the New Subsidiary, (ii) all of the New Subsidiary’s Canadian
registered Industrial Designs and Industrial Design applications including the
name of the registered owner, registration or application number and the
expiration date (if already registered) of each Industrial Design and
Industrial Design application owned by the New Subsidiary, (iii) all of
the New Subsidiary’s Canadian registered Trademarks and Trademark
applications, including the name of the registered owner, the registration or
application number and the expiration date (if already registered) of each such
Trademark and Trademark application owned by the New Subsidiary and (iv) all
of the New Subsidiary’s Canadian registered Copyrights, Copyright applications
and Copyright Licenses, including the name of the registered owner, title and,
if applicable, the registration number of each such Copyright, Copyright
application or Copyright License owned by the New Subsidiary, and (c) set
forth on Schedule 3 attached hereto is the Pledged Collateral held by
the New Subsidiary.


 


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


 


SECTION 6.  EXCEPT AS
OTHERWISE EXPRESSLY PROVIDED HEREIN, IN ALL RESPECTS, INCLUDING ALL MATTERS OF
CONSTRUCTION, VALIDITY AND PERFORMANCE, THIS SUPPLEMENT AND THE SECURED
OBLIGATIONS SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE
WITH, THE LAWS OF THE PROVINCE OF ONTARIO AND THE FEDERAL LAWS OF CANADA
APPLICABLE THEREIN.


 


52

















 


SECTION 7.  In the event 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).


 


SECTION 8.  All
communications and notices hereunder shall be in writing and given as provided
in Section 8.01 of the Security Agreement.


 


SECTION 9.  The New
Subsidiary agrees to reimburse the Collateral Agent for its reasonable out-of-pocket
expenses reasonably incurred in connection with this Supplement, including the
reasonable fees, other charges and disbursements 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.


 


 


	
  COLLATERAL AGENT:

  	
   

  	
  BANK OF
  AMERICA, N.A.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  NEW SUBSIDIARY:

  	
   

  	
  [                                                            ]

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  



 


53






 












 


Annex 2


 


Form of
Pledged Collateral Addendum


 


This Pledged Collateral Addendum, dated as of
                  
      , 20      ,
is delivered in connection with the Security Agreement referred to below.  The undersigned hereby agrees that this
Pledged Collateral Addendum may be attached to that certain Amended and
Restated Security Agreement, dated as of May 10, 2010, (as amended,
restated, supplemented or otherwise modified from time to time, the “Security
Agreement”), among the undersigned, the other Grantors named therein, to
Bank of America, N.A., as Collateral Agent. 
Initially capitalized terms used but not defined herein shall have the
meaning ascribed to such terms in the Security Agreement or the Credit Agreement
(as defined in the Security Agreement). 
The undersigned hereby agrees that the additional interests listed on
this Pledged Collateral Addendum as set forth below shall be and become part of
the Pledged Collateral pledged by the undersigned to the Collateral Agent in
the Security Agreement and any pledged company set forth on this Pledged
Collateral Addendum as set forth below shall be and become a “Pledged Company”
under the Security Agreement, each with the same force and effect as if
originally named therein.


 


The undersigned hereby certifies that the
representations and warranties set forth in Section 2.08 of the Security
Agreement of the undersigned are true and correct as to the Pledged Collateral
listed herein on and as of the date hereof.


 


	
   

  	
  [                                      ]

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  



 

















 


Pledged Interests


 


	
  Name of Grantor

  	
   

  	
  Name of Pledged

  Company

  	
   

  	
  Number of

  Shares/Units

  	
   

  	
  Class of

  Interests

  	
   

  	
  Percentage

  of Class

  Owned

  	
   

  	
  Certificate

  Nos.

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  



 


Pledged Notes


 


	
  Name of Grantor

  	
   

  	
  Name of Issuer

  	
   

  	
  Amount

  

  

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  



 

















 


Annex 3


 


Form of
Canadian Patent, Industrial Design and Trademark Security Agreement


 


CANADIAN PATENT, INDUSTRIAL DESIGN AND
TRADEMARK SECURITY AGREEMENT dated as of May 10, 2010, by and among each
of: the Subsidiaries from time to time party hereto (each a “Grantor”,
and collectively, the “Grantors”) and Bank of America, N.A., in its
capacity as administrative agent and collateral agent (in such capacity, the “Agent”)
for the Lenders, in consideration of the mutual covenants contained herein and
benefits to be derived herefrom.


 


WHEREAS the
Grantors entered into an Amended and Restated Credit Agreement dated as of May 10,
2010 (as such may be amended, modified, supplemented or restated hereafter, the
“Credit Agreement”) between, among others, Zale Delaware, Inc.,
Zale Corporation, ZGCO, LLC, TXDC, L.P. and Zale Puerto Rico, Inc.
(collectively, the “Borrowers”), as borrowers, each of the Grantors and certain
of their affiliates, as guarantors, the Lenders (as defined in the Credit
Agreement) party thereto from time to time as lenders, and Bank of America,
N.A., in its capacity as Administrative Agent and Collateral Agent (as such
terms are defined in the Credit Agreement); and


 


WHEREAS the
Grantors granted security interests over all of their property to and in favour
of the Agent pursuant to the terms of a Canadian Security Agreement dated as of
May 10, 2010 (as amended, supplemented or otherwise modified from time to
time, the “Canadian Security Agreement”).


 


AND WHEREAS, the
Lenders have agreed to make Loans to the Borrowers pursuant to, and upon the
terms and subject to the conditions specified in, the Credit Agreement, and the
obligations of the Lenders to make Loans are each conditioned upon, among other
things, the execution and delivery by the Grantors of this Agreement;


 


NOW THEREFORE,
the Grantors and the Collateral Agent, for and on behalf of itself and the
Lenders (and each of their respective successors or assigns), hereby agree as
follows:


 


SECTION 1.  Defined Terms.  Capitalized terms used in this Agreement and
not otherwise defined herein have the meanings specified in the Credit
Agreement or Canadian Security Agreement, as applicable.   The rules of interpretation specified
in Section 1.02 of the Credit Agreement also apply to this Agreement,
mutatis mutandis.


 


SECTION 2.  Grant of Security Interest.  As security for the payment or performance,
as the case may be, in full of its Secured Obligations, each of the Grantors,
pursuant to the Canadian Security Agreement, did and hereby does grant to the
Agent, its successors and assigns, for the benefit of the Credit Parties, a
security interest in, all right, title and interest in, to and under 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 “Patent,
Industrial Design and Trademark Collateral”):


 

















 


(a)(i) any and all Canadian patents and patent
applications, including those listed on Schedule I; (ii) all inventions
and improvements described and claimed therein, including the right to make,
use and/or sell the inventions disclosed or claimed therein; (iii) all
reissues, divisions, continuations, renewals, extensions, and
continuations-in-part thereof; (iv) all income, royalties, damages,
claims, and payments now or hereafter due or payable under and with respect
thereto, including damages and payments for past, present and future
infringements thereof; (v) all rights to sue for past, present and future
infringements thereof; and (vi) all rights corresponding to any of the
foregoing;


 


(b)(i) all Canadian trademarks (including
service marks), trade names, trade dress, trade styles and other source
indicators, including those listed on Schedule II, and the registrations and
applications for registration thereof and the goodwill of the business
symbolized by the foregoing; (ii) all licenses of the foregoing, whether
as licensee or licensor; (iii) all renewals of the foregoing; (iv) all
income, royalties, damages and payments now or hereafter due or payable with
respect thereto, including damages, claims and payments for past and future
infringements thereof; (v) all rights to sue for past, present and future
infringements of the foregoing, including the right to settle suits involving
claims and demands for royalties owing; and (vi) all rights corresponding
to any of the foregoing; and


 


(c)(i) all Canadian industrial designs and industrial
design applications, including those listed on Schedule I; (ii) all
renewals of the foregoing, (iii) all income, royalties, damages and
payments now or hereafter due or payable with respect thereto, including
damages, claims and payments for past and future infringements thereof; (iv) all
rights to sue for past, present and future infringements of the foregoing,
including the right to settle suits involving claims and demands for royalties
owing; and (v) all rights corresponding to any of the foregoing.


 


SECTION 3. Security
Agreement.  The security interests
granted to the Agent herein are granted in furtherance, and not in limitation,
of the security interests granted to the Agent pursuant to the Canadian
Security Agreement.  Each Grantor hereby
acknowledges and affirms that the rights and remedies of the Agent with respect
to the Patent, Industrial Design and Trademark Collateral are more fully set
forth in the Canadian Security Agreement, the terms and provisions of which are
hereby incorporated herein by reference as if fully set forth herein.  In the event of any conflict between the
terms of this Agreement and the Canadian Security Agreement, the terms of the
Canadian Security Agreement shall govern.


 


SECTION 4. Counterparts.  This Agreement 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
Agreement, the other Loan Documents and the Intercreditor Agreement constitute
the entire contract among the parties relating to the subject matter hereof and
supersede any and all previous agreements and understandings, oral or written,
relating to the subject 


 

















 


matter
hereof.  Delivery of an executed
counterpart of a signature page to this Agreement by telecopy or other
electronic image scan transmission (e.g., “pdf” or “tif” via e-mail) shall be
as effective as delivery of a manually executed counterpart of this Agreement.


 


SECTION 5. GOVERNING
LAW.  EXCEPT AS OTHERWISE EXPRESSLY
PROVIDED IN ANY OF THE LOAN DOCUMENTS, IN ALL RESPECTS, INCLUDING ALL MATTERS
OF CONSTRUCTION, VALIDITY AND PERFORMANCE, THIS AGREEMENT AND EACH OTHER LOAN
DOCUMENT AND THE OBLIGATIONS SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED
IN ACCORDANCE WITH, THE LAWS OF THE PROVINCE OF ONTARIO, AND THE FEDERAL LAWS
OF CANADA APPLICABLE THEREIN.


 


[signature page follows]


 

















 


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


 


	
  ZALE
  CANADA CO.

  	
  ZALE CANADA DIAMOND SOURCING INC.

  
	
   

  	
   

  
	
  Per:

  	
   

  	
   

  	
  Per:

  	
   

  
	
   

  	
  Name:

  	
   

  	
   

  	
  Name:

  
	
   

  	
  Title:

  	
   

  	
   

  	
  Title:

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ZALE CANADA FINCO 1, INC.

  	
  ZALE CANADA FINCO 2, INC.

  
	
   

  	
   

  
	
  Per:

  	
   

  	
   

  	
  Per:

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  Title:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  FINCO HOLDING LP by its general
  partner ZALE CANADA FINCO 2, INC.

  	
   

  	
  FINCO PARTNERSHIP LP by
  its general partner ZALE CANADA FINCO 2,
  INC.

  
	
   

  	
   

  	
   

  
	
  Per:

  	
   

  	
   

  	
  Per:

  	
   

  
	
   

  	
  Name:

  	
   

  	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  	
  Title:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ZALE CANADA HOLDING LP
  by its general partner ZALE INTERNATIONAL, INC.

  	
   

  	
  FINCO PARTNERSHIP LP by
  its general partner ZALE CANADA FINCO 2,
  INC.

  
	
   

  	
   

  	
   

  
	
  Per:

  	
   

  	
   

  	
  Per:

  	
   

  
	
   

  	
  Name:

  	
   

  	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  	
  Title:

  	
   

  	
   

  



 

















 


	
   

  	
   

  	
   

  	
  BANK OF AMERICA, N.A.
  on its own behalf and as Agent

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  Per:

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  Title:

  	
   

  	
   

  



 
















 


Annex 4


 


Form of
Canadian Copyright Security Agreement


 


CANADIAN COPYRIGHT SECURITY AGREEMENT dated
as of May 10, 2010, by and among each of: the Subsidiaries from time to
time party hereto (each a “Grantor”, and collectively, the “Grantors”)
and Bank of America, N.A., in its capacity as administrative agent and
collateral agent (in such capacity, the “Agent”) for the Lenders, in
consideration of the mutual covenants contained herein and benefits to be
derived herefrom.


 


WHEREAS the
Grantors entered into an Amended and Restated Credit Agreement dated as of May 10
2010 (as such may be amended, modified, supplemented or restated hereafter, the
“Credit Agreement”) between, among others, Zale Delaware, Inc.,
Zale Corporation, ZGCO, LLC, TXDC, L.P. and Zale Puerto Rico, Inc.
(collectively, the “Borrowers”), as borrowers, each of the Grantors and certain
of their affiliates, as guarantors, the Lenders (as defined in the Credit
Agreement) party thereto from time to time as lenders, and Bank of America,
N.A., in its capacity as Administrative Agent and Collateral Agent (as such
terms are defined in the Credit Agreement); and


 


WHEREAS the
Grantors granted security interests over all of their property to and in favour
of the Agent pursuant to the terms of a Canadian Security Agreement dated as of
May 10, 2010 (as amended, supplemented or otherwise modified from time to
time, the “Canadian Security Agreement”).


 


AND WHEREAS, the
Lenders have agreed to make Loans to the Borrowers pursuant to, and upon the
terms and subject to the conditions specified in, the Credit Agreement, and the
obligations of the Lenders to make Loans are each conditioned upon, among other
things, the execution and delivery by the Grantors of this Agreement;


 


NOW THEREFORE,
the Grantors and the Collateral Agent, for and on behalf of itself and the
Lenders (and each of their respective successors or assigns), hereby agree as
follows:


 


SECTION 1.  Defined Terms.  Capitalized terms used in this Agreement and
not otherwise defined herein have the meanings specified in the Credit
Agreement or Canadian Security Agreement, as applicable.   The rules of interpretation specified
in Section 1.02 of the Credit Agreement also apply to this Agreement,
mutatis mutandis.


 


SECTION 2.  Grant of Security Interest.  As security for the payment or performance,
as the case may be, in full of its Secured Obligations, each of the Grantors,
pursuant to the Canadian Security Agreement, did and hereby does grant to the
Agent, its successors and assigns, for the benefit of the Credit Parties, a
security interest in, all right, title and interest in, to and under 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 “Copyright
Collateral”):


 

















 


(a) (a) all copyrights, rights and
interests in copyrights, works protectable by copyright, copyright
registrations and copyright applications subject to the copyright laws of
Canada, including those listed on Schedule I; (b) all extensions and
renewals of any of the foregoing; (c) all income, royalties, damages, and
payments now or hereafter due and/or payable under any of the foregoing,
including damages or payments for past, present or future infringements for any
of the foregoing; (d) the right to sue for past, present and future
infringements of any of the foregoing; and (e) all rights corresponding to
any of the foregoing;


 


SECTION 3. Security
Agreement.  The security interests
granted to the Agent herein are granted in furtherance, and not in limitation,
of the security interests granted to the Agent pursuant to the Canadian
Security Agreement.  Each Grantor hereby
acknowledges and affirms that the rights and remedies of the Agent with respect
to the Copyright Collateral are more fully set forth in the Canadian Security
Agreement, the terms and provisions of which are hereby incorporated herein by
reference as if fully set forth herein. 
In the event of any conflict between the terms of this Agreement and the
Canadian Security Agreement, the terms of the Canadian Security Agreement shall
govern.


 


SECTION 4. Counterparts.  This Agreement 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
Agreement, the other Loan Documents and the Intercreditor Agreement constitute the
entire contract among the parties relating to the subject matter hereof and
supersede any and all previous agreements and understandings, oral or written,
relating to the subject matter hereof. 
Delivery of an executed counterpart of a signature page to this
Agreement by telecopy or other electronic image scan transmission (e.g., “pdf”
or “tif” via e-mail) shall be as effective as delivery of a manually executed
counterpart of this Agreement.


 


SECTION 5. GOVERNING
LAW.  EXCEPT AS OTHERWISE EXPRESSLY
PROVIDED IN ANY OF THE LOAN DOCUMENTS, IN ALL RESPECTS, INCLUDING ALL MATTERS
OF CONSTRUCTION, VALIDITY AND PERFORMANCE, THIS AGREEMENT AND EACH OTHER LOAN
DOCUMENT AND THE OBLIGATIONS SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED
IN ACCORDANCE WITH, THE LAWS OF THE PROVINCE OF ONTARIO, AND THE FEDERAL LAWS
OF CANADA APPLICABLE THEREIN.


 


[signature page follows]


 

















 


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


 


	
  ZALE
  CANADA CO.

  	
   

  	
  ZALE CANADA DIAMOND SOURCING INC.

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Per:

  	
   

  	
   

  	
  Per:

  	
   

  
	
   

  	
  Name:

  	
   

  	
   

  	
  Name:

  
	
   

  	
  Title:

  	
   

  	
   

  	
  Title:

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ZALE CANADA FINCO 1, INC.

  	
   

  	
  ZALE CANADA FINCO 2, INC.

  
	
   

  	
   

  	
   

  
	
  Per:

  	
   

  	
   

  	
  Per:

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
   

  	
   

  	
  Title:

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  FINCO HOLDING LP by its general
  partner ZALE CANADA FINCO 2, INC.

  	
   

  	
  FINCO PARTNERSHIP LP by
  its general partner ZALE CANADA FINCO 2,
  INC.

  
	
   

  	
   

  	
   

  
	
  Per:

  	
   

  	
   

  	
  Per:

  	
   

  
	
   

  	
  Name:

  	
   

  	
   

  	
  Name:

  
	
   

  	
  Title:

  	
   

  	
   

  	
  Title:

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ZALE CANADA HOLDING LP
  by its general partner ZALE INTERNATIONAL, INC.

  	
   

  	
  FINCO PARTNERSHIP LP by
  its general partner ZALE CANADA FINCO 2,
  INC.

  
	
   

  	
   

  	
   

  
	
  Per:

  	
   

  	
   

  	
  Per:

  	
   

  
	
   

  	
  Name:

  	
   

  	
   

  	
  Name:

  
	
   

  	
  Title:

  	
   

  	
   

  	
  Title:

  



 

















 


	
   

  	
   

  	
  BANK OF AMERICA, N.A.
  on its own behalf and as Agent

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  Per:

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
   

  	
   

  	
  Title:

  



 
















 


EXHIBIT
D


Zale
Corporation


Borrowing Base Certificate


 


	
  FAX TO:   (617) 310-2872

  	
   

  	
  Cert.
  No.

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Retail

  	
   

  	
  Cost

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Beg.
  Inventory as of:

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ADD

  	
   

  	
  Receiving/Purchases

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Vendor
  Returns

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Markups/Markup
  Cancellations

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Inter-Co.
  transfers

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Other
  (Explain)

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  INVENTORY
  AVAILABLE FOR SALE

  	
   

  	
  $

  	
  —

  	
   

  	
  $

  	
  —

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  LESS

  	
   

  	
  Net
  Sales @ Retail

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Cost
  of Goods Sold @ Cost

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  POS
  Markdowns

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Perm
  Markdowns

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Shrink

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Prior
  Period Adjustments

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Total
  Reductions

  	
   

  	
  $

  	
  —

  	
   

  	
  $

  	
  —

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Ending
  inventory as of

  	
   

  	
  $

  	
  —

  	
   

  	
  $

  	
  —

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ADD:

  	
   

  	
  Zap Inventory
  (Gemstones, Shanks, and Mounts) Inventory receipts not fully processed in
  D.C.

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  LESS:

  	
   

  	
  Shrink Reserve @ EOM Form 400 &
  Damaged Inventory Consignment

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Eligible
  Inventory, as of:

  	
   

  	
   

  	
   

  	
  —

  	
  (A)

  
	
  Advance
  Rate:

  	
   

  	
   

  	
   

  	
   

  	
  (B)

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Inventory Borrowing Base (A*B)

  	
   

  	
   

  	
   

  	
  $

  	
  —

  	
  (C)

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Credit
  Card Receivables, as of:

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  LESS:

  	
   

  	
  Consignment
  A/R Reserve

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Eligible
  Credit Card Receivables, as of:

  	
   

  	
   

  	
   

  	
  $

  	
  —

  	
  (D)

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Receivable
  Advance Rate:

  	
   

  	
   

  	
   

  	
   

  	
  (E)

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Receivable Borrowing Base (D*E)

  	
   

  	
   

  	
   

  	
  —

  	
  (F)

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Less
  Availability Reserves:

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Merchandise Credits
  (50% of outstanding Store Credit Liability and 100% Customer Refund Liability)

  	
   

  	
   

  	
   

  
	
   

  	
  Gift Certificates (50%
  of outstanding)

  	
   

  	
   

  	
   

  
	
   

  	
  Landlord Lien Reserve
  (2 months)

  	
   

  	
   

  	
   

  
	
   

  	
  Customer Deposits (100%
  of outstanding layaways)

  	
   

  	
   

  	
   

  
	
   

  	
  Texas Ad Valorem Taxes

  	
   

  	
   

  	
   

  
	
   

  	
  Canadian Sales Tax
  Reserve (previous month’s tax payment for all provinces)

  	
   

  	
   

  	
   

  
	
   

  	
  Canadian Store Rent
  Reserve (previous month’s rent liability)

  	
   

  	
   

  	
   

  
	
   

  	
  Canadian Employee
  Payroll Reserve (50% of previous months payroll)

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Total
  Availability Reserves

  	
   

  	
   

  	
   

  	
  $

  	
  —

  	
  (H)

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Total Borrowing Base (not to exceed           )

  	
   

  	
   

  	
   

  	
  $

  	
  —

  	
  (I)

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  AVAILABILITY
  CALCULATION

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Beginning
  Principal Balance

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  ADD:

  	
  Prior
  days advance

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  ADD:

  	
  Fees
  charged today

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  ADD:

  	
  LC’S
  CHARGED

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  LESS:

  	
  Prior
  day’s paydown

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Ending
  principal balance

  	
   

  	
   

  	
   

  	
  $

  	
  —

  	
   

  
	
   

  	
  ADD:

  	
  Est.
  accrued interest month to date

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  ADD:

  	
  Standby
  Letters of Credit

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  ADD:

  	
  Documentary
  Letters of Credit

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Total
  loan balance prior to request

  	
   

  	
   

  	
   

  	
  $

  	
  —

  	
  (J)

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Net
  availability prior to today’s request (I-J)

  	
   

  	
   

  	
   

  	
  $

  	
  —

  	
  (K)

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ADVANCE REQUEST

  	
   

  	
   

  	
   

  	
   

  	
  (L)

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Paydown

  	
   

  	
   

  	
   

  	
  $

  	
  —

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Availability
  before minimum Excess Availability requirement (K-L)

  	
   

  	
   

  	
   

  	
  $

  	
  —

  	
  (M)

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Minimum
  Excess Availability requirement(1)

  	
   

  	
   

  	
   

  	
  $

  	
  50,000,000

  	
  (N)

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Availability
  after minimum Excess Availability requirement (N-O)

  	
   

  	
   

  	
   

  	
  $

  	
  (50,000,000

  	
  )(O)

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Term Loan Liquidity Covenant

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Minimum
  Liquidity as Defined in Sec. 7.08 (d) of the Term Loan Credit Agreement
  ($120MM through 1/31/11; $135MM thereafter)

  	
   

  	
   

  	
   

  	
  $

  	
  —

  	
   

  
	
  Compliance
  with Requirement?

  	
   

  	
   

  	
   

  	
  No

  	
   

  
													



 


The undersigned represents
and warrants that the information set forth above has been prepared in
accordance with the requirements of the Amended and Restated Credit Agreement
dated May 10, 2010 (as amended, restated, supplemented or otherwise
modified) by, among others, Zale Corporation, the other Borrowers and Facility
Guarantors party thereto, the Lenders party thereto, and Bank of America, N.A.,
as Administrative Agent and Collateral Agent for the Lenders.


 


Authorized Signer


 






(1)
(b) For all periods other than any period described in SECTION 6.8(a) of
the Amended and Restated Credit Agreement dated May      ,
2010, the Borrowers shall not permit Excess Availability to be less than (i) $50,000,000,
for any period of three (3) consecutive days or (ii) $40,000,000, at
any time.


 
















 


EXHIBIT E


 


BANK OF
AMERICA, N.A.,

as Administrative Agent and Collateral Agent

100 Federal Street, 9th Floor

Boston, Massachusetts 02110


 


May 10, 2010


 


Bank
of America, N.A.


100
Federal Street


Boston,
Massachusetts 02110


Attention:  Andrew Cerussi


 


Wells
Fargo Retail Finance, LLC


One
Boston Place, 18th Floor


Boston,
Massachusetts 02108


Attention:  Connie Liu


 


General
Electric Capital Corporation


777
Long Ridge Road, Building A


Stamford,
Connecticut 06927


Attention:  Zale Corporation Account Manager


 


Re:          Co-Borrowing Base Agent Rights Agreement


 


Ladies and Gentlemen:


 


Reference is hereby made to
that certain Amended and Restated Credit Agreement dated as of May 10,
2010, among (i) Zale Delaware, Inc., Zale Corporation, ZGCO, LLC,
TXDC, L.P. and Zale Puerto Rico, Inc. (collectively, the “Borrowers”),
(ii) Zale Canada Co. and the other Facility Guarantors party thereto
(together with the Borrowers, collectively, the “Loan Parties”), (iii) the
financial institutions from time to time party thereto, (iv) Bank of America,
N.A. (“Bank of America”), as administrative agent and collateral agent
for itself and such other financial institutions (in such capacities, the “Agent”),
and (v) Bank of America, Wells Fargo Retail Finance, LLC (“Wells Fargo”)
and General Electric Capital Corporation (“GE Capital”), each as a
co-borrowing base agents (each, a “Co-Borrowing Base Agent” and
collectively, the “Co-Borrowing Base Agents”) (as amended, modified,
restated and in effect from time to time, the “Credit Agreement”).  Capitalized terms which are used herein
without definition and which are defined in the Credit Agreement shall have the
same meanings herein as in the Credit Agreement.


 


Each of the Agent, the
Co-Borrowing Base Agents and the Loan Parties hereby acknowledge and agree
that, notwithstanding anything to the contrary in any of the Loan Documents:


 


(a)           Each of the Co-Borrowing
Base Agents shall have rights under the Credit Agreement and the other Loan
Documents that are as expansive as the rights afforded 


 

















 


thereunder to the Agent
relating to (i)(x) the definition in the Credit Agreement of the term “Excess
Availability” and any component of such definition, in each case insofar as it
is impacted by the Borrowing Base, and (y) the definition in the Credit
Agreement of the term “Borrowing Base” and any component of such definition
(including, without limitation, reserves, advance rates and eligibility
criteria, reporting requirements and appraisals, examinations and collateral
audits), and (ii) verifying the validity, extent, perfection or priority
of the Liens granted to the Agent with respect to the Collateral (the matters
described in clauses (i) and (ii) above being referred to herein
collectively as the “Collateral Issues”); provided that neither
Wells Fargo nor GE Capital shall be named on any financing statements nor have
the actual administration of Collateral with respect to which perfection is
obtained through possession or control;


 


(b)           If any provision in the
Credit Agreement or any other Loan Document relating to a Collateral Issue
allows the Agent to request or reasonably request (as the case may be) that any
action be taken or any documents or other information be provided by or on
behalf of any Loan Party, the Agent shall make any such request or reasonable
request (as applicable) that any of the Co-Borrowing Base Agents may request
and shall provide such Co-Borrowing Base Agent with any such documents or
information so requested promptly after the receipt thereof by the Agent;


 


(c)           Any provision in the Credit
Agreement or any other Loan Document relating to any Collateral Issue which
would otherwise only need the consent or approval of or to be satisfactory or
acceptable (or reasonably satisfactory or acceptable, as the case may be) to
the Agent shall be deemed to require the consent or approval of or be
satisfactory or acceptable (or reasonably satisfactory or acceptable, as the
case may be) to each of the Co-Borrowing Base Agents;


 


(d)           In the event that the
Co-Borrowing Base Agents and the Agent cannot in good faith agree on any issue
relating to the Borrowing Base, Excess Availability, the Borrowing Base
eligibility standards, reserves, advance rates, borrowing base reporting,
appraisals or examinations or any other action or determination relating to a Collateral
Issue, the resolution of such issue shall be to either (x) require that
the most conservative credit judgment be implemented (that is, such credit
judgment that would result in the least amount of credit being available to the
Loan Parties under the Credit Agreement) or (y) decline to permit the
requested action;


 


(e)           With respect to any
certificate, report or other deliverable required to be delivered to the
Administrative Agent pursuant to (x) the definition in the Credit
Agreement of the term “Payment Conditions” and (y) Section 6.8(a) of
the Credit Agreement, the Loan Parties shall deliver each such certificate,
report or other deliverable to each Co-Borrowing Base Agent promptly with the
delivery to the Administrative Agent; and


 


(f)            Without the prior written
consent of each Co-Borrowing Base Agent, no waiver, amendment or modification
of the Credit Agreement or any of the other Loan Documents shall (i) change
the Inventory Advance Rate, (ii) amend Section 6.8 of the 


 


2

















 


Credit Agreement or the
definition in the Credit Agreement of the term “Excess Availability” or any
component thereof if as a result thereof any of the minimum Excess Availability
covenants in such section would be reduced, or (iii) amend, modify or
otherwise affect the rights or duties of any of the Co-Borrowing Base Agents
under any of the Loan Documents.


 


Notwithstanding anything in
the Credit Agreement and the other Loan Documents and the foregoing to the
contrary, each of the Co-Borrowing Base Agents hereby agrees with the Agent
that (a) the Agent shall have sole and exclusive authority and
responsibility under the Credit Agreement and the other Loan Documents (without
the consent or further approval of any Co-Borrowing Base Agent) (x) to
make protective Overadvances to the Borrowers, in accordance with the terms and
conditions of the Credit Agreement and (y) to select, employ and retain
all attorneys, financial and other advisors, consultants, appraisers and other
professionals retained or to be retained by the Agent; and (b) all rights
of the Co-Borrowing Base Agents hereunder and the obligation of the Agent to
comply with any request or direction of the Co-Borrowing Base Agents shall be
at all times subject to the terms and conditions and any limitations set forth
in any Loan Document, including without limitation, the Intercreditor
Agreement. The Agent agrees to provide each Co-Borrowing Base Agent with drafts
of Collateral appraisals and audit reports promptly after the Agent’s receipt
thereof (but the Agent shall not be liable for failing to do so).


 


Without limiting the terms
of Section 9.2(a) of the Credit Agreement (a) no failure or
delay by any Co-Borrowing Base Agent in exercising any right or power hereunder
shall operate as a waiver thereof, nor shall any single or partial exercise of
any such right or power, or any abandonment or discontinuance of steps to
enforce such a right or power, preclude any other or further exercise thereof
or the exercise of any other right or power; and (b) the rights and
remedies of the Co-Borrowing Base Agents hereunder are cumulative and are not
exclusive of any rights or remedies that they would otherwise have.


 


Notwithstanding anything to
the contrary contained herein, in the Credit Agreement or in any other Loan
Document, each of Bank of America, Wells Fargo and GE Capital hereby agrees
that it may not and shall not assign any of its rights, powers, duties and
obligations as a Co-Borrowing Base Agent hereunder to any Person (other than an
Affiliate of such Person designated by such Person from time to time in writing
to the Agent as a Co-Borrowing Base Agent) without the prior written consent of
the Agent and, so long as no Event of Default is then existing, the Borrowers.  Any Co-Borrowing Base Agent may resign in
accordance with Section 8.12 of the Credit Agreement; provided that,
upon any such resignation, no Person shall be appointed as a successor to such
Co-Borrowing Base Agent.


 


For the avoidance of doubt,
each party hereto hereby agrees that nothing contained in the Credit Agreement,
any other Loan Document or herein shall permit any Co-Borrowing Base Agent (in
its capacity as such) to implement any Reserves or undertake to order any
appraisals, audits or exams, but rather this letter agreement (this “Agreement”)
grants each such Person the authority to direct the Agent to do so in
accordance with the terms and conditions of the Credit Agreement.


 


3

















 


This Agreement is the
Co-Borrowing Base Agent Rights Agreement referred to in the Credit
Agreement.  This Agreement expresses the
entire understanding of the parties with respect to the matters set forth
herein.  No prior discussions or
negotiations shall limit, modify, or otherwise affect the provisions
hereof.  This Agreement shall be governed
by, and shall be construed and enforced in accordance with, the laws of the
State of New York (excluding the laws applicable to conflicts or choice of law
(other than the New York General Obligations Law §5-1401)).


 


This Agreement may be
executed in counterparts which, when taken together, shall constitute an
original. Delivery of an executed counterpart of this Agreement by facsimile or
electronic transmission shall be equally effective as delivery of a manually
executed counterpart. This Agreement may not be amended or modified without the
written consent of the Agent and each affected Co-Borrowing Base Agent and, to
the extent such amendment or modification would increase the rights of any
Co-Borrowing Base Agent, without the written consent of the Loan Parties.


 


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of page left intentionally blank]


 


4

















 


	
   

  	
  Very truly yours,

  
	
   

  	
   

  
	
   

  	
  BANK OF AMERICA, N.A., as Administrative Agent
  and Collateral Agent

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  



 


(Signature
Page to Co-Borrowing Base Agent Rights Agreement)


 

















 


	
   

  	
  ACCEPTED
  AND AGREED TO

  
	
   

  	
  AS
  OF THE DATE FIRST ABOVE WRITTEN:

  
	
   

  	
   

  
	
   

  	
  BANK OF AMERICA, N.A., as a Co-Borrowing Base
  Agent

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  



 


(Signature
Page to Co-Borrowing Base Agent Rights Agreement)


 

















 


	
   

  	
  WELLS
  FARGO RETAIL FINANCE, LLC, as a Co-Borrowing Base Agent

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  



 


(Signature
Page to Co-Borrowing Base Agent Rights Agreement)


 

















 


	
   

  	
  GENERAL
  ELECTRIC CAPITAL CORPORATION, as a Co-Borrowing Base Agent

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:  Duly Authorized Signatory

  



 


(Signature
Page to Co-Borrowing Base Agent Rights Agreement)


 

















 


ACCEPTED AND AGREED TO


AS OF THE DATE FIRST WRITTEN
ABOVE:


 


	
  ZALE DELAWARE, INC.

  	
   

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  
	
  Name:

  	
   

  
	
  Title:

  	
   

  
			



 


	
  ZALE CORPORATION

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  
	
  Name:

  	
   

  
	
  Title:

  	
   

  
			



 


	
  ZGCO, LLC

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  
	
  Name:

  	
   

  
	
  Title:

  	
   

  
			



 


	
  TXDC, L.P.

  	
   

  
	
   

  	
   

  
	
  By:

  	
  ZALE DELAWARE, INC. Its
  General Partner

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
   

  	
   

  
	
  Name:

  	
   

  
	
  Title:

  	
   

  



 


	
  ZALE PUERTO RICO, INC.

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  
	
  Name:

  	
   

  
	
  Title:

  	
   

  
			



 


(Signature
Page to Co-Borrowing Base Agent Rights Agreement)


 

















 


	
  ZALE CANADA CO.

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  
	
  Name:

  	
   

  
	
  Title:

  	
   

  
			



 


	
  ZALE CANADA DIAMOND
  SOURCING, INC.

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  
	
  Name:

  	
   

  
	
  Title:

  	
   

  
			



 


	
  ZALE CANADA HOLDING LP

  	
   

  
	
   

  	
   

  
	
  By:

  	
  ZALE INTERNATIONAL, INC.,
  its general partner

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
   

  	
   

  
	
  Name:

  	
   

  
	
  Title:

  	
   

  



 


	
  ZALE CANADA FINCO 1, INC.

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  
	
  Name:

  	
   

  
	
  Title:

  	
   

  
			



 


 


	
  ZALE CANADA FINCO 2, INC.

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  
	
  Name:

  	
   

  
	
  Title:

  	
   

  
			



 


 


	
  FINCO HOLDING LP

  	
   

  
	
   

  	
   

  
	
  By:

  	
  ZALE CANADA FINCO 2, INC.,
  its general partner

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
   

  	
   

  
	
  Name:

  	
   

  
	
  Title:

  	
   

  



 


(Signature
Page to Co-Borrowing Base Agent Rights Agreement)


 

















 


	
  FINCO PARTNERSHIP LP

  	
   

  
	
   

  	
   

  
	
  By:

  	
  ZALE CANADA FINCO 2, INC.,
  its general partner

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
   

  	
   

  
	
  Name:

  	
   

  
	
  Title:

  	
   

  



 


 


	
  ZAP, INC.

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  
	
  Name:

  	
   

  
	
  Title:

  	
   

  
			



 


	
  ZCSC, LLC

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  
	
  Name:

  	
   

  
	
  Title:

  	
   

  
			



 


	
  ZALE INTERNATIONAL, INC.

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  
	
  Name:

  	
   

  
	
  Title:

  	
   

  
			



 


	
  ZALE EMPLOYEES’ CHILDCARE
  ASSOCIATION, INC.

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  
	
  Name:

  	
   

  
	
  Title:

  	
   

  
			



 


	
  ZALE CANADA FINCO, LLC

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  
	
  Name:

  	
   

  
	
  Title:

  	
   

  
			



 


(Signature
Page to Co-Borrowing Base Agent Rights Agreement)