Document:

Exhibit 10.2

 

GUARANTEE AND COLLATERAL AGREEMENT

 

GUARANTEE AND COLLATERAL
AGREEMENT, dated as of November 25, 2003, made by each of the signatories
hereto (together with any other entity that may become a party hereto as
provided herein, the “Grantors”), in favor of BANK ONE, NA, as Administrative
Agent (in such capacity, the “Administrative Agent”) for the banks and other
financial institutions (the “Lenders”) from time to time parties to the Credit
Agreement, dated as of November 25, 2003 (as amended, restated,
supplemented or otherwise modified from time to time, the “Credit Agreement”),
among DEPARTMENT 56, INC. (the “Borrower”), the Lenders and the Administrative
Agent.

 

W
I T N E S S E T H :

 

WHEREAS, pursuant to the
Credit Agreement, the Lenders have severally agreed to make extensions of
credit to the Borrower upon the terms and subject to the conditions set forth
therein;

 

WHEREAS, the Borrower is a
member of an affiliated group of companies that includes each other Grantor;

 

WHEREAS, the proceeds of the
extensions of credit under the Credit Agreement will be used in part to enable
the Borrower to make valuable transfers to one or more of the other Grantors in
connection with the operation of their respective businesses;

 

WHEREAS, the Borrower and the
other Grantors are engaged in related businesses, and each Grantor will derive
substantial direct and indirect benefit from the making of the extensions of
credit under the Credit Agreement; and

 

WHEREAS, it is a condition
precedent to the obligation of the Lenders to make their respective extensions
of credit to the Borrower under the Credit Agreement that the Grantors shall
have executed and delivered this Agreement to the Administrative Agent for the
ratable benefit of the Lenders;

 

NOW, THEREFORE, in consideration
of the premises and to induce the Administrative Agent and the Lenders to enter
into the Credit Agreement and to induce the Lenders to make their respective
extensions of credit to the Borrower thereunder, each Grantor hereby agrees
with the Administrative Agent, for the ratable benefit of the Lenders, as
follows:

 

SECTION 1.
DEFINED TERMS

 

1.1 Definitions. (a)
Unless otherwise defined herein, terms defined in the Credit Agreement and used
herein shall have the meanings given to them in the Credit Agreement, and the
following terms are used herein as defined in the New York UCC: Certificated
Security, Uncertificated Security, Chattel Paper, Instruments, Investment
Property and General Intangibles.

 

(b) The following terms
shall have the following meanings:

 

“Agreement” means this
Guarantee and Collateral Agreement, as the same may be amended, restated,
supplemented or otherwise modified from time to time.

 

 

“Borrower Obligations” means
the collective reference to all Secured Obligations.

 

“Collateral” is defined in
Section 3.

 

“Collateral Account” means
any collateral account established by the Administrative Agent as provided in
Section 6.2.

 

“Foreign Subsidiary” means
any Subsidiary organized under the laws of any jurisdiction outside the United
States of America.

 

“Foreign Subsidiary Voting
Stock” means the voting Capital Stock of any Foreign Subsidiary.

 

“Guarantor Obligations”
means, with respect to any Guarantor, all obligations and liabilities of such
Guarantor which may arise under or in connection with this Agreement
(including, without limitation, Section 2 hereof) or any other Loan
Document to which such Guarantor is a party and all Rate Management Obligations
of such Guarantor, in each case whether on account of guarantee obligations,
reimbursement obligations, fees, indemnities, costs, expenses or otherwise
(including, without limitation, all reasonable and documented fees and
disbursements of counsel to the Administrative Agent or to the Lenders that are
required to be paid by such Guarantor pursuant to the terms of this Agreement
or any other Loan Document).

 

“Guarantors” means the
collective reference to each Grantor other than the Borrower.

 

“Issuers” means the
collective reference to each Subsidiary of a Grantor which is an issuer of any
Pledged Stock.

 

“New York UCC” means the
Uniform Commercial Code as from time to time in effect in the State of New
York; provided that if by reason of mandatory provisions of law, the
perfection or the effect of perfection or non-perfection of the security
interests in any Collateral or the availability of any remedy hereunder is
governed by the Uniform Commercial Code as in effect on or after the date
hereof in any other jurisdiction, “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.

 

“Obligations” means (i) in
the case of the Borrower, the Borrower Obligations, and (ii) in the case of
each Guarantor, its Guarantor Obligations.

 

“Permitted Liens” means
Liens permitted by Sections 7.3(a) and (g) of the Credit Agreement.

 

“Pledged Stock” means the
shares of Capital Stock listed on Schedule 2, together with any other
shares, stock certificates, options or rights of any nature whatsoever in
respect of the Capital Stock of each Issuer that may be issued or granted to,
or held by, any Grantor while this Agreement is in effect, including, without
limitation, any Investment Property and/or General Intangibles comprising or
arising out of any of the foregoing; provided that in no event shall Foreign
Subsidiary Voting Stock with more than 65% of the total combined voting power
of all classes of stock entitled to vote of any Foreign Subsidiary be required
to be pledged hereunder.

 

“Proceeds” means all
“proceeds” as such term is defined in Section 9-102(a)(64) of the New York
UCC.

 

2

 

“Securities Act” means the
Securities Act of 1933, as amended.

 

1.2 Other Definitional
Provisions. (a) The words “hereof,” “herein”, “hereto” and “hereunder” and
words of similar import when used in this Agreement shall refer to this
Agreement as a whole and not to any particular provision of this Agreement, and
Section and Schedule references are to this Agreement unless
otherwise specified.

 

(b) The meanings given to
terms defined herein shall be equally applicable to both the singular and
plural forms of such terms.

 

(c) Where the context
requires, terms relating to the Collateral or any part thereof, when used in
relation to a Grantor, shall refer to such Grantor’s Collateral or the relevant
part thereof.

 

SECTION 2.
GUARANTEE

 

2.1 Guarantee. (a)
Each of the Guarantors hereby, jointly and severally, unconditionally and
irrevocably, guarantees to the Administrative Agent, for the ratable benefit of
the Lenders and, to the extent provided herein, their Affiliates, and their
respective successors, indorsees, transferees and assigns, the prompt and
complete payment and performance by the Borrower when due (whether at the
stated maturity, by acceleration or otherwise) of the Borrower Obligations.

 

(b) Anything herein or in
any other Loan Document to the contrary notwithstanding, the maximum liability
of each Guarantor hereunder and under the other Loan Documents shall in no
event exceed the amount which can be guaranteed by such Guarantor under
applicable federal and state laws relating to the insolvency of debtors (after
giving effect to the right of contribution established in Section 2.2).

 

(c) Each Guarantor agrees
that the Borrower Obligations may at any time and from time to time exceed the
amount of the liability of such Guarantor hereunder without impairing the
guarantee contained in this Section 2 or affecting the rights and remedies
of the Administrative Agent or any Lender hereunder.

 

(d) The guarantee contained
in this Section 2 shall remain in full force and effect until all the
Borrower Obligations and the obligations of each Guarantor under the guarantee
contained in this Section 2 shall have been satisfied by payment in full,
no LC Obligations shall be outstanding and the Commitments shall be terminated,
notwithstanding that from time to time during the term of the Credit Agreement
the Borrower may be free from any Borrower Obligations; provided, however, that
any Guarantor shall be released from its obligations hereunder if such
Guarantor pursuant to a transaction permitted under the Credit Agreement,
ceases to be a Subsidiary of the Borrower.

 

(e) No payment made by the
Borrower, any of the Guarantors, any other guarantor or any other Person or
received or collected by the Administrative Agent or any Lender from the
Borrower, any of the Guarantors, any other guarantor or any other Person by
virtue of any action or proceeding or any set-off or appropriation or
application at any time or from time to time in reduction of or in payment of
the Borrower Obligations shall be deemed to modify, reduce, release or
otherwise affect the liability of any Guarantor hereunder, each of which shall,
notwithstanding any such payment (other than any payment made by such Guarantor
in respect of the Borrower Obligations or any payment received or collected
from such Guarantor in respect of the Borrower Obligations), remain liable for
the Borrower Obligations up to the maximum liability of such Guarantor
hereunder until the Borrower Obligations are paid in full, no LC Obligations
shall be outstanding and the Commitments are terminated.

 

3

 

2.2 Right of Contribution.
Each Guarantor hereby agrees that to the extent that a Guarantor shall have
paid more than its proportionate share of any payment made hereunder, such
Guarantor shall be entitled to seek and receive contribution from and against
each other Guarantor hereunder which has not paid its proportionate share of
such payment. Each Guarantor’s right of contribution shall be subject to the
terms and conditions of Section 2.3. 
The  provisions of this
Section 2.2 shall in no respect limit the obligations and liabilities of
any Guarantor to the Administrative Agent and the Lenders, and each Guarantor
shall remain liable to the Administrative Agent and the Lenders for the full
amount guaranteed by such Guarantor hereunder.

 

2.3 No Subrogation.
Notwithstanding any payment made by any Guarantor hereunder or any set-off or
application of funds of any Guarantor by the Administrative Agent or any
Lender, no Guarantor shall be entitled to be subrogated to any of the rights of
the Administrative Agent or any Lender against the Borrower or any other
Guarantor or any collateral security or guarantee or right of offset held by
the Administrative Agent or any Lender for the payment of the Borrower
Obligations, nor shall any Guarantor seek or be entitled to seek any
contribution or reimbursement from the Borrower or any other Guarantor in
respect of payments made by such Guarantor hereunder, until all amounts owing
to the Administrative Agent and the Lenders by the Borrower on account of the Borrower
Obligations are paid in full, no LC Obligations shall be outstanding and the
Commitments are terminated.  If any
amount shall be paid to any Guarantor on account of such subrogation rights at
any time when all of the Borrower Obligations shall not have been paid in full,
such amount shall be held by such Guarantor in trust for the Administrative
Agent and the Lenders, segregated from other funds of such Guarantor, and
shall, forthwith upon receipt by such Guarantor, be turned over to the
Administrative Agent in the exact form received by such Guarantor (duly
indorsed by such Guarantor to the Administrative Agent, if required), to be
applied against the Borrower Obligations, whether matured or unmatured, in such
order as the Administrative Agent may determine.

 

2.4 Amendments, etc. with
Respect to the Borrower Obligations. 
Each Guarantor shall remain obligated hereunder notwithstanding that,
without any reservation of rights against any Guarantor and without notice to
or further assent by any Guarantor, any demand for payment of any of the
Borrower Obligations made by the Administrative Agent or any Lender may be
rescinded by the Administrative Agent or such Lender and any of the Borrower
Obligations continued, and the Borrower Obligations, or the liability of any
other Person upon or for any part thereof, or any collateral security or
guarantee therefor or right of offset with respect thereto, may, from time to
time, in whole or in part, be renewed, extended, amended, modified,
accelerated, compromised, waived, surrendered or released by the Administrative
Agent or any Lender, and the Credit Agreement and the other Loan Documents and
any other documents executed and delivered in connection therewith may be
amended, modified, supplemented or terminated, in whole or in part, as the
Administrative Agent (or the Required Lenders or all Lenders, as the case may
be) may deem advisable from time to time, and any collateral security,
guarantee or right of offset at any time held by the Administrative Agent or any
Lender for the payment of the Borrower Obligations may be sold, exchanged,
waived, surrendered or released. 
Neither the Administrative Agent nor any Lender shall have any
obligation to protect, secure, perfect or insure any Lien at any time held by
it as security for the Borrower Obligations or for the guarantee contained in
this Section 2 or any property subject thereto.

 

The Administrative Agent or
any Lender may, from time to time, at its sole discretion and without notice to
any Guarantor (or any of them), take any or all of the following actions:  (a) retain or obtain a security interest in
any property to secure any of the Secured Obligations or any obligation
hereunder; provided that nothing in this Agreement shall constitute or require
a grant of any such security interest other than in respect of the Collateral,
(b) retain or obtain the primary or secondary obligation of

 

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any obligor or obligors, in addition to the
undersigned, with respect to any of the Secured Obligations, (c) extend or
renew any of the Secured Obligations for one or more periods (whether or not
longer than the original period), alter or exchange any of the Secured
Obligations, or release or compromise any obligation of any of the undersigned
hereunder or any obligation of any nature of any other obligor with respect to
any of the Secured Obligations, (d) release any guaranty or right of offset or
its security interest in, or surrender, release or permit any substitution or
exchange for, all or any part of any property securing any of the Secured
Obligations or any obligation hereunder, or extend or renew for one or more
periods (whether or not longer than the original period) or release,
compromise, alter or exchange any obligations of any nature of any obligor with
respect to any such property, and (e) resort to the undersigned (or any of
them) for payment of any of the Secured Obligations when due, whether or not
the Administrative Agent or such Lender shall have resorted to any property
securing any of the Secured Obligations or any obligation hereunder or shall
have proceeded against any other of the undersigned or any other obligor
primarily or secondarily obligated with respect to any of the Secured
Obligations.

 

2.5 Guarantee Absolute
and Unconditional. Each Guarantor waives any and all notice of the
creation, renewal, extension or accrual of any of the Borrower Obligations and
notice of or proof of reliance by the Administrative Agent or any Lender upon
the guarantee contained in this Section 2 or acceptance of the guarantee
contained in this Section 2; the Borrower Obligations, and any of them,
shall conclusively be deemed to have been created, contracted or incurred, or
renewed, extended, amended or waived, in reliance upon the guarantee contained
in this Section 2; and all dealings between the Borrower and any of the
Guarantors, on the one hand, and the Administrative Agent and the Lenders, on
the other hand, likewise shall be conclusively presumed to have been had or
consummated in reliance upon the guarantee contained in this
Section 2.  Each Guarantor waives
diligence, presentment, protest, demand for payment and notice of default,
dishonor or nonpayment and all other notices whatsoever to or upon the Borrower
or any of the Guarantors with respect to the Borrower Obligations.

 

2.6 Reinstatement.
The guarantee contained in this Section 2 shall continue to be effective,
or be reinstated, as the case may be, if at any time payment, or any part
thereof, of any of the Borrower Obligations is rescinded or must otherwise be
restored or returned by the Administrative Agent or any Lender upon the
insolvency, bankruptcy, dissolution, liquidation or reorganization of the
Borrower or any Guarantor, or upon or as a result of the appointment of a
receiver, intervenor or conservator of, or trustee or similar officer for, the
Borrower or any Guarantor or any substantial part of its property, or
otherwise, all as  though such payments
had not been made.  In the event that
any payment, or any part thereof, is rescinded, reduced, restored or returned,
the Obligations shall be reinstated and deemed reduced only by such amount paid
and not so rescinded, reduced, restored or returned.

 

2.7 Payments. Each
Guarantor hereby guarantees that payments hereunder will be paid to the
Administrative Agent without set-off or counterclaim in Dollars at the office
of the Administrative Agent set forth on the signature page of the Credit
Agreement.

 

SECTION 3.
GRANT OF SECURITY INTEREST

 

Each Grantor hereby assigns
and transfers to the Administrative Agent, and hereby grants to the
Administrative Agent, for the ratable benefit of the Lenders and, to the extent
provided herein, their Affiliates, and their respective successors, indorsees,
transferees and assigns, a continuing security interest in, all Pledged Stock
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 and all Proceeds thereof (collectively, the “Collateral”), as
collateral security for the prompt and complete payment and performance when
due (whether at the stated maturity, by acceleration or otherwise) of such
Grantor’s Obligations.

 

5

 

SECTION 4.
REPRESENTATIONS AND WARRANTIES

 

To induce the Administrative
Agent and the Lenders to enter into the Credit Agreement and to induce the
Lenders to make their respective extensions of credit to the Borrower
thereunder, each Grantor, hereby represents and warrants to the Administrative
Agent and each Lender that:

 

4.1 Title; No Other Liens.
Except for Permitted Liens, such Grantor owns each item of the Collateral free
and clear of any and all Liens or claims of others.  No financing statement or other public notice with respect to all
or any part of the Collateral has been authorized and is on file or of record
in any public office, except such as have been filed in favor of the
Administrative Agent, for the ratable benefit of the Lenders, pursuant to this
Agreement.

 

4.2 Perfected First
Priority Liens.  Upon the execution
and delivery of this Agreement and (a) in the case of Pledged Stock that
constitutes Certificated Securities (as defined in the New York UCC), when
stock certificates representing such Pledged Stock are delivered to the
Administrative Agent together with undated stock powers covering such
certificates executed in blank, the Grantors have granted to the Administrative
Agent a fully perfected Lien on, and security interest in, all right, title and
interest of the Loan Parties in such Collateral and the Proceeds thereof, as
security for the Obligations, in each case prior and superior in right to any
other Person or Lien (except Permitted Liens, and subject, in the case of
Proceeds, to the applicable limitations under Section 9-315 of the New
York UCC) and (b) in the case of the Pledged Stock of Department 56 Minnesota,
LLC, and any items that become Pledged Stock after the Closing Date that will
constitute General Intangibles or Uncertificated Securities (as defined in the
New York UCC) when financing statements in appropriate form are filed in the
offices specified on Schedule 3 and, in the case of Uncertificated
Securities, the Administrative Agent has obtained “control” (within the meaning
of the New York UCC) of such Uncertificated Securities, the Grantors have
granted to the Administrative Agent a fully perfected Lien on, and security
interest in, all right, title and interest of the Loan Parties in such
Collateral and the Proceeds thereof, as security for the Obligations, in each
case prior and superior in any right to any other Person or Lien (except,
Permitted Liens, and subject, in the case of Proceeds to the applicable
limitations under Section 9-315 of the New York UCC).  Schedule 3 specifies the locations in
which to file the financing statements which may perfect a legal, valid and
enforceable security interest granted under this Agreement in the Investment
Property pursuant to Section 9-305(c) of the New York UCC.

 

4.3 Chief Executive
Office. On the date hereof, such Grantor’s exact legal name, jurisdiction
of organization, organizational identification number (if any), and the
location of such Grantor’s chief executive office or sole place of business are
specified on Schedule 4.

 

4.4 Pledged Stock.  (a) The shares of Pledged Stock pledged by
such Grantor hereunder constitute all the issued and outstanding shares of all
classes of the Capital Stock of each Issuer owned by such Grantor or, in the
case of Foreign Subsidiary Voting Stock, if less, Foreign Subsidiary Voting
Stock with 65% of the total combined voting power of all classes of stock
entitled to vote of each relevant Issuer.

 

(b) All the shares of the
Pledged Stock have been duly and validly issued and are fully paid and nonassessable.

 

(c) Such Grantor is the
record and beneficial owner of, and has good and marketable title to, the
Pledged Stock pledged by it hereunder, free of any and all Liens or options in
favor of, or claims of, any other Person, except the security interest created
by this Agreement.

 

6

 

SECTION 5.
COVENANTS

 

Each Grantor covenants and
agrees with the Administrative Agent and the Lenders that, from and after the
date of this Agreement until the Obligations shall have been paid in full, no
LC Obligations shall be outstanding and the Commitments shall have terminated:

 

5.1 Delivery of
Instruments, Certificated Securities and Chattel Paper. During the
continuance of any Default, if any amount payable under or in connection with
any of the Collateral shall be or become evidenced by any Instrument,
Certificated Security or Chattel Paper, such Instrument, Certificated Security
or Chattel Paper shall be immediately delivered to the Administrative Agent,
duly indorsed in a manner satisfactory to the Administrative Agent, to be held
as Collateral pursuant to this Agreement.

 

5.2 Payment of
Obligations. Such Grantor will pay and discharge or otherwise satisfy at or
before maturity or before they become delinquent, as the case may be, all
material taxes, assessments and governmental charges or levies imposed upon the
Collateral or in respect of income or profits therefrom, as well as all claims
of any kind against or with respect to the Collateral, except that no such charge
need be paid if the amount or validity thereof is currently being contested in
good faith by appropriate proceedings, reserves in conformity with GAAP with
respect thereto have been provided on the books of such Grantor and such
proceedings could not reasonably be expected to result in the sale, forfeiture
or loss of any material portion of the Collateral or any interest therein.

 

5.3 Maintenance of
Perfected Security Interest; Further Documentation.  (a) Such Grantor shall take such actions to
maintain the security interests created by this Agreement as perfected security
interests having at least the priority described in Section 4.2 as shall
be requested by the Administrative Agent or as otherwise required by the terms
of this Agreement and shall defend such security interests against the claims
and demands of all Persons whomsoever. 
Each Grantor will make no assignment, pledge, hypothecation or transfer
of, or create or permit to exist any security interest in or other Lien on, the
Collateral, other than Permitted Liens.

 

(b) At any time and from
time to time, upon the written request of the Administrative Agent, and at the
sole expense of such Grantor, such Grantor will promptly and duly execute and
deliver, and have recorded, such further instruments and documents and take
such further actions as the Administrative Agent may reasonably request for the
purpose of obtaining or preserving the full benefits of this Agreement and of
the rights and powers herein granted, including, without limitation, (i) filing
any financing or continuation statements under the Uniform Commercial Code (or
other similar laws) in effect in any jurisdiction with respect to the security
interests created hereby and (ii) in the case of Pledged Stock, taking any
actions necessary to enable the Administrative Agent to obtain “control”
(within the meaning of the applicable Uniform Commercial Code) with respect
thereto, to the extent control may be obtained under the applicable Uniform
Commercial Code.

 

5.4 Changes In Locations,
Name, Etc. Such Grantor will not, except upon 15 days’ prior written notice
to the Administrative Agent and delivery to the Administrative Agent of all
additional financing statements and other documents reasonably requested by the
Administrative Agent to maintain the validity, perfection and priority of the
security interests provided for herein:

 

(i) change its jurisdiction
of organization or the location of its chief executive office or sole place of
business from that referred to in Section 4.3; or

 

(ii) change its name,
identity or corporate structure.

 

7

 

5.5 Notices. Such
Grantor will advise the Administrative Agent and the Lenders promptly, in
reasonable detail, of:

 

(a) any Lien (other than
Permitted Liens) on any of the Collateral which would adversely affect the
ability of the Administrative Agent to exercise any of its remedies hereunder;
and

 

(b) the occurrence of any
other event which could reasonably be expected to have a material adverse
effect on the aggregate value of the Collateral, taken as a whole, or on the
security interests created hereby.

 

5.6 Pledged Stock.  (a) If such Grantor shall become entitled to
receive or shall receive any certificate (including, without limitation, any
certificate representing a stock dividend or a distribution in connection with
any reclassification, increase or reduction of capital or any certificate
issued in connection with any reorganization), option or rights in respect of
the Capital Stock of any Issuer, whether in addition to, in substitution of, as
a conversion of, or in exchange for, any Pledged Stock, or otherwise in respect
thereof, such Grantor shall accept the same as the agent of the Administrative
Agent and the Lenders, hold the same in trust for the Administrative Agent and
the Lenders and deliver the same forthwith to the Administrative Agent in the
exact form received, duly indorsed by such Grantor to the Administrative Agent,
if required, together with an undated stock power covering such certificate
duly executed in blank by such Grantor and with, if the Administrative Agent so
requests, signature guaranteed, to be held by the Administrative Agent, subject
to the terms hereof, as additional collateral security for the Obligations. Any
sums paid upon or in respect of the Pledged Stock upon any liquidation or
dissolution of any Issuer not permitted under the Credit Agreement shall be
paid over to the Administrative Agent to be held by it hereunder as additional
collateral security for the Obligations. In case any property consisting of
ownership interests in any Person shall be distributed upon or with respect to
the Pledged Stock pursuant to the recapitalization or reclassification of the
capital of any Issuer or pursuant to the reorganization thereof, such property
so distributed shall, unless otherwise subject to a perfected security interest
in favor of the Administrative Agent, be delivered to the Administrative Agent
to be held by it hereunder as additional collateral security for the Obligations.
If any such property so distributed in respect of the Pledged Stock shall be
received by such Grantor, such Grantor shall, until such property is delivered
to the Administrative Agent, hold such property in trust for the Lenders,
segregated from other property of such Grantor, as additional collateral
security for the Obligations.

 

(b) Without the prior
written consent of the Administrative Agent, such Grantor will not (i) vote to
enable, or take any other action to permit, any Issuer to issue any stock or
other equity securities of any nature or to issue any other securities
convertible into or granting the right to purchase or exchange for any stock or
other equity interests of any nature of any Issuer, (ii) sell, assign,
transfer, exchange, or otherwise dispose of, or grant any option with respect
to, the Pledged Stock or Proceeds thereof (except pursuant to a transaction
expressly permitted by the Credit Agreement), (iii) create, incur or permit to
exist any Lien or option in favor of, or any claim of any Person with respect
to, any of the Pledged Stock or Proceeds thereof, or any interest therein,
except for the security interests created by this Agreement or (iv) enter into
any agreement or undertaking restricting the right or ability of such Grantor or
the Administrative Agent to sell, assign or transfer any of the Pledged Stock
or Proceeds thereof.

 

(c) In the case of each
Grantor which is an Issuer, such Issuer agrees that (i) it will be bound by the
terms of this Agreement relating to the Pledged Stock issued by it and will
comply with such terms insofar as such terms are applicable to it, (ii) it will
notify the Administrative Agent promptly in writing of the occurrence of any of
the events described in Section 5.6(a) with respect to the Pledged Stock
issued by it and (iii) the terms of Section 6.1(c) shall apply to it, mutatis mutandis, with respect to all
actions that may be required of it pursuant to Section 6.1(c) with respect
to the Pledged Stock issued by it.

 

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SECTION 6.
REMEDIAL PROVISIONS

 

6.1 Pledged Stock.
(a) Unless a Default shall have occurred and be continuing and the
Administrative Agent shall have given notice to the relevant Grantor of the
Administrative Agent’s intent to exercise its corresponding rights pursuant to
Section 6.1(b), each Grantor shall be permitted to receive all cash
dividends paid in respect of the Pledged Stock, in each case paid in the normal
course of business of the relevant Issuer and consistent with past practice, to
the extent permitted in the Credit Agreement, and to exercise all voting and
corporate rights with respect to the Pledged Stock; provided, however, that no
vote shall be cast or corporate right exercised or other action taken which
could reasonably be expected to impair the value of the Collateral or which
would be inconsistent with or result in any violation of any provision of the
Credit Agreement, this Agreement or any other Loan Document.

 

(b) If a Default shall occur
and be continuing and the Administrative Agent shall give notice of its intent
to exercise such rights to the relevant Grantor or Grantors, (i) the
Administrative Agent shall have the right to receive any and all cash dividends
and distributions, payments or other Proceeds paid in respect of the Pledged
Stock and make application thereof to the Obligations in such order as the
Administrative Agent may determine, and (ii) if so elected by the
Administrative Agent, any or all of the Pledged Stock shall be registered in
the name of the Administrative Agent or its nominee, and the Administrative
Agent or its nominee may thereafter exercise (x) all voting, corporate and
other rights pertaining to such Pledged Stock at any meeting of equityholders
of the relevant Issuer or Issuers or otherwise and (y) any and all rights of
conversion, exchange and subscription and any other rights, privileges or
options pertaining to such Pledged Stock as if it were the absolute owner
thereof (including, without limitation, the right to exchange at its discretion
any and all of the Pledged Stock upon the merger, consolidation,
reorganization, recapitalization or other fundamental change in the corporate
or other structure of any Issuer, or upon the exercise by any Grantor or the
Administrative Agent of any right, privilege or option pertaining to such
Pledged Stock, and in connection therewith, the right to deposit and deliver
any and all of the Pledged Stock with any committee, depositary, transfer
agent, registrar or other designated agency upon such terms and conditions as
the Administrative Agent may determine), all without liability (except as
required by applicable law) except to account for property actually received by
it, but the Administrative Agent shall have no duty to any Grantor to exercise
any such right, privilege or option and shall not be responsible for any
failure to do so or delay in so doing.

 

(c) Each Grantor hereby
authorizes and instructs each Issuer of any Pledged Stock pledged by such
Grantor hereunder to (i) comply with any written instruction timely received by
it from the Administrative Agent in writing that (x) states that a Default has
occurred and is continuing and (y) is otherwise in accordance with the terms of
this Agreement and the authority of an equityholder of the Issuer, without any
other or further instructions from such Grantor, and each Grantor agrees that
each Issuer shall be fully protected in so complying, and (ii) unless otherwise
expressly permitted hereby, pay any dividends, distributions or other payments
with respect to the Pledged Stock directly to the Administrative Agent.

 

6.2 Proceeds To Be Turned
Over To Administrative Agent. If a Default shall occur and be continuing,
and a Grantor has been so notified in writing by the Administrative Agent, all
Proceeds received by such Grantor consisting of cash, checks and other
near-cash items shall be held by such Grantor in trust for the Administrative
Agent and the Lenders, segregated from other funds of such Grantor, and shall,
forthwith upon receipt by such Grantor, be turned over to the Administrative
Agent in the exact form received by such Grantor (duly indorsed by such Grantor
to the Administrative Agent, if required). All Proceeds received by the
Administrative Agent hereunder shall be maintained by the Administrative Agent
in a collateral account held by the Administrative Agent or pursuant to which
it has

 

9

 

obtained “control” (within the meaning of the
applicable Uniform Commercial Code) (a “Collateral Account”). All Proceeds
while held by the Administrative Agent in a Collateral Account (or by such
Grantor in trust for the Administrative Agent and the Lenders) shall continue
to be held as collateral security for all the Obligations and shall not
constitute payment thereof until applied as provided in Section 6.3.

 

6.3 Application of
Proceeds.

 

At such intervals as may be
agreed upon by the Borrower and the Administrative Agent, or, if a Default
shall have occurred and be continuing, at any time at the Administrative
Agent’s election, the Administrative Agent may apply all or any part of
Proceeds held in any Collateral Account in payment of due and payable
Obligations in such order as the Administrative Agent may elect, and any part
of such funds which the Administrative Agent elects not so to apply shall be
paid over from time to time by the Administrative Agent to the applicable
Grantor or to whomsoever may be lawfully entitled to receive the same. Any
balance of such Proceeds remaining after the Obligations shall have been paid
in full, no LC Obligations shall be outstanding and the Commitments shall have
terminated shall be paid over to the Borrower or to whomsoever may be lawfully
entitled to receive the same.

 

6.4 Code and Other
Remedies.

 

                If
a Default shall occur and be continuing, the Administrative Agent, on behalf of
the Lenders, may exercise, in addition to all other rights and remedies granted
to them in this Agreement and in any other instrument or agreement securing,
evidencing or relating to the Obligations, all rights and remedies of a secured
party under the New York UCC or any other applicable law.  Without limiting the generality of the
foregoing, the Administrative Agent, without demand of performance or other
demand, presentment, protest, advertisement or notice of any kind (except any
notice required by law referred to below) to or upon any Grantor or any other
Person (all and each of which demands, defenses, advertisements and notices are
hereby waived), may in such circumstances forthwith collect, receive,
appropriate and realize upon the Collateral, or any part thereof, and/or may
forthwith sell, lease, assign, give options to purchase, or otherwise dispose
of and deliver the Collateral or any part thereof (or contract to do any of the
foregoing), in one or more parcels at public or private sale or sales, at any
exchange, broker’s board or office of the Administrative Agent or any Lender or
elsewhere upon such terms and conditions as it may deem advisable and at such
prices as it may deem best, for cash or on credit or for future delivery
without assumption of any credit risk. 
The Administrative Agent or any Lender shall have the right upon any
such public sale or sales, and, to the extent permitted by law, upon any such
private sale or sales, to purchase the whole or any part of the Collateral so
sold, free of any right or equity of redemption in any Grantor, which right or
equity is hereby waived and released. 
Each Grantor further agrees, at the Administrative Agent’s request, to
assemble the Collateral and make it available to the Administrative Agent at
places which the Administrative Agent shall reasonably select, whether at such
Grantor’s premises or elsewhere.  The
Administrative Agent shall apply the net proceeds of any action taken by it pursuant
to this Section 6.4, after deducting all reasonable costs and expenses of
every kind incurred in connection therewith or incidental to the care or
safekeeping of any of the Collateral or in any way relating to the Collateral
or the rights of the Administrative Agent and the Lenders hereunder, including,
without limitation, reasonable attorneys’ fees and disbursements, to the
payment in whole or in part of the Obligations, in such order as the
Administrative Agent may elect, and only after such application and after the
payment by the Administrative Agent of any other amount required by any
provision of law, including, without limitation, Sections 9-610 and 9-615 of
the New York UCC, need the Administrative Agent account for the surplus, if
any, to any Grantor.  To the extent
permitted by applicable law, each Grantor waives all claims, damages and
demands it may acquire against the Administrative Agent or any Lender arising
out of the exercise by them of any rights hereunder.  If any

 

10

 

notice of a proposed sale or other
disposition of Collateral shall be required by law, such notice shall be deemed
reasonable and proper if given at least 15 days before such sale or other
disposition.

 

6.5 Deficiency.

 

Each Grantor shall remain
liable for any deficiency if the proceeds of any sale or other disposition of
the Collateral are insufficient to pay the Obligations in full and the
reasonable and documented fees and disbursements of any attorneys employed by
the Administrative Agent or any Lender to collect such deficiency.

 

SECTION 7. THE ADMINISTRATIVE AGENT

 

7.1 Administrative
Agent’s Appointment As Attorney-In-Fact, Etc.

 

(a) Each Grantor hereby
irrevocably constitutes and appoints the Administrative Agent and any officer
or agent thereof, with full power of substitution, as its true and lawful
attorney-in-fact with full irrevocable power and authority in the place and
stead of such Grantor and in the name of such Grantor or in its own name, for
the purpose of carrying out the terms of this Agreement, to take any and all
appropriate action and to execute any and all documents and instruments which
may be necessary or desirable to accomplish the purposes of this Agreement,
and, without limiting the  generality of
the foregoing, each Grantor hereby gives the Administrative Agent the power and
right, on behalf of such Grantor, without notice to or assent by such Grantor,
to do any or all of the following:

 

(i) in the name of such
Grantor or its own name, or otherwise, take possession of and indorse and
collect any checks, drafts, notes, acceptances or other instruments for the
payment of moneys due with respect to any other Collateral and file any claim
or take any other  action or proceeding
in any court of law or equity or otherwise deemed appropriate by the
Administrative Agent for the purpose of collecting any and all such moneys due
with respect to any other Collateral whenever payable;

 

(ii) pay or discharge taxes
and Liens levied or placed on or threatened against the Collateral;

 

(iii) execute, in connection
with any sale provided for in Section 6.4, any indorsements, assignments
or other instruments of conveyance or transfer with respect to the Collateral;
and

 

(iv) (1) direct any party
liable for any payment under any of the Collateral to make payment of any and
all moneys due or to become due thereunder directly to the Administrative Agent
or as the Administrative Agent shall direct; (2) ask or demand for, collect,
and receive payment of and receipt for, any and all moneys, claims and other
amounts due or to become due at any time in respect of or arising out of any
Collateral; (3) sign and indorse any assignments, verifications, notices and
other documents in connection with any of the Collateral; (4) commence and
prosecute any suits, actions or proceedings at law or in equity in any court of
competent jurisdiction to collect the Collateral or any portion thereof and to
enforce any other right in respect of any Collateral; (5) defend any suit,
action or proceeding brought against such Grantor with respect to any
Collateral; (6) settle, compromise or adjust any such suit, action or
proceeding and, in connection therewith, give such discharges or releases as
the Administrative Agent may reasonably deem appropriate; (7) vote any right or
interest with respect to any Pledged Stock; and (8) generally, sell, transfer,
pledge and make any agreement with respect to or otherwise deal with any of the
Collateral as fully and completely as though the Administrative Agent were the
absolute owner thereof for all purposes, and do, at the Administrative Agent’s
option and such Grantor’s expense, at any time, or from time to time, all acts
and things which the Administrative Agent deems necessary to protect, preserve
or realize upon the Collateral and the Administrative Agent’s and the Lenders’
security interests

 

11

 

therein and to effect the intent of  this Agreement, all as fully and effectively
as such Grantor might do.  Anything in
this Section 7.1(a) to the contrary notwithstanding, the Administrative
Agent agrees that it will not exercise any rights under the power of attorney
provided for in this Section 7.1 unless a Default shall have occurred and
be continuing.

 

(b) If any Grantor fails to
perform or comply with any of its agreements contained herein, the
Administrative Agent, at its option, but without any obligation so to do, may
perform or comply, or otherwise cause performance or compliance, with such
agreement.

 

(c) The expenses of the
Administrative Agent incurred in connection with actions undertaken as provided
in this Section 7.1, together with interest thereon at a rate per annum
equal to the highest rate per annum at which interest would then be payable on
any category of past due Floating Rate Loans under the Credit Agreement, from
the date of payment by the Administrative Agent to the date reimbursed by the
relevant Grantor, shall be payable by such Grantor to the Administrative Agent
on demand.

 

(d) Each Grantor hereby
ratifies all that said attorneys shall lawfully do or cause to be done by
virtue hereof. All powers, authorizations and agencies contained in this
Agreement are coupled with an interest and are irrevocable until this Agreement
is terminated and the security interests created hereby are released.

 

7.2 Duty of
Administrative Agent.  The
Administrative Agent’s sole duty with respect to the custody, safekeeping and
physical preservation of the Collateral in its possession, under
Section 9-207 of the New York UCC or otherwise, shall be to deal with it
in the same manner as the Administrative Agent deals with similar property for
its own account.  Neither the
Administrative Agent any Lender nor any of their respective officers,
directors, employees or agents shall be liable for any failure to demand,
collect or realize upon any of the Collateral or for any delay in doing so or
shall be under any obligation to sell or otherwise dispose of any Collateral
upon the request of any Grantor or any other Person or to take any other action
whatsoever with regard to the Collateral or any part thereof.  The powers conferred on the Administrative
Agent and the Lenders hereunder are solely to protect the Administrative
Agent’s and the Lenders’ interests in the Collateral and shall not impose any
duty upon the Administrative Agent or any Lender to exercise any such powers.
The Administrative Agent and the Lenders shall be accountable only for amounts
that they actually receive as a result of the exercise of such powers, and
neither they nor any of their officers, directors, employees or agents shall be
responsible to any Grantor for any act or failure to act hereunder, except for
their own gross negligence or willful misconduct.

 

7.3 Financing Statements.  Each Grantor authorizes the Administrative
Agent to file or record financing statements and other filing or recording
documents or instruments with respect to the Collateral without the signature
of such Grantor in such form and in such offices as the Administrative Agent determines
appropriate to perfect the security interests of the Administrative Agent under
this Agreement.

 

7.4 Authority of
Administrative Agent. Each Grantor acknowledges that the rights and
responsibilities of the Administrative Agent under this Agreement with respect
to any action taken by the Administrative Agent or the exercise or non-exercise
by the Administrative Agent of any option, voting right, request, judgment or
other right or remedy provided for herein or resulting or arising out of this
Agreement shall, as between the Administrative Agent and the Lenders, be
governed by the Credit Agreement and by such other agreements with respect
thereto as may exist from time to time among them, but, as between the
Administrative Agent and the Grantors, the Administrative Agent shall be
conclusively presumed to be acting as agent for the Lenders with full and valid
authority so to act or refrain from acting, and no Grantor shall be under any
obligation, or entitlement, to make any inquiry respecting such authority.

 

12

 

SECTION 8.
MISCELLANEOUS

 

8.1 Amendments in Writing.  None of the terms or provisions of this
Agreement may be waived, amended, supplemented or otherwise modified except in
accordance with Section 9.2 of the Credit Agreement.

 

8.2 Notices. All
notices, requests and demands to or upon the Administrative Agent or any
Grantor hereunder shall be effected in the manner provided for in
Section 14.1 of the Credit Agreement; provided that any such notice,
request or demand to or upon any Guarantor shall be addressed to such Guarantor
at its notice address set forth on Schedule 1.

 

8.3 No Waiver by Course
of Conduct; Cumulative Remedies.

 

Neither the Administrative
Agent nor any Lender shall by any act (except by a written instrument pursuant
to Section 8.1), delay, indulgence, omission or otherwise be deemed to
have waived any right or remedy hereunder or to have acquiesced in any Default.
No failure to exercise, or any delay in exercising, on the part of the
Administrative Agent or any Lender, any right, power or privilege hereunder
shall operate as a waiver thereof. No single or partial exercise of any right,
power or privilege hereunder shall preclude any other or further exercise
thereof or the exercise of any other right, power or privilege. A waiver by the
Administrative Agent or any Lender of any right or remedy hereunder on any one
occasion shall not be construed as a bar to any right or remedy which the
Administrative Agent or such Lender would otherwise have on any future
occasion. The rights and remedies herein provided are cumulative, may be
exercised singly or concurrently and are not exclusive of any other rights or
remedies provided by law.

 

8.4 Enforcement Expenses;
Indemnification.

 

(a) Each Guarantor agrees to
pay or reimburse each Lender and the Administrative Agent for all its costs and
expenses incurred in collecting against such Guarantor under the guarantee
contained in Section 2 hereof or otherwise enforcing or preserving any rights
under this Agreement and the other Loan Documents to which such Guarantor is a
party, including, without limitation, the reasonable and documented fees and
disbursements of counsel to each Lender and of counsel to the Administrative
Agent.

 

(b) Each Guarantor agrees to
pay, and to save the Administrative Agent and the Lenders harmless from, any
and all liabilities with respect to, or resulting from any delay in paying, any
and all stamp, excise, sales or other taxes which may be payable or determined
to be payable with respect to any of its Collateral or in connection with any
of the transactions contemplated by this Agreement.

 

(c) Each Guarantor agrees to
pay, and to save the Administrative Agent and the Lenders harmless from, any
and all liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements of any kind or nature
whatsoever with respect to the execution, delivery, enforcement, performance
and administration of this Agreement to the extent the Borrower would be
required to do so pursuant to Section 10.6 of the Credit Agreement.

 

(d) The agreements in this
Section 8.4 shall survive repayment of the Obligations and all other
amounts payable under the Credit Agreement and the other Loan Documents.

 

8.5 Successors and
Assigns.  This Agreement shall be
binding upon the successors and assigns of

 

13

 

each Grantor and shall inure to the benefit
of the Administrative Agent and the Lenders and their successors and assigns;
provided that no Grantor may assign, transfer or delegate any of its rights or
obligations under this Agreement without the prior written consent of the
Administrative Agent.

 

8.6 Set-Off. Each
Grantor hereby irrevocably authorizes the Administrative Agent and each Lender
at any time and from time to time while a Default shall have occurred and be
continuing, without notice to such Grantor or any other Grantor, any such
notice being expressly waived by each Grantor, to set-off and appropriate and apply
any and all deposits (general or special, time or demand, provisional or
final), in any currency, and any other credits, indebtedness or claims, in any
currency, in each case whether direct or indirect, absolute or contingent,
matured or unmatured, at any time held or owing by the Administrative Agent or
such Lender to or for the credit or the account of such Grantor, or any part
thereof in such amounts as the Administrative Agent or such Lender may elect,
against and on account of the due and payable obligations of such Grantor to
the Administrative Agent or such Lender hereunder, as the Administrative Agent
or such Lender may elect, whether or not the Administrative Agent or any Lender
has made any demand for payment and although such obligations, liabilities and
claims may be contingent or unmatured. The Administrative Agent and each Lender
shall notify such Grantor promptly of any such set-off and the application made
by the Administrative Agent or such Lender of the proceeds thereof, provided
that the failure to give such notice shall not affect the validity of such
set-off and application.  The rights of
the Administrative Agent and each Lender under this Section 8.6 are in
addition to other rights and remedies (including, without limitation, other rights
of set-off) which the Administrative Agent or such Lender may have.

 

8.7 Counterparts.  This Agreement may be executed by one or
more of the parties to this Agreement on any number of separate counterparts
(including by telecopy), and all of said counterparts taken together shall be
deemed to constitute one and the same instrument.

 

8.8 Severability. Any
provision of this Agreement which is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.

 

8.9 Section Headings.
The Section headings used in this Agreement are for convenience of
reference only and are not to affect the construction thereof or be taken into
consideration in the interpretation hereof.

 

8.10 Integration.
This Agreement and the other Loan Documents represent the agreement of the
Grantors, the Administrative Agent and the Lenders with respect to the subject
matter hereof and thereof, and there are no promises, undertakings,
representations or warranties by the Administrative Agent or any Lender
relative to subject matter hereof and thereof not expressly set forth or
referred to herein or in the other Loan Documents.

 

8.11 GOVERNING LAW. THIS AGREEMENT SHALL BE
GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE INTERNAL LAWS
OF THE STATE OF NEW YORK, BUT GIVING EFFECT TO FEDERAL LAWS APPLICABLE TO
NATIONAL BANKS.

 

8.12 SUBMISSION TO JURISDICTION; WAIVERS. EACH
GRANTOR HEREBY IRREVOCABLY SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF ANY
UNITED STATES FEDERAL OR NEW YORK STATE COURT SITTING IN NEW YORK, NEW YORK

 

14

 

IN ANY
ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT AND EACH
GRANTOR HEREBY IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF SUCH ACTION OR
PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH COURT AND IRREVOCABLY
WAIVES ANY OBJECTION IT MAY NOW OR HEREAFTER HAVE AS TO THE VENUE OF ANY
SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN SUCH A COURT OR THAT SUCH COURT IS
AN INCONVENIENT FORUM.  NOTHING HEREIN
SHALL LIMIT THE RIGHT OF THE ADMINISTRATIVE AGENT OR ANY LENDER TO BRING
PROCEEDINGS AGAINST ANY GRANTOR IN THE COURTS OF ANY OTHER JURISDICTION.  ANY JUDICIAL PROCEEDING BY ANY GRANTOR
AGAINST THE ADMINISTRATIVE AGENT OR ANY LENDER OR ANY AFFILIATE OF THE ADMINISTRATIVE
AGENT OR ANY LENDER INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER IN ANY WAY
ARISING OUT OF, RELATED TO, OR CONNECTED WITH ANY LOAN DOCUMENT SHALL BE
BROUGHT ONLY IN A COURT IN NEW YORK, NEW YORK. 
EACH GRANTOR WAIVES, TO THE MAXIMUM EXTENT NOT PROHIBITED BY LAW, ANY
RIGHT IT MAY HAVE TO CLAIM OR RECOVER IN ANY LEGAL ACTION OR PROCEEDING
REFERRED TO IN THIS SECTION ANY SPECIAL, EXEMPLARY, PUNITIVE OR
CONSEQUENTIAL DAMAGES.

 

8.13 Acknowledgments.

 

Each Grantor hereby
acknowledges that:

 

(a) it has been advised by
counsel in the negotiation, execution and delivery of this Agreement and the
other Loan Documents to which it is a party;

 

(b) neither the
Administrative Agent nor any Lender has any fiduciary relationship with or duty
to any Grantor arising out of or in connection with this Agreement or any of
the other Loan Documents, and the relationship between the Grantors, on the one
hand, and the Administrative Agent and the Lenders, on the other hand, in
connection herewith or therewith is solely that of debtor and creditor; and

 

(c) no joint venture is
created hereby or by the other Loan Documents or otherwise exists by virtue of
the transactions contemplated hereby among the Lenders or among the Grantors
and the Lenders.

 

8.14 Additional Grantors.

 

Each Material Subsidiary of
the Borrower that is required to become a party to this Agreement pursuant to
Section 6.9 of the Credit Agreement shall become a Grantor for all
purposes of this Agreement upon execution and delivery by such Subsidiary of a
joinder agreement in the form of Annex 1 hereto.

 

8.15 Releases.

 

(a) At such time as the
Loans, the Reimbursement Obligations and the other Obligations shall have been
paid in full, the Commitments have been terminated and no LC Obligations shall
be outstanding, the Collateral shall be released from the Liens created hereby,
and this Agreement and all obligations (other than those expressly stated to
survive such termination) of the Administrative Agent and each Grantor
hereunder shall terminate, all without delivery of any instrument or
performance of any act by any party, and all rights to the Collateral shall
revert to the Grantors. At the request and sole expense of any Grantor
following any such termination, the Administrative Agent shall deliver to such

 

15

 

Grantor any Collateral held by the
Administrative Agent hereunder, and execute and deliver to such Grantor such
documents as such Grantor shall reasonably request to evidence such
termination.

 

(b) If any of the Collateral
shall be sold, transferred or otherwise disposed of by any Grantor in a
transaction permitted by the Credit Agreement, or if such Grantor becomes a
Subsidiary that is not a Material Subsidiary and is not required to be a
Material Subsidiary to satisfy the requirements of such definition and upon
delivery to the Administrative Agent of reasonably detailed calculations
demonstrating that such Subsidiary is not a Material Subsidiary and is not
required to be a Material Subsidiary in order to satisfy the requirements of
such definition, then the Administrative Agent, at the request and sole expense
of such Grantor, shall execute and deliver to such Grantor all releases or
other documents reasonably necessary or desirable for the release of the Liens
created hereby on such Collateral.  At
the request and sole expense of the Borrower, a Subsidiary Guarantor shall be
released from its obligations hereunder in the event that the Capital Stock of
such Subsidiary Guarantor shall be sold, transferred or otherwise disposed of
in a transaction permitted by the Credit Agreement; provided that the Borrower
shall have delivered to the Administrative Agent, at least ten Business Days
prior to the  date of the proposed
release, a written request for release identifying the relevant Subsidiary
Guarantor, together with a certification by the Borrower stating that such
transaction is in compliance with the Credit Agreement and the other Loan
Documents.

 

8.16 WAIVER OF JURY TRIAL. EACH GRANTOR HEREBY
WAIVES TRIAL BY JURY IN ANY JUDICIAL PROCEEDING INVOLVING, DIRECTLY OR
INDIRECTLY, ANY MATTER (WHETHER SOUNDING IN TORT, CONTRACT OR OTHERWISE) IN ANY
WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH THIS AGREEMENT OR ANY OTHER
LOAN DOCUMENT OR THE RELATIONSHIP ESTABLISHED THEREUNDER.

 

8.17 Obligations and
Liens Absolute and Unconditional. 
Each Grantor understands and agrees that the obligations of each Grantor
under this Agreement shall be construed as a continuing, absolute and
unconditional without regard to (a) the validity or enforceability of any Loan
Document, any of the Obligations or any other collateral security therefor or
guarantee or right of offset with respect thereto at any time or from time to
time held by the Administrative Agent or any Lender, (b) any defense, set-off
or counterclaim (other than a defense of payment or performance) which may at
any time be available to or be asserted by any Grantor or any other Person
against the Administrative Agent or any Lender, or (c) any other circumstance
whatsoever (with or without notice to or knowledge of any Grantor) which
constitutes, or might be construed to constitute, an equitable or legal
discharge of any Grantor for the Obligations, in bankruptcy or in any other
instance.  When making any demand hereunder
or otherwise pursuing its rights and remedies hereunder against any Grantor,
the Administrative Agent or any Lender may, but shall be under no obligation
to, make a similar demand on or otherwise pursue such rights and remedies as it
may have against any other Grantor or any other Person or against any
collateral security or guaranty for the Obligations or any right of offset with
respect thereto, and any failure by the Administrative Agent or any Lender to
make any such demand, to pursue such other rights or remedies or to collect any
payments from any other Grantor or any other Person or to realize upon any such
collateral security or guaranty or to exercise any such right of offset, or any
release of any other Grantor or any other Person or any such collateral
security, guaranty or right of offset, shall not relieve any Grantor of any
obligation or liability hereunder, and shall not impair or affect the rights
and remedies, whether express, implied or available as a matter of law, of the
Administrative Agent or any Lender against any Grantor.  For the purposes hereof “demand” shall
include the commencement and continuance of any legal proceedings.

 

[signature
page follows]

 

16

 

IN WITNESS WHEREOF, each of
the undersigned has caused this Guarantee and Collateral Agreement to be duly
executed and delivered as of the date first above written.

 

	
   

  	
  DEPARTMENT 56, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Timothy Schugel

  	
   

  
	
   

  	
  Title:

  	
  Executive Vice President
  and CFO

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  D 56, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Timothy Schugel

  	
   

  
	
   

  	
  Title:

  	
  Executive Vice President
  and Chief Financial Officer

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  CAN 56, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Timothy Schugel

  	
   

  
	
   

  	
  Title:

  	
  President and Treasurer

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  FL 56 INTERMEDIATE CORP.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Timothy Schugel

  	
   

  
	
   

  	
  Title:

  	
  Vice President and
  Treasurer

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  AXIS HOLDINGS CORPORATION

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Timothy Schugel

  	
   

  
	
   

  	
  Title:

  	
  Vice President

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  DEPARTMENT 56 RETAIL, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Timothy Schugel

  	
   

  
	
   

  	
  Title:

  	
  Vice President and
  Treasurer

  	
   

  
						

 

Acknowledged and Agreed:

 

	
  BANK ONE, NA,

  	
   

  
	
  as Administrative Agent

  	
   

  
	
   

  	
   

  
	
  By:

  	
  /s/ Anthony W. Bartell

  	
   

  
	
  Title: 

  	
  Vice President

  	
   

  
				

 

Signature Page to

Guarantee and Collateral Agreement

 

 

Annex
1

 

FORM OF JOINDER TO GUARANTEE AND COLLATERAL AGREEMENT

 

This JOINDER AGREEMENT (this
“Agreement”) dated as of [                ]
is executed by the undersigned for the benefit of Bank One, NA, as the
Administrative Agent (the “Administrative Agent”) in connection with
that certain Guarantee and Collateral Agreement dated as of November 25,
2003 among the Grantors party thereto in favor of the Administrative Agent (as
amended, restated, supplemented or modified from time to time, the “Guarantee
and Collateral Agreement”). 
Capitalized terms not otherwise defined herein are being used herein as
defined in the Guarantee and Collateral Agreement.

 

Each Person signatory hereto
is required to execute this Agreement pursuant to Section 8.14 of the
Guarantee and Collateral Agreement.

 

In consideration of the
premises and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, each signatory hereby agrees as follows:

 

1.                                       Each such Person assumes all the obligations
of a [Grantor and/or a Guarantor] under the Guarantee and Collateral Agreement
and agrees that such person or entity is a [Grantor and/or a Guarantor] and
bound as a [Grantor and/or a Guarantor] under the terms of the Guarantee and
Collateral Agreement, as if it had been an original signatory to such
agreement.  [In furtherance of the
foregoing, such Person hereby assigns, pledges and grants to the Administrative
Agent a security interest in all of its right, title and interest in and to the
Collateral owned thereby to secure the Obligations.]

 

2.                                       [[Schedules 1, 2, 3 and 4 of the Guarantee
and Collateral Agreement are hereby amended to add the information relating to
each such Person set out on Schedules 1, 2, 3 and 4 respectively, hereof.]  Each such Person hereby makes to the
Administrative Agent the representations and warranties set forth in the
Guarantee and Collateral Agreement applicable to such Person [and the
applicable Collateral and confirms that such representations and warranties are
true and correct after giving effect to such amendment to such Schedules.]]

 

3.                                       [In furtherance of its obligations under
Section 5.3 of the Guarantee and Collateral Agreement, each such Person
agrees to deliver to the Administrative Agent such UCC financing statements,
certificates in respect of Pledged Stock, control agreements and other
documentation as the Administrative Agent (or its successors or assigns) may
require to evidence, protect and perfect the Liens created by the Guarantee and
Collateral Agreement, as modified hereby, in accordance with Section 5.3
of the Guarantee and Collateral Agreement. 
Each such Person acknowledges the authorizations given to the
Administrative Agent under the Guarantee and Collateral Agreement.]

 

4.                                       Each such Person’s address for notices under
the Guarantee and Collateral Agreement shall be as set forth on
Schedule 1.

 

5.                                       This Agreement shall be deemed to be part of,
and a modification to, the Guarantee and Collateral Agreement and shall be
governed by all the terms and provisions of the Guarantee and Collateral
Agreement, with respect to the modifications intended to be made to such
agreement, which terms are incorporated herein by reference, are ratified and
confirmed and shall continue in full force and effect as valid and binding
agreements of each such person or entity enforceable against such person or
entity.  Each such Person hereby waives
notice of the Administrative Agent’s

 

 

acceptance of this Agreement.  Each such Person will deliver an executed
original of this Agreement to the Administrative Agent.

 

[add signature block for each new Grantor]<PAGE>

                                   EXHIBIT 4.1

                                                                   David M. otto
                                                               dotto@ottolaw.com

                                  April 6, 2001

Paul Fernandez, CFO
15047 Marine Drive
White Rock, BC
V4B 1C5

         Re:  Engagement of The Otto Law Group, PLLC.

Dear Mr. Fernandez:

         Thank you for speaking with Tom Puzzo today regarding retaining The
Otto Law Group to represent you with regard to filing Dicom Imaging Systems,
Inc.'s Form 10-KSB. I will have the primary responsibility for your
representation. However, in the interest of efficiency, economy, and the wise
use of expertise, we may use the services of other attorneys and legal
professionals in this office. Please contact me at once if at any time you have
any questions or concerns.

                                 ATTORNEYS FEES

     The following policies with respect to fee and expense charges applies to
you and to all of our clients, unless other arrangements are made in writing
(all dollar amounts represent United States currency):

         A. Fees. Consistent with the ethical standard applicable to Washington
     attorneys, we charge reasonable fees for our legal services. In
     establishing a reasonable fee, we take into consideration a number of
     factors, including those set forth in the Rules of Professional Conduct:

1.   The time and labor  required,  the novelty and  difficulty of the questions
     involved, and the skill requisite to perform the legal service properly;
2.   The  likelihood  that the  acceptance  of the  particular  employment  will
     preclude other employment by the lawyer;
3.   The fee customarily charged is the locality for similar services;
4.   The amount involved and the results obtained;
5.   The time limitations imposed by the client or by the circumstances;
6.   The nature and length of the professional relationship with the client; and
7.   The experience, reputation, and ability of the lawyer or lawyers performing
     the services.

         In general, our fees are based upon an hourly rate and reflect all of
         these factors, as well as special arrangements made with you. Attorneys
         and other legal professionals maintain contemporaneous time records to
         document their time expended. I will review all statements before they
         are issued to ensure that the amount charged is appropriate.

                  At present, or standard rates, with certain exceptions, are as
follows:

                                        8
<PAGE>

                           Principal or senior Attorneys:     $ 275.00 per hour
                           Associate or Junior Attorneys:     $ 185.00 per hour
                           Legal Interns:                     $ 120.00 per hour
                           Legal Assistants or Paralegals:    $   60.00 per hour

                  We normally review our rates annually, to bring them in line
         with any changes in the cost of doing business. If appropriate,
         adjustment of our hourly rates is usually effective as of January 1,
         which is the beginning of the fiscal year.

                  B. Costs. We also charge for expenses incurred in connection
         with a particular matter. These include, but are not limited to, the
         following:

          1. Long distance telephone charges;
          2. Copying costs;
          3. Out-of-town Travel expenses;
          4. Parking;
          5.  Special  delivery,  courier,  express  mail and  telecommunication
          costs;
          6. Computer research charges; and
          7. Corporate filing and other recording fees.

         For cost items that exceed $100.00, we will generally submit invoices
         to you for direct payment, and for lesser charges we will generally
         advance the amount and include a charge for direct payment, and for
         lesser charges we will generally advance the amount and include a
         charge for reimbursement in our statement. Extraordinary expenses will
         not be incurred, except in emergency situations, without your specific
         authorization.

                  C. Retainer. For new clients, as well as for other special
         projects for existing clients, we customarily request an appropriate
         advance or retainer deposit against fees and expenses to be incurred.
         All retainers deposited by you shall be considered earned when received
         and are not deposited in an IOLTA interest-bearing trust account.
         However, such retainer will be credited against charges on a monthly
         basis. Any balance remaining from any advanced or retainer deposits at
         the conclusion of a project will be refunded promptly.

                  In this particular case, I have requested that you deposit a
         retainer of $3,000 before commencing work. The retainer will be earned
         upon receipt.

                  D. Billing. We will submit a monthly statement for services
         rendered and expenses incurred. These statements will reflect a
         detailed breakdown of the services performed, the calculation of the
         fee, and the expenses for which reimbursement is sought. If your
         situation requires a particular form of statement, we will make every
         reasonable effort to accommodate that situation. We welcome the
         opportunity to discuss our statements with you and to answer any
         questions you may have.

                  E. Payment. We are proud of the promptness with which we
         attend to our clients' legal needs and ask that you reciprocate by
         remitting payment on our statements promptly. We ask that all
         statements be paid in full within 30 days of their date. If payment is
         not received in full within thirty (30) days of statement date, then
         interest of 1% per month will be charged on the unpaid balance.

                  Unless otherwise arranged, if an account is outstanding for
         more than 30 days, we reserve the right to terminate work until the
         account is brought current. While we regret ever having to take this
         extreme step, we feel that it is only fair to our clients who have paid
         promptly for our services to make certain that their legal needs have
         our undivided attention. In the event that it becomes necessary to
         commence collection, the prevailing party will be entitled to all
         filing fees and collection costs, including actual attorneys' fees.

                  F. Dispute Resolution. In rare cases, a dispute may arise
         between a client and the attorney regarding the reasonableness of the
         attorney's fee. If such a dispute should arise regarding the amount of
         the fee charged, the law firm and you agree that the exclusive means of
         resolving the amount of the fee charged shall be by submission to the
         Washington State Bar Association's Fee Arbitration Board. The law firm
         and the client agree that the decision of the Fee Arbitration Board
         shall be conclusive of any dispute over the reasonableness of the law
         firm's fee. The procedures of Washington's arbitration statue, Chapter
         7.04 revised Code of Washington, will govern confirmation of any award
         made by the Bar Association's Fee Arbitration Board.

                                        9
<PAGE>

                          ATTORNEY CLIENT RELATIONSHIP

         The following policies with respect to our representation in general
applies to you and to all of our clients:

                  A. Scope of Representation. We shall keep you reasonably
              informed about the status of each matter, shall explain each
              matter to the extent reasonably necessary for you to make informed
              decisions regarding our representation, and shall abide by your
              decisions concerning the objectives of representation, subject to
              the limitations imposed by the Rules of Professional Conduct.

                  B. Confidentiality. All confidences or secrets communicated by
              you to lawyers and legal professionals of this firm shall not be
              revealed, unless you consent after consultation, except for
              disclosures that are impliedly authorized in order to carry out
              our legal representation and subject to the limitations imposed by
              the Rules of Professional Conduct.

                  C. Conflict of Interest. Washington law provides severe
              penalties for an attorney who fails to disclose a conflict of
              interest to a client. There is always a potential conflict of
              interest whenever an attorney represents more than on individual,
              even a husband and wife. Therefore, our representation of you is
              based upon our mutual understanding that my law firm does not
              currently have any known conflict of interest in representing you.
              We required you to do likewise.

                  D. Termination. You have the right to terminate our
              representation of you at any time. We have the same right, subject
              to an obligation to give you reasonable notice to arrange
              alternative representation. On termination, all fees and costs
              incurred prior to termination shall be paid promptly. Thereafter,
              we will deliver original documents entrusted to us and any
              documents, which you paid for that have not previously been
              delivered. You may obtain copies of any additional documents in
              our files upon request and payment of photocopying charges.

                  E. Completion of Representation. Upon completion of the
              representation of any client, we will retain files relating to the
              representation for a reasonable time. At a minimum, files will be
              retained by the law firm for three years from the conclusion of
              the matter. After that period of time, the files will be destroyed
              unless you request in writing that files be retained for a longer
              period.

              Please review this information carefully and if you have any
              questions, please do not hesitate to call me. Before we can start
              work on this matter, we must receive from you a signed copy of
              this letter to indicate your consent to the terms and conditions
              discussed above. I look forward to working with you.

                                                 Very truly yours,

                                                 THE OTTO LAW GROUP, PLLC

                                                  David M. Otto

Agreed and Accepted this ____ day of April, 2001.

Dicom Imaging Systems, Inc.

/s/ Paul Fernandez
Paul Fernandez, CFO
                                       10

<PAGE>

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