Document:

Exhibit
10.33

 

SECURITY
AGREEMENT

 

NOTWITHSTANDING ANYTHING HEREIN TO THE
CONTRARY, THE LIEN AND SECURITY INTEREST GRANTED TO THE ADMINISTRATIVE AGENT
PURSUANT TO THIS SECURITY AGREEMENT AND THE EXERCISE OF ANY RIGHT OR REMEDY BY
THE ADMINISTRATIVE AGENT HEREUNDER ARE SUBJECT TO THE PROVISIONS OF THE INTERCREDITOR
AGREEMENT, DATED AS OF FEBRUARY 18, 2005 (AS AMENDED, RESTATED, SUPPLEMENTED OR
OTHERWISE MODIFIED FROM TIME TO TIME, THE “INTERCREDITOR AGREEMENT”),
BY AND AMONG BNP PARIBAS, AS FIRST LIEN ADMINISTRATIVE AGENT, AND BNP PARIBAS, AS
SECOND LIEN ADMINISTRATIVE AGENT.  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.

 

This SECURITY
AGREEMENT (this “Agreement”) is
dated as of February 18, 2005 and entered into by and among MD BEAUTY, INC., a Delaware corporation (“Company”), STB BEAUTY, INC.,
a Delaware corporation (“Holdings”),
each of THE UNDERSIGNED DIRECT AND INDIRECT SUBSIDIARIES
of Company (each of such undersigned Subsidiaries being a “Subsidiary
Grantor” and collectively (“Subsidiary Grantors”)
and each ADDITIONAL GRANTOR that may become a
party hereto after the date hereof in accordance with Section 21 hereof (each
of Company, Holdings, each Subsidiary Grantor, and each Additional Grantor
being a “Grantor” and collectively the “Grantors”) and BNP PARIBAS, as
Administrative Agent for and representative of (in such capacity herein called “Secured Party”) the Beneficiaries (as hereinafter defined).

 

PRELIMINARY STATEMENTS

 

A.            Pursuant
to the Term Loan Agreement dated as of February 18, 2005 (said Term Loan
Agreement, as it may hereafter be amended, restated, supplemented or otherwise
modified from time to time, being the “Credit Agreement”;
the terms defined therein and not otherwise defined in Section 31 or elsewhere
herein being used herein as therein defined), by and among Company, the
financial institutions from time to time party thereto as Lenders (“Lenders”) and BNP Paribas, as Administrative Agent (in such
capacity, “Administrative Agent”), Lenders
have made certain commitments, subject to the terms and conditions set forth in
the Credit Agreement, to extend certain credit facilities to Company.

 

B.            Company
may from time to time enter, or may from time to time have entered, into one or
more Lender Hedge Agreements with one or more Hedge Agreement Counterparties in
accordance with the terms of the Credit Agreement, and it is desired that the
obligations of Company under the Lender Hedge Agreements, including, without
limitation, the obligation of Company to make payments thereunder in the event
of early termination thereof, together with all Obligations of Company under
the Credit Agreement and the other Loan Documents, be secured hereunder.

 

C.            Holdings
has executed and delivered the Holdings Guaranty, and Subsidiary Grantors have
executed and delivered the Subsidiary Guaranty, in each case in favor of
Secured Party for the benefit of Lenders and any Hedge Agreement Counterparties,
pursuant

 

 

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to which Holdings and each Subsidiary Grantor have
guarantied the prompt payment and performance when due of all Obligations under
the Credit Agreement and under the other Loan Documents.

D.            Pursuant to the First Lien Credit
Agreement and First Lien Security Agreement, Grantors have incurred
Indebtedness and created security interests in favor of First Lien
Administrative Agent, which security interests, pursuant to the provisions of the
Intercreditor Agreement, are senior to the security interests created hereby.

E.            It is a condition precedent to the
extensions of credit by Lenders under the Credit Agreement that Grantors listed
on the signature pages hereof shall have granted the security interests and
undertaken the obligations contemplated by this Agreement.

NOW, THEREFORE, in consideration of the
agreements set forth herein and in the Credit Agreement and in order to induce
Lenders to make Loans under the Credit Agreement and to induce Hedge Agreement
Counterparties to enter into the Lender Hedge Agreements, and for other good
and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, each Grantor hereby agrees with Secured Party as follows:

 

SECTION 1.           Grant
of Security.

Each Grantor hereby assigns to Secured Party, and hereby
grants to Secured Party a security interest, subject to the terms of the Credit
Agreement (including, without limitation, the provisions regarding lien
priority), in all of such Grantor’s right, title and interest in and to all of
the personal property of such Grantor, in each case whether now or hereafter
existing, whether tangible or intangible, whether now owned or hereafter
acquired, wherever the same may be located and whether or not subject to the
UCC (the “Collateral”), including all Assigned Agreements and the following:

 

(a)           all Accounts;

 

(b)           all Chattel Paper;

 

(c)           all Money and all
Deposit Accounts, together with all amounts on deposit from time to time
in such Deposit Accounts;

 

(d)           all Documents;

 

(e)           all General
Intangibles, including all intellectual property, Payment Intangibles and Software;

 

(f)            all Goods,
including Inventory, Equipment and Fixtures; 

 

(g)           all Instruments; 

 

(h)           all Investment
Property; 

 

(i)            all Letter-of-Credit
Rights and other Supporting Obligations;

 

 

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(j)            all Records;

 

(k)           all Commercial Tort
Claims, including those set forth on Schedule 1 annexed hereto; and

 

(1)           all Proceeds and
Accessions with respect to any of the foregoing Collateral.

Each category of Collateral set forth above shall have the
meaning set forth in the UCC (to the extent such term is defined in the UCC),
it being the intention of the Grantors that the description of the Collateral
set forth above be construed to include the broadest possible range of assets.

Notwithstanding the foregoing, in no event shall the
security interest granted under this Section 1 attach to (a) any lease,
license, contract, property rights or agreement to which any Grantor is a party
or any of its rights or interests thereunder if and for so long as the grant of
such security interest shall constitute or result in (i) the abandonment,
invalidation or unenforceability of any right, title or interest of any Grantor
therein or (ii)
in a breach or termination pursuant to the terms of, or a default under,
any such lease, license, contract, property rights or agreement (other than to
the extent that any such term is actually rendered ineffective pursuant to Sections
9-406, 9-407, 9-408 or 9-409 of the UCC (or any successor provision or
provisions) of any relevant jurisdiction or any other Section of the UCC or any
other applicable law (including the Bankruptcy Code) or principles of equity), provided,
however, that such security interest shall attach immediately at such
time as the condition causing such abandonment, invalidation or
unenforceability shall be remedied and, to the extent severable, shall attach
immediately to any portion of such lease, license, contract, property rights or
agreement that does not result in any of the consequences specified in (i) or
(ii) above; or (b) in any of the outstanding capital stock of a controlled
foreign corporation (used hereinafter as such term is defined in Section 957(a)
or any successor provision of the Internal Revenue Code) in excess of 66% of
the voting power of all classes of capital stock of such controlled foreign
corporation entitled to vote, provided, however, that,
immediately upon the amendment of the Internal Revenue Code to allow the pledge
of a greater percentage of the voting power of capital stock in a controlled
foreign corporation without resulting in repatriation of earnings or other
material adverse tax consequences, the Collateral shall include, and the
security interest granted by each Grantor shall attach to, such greater
percentage of capital stock of each controlled foreign corporation.

 

SECTION 2.           Security
for Obligations. 

This Agreement secures, and the Collateral is collateral
security for, the prompt payment or performance in full when due, whether at
stated maturity, by required prepayment, declaration, acceleration, demand or
otherwise, of all Secured Obligations of each Grantor. “Secured
Obligations” means:

 

(a)           with respect to
Company, all obligations and liabilities of every nature of Company now or
hereafter existing under or arising out of or in connection with the Credit Agreement
and the other Loan Documents and any Lender Hedge Agreement; and

 

 

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(b)           with
respect to each Subsidiary Grantor and Additional Grantor, all obligations and
liabilities of every nature of such Subsidiary Grantor now or hereafter
existing under or arising out of or in connection with the Subsidiary Guaranty
and any Lender Hedge Agreement; and

 

(c)           with
respect to Holdings, all obligations and liabilities of every nature of Holdings
now or hereafter existing under or arising out of or in connection with the
Holdings Guaranty;

in each case together with all extensions or renewals
thereof, whether for principal, interest, payments for early termination of
Lender Hedge Agreements, fees, expenses, indemnities or otherwise, whether
voluntary or involuntary, direct or indirect, absolute or contingent,
liquidated or unliquidated, whether or not jointly owed with others, and
whether or not from time to time decreased or extinguished and later increased,
created or incurred, and all or any portion of such obligations or liabilities
that are paid, to the extent all or any part of such payment is avoided or
recovered directly or indirectly from Secured Party or any Lender or Hedge
Agreement Counterparty as a preference, fraudulent transfer or otherwise (and
whether as a result of any demand, settlement, litigation or otherwise), and
all obligations of every nature of Grantors now or hereafter existing under
this Agreement (including, without limitation, interest and other amounts that, but for
the filing of a petition in bankruptcy with respect to Company or any other Grantor, would accrue on such obligations, whether or not a claim is
allowed against Company or such Grantor for such amounts in the related
bankruptcy proceeding).

 

SECTION 3.           Grantors
Remain Liable.

Anything contained herein to the contrary notwithstanding,
(a) each Grantor shall remain liable under any contracts and agreements
included in the Collateral, to the extent set forth therein, to perform all of
its duties and obligations thereunder to the same extent as if this Agreement
had not been executed, (b) the exercise by Secured Party of any of its rights
hereunder shall not release any Grantor from any of its duties or obligations
under the contracts and agreements included in the Collateral, and (c) Secured
Party shall not have any obligation or liability under any contracts, licenses,
and agreements included in the Collateral by reason of this Agreement, nor
shall Secured Party 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.

 

SECTION 4            Representations
and Warranties. 

 

Each Grantor represents and
warrants as follows:

 

(a)           Ownership of Collateral.
 Except as expressly permitted by the
Credit Agreement, (i) such Grantor
owns the Collateral and (ii) its interests in the Collateral are owned by such
Grantor free and clear of any Lien. Except as expressly permitted by the Credit
Agreement (including those filed with respect to Permitted Encumbrances) and
such as may have been filed in favor of Secured Party relating to the Loan
Documents or for which termination statements are delivered to Secured Party on
the date when such Grantor becomes a Grantor hereunder, no effective financing
statement or other instrument similar in effect covering all or

 

 

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any part
of the Collateral is on file in any fling or recording office, including any IP
Filing Office.

(b)          Perfection. The
security interests in the Collateral granted to Secured Party for the benefit
of Lenders and Hedge Agreement Counterparties hereunder constitute valid
security interests in the Collateral (subject to Liens expressly permitted by
the Credit Agreement), securing the payment of the Secured Obligations. Upon
(i) the filing of UCC financing statements naming each Grantor as “debtor”,
naming Secured Party as “secured party” and describing the Collateral in the filing
offices with respect to such Grantor set forth on Schedule 2 annexed
hereto, (ii) subject to the provisions of the Intercreditor Agreement, in the
case of the Securities Collateral consisting of certificated securities or
evidenced by Instruments, in addition to filing of such UCC financing
statements, delivery of the certificates representing such certificated
Securities and delivery of such Instruments to Secured Party (and in the case
of Securities Collateral issued by a foreign issuer, any actions required under
foreign law to perfect a security interest in such Securities Collateral) in
each case duly endorsed or accompanied by duly executed instruments of
assignment or transfer in blank, (iii) in the case of the Intellectual Property
Collateral, in addition to the filing of such UCC financing statements, the
recordation of a Grant with the applicable IP Filing Office, (iv) in the case
of Equipment that is covered by a certificate of title, the filing with the
registrar of motor vehicles or other appropriate authority in the applicable
jurisdiction of an application requesting the notation of the security interest
created hereunder on such certificate of title, (v) upon consent of the issuer
with respect to Letter-of-Credit Rights and (vi) subject to the provisions of
the Intercreditor Agreement and subsection 6.11 of the Credit Agreement, in the
case of any Deposit Account and any Investment Property constituting a Security
Entitlement, Securities Account, Commodity Contract or Commodity Account, the
execution and delivery to Secured Party of an agreement providing for control
by Secured Party thereof, the security interests in such Collateral of the
types described in clauses (i) through (vi) above granted to Secured Party
herein for the benefit of Lenders and Hedge Agreement Counterparties will
constitute perfected security interests therein (except to the extent that
recordation of the Lien is required under the laws of any foreign country or
any subdivisions thereof with respect to the Copyrights, Trademarks and
Patents) prior to all other Liens (except for Permitted Encumbrances and Liens
permitted by subsection 7.2A(ii) of the Credit Agreement and the rights of the
United States government with respect to United States government receivables),
and all filings and other actions necessary or desirable to perfect and protect
such security interests have been, or promptly after the Closing Date will be,
duly made or taken (except to the extent that recordation of the Lien is
required under the laws of any foreign country or any subdivisions thereof with
respect to the Copyrights, Trademarks and Patents); provided that (x) in
no event shall Grantor be required to take action with respect to chattel paper
with a value of $200,000 or less, Letter-of-Credit Rights with a value of
$200,000 or less, Securities with a value of $500,000 or less, Commercial Torts
with claims with a value of $500,000 or less, or Deposit and Securities
Accounts in which the deposits do not exceed $250,000, and (y) Grantors shall
only be required to register the Intellectual Property Collateral on a basis
consistent with their current and historical business practice; provided further
(aa) that in the event any of the Grantors shall decide to deviate from such
current and historical business practice in connection with this matter, such
Grantor shall obtain prior written consent of Administrative Agent, which consent
shall not be unreasonably withheld, and (bb) notwithstanding any provision
herein to the contrary, in no event shall Grantor be required to deliver,
endorse or assign to Secured Party any Collateral delivered to the First Lien

 

 

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Administrative Agent and held pursuant to the provisions
of the First Lien Security Agreement and the Intercreditor Agreement (provided
that in such cases, any Collateral shall be deemed to be delivered to the First
Lien Administrative Agent for the benefit of the Secured Party, to be held by
the First Lien Administrative Agent in accordance with Section 8 of the
Intercreditor Agreement).

(c)           Type and Jurisdiction of
Organization; Locations of Equipment and Inventory. Each Grantor’s
name as it appears in official filings in the jurisdiction of its organization
and such Grantor’s type of organization (i.e. corporation, limited partnership,
etc.), jurisdiction of organization and organization number, if any, provided
by the applicable Government Authority of the jurisdiction of organization are
set forth on Schedule 3 annexed hereto, or, in the case of an Additional
Grantor, the applicable counterpart entered into pursuant to Section 22 of this
Agreement (each, a “Counterpart”)
executed by such Additional Grantor. All of the Equipment (other than motor
vehicles) and Inventory is located at the places set forth on Schedule 4
annexed hereto, except for Inventory which, in the ordinary course of business,
is in transit either (i) from a supplier to a Grantor, (ii) between the
locations set forth on Schedule 4 annexed hereto, (iii) to customers of
a Grantor, or (iv) to, from or at a location for the purposes of repair or
reimbursement.

(d)           Names. Each Grantor’s exact legal
name is set forth on Schedule A annexed hereto, or, in the case of an
Additional Grantor, the applicable Counterpart executed by such Additional
Grantor. No Grantor (or predecessor by merger or otherwise of such Grantor)
has, within the four month period preceding the date hereof, or, in the case of
an Additional Grantor, the date of the applicable Counterpart, had a different
name from the name of such Grantor listed on Schedule A annexed hereto,
except the names set forth on Schedule 5 annexed hereto, or, in the case
of an Additional Grantor, the applicable Counterpart.

(e)           Delivery of Certain
Collateral. Subject to the provisions of Section 4(b), all certificates
or Instruments (excluding checks and promissory notes obtained in the ordinary
course of business) evidencing, comprising or representing the Collateral have
been delivered to Secured Party duly endorsed or accompanied by duly executed
instruments of transfer or assignment in blank within the time and to the
extent required by the Credit Agreement or this Agreement, as applicable.

(f)            Securities Collateral.
All of the Pledged Subsidiary Equity set forth on Schedule 6 annexed
hereto has been duly authorized and validly issued and is fully paid and
nonassessable; all of the Pledged Subsidiary Debt set forth on Schedule 7
annexed hereto has been duly authorized, authenticated or issued, and delivered
and is the legally valid and binding obligation of the issuers thereof and is
not in default; except as set forth on Schedule 6 there are no
outstanding warrants, options or other rights to purchase, or other agreements
outstanding with respect to, or property that is now or hereafter convertible
into, or that requires the issuance or sale of, any Pledged Subsidiary Equity; Schedule
6 annexed hereto sets forth all of the Equity Interests and the Pledged
Equity owned by each Grantor, and the percentage ownership in each issuer
thereof, on the date hereof; and Schedule 7 annexed hereto sets forth
all of the Pledged Debt owned by such Grantor in existence on the date hereof.

 

 

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(g)           Intellectual Property
Collateral. A true and complete list of all Trademark Registrations and applications for any Trademark owned and/or
held (whether pursuant to a license or otherwise) or used by such Grantor, in
whole or in part, is set forth on Schedule 8 annexed hereto, as the same
may be amended from time to time pursuant to Sections 5(b) and 5(c) hereof; a
true and complete list of all Patents owned, held (whether pursuant to a
license or otherwise) or used by such Grantor, in whole or in part, is set
forth on Schedule 9 annexed hereto, as the same may be amended from time
to time pursuant to Sections 5(b) and 5(c) hereof; a true and complete list of
all Copyright Registrations and applications for Copyright Registrations held
(whether pursuant to a license or otherwise) by such Grantor, in whole or in
part, is set forth on Schedule 10 annexed hereto, as the same may be
amended from time to time pursuant to Sections 5(b) and 5(c) hereof; and after
reasonable inquiry, such Grantor is not aware of any pending or threatened
claim by any third party that any of the Intellectual Property Collateral
owned, held or used by such Grantor is invalid or unenforceable that could
reasonably be expected to have a Material Adverse Effect.

(h)          Deposit Accounts, Securities Accounts, Commodity
Accounts. Schedule 11 annexed hereto lists all Deposit Accounts,
Securities Accounts and Commodity Accounts owned by each Grantor, and indicates
the institution or intermediary at which the account is held and the account
number.

 

(i)            Chattel Paper.
Such Grantor has no interest in any Chattel Paper, except as described in Schedule
12 annexed hereto.

 

(j)            Letter-of-Credit Rights.
Such Grantor has no interest in any Letter-of-Credit Rights, except as set
forth on Schedule 13 annexed hereto.

(k)           Documents. No negotiable Documents are outstanding with
respect to any of the Inventory, except as set forth on Schedule 14
annexed hereto.

The representations and warranties as to the information
set forth in Schedules referred to herein are made as to each Grantor (other
than the Additional Grantors) as of the date hereof and as to each Additional
Grantor as of the date of the applicable Counterpart, except that, in the case
of a Pledge Supplement, IP Supplement or notice delivered pursuant to Section
5(d) hereof, such representations and warranties are made as of the date of
such supplement or notice.

 

SECTION
5.             Further Assurances.

(a)           Generally.
Subject to the provisions of Section 4(b), each Grantor agrees that from time
to time, at the expense of Grantors, such Grantor will promptly execute and
deliver all further instruments and documents, and take all further action,
that may be necessary or desirable, or that Secured Party may request, in order
to perfect and protect any security interest granted or purported to be granted
hereby or to enable Secured Party to exercise and enforce its rights and
remedies hereunder with respect to any Collateral. Without limiting the
generality of the foregoing, each Grantor will: (i) (A) notify Secured Party in
writing of receipt by such Grantor of any interest in Chattel Paper having a
value (determined by reference to the principal amount or termination value, if
any) in excess of $200,000 and (B) at the request of Secured Party, mark
conspicuously each such item of Chattel Paper and, at the request of

 

 

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Secured Party after an Event of Default has occurred, each
of its records pertaining to the Collateral, with a legend, in form and
substance satisfactory to Secured Party, indicating that such Collateral is
subject to the security interest granted hereby, (ii) subject to the provisions
of Section 4(b), deliver to Secured Party all promissory notes and other
Instruments (excluding checks and promissory notes obtained in the ordinary
course of business) and, at the request of Secured Party, all original
counterparts of Chattel Paper having a value (determined by reference to the
principal amount or termination value, if any) in excess of $200,000 in the
aggregate, duly endorsed and accompanied by duly executed instruments of
transfer or assignment, all in form and substance reasonably satisfactory to
Secured Party, (iii) (A) execute (if necessary) and file such financing or
continuation statements, or amendments thereto, (B) execute and deliver, and
cause to be executed and delivered, agreements establishing that Secured Party
(or its appointed agent) has control of electronic Chattel Paper and Letter-of-Credit
Rights having a value (determined by reference to the principal amount or
termination value, if any, in the case of electronic Chattel Paper and by
reference to the face amount of the undrawn portion of all relevant letters of
credit, in the case of Letter-of-Credit Rights) in excess of $200,000
individually, and Deposit Accounts and Investment Property of such Grantor to
the extent required by the Credit Agreement or this Agreement, as applicable,
and (C) subject to the provisions of Section 4(b), deliver such other
instruments or notices, in each case, as may be necessary or desirable and as
Secured Party may request, in order to perfect and preserve the security
interests granted or purported to be granted hereby, (iv) furnish to Secured
Party from time to time statements and schedules further identifying and
describing the Collateral and such other reports in connection with the
Collateral as Secured Party may reasonably request, all in reasonable detail,
(v) at any reasonable time, upon request by Secured Party, exhibit the
Collateral to and allow inspection of the Collateral by Secured Party, or
persons designated by Secured Party, (vi) at Secured Party’s request, appear in
and defend any action or proceeding that may affect such Grantor’s title to or
Secured Party’s security interest in all or any material part of the
Collateral, and (vii) upon the reasonable request of Secured Party, use
commercially reasonable efforts to obtain any third party consents necessary to
create and perfect a security interest in favor of Secured Party with respect
to any Collateral. Notwithstanding the foregoing, Grantors shall only be
required to register the Intellectual Property Collateral on a basis consistent
with their current and historical business practice; provided that in
the event any Grantor decides to deviate from such current and historical
business practice in connection with this matter, such Grantor shall obtain
prior written consent of Administrative Agent, which consent shall not be
unreasonably withheld. Each Grantor hereby authorizes Secured Party to file one
or more financing or continuation statements, and amendments thereto, relative
to all or any part of the Collateral (including any financing statement
indicating that it covers “all assets” or “all personal property” of such
Grantor) without the signature of any Grantor.

(b)          Securities Collateral.
Without limiting the generality of the foregoing Section 5(a) but subject to
the limitations contained therein, each Grantor agrees that (i) subject to the
provisions of Section 4(b), all certificates or Instruments (excluding checks and
promissory notes obtained in the ordinary course of business) representing or
evidencing the Securities Collateral shall be delivered to and held by or on
behalf of Secured Party pursuant hereto and shall be in suitable form for
transfer by delivery or, as applicable, shall be accompanied by such Grantor’s
endorsement, where necessary, or duly executed instruments of transfer or
assignment in blank, all in form and substance satisfactory to Secured Party
and (ii) it will, upon obtaining any additional Equity Interests or
Indebtedness, promptly (and in any event

 

 

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within
five Business Days, in the case of Equity Interests in a Subsidiary or Joint
Venture of Holdings or any of its Subsidiaries or Indebtedness with an
aggregate outstanding balance (including principal, accrued interest, accrued
fees and other amounts then owing) exceeding $500,000, otherwise, no later than
the date of delivery of the next Compliance Certificate delivered more than
five Business Days after such Equity Interests or Indebtedness was obtained)
deliver to Secured Party a Pledge Supplement, duly executed by such Grantor, in
respect of such additional Pledged Equity or Pledged Debt, which Pledge
Supplement shall be accompanied by the items described in clause (i) above; provided,
that the failure of any Grantor to execute a Pledge Supplement with respect to
any additional Pledged Equity or Pledged Debt shall not impair the security
interest of Secured Party therein or otherwise adversely affect the rights and
remedies of Secured Party hereunder with respect thereto. Upon each such
acquisition, the representations and warranties contained in Section 4(f)
hereof shall be deemed to have been made by such Grantor as to such Pledged
Equity or Pledged Debt, whether or not such Pledge Supplement is delivered.

(c)           Intellectual Property
Collateral. Without limiting the generality of the foregoing Section
5(a) but subject to the limitations contained therein, if any Grantor shall
hereafter obtain rights to any new Intellectual Property Collateral or become
entitled to the benefit of (i) any patent application or patent or any reissue,
division, continuation, renewal, extension or continuation-in-part of any
Patent or any improvement of any Patent or (ii) any Copyright Registration,
application for Copyright Registration or renewals or extension of any
Copyright, then in any such case, the provisions of this Agreement shall
automatically apply thereto. At least quarterly, concurrently with the delivery
of financial statements after the end of each calendar quarter, each Grantor
shall promptly notify Secured Party in writing of any of the foregoing rights
acquired by such Grantor after the date hereof which is material to the
business of the Loan Parties taken as a whole and of any Trademark
Registrations issued or application for a Trademark Registration, any Patent
issued or application for a Patent made, and any Copyright Registrations issued
or application for Copyright Registration made, in any such case, after the
date hereof. At least quarterly, concurrently with the delivery of financial
statements after the end of each calendar quarter during which such Grantor
obtains new Intellectual Property Collateral, each Grantor shall execute and
deliver to Secured Party an IP Supplement, and submit a Grant for recordation
with respect thereto in the applicable IP Filing Office; provided, the
failure of any Grantor to execute an IP Supplement or submit a Grant for
recordation with respect to any additional Intellectual Property Collateral
shall not impair the security interest of Secured Party therein or otherwise
adversely affect the rights and remedies of Secured Party hereunder with
respect thereto. Upon delivery to Secured Party of an IP Supplement,
Schedules 8, 9 and 10 annexed hereto and Schedule A to each Grant,
as applicable, shall be deemed modified to include reference to any right,
title or interest in any existing Intellectual Property Collateral or any
Intellectual Property Collateral set forth on Schedule A to such IP
Supplement. Upon each such acquisition, the representations and warranties
contained in Section 4 (g) hereof shall be deemed to have been made by such
Grantor as to such Intellectual Property Collateral, whether or not such IP
Supplement is delivered.

 

(d)           Commercial Tort Claims.
Grantors have no Commercial Tort Claims as of the date hereof, except as set
forth on Schedule 1 annexed hereto. In the event that a Grantor shall at
any time after the date hereof have any Commercial Tort Claims with an
aggregate value in excess of $500,000, such Grantor shall promptly notify
Secured Party thereof in writing,

 

 

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which
notice shall (i) set forth in reasonable detail the basis for and nature of
such Commercial Tort Claim and (ii) constitute an amendment to this Agreement
by which such Commercial Tort Claim shall constitute part of the Collateral.

 

SECTION 6.            Certain
Covenants of Grantors. 

 

Each Grantor shall:

(a)           not use or permit any
Collateral to be used unlawfully or in violation of any provision of this
Agreement or any applicable statute, regulation or ordinance or any policy of
insurance covering the Collateral;

(b)           give Secured Party at least 30 days’
prior written notice of (i) any change in such Grantor’s name, identity or
corporate structure and (ii) any reincorporation, reorganization or other
action that results in a change of the jurisdiction of organization of such
Grantor, in each case unless Secured Party, in its sole discretion, consents to
a shorter notice period or to notice after the fact;

 

(c)           if Secured Party gives value to enable such Grantor to
acquire rights in or the use of any Collateral, use such value for such
purposes;

(d)          except as expressly
permitted by the Credit Agreement, pay promptly when due all property and other
taxes, assessments and governmental charges or levies imposed upon, and all
claims (including claims for labor, services, materials and supplies) against,
the Collateral; provided that such Grantor shall in any event pay such
taxes, assessments, charges, levies or claims not later than five days prior to
the date of any proposed sale under any judgment, writ or warrant of attachment
entered or filed against such Grantor or any of the Collateral as a result of
the failure to make such payment;

(e)           keep correct and accurate Records of
Collateral at the locations described in Schedule A annexed hereto (or
at such other location owned or leased by such Grantor in the United States of
America as such Grantor may specify in writing to Secured Party); and

(f)            permit representatives of Secured
Party at any time during normal business hours to inspect and make abstracts
from such Records, and each Grantor agrees to render to Secured Party, at
Grantor’s cost and expense, such clerical and other assistance as may be
reasonably requested with regard thereto.

 

SECTION
7.            Special
Covenants With Respect to Equipment and Inventory. 

 

Each Grantor shall:

(a)           if any Inventory is in
possession or control of any of such Grantor’s agents, subcontractors,
third-party vendors or processors, if the aggregate book value of all such
Inventory in possession or control of any such agent, subcontractor,
third-party vendor or processor other than QVC, Inc., exceeds $1,500,000, and
in any event upon the occurrence of an Event of Default (including, without
limitation, in the case of inventory in the possession or control of QVC,
Inc.), instruct such agent or processor to hold all such Inventory for the
account

 

 

10

of
Secured Party and subject to the instructions of Secured Party, unless Secured
Party, in its sole discretion, elects not to require such action (subject to the
provisions of the Intercreditor Agreement); and

(b)           promptly upon the issuance and
delivery to such Grantor of any negotiable Document, deliver such Document to
Secured Party, subject to the provisions of Section 4(b).

 

SECTION
8.            Special
Covenants with respect to Accounts.

(a)           Each Grantor shall, for not less than
three years from the date on which each Account of such Grantor arose, maintain
(i) complete Records of such Account, including records (to the extent usual in
the practice of the industry by reputable, prudent businesses) of all payments
received, credits granted and merchandise returned, and (ii) all documentation
relating thereto.

(b)          Except as otherwise provided in this
subsection (b), each Grantor shall continue to collect, at its own expense, all
amounts due or to become due to such Grantor under the Accounts. In connection
with such collections, each Grantor, subject to the provisions of the
Intercreditor Agreement (in the case of the Secured Party), may take (and, upon
the occurrence and during the continuance of an Event of Default at Secured
Party’s direction, shall take) such action as such Grantor or Secured Party may
deem reasonably necessary or advisable to enforce collection of amounts due or
to become due under the Accounts; provided, however, that, subject to
the provisions of the Intercreditor Agreement, Secured Party shall have the
right at any time, upon the occurrence and during the continuation of an Event
of Default and upon written notice to such Grantor of its intention to do so,
to (i) notify the account debtors or obligors under any Accounts of the
assignment of such Accounts to Secured Party and to direct such account debtors
or obligors to make payment of all amounts due or to become due to such Grantor
thereunder directly to Secured Party, (ii) notify each Person maintaining a
lockbox or similar arrangement to which account debtors or obligors under any
Accounts have been directed to make payment to remit all amounts representing
collections on checks and other payment items from time to time sent to or
deposited in such lockbox or other arrangement directly to Secured Party, (iii)
enforce collection of any such Accounts at the expense of Grantors, and (iv)
adjust, settle or compromise the amount or payment thereof, in the same manner
and to the same extent as such Grantor might have done. Subject to the
provisions of the Intercreditor Agreement, after receipt by such Grantor of the
notice from Secured Party referred to in the proviso to the preceding sentence,
(I) all amounts and proceeds (including checks and other Instruments) received
by such Grantor in respect of the Accounts shall be received for the benefit of
Secured Party hereunder, shall be segregated from other funds of such Grantor
and shall be forthwith paid over or delivered to Secured Party in the same form
as so received (with any necessary endorsement) to be held as cash Collateral
and applied as provided by Section 17 hereof, and (II) such Grantor shall not,
without the written consent of Secured Party, adjust, settle or compromise the
amount or payment of any Account, or release wholly or partly any account
debtor or obligor thereof, or allow any credit or discount thereon.

 

 

11

SECTION
9.            Special
Covenants With Respect to the Securities Collateral.

(a)           Form of Securities
Collateral. Secured Party shall have the right at any time after the
occurrence and during the continuation of Event of Default to exchange certificates
or instruments representing or evidencing Securities Collateral for certificates
or instruments of smaller or larger denominations. In the case of a Grantor
that is a partnership or limited liability company and such Grantor is not a
Joint Venture, the terms of any such partnership or limited liability company
agreement governing Equity Interests included in the Securities Collateral
shall expressly provide, and in the case of a Joint Venture, each Grantor shall
use commercially reasonably efforts to provide, that such interest is a
security governed by Article 8 of the UCC.

(b)           Covenants. Each Grantor shall (i) not, except as
expressly permitted by the Credit Agreement, permit any issuer of
Pledged Subsidiary Equity to merge or consolidate unless all the outstanding
Equity Interests of the surviving or resulting Person are, upon such merger or
consolidation, pledged hereunder and no cash, securities or other property is
distributed in respect of the outstanding Equity Interests of any other
constituent corporation; provided that, if the surviving or resulting
Person upon any such merger or consolidation is a controlled foreign
corporation, then such Grantor shall only be required to pledge outstanding
Equity Interests of such surviving or resulting Person possessing up to but not
exceeding 66% of the voting power of all classes of Equity Interests of such
issuer entitled to vote; (ii) cause each issuer of Pledged Subsidiary Equity
not to issue Equity Interests in addition to or in substitution for the Pledged
Subsidiary Equity issued by such issuer, except to such Grantor; (iii) immediately
upon its acquisition (directly or indirectly) of any Equity Interests, including additional
Equity Interests in each issuer of Pledged Equity, comply with Section 5(b); provided
that, notwithstanding anything contained in this clause (iv) to the contrary,
such Grantor shall only be required to pledge the outstanding Equity Interests
of a controlled foreign corporation possessing up to but not exceeding 66% of
the voting power of all classes of capital stock of such controlled foreign
corporation entitled to vote; (v) immediately upon issuance of any and all
Instruments or other evidences of additional Indebtedness from time to time
owed to such Grantor by any obligor on the Pledged Debt, comply with Section 5;
(vi) promptly deliver to Secured Party all written notices received by it with
respect to the Securities Collateral; (vii) at its expense (A) perform and
comply in all material respects with all terms and provisions of any agreement
related to the Securities Collateral required to be performed or complied with
by it, (B) maintain all such agreements in full force and effect and (C)
enforce all such agreements in accordance with their terms; and (viii) to the
extent required under Section 6.11 of the Credit Agreement, at the request of
Secured Party, promptly execute and deliver to Secured Party an agreement
providing for control by Secured Party of all Securities Entitlements,
Securities Accounts, Commodity Contracts and Commodity Accounts of such
Grantor.

(c)           Voting and Distributions.
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 Securities Collateral or any part thereof for any
purpose not prohibited by the terms of this Agreement or the Credit Agreement; provided,
no Grantor shall exercise or refrain from exercising any such right if Secured
Party shall have notified such Grantor that, in Secured Party’s judgment, such
action would have a material adverse effect on the value of the Securities
Collateral or any part thereof; and (ii) each Grantor shall be entitled to

 

 

12

receive
and retain any and all dividends, other distributions, principal and interest
paid in respect of the Securities Collateral.

Upon the occurrence and during the continuation of an
Event of Default, (x) upon written notice from Secured Party to any Grantor,
all rights of such Grantor to exercise the voting and other consensual rights
which it would otherwise be entitled to exercise pursuant hereto shall cease,
and all such rights shall thereupon become vested, to the extent permitted
under the Intercreditor Agreement, in Secured Party who shall thereupon have
the sole right to exercise such voting and other consensual rights; (y) except
as otherwise specified in the Credit Agreement, all rights of such Grantor to
receive the dividends, other distributions, principal and interest payments
which it would otherwise be authorized to receive and retain pursuant hereto
shall cease, and all such rights shall thereupon become vested, to the extent
permitted under the Intercreditor Agreement, in Secured Party who shall
thereupon have the sole right to receive and hold as Collateral such dividends,
other distributions, principal and interest payments; and (z) all dividends,
principal, interest payments and other distributions which are received by such
Grantor contrary to the provisions of clause (ii) of the immediately preceding
paragraph or clause (y) above shall be received in trust for the benefit of
Secured Party, shall be segregated from other funds of such Grantor and shall
forthwith, to the extent permitted under the Intercreditor Agreement, be paid
over to Secured Party as Collateral in the same form as so received (with any
necessary endorsements).

Subject to the provisions of the Intercreditor Agreement,
in order to permit Secured Party to exercise the voting and other consensual rights
which it may be entitled to exercise pursuant hereto and to receive all
dividends and other distributions which it may be entitled to receive
hereunder, (I) each Grantor shall promptly execute and deliver (or cause to be
executed and delivered) to Secured Party all such proxies, dividend payment
orders and other instruments as Secured Party may from time to time reasonably
request, and (II) without limiting the effect of clause (I) above, each Grantor
hereby grants to Secured Party an irrevocable proxy to vote the Pledged Equity
and to exercise all other rights, powers, privileges and remedies to which a
holder of the Pledged Equity would be entitled (including giving or withholding
written consents of shareholders or other holders of equity interests, calling
special meetings of shareholders or other holders of equity interests and
voting at such meetings), which proxy shall be effective, automatically and
without the necessity of any action (including any transfer of any Pledged
Equity on the record books of the issuer thereof) by any other Person
(including the issuer of the Pledged Equity or any officer or agent thereof),
upon the occurrence of an Event of Default and delivery of the notice required
above and which proxy shall only terminate upon the payment in full of the
Secured Obligations (other than Unasserted Obligations), the cure of such Event
of Default or waiver thereof as evidenced by a writing executed by Secured
Party.

 

SECTION 10.           Special Covenants With Respect to
the Intellectual Property Collateral.

 

(a)           Each Grantor shall:

 

(i)            use commercially reasonable efforts
so as not to permit the inclusion in any contract (other than “shrink-wrap
licenses” or “click-wrap licenses” for off-the-shelf software, to the extent,
if any, that any such “license” constitutes a contract) to which it hereafter
becomes a party of any provision that could or might in any way

 

 

13

impair
or prevent the creation of a security interest in, or the assignment of, such
Grantor’s rights and interests in any property included within the definitions
of any Intellectual Property Collateral acquired under such contracts;

 

(ii)           take
any and all reasonable steps to protect the secrecy of all trade secrets
relating to the products and services sold or delivered under or in connection
with the Intellectual Property Collateral, including, without limitation, where
appropriate entering into confidentiality agreements with employees,
consultants, independent contractors, vendors and customers and labeling and
restricting access to secret information and documents;

(iii)          use
proper statutory notice in connection with its use of any of the Intellectual
Property Collateral and products and services covered by the Intellectual
Property Collateral; and

(iv)          use
a commercially appropriate standard of quality (which may be consistent with
such Grantor’s past practices) in the manufacture, sale and delivery of
products and services sold or delivered under or in connection with the Trademarks.

(b)              Except as otherwise
provided in this Section 10, each Grantor shall continue to collect, at
its own expense, all amounts due or to become due to such Grantor in respect of
the Intellectual Property Collateral or any portion thereof. In connection with
such collections, each Grantor may take (and, after the occurrence and during
the continuation of any Event of Default, subject to the provisions of the
Intercreditor Agreement, at Secured Party’s reasonable direction, shall take)
such action as such Grantor or Secured Party may deem reasonably necessary or
advisable to enforce collection of such amounts; provided, and subject
to the provisions of the Intercreditor Agreement, Secured Party shall have the
right at any time, upon the occurrence and during the continuation of an Event
of Default and upon written notice to such Grantor of its intention to do so,
to notify the obligors with respect to any such amounts of the existence of the
security interest created hereby and to direct such obligors to make payment of
all such amounts directly to Secured Party, and, upon such notification and at
the expense of such Grantor, to enforce collection of any such amounts and to
adjust, settle or compromise the amount or payment thereof, in the same manner
and to the same extent as such Grantor might have done. Subject to the
provisions of the Intercreditor Agreement, after receipt by any Grantor of the
notice from Secured Party referred to in the proviso to the preceding sentence
and upon the occurrence and during the continuation of any Event of Default,
(i) all amounts and proceeds (including checks and other Instruments) received
by each Grantor in respect of amounts due to such Grantor in respect of the
Intellectual Property Collateral or any portion thereof shall be received in
trust for the benefit of Secured Party hereunder, shall be segregated from
other funds of such Grantor and shall be forthwith paid over or delivered to
Secured Party in the same form as so received (with any necessary endorsement)
to be held as cash Collateral and applied as provided by Section 17 hereof and
(ii) at the direction of Secured Party, such Grantor shall not adjust, settle
or compromise the amount or payment of any such amount or release wholly or
partly any obligor with respect thereto or allow any credit or discount
thereon.

 

 

14

(c)              Each Grantor shall have the duty diligently,
through counsel reasonably acceptable
to Secured Party, to prosecute, file and/or make, unless and until such
Grantor, in its commercially reasonable judgment, decides otherwise, (i) any application
for registration relating to any of the Intellectual Property Collateral
owned, held or used by such Grantor and set forth on Schedules 8, 9
or 10 annexed hereto, as applicable, that is pending as of the date of
this Agreement, (ii)
any Copyright Registration on any existing or future unregistered but copyrightable
works (except for works of nominal commercial value or with respect to which
such Grantor has determined in the exercise of its commercially reasonable
judgment that it shall not seek registration), (iii) any application on any
future patentable but unpatented innovation or invention comprising
Intellectual Property Collateral, and (iv) any Trademark opposition and
cancellation proceedings, renew Trademark Registrations and Copyright
Registrations and do any and all acts which are necessary or desirable to
preserve and maintain all rights in all Intellectual Property Collateral which
is material to the business of the Loan Parties taken as a whole. Any expenses
incurred in connection therewith shall be borne solely by Grantors. Subject to
the foregoing, each Grantor shall give Secured Party prompt written notice of
any abandonment of any material Intellectual Property Collateral or any
material pending patent application or any material Patent.

(d)              Except as provided
herein, each Grantor shall have the right to commence and prosecute in
its own name, as real party in interest, for its own benefit and at its own
expense, such suits, proceedings or other actions for infringement, unfair
competition, dilution, misappropriation or other damage, or reexamination or
reissue proceedings as are necessary to protect the Intellectual Property
Collateral. Each Grantor shall promptly, following its becoming aware thereof,
notify Secured Party of the institution of, or of any adverse determination in,
any proceeding (whether in an IP Filing Office or any federal, state, local or
foreign court) or regarding such Grantor’s ownership, right to use, or interest
in any material Intellectual Property Collateral. Each Grantor shall provide to
Secured Party any information with respect thereto requested by Secured Party.

(e)              In
addition to, and not by way of limitation of, the granting of a security
interest in the Collateral pursuant hereto, each Grantor, effective upon the
occurrence and during the continuation of an Event of Default, subject to the
provisions of the Intercreditor Agreement, hereby assigns, transfers and conveys
to Secured Party the nonexclusive right and license to use all Trademarks,
tradenames, Copyrights, Patents or technical processes (including, without
limitation, the Intellectual Property Collateral) owned or used by such Grantor
that relate to the Collateral, together with any goodwill associated therewith,
all to the extent necessary to enable Secured Party to realize on the
Collateral in accordance with this Agreement and to enable any transferee or
assignee of the Collateral to enjoy the benefits of the Collateral. This right
shall inure to the benefit of all successors, assigns and transferees of
Secured Party and its successors, assigns and transferees, whether by voluntary
conveyance, operation of law, assignment, transfer, foreclosure, deed in lieu
of foreclosure or otherwise. Such right and license shall be granted free of
charge, without requirement that any monetary payment whatsoever be made to
such Grantor. If and to the extent that any Grantor is permitted to license the
Intellectual Property Collateral, Secured Party shall promptly enter into a
non-disturbance agreement or other similar arrangement, at such Grantor’s
request and expense, with such Grantor and any licensee of any Intellectual
Property Collateral permitted hereunder in form and substance reasonably
satisfactory to Secured Party pursuant to which (i) Secured Party shall agree
not to

 

 

15

disturb
or interfere with such licensee’s rights under its license agreement with such
Grantor so long as such licensee is not in default thereunder, and (ii) such
licensee shall acknowledge and agree that the Intellectual Property Collateral
licensed to it is subject to the security interest created in favor of Secured
Party and the other terms of this Agreement.

 

SECTION
11.           Collateral Account.

Secured
Party is hereby authorized to establish and maintain as a blocked account in
the name of Company and under the sole dominion and control of Secured Party, a
restricted Deposit Account designated as “MD Beauty Second-Lien Collateral
Account”. All amounts at any time held in the Collateral Account shall be beneficially
owned by Grantors but shall be held in the name of Secured Party hereunder, for
the benefit of Beneficiaries, as collateral security for the Secured
Obligations upon the terms and conditions set forth herein. Grantors shall have
no right to withdraw, transfer or, except as expressly set forth herein,
otherwise receive any funds deposited into the Collateral Account. Anything
contained . herein to the contrary notwithstanding, the Collateral Account
shall be subject to such applicable laws, and such applicable regulations of
the Board of Governors of the Federal Reserve System and of any other
appropriate banking or Government Authority, as may now or hereafter be in
effect. All deposits of funds in the Collateral Account shall be made by wire
transfer (or, if applicable, by intra-bank transfer from another account of a
Grantor) of immediately available funds, in each case addressed in accordance
with instructions of Secured Party. Each Grantor shall, promptly after
initiating a transfer of funds to the Collateral Account, give notice to
Secured Party by telefacsimile of the date, amount and method of delivery of
such deposit. Cash held by Secured Party in the Collateral Account shall not be
invested by Secured Party but instead shall be maintained as a cash deposit in
the Collateral Account pending application thereof as elsewhere provided in
this Agreement or in the Credit Agreement. To the extent permitted under
Regulation Q of the Board of Governors of the Federal Reserve System, any cash
held in the Collateral Account shall bear interest at the standard rate paid by
Secured Party to its customers for deposits of like amounts and terms. Subject
to Secured Party’s rights hereunder, any interest earned on deposits of cash in
the Collateral Account shall be deposited directly in, and held in the
Collateral Account.

 

SECTION 12.           Secured Party Appointed
Attorney-in-Fact.

To the fullest extent permitted by applicable law, each
Grantor hereby irrevocably appoints Secured Party as such Grantor’s
attorney-in-fact, with full authority in the place and stead of such Grantor
and in the name of such Grantor, Secured Party or otherwise, from time to time in
Secured Party’s discretion to take any action and to execute any instrument
that Secured Party may deem necessary or advisable to accomplish the purposes
of this Agreement and the Intercreditor Agreement, subject to the provisions of
the Intercreditor Agreement, including, without limitation:

(a)              upon the occurrence and during the continuance
of an Event of Default, to obtain and adjust insurance required to be
maintained by such Grantor or paid to Secured Party pursuant to the Credit
Agreement;

 

 

16

(b)              upon the occurrence and during the
continuance of an Event of Default, to ask
for, demand, collect, sue for, recover, compound, receive and give aquittance
and receipts for moneys due and to become due under or in respect of any of the
Collateral;

(c)              upon
the occurrence and during the continuance of an Event of Default, to receive,
endorse and collect any drafts or other Instruments, Documents, Chattel Paper
and other documents in connection with clauses (a) and (b) above;

(d)              upon
the occurrence and during the continuance of an Event of Default, to file any
claims or take any action or institute any proceedings that Secured Party may
deem necessary or desirable for the collection of any of the Collateral or
otherwise to enforce or protect the rights of Secured Party with respect to any
of the Collateral;

(e)              to
pay or discharge taxes or Liens (other than Liens permitted under this
Agreement or the Credit Agreement) levied or placed upon or threatened against
the Collateral, the legality or validity thereof and the amounts necessary to
discharge the same to be determined by Secured Party in its sole discretion,
any such payments made by Secured Party to become obligations of such Grantor
to Secured Party, due and payable immediately without demand; provided,
however, that Secured Party shall not pay or discharge any tax or Lien if
such tax or Lien is being contested in good faith by appropriate proceedings
promptly instituted and diligently conducted, so long as (1) a reserve or other
appropriate provision, if any, as shall be required in conformity with GAAP,
shall have been made therefor and (2) in the case of a charge or claim which
has or may become a Lien against any of the Collateral, such contest proceedings
conclusively operate to stay the sale of any portion of the Collateral to
satisfy such charge or claim;

(f)               upon
the occurrence and during the continuance of an Event of Default, to sign and
endorse any invoices, freight or express bills, bills of lading, storage or
warehouse receipts, drafts against debtors, assignments, verifications and
notices in connection with Accounts and other documents relating to the
Collateral; and

(g)              upon
the occurrence and during the continuance of an Event of Default, generally to
sell, transfer, pledge, make any agreement with respect to or otherwise deal
with any of the Collateral as fully and completely as though Secured Party were
the absolute owner thereof for all purposes, and to do, at Secured Party’s
option and Grantors’ expense, at any time or from time to time, all acts and
things that Secured Party deems reasonably necessary to protect, preserve or
realize upon the Collateral and Secured Party’s security interest therein in
order to effect the intent of this Agreement, all as fully and effectively as
such Grantor might do.

 

SECTION
13.           Secured Party May Perform.

 

If any Grantor fails to perform any agreement contained
herein, Secured Party may itself perform, or cause performance of such
agreement, and the expenses of Secured Party incurred in connection therewith
shall be payable by Grantors under Section 18(b) hereof.

 

 

17

SECTION 14.           Standard of Care.

 

The powers conferred on Secured Party hereunder are solely
to protect its interest in the Collateral and shall not impose any duty upon it
to exercise any such powers. Except for the exercise of reasonable care in the
custody of any Collateral in its possession and the accounting for moneys
actually received by it hereunder, Secured Party shall have no duty as to any
Collateral or as to the taking of any necessary steps to preserve rights
against prior parties or any other rights pertaining to any Collateral. Secured
Party shall be deemed to have exercised reasonable care in the custody and
preservation of Collateral in its possession if such Collateral is accorded
treatment substantially equal to that which Secured Party accords its own
property.

 

SECTION
15.           Remedies.

 

(a)              Generally. Subject to the
provisions of the Intercreditor Agreement, if any Event of Default shall
have occurred and be continuing, Secured Party may, subject to Section 20
hereof, exercise in respect of the Collateral, in addition to all other rights
and remedies provided for herein or otherwise available to it, all the rights
and remedies of a secured party on default under the UCC (whether or not the
UCC applies to the affected Collateral), and also may, to the fullest extent
permitted by applicable law, (i) require each Grantor to, and each Grantor
hereby agrees that it will at its expense and upon request of Secured Party
forthwith, assemble all or part of the Collateral as directed by Secured Party
and make it available to Secured Party at a place to be designated by Secured
Party that is reasonably convenient to both parties, (ii) enter onto the
property where any Collateral is located and take possession thereof with or
without judicial process, (iii) prior to the disposition of the Collateral,
store, process, repair or recondition the Collateral or otherwise prepare the
Collateral for disposition in any manner to the extent Secured Party deems
appropriate, (iv) take possession of any Grantor’s premises or place custodians
in exclusive control thereof, remain on such premises and use the same and any
of such Grantor’s equipment for the purpose of completing any work in process,
taking any actions described in the preceding clause (iii) and collecting any
Secured Obligation, (v) without notice except as specified below, sell the
Collateral or any part thereof in one or more parcels at public or private
sale, at any of Secured Party’s offices or elsewhere, for cash, on credit or
for future delivery, at such time or times and at such price or prices and upon
such other terms as Secured Party may deem commercially reasonable, (vi)
exercise dominion and control over and refuse to permit further withdrawals
from any Deposit Account maintained with Secured Party or any Lender and
provide instructions directing the disposition of funds in Deposit Accounts not
maintained with Secured Party or any Lender and (vii) provide entitlement
orders with respect to Security Entitlements and other Investment Property
constituting a part of the Collateral and, without notice to any Grantor,
transfer to or register in the name of Secured Party or any of its nominees any
or all of the Securities Collateral. Secured Party or any Lender or Hedge
Agreement Counterparty (subject to the terms of the Credit Agreement) may be
the purchaser of any or all of the Collateral at any such sale and Secured
Party, as agent for and representative of Lenders and Hedge Agreement
Counterparties (but not any Lender or Hedge Agreement Counterparty in its
individual capacity unless Requisite Obligees shall otherwise agree in
writing), shall be entitled, for the purpose of bidding and making settlement
or payment of the purchase price for all or any portion of the Collateral sold
at any such public sale, to use and apply any of the Secured Obligations as a
credit on account of the purchase price for any Collateral payable by Secured
Party at such sale. Each purchaser at any such sale shall hold the

 

 

18

property
sold absolutely free from any claim or right on the part of any Grantor, and
each Grantor hereby waives (to the extent permitted by applicable law) all
rights of redemption, stay and/or appraisal which it now has or may at any time
in the future have under any rule of law or statute now existing or hereafter
enacted. Each Grantor agrees that, to the extent notice of sale shall be
required by law, at least ten days’ notice to such Grantor of the time and
place of any public sale or the time after which any private sale is to be made
shall constitute reasonable notification. Secured Party shall not be obligated
to make any sale of Collateral regardless of notice of sale having been given.
Secured Party may adjourn any public or private sale from time to time by
announcement at the time and place fixed therefor, and such sale may, without
further notice, be made at the time and place to which it was so adjourned.
Each Grantor hereby waives any claims against Secured Party arising by reason
of the fact that the price at which any Collateral may have been sold at such a
private sale was less than the price which might have been obtained at a public
sale, even if Secured Party accepts the first offer received and does not offer
such Collateral to more than one offeree. If the proceeds of any sale or other
disposition of the Collateral are insufficient to pay all the Secured
Obligations, Grantors shall be jointly and severally liable for the deficiency
and the fees of any attorneys employed by Secured Party to collect such
deficiency. Each Grantor further agrees that a breach of any of the covenants
contained in this Section 15 will cause irreparable injury to Secured Party,
that Secured Party has no adequate remedy at law in respect of such breach and,
as a consequence, that each and every covenant contained in this Section shall
be specifically enforceable against such Grantor, and each Grantor hereby
waives and agrees not to assert any defenses against an action for specific
performance of such covenants except for a defense that no default has occurred
giving rise to the Secured Obligations becoming due and payable prior to their
stated maturities.

(b)              Securities Collateral. Each Grantor recognizes that, by
reason of certain prohibitions contained in the Securities Act and applicable
state securities laws, Secured Party may be compelled, with respect to any sale
of all or any part of the Securities Collateral conducted without prior
registration or qualification of such Securities Collateral under the
Securities Act and/or such state securities laws, to limit purchasers to those
who will agree, among other things, to acquire the Securities Collateral for
their own account, for investment and not with a view to the distribution or
resale thereof. Each Grantor acknowledges that any such private placement may
be at prices and on terms less favorable than those obtainable through a sale
without such restrictions (including an offering made pursuant to a
registration statement under the Securities Act) and, notwithstanding such
circumstances and notwithstanding the provisions of Section 9-610(b) of the UCC,
which each Grantor hereby waives, each Grantor agrees that any such private
placement shall be deemed, in and of itself, to have been made in a
commercially reasonable manner and that Secured Party shall have no obligation
to engage in any public sale and no obligation to delay the sale of any
Securities Collateral for the period of time necessary to permit the issuer
thereof to register it for a form of sale requiring registration under the
Securities Act or under applicable state securities laws, even if such issuer
would, or should, agree to so register it. Subject to the provisions of the
Intercreditor Agreement, if Secured Party determines to exercise its right to
sell any or all of the Securities Collateral, upon written request, each
Grantor shall and shall cause each issuer of any Securities Collateral to be
sold hereunder from time to time to furnish to Secured Party all such
information as Secured Party may request in order to determine the number of
shares and other instruments included in the Collateral which may be sold by
Secured Party in exempt transactions under the Securities

 

 

19

Act and
the rules and regulations of the Securities and Exchange Commission thereunder,
as the same are from time to time in effect.

(c)              Collateral Account. If an Event of Default has occurred and
is continuing, any amounts on deposit in the Collateral Account shall be held
by Administrative Agent and applied as Obligations become due or, if
applicable, pursuant to subsection 2.4D of the Credit Agreement.

 

SECTION
16.           Additional Remedies for
Intellectual Property Collateral.

(a)              Subject
to the provisions of the Intercreditor Agreement, anything contained herein to
the contrary notwithstanding, upon the occurrence and during the continuation
of an Event of Default, (i) Secured Party shall have the right (but not the
obligation) to bring suit, in the name of any Grantor, Secured Party or
otherwise, to enforce any Intellectual Property Collateral, in which event each
Grantor shall, at the reasonable request of Secured Party, do any and all
lawful acts and execute any and all documents reasonably required by Secured
Party in aid of such enforcement and each Grantor shall promptly, upon demand,
reimburse and indemnify Secured Party as provided in subsections 10.2 and 10.3
of the Credit Agreement and Section 18 hereof, as applicable, in connection
with the exercise of its rights under this Section 16, and, to the extent that
Secured Party shall elect not to bring suit to enforce any Intellectual
Property Collateral as provided in this Section, each Grantor agrees to use all
reasonable measures, whether by action, suit, proceeding or otherwise, to
prevent the infringement of any of the Intellectual Property Collateral by
others and for that purpose agrees to use its commercially reasonable judgment
in maintaining any action, suit or proceeding against any Person so infringing
reasonably necessary to prevent such infringement; (ii) upon written demand
from Secured Party, each Grantor shall execute and deliver to Secured Party an
assignment or assignments of the Intellectual Property Collateral and such
other documents as are necessary or appropriate to carry out the intent and
purposes of this Agreement; (iii) each Grantor agrees that such an assignment
and/or recording shall be applied to reduce the Secured Obligations outstanding
only to the extent that Secured Party (or any Lender) receives cash proceeds in
respect of the sale of, or other realization upon, the Intellectual Property
Collateral; and (iv) within five Business Days after written notice from
Secured Party, each Grantor shall make available to Secured Party, to the
extent within such Grantor’s power and authority, such personnel in such
Grantor’s employ as Secured Party may reasonably designate, by name, title or
job responsibility, to permit such Grantor to continue, directly or indirectly,
to produce, advertise and sell the products and services sold or delivered by
such Grantor under or in connection with the Trademarks, Trademark
Registrations and Trademark Rights, such persons to be available to perform
their prior functions on Secured Party’s behalf and to be compensated by
Secured Party at such Grantor’s expense on a per diem, pro-rata basis
consistent with the salary and benefit structure applicable to each as of the
date of such Event of Default.

(b)              If
(i) an Event of Default shall have occurred and, by reason of cure, waiver, modification,
amendment or otherwise, no longer be continuing, (ii) no other Event of Default
shall have occurred and be continuing, (iii) an assignment to Secured Party of
any rights, title and interests in and to the Intellectual Property Collateral
shall have been previously made, and (iv) the Secured Obligations shall not
have become immediately due and payable, upon the written request of any
Grantor, Secured Party shall promptly execute and deliver to such Grantor

 

 

20

such assignments as may be necessary to reassign to such
Grantor any such rights, title and interests as may have been assigned to
Secured Party as aforesaid, subject to any disposition thereof that may have
been made by Secured Party; provided, after giving effect to such
reassignment, Secured Party’s security interest granted pursuant hereto, as
well as all other rights and remedies of Secured Party granted hereunder, shall
continue to be in full force and effect; and provided further, the rights,
title and interests so reassigned shall be free and clear of all Liens other than
Liens (if any) encumbering such rights, title and interest at the time of their
assignment to Secured Party and Permitted Encumbrances.

 

SECTION
17.           Application of Proceeds.

 

Except as expressly provided elsewhere in this Agreement,
and subject to the provisions of the Intercreditor Agreement, all proceeds
received by Secured Party in respect of any sale of, collection from, or other
realization upon all or any part of the Collateral shall be applied as provided
in the Credit Agreement.

 

SECTION
18.           Indemnity and Expenses.

 

(a)              Grantors
jointly and severally agree to indemnify Secured Party, each Lender and each
Hedge Agreement Counterparty from and against any and all claims, losses and
liabilities in any way relating to, growing out of or resulting from this
Agreement and the transactions contemplated hereby (including, without
limitation, enforcement of this Agreement), except to the extent such claims,
losses or liabilities result solely from Secured Party’s or such Lender’s or
Hedge Agreement Counterparty’s gross negligence or willful misconduct as finally
determined by a court of competent jurisdiction.

(b)              Grantors
jointly and severally agree to pay to Secured Party upon demand the amount of
any and all reasonable costs and expenses in accordance with subsection 10.2 of
the Credit Agreement.

(c)              The obligations of Grantors in
this Section 18 shall (i) survive the termination
of this Agreement and the discharge of Grantors’ other obligations under this
Agreement, the Lender Hedge Agreements, the Credit Agreement and the other Loan
Documents and (ii), as to any Grantor that is a party to a Subsidiary Guaranty,
be subject to the provisions of Section 1(b) thereof.

 

SECTION
19.           Continuing Security
Interest; Transfer of Loans;Termination and Release.

(a)              This
Agreement shall create a continuing security interest in the Collateral and
shall (i) remain in full force and effect until the payment in full of the
Secured Obligations (other than Secured Obligations which, after the occurrence
of all of the foregoing actions, are contingent and unliquidated and not due
and owing on such date and which pursuant to the provisions of the Credit
Agreement, Lender Hedge Agreements or any other Loan Documents survive the
termination of the Credit Agreement, the repayment of the Secured Obligations
and the termination, expiration or cancellation of all Lender Hedge
Agreements), (ii) be binding upon Grantors and their respective successors and
assigns, and (iii) inure, together with the rights and remedies of Secured Party
hereunder, to the benefit of Secured Party (on its own behalf and as

 

21

Administrative Agent for and representative of the Beneficiaries)
and its (and such Beneficiaries’) successors, transferees and assigns. Without
limiting the generality of the foregoing clause (iii), (A) but subject to the
provisions of subsection 10.1 of the Credit Agreement, any Lender may assign or
otherwise transfer any Loans held by it to any other Person, and such other
Person shall thereupon become vested with all the benefits in respect thereof
granted to Lenders herein or otherwise and (B) any Hedge Agreement Counterparty
may assign or otherwise transfer any Lender Hedge Agreement to which it is a
party to any other Person in accordance with the terms of such Lender Hedge
Agreement, and such other Person shall thereupon become vested with all the benefits
in respect thereof granted to Hedge Agreement Counterparties herein or
otherwise.

(b)              Upon
the payment in full of all Secured Obligations (other than Secured Obligations
which, after the occurrence of all of the foregoing actions, are contingent and
unliquidated and not due and owing on such date and which pursuant to the
provisions of the Credit Agreement, Lender Hedge Agreements or the Loan
Documents survive the termination of the Credit Agreement, the repayment of the
Secured Obligations and the termination, expiration or cancellation of all
Lender Hedge Agreements), the security interest granted hereby shall terminate
and all rights to the Collateral shall revert to the applicable Grantors. Upon
any such termination Secured Party will, at Grantors’ expense, execute and
deliver to Grantors such documents as Grantors shall reasonably request to
evidence such termination. In addition, upon the proposed sale or other
disposition of any Collateral by a Grantor in accordance with the Credit
Agreement for which such Grantor desires a security interest release from
Secured Party, a security interest release may be obtained pursuant to the
provisions of subsection 10.14 of the Credit Agreement.

 

SECTION
20.           Secured Party as Agent.

 

(a)              Secured
Party has been appointed to act as Secured Party hereunder by Lenders and, by
their acceptance of the benefits hereof, Hedge Agreement Counterparties.
Secured Party shall be obligated, and shall have the right hereunder, to make
demands, to give notices, to exercise or refrain from exercising any rights,
and to take or refrain from taking any action (including, without limitation,
the release or substitution of Collateral), solely in accordance with this
Agreement and the Credit Agreement; provided that Secured Party shall
exercise, or refrain from exercising, any remedies provided for in Section 15
hereof in accordance with the instructions of Requisite Obligees. In
furtherance of the foregoing provisions of this Section 20(a), each Hedge
Agreement Counterparty, by its acceptance of the benefits hereof, agrees that
it shall have no right individually to realize upon any of the Collateral
hereunder, it being understood and agreed by such Hedge Agreement Counterparty
that all rights and remedies hereunder may be exercised solely by Secured Party
for the benefit of Lenders and Hedge Agreement Counterparties in accordance
with the terms of this Section 20(a).

 

(b)              Secured
Party shall at all times be the same Person that is Administrative Agent under
the Credit Agreement. Written notice of resignation by Administrative Agent
pursuant to subsection 9.5 of the Credit Agreement shall also constitute notice
of resignation as Secured Party under this Agreement; and appointment of a
successor Administrative Agent pursuant to subsection 9.5 of the Credit
Agreement shall also constitute appointment of a successor Secured Party under
this Agreement. Upon the acceptance of any appointment as

 

 

22

Administrative
Agent under subsection 9.5 of the Credit Agreement by a successor Administrative Agent, that successor Administrative
Agent shall thereupon succeed to and become vested with all the rights, powers,
privileges and duties of the retiring Secured Party under this Agreement, and
the retiring Secured Party under this Agreement shall promptly (i) transfer to
such successor Secured Party all sums, securities and other items of Collateral
held hereunder, together with all records and other documents necessary or
appropriate in connection with the performance of the duties of the successor
Secured Party under this Agreement, and (ii) execute (if necessary) and deliver
to such successor Secured Party such amendments to financing statements, and
take such other actions, as may be necessary or appropriate in connection with
the assignment to such successor Secured Party of the security interests
created hereunder, whereupon such retiring Secured Party shall be discharged
from its duties and obligations under this Agreement. After any retiring
Administrative Agent’s resignation hereunder as Secured Party, the provisions
of this Agreement shall inure to its benefit as to any actions taken or omitted
to be taken by it under this Agreement while it was Secured Party hereunder.

(c)              Secured
Party shall not be deemed to have any duty whatsoever with respect to any Hedge
Agreement Counterparty until it shall have received written notice in form and
substance satisfactory to Secured Party from a Grantor or the Hedge Agreement
Counterparty as to the existence and terms of the applicable Lender Hedge
Agreement.

 

SECTION
21.           Additional Grantors.

 

The initial Grantors hereunder shall be Company, Holdings
and such of the Subsidiaries of Company as are signatories hereto on the date
hereof. From time to time subsequent to the date hereof, additional
Subsidiaries of Company may become Additional Grantors, by executing a
Counterpart. Upon delivery of any such Counterpart to Secured Party, notice of
which is hereby waived by Grantors, each such Additional Grantor shall be a
Grantor and shall be as fully a party hereto as if such Additional Grantor were
an original signatory hereto. Each Grantor expressly agrees that its
obligations arising hereunder shall not be affected or diminished by the
addition or release of any other Grantor hereunder, nor by any election of
Secured Party not to cause any Subsidiary of Company to become an Additional
Grantor hereunder. This Agreement shall be fully effective as to any Grantor
that is or becomes a party hereto regardless of whether any other Person
becomes or fails to become or ceases to be a Grantor hereunder.

 

SECTION
22.           Amendments; Etc.

 

No amendment, modification, termination or waiver of any
provision of this Agreement, and no consent to any departure by any Grantor
therefrom, shall in any event be effective unless the same shall be in writing
and signed by Secured Party and, in the case of any such amendment or modification,
by Grantors; provided this Agreement may be modified by the execution of
a Counterpart by an Additional Grantor in accordance with Section 21 hereof and
Grantors hereby waive any requirement of notice of or consent to any such
amendment. Any such waiver or consent shall be effective only in the specific
instance and for the specific purpose for which it was given.

 

SECTION
23.           Notices.

 

 

23

Any notice or other communication herein required or
permitted to be given shall be in writing and may be personally served or sent
by telefacsimile or United States mail or courier service and shall be deemed
to have been given when delivered in person or by courier service, upon receipt
of telefacsimile in complete and legible form, or three Business Days after
depositing it in the United States mail with postage prepaid and properly
addressed; provided that notices to Secured Party shall not be effective until
received. For the purposes hereof, the address of each party hereto shall be as
provided in subsection 10.8 of the Credit Agreement or as set forth under such
party’s name on the signature pages hereof or such other address as shall be
designated by such party in a written notice delivered to the other parties
hereto.

 

SECTION
24.           Failure or Indulgence Not
Waiver; Remedies Cumulative.

 

No failure or delay on the part of Secured Party in the
exercise of any power, right or privilege hereunder shall impair such power,
right or privilege or be construed to be a waiver of any default or
acquiescence therein, nor shall any single or partial exercise of any such
power, right or privilege preclude any other or further exercise thereof or of
any other power, right or privilege. All rights and remedies existing under
this Agreement are cumulative to, and not exclusive of, any rights or remedies
otherwise available.

 

SECTION
25.           Severability.

In case any provision in or obligation under this
Agreement shall be invalid, illegal or unenforceable in any jurisdiction, the
validity, legality and enforceability of the remaining provisions or
obligations, or of such provision or obligation in any other jurisdiction,
shall not in any way be affected or impaired thereby.

 

SECTION
26.           Headings.

 

Section and subsection headings in this Agreement are
included herein for convenience of reference only and shall not constitute a
part of this Agreement for any other purpose or be given any substantive
effect.

 

SECTION
27.           Governing Law; Rules of
Construction.

 

THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER
SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH,
THE INTERNAL LAWS OF THE STATE OF NEW YORK (INCLUDING, WITHOUT LIMITATION,
SECTIONS 5-1401 AND 5-1402 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW
YORK), WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES THAT WOULD REQUIRE THE
APPLICATION OF ANOTHER LAW, EXCEPT TO THE EXTENT THAT THE UCC PROVIDES THAT THE
PERFECTION OF THE SECURITY INTEREST HEREUNDER, OR REMEDIES HEREUNDER, IN
RESPECT OF ANY PARTICULAR COLLATERAL ARE GOVERNED BY THE LAWS OF A JURISDICTION
OTHER THAN THE STATE OF NEW YORK, IN WHICH CASE THE LAWS OF SUCH JURISDICTION
SHALL GOVERN WITH RESPECT TO THE

 

 

24

PERFECTION OF THE SECURITY INTEREST IN, OR THE REMEDIES WITH RESPECT
TO, SUCH PARTICULAR COLLATERAL. The
rules of construction set forth in subsection 1.3 of the Credit Agreement shall be applicable to
this Agreement mutatis mutandis.

 

SECTION
28.           Consent to Jurisdiction
and Service of Process.

 

ALL JUDICIAL PROCEEDINGS BROUGHT AGAINST ANY GRANTOR ARISING OUT OF OR
RELATING TO THIS AGREEMENT, OR ANY OBLIGATIONS HEREUNDER, MAY BE BROUGHT IN ANY
STATE OR FEDERAL COURT OF COMPETENT JURISDICTION IN THE STATE, COUNTY AND CITY
OF NEW YORK. BY EXECUTING AND DELIVERING THIS AGREEMENT, EACH GRANTOR, FOR
ITSELF AND IN CONNECTION WITH ITS PROPERTIES, IRREVOCABLY (I) ACCEPTS GENERALLY
AND UNCONDITIONALLY THE NONEXCLUSIVE JURISDICTION AND VENUE OF SUCH COURTS;
(II) WAIVES ANY DEFENSE OF FORUM NON CONVENIENS;
(III) AGREES THAT SERVICE OF ALL PROCESS IN ANY SUCH PROCEEDING IN ANY SUCH
COURT MAY BE MADE BY REGISTERED OR CERTIFIED MAIL, RETURN RECEIPT REQUESTED, TO
SUCH GRANTOR AT ITS ADDRESS PROVIDED IN ACCORDANCE WITH SECTION 23 HEREOF; (IV)
AGREES THAT SERVICE AS PROVIDED IN CLAUSE (III) ABOVE IS SUFFICIENT TO CONFER
PERSONAL JURISDICTION OVER SUCH GRANTOR IN ANY SUCH PROCEEDING IN ANY SUCH
COURT, AND OTHERWISE CONSTITUTES EFFECTIVE AND BINDING SERVICE IN EVERY
RESPECT; (V) AGREES THAT SECURED PARTY RETAINS THE RIGHT TO SERVE PROCESS IN
ANY OTHER MANNER PERMITTED BY LAW OR TO BRING PROCEEDINGS AGAINST SUCH GRANTOR
IN THE COURTS OF ANY OTHER JURISDICTION; AND (VI) AGREES THAT THE PROVISIONS OF
THIS SECTION 28 RELATING TO JURISDICTION AND VENUE SHALL BE BINDING AND
ENFORCEABLE TO THE FULLEST EXTENT PERMISSIBLE UNDER NEW YORK GENERAL
OBLIGATIONS LAW SECTION 5-1402 OR OTHERWISE.

 

SECTION
29.           Waiver of Jury Trial.

GRANTORS AND SECURED PARTY HEREBY AGREE TO WAIVE THEIR RESPECTIVE
RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING
OUT OF THIS AGREEMENT. THE SCOPE OF THIS WAIVER IS INTENDED TO BE ALL
ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT AND THAT
RELATE TO THE SUBJECT MATTER OF THIS TRANSACTION, INCLUDING, WITHOUT
LIMITATION, CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER
COMMON LAW AND STATUTORY CLAIMS. EACH GRANTOR AND SECURED PARTY ACKNOWLEDGES
THAT THIS WAIVER IS A MATERIAL INDUCEMENT FOR GRANTORS AND SECURED PARTY TO
ENTER INTO A BUSINESS RELATIONSHIP, THAT GRANTORS AND SECURED PARTY HAVE
ALREADY RELIED ON THIS WAIVER IN ENTERING INTO THIS AGREEMENT AND THAT EACH
WILL CONTINUE TO RELY ON THIS WAIVER IN THEIR RELATED FUTURE DEALINGS. EACH
GRANTOR AND SECURED PARTY

 

 

25

FURTHER
WARRANTS AND REPRESENTS THAT EACH HAS REVIEWED THIS WAIVER WITH ITS LEGAL
COUNSEL, AND THAT EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS
FOLLOWING CONSULTATION WITH LEGAL COUNSEL. THIS WAIVER IS IRREVOCABLE, MEANING
THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING (OTHER THAN BY A MUTUAL
WRITTEN WAIVER SPECIFICALLY REFERRING TO THIS SECTION 29 AND EXECUTED BY EACH
OF THE PARTIES HERETO), AND THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT
AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT. In the event of litigation, this Agreement may be filed as a written
consent to a trial by the court.

 

SECTION
30.           Counterparts.

 

This Agreement may be executed in one or more counterparts
and by different parties hereto in separate counterparts, each of which when so
executed and delivered shall be deemed an original, but all such counterparts
together shall constitute but one and the same instrument; signature pages may
be detached from multiple separate counterparts and attached to a single
counterpart so that all signature pages are physically attached to the same
document. This Agreement shall become effective upon the execution of a
counterpart hereof by each of the parties hereto.

 

SECTION
31.           Definitions.

(a)              Each
capitalized term utilized in this Agreement that is defined in this Agreement
shall have the meaning ascribed to such term in this Agreement. Except as
otherwise provided in Section 1 hereof with respect to the categories of
Collateral listed in Section 1 hereof, each capitalized term utilized in this
Agreement that is not defined in this Agreement, but that is defined in the
Credit Agreement, shall have the meaning ascribed to such term in the Credit
Agreement. Each capitalized term utilized in this Agreement that is not defined
in the Credit Agreement or in this Agreement, but that is defined in the UCC,
including the categories of Collateral listed in Section 1 hereof, shall have
the meaning set forth in Articles 1, 8 or 9 of the UCC.

(b)              In addition, the following terms
used in this Agreement shall have the following meanings: 

 

“Additional Grantor”
means a Subsidiary of Company that becomes a party hereto after the date hereof
as an additional Grantor by executing a Counterpart.

 

“Assigned Agreements”
means, with respect to any Grantor, all agreements to which such Grantor is
party, as each such agreement may be amended, restated, supplemented or
otherwise modified from time to time, including, without limitation, (a) all
rights of such Grantor to receive moneys due or to become due under or pursuant
to the Assigned Agreements, (b) all rights of such Grantor to receive proceeds
of any Supporting Obligations with respect to the Assigned Agreements, (c) all
claims of such Grantor for damages arising out of any breach of or default
under the Assigned Agreements, and (d) all rights of such Grantor to terminate,
amend,

 

 

26

supplement, modify or exercise rights or options under the
Assigned Agreements, to perform thereunder and to compel performance and
otherwise exercise all remedies thereunder.

“Beneficiary”
means Administrative Agent (including, without limitation, each Supplemental Collateral
Agent), each Lender and each Hedge Agreement Counterparty.

“Collateral” has
the meaning set forth in Section 1 hereof.

“Collateral Account”
means the “MD Beauty Second-Lien Collateral Account” established pursuant to
Section 11.

“Copyrights”
means all items under copyright in various published and unpublished works of
authorship including, without limitation, computer programs, computer data
bases, other computer software layouts, trade dress, drawings, designs,
writings, and formulas (including, without limitation, the works set forth on Schedule
10 annexed hereto, as the same may be amended pursuant hereto from time to
time).

“Copyright Registrations”
means all copyright registrations issued to any Grantor and applications for
copyright registration that have been or may hereafter be issued or applied for
thereon in the United States and any state thereof and in foreign countries
(including, without limitation, the registrations set forth on Schedule 10
annexed hereto, as the same may be amended pursuant hereto from time to time).

“Copyright Rights”
means all common law and other rights in and to the Copyrights in the United
States and any state thereof and in foreign countries including all copyright
licenses (but with respect to such copyright licenses, only to the extent
permitted by such licensing arrangements), the rights (but not the obligation)
to renew and extend Copyright Registrations and any such rights and to register
works protectable by copyright and the right (but not the obligation) to sue in
the name of any Grantor or in the name of Secured Party or Lenders for past,
present and future infringements of the Copyrights and any such rights.

“Counterpart”
means a counterpart to this Agreement entered into by a Subsidiary of Company
pursuant to Section 21 hereof.

“Credit Agreement”
has the meaning set forth in the Preliminary Statements of this Agreement.

“Equity Interests”
means all shares of stock, partnership interests, interests in Joint Ventures,
limited liability company interests and all other equity interests in a Person,
whether such stock or interests are classified as Investment Property or
General Intangibles under the UCC.

“Event of Default”
means any Event of Default as defined in the Credit Agreement or, after payment
in full of all Obligations under the Credit Agreement and the other Loan
Documents (other than Unasserted Obligations), the occurrence of an Early
Termination Date (as defined in a Master Agreement in the form prepared by the
International Swap and Derivatives Association, Inc. or a similar event under
any similar swap agreement) under any Lender Hedge Agreement.

 

 

27

“First Lien Secured Party”
means “Secured Party” as such term is defined in that certain First Lien
Security Agreement.

“Grant” means a
Grant of Trademark Security Interest, substantially in the form of Exhibit I
annexed hereto, a Grant of Patent Security Interest, substantially in the form
of Exhibit II annexed hereto, and a Grant of Copyright Security Interest,
substantially in the form of Exhibit III annexed hereto.

“Hedge Agreement
Counterparty” means a Person that enters into a Lender Hedge
Agreement with Company or a Subsidiary and is a Lender or an Affiliate of a
Lender at the time such agreement is entered into.

“Intellectual Property Collateral”
means, with respect to any Grantor all right, title and interest (including
rights acquired pursuant to a license or otherwise but only to the extent
permitted by agreements governing such license or other use) in and to all

(a)        Copyrights,
Copyright Registrations and Copyright Rights, including, without limitation,
each of the Copyrights, rights, titles and interests in and to the Copyrights,
all derivative works and other works protectable by copyright, which are
presently, or in the future may be, owned, created (as a work for hire for the benefit
of such Grantor), authored (as a work for hire for the benefit of such
Grantor), or acquired by such Grantor, in whole or in part, and all Copyright
Rights with respect thereto and all Copyright Registrations therefor,
heretofore or hereafter granted or applied for, and all renewals and extensions
thereof, throughout the world, including all proceeds thereof (such as, by way
of example and not by limitation, license royalties and proceeds of infringement
suits), the right (but not the obligation) to renew and extend such Copyright
Registrations and Copyright Rights and to register works protectable by
copyright and the right (but not the obligation) to sue in the name of such
Grantor or in the name of Secured Party or Lenders for past, present and future
infringements of the Copyrights and Copyright Rights;

 

(b)        Patents;

 

(c)        Trademarks, Trademark Registrations, the
Trademark Rights and goodwill of such Grantor’s
business symbolized by the Trademarks and associated therewith; and

(d)        all trade
secrets, trade secret rights, know-how, customer lists, processes of
production, ideas, confidential business information, techniques, processes,
formulas, and all other proprietary information.

“IP Supplement”
means an IP Supplement, substantially in the form of Exhibit V annexed
hereto.

“Patent Registrations”
means all Patents that have been or may hereafter be issued or applied for
thereon in the United States and in foreign countries, but in the case of such
foreign countries only to the extent such registration in such foreign country
relates to a Patent that is not registered in the United States (including,
without limitation, the registrations and applications set forth on Schedule
9 annexed hereto).

 

 

28

“Patents” means
all patents and patent applications and rights and interests in patents and
patent applications under any domestic or foreign law that are presently, or in
the future may be, owned or held by such Grantor and all patents and patent
applications and rights, title and interests in patents and patent applications
under any domestic or foreign law that are presently, or in the future may be,
owned by such Grantor in whole or in part (including, without limitation, the
patents and patent applications set forth on Schedule 9 annexed hereto),
all rights (but not obligations) corresponding thereto to sue for past, present
and future infringements and all reissues, divisions, continuations, renewals,
extensions and continuations-in-part thereof.

“Pledged Debt”
means the Indebtedness from time to time owed to a Grantor, including the
Indebtedness set forth on Schedule 7 annexed hereto and issued by the
obligors named therein, the Instruments and certificates evidencing such
Indebtedness and all interest, cash or other property received, receivable or
otherwise distributed in respect of or exchanged therefor.

“Pledged Equity”
means all Equity Interests now or hereafter owned by a Grantor, including all
securities convertible into, and rights, warrants, options and other rights to
purchase or otherwise acquire, any of the foregoing, including those owned on
the date hereof and set forth on Schedule 6 annexed hereto, the certificates
or other instruments representing any of the foregoing and any interest of such
Grantor in the entries on the books of any securities intermediary pertaining
thereto and all distributions, dividends and other property received,
receivable or otherwise distributed in respect of or exchanged therefor.

“Pledged Subsidiary Debt”
means Pledged Debt owed to a Grantor by any obligor that is, or becomes, a
direct or indirect Subsidiary of such Grantor, of which such Grantor is a
direct or indirect Subsidiary or that controls, is controlled by or under
common control with such Grantor.

“Pledged Subsidiary Equity”
means Pledged Equity in a person that is, or becomes a direct Subsidiary of a
Grantor.

“Pledge Supplement”
means a Pledge Supplement, in substantially the form of Exhibit IV
annexed hereto, in respect of the additional Pledged Equity or Pledged Debt
pledged pursuant to this Agreement.

“Requisite Obligees”
means either (i) Requisite Lenders or (ii), after payment in full of all
Obligations under the Credit Agreement and the other Loan Documents (other than
Unasserted Obligations), (A) the holders of a majority of the aggregate
notional amount under all Lender Hedge Agreements (including Lender Hedge
Agreements that have been terminated) or (B) if all Lender Hedge Agreements
have been terminated in accordance with their terms, the aggregate amount then
due and payable (exclusive of expenses and similar payments but
including any early termination payments then due) under such Lender Hedge
Agreements.

“Secured Obligations”
has the meaning set forth in Section 2 hereof.

“Securities Collateral”
means, with respect to any Grantor, the Pledged Equity, the Pledged Debt and
any other Investment Property in which such Grantor has an interest.

 

 

29

“Trademarks”
means all trademarks, service marks, designs, logos, indicia, tradenames, trade
dress, corporate names, company names, business names, fictitious business
names, trade styles and/or other source and/or business identifiers and
applications pertaining thereto, owned by such Grantor, or hereafter adopted
and used, in its business (including, without limitation, the trademarks specifically
set forth on Schedule 8 annexed hereto).

“Trademark Registrations”
means all trademark registrations that have been or may hereafter be issued or
applied for thereon in the United States and any state thereof and in foreign
countries (including, without limitation, the registrations and applications
set forth on Schedule 8 annexed hereto).

“Trademark Rights”
means all common law and other rights (but in no event any of the obligations)
in and to the Trademarks in the United States and any state thereof and in
foreign countries.

“UCC” means the
Uniform Commercial Code, as it exists on the date of this Agreement or as it may
hereafter be amended, in the State of New York or when the context applies, the
Uniform Commercial Code as in effect from time to time in any other applicable
jurisdiction.

 

SECTION 32          Intercreditor
Agreement.

(a)              Prior
to the First Lien Claims (as such term is defined in the Intercreditor
Agreement) being Paid in Full (as such term is defined in the Intercreditor
Agreement), the requirements of this Agreement to deliver Collateral to Secured
Party hereunder shall be deemed satisfied by delivery of such Collateral to
First Lien Secured Party or to any other person acting as agent for Secured
Party.

(b)              Prior
to the First Lien Claims (as such term is defined in the Intercreditor
Agreement) being Paid in Full (as such term is defined in the Intercreditor
Agreement), the requirements of this Agreement to hold Collateral for, on
behalf of or for the account of Secured Party hereunder shall be deemed satisfied
if such Collateral is held for, on behalf of or for the account of First Lien
Secured Party or by any other person acting as agent for Secured Party.

(c)              Except
as otherwise specifically provided herein, the provisions set forth in the
Intercreditor Agreement shall operate either as additions to or modifications
of the obligations of the parties hereunder, as the context may require. In the
event of any conflict between this Agreement and the Intercreditor Agreement,
the provisions of the Intercreditor Agreement shall prevail.

 

[Remainder of page intentionally left
blank]

 

30

 

IN WITNESS
WHEREOF, Grantors and Secured Party have caused this Agreement to be duly
executed and delivered by their respective officers thereunto duly authorized
as of the date first written above.

 

 

	
  GRANTORS:

  	
  MD BEAUTY, INC.

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Leslie A. Blodgett

  
	
   

  	
   

  	
  Name:

  	
  Leslie A. Blodgett

  
	
   

  	
   

  	
  Title:

  	
  President, Chief Executive Officer and Secretary

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  STB BEAUTY, INC.

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Leslie A. Blodgett

  
	
   

  	
   

  	
  Name:

  	
  Leslie A. Blodgett

  
	
   

  	
   

  	
  Title:

  	
  President and Chief Executive Officer 

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  BARE ESCENTUALS, INC.

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Leslie A. Blodgett

  
	
   

  	
   

  	
  Name:

  	
  Leslie A. Blodgett

  
	
   

  	
   

  	
  Title:

  	
  President, Chief Executive Officer and Secretary

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  BIOCEUTIX INC.

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Leslie A. Blodgett

  
	
   

  	
   

  	
  Name:

  	
  Leslie A. Blodgett

  
	
   

  	
   

  	
  Title:

  	
  President, Chief Executive Officer and Secretary

  
	
   

  	
   

  

 

 

 

S-1

 

	
   

  	
   

  
	
   

  	
  ID DIRECT, INC..

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Leslie A. Blodgett

  
	
   

  	
   

  	
  Name:

  	
  Leslie A. Blodgett

  
	
   

  	
   

  	
  Title:

  	
  President, Chief Executive Officer and Secretary

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  MD BEAUTY SALES, INC.

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Leslie A. Blodgett

  
	
   

  	
   

  	
  Name:

  	
  Leslie A. Blodgett

  
	
   

  	
   

  	
  Title:

  	
  President, Chief Executive Officer and Secretary

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  

 

S-2

 

	
  SECURED PARTY:

  	
  BNP PARIBAS, INC.

  as Administrative Agent and

  as Secured Party

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Amy Kirschner

  
	
   

  	
   

  	
  Name:

  	
  Amy Kirschner

  
	
   

  	
   

  	
  Title:

  	
  Director

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ M. Finkelman

  
	
   

  	
   

  	
  Name:

  	
  M. Finkelman

  
	
   

  	
   

  	
  Title:

  	
  MD

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  

 

S-3Exhibit
10.34

 

FORM OF TERM NOTE 

MD
BEAUTY, INC.

NOTWITHSTANDING ANYTHING HEREIN TO THE CONTRARY, THE LIEN
AND SECURITY INTEREST GRANTED TO THE ADMINISTRATIVE AGENT PURSUANT TO THIS NOTE
AND THE EXERCISE OF ANY RIGHT OR REMEDY BY THE ADMINISTRATIVE AGENT HEREUNDER
ARE SUBJECT TO THE PROVISIONS OF THE INTERCREDITOR AGREEMENT, DATED AS OF
FEBRUARY 18, 2005 (AS AMENDED, RESTATED, SUPPLEMENTED OR OTHERWISE MODIFIED
FROM TIME TO TIME, THE “INTERCREDITOR AGREEMENT”),
BY AND AMONG BNP PARIBAS, AS FIRST LIEN ADMINISTRATIVE AGENT, AND BNP PARIBAS,
AS SECOND LIEN ADMINISTRATIVE AGENT. IN THE EVENT OF ANY CONFLICT BETWEEN THE
TERMS OF THE INTERCREDITOR AGREEMENT AND THIS NOTE, THE TERMS OF THE
INTERCREDITOR AGREEMENT SHALL GOVERN AND CONTROL.

 

	
  $

  	
   

  	
  (1)

  	
   

  	
  (2)

  
	
   

  	
   

  	
   

  	
  [**Issuance date**]

  

 

FOR VALUE RECEIVED, MD BEAUTY,
INC., a Delaware
corporation (“Company”), promises to pay to                  (3)
(“Payee”) or its registered assigns the
principal amount of
             (4)
($[**            (1)**]).
The principal amount of this Note shall be
payable on the dates and in the amounts specified in the Credit Agreement; provided
that the final such installment shall be in an amount, if such amount is
different than specified therein, sufficient to repay the entire unpaid
principal balance of this Note, together with all accrued and unpaid interest
thereon.

Company also promises to pay interest on the unpaid principal amount
hereof, until paid in full, at the rates and at the times
which shall be determined in accordance with the provisions of that certain
Term Loan Agreement dated as of February 18, 2005, by and among Company, STB
Beauty, Inc., a Delaware corporation, the financial institutions from time to
time party thereto as Lenders, and BNP Paribas, as Administrative Agent (said
Term Loan Agreement, as it may be amended, supplemented or otherwise modified
from time to time, being the “Credit Agreement”;
the terms defined therein and not otherwise defined herein being used herein as
therein defined).

This
Note is one of Company’s “Term Notes” in the aggregate principal amount of $[**           **]
and is issued pursuant to and entitled to the benefits of the Credit Agreement,
to which reference is hereby made for a more complete statement of the terms
and conditions under which the Term Loan evidenced hereby was made and is to be
repaid.

 

(1)      Insert amount of Lender’s Term Loan in
numbers.

(2)      Insert place of delivery of Note.

(3)      Insert
Lender’s name in capital letters.

(4)      Insert
amount of Lender’s Term Loan in words.

 

 

1

 

All payments of principal and interest in respect of this
Note shall be made in lawful money of the United States of America in same day
funds at the Funding and Payment Office or at such other place as shall be
designated in writing for such purpose in accordance with the terms of the
Credit Agreement. Unless and until an Assignment Agreement effecting the
assignment or transfer of this Note shall have been accepted by Administrative
Agent and recorded in the Register as provided in the Credit Agreement, Company
and Administrative Agent shall be entitled to deem and treat Payee as the owner
and holder of this Note and the Loan evidenced hereby. Payee hereby agrees, by
its acceptance hereof, that before disposing of this Note or any part hereof it
will make a notation hereon of all principal payments previously made hereunder
and of the date to which interest hereon has been paid; provided, that neither
the failure to make a notation of any payment made on this Note nor any error
in any such notation shall limit or otherwise affect the rights of Payee or the
obligations of Company hereunder with respect to payments of principal of or
interest on this Note.

Whenever any payment on this Note shall be stated to be
due on a day which is not a Business Day, such payment shall be made on the
next succeeding Business Day and such extension of time shall be included in
the computation of the payment of interest on this Note; provided, however,
that if the day on which payment relating to a LIBOR Loan is due is not a
Business Day but is a day of the month after which no further Business Day
occurs in that month, then the due date thereof shall be the next preceding
Business Day.

This Note is subject to mandatory prepayment as provided
in the Credit Agreement and to prepayment at the option of Company as provided
in the Credit Agreement.

THIS NOTE AND THE RIGHTS AND OBLIGATIONS OF COMPANY AND PAYEE HEREUNDER
SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH,
THE INTERNAL LAWS OF THE STATE OF NEW YORK (INCLUDING SECTIONS 5-1401 AND
5-1402 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK), WITHOUT REGARD
TO CONFLICTS OF LAWS PRINCIPLES THAT WOULD REQUIRE THE APPLICATION OF ANOTHER
LAW.

Upon the occurrence of an Event of Default, the unpaid
balance of the principal amount of this Note, together with all accrued and
unpaid interest thereon, may become, or may be declared to be, due and payable
in the manner, upon the conditions and with the effect provided in the Credit
Agreement.

The terms of this Note are subject to amendment only in
the manner provided in the Credit Agreement.

This Note is subject to restrictions on transfer or
assignment as provided in the Credit Agreement.

No reference herein to the Credit Agreement and no
provision of this Note or the Credit Agreement shall alter or impair the
obligations of Company, which are absolute and unconditional, to pay the
principal of and interest on this Note at the place, at the respective times,
and in the currency herein prescribed.

 

 

 

2

 

 

Company promises to pay all costs and expenses, including
reasonable attorneys’ fees, all as provided in the Credit Agreement, incurred
in the collection and enforcement of this Note. Company and any endorsers of
this Note hereby consent to renewals and extensions of time at or after the
maturity hereof, without notice, and hereby waive diligence, presentment,
protest, demand and notice of every kind and, to the full extent permitted by
law, the right to plead any statute of limitations as a defense to any demand
hereunder.

 

 

3

 

IN WITNESS WHEREOF,
Company has caused this Note to be duly executed and delivered by its officer
thereunto duly authorized as of the date and at the place first written above.

 

	
   

  	
  MD BEAUTY,
  INC.

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  

 

 

4

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