Document:

Exhibit 10.7

 

 

 

WARRANT
AND REGISTRATION RIGHTS AGREEMENT

 

by and among

 

ZALE CORPORATION,

THE INITIAL WARRANT HOLDER

and

Z INVESTMENT HOLDINGS, LLC

 

Dated as of May 10,
2010

 

 

 

 

TABLE OF CONTENTS

 

	
   

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  
	
  ARTICLE I

  
	
   

  
	
  Definitions

  
	
   

  
	
  ARTICLE
  II

  
	
   

  
	
  Original
  Issue of Warrants

  
	
   

  
	
  SECTION 2.01.

  	
  Form of Warrant Certificates

  	
  7

  
	
  SECTION 2.02.

  	
  Execution and Delivery of Warrant Certificates

  	
  7

  
	
   

  	
   

  	
   

  
	
  ARTICLE
  III

  
	
   

  
	
  Exercise
  Price; Exercise of Warrants and Expiration of Warrants

  
	
   

  	
   

  	
   

  
	
  SECTION 3.01.

  	
  Exercise Price

  	
  8

  
	
  SECTION 3.02.

  	
  Exercise of Warrants

  	
  8

  
	
  SECTION 3.03.

  	
  Expiration of Warrants

  	
  8

  
	
  SECTION 3.04.

  	
  Method of Exercise; Payment of Exercise Price

  	
  8

  
	
  SECTION 3.05.

  	
  Transferability of the Warrants

  	
  9

  
	
  SECTION 3.06.

  	
  Compliance with the Securities Act

  	
  10

  
	
  SECTION 3.07.

  	
  Exercise for Series A Preferred Stock

  	
  11

  
	
   

  	
   

  	
   

  
	
  ARTICLE
  IV

  
	
   

  
	
  Registration
  Rights and Procedures and Listing

  
	
   

  	
   

  	
   

  
	
  SECTION 4.01.

  	
  Demand Registration Rights

  	
  12

  
	
  SECTION 4.02.

  	
  Piggyback Registration Rights

  	
  15

  
	
  SECTION 4.03.

  	
  Expenses of Registration and Selling

  	
  16

  
	
  SECTION 4.04.

  	
  Obligations of the Company

  	
  16

  
	
  SECTION 4.05.

  	
  Suspension of Sales

  	
  19

  
	
  SECTION 4.06.

  	
  Furnishing Information

  	
  19

  
	
  SECTION 4.07.

  	
  Indemnification

  	
  20

  
	
  SECTION 4.08.

  	
  Contribution

  	
  21

  
	
  SECTION 4.09.

  	
  Representations, Warranties and Indemnities to Survive

  	
  22

  
	
  SECTION 4.10.

  	
  Lock-Up Agreements

  	
  22

  
	
  SECTION 4.11.

  	
  Rule 144 Reporting

  	
  22

  

 

i

 

	
  ARTICLE V

  
	
   

  
	
  Adjustments

  
	
   

  
	
  SECTION 5.01.

  	
  Adjustments for Cash Dividends

  	
  23

  
	
  SECTION 5.02.

  	
  Adjustments Upon Certain Transactions

  	
  23

  
	
  SECTION 5.03.

  	
  Dividends and Distributions

  	
  23

  
	
  SECTION 5.04.

  	
  Issuer Tender Offers

  	
  25

  
	
  SECTION 5.05.

  	
  Consolidation, Merger or Sale

  	
  25

  
	
  SECTION 5.06.

  	
  Preemptive Rights

  	
  26

  
	
  SECTION 5.07.

  	
  Consent Upon Certain Issuances

  	
  26

  
	
  SECTION 5.08.

  	
  Affiliate Transactions

  	
  27

  
	
  SECTION 5.09.

  	
  Fractional Shares

  	
  27

  
	
  SECTION 5.10.

  	
  Notice of Adjustment

  	
  27

  
	
   

  	
   

  	
   

  
	
  ARTICLE
  VI

  
	
   

  
	
  Warrant
  Transfer Books

  
	
   

  	
   

  	
   

  
	
  SECTION 6.01.

  	
  Warrant Transfer Books

  	
  27

  
	
   

  	
   

  	
   

  
	
  ARTICLE
  VII

  
	
   

  
	
  Warrant
  Holders

  
	
   

  
	
  SECTION 7.01.

  	
  No Voting Rights

  	
  28

  
	
  SECTION 7.02.

  	
  Right of Action

  	
  28

  
	
  SECTION 7.03.

  	
  Agent

  	
  28

  
	
   

  	
   

  	
   

  
	
  ARTICLE
  VIII

  
	
   

  
	
  Representations
  and Warranties

  
	
   

  	
   

  	
   

  
	
  SECTION 8.01.

  	
  Representations and Warranties of the Company

  	
  29

  
	
  SECTION 8.02.

  	
  Representations and Warranties of the Holders

  	
  31

  
	
   

  	
   

  	
   

  
	
  ARTICLE IX

  
	
   

  
	
  Covenants

  
	
   

  	
   

  	
   

  
	
  SECTION 9.01.

  	
  Reservation of Common Stock for Issuance on Exercise of
  Warrants

  	
  31

  
	
  SECTION 9.02.

  	
  Notice of Dividends

  	
  32

  
	
  SECTION 9.03.

  	
  HSR Act Compliance

  	
  32

  
	
  SECTION 9.04.

  	
  Board Representation

  	
  32

  
	
  SECTION 9.05.

  	
  Stockholder Approval

  	
  34

  
	
  SECTION 9.06.

  	
  Certain Other Events

  	
  36

  

 

ii

 

	
  SECTION 9.07.

  	
  Transfers

  	
  36

  
	
   

  	
   

  	
   

  
	
  ARTICLE X

  
	
   

  
	
  Miscellaneous

  
	
   

  
	
  SECTION 10.01.

  	
  Tax Matters

  	
  36

  
	
  SECTION 10.02.

  	
  Surrender of Certificates

  	
  37

  
	
  SECTION 10.03.

  	
  Mutilated, Destroyed, Lost and Stolen Warrant Certificates

  	
  37

  
	
  SECTION 10.04.

  	
  Removal of Legends

  	
  38

  
	
  SECTION 10.05.

  	
  Notices

  	
  38

  
	
  SECTION 10.06.

  	
  Applicable Law

  	
  39

  
	
  SECTION 10.07.

  	
  Persons Benefiting

  	
  39

  
	
  SECTION 10.08.

  	
  Counterparts

  	
  39

  
	
  SECTION 10.09.

  	
  Amendments

  	
  39

  
	
  SECTION 10.10.

  	
  Headings

  	
  40

  
	
  SECTION 10.11.

  	
  Entire Agreement

  	
  40

  
	
  SECTION 10.12.

  	
  Limitation of Liability

  	
  40

  

 

	
  SIGNATURES

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  EXHIBIT
  A

  	
  -

  	
  Form of
  A-Warrant Certificate

  	
  A-1

  
	
  EXHIBIT
  B

  	
  -

  	
  Form of
  B-Warrant Certificate

  	
  B-1

  
	
  EXHIBIT
  C

  	
  -

  	
  Certificate
  of Designation of the Series A Preferred Stock

  	
  C-1

  

 

iii

 

WARRANT
AND REGISTRATION RIGHTS AGREEMENT

 

AGREEMENT dated as of May 10, 2010 (the “Issuance
Date”), by and among ZALE CORPORATION, a Delaware corporation (the “Company”),
the Initial Warrant Holder (defined below) and Z Investment Holdings, LLC, a
Delaware limited liability company, in its capacity as agent (the “Agent”).

 

WITNESSETH:

 

WHEREAS, the Company is issuing and
delivering (i) warrant certificates in the form of Exhibit A hereto
(the “A-Warrant Certificates”) evidencing A-Warrants to purchase 6,389,378
shares, subject to adjustment, of its Common Stock, and (ii) warrant
certificates in the form of Exhibit B hereto (the “B-Warrant
Certificates”, and together with the A-Warrant Certificates, the “Warrant
Certificates”) evidencing B-Warrants to purchase, subject to the conditions
set forth herein, 4,675,306 shares, subject to adjustment, of its Common Stock,
in each case in connection with the execution and delivery of a senior secured
term loan facility agreement dated May 10, 2010, among the Company, Z
Investment Holdings, LLC, as administrative agent, and the lenders party
thereto, pursuant to which such lenders will make a term loan to the Company in
the amount of $150,000,000;

 

WHEREAS, subject to certain adjustments and
limitations provided herein, the Warrants are exercisable for shares of Common
Stock of the Company;

 

WHEREAS, to the extent of any adjustment to
the A-Warrants that would require the approval of the Company’s stockholders in
order to comply with the New York Stock Exchange Listed Company Manual, the
A-Warrants will instead be exercisable for Series A Preferred Stock of the
Company, on the terms set forth herein; and

 

WHEREAS, in order to comply with the New York
Stock Exchange Listed Company Manual, the exercise of the B-Warrants for Common
Stock shall be subject to the approval of the Company’s stockholders as
specified herein and, in the absence of such approval, the B-Warrants will
instead be exercisable for Series A Preferred Stock of the Company on the
terms set forth herein.

 

NOW, THEREFORE, in consideration of the
foregoing, the Company, the Agent and the Initial Warrant Holder each hereby
agree as follows:

 

 

ARTICLE I

 

Definitions

 

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

 

“Affiliate”
means, with respect to any Person, a Person that directly or indirectly
controls, is controlled by or is under direct or indirect common control with,
such Person.  For purposes of this
definition, “control” when used with respect to any Person means the
power to direct the management and policies of such Person, directly or
indirectly, whether through the ownership of voting securities, by contract or
otherwise, and the terms “controlling” and “controlled” have
meanings correlative to the foregoing.

 

“Agent”
has the meaning set forth in the preamble to this Agreement.

 

“A-Warrant” means the
A-Warrants issued by the Company from time to time pursuant to this Agreement
under an A-Warrant Certificate.

 

“A-Warrant Certificate”
has the meaning set forth in the recitals to this Agreement.

 

“Board”
means the board of directors of the Company.

 

“Business
Day” means any day that is not a day on which banking institutions are
authorized or required to be closed in the State of New York.

 

“B-Warrant”
means the B-Warrants issued by the Company from time to time pursuant to this
Agreement under a B-Warrant Certificate.

 

“B-Warrant
Certificate” has the meaning set forth in the recitals to this Agreement.

 

“Cashless
Exercise” has the meaning set forth in Section 3.04(b).

 

“Certificate
of Incorporation” means the Company’s Restated Certificate of
Incorporation, as amended from time to time.

 

“Common
Stock” means the common stock, par value $0.01 per share, of the Company.

 

“Common
Stock Equivalent” means any warrant, right or option to acquire any shares
of Common Stock or any security convertible into or exchangeable for shares of
Common Stock.

 

“Company”
has the meaning set forth in the preamble to this Agreement, and its successors
and assigns.

 

2

 

“Demand
Registration” has the meaning set forth in Section 4.01(a).

 

“Demand
Registration Statement” has the meaning set forth in Section 4.01(a).

 

“DOJ”
has the meaning set forth in Section 9.03.

 

“Effective Issuance Price”
means:

 

(i) with respect to
Common Stock issued for cash, the per share amount of the net cash proceeds
received by the Company for such Common Stock;

 

(ii) with respect to
Common Stock issued for other consideration, the per share amount of the Fair
Market Value of the net consideration received by the Company for such Common
Stock;

 

(iii) with respect to
any option, warrant or other right to acquire Common Stock, whether direct or
indirect and whether or not conditional or contingent, the sum of the per share
amount of (a) the Fair Market Value of the net aggregate consideration, if
any, received by the Company for the issuance of such option, warrant or right
divided by the number of shares of Common Stock into which such option, warrant
or right is exercisable at time of issuance, plus (b) the per share amount
of the net exercise price to the extent paid in cash and the per share Fair
Market Value of the net exercise price if paid in other consideration; and

 

(iv) with respect to
securities convertible into or exchangeable for Common Stock, (a) the net
consideration per security paid for such securities to the extent the price for
such securities is paid in cash or (b) the net Fair Market Value of the
consideration per security paid for such securities to the extent the price for
such securities is paid in other consideration, in each case, as of the date of
their issuance, divided by the number of shares of Common Stock into which such
securities are convertible or exchangeable.

 

“Excess
Shares” has the meaning set forth in Section 3.07(a).

 

“Excess
Tender Amount” has the meaning set forth in Section 5.04.

 

“Exchange
Act” means the Securities Exchange Act of 1934, as amended.

 

“Excluded
Securities” means (i) the Qualifying Employee or Director Stock; (ii) the
Underlying Stock; (iii) any shares of Common Stock or Common Stock
Equivalents issued for non-cash consideration in connection with any merger,
consolidation, acquisition or similar business combination, provided
that if any such transaction involves an Affiliate of the Company, such
transaction is made on an arms’-length basis and supported by a fairness
opinion from an Independent Financial Expert; and (iv) any shares of
Common Stock or Common Stock Equivalents issued for non-cash consideration in
connection with any joint venture, licensing, development or sponsorship
activities in the ordinary course of business, provided that if any such

 

3

 

transaction involves an
Affiliate of the Company, such transaction is made on an arms’-length basis and
supported by a fairness opinion from an Independent Financial Expert.

 

“Ex-date”
has the meaning set forth in Section 5.03(a).

 

“Exercise
Date” has the meaning set forth in Section 3.02.

 

“Exercise
Price” has the meaning set forth in Section 3.01.

 

“Expenses”
means all expenses incurred by the Company and the Holders in effecting any
registration pursuant to this Agreement, including all registration and filing
fees, printing expenses, reasonable fees and disbursements of one counsel
selected by the Agent to represent all holders of Registrable Securities
included in such registration, Blue Sky fees and expenses, and expenses of the
Company’s independent accountants in connection with any regular or special
reviews or audits incident to or required by any such registration, and all
underwriting discounts and selling commissions applicable to the sale of the
applicable Registrable Securities.

 

“Expiration
Date” means the seventh anniversary of the Issuance Date.

 

“Fair Market Value”
means:

 

(i) in the case of
shares of stock where, at least four months prior to the issuance thereof,
other shares of the same class had already been listed on the New York Stock
Exchange or Nasdaq, the average of the daily volume-weighted average prices of
such stock for the five consecutive trading days immediately preceding the day
as of which Fair Market Value is being determined;

 

(ii) in the case of
securities not covered by clause (i) above or other property, the fair
market value of such securities or such other property as determined by an
Independent Financial Expert, using one or more valuation methods that the
Independent Financial Expert in its best professional judgment determines to be
most appropriate, assuming, in the case of securities, such securities are
fully distributed and, in the case of securities or other property, such items
are to be sold in an arm’s-length transaction and there was no compulsion on
the part of any party to such sale to buy or sell, and taking into account all
relevant factors; and

 

(iii) in the case of
cash, the amount thereof.

 

“FTC”
has the meaning set forth in Section 9.03.

 

“GGC
Appointees” has the meaning set forth in Section 9.04.

 

“Holders”
means the Initial Warrant Holder and any permitted assignee or transferee of
the Initial Warrant Holder and, unless otherwise provided or indicated herein,
the holders of the Registrable Securities.

 

4

 

“HSR Act” has the
meaning set forth in Section 9.03.

 

“including” means “including,
without limitation”.

 

“Independent
Financial Expert” means a nationally recognized investment banking firm
mutually agreed by the Company and the Agent, which firm does not have a
material financial interest in, or other material economic relationship with,
either the Company or the Agent or their respective Affiliates.  If the Company and the Agent are unable to
agree on an Independent Financial Expert, each of them shall promptly choose a
separate Independent Financial Expert who shall promptly choose a third
Independent Financial Expert who shall serve as the Independent Financial
Expert hereunder; provided that such third Independent Financial Expert
does not have a material financial interest in, or other material economic
relationship with, either the Company or the Agent or their respective
Affiliates.

 

“Initial
Warrant Holder” means Z Investment Holdings, LLC.

 

“Issuance
Date” has the meaning set forth in the preamble to this Agreement.

 

“Maximum
Number of Shares” has the meaning set forth in Section 4.01(c).

 

“Person”
means any individual, corporation, limited liability company, partnership,
joint venture, association, joint stock company, trust, unincorporated
organization or government or any agency or political subdivision thereof.

 

“Per
Warrant Cap” has the meaning set forth in Section 3.07(a).

 

“Piggyback
Registration” has the meaning set forth in Section 4.02(a).

 

“Premium
Per Pro Forma Share” has the meaning set forth in Section 5.04.

 

“Prospectus”
means the prospectus included in any Registration Statement, as amended or
supplemented by any prospectus supplement with respect to the terms of the
offering of any of the Registrable Securities covered by such Registration
Statement and by all other amendments and supplements to the prospectus,
including post-effective amendments and all material incorporated by reference
in such prospectus.

 

“Qualifying
Employee or Director Stock” means (i) rights and options issued in the
ordinary course of business under any Company-sponsored employee benefit plan
or agreement, any Company-sponsored director compensation plan or agreement and
any Common Stock issued after the date hereof upon exercise of such rights and
options and (ii) restricted stock and restricted stock units issued after
the date hereof in the ordinary course of business under any Company-sponsored
employee benefit plan or agreement, any Company-sponsored director compensation
plan or agreement and Common Stock issued after the date hereof in settlement
of any such restricted stock units.

 

5

 

“Recapitalization
Event” has the meaning set forth in Section 5.03(a).

 

“Register,
registered, and registration” shall refer to a registration effected by
preparing and (a) filing a Registration Statement in compliance with the
Securities Act and applicable rules and regulations thereunder, and the
declaration of or automatic effectiveness of such Registration Statement or (b) filing
a Prospectus and/or prospectus supplement in respect of an appropriate
effective Registration Statement on Form S-3.

 

“Registrable
Securities” means Common Stock, Series A Preferred Stock or other
securities issuable under the Warrants on the Issuance Date and at any time
during the term of this Agreement.  Registrable
Securities shall continue to be Registrable Securities (whether they continue
to be held by the Initial Warrant Holder or they are sold to other Persons)
until (i) they are sold pursuant to an effective Registration Statement
under the Securities Act; (ii) they may be sold by their holder pursuant
to Rule 144 without limitation thereunder on volume or manner of sale; or (iii) they
shall have otherwise been transferred and new securities not subject to
transfer restrictions under any federal securities laws and not bearing any
legend restricting further transfer shall have been delivered by the Company,
all applicable holding periods shall have expired, and no other applicable and
legally binding restriction on transfer by the Holder thereof shall exist under
the Securities Act.

 

“Registration
Rights” means the rights of Holders set forth in Article IV to have
shares of Registrable Securities registered under the Securities Act for sale
under one or more effective Registration Statements.

 

“Registration
Statement” means any registration statement filed by the Company under the
Securities Act pursuant to the Registration Rights, including the Prospectus,
any amendments and supplements to such registration statement, including
post-effective amendments, and all exhibits and all material incorporated by
reference in such registration statement.

 

“Reorganization
Event” has the meaning set forth in Section 5.05.

 

“Required
Stockholder Approval” means, collectively, (i) in respect of the
A-Warrants, any approval by the Company’s stockholders required in connection
with an adjustment of the A-Warrants to comply with Section 312.03 of the
New York Stock Exchange Listed Company Manual, and (ii) in respect of the
B-Warrants, the approval by the Company’s stockholders required in connection
with the exercise of the B-Warrants for Common Stock to comply with Section 312.03
of the New York Stock Exchange Listed Company Manual.

 

“Rule 144,
Rule 144A and Rule 415” mean, in each case, such rule promulgated
under the Securities Act (or any successor provision), as such rules may
be amended from time to time.

 

“Sale”
has the meaning set forth in Section 3.06(a).

 

6

 

“Scheduled
Black-Out Period” means the periods (i) from and including the day
that is 10 days prior to the last day of a fiscal quarter of the Company to and
including the day that is two days after the day on which the Company publicly
releases its earnings for such fiscal quarter and (ii) from and including
Thanksgiving Day to and including the day that is two days after the day on
which the Company publicly releases its holiday sales report in January.

 

“SEC”
means the Securities and Exchange Commission.

 

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

 

“Series A
Preferred Stock” has the meaning set forth in Section 3.07(a).

 

“Total
Cap” has the meaning set forth in Section 3.07(a).

 

“Underlying
Stock” means the shares of Common Stock or Series A Preferred Stock
issuable or issued upon the exercise of the Warrants.

 

“Vote
Date” means the date of the first meeting of the stockholders of the
Company at which a vote of such stockholders in respect of the Required
Stockholder Approval shall have been taken, which meeting shall be called by
the Board in accordance with Section 9.05 and shall in any event take
place no later than the first annual meeting of the Company’s stockholders to
be held after the Issuance Date.

 

“Voting
Securities” means the Common Stock and any other securities of the Company
of any kind or class having power generally to vote in the election of
directors.

 

“Warrant
Certificates” has the meaning set forth in the recitals to this Agreement.

 

“Warrants”
means, collectively, the A-Warrants and the B-Warrants.

 

ARTICLE II

 

Original Issue of Warrants

 

SECTION 2.01.  Form of Warrant Certificates.  The Warrant Certificates shall be in
registered form only and substantially in the forms attached hereto as Exhibits
A and B, shall be dated the date on which signed by the Company and may have such
legends and endorsements typed, stamped, printed, lithographed or engraved
thereon as provided in Section 3.05 or as may be required to comply with
any applicable law or with any applicable rule or regulation pursuant
thereto or with any applicable rule or regulation of any securities
exchange on which the Warrants may be listed.

 

SECTION 2.02.  Execution and Delivery of Warrant
Certificates.  (a)   Simultaneously with the execution of this
Agreement, (i) A-Warrant Certificates evidencing an aggregate of 6,389,378
A-Warrants entitling the holders thereof to 

 

7

 

collectively purchase an aggregate of 6,389,378 shares of Common Stock,
subject to adjustment and subject to Section 3.07(a), shall be executed by
the Company and delivered to the Initial Warrant Holder, and (ii) B-Warrant
Certificates evidencing an aggregate of 4,675,306 B-Warrants entitling the
holders thereof to collectively purchase an aggregate of 4,675,306 shares of
Common Stock, subject to adjustment and subject to Section 3.07(b), shall
be executed by the Company and delivered to the Initial Warrant Holder.

 

(b)  From time to time, the Company
shall sign and deliver Warrant Certificates in required denominations to
Persons entitled thereto in connection with any exchange permitted under this
Agreement.  The Warrant Certificates
shall be executed on behalf of the Company by its President, Chief Executive
Officer, Chief Financial Officer, Secretary or Executive Vice President, either
manually or by facsimile signature printed thereon.  In case any officer of the Company whose
signature shall have been placed upon any of the Warrant Certificates shall
cease to be such officer of the Company before issue and delivery thereof, such
Warrant Certificates may, nevertheless, be issued and delivered with the same
force and effect as though such person had not ceased to be such officer of the
Company.

 

ARTICLE III

 

Exercise Price; Exercise of Warrants and Expiration of Warrants

 

SECTION 3.01.  Exercise Price.  Each Warrant Certificate shall entitle the
Holder thereof, subject to the provisions of this Agreement, to purchase,
except as provided in Section 3.04 and Section 3.07 hereof, one share
of Common Stock for each Warrant represented thereby, at an exercise price of
$2.00 per share of Common Stock or, as applicable, Series A Preferred
Stock (the “Exercise Price”), subject to all adjustments made on or
prior to the date of exercise thereof as herein provided.

 

SECTION 3.02.  Exercise of Warrants.  (a)  The A-Warrants shall be exercisable
in whole or in part from time to time on any Business Day beginning on the
Issuance Date and ending on the Expiration Date and (b) the B-Warrants
shall be exercisable in whole or in part from time to time on any Business Day
beginning on the day immediately following the earlier to occur of (i) the
Vote Date and (ii) the date of the first annual meeting of the Company’s
stockholders to be held after the Issuance Date, and ending on the Expiration
Date, in each case in the manner provided for herein (any such date on which
the applicable Warrant shall be exercisable, an “Exercise Date”).

 

SECTION 3.03.  Expiration of Warrants.  Any unexercised Warrants shall expire and the
rights of the Holders of such Warrants to purchase Underlying Stock shall
terminate at the close of business on the Expiration Date.

 

SECTION 3.04.  Method of Exercise; Payment of Exercise
Price.  (a)  In order to
exercise a Warrant, the Holder thereof must (i) surrender the Warrant
Certificate evidencing such Warrant to the Company, with the form on the
reverse of or attached to the Warrant Certificate duly executed, and (ii) pay
in full the Exercise Price then in effect 

 

8

 

for the shares of Underlying Stock as to which a Warrant Certificate is
submitted for exercise in the manner provided in paragraph (b) of
this Section 3.04.

 

(b)  Simultaneously with the exercise of
each Warrant, payment in full of the Exercise Price shall be delivered to the
Company.  Such payment shall be made (at
the option of the Holder) (i) in cash, by bank wire transfer in
immediately available funds, or (ii) if at the time of such exercise, the
Fair Market Value of the shares of Common Stock (or, with respect to Warrants
exercisable for shares of Series A Preferred Stock, the Fair Market Value
of the shares of Common Stock into which such shares of Series A Preferred
Stock would otherwise be convertible) exceeds the Exercise Price, by
surrendering a number of Warrants (or fractional portions thereof) having a
value equal to the Exercise Price (a “Cashless Exercise”), determined as
provided in this Section 3.04(b). 
The value of each Warrant so surrendered in a Cashless Exercise shall be
equal to the Fair Market Value, at the time of such surrender, of that number
of shares of Common Stock into which such Warrant is then exercisable (or would
be exercisable if Section 3.07 did not then apply with respect to such
exercise), less the Exercise Price.

 

(c)  If fewer than all the Warrants
represented by a Warrant Certificate are surrendered, such Warrant Certificate
shall be surrendered and a new Warrant Certificate of the same tenor and for
the number of Warrants that were not surrendered shall promptly be executed and
delivered to the Person or Persons as may be directed in writing by the Holder
(subject to the terms hereof), and the Company shall register the new Warrant
in the name of such Person or Persons.

 

(d)  Upon surrender of a Warrant
Certificate in accordance with the foregoing provisions, the Company shall
instruct its transfer agent to transfer to the Holder of such Warrant
Certificate appropriate evidence of ownership of any shares of Underlying Stock
or other securities or property (including cash) to which the Holder is
entitled, registered or otherwise placed in, or payable to the order of, such
name or names as may be directed in writing by the Holder (subject to the terms
hereof), and shall deliver such evidence of ownership and any other securities
or property (including cash) to the Person or Persons entitled to receive the
same, together with an amount in cash in lieu of any fraction of a share as
provided in Section 5.09.  Upon
payment of the Exercise Price therefor, a Holder shall be deemed to own and
have all of the rights associated with any Underlying Stock or other securities
or property (including cash) to which it is entitled pursuant to this Agreement
upon the surrender of a Warrant Certificate in accordance with this
Agreement.  If the Holder shall direct
that such securities be registered in a name other than that of the Holder,
such direction shall be tendered in conjunction with a signature guarantee from
an eligible guarantor institution participating in a signature guarantee
program approved by the Securities Transfer Association.

 

SECTION 3.05.  Transferability of the Warrants.  At any time after the Issuance Date, the
Warrants may be transferred to the Initial Warrant Holder or any Affiliate of
such Holder.  On or prior to January 31,
2011, the Warrants may not, whether directly or as a result of the transfer of
the equity interests in the Holders, be transferred to any Person that is not
the Initial Warrant Holder or an Affiliate of such Holder.  On or after February 1, 2010, the
Warrants may not, whether directly or as a result of the 

 

9

 

transfer of the equity interests in the
Holders, be transferred to any Person that is not the Initial Warrant Holder or
an Affiliate of such Holder without the prior written consent of the Company
(not to be unreasonably withheld, delayed or conditioned); provided that
no Holder shall transfer, individually or in concert with other Holders, in one
transaction or a series of related transactions, Warrants exercisable for
Common Stock representing (or Series A Preferred Stock convertible into
Common Stock representing, or any combination thereof representing) 15% or more
of the then-outstanding number of shares of Common Stock to any “person” or “group”
(as such terms are used in Sections 13(d) and 14(d) of the Exchange
Act), other than with the prior written consent of the Company (which may be
withheld in the sole discretion of the Company).  Subject to Section 10.04, each
certificate representing the Warrants shall bear the following legend:

 

THESE WARRANTS MAY ONLY BE TRANSFERRED IN ACCORDANCE WITH THE
TERMS OF THE WARRANT AND REGISTRATION RIGHTS AGREEMENT REFERRED TO BELOW. THE
SECURITIES ISSUABLE UPON THE EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR QUALIFIED UNDER APPLICABLE STATE
SECURITIES LAWS.  SUCH SECURITIES MAY BE
OFFERED, SOLD OR TRANSFERRED ONLY IN COMPLIANCE WITH THE REQUIREMENTS OF SUCH
ACT AND OF ANY APPLICABLE STATE SECURITIES LAWS AND SUBJECT TO THE PROVISIONS
OF THE WARRANT AND REGISTRATION RIGHTS AGREEMENT DATED AS OF MAY 10, 2010,
BY AND AMONG ZALE CORPORATION (THE “COMPANY”), THE INITIAL WARRANT HOLDER AND Z
INVESTMENT HOLDINGS, LLC, AS AGENT.  A
COPY OF SUCH WARRANT AND REGISTRATION RIGHTS AGREEMENT IS AVAILABLE AT THE
OFFICES OF THE COMPANY.

 

SECTION 3.06.  Compliance with the Securities Act.  (a)  No Registrable Securities may be
sold, transferred or otherwise disposed of (any such sale, transfer or other
disposition, a “Sale”), except in compliance with this Section 3.06,
but subject to Section 9.07.

 

(b)  A Holder may sell its Registrable
Securities to a transferee that is an “accredited investor” or “qualified
institutional buyer”, as such terms are defined in Regulation D and Rule 144A,
respectively, under the Securities Act, respectively; provided, however, that each of the following conditions is
satisfied:

 

(i) with
respect to any “accredited investor” that is not an institution, such
transferee provides certification establishing to the reasonable satisfaction of
the Company that it is an “accredited investor”;

 

(ii) such
transferee represents that it is acquiring the Registrable Securities for its
own account and that it is not acquiring such Registrable

 

10

 

Securities with a view to,
or for offer or sale in connection with, any distribution thereof (within the
meaning of the Securities Act) that would be in violation of the securities
laws of the United States or any applicable state thereof, but subject, nevertheless,
to the disposition of its property being at all times within its control; and

 

(iii) such
transferee agrees to be bound by the provisions of this Section 3.06 with
respect to any sale of the Registrable Securities.

 

(c)          A Holder may
sell its Registrable Securities in accordance with Regulation S under the
Securities Act.

 

(d)         A Holder may
sell its Registrable Securities if:

 

(i) such
Holder gives written notice to the Company of its intention to effect such
Sale, which notice shall describe the manner and circumstances of the proposed
transaction in reasonable detail;

 

(ii) such
notice includes a certification by the Holder to the effect that such proposed
Sale may be effected without registration under the Securities Act or under
applicable Blue Sky laws; and

 

(iii) such
transferee complies with Sections 3.06(b)(ii) and 3.06(b)(iii).

 

(e)          Except for a
Sale in accordance with Section 3.06(f), and subject to Section 10.04,
all stock certificates issued pursuant to the exercise of the Warrants shall
bear the following legend:

 

THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR QUALIFIED UNDER APPLICABLE
STATE SECURITIES LAWS.  SUCH SHARES MAY BE
OFFERED, SOLD OR TRANSFERRED ONLY IN COMPLIANCE WITH THE REQUIREMENTS OF SUCH
ACT AND OF ANY APPLICABLE STATE SECURITIES LAWS AND SUBJECT TO THE PROVISIONS
OF THE WARRANT AND REGISTRATION RIGHTS AGREEMENT DATED AS OF MAY 10, 2010,
BY AND AMONG ZALE CORPORATION (THE “COMPANY”), THE INITIAL WARRANT HOLDER AND Z
INVESTMENT HOLDINGS, LLC, AS AGENT.  A
COPY OF SUCH WARRANT AND REGISTRATION RIGHTS AGREEMENT IS AVAILABLE AT THE
OFFICES OF THE COMPANY.

 

(f)  A Holder may sell its Registrable
Securities in a transaction that is registered under the Securities Act.

 

SECTION 3.07.  Exercise for Series A Preferred
Stock.  (a)  So long as the
Underlying Stock is that of Zale Corporation and the Required Stockholder
Approval has 

 

11

 

not been obtained, Holders may not exercise any A-Warrants for, or be
entitled to take delivery of, shares of Common Stock issuable with respect to
such A-Warrants to the extent (but only to the extent) that, after such receipt
of any shares of Common Stock upon the exercise of such A-Warrants, Holders
would be issued more than 6,389,378 shares of Common Stock in the aggregate
(the “Total Cap”); provided, however, that in the event
the Company (i) subdivides its outstanding Common Stock or (ii) combines
its outstanding Common Stock into a smaller number of shares, the Total Cap
shall be adjusted by multiplying (A) the Total Cap immediately prior to
such subdivision or combination by (B) a fraction, whose numerator shall
be equal to the number of shares that one share of Common Stock immediately
prior to such subdivision or combination equals immediately after such
subdivision or combination, and whose denominator shall be equal to one.  So long as the Underlying Stock is that of
Zale Corporation and the Required Stockholder Approval has not been obtained,
no A-Warrant shall be exercisable for more than a number of shares of Common
Stock equal to a fraction, whose numerator shall be the Total Cap and whose
denominator shall be 6,389,378 (the “Per Warrant Cap”).  To the extent that the number of shares of
Common Stock into which an A-Warrant is stated to be exercisable (without
giving effect to the Total Cap or Per Warrant Cap) exceeds the Per Warrant Cap
as a result of the application of an adjustment pursuant to Article V
hereof (such excess, the “Excess Shares”), then each A-Warrant shall
instead be exercisable at the Exercise Price into a number of shares of Common
Stock equal to the Per Warrant Cap plus a number of shares of convertible
non-voting preferred stock, par value $0.01 per share, of the Company on the
terms set forth in Exhibit C (the “Series A Preferred Stock”)
that is convertible into the number of Excess Shares.

 

(b)  So long as the Underlying Stock is
that of Zale Corporation and the Required Stockholder Approval has not been
obtained, Holders may not exercise any B-Warrants for, or be entitled to take
delivery of, any shares of Common Stock issuable with respect to such
B-Warrants. At any time that the B-Warrants are exercisable but the Required
Stockholder Approval has not been obtained, each B-Warrant shall instead be
exercisable at the Exercise Price into a number of shares of Series A
Preferred Stock that is convertible into the number of shares of Common Stock
into which the B-Warrants would be exercisable at the time of exercise but for
the fact that the Required Stockholder Approval has not been obtained.

 

ARTICLE IV

 

Registration Rights and Procedures and Listing

 

SECTION 4.01.  Demand Registration Rights.  (a)  Subject to the provisions hereof,
any Holder or Holders may, at any time from and after August 31, 2010,
request registration for resale under the Securities Act of all or part of the
Registrable Securities (a “Demand Registration”) by giving written
notice thereof to the Company (which request shall specify the number of shares
of Registrable Securities to be offered by each Holder and whether such
Registration Statement shall be a “shelf” Registration Statement under Rule 415
promulgated under the Securities Act). 
Subject to Section 4.01(e) below, upon receipt of such notice,
the Company shall use commercially reasonable efforts (i) to file a
Registration Statement (which shall be a “shelf” 

 

12

 

Registration Statement under Rule 415 promulgated under the Securities
Act if requested pursuant to the request of the Holders pursuant to the first
sentence of this Section 4.01(a)) registering for resale such number of
Registrable Securities as requested to be so registered within 45 days in
the case of a registration on Form S-3 (and 60 days in the case of a
registration on Form S-1) after the request of the Holders therefor (such
Registration Statement, a “Demand Registration Statement”) and (ii) to
cause such Demand Registration Statement to be declared effective by the SEC as
soon as reasonably practicable thereafter. 
Notwithstanding the foregoing, the Company shall not be required to
effect a registration pursuant to this Section 4.01(a): (A) with
respect to securities that are not Registrable Securities; (B) during any
Scheduled Black-Out Period; (C) if the aggregate offering price of the
Registrable Securities to be offered is less than $10,000,000, unless the
Registrable Securities to be offered constitute all of the then-outstanding
Registrable Securities; or (D) within 180 days after the effective
date of a prior registration in respect of the Company’s Common Stock,
including a Demand Registration (or, in the event that Holders were prevented
from including any Registrable Securities requested to be included in a
Piggyback Registration pursuant to Section 4.02, within 90 days after
the effective date of such prior registration in respect of the Company’s
Common Stock).  If permitted under the
Securities Act, such Demand Registration Statement shall be one that is
automatically effective upon filing.

 

(b)  The Holders shall be entitled to
request a total of three Demand Registrations. 
A Registration Statement shall not count as a permitted Demand
Registration unless and until it has become effective and Holders are able to
register at least 50% of the Registrable Securities requested by the Holders to
be included in such registration.  A
Demand Registration shall not count against the number of such registrations
set forth in the immediately preceding sentence if (i) after the
applicable Demand Registration Statement has become effective, such Demand
Registration Statement or the related offer, sale or distribution of
Registrable Securities thereunder becomes the subject of any stop order,
injunction or other order or restriction imposed by the SEC or any other
governmental agency or court for any reason attributable to the Company and
such interference is not thereafter eliminated so as to permit the completion
of the contemplated distribution of Registrable Securities or (ii) in the
case of an underwritten offering, the conditions specified in the related
underwriting agreement, if any, are not satisfied or waived for any reason
attributable to the Company or for any reason not attributable to the selling
Holder or Holders or the Agent or its Affiliates, and as a result of any such
circumstances described in clause (i) or (ii), less than all of the
Registrable Securities covered by the Demand Registration Statement are sold by
the selling Holder or Holders pursuant to the Demand Registration Statement.

 

(c)  The Company may include in a Demand
Registration Statement shares of Common Stock for sale for its own account or
for the account of other security holders of the Company.  If such Demand Registration Statement is in
respect of an underwritten offering and the managing underwriters of the
requested Demand Registration advise the Company and the Holders that in their
reasonable opinion the number of shares of Common Stock proposed to be included
in the Demand Registration Statement exceeds the number of shares of Common
Stock that can be sold in such underwritten offering without materially
delaying or jeopardizing the success of the offering (including the 

 

13

 

offering price per share) (such maximum number of shares, the “Maximum
Number of Shares”), the Company will include in such Demand Registration
Statement only such number of shares of Common Stock that in the reasonable
opinion of the managing underwriters can be sold without materially delaying or
jeopardizing the success of the offering (including the offering price per
share), which shares of Common Stock will be so included in the following order
of priority:  (i) first, the
Registrable Securities of all Holders, pro
rata on the basis of the aggregate number of Registrable Securities
requested to be included by each such Holder; (ii) second, the shares of
Common Stock the Company proposes to sell; and (iii) third, any other
shares of Common Stock that have been requested to be so included.

 

(d)  If any of the Registrable
Securities covered by a Demand Registration are to be sold in an underwritten
offering, the Company and the Holders of a majority of such Registrable
Securities shall mutually agree upon the selection of the managing underwriter
or underwriters.  If the Company and the
Holders of a majority of such Registrable Securities are unable to agree on the
managing underwriter or underwriters within a reasonable amount of time, the
Company and the Holders of a majority of such Registrable Securities shall each
select a managing underwriter and such underwriters shall serve as joint
managing underwriters in respect of such offering.

 

(e)  Notwithstanding the foregoing, if
the Board determines in its good faith judgment that the filing of a Demand
Registration Statement (i) would be seriously detrimental to the Company
in that such registration would interfere with a material corporate transaction
or (ii) would require the disclosure of material non-public information
concerning the Company that at the time is not, in the good faith judgment of
the Board (excluding the GGC Appointees), in the best interests of the Company
to disclose and is not, in the opinion of the Company’s counsel, otherwise
required to be disclosed, then the Company shall have the right to defer such
filing for the period during which such registration would be seriously
detrimental under clause (i) or would require such disclosure under
clause (ii); provided, however,  that (x) the Company may not defer such filing
for a period of more than 90 days after receipt of any demand by the
Holders and (y) the Company shall not exercise its right to defer a Demand
Registration more than once in any 12-month period.  The Company shall give written notice of its
determination to the Holders to defer the filing and of the fact that the
purpose for such deferral no longer exists, in each case, promptly after the
occurrence thereof.

 

(f)  Notwithstanding the foregoing, if
the Board determines in its good faith judgment that continuing offers and
sales of Registrable Securities registered under a shelf Demand Registration
Statement (i) would be seriously detrimental to the Company in that such
offers and sales would interfere with a material corporate transaction or (ii) would
require the disclosure of material non-public information concerning the
Company that at the time is not, in the good faith judgment of the Board
(excluding the GGC Appointees), in the best interests of the Company to
disclose and is not, in the opinion of the Company’s counsel, otherwise
required to be disclosed, then the Company shall have the right to require the
selling Holder or Holders to suspend such offers and sales for the period
during which such registration would be seriously detrimental under
clause (i) or would require such disclosure under clause (ii); provided, 

 

14

 

however,
that the total number of days that any such suspension may be in effect in
any 180-day period shall not exceed 60 days.  The Company shall give written notice of its
determination to the Holders to suspend the offers and sales and of the fact
that the purpose for such suspension no longer exists, in each case, promptly
after the occurrence thereof.

 

(g)  Upon the date of effectiveness of
any Demand Registration Statement for an underwritten offering and if such
offering is priced promptly on or after such date, the Company shall use
commercially reasonable efforts to keep the Demand Registration Statement
effective until the earlier of (i) two years (in the case of a shelf
Demand Registration Statement) or 90 days (in the case of any other Demand
Registration Statement) from the effective date of such Registration Statement
and (ii) such time as all of the Registrable Securities covered by such
Demand Registration Statement have been sold pursuant to such Demand
Registration Statement.

 

SECTION 4.02.  Piggyback Registration Rights.  (a)  If at any time the Company has
registered or has determined to register any of its securities for its own
account or for the account of other security holders of the Company on any
registration form (other than Form S-4 or S-8) which permits the inclusion
of the Registrable Securities (a “Piggyback Registration”), the Company
will give the Holders written notice thereof promptly (but in no event less
than 15 days prior to the anticipated filing date) and, subject to Section 4.02(c),
shall include in such registration all Registrable Securities requested to be
included therein pursuant to the written request of one or more Holders
received within 10 days after delivery of the Company’s notice.  If a Piggyback Registration is initiated as a
primary underwritten offering on behalf of the Company, and the managing
underwriters advise the Company and the Holders that in their reasonable
opinion the number of shares of Common Stock and other Registrable Securities
proposed to be included in such registration exceeds the Maximum Number of
Shares, the Company shall include in such registration:  (i) first, the number of shares of
Common Stock that the Company proposes to sell; and (ii) second, the
number of shares of Common Stock and other Registrable Securities requested to
be included therein by holders of Common Stock and other Registrable
Securities, including Holders who have provided notice in accordance with this Section 4.02(a),
pro rata among all such holders on the basis of the number of shares of Common
Stock and other Registrable Securities requested to be included therein by all
such holders or as such holders and the Company may otherwise agree.

 

(b)  If a Piggyback Registration is
initiated as an underwritten registration on behalf of a holder of shares of
Common Stock other than the Holders, and the managing underwriters advise the
Company that in their reasonable opinion the number of shares of Common Stock
and other Registrable Securities proposed to be included in such registration
exceeds the Maximum Number of Shares, then the Company shall include in such
registration:  (i) first, the number
of shares of Common Stock requested to be included therein by the holder(s) requesting
such registration; (ii) second, the number of shares of Common Stock and
other Registrable Securities requested to be included therein by other holders
of shares of Common Stock and other Registrable Securities, including the
Holders (if the Holders have elected to include Registrable Securities in 

 

15

 

such Piggyback Registration), pro
rata among such holders on the basis of the number of shares of Common
Stock and other Registrable Securities requested to be included therein by such
holders or as such holders and the Company may otherwise agree; and (iii) third,
the number of shares of Common Stock that the Company proposes to sell.

 

(c)  If any Piggyback Registration is a
primary or secondary underwritten offering, the Company shall have the right to
select, in its sole discretion, the managing underwriter or underwriters to
administer any such offering.

 

(d)  The Company shall not grant to any
Person the right to request the Company to register any Common Stock in a
Piggyback Registration unless such rights are consistent with the provisions of
this Section 4.02.

 

SECTION 4.03.  Expenses of Registration and Selling.  All Expenses incurred in connection with any
registration, qualification or compliance hereunder shall be borne by the
Company.  All Expenses (including, for
the avoidance of doubt, any underwriting discount or commission applicable to
the sale by a Holder) incurred in connection with the sale of any securities
registered hereunder shall also be borne by the Company.

 

SECTION 4.04. 
Obligations of the Company. 
Whenever required to effect the registration of any Registrable Securities,
the Company shall, as expeditiously as reasonably practicable, subject to the
other provisions of this Article IV:

 

(a)  Prepare and file with the SEC a
Registration Statement with respect to a proposed offering of Registrable
Securities and use commercially reasonable efforts to have such Registration
Statement declared effective as promptly as practicable.

 

(b)  Prepare and file with the SEC such
amendments and supplements to the applicable Registration Statement and the
Prospectus or prospectus supplement used in connection with such Registration
Statement as may be necessary to comply with the provisions of the Securities
Act with respect to the disposition of all Registrable Securities covered by
such Registration Statement.

 

(c)  Furnish to the selling Holder or
Holders and any underwriters such number of copies of the applicable
Registration Statement and each such amendment and supplement thereto
(including in each case all exhibits) and of a Prospectus, including a
preliminary prospectus, in conformity with the requirements of the Securities
Act, and such other documents as they may reasonably request in order to
facilitate the disposition of Registrable Securities owned or to be distributed
by them.

 

(d)  Use commercially reasonable efforts
to register and qualify the securities covered by such Registration Statement
under such other securities or Blue Sky laws of such jurisdictions as shall be
reasonably requested by the selling Holder or Holders or any managing
underwriter(s), to keep such registration or qualification in effect for so
long as such Registration Statement remains in effect, and to take any other
action which may be reasonably necessary to enable such seller to consummate
the disposition in such jurisdictions of the securities owned by such selling
Holder or 

 

16

 

Holders; provided, however, that the Company
shall not be required in connection therewith or as a condition thereto to
qualify to do business, to file a general consent to service of process or
become subject to taxation in any such states or jurisdictions.

 

(e)  Notify the selling Holder or
Holders at any time when a Prospectus relating thereto is required to be
delivered under the Securities Act of the happening of any event as a result of
which the applicable Prospectus, as then in effect, includes an untrue
statement of a material fact or omits to state a material fact required to be
stated therein or necessary to make the statements therein, in the light of the
circumstances under which such statements were made, not misleading.

 

(f)            Give written
notice to the selling Holder or Holders:

 

(i) when any Registration Statement filed pursuant to Section 4.01
or 4.02 or any amendment thereto has been filed with the SEC and when such
Registration Statement or any post-effective amendment thereto has become
effective;

 

(ii) of any request by the SEC for amendments or supplements to
any Registration Statement or the Prospectus included therein or for additional
information;

 

(iii) of the issuance by the SEC of any stop order suspending the
effectiveness of any Registration Statement or the initiation of any
proceedings for that purpose;

 

(iv) of the receipt by the Company or its legal counsel of any
notification with respect to the suspension of the qualification of the
Registrable Securities for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose; and

 

(v) of the happening of any event that requires the Company to
make changes in any effective Registration Statement or Prospectus in order to
make the statements therein not misleading (in the case of the Prospectus, in
the light of the circumstances under which such statements were made) (which
notice shall be accompanied by an instruction to suspend the use of the
Prospectus until the requisite changes have been made).

 

(g)         Use
commercially reasonable efforts to prevent the issuance or obtain the
withdrawal of any order suspending the effectiveness of any Registration
Statement referred to in Section 4.04(f)(iii) at the earliest
practicable time.

 

(h)  Upon the occurrence of any event
contemplated by Section 4.04(f)(v), promptly prepare a post-effective
amendment to such Registration Statement or a supplement to the related
Prospectus or file any other required document so that, as thereafter delivered
to the selling Holder or Holders and any underwriters, the Prospectus will not
contain an untrue statement of a material fact or omit to state any material
fact necessary to make the statements therein, in the light of the
circumstances under which 

 

17

 

they were made, not misleading. 
If the Company notifies the selling Holder or Holders in accordance with
Section 4.04(f)(v) to suspend the use of the Prospectus until the
requisite changes to the Prospectus have been made, then the selling Holder or
Holders and any underwriters shall suspend use of such Prospectus and use
commercially reasonable efforts to return to the Company all copies of such
Prospectus (at the Company’s expense) other than permanently filed copies then
in the possession of the selling Holder or Holders or the underwriter.

 

(i)  Use commercially reasonable efforts
to procure the cooperation of the Company’s transfer agent in settling any
offering or sale of Registrable Securities, including with respect to the
transfer of physical stock certificates into book-entry form in accordance with
any procedures reasonably requested by the selling Holder or Holders or any
managing underwriter(s).

 

(j)  Enter into an underwriting
agreement in form, scope and substance as is customarily entered into for
similar underwritten offerings of equity securities by similar companies and
take all such other actions reasonably requested by the selling Holder or
Holders or by the managing underwriter(s), if any, to expedite or facilitate
the underwritten disposition of such Registrable Securities, and in connection
therewith (i) make such representations and warranties to the selling
Holder or Holders and the managing underwriter(s), if any, with respect to the
business of the Company and its subsidiaries, and the Registration Statement,
Prospectus and documents, if any, incorporated or deemed to be incorporated by
reference therein, in each case, in form, substance and scope as are
customarily made by the issuer in similar underwritten offerings of equity
securities by similar companies, and, if true, confirm the same if and when
requested; (ii) use commercially reasonable efforts to furnish the
underwriter(s) with opinions of counsel to the Company, addressed to the
managing underwriter(s), if any, covering the matters customarily covered in
the opinions requested in similar underwritten offerings of equity securities
by similar companies; (iii) use commercially reasonable efforts to obtain “cold
comfort” letters from the independent certified public accountants of the
Company (and, if necessary, any other independent certified public accountants
of any business acquired by the Company for which financial statements and
financial data are included in the Registration Statement) who have certified
the financial statements included in such Registration Statement, addressed to
each of the managing underwriter(s), if any, such letters to be in customary
form and covering matters of the type customarily covered in “cold comfort”
letters in connection with similar underwritten offerings of equity securities
by similar companies; (iv) if an underwriting agreement is entered into,
the same shall contain indemnification provisions and procedures customary in
similar underwritten offerings of equity securities by similar companies and
consistent with the provisions of Section 4.07 hereof; and (v) deliver
such documents and certificates as may be reasonably requested by the selling
Holder or Holders, their counsel and the managing underwriter(s), if any, to
evidence the continued validity of the representations and warranties made
pursuant to clause (i) above and to evidence compliance with any
customary conditions contained in the underwriting agreement or other agreement
entered into by the Company.

 

18

 

(k)  Make available for inspection by a
single representative of the selling Holder or Holders and the managing
underwriter(s), if any, and their respective attorneys or accountants, at the
offices where normally kept, during reasonable business hours, financial and
other records, pertinent corporate documents and properties of the Company, and
cause the officers, directors and employees of the Company to supply all
information in each case reasonably requested by any such representative,
managing underwriter(s), attorney or accountant in connection with such
Registration Statement.

 

(l)  (i) Use commercially
reasonable efforts to cause all shares of Common Stock covered by a
Registration Statement to be listed on the national securities exchange or
national market interdealer quotation system on which the Common Stock is then
listed, and enter into such customary agreements, including a supplemental
listing application and indemnification agreement in customary form; provided, however, that the applicable listing requirements are
satisfied, and (ii) provide a transfer agent and registrar for such
Registrable Securities covered by such Registration Statement no later than the
effective date of such Registration Statement. 
The Company shall bear the cost of all reasonable expenses associated
with any listing.  A copy of any opinion
of counsel accompanying a listing application by the Company with respect to
such Registrable Securities shall be furnished to the selling Holder or
Holders.

 

(m)  Make reasonably available senior
executives of the Company to participate in “road show” and other marketing
presentations from time to time as reasonably requested by the managing
underwriter(s).

 

SECTION 4.05.  Suspension of Sales.  During any Scheduled Black-Out Period and
upon receipt of written notice from the Company that a Registration Statement,
Prospectus or prospectus supplement contains or may contain an untrue statement
of a material fact or omits to state a material fact required to be stated
therein or necessary to make the statements therein not misleading, or that
circumstances exist that make the use of such Registration Statement,
Prospectus or prospectus supplement inadvisable, the selling Holder or Holders
shall forthwith discontinue disposition of Registrable Securities until
termination of such Scheduled Black-Out Period or until the selling Holder or
Holders have received copies of a supplemented or amended Prospectus or
prospectus supplement, or until the selling Holder or Holders are advised in
writing by the Company that the use of the Prospectus and, if applicable,
prospectus supplement may be resumed.  If
so directed by the Company, the selling Holder or Holders shall deliver to the
Company (at the Company’s expense) all copies, other than permanent file copies
then in the selling Holder’s or Holders’ possession, of the Prospectus and, if
applicable, prospectus supplement covering such Registrable Securities current
at the time of receipt of such suspension notice.  The total number of days that any such
suspension may be in effect in any 180-day period shall not exceed
60 days.

 

SECTION 4.06.  Furnishing Information.  It shall be a condition precedent to the
obligations of the Company to take any action pursuant to Section 4.04
that the selling Holder or Holders and the underwriter(s), if any, shall
furnish to the Company such information regarding themselves, the Registrable
Securities held by them and the 

 

19

 

intended method of disposition of such securities as shall be required
to effect the registered offering of their Registrable Securities.

 

SECTION 4.07. 
Indemnification.  (a) 
In connection with each registration pursuant to Article IV, the Company
agrees to indemnify and hold harmless each selling Holder, and each Person, if
any, who controls any selling Holder within the meaning of Section 15 of
the Securities Act, as follows:

 

(i) against
any and all loss, liability, claim, damage and expense whatsoever, as incurred,
arising out of an untrue statement or alleged untrue statement of a material
fact contained in the Registration Statement (or any amendment thereto), or the
omission or alleged omission therefrom of a material fact required to be stated
therein or necessary to make the statements therein not misleading, or arising
out of an untrue statement of a material fact included in any preliminary
prospectus or the Prospectus (or any amendment or supplement thereto), or the
omission or alleged omission therefrom of a material fact necessary in order to
make the statements therein, in the light of the circumstances under which they
were made, not misleading; and

 

(ii) against
any and all loss, liability, claim, damage and expense whatsoever, as incurred,
to the extent of the aggregate amount paid in settlement of any litigation, or
investigation or proceeding by any governmental agency or body, commenced or
threatened, or of any claim whatsoever based upon any such untrue statement or
omission, or any such alleged untrue statement or omission, if such settlement
is effected with the written consent of the Company, which consent shall not be
unreasonably withheld;

 

provided, however, that, with respect to any selling Holder, this indemnity
shall not apply to any loss, liability, claim, damage or expense to the extent
arising out of an untrue statement or omission or alleged untrue statement or
omission made in reliance upon and in conformity with written information
furnished to the Company by such selling Holder expressly for use in the
Registration Statement (or any amendment thereto), or any preliminary
prospectus or the Prospectus (or any amendment or supplement thereto).

 

(b)  Each selling Holder agrees
severally, and not jointly, to indemnify and hold harmless the Company, its
directors, each of its officers who signed a Registration Statement, and the
other selling Holders, and each Person, if any, who controls the Company and
any other selling Holder within the meaning of Section 15 of the
Securities Act, against any and all loss, liability, claim, damage and expense
described in the indemnity contained in Section 4.07(a), as incurred, but
only with respect to untrue statements or omissions, or alleged untrue
statements or omissions, made in the Registration Statement (or any amendment
thereto), or any preliminary prospectus or the Prospectus (or any amendment or
supplement thereto) in reliance upon and in conformity with written information
furnished to the Company by such selling Holder expressly for use in the
Registration Statement (or any amendment thereto), or any preliminary

 

20

 

prospectus or the Prospectus (or any amendment or supplement thereto); provided
that no such selling Holder shall be liable under this Section 4.07 for
any amounts exceeding the product of the sales price per Registrable Security
and the number of Registrable Securities being sold pursuant to such
Registration Statement or Prospectus by such selling Holder.

 

(c)  Each indemnified party shall give
prompt notice to each indemnifying party of any action commenced against it in
respect of which indemnity may be sought hereunder, but failure to so notify an
indemnifying party shall not relieve the indemnifying party from any liability
it may have under this Agreement, except to the extent that the indemnifying
party is prejudiced thereby.  If it so
elects, after receipt of such notice, an indemnifying party, jointly with any
other indemnifying parties receiving such notice, may assume the defense of
such action with counsel chosen by it; provided, however,
that the indemnified party shall be entitled to participate in (but not
control) the defense of such action with counsel chosen by it, the reasonable
fees and expenses of which shall be paid by such indemnified party, unless a
conflict would arise if one counsel were to represent both the indemnified
party and the indemnifying party, in which case the reasonable fees and
expenses of counsel to the indemnified party shall be paid by the indemnifying
party or parties.  In no event shall the
indemnifying party or parties be liable for a settlement of an action with respect
to which they have assumed the defense if such settlement is effected without
the written consent of such indemnifying party, or for the reasonable fees and
expenses of more than one counsel for (i) the Company, its officers,
directors and controlling persons as a group, and (ii) the selling Holders
and their controlling persons as a group, in each case, in connection with any
one action or separate but similar or related actions in the same jurisdiction
arising out of the same general allegations or circumstances; provided, however, that if, in the reasonable judgment of an
indemnified party, a conflict of interest may exist between such indemnified
party and the Company or any other of such indemnified parties with respect to
such claim, the indemnifying party shall be obligated to pay the reasonable
fees and expenses of such additional counsel.

 

SECTION 4.08.  Contribution.  (a)  If the indemnification provided
for  in or pursuant to Section 4.07
is due in accordance with the terms hereof, but held by a court of competent
jurisdiction to be unavailable or unenforceable in respect of any losses,
claims, damages, liabilities or expenses referred to therein, then each
applicable indemnifying party, in lieu of indemnifying such indemnified party,
shall contribute to the amount paid or payable by such indemnified party as a
result of such losses, claims, damages, liabilities or expenses in such
proportion as is appropriate to reflect the relative fault of the indemnifying
party on the one hand and of the indemnified party on the other in connection
with the statements or omissions which result in such losses, claims, damages,
liabilities or expenses as well as any other relevant equitable
considerations.  The relative fault of
the indemnifying party on the one hand and of the indemnified party on the
other shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by
the indemnifying party or by the indemnified party, and by such party’s
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission.  In
no event shall the 

 

21

 

liability of the selling Holders be greater in amount than the amount
for which such indemnifying party would have been obligated to pay by way of
indemnification if the indemnification provided for under Section 4.07(a) had
been available under the circumstances.

 

(b)  No Person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any Person who was not
guilty of such fraudulent misrepresentation. 
For purposes of this Section 4.08(b), each director of the Company,
each officer of the Company who signed a Registration Statement, and each
Person, if any, who controls the Company or a selling Holder within the meaning
of Section 15 of the Securities Act shall have the same rights to
contribution as the Company or such selling Holder, as the case may be.

 

SECTION 4.09.  Representations, Warranties and
Indemnities to Survive.  The
indemnity and contribution agreements contained in this Article IV and the
representations and warranties of the Company referred to in Section 4.04(j) shall
remain operative and in full force and effect regardless of (i) any
termination of any underwriting or agency agreement; (ii) any
investigation made by or on behalf of the selling Holder or Holders, the
Company or any underwriter or agent or controlling Person; or (iii) the
consummation of the sale or successive resales of the Registered Securities.

 

SECTION 4.10.  Lock-Up Agreements.  (a)  The Company agrees that, in connection
with an underwritten offering in respect of which Registrable Securities are
being sold, if requested by the managing underwriter(s), it will not, directly
or indirectly, sell, offer to sell, grant any option for the sale of, or
otherwise dispose of, any Common Stock or securities convertible into or
exchangeable or exercisable for Common Stock (subject to customary exceptions),
other than any such sale or distribution of Common Stock upon exercise of the
Warrants, in the case of an underwritten offering, for a period of 90 days
from the effective date of the registration statement pertaining to such
Registrable Securities or such shorter period to which the selling Holder or
Holders are subject.

 

(b)  The lock-up agreements set forth in
Section 4.10(a) shall be subject to customary exceptions that may be
set forth in a written underwriting agreement.

 

SECTION 4.11. 
Rule 144 Reporting. 
With a view to making available to the Holders the benefits of certain rules and
regulations of the SEC which may permit the sale of the Registrable Securities
to the public without registration, the Company agrees, so long as it is
subject to the periodic reporting requirements of the Exchange Act, to use
commercially reasonable efforts to:

 

(a) make and keep
public information available, as those terms are understood and defined in Rule 144(c)(1) or
any similar or analogous rule promulgated under the Securities Act, at all
times after the effective date of this Agreement;

 

(b) file with the SEC,
in a timely manner, all reports and other documents required of the Company
under the Exchange Act; and

 

22

 

(c) so long as the
Holders own any Registrable Securities, furnish to such Holders forthwith upon
request:  (i) in the event the
Company is no longer subject to the reporting requirements of Section 13
or 15(d) of the Exchange Act, a written statement by the Company as to its
compliance with the reporting requirements of Rule 144 under the
Securities Act and of the Exchange Act; (ii) in the event the Company is
subject to the reporting requirements of Section 13 or 15(d) of the
Exchange Act, a copy of the most recent annual or quarterly report of the
Company; and (iii) such other reports and documents as the Holders may
reasonably request in availing themselves of any rule or regulation of the
SEC allowing them to sell any such securities without registration; provided,
however, that the Company shall be deemed to have furnished any such
document if it shall have timely made such document available on the SEC’s
Electronic Data Gathering, Analysis and Retrieval System, or a successor
system.

 

ARTICLE V

 

Adjustments

 

SECTION 5.01.  Adjustments for Cash Dividends.  In the event that the Company shall pay a
cash dividend on the shares of its Common Stock, the Exercise Price for each
Warrant shall be reduced by the cash dividend paid on each share of Common
Stock.

 

SECTION 5.02.  Adjustments Upon Certain Transactions.  The Exercise Price and the number of shares
of Common Stock issuable upon exercise of each Warrant shall be adjusted in the
event the Company (i) pays a dividend or makes any other distribution with
respect to its Common Stock solely in shares of its Common Stock; (ii) subdivides
its outstanding Common Stock; or (iii) combines its outstanding Common
Stock into a smaller number of shares. 
In such event, the number of shares of Common Stock issuable upon
exercise of each Warrant immediately prior to the record date for such dividend
or distribution or the effective date of such subdivision or combination shall
be adjusted so that the Holder of each Warrant shall thereafter be entitled to
receive the number of shares of Common Stock that such Holder would have owned
or have been entitled to receive after the happening of any of the events
described above, had such Warrant been exercised immediately prior to the
happening of such event or any record date with respect thereto.  In addition, upon an adjustment pursuant to
this Section 5.02, the Exercise Price for each share of Common Stock
payable upon exercise of such Warrant shall be adjusted (calculated to the
nearest $.0001) so that it shall equal the product of the Exercise Price
immediately prior to such adjustment multiplied by a fraction, the numerator of
which shall be the number of shares of Common Stock issuable upon the exercise
of each Warrant immediately prior to such adjustment, and the denominator of
which shall be the number of shares of Common Stock so issuable immediately
thereafter.  Such adjustment shall become
effective immediately after the effective date of such event retroactive to the
record date, if any, for such event.

 

SECTION 5.03.  Dividends and Distributions.  (a)  If the Company shall fix a record
date for the payment of a dividend or the making of a distribution with respect
to the Common Stock (other than one subject to Section 5.01 or Section 5.02),

 

23

 

including in connection with a Recapitalization Event (it being
understood that, if there is a distribution in connection with a
Recapitalization Event and no record date is set therefor, the effective date
of such Recapitalization Event shall be deemed to be the record date fixed by
the Company for purposes of this Section 5.03), the Exercise Price
immediately after the record date for such dividend or distribution shall be
determined by multiplying (A) the Exercise Price in effect on such record
date by (B) a fraction, the numerator of which shall be the Fair Market
Value per share of Common Stock as of the last trading day before the date (the
“Ex-date”) on which the Common Stock first trades without the right to
receive such dividend or distribution less the Fair Market Value of the items
distributed in respect of each share of Common Stock in such dividend or
distribution, and the denominator of which shall be the Fair Market Value per
share of Common Stock as of the last trading day before the Ex-date.  As used in this Section 5.03, “Recapitalization
Event” means any consolidation, merger or similar extraordinary transaction
(other than any consolidation, merger or similar extraordinary transaction of
the Company with an unaffiliated third party), or any recapitalization or
reclassification of the Common Stock. 
Upon any adjustment of the Exercise Price pursuant to this Section 5.03,
the total number of shares of Common Stock purchasable upon the exercise of
each Warrant shall be such number of shares (calculated to the nearest
hundredth) purchasable per Warrant immediately prior to such adjustment
multiplied by a fraction, the numerator of which shall be the Fair Market Value
per share of Common Stock as of the last trading date before the Ex-date, and
the denominator of which shall be the Fair Market Value per share of Common
Stock as of the last trading date before the Ex-date less the Fair Market Value
of the items distributed in respect of each share of Common Stock in such
dividend or distribution.

 

(b)  In the case of a Recapitalization
Event in which outstanding shares of Common Stock are converted either solely
or partially into shares of common stock of another company, each Warrant shall
become a Warrant to purchase a number of shares of common stock of the other
company for an Exercise Price per share calculated by (i) first, applying
the rules in Sections 5.01 or 5.02, as applicable, and Section 5.03(a) to
determine an initially adjusted Exercise Price per share and number of shares
of Common Stock purchasable upon the exercise of each Warrant, (ii) second,
multiplying the initially adjusted number of shares by the number of shares of
common stock of the other company into which each share of Common Stock of the
Company shall be converted in the Recapitalization Event to arrive at the final
adjusted number of shares of common stock of the other company purchasable upon
exercise of each Warrant and (iii) third, dividing the initially adjusted
Exercise Price per share of Common Stock by the number of shares of common
stock of the other company into which each share of Common Stock of the Company
shall be converted in the Recapitalization Event to arrive at the final
adjusted Exercise Price per share of common stock of the other company.  In any case where this Section 5.03(b) applies,
the second sentence of Section 5.05 shall also apply to the Recapitalization
Event as though it were a Reorganization Event.

 

(c)  Notwithstanding anything to the
contrary contained herein, in the case of a Recapitalization Event, to the
extent that one or more of the adjustments set forth in Section 5.01 or
5.02 would be applicable to such Recapitalization Event, the adjustments set
forth in Sections 5.01, 5.02 and 5.03(a) shall be applied in the
order in which the 

 

24

 

events described in such Sections occur; provided, however,
that no adjustment pursuant to Section 5.01, 5.02 or 5.03(a), as
applicable, shall be made for an event in connection with such Recapitalization
Event for which an adjustment has already been made.

 

SECTION 5.04.  Issuer Tender Offers.  If a publicly-announced tender offer made by
the Company or any of its subsidiaries for all or any portion of the Common
Stock shall expire and tendering holders of Common Stock are paid aggregate
consideration having a Fair Market Value, when paid, which exceeds the
aggregate Fair Market Value of the Common Stock acquired in such tender offer
as of the last trading date before the date on which such tender offer is first
publicly announced (such excess, the “Excess Tender Amount”), then the
Exercise Price in effect immediately after the tender offer expires shall be
determined by multiplying (i) the Exercise Price in effect immediately
prior to such adjustment by (ii) a fraction, the numerator of which shall
be the Fair Market Value per share of the Common Stock as of the last trading
day before the date on which such tender offer is first publicly announced less
the Premium Per Pro Forma Share, and the denominator of which shall be the Fair
Market Value per share of Common Stock as of the last trading day before the
date on which such tender offer is first publicly announced.  As used herein, “Premium Per Pro Forma
Share” means (x) the Excess Tender Amount divided by (y) the
number of shares of Common Stock outstanding at expiration of the tender offer
after giving pro forma effect to the purchase of shares in the tender
offer.  Upon any adjustment of the
Exercise Price pursuant to this Section 5.04, the total number of shares
of Common Stock purchasable upon the exercise of each Warrant shall be such
number of shares (calculated to the nearest hundredth) purchasable per Warrant
immediately prior to such adjustment multiplied by a fraction, the numerator of
which shall be the Fair Market Value per share of Common Stock as of the last
trading day before the date on which such tender offer is first publicly
announced, and the denominator of which shall be the Fair Market Value per
share of the Common Stock as of the last trading day before the date on which
such tender offer is first publicly announced less the Premium Per Pro Forma
Share.

 

SECTION 5.05.  Consolidation, Merger or Sale.  If any consolidation, merger or similar
extraordinary transaction of the Company with another Person (other than any
subsidiary of the Company), or the sale of all or substantially all of its
assets, other than in any such case a Recapitalization Event, shall be effected
(a “Reorganization Event”), and in connection with such Reorganization
Event, the Common Stock shall be converted into or exchanged for or become the
right to receive cash, securities or other property, then, as a condition of
such Reorganization Event, lawful and adequate provisions shall be made by the
Company whereby the Holder of each Warrant shall thereafter have the right to
purchase and receive on exercise of such Warrant, for an aggregate price equal
to the aggregate Exercise Price for all of the shares underlying the Warrant as
in effect immediately before such transaction (subject to adjustment thereafter
as contemplated by the succeeding sentence), the same kind and amount of cash,
securities or other property as it would have had the right to receive if it
had exercised such Warrant immediately before such transaction and been
entitled to participate therein.  In the
event of any such Reorganization Event, the Company shall make appropriate
provision to ensure that applicable provisions of this Agreement (including the
provisions of Article IV and this Article V) shall thereafter be
binding on the other party to such 

 

25

 

transaction (or the successor in such transaction) and applicable to
any securities thereafter deliverable upon the exercise of Warrants.  The Company will not effect any such
Reorganization Event unless, prior to the consummation thereof, the successor
entity (if other than the Company) resulting from such Reorganization Event or
the entity purchasing such assets shall assume, by written instrument
reasonably satisfactory in form and substance to the Agent, executed and mailed
or delivered to each Holder of a Warrant at the last address of such Holder
appearing on the books of the Company, the obligation to deliver the cash,
securities or property deliverable upon exercise of Warrants.  The Company shall notify the Holder of each
Warrant of any such proposed Reorganization Event reasonably prior to the
consummation thereof so as to provide such Holder with a reasonable opportunity
prior to such consummation to exercise each Warrant in accordance with the
terms and conditions hereof; provided, however, that in the case
of a transaction which requires notice to be given to the holders of Common
Stock of the Company, the Holder of each Warrant shall be provided the same
notice given to the holders of Common Stock of the Company.

 

SECTION 5.06.  Preemptive Rights.  Upon any issuance for cash of any shares of
Common Stock, rights or options to acquire Common Stock or securities
convertible or exchangeable into Common Stock for cash (in each case, other
than issuances that result in adjustments pursuant to Section 5.02 or Section 5.03),
subject to obtaining any required approval of the Company’s stockholders to
comply with Section 312.03 of the New York Stock Exchange Listed Company
Manual, the Initial Warrant Holder and its Affiliates, if they still hold at least
50% of the total Warrants issued to the Initial Warrant Holder on the Issuance
Date, shall have additional subscription rights allowing the Initial Warrant
Holder and its Affiliates to maintain their proportionate, as-if-exercised
ownership interest in the Company based on the number of shares of Common Stock
outstanding immediately prior to such issuance. 
For the avoidance of doubt, obtaining such approval shall be a condition
for the Company to undertake any issuance subject to this Section 5.06.  In the event that any issuance subject to
this Section 5.06 involves a public or Rule 144A offering, the
Initial Warrant Holder and the Company shall negotiate in good faith as to the
provision of such subscription rights so as not to materially delay or jeopardize
the success of such public offering.  The
foregoing shall not apply to any issuance of Excluded Securities.

 

SECTION 5.07.  Consent Upon Certain Issuances.  (a)  So long as either (i) the
Initial Warrant Holder or any of its Affiliates own any Warrants or (ii) Warrants
exercisable for, in the aggregate, not less than 100,000 shares of Common Stock
(or Series A Preferred Stock convertible into not less than 100,000 shares
of Common Stock) remain outstanding, the Company shall not issue shares of Common
Stock, Common Stock Equivalents or rights or options to acquire Common Stock
Equivalents (in each case other than Excluded Securities) at an Effective
Issuance Price that is lower than the greater of (A) the Exercise Price
then in effect for all Warrants and (B) the then-current fair market value
of a share of the Company’s Common Stock, less, if applicable in any such
issuance, underwriting discounts or commissions in an amount customary for
similarly situated issuers in offerings of the applicable type (in each case,
other than issuances that result in adjustments pursuant to Section 5.02
or Section 5.03), without, in 

 

26

 

either such case, the prior written consent
of the holders of a majority of the Warrants (not to be unreasonably withheld,
delayed or conditioned).

 

(b)  So long as either (i) the
Initial Warrant Holder or any of its Affiliates own any Warrants or (ii) Warrants
exercisable for, in the aggregate, not less than 100,000 shares of Common Stock
(or Series A Preferred Stock convertible into not less than 100,000 shares
of Common Stock) remain outstanding, the Company shall not issue any Qualifying
Employee or Director Stock consisting of any stock option or stock purchase
right with an exercise price, or consisting of a grant of shares where the
amount of the grant is denominated in dollars and the number of shares granted
is determined by reference to a share price, in either case that is lower than
the greater of (A) the Exercise Price then in effect for all Warrants and (B) the
closing price per share of Common Stock on the date of grant, without, in
either such case, the prior written consent of the holders of a majority of the
Warrants (not to be unreasonably withheld, delayed or conditioned).

 

SECTION 5.08.  Affiliate Transactions.  In the event that the Company shall issue any
shares of Common Stock to, or repurchase any shares of Common Stock from, any
Affiliate, other than Excluded Securities, such issuance or repurchase shall be
on terms no less favorable to the Company than those obtainable by a party who
is not an Affiliate.

 

SECTION 5.09.  Fractional Shares.  No fractional shares shall be issued upon
exercise of any Warrant.  Instead, the
Company shall pay to the Holder, in lieu of issuing any fractional share, a sum
in cash equal to such fraction multiplied by the Fair Market Value of a share
of Common Stock on the trading day immediately prior to the date of exercise.

 

SECTION 5.10.  Notice of Adjustment.  Whenever the number of shares of Common Stock
or other stock or property issuable upon the exercise of each Warrant or the
Exercise Price is adjusted, as herein provided, the Company shall promptly mail
by first-class mail, postage prepaid, to the Agent and each Holder of a Warrant
notice of such adjustment or adjustments setting forth the number of shares of
Common Stock or other stock or property issuable upon the exercise of each
Warrant and the Exercise Price after such adjustment, setting forth a brief
statement of the facts requiring such adjustment and setting forth the
computation by which such adjustment was made.

 

ARTICLE VI

 

Warrant Transfer Books

 

SECTION 6.01. 
Warrant Transfer Books. 
Subject to Section 3.05:

 

(a)  The Company shall keep at its
principal place of business a register in which the Company shall provide for
the registration of Warrant Certificates and of any exchanges of Warrant
Certificates as herein provided.

 

(b)  At the option of the Holder,
Warrant Certificates may be exchanged at such office and upon payment of the
charges hereinafter provided.  Whenever
any 

 

27

 

Warrant Certificates are so surrendered for exchange, the Company shall
execute and deliver the Warrant Certificates that the Holder making the exchange
is entitled to receive.

 

(c)  All Warrant Certificates issued
upon any registration of transfer or exchange of Warrant Certificates shall be
the valid obligations of the Company, evidencing the same obligations, and
entitled to the same benefits under this Agreement, as the Warrant Certificates
surrendered for such registration of transfer or exchange.

 

(d)  Every Warrant Certificate
surrendered for registration of exchange shall (if so required by the Company)
be duly endorsed, or be accompanied by a written instrument of transfer in form
reasonably satisfactory to the Company, duly executed by the Holder thereof or
his attorney duly authorized in writing.

 

(e)  No service charge shall be made to
a Holder for any registration of transfer or exchange of any Warrant
Certificates, and the Company shall pay any taxes or other governmental charges
that may be imposed in connection with any registration of exchange of Warrant
Certificates.

 

(f)  Any Warrant Certificate when duly
endorsed in blank shall be deemed negotiable and when a Warrant Certificate
shall have been so endorsed, the Holder thereof may be treated by the Company
and all other Persons dealing therewith as the absolute owner thereof for any
purpose and as the Person entitled to exercise the rights represented thereby.

 

ARTICLE VII

 

Warrant Holders

 

SECTION 7.01.  No Voting Rights.  Prior to the exercise of the Warrants, no
Holder of a Warrant Certificate, in its capacity as such, shall be entitled to
any rights of a stockholder of the Company, including the right to vote or to
consent with respect to any matter.

 

SECTION 7.02.  Right of Action.  All rights of action in respect of this
Agreement are vested in the Holders of the Warrants, and any Holder of
Warrants, without the consent of the Holder of any other Warrant, may, on such
Holder’s own behalf and for such Holder’s own benefit, enforce, and may
institute and maintain any suit, action or proceeding against the Company
suitable to enforce, or otherwise in respect of, such Holder’s right to
exercise or exchange such Holder’s Warrants in the manner provided in this
Agreement or any other obligation of the Company under this Agreement.

 

SECTION 7.03.  Agent. 
The Holders of the Warrants appoint Z Investment Holdings, LLC as their
agent and authorize Z Investment Holdings, LLC to bind, and take all actions in
connection with this Agreement on behalf of, the Holders which may be taken by
the Agent as set forth in this Agreement.  
The Company shall be 

 

28

 

entitled to rely on direction by Z Investment Holdings, LLC on behalf
of any Holder for the powers granted to the Agent herein.

 

ARTICLE VIII

 

Representations and Warranties

 

SECTION 8.01. 
Representations and Warranties of the Company.  The Company hereby represents and warrants
that, as of the Issuance Date:

 

(a) Existence, Power
and Ownership.  It is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware.

 

(b) Authorization.  It has the corporate power and authority to
enter into this Agreement and to perform its obligations under, and consummate
the transactions contemplated by, this Agreement and has by proper action duly
authorized the execution and delivery of this Agreement.

 

(c) No Conflicts.  None of the execution and delivery of this
Agreement, the consummation of the transactions contemplated herein or the
performance of and compliance with the terms and provisions hereof will:  (i) violate or conflict with any
provision of its Certificate of Incorporation or By-laws; (ii) violate any
law, regulation (including Regulation G, T, U or X), order, writ, judgment,
injunction, decree or permit applicable to it; (iii) violate or materially
conflict with any contractual provisions of, or cause an event of default or
give rise to any right of acceleration under, any indenture, loan agreement,
mortgage, deed of trust, contract or other agreement or instrument to which it
is a party or by which it or any of its properties may be bound; or (iv) result
in or require the creation of any lien, security interest or other charge or
encumbrance (other than those contemplated in or in connection with this
Agreement) upon or with respect to its properties.

 

(d) Consents.  Subject to the requirements of the HSR Act
and, in the case of any Warrants exercisable for Series A Preferred Stock,
receipt of the Required Stockholder Approval, no consent, approval,
authorization or order of, or filing, registration or qualification with, any
court or governmental authority or other Person is required in connection with
the execution, delivery or performance of this Agreement or the Warrants.

 

(e) Enforceable
Obligations.  This Agreement has been
duly executed and delivered by the Company and assuming due authorization, execution
and delivery hereof by the Initial Warrant Holder and the Agent, constitutes a
legal, valid and binding obligation of the Company, enforceable in accordance
with its terms, subject, as to enforcement, to bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium and similar laws of general
applicability relating to or affecting creditors’ rights and to general equity
principles.

 

(f) Capitalization.  As of the date hereof, the Company’s
authorized capital stock consists of 150,000,000 shares of Common Stock and
5,000,000 shares of Preferred 

 

29

 

Stock (none of which are issued and
outstanding).  As of the Issuance Date,
32,107,425 shares of Common Stock were issued and outstanding (excluding any
shares held in treasury), and 3,220,617 stock options and other Common Stock
Equivalents were issued and outstanding under the Company’s restricted stock
and stock option plans.  There are no
Voting Securities authorized or outstanding other than the Common Stock and
there are no other classes of capital stock of the Company outstanding.  The outstanding shares of Common Stock are
duly authorized, validly issued, fully paid and non-assessable.  There are no preemptive rights other than as
set forth in Section 5.06 of this Agreement or, except as set forth above
and except for the Warrants, other outstanding rights, options, warrants,
conversion rights or agreements or commitments of any character relating to the
Company’s authorized and issued, unissued or treasury shares of capital stock,
and the Company has not issued any debt securities, other securities, rights or
obligations that are currently outstanding and convertible into or exchangeable
for, or giving any Person a right to subscribe for or acquire, capital stock of
the Company.  The representations and
warranties set forth in this Section 8.01(f) are a material
inducement to the Initial Warrant Holder to enter into this Agreement, and to
the extent the representations and warranties set forth in this Section 8.01(f) are
inaccurate in any respect, the number of shares of Underlying Stock for which
the B-Warrants are exercisable will be equitably adjusted upward (but not
downward), if necessary, such that the number of shares of Common Stock for
which the A-Warrants and the B-Warrants were exercisable, as of the Issuance
Date (assuming for this purpose that the B-Warrants were exercisable in full
for Common Stock as of the Issuance Date), equals, in the aggregate, a number
of shares of Common Stock equal to 25.0% of the amount equal to (x) the
sum, without duplication, of the number of shares of Common Stock outstanding
as of the Issuance Date (excluding any treasury shares) and the number of
shares of Common Stock into which Common Stock Equivalents outstanding as of
the Issuance Date (including the Warrants (assuming for this purpose that the
B-Warrants were exercisable in full for Common Stock as of the Issuance Date))
were exercisable less (y) 2,133,992.

 

(g) Board Approvals.  The Board has granted all necessary approvals
under the Company’s constituent documentation and the Delaware General
Corporation Law with respect to the acquisition and exercise of the Warrants by
the Initial Warrant Holder, including for purposes of Section 203 of the
Delaware General Corporation Law.

 

(h) No Registration
Requirement.  None of the Company,
its subsidiaries or any of their respective Affiliates has directly, or through
any agent, (i) sold, offered for sale, solicited offers to buy or
otherwise negotiated in respect of, any “security” (as defined in the
Securities Act) that is or would be integrated with the issuance of the
Warrants in a manner that would require the registration under the Securities
Act of the Warrants or (ii) engaged in any form of general solicitation or
general advertising (as those terms are used in Regulation D under the
Securities Act) in connection with the offering of the Warrants or in any
manner involving a public offering within the meaning of Section 4(2) of
the Securities Act.  Assuming the
accuracy of the representations and warranties of the Holders in Section 8.02
hereof, it is not necessary in connection with the offer, sale and delivery of
the Warrants to the Initial Warrant Holder in the manner contemplated herein to
register any of the Warrants under the Securities Act.

 

30

 

SECTION 8.02. 
Representations and Warranties of the Holders.  Each Holder, severally and not jointly,
hereby represents and warrants that:

 

(a) Investment
Intent.  Such Holder acknowledges
that neither the issuance nor sale of the Warrants, nor the issuance of the
shares of Common Stock or Series A Preferred Stock issuable upon the
exercise thereof, have been registered under the Securities Act or under any
state securities laws.  Such Holder (i) is
acquiring the Warrants and the shares of Common Stock or Series A
Preferred Stock issuable upon the exercise thereof pursuant to an exemption
from registration under the Securities Act solely for investment with no
present intention to distribute any of the securities to any person in
violation of the Securities Act or any other applicable securities laws and (ii) will
not sell or otherwise dispose of any of the Warrants or the shares of Common
Stock or Series A Preferred Stock issuable upon the exercise thereof,
except in compliance with the registration requirements or exemption provisions
of the Securities Act and any other applicable securities laws.

 

(b) Accredited
Investor Status.  (i) Such
Holder is an “accredited investor” as such term is defined in Rule 501(a) promulgated
under the Securities Act whose knowledge and experience in financial and
business matters are such that such Holder is capable of evaluating the merits
and risks of its investment in the Warrants or the shares of Common Stock or Series A
Preferred Stock issuable upon the exercise thereof and (ii)(A) such Holder’s
financial situation is such that it can afford to bear the economic risk of
holding the Warrants or the shares of Common Stock or Series A Preferred
Stock issuable upon the exercise thereof for an indefinite period of time, (B) such
Holder can afford to suffer complete loss of its investment in the Warrants or
the shares of Common Stock or Series A Preferred Stock issuable upon the
exercise thereof, (C) the Company has made available to such Holder all
documents and information that such Holder has requested relating to an
investment in the Company and (D) such Holder has had adequate
opportunity to ask questions of, and receive answers from, the Company as well
as the Company’s officers, employees, agents and other representatives
concerning the Company’s business, operations, financial condition, assets,
liabilities and all other matters relevant to such Holder’s investment in the
Warrants or the shares of Common Stock or Series A Preferred Stock
issuable upon the exercise thereof.

 

ARTICLE IX

 

Covenants

 

SECTION 9.01.  Reservation of Common Stock for Issuance
on Exercise of Warrants.  The Company
covenants that it will at all times reserve and keep available, free from
preemptive rights and solely for the purpose of issue upon exercise of the
Warrants as herein provided, (i) out of its authorized but unissued Common
Stock, such number of shares of Common Stock as shall then be issuable upon the
exercise of all Warrants issuable hereunder (which, in the case of the
B-Warrants, for the avoidance of doubt, shall be from and after the date of the
Required Stockholder Approval), which shall include, for the avoidance of
doubt, such number of shares of Common Stock as shall then be issuable upon the
conversion of the Series A Preferred Stock then issuable, 

 

31

 

if any, upon the exercise of all Warrants issuable hereunder; and (ii) out
of its authorized but unissued preferred stock, par value $0.01 per share, such
number of shares of Series A Preferred Stock as shall then be issuable
upon the exercise of all Warrants issuable hereunder.  The Company will not issue Series A
Preferred Stock to any Persons other than the Warrant Holders.  The Company covenants that all shares of
Common Stock and Series A Preferred Stock issuable upon exercise of the
Warrants and, with respect to shares of Series A Preferred Stock, all
shares of Common Stock issuable upon conversion of the Series A Preferred
Stock, shall, upon such issue, be duly and validly issued and fully paid and
non-assessable.

 

SECTION 9.02.  Notice of Dividends.  At any time when the Company declares any
dividend on its Common Stock, it shall give notice to the Holders of all the
then outstanding Warrants of any such declaration not less than 15 days
prior to the related record date for payment of the dividend so declared.

 

SECTION 9.03.  HSR Act Compliance.  If the Agent or any Holder determines that a
notification under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended, and the rules and regulations promulgated thereunder (the “HSR
Act”), is required in connection with the exercise of any Warrants by any
Holder, the Company shall reasonably cooperate with such Holder by (i) promptly
effecting all necessary notifications and other filings under the HSR Act that
are required to be made by the Company and (ii) responding as promptly as
reasonably practicable to all inquiries or requests received from the United
States Federal Trade Commission (the “FTC”), the Department of Justice (“DOJ”)
or any other governmental authority in connection with such notifications and
other filings.  For the avoidance of
doubt, nothing in this Section 9.03 shall require that the Company or any
of its subsidiaries commit to any divestiture, license or hold separate or
similar arrangement with respect to the business, assets or properties of the
Company or any of its subsidiaries.  Any
such notifications and responses by the Company will be in full compliance with
the requirements of the HSR Act.  The
Company shall, to the extent legally permissible, keep the Agent and such
Holder reasonably apprised of the status of any communications with, and any
inquiries or requests for additional information from, the FTC, the DOJ or such
other governmental authority.  The
Company and the Agent shall share equally the filing fees in connection with
the above filings, and shall otherwise each bear their respective costs and
expenses in connection with the preparation of such filings and responses to
inquires or requests.

 

SECTION 9.04.  Board Representation.  (a)  On the Issuance Date, the Initial
Warrant Holder shall have the right to designate two directors (each, a “GGC
Appointee”) who shall be appointed to the Board.  The initial GGC Appointees shall be Stefan L.
Kaluzny and Peter Morrow. As of the Issuance Date, the number of seats on the
Board shall be set at eight, which shall consist on the Issuance Date of the
initial GGC Appointees, Richard C. Breeden, James M. Cotter, Yuval Braverman,
John B. Lowe, Jr. and Charles M. Sonsteby, and one seat shall be
vacant.  The Initial Warrant Holder may
propose an additional candidate for election to the Board who meets all
relevant standards for independence to fill such initial vacancy.  If that candidate is reasonably acceptable to
the Nominating Committee of the Board and a majority of the independent 

 

32

 

members of the Board, that candidate will be promptly elected to the
Board following such proposal by the Initial Warrant Holder (and such candidate
shall not be deemed to be a GGC Appointee for purposes hereof).  For the period from the Issuance Date to the
date immediately following the next annual meeting of shareholders of the
Company following the Issuance Date, the size of the Board shall be maintained
at eight directors. John B. Lowe, Jr. shall not stand for reelection at
the next annual meeting of shareholders of the Company following the Issuance
Date, and on the date immediately following such annual meeting, the number of
seats on the Board shall be set at seven (provided that if the initial
vacancy described above has not been filled with a director meeting all
applicable independence requirements at such time, John B. Lowe, Jr. shall
continue to serve on the Board until such time as such director is appointed to
the Board).  Notwithstanding the
foregoing, if for any reason the size of the Board is increased above eight
seats prior to the date immediately following the next annual meeting of
shareholders of the Company following the Issuance Date, or above seven seats
thereafter, and any additional vacant seat created by such increase is filled
by the Board with a director that is neither proposed nor approved by the
Initial Warrant Holder or the GGC Appointees, then the Initial Warrant Holder
shall be entitled to appoint one additional director to the Board, which
director shall also be deemed to be a GGC Appointee for purposes hereof (it
being understood that no increase in the size of the Board and filling of any
vacancy created by such increase that would give rise to a right of the Initial
Warrant Holder to appoint an additional GGC Appointee in accordance with the
foregoing shall be made unless the Certificate of Incorporation then permits
such number of additional seats as is necessary to allow for the additional GGC
Appointee if required pursuant to this Section 9.04(a)).

 

(b)  Subject to Sections 9.04(d) and
9.04(f), in connection with each meeting of stockholders at which directors are
to be elected to serve on the Board, the Company shall take all necessary steps
to nominate each GGC Appointee (or such alternative persons who are proposed by
the Initial Warrant Holder and notified to the Company on or prior to any date
set forth in the Company’s constituent documents or applicable law for Board
nominees) and to use its reasonable best efforts to cause the Board to
unanimously recommend that the stockholders of the Company vote in favor of
each GGC Appointee for election to the Board. 
If, for any reason, a candidate designated as a GGC Appointee is
determined to be unqualified to serve on the Board because such appointment
would constitute a breach of the Board’s fiduciary duties or applicable law,
the Initial Warrant Holder shall have the right to designate an alternative GGC
Appointee to be so appointed and the provisions of this Section 9.04(b) shall
apply, mutatis mutandis, to such alternative
GGC Appointee.

 

(c)  Each appointed or elected GGC
Appointee will hold his or her office as a director of the Company for such
term as is provided in the Company’s constituent documents or until his or her
death, resignation or removal from the Board or until his or her successor has
been duly elected and qualified in accordance with the provisions of this
Agreement, the Company’s constituent documents and applicable law.  If any GGC Appointee ceases to serve as a
director of the Company for any reason during his or her term, the Company will
use its reasonable best efforts to cause the Board to fill the vacancy created
thereby with a replacement designated by the Initial Warrant Holder.

 

33

 

(d)  The Initial Warrant Holder shall
have the right to designate two GGC Appointees (or three GGC Appointees if
applicable as a result of an increase in the size of the Board pursuant to Section 9.04(a))
pursuant to Sections 9.04(a), 9.04(b) and 9.04(c) until such
time as the Initial Warrant Holder has sold 33 1/3% of the Underlying
Stock issuable in respect of the Warrants on the Issuance Date (or Warrants
exercisable for such percentage of Underlying Stock), to any Person or Persons
other than Affiliates of the Initial Warrant Holder.  Thereafter, the Initial Warrant Holder shall
have the right to designate one GGC Appointee (or two GGC Appointees if
applicable as a result of an increase in the size of the Board pursuant to Section 9.04(a))
pursuant to Sections 9.04(a), 9.04(b) and 9.04(c) until such
time as the Initial Warrant Holder has sold 66 2/3% of the Underlying
Stock issuable in respect of the Warrants on the Issuance Date (or Warrants
exercisable for such percentage of Underlying Stock), to any Person or Persons
other than Affiliates of the Initial Warrant Holder.  Thereafter, the right of the Initial Warrant
Holder to designate a GGC Appointee hereunder shall terminate.

 

(e)  The Company shall provide the same
reimbursement of expenses incurred by each GGC Appointee, and the same rights
and benefits of indemnity to each GGC Appointee, as are provided to other
non-employee directors on the Board; provided that the GGC Appointees
shall not be provided any retainers, including meeting fees, or other cash
compensation or equity compensation for their service on the Board or any
committee thereof. The Company acknowledges that certain directors (including
the GGC Appointees) may have certain rights to indemnification, advancement of
expenses and/or insurance provided by other sources with respect to such
directors’ association with the Company and its subsidiaries (“Other Indemnitors”).  Notwithstanding the existence of any Other
Indemnitor with respect to any director, the Company shall be the indemnitor of
first resort (i.e., the Company’s obligations for indemnification and
expense advancement to a director are primary and any obligations of any Other
Indemnitor to advance expenses or to provide indemnification for the same
expenses or liabilities incurred by a director are secondary), with respect to
any such directors’ association with the Company and its subsidiaries. The Other
Indemnitors shall be third party beneficiaries of the terms of this Section 9.04(e).

 

(f)  Nothing in this Section 9.04
shall prevent the Board from acting in accordance with its fiduciary duties or
applicable law or from acting in good faith in accordance with its constituent
documents, while giving due consideration to the intent of this Agreement.  The Board shall have no obligation to appoint
or nominate any GGC Appointee upon written notice that such appointment or
nomination would violate applicable law or result in a breach by the Board of
its fiduciary duties to its stockholders; provided, however,
that the foregoing shall not affect the right of the Initial Warrant
Holder to designate an alternate GGC Appointee.

 

SECTION 9.05.  Stockholder Approval.  The Company shall call a special meeting of
its stockholders as promptly as reasonably practicable following the Issuance
Date (but in any event not later than the first annual meeting of the Company’s
stockholders to be held after the Issuance Date) in order to obtain the
Required Stockholder Approval.  The Board
shall unanimously recommend to the Company’s stockholders that such
stockholders approve the issuance of shares of Common Stock 

 

34

 

upon exercise of the B-Warrants (and, in the case of the A-Warrants,
the issuance of any Excess Shares upon exercise of the A-Warrants) as set forth
herein.  In connection with such meeting,
the Company shall promptly prepare (and the Agent and the Initial Warrant
Holder will reasonably cooperate with the Company to prepare, including by
furnishing the Company with all reasonably necessary information) and file with
the SEC a preliminary proxy statement, shall use its reasonable best efforts to
solicit proxies for such stockholder approval and shall use its reasonable best
efforts to respond to any comments of the SEC or its staff and to cause a
definitive proxy statement related to such stockholders’ meeting to be mailed
to the Company’s stockholders. The Company shall notify the Agent promptly of
the receipt of any comments from the SEC or its staff and of any request by the
SEC or its staff for amendments or supplements to such proxy statement or for
additional information and will supply the Agent with copies of all
correspondence between the Company or any of its representatives, on the one
hand, and the SEC or its staff, on the other hand, with respect to such proxy
statement.  In all circumstances, the
Company shall provide the Agent with an opportunity to review, and provide
reasonable comments to the Company with respect to, any preliminary proxy
statement prepared pursuant to this Section 9.05 and all supplements and
amendments thereto prior to filing of the same with the SEC.  If at any time prior to such stockholders’
meeting there shall occur any event that is required to be set forth in an
amendment or supplement to the proxy statement, the Company shall as promptly
as reasonably practicable prepare and mail to its stockholders such an
amendment or supplement.  Each of the
Agent and the Company agrees to promptly correct any information provided by it
or on its behalf for use in the proxy statement if and to the extent that such
information shall have become false or misleading in any material respect, and the
Company shall as promptly as reasonably practicable prepare and mail to its
stockholders an amendment or supplement to correct such information to the
extent required by applicable law.  In
the event that the Required Stockholder Approval is not obtained at such
special meeting, the Company shall include a proposal to approve (and the Board
will unanimously recommend approval of) such issuance and, if any Warrants
shall have been exercised for Series A Preferred Stock, to approve the
conversion of the Series A Preferred Stock into Common Stock, at a meeting
of its stockholders no less than once per each annual period until such
approval is obtained (but the Company shall not be required to do so more than
three times).  At each such meeting at
which the Required Stockholder Approval is sought, each of the Company and the
Agent and the Initial Warrant Holder (to the extent the Agent or the Initial
Warrant Holder or any of their Affiliates then hold shares of Common Stock)
shall use reasonable best efforts to obtain such Required Stockholder Approval,
and the Agent and the Initial Warrant Holder shall (to the extent permitted by
the rules of the New York Stock Exchange) vote or cause to be voted any
Common Stock they or their Affiliates then hold in favor of such approval and,
if requested by the Company, shall deliver proxies in respect of such Common
Stock to an agent designated by the Company for such purpose.  The Company shall also call a special meeting
of stockholders as promptly as reasonably practicable in the event that (i) the
Company does not have a sufficient number of authorized shares of Common Stock
to issue Common Stock upon exercise of all unexercised Warrants and to effect
the conversion of any issued Series A Preferred Stock into Common Stock,
in which case stockholder approval to amend the Certificate of Incorporation to
increase the number of authorized shares of 

 

35

 

Common Stock shall be sought, or (ii) any or all of the Warrants
are exercised for Series A Preferred Stock, in which case stockholder
approval for conversion of the Series A Preferred Stock into Common Stock
shall be sought, in each case in accordance with the voting requirements set
forth in the Company’s by-laws. In the event of a special meeting called
pursuant to clause (i) or (ii) in the immediately preceding sentence,
the Company shall use its commercially reasonable efforts to obtain such
stockholder approval and the Holders shall (to the extent permitted by the rules of
the New York Stock Exchange) vote any Common Stock they then hold in favor of
such approval.

 

SECTION 9.06.  Certain Other Events.  If any event occurs as to which the
provisions of Article V are not strictly applicable or, if strictly
applicable, would not fairly protect the rights of the Warrant Holders in
accordance with the essential intent and principles of such provisions, then
the Board shall make such adjustments in the application of such provisions, in
accordance with such essential intent and principles, as shall be reasonably
necessary, in the good faith judgment of the disinterested members of the
Board, to protect such purchase rights as aforesaid.

 

SECTION 9.07.  Transfers.  Subject to compliance with applicable Federal
or state securities laws, Common Stock and Series A Preferred Stock
issuable upon exercise of the Warrants shall be freely transferable; provided,
however, that Holders shall not transfer, individually or acting in
concert with other Holders, Common Stock representing (or Series A
Preferred Stock convertible into Common Stock representing, or any combination
thereof representing) 15% or more of the then-outstanding number of shares of
Common Stock to any one “person” or “group” (as such terms are used in Sections
13(d) and 14(d) of the Exchange Act) without the prior written
approval of the Board.  This Section 9.07
shall not apply to transfers of Common Stock and Series A Preferred Stock
made pursuant to a bona fide underwritten public offering or open-market
transactions.

 

ARTICLE X

 

Miscellaneous

 

SECTION 10.01.  Tax Matters.  (a)  The Company shall pay all transfer,
stamp and other similar taxes that may be imposed in respect of the issuance or
delivery of the Warrants or in respect of the issuance or delivery by the
Company of any securities upon exercise of the Warrants with respect
thereto.  The Company shall not pay any
tax or other charge imposed in connection with any transfer involved in the
issue of any certificate for shares of Common Stock or Series A Preferred
Stock or payment of cash to any Person other than the Holder of a Warrant
Certificate surrendered upon the exercise or purchase of a Warrant, and the
Holder shall be responsible for any such tax or other charge.

 

(b)  The Company’s  best estimate of the amount to be allocated
to the A-Warrants and the B-Warrants issued pursuant to this Agreement, based
on a preliminary valuation of such Warrants by American Appraisal, is
approximately 9.1 % and 6.7 %, respectively, of the stated principal amount of
the senior secured term loan facility 

 

36

 

agreement dated May 10, 2010, among the Company, as borrower, the
lenders party thereto and Z Investment Holdings, LLC, as administrative agent
(such term loan facility, the “Loan”). The final amount to be allocated
to the A-Warrants and the B-Warrants, respectively, issued pursuant to this
Agreement shall be equal to the final valuation of such Warrants by American
Appraisal; provided, however, that at least 10 days prior to such
valuation becoming final, the Company shall provide the Initial Warrant Holder
with a reasonable opportunity to review and comment on such valuation. Promptly
upon receipt by the Company of the final valuation of the Warrants by such
appraiser, but in no event later than 45 Business Days from the date of this
Agreement, the Company shall deliver to the Initial Warrant Holder notice of
the amount to be allocated to each tranche of Warrants (the “Allocation”),
which Allocation shall be binding on the Company and the Initial Warrant
Holder.  The Company and the Initial
Warrant Holder agree not to take any position for U.S. Federal income tax
purposes with regard to the value of the Warrants that is inconsistent with the
Allocation.  The agreements contained in this
Section 10.01(b) shall remain in full force and effect
notwithstanding (i) any termination of this Agreement or any underwriting
or agency agreement, (ii) the receipt by the Initial Warrant Holder of
such Warrants or (iii) the sale or successive resales of the Registered
Securities.

 

SECTION 10.02.  Surrender of Certificates.  Any Warrant Certificate surrendered for
exercise or purchase shall be promptly canceled by the Company and shall not be
reissued by the Company.  The Company
shall destroy such canceled Warrant Certificates.

 

SECTION 10.03.  Mutilated, Destroyed, Lost and Stolen
Warrant Certificates.  (a)  If (i) any
mutilated Warrant Certificate is surrendered to the Company or (ii) the
Company receives evidence to its satisfaction of the destruction, loss or theft
of any Warrant Certificate, and there is delivered to the Company such
appropriate affidavit of loss, applicable processing fee and a corporate bond
of indemnity as may be reasonably required by the Company to save it harmless,
then, in the absence of notice to the Company that such Warrant Certificate has
been acquired by a bona fide purchaser, the Company shall execute and deliver,
in exchange for any such mutilated Warrant Certificate or in lieu of any such
destroyed, lost or stolen Warrant Certificate, a new Warrant Certificate of
like tenor and for a like aggregate number of Warrants.

 

(b)  Upon the issuance of any new
Warrant Certificate under this Section 10.03, the Company shall pay any
taxes or other governmental charges that may be imposed in relation thereto and
other expenses in connection therewith.

 

(c)  Every new Warrant Certificate
executed and delivered pursuant to this Section 10.03 in lieu of any
destroyed, lost or stolen Warrant Certificate shall constitute an original contractual
obligation of the Company, whether or not the destroyed, lost or stolen Warrant
Certificate shall be at any time enforceable by anyone, and shall be entitled
to the benefits of this Agreement equally and proportionately with any and all
other Warrant Certificates duly executed and delivered hereunder.

 

37

 

(d)  The provisions of this Section 10.03
are exclusive and shall preclude (to the extent lawful) all other rights or
remedies with respect to the replacement of mutilated, destroyed, lost or
stolen Warrant Certificates.

 

SECTION 10.04.  Removal of Legends.  In the event (a) the shares of
Underlying Stock are registered under the Securities Act or (b) the
Company is presented with an opinion of counsel reasonably satisfactory to the
Company that transfers of shares of Underlying Stock do not require
registration under the Securities Act, the Company shall direct its transfer
agent, and the transfer agent shall, upon surrender by a Holder of its certificates
evidencing such shares of Underlying Stock to the transfer agent, exchange such
certificates for certificates without the legends referred to in Section 3.06(e).

 

SECTION 10.05. 
Notices.  Any notice,
demand or delivery to the Company or the Agent authorized by this Agreement
shall be sufficiently given or made when mailed if sent by first-class mail,
postage prepaid, addressed to the Company or the Agent, as applicable, as
follows:

 

If to the Company:

 

Zale Corporation

901 W. Walnut Hill Lane

Irving, TX 75038

Fax:  972-580-5547

Attention:  General Counsel

 

With a copy to:

 

Cravath, Swaine & Moore LLP

825 Eighth Avenue

New York, NY 10019

Fax:  212-474-3700

Attention:  Eric L. Schiele

 

If to the Agent:

 

Z Investment Holdings, LLC

c/o Golden Gate Private Equity, Inc.

One Embarcadero Center, 39th Floor

San Francisco, CA 94111

Attention:  Stefan Kaluzny

Fax:  415-983-2701

 

38

 

With a copy to:

 

Kirkland & Ellis LLP

300 North LaSalle

Chicago, IL  60654

Fax:  312-862-2200

Attention:  Gary M. Holihan P.C.

 

or such other address as shall have been
furnished to the party giving or making such notice, demand or delivery.

 

Any notice required to be given by the
Company to the Holders pursuant to this Agreement shall be made by mailing by
registered mail, return receipt requested, to the Holders at their respective
addresses shown on the register of the Company. 
Any notice that is mailed in the manner herein provided shall be conclusively
presumed to have been duly given when mailed, whether or not the Holder
receives the notice.

 

SECTION 10.06.  Applicable Law.  This Agreement and each Warrant issued
hereunder and all rights arising hereunder shall be governed by the internal
laws of the State of New York.

 

SECTION 10.07.  Persons Benefiting.  This Agreement shall be binding upon and
inure to the benefit of the Company and the Agent, and their successors,
assigns, beneficiaries, executors and administrators, and the Holders from time
to time of the Warrants.  Except as
otherwise expressly provided herein, nothing in this Agreement is intended or
shall be construed to confer upon any Person, other than the Company, the Agent
and the Holders, any right, remedy or claim under or by reason of this
Agreement or any part hereof.

 

SECTION 10.08.  Counterparts.  This Agreement may be executed in any number
of counterparts, including by means of facsimile and/or electronic mail
transmission, each of which shall be deemed an original, but all of which
together constitute one and the same instrument.

 

SECTION 10.09.  Amendments.  Neither this Agreement nor any provisions
hereof shall be waived, modified, changed, discharged or terminated other than
in a writing signed by each of the Company and the Agent.  For the avoidance of doubt, with the written
consent of the Agent, the Company may from time to time (i) supplement or
amend this Agreement to cure any ambiguity, to correct or supplement any
provision contained herein which may be defective or inconsistent with any
other provisions herein, or to make any other provisions with regard to matters
or questions arising hereunder and (ii) modify the Agreement for the
purpose of adding any provisions to or changing in any manner or eliminating
any of the provisions of this Agreement or modifying in any manner the rights
of the Holders hereunder.

 

39

 

SECTION 10.10.  Headings.  The descriptive headings of the several
Articles and Sections of this Agreement are inserted for convenience and shall
not control or affect the meaning or construction of any of the provisions
hereof.

 

SECTION 10.11.  Entire Agreement.  This Agreement constitutes the entire
agreement between the parties hereto with respect to the subject matter hereof,
and supersedes all prior agreements and understandings, both written and oral,
between the parties with respect to the subject matter hereof.  In the event of any conflict, discrepancy or
ambiguity between the terms and conditions contained in this Agreement and any
schedules or attachments hereto, the terms and conditions contained in this
Agreement shall take precedence.

 

SECTION 10.12.  Limitation of Liability.  No party to this Agreement shall be liable to
any other party for any consequential, indirect, incidental or special damages
under any provision of this Agreement or for any consequential, indirect,
punitive, incidental or special damages arising out of any act or failure to
act hereunder even if that party has been advised of or has foreseen the
possibility of such damages.

 

40

 

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

 

	
   

  	
  ZALE
  CORPORATION,

  
	
   

  	
   

  
	
   

  	
   

  	
  by

  	
   

  
	
   

  	
   

  	
  /s/
  Matthew W. Appel

  
	
   

  	
   

  	
  Name:
  Matthew W. Appel

  
	
   

  	
   

  	
  Title:
  Executive Vice President and Chief Financial Officer

  

 

41

 

	
   

  	
  Z INVESTMENT HOLDINGS, LLC,

  in its capacities as Agent and Initial

  Warrant Holder hereunder

  
	
   

  	
   

  
	
   

  	
  by

  	
   

  
	
   

  	
   

  	
  /s/
  Peter Morrow

  
	
   

  	
   

  	
  Name:
  Peter Morrow

  
	
   

  	
   

  	
  Title:
  Authorized Person

  

 

42

 

EXHIBIT A

 

FORM OF FACE OF A-WARRANT
CERTIFICATE

 

THESE WARRANTS MAY ONLY
BE TRANSFERRED IN ACCORDANCE WITH THE TERMS OF THE WARRANT AND REGISTRATION
RIGHTS AGREEMENT REFERRED TO BELOW. THE SECURITIES ISSUABLE UPON THE EXERCISE
HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR QUALIFIED UNDER APPLICABLE STATE SECURITIES LAWS.  SUCH SECURITIES MAY BE OFFERED, SOLD OR
TRANSFERRED ONLY IN COMPLIANCE WITH THE REQUIREMENTS OF SUCH ACT AND OF ANY
APPLICABLE STATE SECURITIES LAWS AND SUBJECT TO THE PROVISIONS OF THE WARRANT
AND REGISTRATION RIGHTS AGREEMENT DATED AS OF MAY 10, 2010, BY AND AMONG
ZALE CORPORATION (THE “COMPANY”), THE INITIAL WARRANT HOLDER AND Z INVESTMENT
HOLDINGS, LLC, AS AGENT.  A COPY OF SUCH
WARRANT AND REGISTRATION RIGHTS AGREEMENT IS AVAILABLE AT THE OFFICES OF THE
COMPANY.

 

WARRANTS TO PURCHASE COMMON STOCK OF ZALE
CORPORATION

 

	
  No.

  	
   

  	
  Certificate
  for
                      
  Warrants

  

 

This certifies that [INSERT NAME OF HOLDER],
or registered assigns, is the registered holder of the number of Warrants set
forth above.  Each Warrant entitles the
holder thereof (a “Holder”), subject to the provisions contained herein
and in the Warrant Agreement (as defined below), to purchase from Zale
Corporation, a Delaware corporation (the “Company”), one share of the
Company’s common stock, par value $0.0l per share (“Common Stock”),
subject to adjustment upon the occurrence of certain events specified herein
and in the Warrant Agreement, at the exercise price of $2.00 per share (the “Exercise
Price”), subject to adjustment upon the occurrence of certain events
specified herein and in the Warrant Agreement.

 

This Warrant Certificate is issued under and
in accordance with the Warrant and Registration Rights Agreement, dated as of May 10,
2010 (the “Warrant Agreement”), by and among the Company, the Initial
Warrant Holder and the Agent, and is subject to the terms and provisions
contained in the Warrant Agreement, to all of which terms and provisions the
Holder of this Warrant Certificate consents by acceptance hereof.  The Warrant Agreement is hereby incorporated
herein by reference and made a part hereof, including the representations and
warranties of the Holder pursuant to Section 8.02 of the Warrant
Agreement.  Reference is hereby made to
the Warrant Agreement for a full statement of the respective rights,
limitations of rights, duties, obligations and immunities thereunder of the
Company, the Holders of the Warrants and the Agent.  Capitalized 

 

A-1

 

terms used but not otherwise
defined herein shall have the meaning ascribed to such terms in the Warrant
Agreement.

 

This Warrant Certificate shall terminate and
be void as of the close of business on May 10, 2017 (the “Expiration
Date”).

 

As provided in the Warrant Agreement and
subject to the terms and conditions therein set forth, the Warrants shall be
exercisable in whole or in part from time to time on any Business Day through
and including the Expiration Date.

 

The Exercise Price and the number of shares
of Common Stock issuable upon the exercise of each Warrant are subject to
adjustment as provided in the Warrant Agreement.

 

All shares of Common Stock issuable by the
Company upon the exercise of the Warrants shall, upon such issue, be duly and
validly issued and fully paid and non-assessable.

 

Under certain circumstances, as set forth in
the Warrant Agreement, the Warrants are exercisable for Series A Preferred
Stock of the Company.

 

In order to exercise a Warrant, the
registered holder hereof must surrender this Warrant Certificate at the
principal place of business of the Company, with the Exercise Subscription Form on
the reverse hereof duly executed by the Holder hereof, with signature
guaranteed as therein specified, together with any required payment in full of
the Exercise Price then in effect for the share(s) of Underlying Stock as
to which the Warrant(s) represented by this Warrant Certificate is (are)
submitted for exercise, all subject to the terms and conditions hereof and of
the Warrant Agreement.  Any such payment
of the Exercise Price shall be by bank wire transfer in immediately available
funds or on a cashless basis as described in Section 3.04(b) of the
Warrant Agreement.

 

The Company shall pay all transfer, stamp and
other similar taxes that may be imposed in respect of the issuance or delivery
of the Warrants or in respect of the issuance or delivery by the Company of any
securities upon exercise of the Warrants. 
The Company may require payment of a sum sufficient to pay certain
taxes, assessments or other charges for which the Holder is responsible
pursuant to the Warrant Agreement.

 

No service charge shall be made to a Holder
for any registration or exchange of the Warrant Certificates, and the Company
shall pay any taxes or other governmental charges payable in connection
therewith.

 

Each taker and holder of this Warrant
Certificate by taking or holding the same, consents and agrees that this
Warrant Certificate when duly endorsed in blank shall be deemed negotiable and
that when this Warrant Certificate shall have been so endorsed, the holder
hereof may be treated by the Company and all other Persons dealing with this
Warrant Certificate as the absolute owner hereof for any purpose and as the
Person entitled to exercise the rights represented hereby.

 

A-2

 

This Warrant Certificate and all rights
arising hereunder shall be governed by the internal laws of the State of New York.

 

This Warrant Certificate and the Warrant
Agreement are subject to amendment as provided in the Warrant Agreement.

 

Copies of the Warrant Agreement are on file at the
principal place of business of the Company and may be obtained by writing to
the Company at the following address:

 

Zale Corporation

901 W. Walnut Hill Lane

Irving, TX 75038

Fax:  972-580-5547

Attention:  General Counsel

Dated:

 

 

	
   

  	
  ZALE
  CORPORATION,

  
	
   

  	
   

  
	
   

  	
   

  	
  by

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  

 

A-3

 

FORM OF REVERSE OF A-WARRANT CERTIFICATE

EXERCISE SUBSCRIPTION FORM

 

(To be executed only upon exercise of Warrant)

 

To:                              Zale
Corporation (the “Company”)

 

The undersigned irrevocably exercises
                    
of the Warrants for the purchase of one share (subject to adjustment in
accordance with the Warrant Agreement) of Common Stock, par value $0.01 per
share, of the Company, for each Warrant represented by the Warrant Certificate
and herewith makes payment of $                    
(such payment being by bank wire transfer in immediately available funds or on
a cashless basis as described in Section 3.04(b) of the Warrant
Agreement), all at the Exercise Price and on the terms and conditions specified
in the Warrant Certificate and the Warrant Agreement therein referred to,
surrenders this Warrant Certificate and all right, title and interest therein
to the Company and directs that the shares of Common Stock deliverable upon the
exercise of such Warrants be registered in the name and delivered at the address
specified below.

 

Date:

 

	
   

  	
   

  	
   

  
	
   

  	
  (Signature
  of Owner)(1)

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  (Street
  Address)

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  (City)

  	
  (State)

  	
  (Zip
  Code)

  
	
   

  	
   

  	
   

  
	
   

  	
  Signature
  Guaranteed by:

  	
   

  
				

 

Securities to be issued to:

 

Please insert social
security or identifying number:

 

Name:

 

Street Address:

 

City, State and Zip Code:

 

(1) The
signature must correspond with the name as written upon the face of the within
Warrant Certificate in every particular, without alteration or any change
whatsoever, and must be guaranteed by a financial institution.

 

A-4

 

FORM OF REVERSE OF A-WARRANT CERTIFICATE

EXERCISE SUBSCRIPTION FORM

 

(To be executed only upon exercise of Warrant
for Series A Preferred Stock in the event the Warrant is then exercisable
for Series A Preferred Stock in order to comply with Section 312.03
of the New York Stock Exchange Listed Company Manual)

 

To:                              Zale
Corporation (the “Company”)

 

The undersigned irrevocably exercises
                    
of the Warrants for the purchase of
             
shares of Series A Preferred Stock, par value $0.01 per share, of the
Company, for each Warrant represented by the Warrant Certificate and herewith
makes payment of
$                    
(such payment being by bank wire transfer in immediately available funds or on
a cashless basis as described in Section 3.04(b) of the Warrant
Agreement), all at the Exercise Price and on the terms and conditions specified
in the Warrant Certificate and the Warrant Agreement therein referred to,
surrenders this Warrant Certificate and all right, title and interest therein
to the Company and directs that the shares of Series A Preferred Stock
deliverable upon the exercise of such Warrants be registered in the name and
delivered at the address specified below. 
Because the Warrant is exercisable for Series A Preferred Stock in
order to comply with Section 312.03 of the New York Stock Exchange Listed
Company Manual, the undersigned hereby irrevocably elects to receive the Series A
Preferred Stock in lieu of Common Stock.

 

Date:

 

	
   

  	
   

  	
   

  
	
   

  	
  (Signature
  of Owner)(2)

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  (Street
  Address)

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  (City)

  	
  (State)

  	
  (Zip
  Code)

  
	
   

  	
   

  	
   

  
	
   

  	
  Signature
  Guaranteed by:

  	
   

  
				

 

(2) The signature must
correspond with the name as written upon the face of the within Warrant
Certificate in every particular, without alteration or any change whatsoever,
and must be guaranteed by a financial institution.

 

A-5

 

Securities to be issued to:

 

Please insert social
security or identifying number:

 

Name:

 

Street Address:

 

City, State and Zip Code:

 

A-6

 

EXHIBIT B

 

FORM OF FACE OF B-WARRANT
CERTIFICATE

 

THESE WARRANTS MAY ONLY
BE TRANSFERRED IN ACCORDANCE WITH THE TERMS OF THE WARRANT AND REGISTRATION
RIGHTS AGREEMENT REFERRED TO BELOW. THE SECURITIES ISSUABLE UPON THE EXERCISE
HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR QUALIFIED UNDER APPLICABLE STATE SECURITIES LAWS.  SUCH SECURITIES MAY BE OFFERED, SOLD OR
TRANSFERRED ONLY IN COMPLIANCE WITH THE REQUIREMENTS OF SUCH ACT AND OF ANY
APPLICABLE STATE SECURITIES LAWS AND SUBJECT TO THE PROVISIONS OF THE WARRANT
AND REGISTRATION RIGHTS AGREEMENT DATED AS OF MAY 10, 2010, BY AND AMONG
ZALE CORPORATION (THE “COMPANY”), THE INITIAL WARRANT HOLDER AND Z INVESTMENT
HOLDINGS, LLC, AS AGENT.  A COPY OF SUCH
WARRANT AND REGISTRATION RIGHTS AGREEMENT IS AVAILABLE AT THE OFFICES OF THE
COMPANY.

 

WARRANTS TO PURCHASE COMMON STOCK OF ZALE
CORPORATION

 

	
  No.

  	
   

  	
  Certificate
  for
                      
  Warrants

  

 

This certifies that [INSERT NAME OF HOLDER],
or registered assigns, is the registered holder of the number of Warrants set
forth above.  Each Warrant entitles the
holder thereof (a “Holder”), subject to the provisions contained herein
and in the Warrant Agreement (as defined below), to purchase from Zale
Corporation, a Delaware corporation (the “Company”), one share of the
Company’s common stock, par value $0.0l per share (“Common Stock”),
subject to adjustment upon the occurrence of certain events specified herein
and in the Warrant Agreement, at the exercise price of $2.00 per share (the “Exercise
Price”), subject to adjustment upon the occurrence of certain events
specified herein and in the Warrant Agreement.

 

This Warrant Certificate is issued under and
in accordance with the Warrant and Registration Rights Agreement, dated as of May 10,
2010 (the “Warrant Agreement”), by and among the Company, the Initial
Warrant Holder and the Agent, and is subject to the terms and provisions
contained in the Warrant Agreement, to all of which terms and provisions the
Holder of this Warrant Certificate consents by acceptance hereof.  The Warrant Agreement is hereby incorporated
herein by reference and made a part hereof, including the representations and
warranties of the Holder pursuant to Section 8.02 of the Warrant
Agreement.  Reference is hereby made to
the Warrant Agreement for a full statement of the respective rights,
limitations of rights, duties, obligations and immunities thereunder of the
Company, the Holders of the Warrants and the Agent.  Capitalized terms used but not otherwise
defined herein shall have the meaning ascribed to such terms in the Warrant
Agreement.

 

B-1

 

This Warrant Certificate shall terminate and
be void as of the close of business on May 10, 2017 (the “Expiration
Date”).

 

As provided in the Warrant Agreement and
subject to the terms and conditions therein set forth, the Warrants shall be
exercisable in whole or in part from time to time on any Business Day beginning
on the day immediately following the earlier to occur of (i) the Vote Date
and (ii) the date of the first annual meeting of the Company’s
stockholders to be held after the Issuance Date, and ending on the Expiration
Date.

 

The Exercise Price and the number of shares
of Common Stock issuable upon the exercise of each Warrant are subject to
adjustment as provided in the Warrant Agreement.

 

All shares of Common Stock issuable by the
Company upon the exercise of the Warrants shall, upon such issue, be duly and
validly issued and fully paid and non-assessable.

 

Unless and until the Required Stockholder
Approval has been obtained, the Warrants are exercisable only into shares of Series A
Preferred Stock on the terms set forth in the Warrant Agreement.

 

In order to exercise a Warrant, the
registered holder hereof must surrender this Warrant Certificate at the
principal place of business of the Company, with the Exercise Subscription Form on
the reverse hereof duly executed by the Holder hereof, with signature
guaranteed as therein specified, together with any required payment in full of
the Exercise Price then in effect for the share(s) of Underlying Stock as
to which the Warrant(s) represented by this Warrant Certificate is (are)
submitted for exercise, all subject to the terms and conditions hereof and of
the Warrant Agreement.  Any such payment
of the Exercise Price shall be by bank wire transfer in immediately available
funds or on a cashless basis as described in Section 3.04(b) of the
Warrant Agreement.

 

The Company shall pay all transfer, stamp and
other similar taxes that may be imposed in respect of the issuance or delivery
of the Warrants or in respect of the issuance or delivery by the Company of any
securities upon exercise of the Warrants. 
The Company may require payment of a sum sufficient to pay certain taxes,
assessments or other charges for which the Holder is responsible pursuant to
the Warrant Agreement.

 

No service charge shall be made to a Holder
for any registration or exchange of the Warrant Certificates, and the Company
shall pay any taxes or other governmental charges payable in connection
therewith.

 

Each taker and holder of this Warrant
Certificate by taking or holding the same, consents and agrees that this
Warrant Certificate when duly endorsed in blank shall be deemed negotiable and
that when this Warrant Certificate shall have been so endorsed, the holder
hereof may be treated by the Company and all other Persons dealing with this
Warrant Certificate as the absolute owner hereof for any purpose and as the
Person entitled to exercise the rights represented hereby.

 

B-2

 

This Warrant Certificate and all rights
arising hereunder shall be governed by the internal laws of the State of New
York.

 

This Warrant Certificate and the Warrant
Agreement are subject to amendment as provided in the Warrant Agreement.

 

Copies of the Warrant Agreement are on file at the
principal place of business of the Company and may be obtained by writing to
the Company at the following address:

 

Zale Corporation

901 W. Walnut Hill Lane

Irving, TX 75038

Fax:  972-580-5547

Attention:  General Counsel

Dated:

 

 

	
   

  	
  ZALE CORPORATION,

  
	
   

  	
   

  
	
   

  	
   

  	
  by

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  

 

B-3

 

FORM OF REVERSE OF B-WARRANT CERTIFICATE

 

EXERCISE SUBSCRIPTION FORM

 

(To be executed only upon
exercise of Warrant for shares of Common Stock after the Required Stockholder
Approval has been obtained)

 

To:                              Zale
Corporation (the “Company”)

 

The undersigned irrevocably exercises
                    
of the Warrants for the purchase of one share (subject to adjustment in
accordance with the Warrant Agreement) of Common Stock, par value $0.01 per
share, of the Company, for each Warrant represented by the Warrant Certificate
and herewith makes payment of $                    
(such payment being by bank wire transfer in immediately available funds or on
a cashless basis as described in Section 3.04(b) of the Warrant
Agreement), all at the Exercise Price and on the terms and conditions specified
in the Warrant Certificate and the Warrant Agreement therein referred to,
surrenders this Warrant Certificate and all right, title and interest therein
to the Company and directs that the shares of Common Stock deliverable upon the
exercise of such Warrants be registered in the name and delivered at the
address specified below.

 

Date:

 

	
   

  	
   

  	
   

  
	
   

  	
  (Signature
  of Owner)(3)

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  (Street
  Address)

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  (City)

  	
  (State)

  	
  (Zip
  Code)

  
	
   

  	
   

  	
   

  
	
   

  	
  Signature
  Guaranteed by:

  	
   

  
				

 

Securities to be issued to:

 

Please insert social security or identifying
number:

 

Name:

 

Street Address:

 

City, State and Zip Code:

 

(3) The
signature must correspond with the name as written upon the face of the within
Warrant Certificate in every particular, without alteration or any change
whatsoever, and must be guaranteed by a financial institution.

 

B-4

 

FORM OF REVERSE OF B-WARRANT CERTIFICATE

 

EXERCISE SUBSCRIPTION FORM

 

(To be executed only upon exercise of Warrant
for shares of Series A Preferred Stock to the extent the Required Stockholder
Approval has not been obtained)

 

To:                              Zale
Corporation (the “Company”)

 

The undersigned irrevocably exercises
                    
of the Warrants for the purchase of
                    
shares of Series A Preferred Stock, par value $0.01 per share, of the
Company, for each Warrant represented by the Warrant Certificate and herewith
makes payment of
$                    
(such payment being by bank wire transfer in immediately available funds or on
a cashless basis as described in Section 3.04(b) of the Warrant
Agreement), all at the Exercise Price and on the terms and conditions specified
in the Warrant Certificate and the Warrant Agreement therein referred to,
surrenders this Warrant Certificate and all right, title and interest therein
to the Company and directs that the shares of Series A Preferred Stock
deliverable upon the exercise of such Warrants be registered in the name and
delivered at the address specified below. 
Because the Warrant is exercisable for Series A Preferred Stock in
order to comply with Section 312.03 of the New York Stock Exchange Listed
Company Manual, the undersigned hereby irrevocably elects to receive the Series A
Preferred Stock in lieu of Common Stock.

 

Date:

 

	
   

  	
   

  	
   

  
	
   

  	
  (Signature
  of Owner)(4)

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  (Street
  Address)

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  (City)

  	
  (State)

  	
  (Zip
  Code)

  
	
   

  	
   

  	
   

  
	
   

  	
  Signature
  Guaranteed by:

  	
   

  
				

 

Securities to be issued to:

 

Please insert social security or identifying
number:

 

Name:

 

Street Address:

 

City,
State and Zip Code:

 

(4) The signature must
correspond with the name as written upon the face of the within Warrant
Certificate in every particular, without alteration or any change whatsoever,
and must be guaranteed by a financial institution.

 

B-5

 

EXHIBIT C

 

CERTIFICATE OF DESIGNATION OF THE

SERIES A CONVERTIBLE PREFERRED STOCK

(Par Value $0.01 Per Share)

 

OF

 

ZALE CORPORATION

 

Pursuant to Section 151 of the

 General Corporation Law of the
State of Delaware

 

The
undersigned duly authorized officer of Zale Corporation, a corporation
organized and existing under the General Corporation Law of the State of
Delaware (the “Company”), in accordance with the provisions of Section 103
thereof, and pursuant to Section 151 thereof, DOES HEREBY CERTIFY:

 

That
the Restated Certificate of Incorporation of the Company, as amended (the “Certificate
of Incorporation”), provides that the Company is authorized to issue up to
5,000,000 shares of Preferred Stock, par value $0.01 per share, issuable in
series by the Board of Directors of the Company (the “Board”); and

 

That
pursuant to the authority conferred upon the Board by the Certificate of
Incorporation, the Board on [·] adopted the
following resolution creating a series of [·] shares of Preferred Stock designated as set forth
below;

 

RESOLVED,
that pursuant to the authority expressly granted to and vested in the Board by
provisions of the Certificate of Incorporation and the General Corporation Law
of the State of Delaware, the issuance of a series of Preferred Stock, which
shall consist of [·] shares of the
5,000,000 shares of Preferred Stock which the Company now has authority to
issue, be, and the same hereby is, authorized, and the Board hereby fixes the
powers, designations, preferences and relative, participating, optional or
other special rights, and the qualifications, limitations or restrictions
thereof, of the shares of such series (in addition to the powers, designations,
preferences and relative, participating, optional or other special rights, and
the qualifications, limitations or restrictions thereof, set forth in the
Certificate of Incorporation which may be applicable to the Preferred Stock)
authorized by this resolution as follows:

 

1.             Designation
and Rank.

 

(a)           The
designation of such series of Preferred Stock authorized by this resolution
shall be Series A Convertible Preferred Stock (the “Series A
Preferred Stock”).  The maximum
number of shares of Series A Preferred Stock shall be [·].  Shares of
the Series A Preferred Stock shall have a liquidation preference equal to
the sum of (i) $0.01 per share plus (ii) the Common Stock Equivalent
Liquidation Value, as defined in Section 1(b) below.  The Series A Preferred Stock shall rank
prior to the Company’s Common Stock and to all other classes and series of
equity securities of the

 

C-1

 

Company
now or hereafter authorized, issued or outstanding (the Common Stock and such
other classes and series of equity securities collectively referred to herein
as the “Junior Stock”) as to dividend rights and rights upon
liquidation, winding up or dissolution of the Company.  The Series A Preferred Stock shall be
junior to all outstanding debt of the Company. 
The Series A Preferred Stock shall be subject to the creation of
Junior Stock to the extent not expressly prohibited by the Company’s
Certificate of Incorporation.

 

(b)           For
purposes of this Certificate of Designation, “Common Stock Equivalent
Liquidation Value” means an amount equal to (i) the number of shares
of Common Stock into which each share of Series A Preferred Stock could
then be converted had the stockholders of the Company approved such conversion,  multiplied
by (ii) the amount that each share of Common Stock would receive in
a liquidation (assuming, for purposes of this calculation, that the Series A
Preferred Stock had been fully converted into shares of Common Stock
immediately prior to such liquidation).

 

2.             Cumulative
Dividends; Priority.

 

(a)           Payment
of Dividends.  From and after the date on
which a share of Series A Preferred Stock is first issued, the holders of
such stock shall be entitled to receive, when, as and if declared by the Board,
out of funds legally available therefor, cumulative cash dividends in the
amount determined as set forth in Section 2(b).  Each declared dividend shall be payable to
holders of record of Series A Preferred Stock as they appear on the stock
books of the Company at the close of business on such record dates, not more
than 60 calendar days preceding the payment dates therefor, as are determined
by the Board or a duly authorized committee thereof (each of such dates, a “Record
Date”).  Dividends shall be payable
quarterly in arrears on January 31, April 30, July 31 and October 31
of each year (each, a “Dividend Payment Date”) or, if any such day is
not a day other than a Saturday, Sunday or any other day on which banks in New
York City, New York are generally required or authorized by law to be closed (a
“Business Day”), the next Business Day. 
Dividends payable pursuant to this Section 2, if, when and as
declared by the Board, will be, on each outstanding share of Series A
Preferred Stock, payable at the Dividend Rate (as defined in Section 2(b))
in effect for such Dividend Period (as defined below).  Each period from and excluding a Dividend
Payment Date but including the following Dividend Payment Date is herein
referred to as a “Dividend Period”. 
Dividends pursuant to this Section 2(a) shall be paid in cash.

 

(b)           Dividend
Rate.  From the date of issuance of the
first share of Series A Preferred Stock that is issued (or from the end of
the prior Dividend Period) and until the occurrence of the Conversion Date (as
defined in Section 6(a)), dividends on all shares of Series A
Preferred Stock that are issued from time to time will be paid on each Dividend
Payment Date in a per share amount calculated as the applicable Dividend Rate
in effect with respect to such Dividend Period
multiplied by an
amount equal to the product of (i) the average of the daily
volume-weighted average prices per share of the Common Stock during each
trading day in such Dividend Period on the principal stock exchange on which
the Common Stock then trades and (ii) the number of shares of Common Stock
into which each share of Series A Preferred Stock could then be converted
had the stockholders of the Company approved such conversion.  The Dividend Rate shall be 10.0% for the
first four Dividend Periods following the date of issuance of the first share

 

C-2

 

of
Series A Preferred Stock that is issued and increase by 2.0% after each
two subsequent Dividend Periods, but shall not exceed a rate of 18.0%.

 

(c)           Special
Dividends.  In addition to dividends
payable pursuant to Section 2(a), each share of Series A Preferred
Stock shall be paid, as and when paid in respect of the Common Stock, dividends
and distributions paid in respect of the Common Stock. Each share of Series A
Preferred Stock shall be paid any dividend or distribution payable pursuant to
this Section 2(c) in an amount equal to (i) the amount of such
dividend or distribution payable in respect of one share of Common Stock multiplied by (ii) the number
of shares of Common Stock into which each share of Series A Preferred
Stock could then be converted had the stockholders of the Company approved such
conversion.

 

(d)           Priority
as to Dividends; No Repurchases.  No
dividends shall be declared or paid or set apart for payment on Preferred Stock
of any series ranking, as to dividends, on a parity with or junior to the Series A
Preferred Stock for any period unless full dividends for the immediately
preceding Dividend Period on the Series A Preferred Stock (including any
accumulation in respect of unpaid dividends from prior Dividend Periods) have
been or contemporaneously are declared and paid (or declared and a sum
sufficient for the payment thereof set apart for such payment).

 

Unless
full dividends on the Series A Preferred Stock have been declared and paid
or set apart for payment for the immediately preceding Dividend Period
(including any accumulation in respect of unpaid dividends for prior Dividend
Periods), (i) no cash dividend or other distribution shall be declared or
paid or set aside for payment on the Junior Stock other than a dividend or
distribution solely in shares of Junior Stock,
provided, however, that  such dividend or distribution is also being
paid in respect of the Series A Preferred Stock in accordance with Section 2(c),
and (ii) the Company may not, directly or indirectly, repurchase, redeem
or otherwise acquire any shares of any class or series of stock ranking on a
parity with the shares of the Series A Preferred Stock in rights and
preferences (or any moneys paid to or made available for a sinking fund for the
redemption of any shares of any such stock) otherwise than pursuant to a pro
rata offer to purchase or a concurrent redemption of all, or a pro rata
portion, of the outstanding shares of Series A Preferred Stock and shares
of any class or series of stock ranking on a parity with the shares of the Series A
Preferred Stock in rights and preferences (except by conversion into or
exchange for Junior Stock).

 

The Company shall not permit any subsidiary of the
Company to purchase or otherwise acquire for consideration any shares of stock
of the Company if, under the preceding paragraph, the Company would be
prohibited from purchasing or otherwise acquiring such shares at such time and
in such manner.

 

(e)           At
any time at which any shares of Series A Preferred Stock are outstanding,
the Company may not, directly or indirectly, repurchase, redeem or otherwise
acquire any shares of its Junior Stock (or cause any moneys to be paid to or
made available for a sinking fund for the redemption of any shares except by
conversion into or exchange for Junior Stock).

 

3.             Redemption
and Repurchase.  The shares of the Series A
Preferred Stock shall not be redeemable.

 

C-3

 

4.             Voting
and Consent Rights.

 

(a)           General
Voting Rights.  Except as from time to time
required by applicable law, the Series A Preferred Stock shall have no
voting rights.

 

(b)           Consent
Rights on Extraordinary Matters.  So long
as any shares of the Series A Preferred Stock shall be outstanding and
unless the consent or approval of a greater number of shares shall then be
required by law, without first obtaining the consent of the holders of at least
two-thirds of the number of shares of the Series A Preferred Stock at the
time outstanding, the Company shall not either directly or indirectly or
through merger or consolidation with any other company (i) authorize,
create or issue, or increase the authorized or issued amount, of any class or
series of stock ranking senior to or  pari passu with the shares of the Series A
Preferred Stock in rights and preferences or (ii) approve any amendment to
(or otherwise alter or repeal) its Certificate of Incorporation (or this
resolution) which would materially and adversely change the specific terms of
the Series A Preferred Stock.

 

An amendment which increases the number of
authorized shares of any class or series of Preferred Stock or authorizes the
creation or issuance of other classes or series of Preferred Stock, in each
case ranking junior to the Series A Preferred Stock with respect to the
payment of dividends and distribution of assets upon liquidation, dissolution
or winding up, or substitutes the surviving entity in a merger or
consolidation, reorganization or other business combination for the Company,
shall not be considered to be such an adverse change.

 

5.             Reorganization
Events

 

(a)           In
the event of: (i) any consolidation or merger of the Company with or into
another person, in each case pursuant to which the Common Stock will be
converted into cash, securities or other property of the Company or another
person, (ii) any sale, transfer, lease or conveyance to another person of
all or substantially all of the property and assets of the Company, in each
case pursuant to which the Common Stock will be converted into cash, securities
or other property of the Company or another person, (iii) any
reclassification of the Common Stock into securities including securities other
than the Common Stock or (iv) any statutory exchange of the outstanding
shares of Common Stock for securities of another person (other than in
connection with a merger or acquisition) (any such event specified in this Section 5(a),
a “Reorganization Event” ), each share of Series A Preferred Stock
outstanding immediately prior to such Reorganization Event shall remain
outstanding but shall become convertible into the kind of securities, cash and
other property receivable in such Reorganization Event by the holder (excluding
the counterparty to the Reorganization Event or an affiliate of such
counterparty) of that number of shares of Common Stock into which the share of Series A
Preferred Stock would then be convertible (such securities, cash and other
property, the “Exchange Property”).

 

(b)           In
the event that holders of the shares of Common Stock have the opportunity to
elect the form of consideration to be received in such transaction, the
consideration that the holders are entitled to receive shall be deemed to be
the types and amounts of consideration received by the majority of the holders
(excluding the

 

C-4

 

counterparty
to the Reorganization Event or an affiliate of such counterparty) of the shares
of Common Stock that affirmatively make an election.

 

(c)           The
Company (or any successor) shall, within 10 days of the occurrence of any Reorganization
Event, provide written notice to the holders of such occurrence of such event
and of the kind and amount of the cash, securities or other property that
constitutes the Exchange Property. Failure to deliver such notice shall not
affect the operation of this Section 5.

 

(d)           Notwithstanding
anything to the contrary in this Section 5 or otherwise in this
Certificate of Designation, the Company shall not enter into any agreement for
a transaction constituting a Fundamental Change (as defined herein) unless such
agreement entitles holders to receive, on an as-if converted basis, the
securities, cash and other property receivable in such transaction by a holder
of shares of Common Stock that was not the counterparty to such transaction or
an affiliate of such other party. “Fundamental Change” means the
occurrence, prior to the Conversion Date, of the consummation of any
consolidation or merger of the Company or similar transaction or any sale,
lease or other transfer in one transaction or a series of transactions of all
or substantially all of the consolidated assets of the Company to any person,
in each case pursuant to which the Common Stock will be converted into cash,
securities or other property, other than pursuant to a transaction in which the
persons that “beneficially owned” (as defined in Rule 13d-3 under the
Securities Exchange Act of 1934, as amended), directly or indirectly, voting
shares of the Company immediately prior to such transaction beneficially own,
directly or indirectly, voting shares representing a majority of the continuing
or surviving person immediately after the transaction.

 

6.             Conversion.

 

(a)           Mandatory
Conversion.  Effective as of the close of
business on the Conversion Date with respect to any share of Series A
Preferred Stock, such share of Series A Preferred Stock shall
automatically convert into one share of Common Stock (the “Conversion Amount”),
subject to adjustment from time to time as set forth in Section 6(c).  The “Conversion Date” means, with
respect to the shares of Series A Preferred Stock, the third Business Day
following the date on which the Company has received all stockholder approvals
necessary to approve the conversion of all of the outstanding Series A
Preferred Stock into Common Stock for purposes of Section 312.03 of the
New York Stock Exchange Listed Company Manual.

 

(b)           Conversion
Procedures.  Upon occurrence of the
Conversion Date, the Company shall provide notice of such conversion to all
holders of Series A Preferred Stock. 
In addition to any information required by applicable law or regulation,
such notice shall state, as appropriate: (i) the Conversion Date, (ii) the
number of shares of Common Stock to be issued upon conversion of each share of Series A
Preferred Stock held of record by each holder and (iii) the place or
places where certificates for shares of Series A Preferred Stock held of
record by each holder are to be surrendered for issuance of certificates
representing shares of Common Stock.  On
the Conversion Date, certificates representing shares of Common Stock shall be
issued and delivered to each holder or such holder’s designee upon presentation
and surrender of the certificate

 

C-5

 

evidencing
the Series A Preferred Stock to the Company.  The Company shall pay any and all transfer
and similar taxes in respect of such conversion by such holder.

 

(c)           Adjustments
Upon Certain Transactions.  If the
Company subdivides its outstanding Common Stock or combines its outstanding
Common Stock into a smaller number of shares, then the Conversion Amount shall
be adjusted as if such subdivision or combination applied to the shares
represented by the Conversion Amount.

 

7.             Liquidation
Rights; Priority.

 

(a)           In
the event of any liquidation, dissolution or winding up of the affairs of the
Company, whether voluntary or involuntary, after payment or provision for
payment of the debts and other liabilities of the Company, the holders shall be
entitled to receive, out of the assets of the Company, whether such assets are
capital or surplus and whether or not any dividends as such are declared, the
sum of (i) $0.01 per share, (ii) the Common Stock Equivalent
Liquidation Value as defined in Section 1(b) and (iii) an amount
equal to all accrued and unpaid dividends for prior Dividend Periods, and no
more, before any distribution shall be made to the holders of the Common Stock
or any other class of stock or series thereof ranking junior to the Series A
Preferred Stock with respect to the distribution of assets.  After payment of the full amount of the
liquidation preference, the holders shall not be entitled to any further
participation.

 

(b)           Neither
the merger nor consolidation of the Company into or with any other company, nor
the merger or consolidation of any other company into or with the Company, nor
a sale, transfer or lease of all or any part of the assets of the Company,
shall be deemed to be a liquidation, dissolution or winding up of the Company
within the meaning of this Section 7.

 

(c)           Written
notice of any voluntary or involuntary liquidation, dissolution or winding up
of the affairs of the Company, stating a payment date and the place where the
distributable amounts shall be payable, shall be given by mail, postage
prepaid, no less than 30 days prior to the payment date stated therein, to
the holders at their respective addresses as the same shall appear on the books
of the Company.

 

(d)           If
the amounts available for distribution with respect to the Series A
Preferred Stock and all other outstanding stock of the Company ranking on a
parity with the Series A Preferred Stock upon liquidation are not
sufficient to satisfy the full liquidation rights of all of the outstanding Series A
Preferred Stock and other outstanding stock of the Company ranking on a parity
therewith, then the holders of each series of such stock will share ratably in
any such distribution of assets in proportion to the full respective
preferential amount (which in the case of Preferred Stock may include
accumulated dividends) to which they are entitled.

 

C-6

 

IN WITNESS WHEREOF, Zale Corporation has caused this
Certificate to be signed by [·], this [·] day of [·], 2010.

 

 

	
   

  	
  ZALE CORPORATION,

  
	
   

  	
   

  
	
   

  	
   

  	
  by

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  

 

C-7Exhibit
10.8

 

 

INTERCREDITOR AGREEMENT

 

by and between

 

BANK OF AMERICA, N.A.,

 

as ABL Agent,

 

and

 

Z INVESTMENT HOLDINGS, LLC,

 

as Term Agent

 

 

Dated as of May 10, 2010

 

 

 

TABLE OF CONTENTS

 

	
   

  	
   

  	
  Page No.

  
	
   

  	
   

  	
   

  
	
  ARTICLE 1 DEFINITIONS

  	
  4

  
	
   

  	
   

  
	
  Section 1.1

  	
  UCC Definitions

  	
  4

  
	
  Section 1.2

  	
  Other Definitions

  	
  4

  
	
  Section 1.3

  	
  Rules of Construction

  	
  14

  
	
   

  	
   

  	
   

  
	
  ARTICLE 2 LIEN PRIORITY

  	
  15

  
	
   

  	
   

  	
   

  
	
  Section 2.1

  	
  Priority of Liens

  	
  15

  
	
  Section 2.2

  	
  Waiver of Right to Contest Liens

  	
  16

  
	
  Section 2.3

  	
  Remedies Standstill

  	
  17

  
	
  Section 2.4

  	
  Exercise of Rights

  	
  18

  
	
  Section 2.5

  	
  No New Liens

  	
  20

  
	
  Section 2.6

  	
  Waiver of Marshalling

  	
  20

  
	
   

  	
   

  	
   

  
	
  ARTICLE 3 ACTIONS OF
  THE PARTIES

  	
  21

  
	
   

  	
   

  	
   

  
	
  Section 3.1

  	
  Certain Actions Permitted

  	
  21

  
	
  Section 3.2

  	
  Agent for Perfection

  	
  21

  
	
  Section 3.3

  	
  Insurance

  	
  22

  
	
  Section 3.4

  	
  No Additional Rights For the Loan Parties Hereunder

  	
  22

  
	
  Section 3.5

  	
  Inspection and Access Rights

  	
  22

  
	
  Section 3.6

  	
  Tracing of and Priorities in Proceeds

  	
  24

  
	
  Section 3.7

  	
  Payments Over

  	
  25

  
	
   

  	
   

  	
   

  
	
  ARTICLE 4 APPLICATION
  OF PROCEEDS

  	
  25

  
	
   

  	
   

  	
   

  
	
  Section 4.1

  	
  Application of Proceeds

  	
  25

  
	
  Section 4.2

  	
  Specific Performance

  	
  27

  
	
   

  	
   

  	
   

  
	
  ARTICLE 5 INTERCREDITOR
  ACKNOWLEDGEMENTS AND WAIVERS

  	
  27

  
	
   

  	
   

  	
   

  
	
  Section 5.1

  	
  Notice of Acceptance and Other Waivers

  	
  27

  
	
  Section 5.2

  	
  Modifications to ABL Documents and Term Documents

  	
  29

  
	
  Section 5.3

  	
  Reinstatement and Continuation of Agreement

  	
  31

  
	
   

  	
   

  	
   

  
	
  ARTICLE 6 INSOLVENCY
  PROCEEDINGS

  	
  32

  
	
   

  	
   

  	
   

  
	
  Section 6.1

  	
  DIP Financing

  	
  32

  
	
  Section 6.2

  	
  Relief From Stay

  	
  33

  
	
  Section 6.3

  	
  No Contest; Adequate Protection

  	
  34

  
	
  Section 6.4

  	
  Asset Sales

  	
  35

  
	
  Section 6.5

  	
  Separate Grants of Security and Separate Classification

  	
  36

  
	
  Section 6.6

  	
  Enforceability

  	
  36

  
	
  Section 6.7

  	
  ABL Obligations Unconditional

  	
  36

  
	
  Section 6.8

  	
  Term Obligations Unconditional

  	
  37

  
	
   

  	
   

  	
   

  
	
  ARTICLE 7 PURCHASE
  OPTION

  	
  37

  
	
   

  	
   

  
	
  Section 7.1

  	
  Option to Purchase ABL Obligations

  	
  37

  

 

i

 

	
  ARTICLE 8 MISCELLANEOUS

  	
  39

  
	
   

  	
   

  
	
  Section 8.1

  	
  Rights of Subrogation

  	
  39

  
	
  Section 8.2

  	
  Further Assurances

  	
  39

  
	
  Section 8.3

  	
  Representations

  	
  39

  
	
  Section 8.4

  	
  Amendments

  	
  40

  
	
  Section 8.5

  	
  Addresses for Notices

  	
  40

  
	
  Section 8.6

  	
  No Waiver; Remedies

  	
  41

  
	
  Section 8.7

  	
  Continuing Agreement, Transfer of Secured Obligations

  	
  41

  
	
  Section 8.8

  	
  Governing Law; Entire Agreement

  	
  41

  
	
  Section 8.9

  	
  Counterparts

  	
  42

  
	
  Section 8.10

  	
  No Third Party Beneficiaries

  	
  42

  
	
  Section 8.11

  	
  Headings

  	
  42

  
	
  Section 8.12

  	
  Severability

  	
  42

  
	
  Section 8.13

  	
  Attorneys’ Fees

  	
  42

  
	
  Section 8.14

  	
  VENUE; JURY TRIAL WAIVER

  	
  42

  
	
  Section 8.15

  	
  Intercreditor Agreement

  	
  43

  
	
  Section 8.16

  	
  No Warranties or Liability

  	
  43

  
	
  Section 8.17

  	
  Conflicts

  	
  43

  
	
  Section 8.18

  	
  Information Concerning Financial Condition
  of the Obligors

  	
  43

  

 

ii

 

INTERCREDITOR AGREEMENT

 

THIS INTERCREDITOR AGREEMENT
(as amended, supplemented, restated or otherwise modified from time to time
pursuant to the terms hereof, this “Agreement”) is entered
into as of May 10, 2010 between BANK OF
AMERICA, N.A. (“Bank of America”),
in its capacity as administrative agent and collateral agent (together with its
respective successors and assigns in such capacities, the “ABL Agent”)
for (i) the financial institutions party from time to time to the ABL
Credit Agreement referred to below (such financial institutions, together with
their respective successors, assigns and transferees, the “ABL
Lenders”) and (ii) any
ABL Bank Product Affiliates and ABL Cash Management Affiliates (each as defined
below) (such ABL Bank Product Affiliates and ABL Cash Management Affiliates,
together with the ABL Agent and the ABL Lenders, the “ABL
Secured Parties”) and Z INVESTMENT HOLDINGS, LLC
in its capacity as administrative agent (together with its successors and
assigns in such capacities, the “Term Agent”) for the
financial institutions party from time to time to the Term Credit Agreement
referred to below (such financial institutions, together with their respective
successors, assigns and transferees, the “Term Lenders”) (such Term
Agent and the Term Lenders, the “Term Secured Parties”).

 

RECITALS

 

A.            Pursuant to that certain Amended and Restated Credit
Agreement dated as of May 10, 2010 by and among the ABL Borrowers, the ABL
Guarantors, the ABL Lenders and the ABL Agent (as such agreement may be
amended, supplemented, restated or otherwise modified from time to time in
accordance with the terms hereof and thereof, the “ABL Credit Agreement”),
the ABL Lenders have agreed to make certain loans and provide other financial
accommodations to or for the benefit of the ABL Borrowers.

 

B.            Pursuant to certain Facility Guarantees dated as of the
date hereof (collectively, the “ABL Guaranty”),
certain Subsidiaries of the ABL Borrowers (the “ABL
Guarantors”) have guaranteed all of the obligations outstanding
under the ABL Credit Agreement.

 

C.            Pursuant to the ABL Collateral Documents (as hereinafter
defined) by the ABL Borrowers and the ABL Guarantors in favor of the ABL Agent
for the benefit of the ABL Secured Parties, the ABL Borrowers and the ABL
Guarantors have granted a security interest and lien in certain of their assets
(including, without limitation, accounts receivables, inventory and other
assets related thereto) to secure the respective obligations of each of the ABL
Borrowers and ABL Guarantors under the ABL Documents.

 

C.            Pursuant to that certain Credit Agreement dated as of May 10,
2010 by and among Zale Corporation (the “Term Borrower”),
the Term Lenders and the Term Agent (as such agreement may be amended,
supplemented, restated or otherwise modified from time to time in accordance
with the terms hereof and thereof, the “Term Credit Agreement”),
the Term Lenders have agreed to make a certain term loan to the Term Borrower
in the principal amount of $150,000,000.

 

3

 

D.            Pursuant to a certain guaranties dated as of the date
hereof (collectively, the “Term Guaranty”),
certain Subsidiaries of the Term Borrower (the “Term
Guarantors”) have guaranteed all of the obligations outstanding
under the Term Credit Agreement.

 

E.             Pursuant to those certain security agreements dated as
of the date hereof (collectively, the “Term Security Agreement)
by the Term Borrower and the Term Guarantors in favor of the Term Agent for the
benefit of the Term Secured Parties, the Term Borrower and the Term Guarantors
have granted a security interest and lien in certain of their assets to secure
the obligations of the Term Borrower and Term Guarantors under the Term
Documents.

 

E.             Each of the ABL Agent (on behalf of the ABL Secured
Parties) and the Term Agent (on behalf of the Term Secured Parties) desire to
agree to the relative priority of Liens on the Collateral (as defined below)
and certain other rights, priorities and interests as provided herein.

 

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

 

ARTICLE 1

DEFINITIONS

 

Section 1.1            UCC Definitions. Unless
otherwise defined herein, all capitalized terms used herein shall have the same
meaning herein as in the Uniform Commercial Code.

 

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

 

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

 

“ABL Bank Products
Affiliate” shall mean any ABL Lender or any branch or
Affiliate of any ABL Lender that has entered into a Hedging Agreement or other
Bank Product with an ABL Obligor with the obligations of such ABL Obligor
thereunder being secured by one or more ABL Collateral Documents, together with
their respective successors, assigns and transferees.

 

“ABL Borrowers”
shall mean, collectively, Zale Delaware, Inc., Zale Corporation, ZGCO,
LLC, TXDC, L.P., and Zale Puerto Rico, Inc. and any other Person who
hereafter becomes a “Borrower” under the ABL Credit Agreement.

 

“ABL Cash Management
Affiliate” shall mean any ABL Lender or any branch or
Affiliate of an ABL Lender that provides Cash Management Services to any of the
ABL Obligors with the obligations of such ABL Obligors thereunder being secured
by one or more ABL Collateral Documents, together with their respective
successors, assigns and transferees.

 

“ABL Collateral
Documents” shall mean the ABL Security Agreements, together with
all other security agreements, mortgages, deeds of trust, account control
agreements, freight forwarder and/or customs broker’s agreements, collateral
access agreements, license agreements 

 

4

 

and
other collateral documents executed and delivered in connection with the ABL
Credit Agreement, in each case as the same may be amended, supplemented,
restated or otherwise modified from time to time.

 

“ABL Credit
Agreement” shall have the meaning assigned to such term in the
recitals to this Agreement and shall include any other agreement extending the
maturity of, consolidating, restructuring, refunding, replacing or refinancing
all or any portion of the ABL Obligations, whether by the same or any other
agent, lender or group of lenders.

 

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

 

“ABL
Guarantors” shall have the meaning assigned to such term in the
recitals to this Agreement and any other Person who hereafter becomes a “Facility
Guarantor” under the ABL Credit Agreement.

 

“ABL
Guaranty” shall have the meaning assigned to such term in the
recitals to this Agreement as the same may be amended, supplemented, restated
or otherwise modified from time to time and shall also include any other
agreement amending or replacing such guaranty, whether with the same or any
other agent, lender or group of lenders.

 

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

 

“ABL Note”
shall mean any promissory note executed and delivered by the ABL Borrowers to
evidence any loan made pursuant to the ABL Credit Agreement, as the same may be
amended, modified, extended, renewed, refunded, consolidated, replaced,
restructured or refinanced from time to time in accordance with the terms
hereof and thereof.

 

“ABL Obligations”
shall mean, collectively, all “Obligations” as such term is defined in the ABL
Credit Agreement, and all obligations of the ABL Guarantors under the ABL Guaranty.

 

“ABL
Obligors” means collectively, the ABL Borrowers and the ABL
Guarantors.

 

“ABL Priority
Collateral” shall mean all Collateral
consisting of the following:

 

(1)           all Accounts;

 

(2)           all Inventory;

 

5

 

(3)           all Deposit Accounts, Concentration Accounts, and
Securities Accounts consisting of Account No. 487498743 maintained with
Fidelity Brokerage Services LLC or any other account which replaces such
Securities Account with Fidelity Brokerage Services LLC and used for short term
investments for cash management purposes (including in order to minimize LIBOR
breakage costs), but excluding the Term Securities Accounts (as defined in the
ABL Credit Agreement as of the date hereof);

 

(4)           all Documents relating to Inventory, (b) all Chattel
Paper, Instruments, General Intangibles, Supporting Obligations and
Letter-of-Credit Rights arising from the sale of Inventory and/or from
Accounts, and (c) all Commercial Tort Claims relating to Inventory or
Accounts;

 

(5)           all books and Records relating to the items referred to in
the preceding clauses (including all books, databases, and Records, whether
tangible or electronic, which contain any information relating to any of the
items referred to in the preceding clauses (1) through (4)); and

 

(6)           all
guarantees with respect to any of the foregoing and all cash, cash equivalents,
money, insurance proceeds and other proceeds of any of the foregoing (such
proceeds, “ABL Priority Proceeds”).

 

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

 

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

 

“ABL Security
Agreements” shall mean collectively, (a) a certain Amended
and Restated Security Agreement dated as of May 10, 2010, and (b) an
Amended and Restated General Security Agreement dated as of May 10, 2010,
in each case executed by any or all of the ABL Obligors in favor of the ABL
Agent for the benefit of the ABL Secured Parties (as each of the same may be
amended, supplemented, restated and/or otherwise modified), and shall also
include any other agreement amending, restating, replacing or otherwise
modifying such agreement, whether with the same or any other agent, lender or
group of lenders.

 

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

 

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

 

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

 

“Ancillary
Cap” means the aggregate of any amounts due or to become due
with respect to those Bank Products, not to exceed (a) the sum of
$10,000,000, plus (b) the amount of any Reserves (as defined in the ABL
Credit Agreement), if any, established and maintained by the ABL Agent with
respect to Bank Products and Cash Management Services.

 

6

 

“Asserted
Known Bank Indemnification Claim” means any matters or
circumstances for which notice of demand has been made, asserted or threatened
against the ABL Agent or any ABL Secured Party whether in writing or orally
that at the time of determination could reasonably be expected to result in
direct or actual damages and expenses (including, without limitation,
reasonable and documented attorneys’ fees and disbursements but excluding
special, indirect, consequential or punitive damages to the ABL Agent or any
ABL Secured Party) to the ABL Agent or any ABL Secured Party and which are
subject to indemnification by the ABL Obligors pursuant to the terms of the ABL
Credit Agreement or the ABL Documents.

 

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

 

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

 

“Borrowers”
shall mean collectively the ABL Borrowers and the Term Borrower.

 

“Business
Day” shall mean any day other than (a) Saturday or Sunday; (b) any
day on which banks in Boston, Massachusetts or New York City, New York,
generally are not open to the general public for the purpose of conducting
commercial banking business; or (c) a day on which the principal office of
the Term Agent or the ABL Agent is not open to the general public to conduct
business, if such office is ordinarily open to the general public to conduct
business.

 

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

 

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

 

“Concentration
Accounts” shall have the meaning provided in the ABL Credit
Agreement as in effect on the date hereof.

 

“Control
Collateral” shall mean any Collateral consisting of any Deposit
Account, Instruments and any other Collateral as to which a Lien may be
perfected through possession or control by the secured party, or any agent
therefor.

 

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

 

“Copyrights”
shall have the meaning assigned to such term in the Term Security Agreement as
in effect on the date hereof.

 

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

 

7

 

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

 

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

 

“Discharge of
ABL Obligations” shall mean (a) the payment in full in cash
of all ABL Obligations including, without limitation, with respect to (i) amounts
available to be drawn under outstanding letters of credit issued thereunder (or
indemnities or other undertakings issued pursuant thereto in respect of
outstanding letters of credit), the cancellation of such letters of credit or
the delivery or provision of money or backstop letters of credit in respect
thereof in compliance with the terms of any ABL Credit Agreement (which shall
not exceed an amount equal to 103% of the aggregate undrawn amount of such
letters of credit), (ii) outstanding ABL Obligations with respect to Bank
Products and Cash Management Services (or indemnities or other undertakings
issued pursuant thereto in respect of outstanding Bank Products and Cash
Management Services) or the delivery or provision of cash collateral in respect
thereof in compliance with the terms of any ABL Credit Agreement; and (iii) the
delivery or provision of money or backstop letters of credit for any Asserted
Known Bank Indemnification Claims, in an amount reasonably estimated by the ABL
Agent but in any event not to exceed 100% of the ABL Obligors’ obligations to
the ABL Agent and the ABL Secured Parties in respect thereof; and (b) the
termination of all commitments to extend credit under the ABL Documents. If, at
any time prior to or simultaneously with the occurrence of the Discharge of ABL
Obligations, the ABL Obligors enter into (x) any refinancing of the ABL
Obligations in accordance with this Agreement, or (y) DIP Financing is
entered into in accordance with this Agreement, then, in each case, the
Discharge of ABL Obligations shall automatically be deemed not to have occurred
for all purposes of this Intercreditor Agreement.

 

“Discharge of
Term Obligations” shall mean the payment in full in cash of all
outstanding Term Obligations.

 

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

 

“Enforcement
Notice” shall mean a written notice delivered by the ABL Agent
or the Term Agent to the other applicable party announcing that an Enforcement
Period has commenced and specifying the relevant Event of Default.

 

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

 

8

 

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

 

“Excess
ABL Obligations” shall mean, at any time of calculation, the
portion, if any, of the ABL Obligations in excess of the Maximum ABL
Obligations.

 

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

 

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

 

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

 

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

 

(d)           the appointment on the application of a Secured Party, of
a receiver, receiver and manager, interim receiver, national receiver, monitor,
trustee or similar official in respect of all or part of the Collateral;

 

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

 

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

 

For the avoidance of doubt,
none of the following shall be deemed to constitute an Exercise of Secured
Creditor Remedies: (i) the filing of a proof of claim in any Insolvency
Proceeding or seeking adequate protection (subject to Section 6.3 below), (ii) the
collection and application of the ABL Priority Proceeds against the ABL
Obligations or the delivery of any activation notice with respect to any
Deposit Accounts or Securities Accounts (including, without limitation, with
respect to any account control agreements relating thereto), in each case by
the ABL Agent during the continuance of a Cash Control Event (as defined in the
ABL Credit Agreement), including, without limitation, the notification of
account debtors, depository institutions or any other Person to deliver
proceeds of ABL Priority Collateral to the ABL Agent, (iii) the reduction
of advance rates or sub-limits by the ABL Agent, (iv) the consent by the
ABL Agent to a store closing sale, going out of business sale or other
disposition by any ABL Obligor of any of the ABL Priority Collateral, (v) the
consent by a Secured Party pursuant to the applicable Credit

 

9

 

Documents to any other sale
or disposition by an ABL Obligor or any Term Obligor of any of its assets or
properties, (vi) the acceleration of all or any portion of the ABL
Obligations or the Term Obligations, or (vii) subject to the provisions of
Section 5.2(a) hereof, the imposition or modification of Reserves (as
defined in the ABL Credit Agreement) by the ABL Agent.

 

“Exigent Circumstances” means an
event or circumstance that either (a) would result in a material
deterioration of the value of the Collateral or (b) materially and
imminently threatens the ability of the ABL Agent to realize upon all or a
material part of the Collateral, such as, without limitation, fraudulent
removal or concealment thereof, destruction (other than to the extent covered
by insurance) or material waste thereof.

 

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

 

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

 

“Inadvertent Overadvances” shall have the
meaning provided in the ABL Credit Agreement as in effect on the date hereof..

 

“Indebtedness”  shall have the meaning provided in the Term
Credit Agreement (as in effect on the date hereof).

 

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

 

“Intellectual
Property” shall have the meaning assigned to such term in the
Term Security Agreement as in effect on the date hereof.

 

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

 

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

 

“Lien” shall mean,
with respect to any asset, any mortgage, deed of trust, lien (statutory or
otherwise), imposition of a trust (statutory or otherwise), pledge,
hypothecation, encumbrance, collateral assignment, charge or security interest
in, on or of such asset.

 

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

 

10

 

“Maximum
ABL Obligations” means, on any date of determination thereof, an
amount equal to the result of (a) the principal sum of $750,000,000, plus
(b) ABL Obligations with respect to Bank Products and Cash Management
Services  provided that the
maximum amount of Bank Products shall, for purposes of this definition, not
exceed the Ancillary Cap, plus (c) interest, fees, expenses, and
indemnification obligations under the ABL Documents (including interest, fees,
expenses, and indemnification obligations which, but for the filing of an
Insolvency Proceeding with respect any ABL Obligor, would have accrued or been
payable with respect to any ABL Obligation, whether or not such claim is
allowed or allowable against any ABL Obligor in any Insolvency
Proceeding).  For clarity and without
limiting the foregoing, as long as the amounts set forth in clause (a) are
not exceeded, and subject to the provisions of Section 5.2(a), the ABL
Obligations equal to the sum of amounts available under the Borrowing Base
(subject to increase by the Permitted Insolvency Increase Amount), plus the
amount of Permitted Overadvances, plus the amount of Inadvertent Overadvances
shall not be violative of this Agreement.

 

“Obligors” means, collectively, the
ABL Obligors and the Term Obligors.

 

“Overadvance”
shall have the meaning provided in the ABL Credit Agreement as in effect on the
date hereof.

 

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

 

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

 

“Patents”
shall have the meaning assigned to such term in the Term Security Agreement as
in effect on the date hereof.

 

“Permitted Insolvency
Increase Amount” means, at any time any Obligor is the subject
of an Insolvency Proceeding, an amount equal to five percent (5%) of the
Borrowing Base at such time (calculated for purposes hereof, without giving
effect to the Term Reserve, if then in effect).

 

“Permitted Overadvances”
shall have the meaning provided in the ABL Credit Agreement as in effect on the
date hereof.

 

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

 

11

 

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

 

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

 

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

 

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

 

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

 

“Term Agent”
shall have the meaning assigned to that term in the introduction to this
Agreement and shall include any successor thereto.

 

“Term Borrower”
shall mean Zale Corporation.

 

“Term Collateral
Documents” shall mean the Term Security Agreement and each other
instrument, document and agreement executed and delivered in connection with
the Term Credit Agreement and securing the Term Obligations, in each case as
the same may be amended, supplemented, restated or otherwise modified from time
to time.

 

“Term Credit
Agreement” shall have the meaning assigned to that term in the
recitals to this Agreement and shall include any other agreement extending the
maturity of, consolidating, restructuring, refunding, replacing or refinancing
all or any portion of the Term Obligations, whether by the same or any other
agent, lender or group of lenders.

 

“Term Documents”
shall mean the Term Credit Agreement, any Term Notes, the Term Collateral
Documents, and all other agreements, instruments, and documents now or
hereafter executed by or on behalf of any Term Obligor or any of their
respective Affiliates, and delivered to the Term Agent, in connection with any
of the foregoing or any Term Credit Agreement, in each case as the same may be
amended, supplemented, restated or otherwise modified from time to time in
accordance with the terms hereof and thereof.

 

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

 

“Term
Guaranty” shall have the meaning assigned to such term in the
recitals to this Agreement.

 

12

 

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

 

“Term Note”
shall mean any promissory note executed and delivered by the Term Borrower to
evidence any loan made pursuant to the Term Credit Agreement, as the same may
be amended, modified, extended, renewed, refunded, consolidated, replaced,
restructured or refinanced from time to time in accordance with the terms
hereof and thereof.

 

“Term
Obligations” shall mean all “Obligations” as such term is
defined in the Term Credit Agreement, including, without limitation, any
interest, fees, expenses, and indemnification obligations which, but for the
filing of an Insolvency Proceeding with respect any Term Obligor, would have
accrued or been payable with respect to any Term Obligation, whether or not
such claim is allowed or allowable against any Term Obligor in any Insolvency
Proceeding.

 

“Term
Obligors” means collectively, the Term Borrower and the Term
Guarantors.

 

“Term Priority
Collateral” shall mean (a) all Collateral other than ABL
Priority Collateral and (b) all guarantees with respect to any of the
foregoing and all cash, cash equivalents, money, insurance proceeds and other
proceeds of any of the foregoing (such proceeds, “Term
Priority Proceeds”).

 

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

 

“Term
Reserve” shall have the meaning set forth in Section 5.2(a).

 

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

 

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

 

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

 

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

 

13

 

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

 

“Trademarks”
shall have the meaning assigned to such term in the Term Security Agreement as
in effect on the date hereof.

 

“Trigger
Event” shall have the meaning assigned to that term in Section 7.1(a) hereof.

 

“Uniform
Commercial Code” shall mean the Uniform Commercial Code as the
same may, from time to time, be in effect in the State of New York; provided
that to the extent that the Uniform Commercial Code is used to define any term
in any security document and such term is defined differently in differing
Articles of the Uniform Commercial Code, the definition of such term contained
in Article 9 shall govern; provided  further that in the
event that, by reason of mandatory provisions of law, any or all of the
attachment, perfection, publication or priority of, or remedies with respect
to, Liens of any Party is governed by the Uniform Commercial Code or foreign
personal property security laws as enacted and in effect in a jurisdiction
other than the State of New York, the term “Uniform Commercial Code” will mean
the Uniform Commercial Code, the Personal Property Security Act, or such
foreign personal property security laws as enacted and in effect in such other
jurisdiction solely for purposes of the provisions thereof relating to such
attachment, perfection, priority or remedies and for purposes of definitions related
to such provisions.

 

“Use
Period” means the period commencing on the date that the ABL
Agent (or an ABL Obligor acting with the consent of the ABL Agent) commences
the full liquidation and sale of the ABL Priority Collateral and ending on the
earliest of (i) 180 days thereafter, or (ii) the date on which the
Discharge of ABL Obligations occurs. If any stay or other order that prohibits
any of the ABL Agent, the other ABL Secured Parties or any ABL Obligor (with
the consent of the ABL Agent) from commencing and continuing to Exercise Any
Secured Creditor Remedies or to liquidate and sell the ABL Priority Collateral
has been entered by a court of competent jurisdiction, such 180-day period
shall be tolled during the pendency of any such stay or other order and the Use
Period shall be so extended.

 

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

 

14

 

substitutions, joinders, and supplements thereto and thereof, as
applicable (subject to any restrictions on such alterations, amendments,
changes, restatements, extensions, modifications, renewals, replacements,
substitutions, joinders, and supplements set forth herein).  Any reference herein to any Person shall be
construed to include such Person’s successors and assigns.  Any reference herein to the repayment in full
of an obligation shall mean the payment in full in cash of such obligation, or
in such other manner as may be approved in writing by the requisite holders or
representatives in respect of such obligation. 
Any reference herein to a time of day means Eastern time.

 

ARTICLE 2

LIEN
PRIORITY

 

Section 2.1                                   Priority
of Liens.

 

(a)                                  Notwithstanding (i) the date, time,
method, manner, or order of grant, attachment, or perfection of any Liens
granted to the ABL Secured Parties in respect of all or any portion of the
Collateral or of any Liens granted to the Term Secured Parties in respect of
all or any portion of the Collateral and regardless of how any such Lien was
acquired (whether by grant, statute, operation of law, subrogation or
otherwise), (ii) the order or time of filing or recordation of any
document or instrument for perfecting the Liens in favor of the ABL Agent for
the benefit of the ABL Secured Parties or the Term Agent for the benefit of the
Term Secured Parties in any Collateral, (iii) any provision of the Uniform
Commercial Code, Debtor Relief Laws or any other applicable law, or of the ABL
Documents or the Term Documents, (iv) whether the ABL Agent or the Term
Agent, in each case, either directly or through agents, holds possession of, or
has control over, all or any part of the Collateral, (v) the date on which
the ABL Obligations or the Term Obligations are advanced or made available to
the Borrowers, or (vi) any failure of the ABL Agent or the Term Agent to
perfect its Lien on the Collateral, the subordination of any Lien on the
Collateral securing any ABL Obligations or Term Obligations, as applicable, to
any Lien securing any other obligation of any Obligor, or the avoidance,
invalidation or lapse of any Lien on the Collateral securing any ABL Obligations
or Term Obligations, the ABL Agent, on behalf of itself and the ABL Secured
Parties, and the Term Agent, on behalf of itself and the Term Secured Parties,
hereby agree that the following priorities apply to the ABL Priority Collateral
and the Term Priority Collateral:

 

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

 

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

 

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

 

(4) any Lien in respect
of all or any portion of the Term Priority Collateral now or hereafter held by
or on behalf of the ABL Agent or any ABL Secured Parties that secures all or
any

 

15

 

portion of the ABL
Obligations shall in all respects be, until the Discharge of Term Priority
Obligations, junior and subordinate to all Liens granted to the Term Agent or
the Term Secured Parties on the Term Priority Collateral.

 

(b)                                 The Term Agent, for and on behalf of
itself and the Term Secured Parties, acknowledges and agrees that, concurrently
herewith, the ABL Agent, for the benefit of itself and the ABL Secured Parties,
has been, or may be, granted Liens upon all of the Term Priority Collateral and
the Term Agent hereby consents thereto. 
The ABL Agent, for and on behalf of itself and the ABL Secured Parties,
acknowledges and agrees that, concurrently herewith, the Term Agent, for the
benefit of itself and the Term Secured Parties, has been, or may be, granted
Liens upon all of the ABL Priority Collateral and the ABL Agent hereby consents
thereto.  The subordination of Liens by
the Term Agent and the ABL Agent in favor of one another as set forth herein
shall not be deemed to subordinate the Term Agent’s Liens or the ABL Agent’
Liens to the Liens of any other Person that is not a holder of ABL Obligations
or Term Obligations.

 

Section 2.2                                   Waiver
of Right to Contest Liens.

 

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

 

(b)                                 The ABL Agent, for and on behalf of
itself and the ABL Secured Parties, agrees that it shall not (and hereby waives
any right to) take any action to contest or challenge (or assist or support any
other Person in contesting or challenging), directly or indirectly, whether or
not in any proceeding (including in any Insolvency Proceeding), the validity,
priority, enforceability, or perfection of the Liens of the Term Agent or the
Term Secured Parties in respect of the Collateral or the provisions of this
Agreement.  Except to the extent set
forth in Section 3.5, the ABL Agent, for itself and on behalf of the ABL
Secured Parties, agrees that none of the ABL Agent or the ABL Secured Parties
will take any action that would interfere with any Exercise of Secured Creditor
Remedies undertaken by the Term Agent under the Term Documents with respect to
the Term Priority Collateral.  The ABL
Agent, for itself and on behalf of the ABL Secured Parties, hereby waive any
and all rights it or the ABL Secured Parties may have as a junior lien creditor
or otherwise to contest, protest, object to, or interfere with the manner in
which the Term Agent seeks to enforce its Liens in any Term Priority
Collateral.  The 

 

16

 

foregoing shall not be construed to prohibit the ABL
Agent from enforcing the provisions of this Agreement or otherwise acting in
accordance with this Agreement.

 

Section 2.3                                   Remedies
Standstill.

 

(a)                                  The Term Agent, on behalf of itself and
the Term Secured Parties, agrees that, from the date hereof until the date upon
which the Discharge of ABL Obligations shall have occurred, neither the Term
Agent nor any Term Secured Party will Exercise Any Secured Creditor Remedies
with respect to any of the ABL Priority Collateral, and will not take, receive
or accept any Proceeds of ABL Priority Collateral.  From and after the date upon which the
Discharge of ABL Obligations shall have occurred, the Term Agent or any Term
Secured Party may Exercise Any Secured Creditor Remedies under the Term
Documents or applicable law as to any ABL Priority Collateral; provided,
however, that any Exercise of Secured Creditor Remedies with respect to
any Collateral by the Term Agent or the Term Secured Parties is at all times
subject to the provisions of this Agreement until the termination hereof.

 

(b)                                 The ABL Agent, on behalf of itself and
the ABL Secured Parties, agrees that, from the date hereof until the date upon
which the Discharge of Term Obligations shall have occurred, neither the ABL
Agent nor any ABL Secured Party will Exercise Any Secured Creditor Remedies
with respect to the Term Priority Collateral, and will not take, receive or
accept any Proceeds of the Term Priority Collateral, it being understood and
agreed that any Term Obligor’s deposit of Proceeds of Term Priority Collateral
in a Deposit Account controlled by the ABL Agent shall not constitute a breach
of this Agreement.  From and after the
date upon which the Discharge of Term Obligations shall have occurred, the ABL
Agent or any ABL Secured Party may Exercise Any Secured Creditor Remedies under
the ABL Documents or applicable law as to any Term Priority Collateral; provided,
however, that any Exercise of Secured Creditor Remedies with respect to
any Collateral by the ABL Agent or the ABL Secured Parties is at all times
subject to the provisions of this Agreement until the termination hereof.

 

(c)                                  Notwithstanding the provisions of
Sections 2.3(a), 2.3(b) or any other provision of this Agreement, nothing
contained herein shall be construed to prevent any Agent or any Secured Party
from (i) filing a claim or statement of interest with respect to the ABL
Obligations or Term Obligations owed to it in any Insolvency Proceeding
commenced by or against any Obligor, (ii) taking any action (not adverse
to the Lien Priority of the Liens of the other Agent or other Secured Parties
on the Collateral in which such other Agent or other Secured Party has a
priority Lien or the rights of the other Agent or any of the other Secured
Parties to Exercise Any Secured Creditor Remedies in respect thereof) in order
to create, perfect, preserve or protect its Lien (but not enforce its Lien) on
any Collateral, provided that each Agent may join in any judicial
proceedings commenced by the other Agent to enforce Liens on the Collateral, provided
further that in connection therewith, subject to the ABL Agent’s rights
under  Section 3.5 hereof, the ABL
Agent shall not interfere with the enforcement actions of the Term Agent with
respect to Term Priority Collateral and the Term Agent shall not interfere with
the enforcement actions of the ABL Agent with respect to ABL Priority
Collateral, (iii) filing any necessary or responsive pleadings in
opposition to any motion, adversary proceeding or other pleading filed by any
Person objecting to or otherwise seeking disallowance of the claim or Lien of
such Agent or Secured Party, (iv) filing any pleadings, objections,
motions, or agreements which assert rights available to unsecured creditors of
the ABL Obligors or Term Obligors

 

17

 

arising under any Insolvency Proceeding or applicable
non-bankruptcy law, (v) exercising rights and remedies as unsecured
creditors against any Obligor in accordance with the terms of the Term
Documents or ABL Documents, including the acceleration of any Indebtedness or
other obligations owing under the Term Documents or ABL Documents or the demand
for payment under the Term Guaranty or ABL Guaranty, in each case in accordance
with the terms of the applicable Term Documents or ABL Documents and applicable
law, (vi) voting
on any plan of reorganization, proposal, or plan of arrangement or filing any
proof of claim in any Insolvency Proceeding of any Obligor, (vii) making a
cash bid on all or any portion of the Collateral in which such other Agent has
a priority Lien in any private or judicial foreclosure proceeding or action or
sale, or (viii) objecting to the proposed retention of, or taking title
to, Collateral by the other Agent or any other Secured Party in full or partial
satisfaction of any ABL Obligations or Term Obligations due to such other Agent
or Secured Party (the foregoing not being deemed to limit the right of the
Agent having a prior Lien in such Collateral from credit bidding therefor), in
each case (i) through (viii) above to the extent not inconsistent
with the terms of this Agreement.

 

Section 2.4                                   Exercise
of Rights.

 

(a)                                  No Other Restrictions. 
Except as expressly set forth in this Agreement, each Term Secured Party
and each ABL Secured Party shall have any and all rights and remedies it may
have as a creditor under applicable law, including the right to the Exercise of
Secured Creditor Remedies; provided, however, that the Exercise
of Secured Creditor Remedies with respect to the Collateral shall be subject to
the provisions of this Agreement.  The
ABL Agent may enforce the provisions of the ABL Documents, the Term Agent may
enforce the provisions of the Term Documents and each may Exercise Any Secured
Creditor Remedies, all in such order and in such manner as each may determine
in the exercise of its sole discretion, consistent with the terms of this
Agreement and mandatory provisions of applicable law; provided, however,
that each of the ABL Agent and the Term Agent agrees to provide to the other (x) an
Enforcement Notice prior to the commencement of an Exercise Any Secured
Creditor Remedies, (y) use reasonable efforts to advise the other at
reasonable intervals of the status of any Exercise of Secured Creditor Remedies
by it, and (z) copies of any notices that it is required under applicable
law to deliver to any ABL Obligor; provided  further, however,
that the ABL Agent’s failure to provide any such copies or updates to the Term
Agent (but not the Enforcement Notice) shall not impair any of the ABL Agent’s
rights hereunder or under any of the ABL Documents and the Term Agent’s failure
to provide any such copies or updates to the ABL Agent (but not the Enforcement
Notice) shall not impair any of the Term Agent’s rights hereunder or under any
of the Term Documents.  Each of the Term
Agent (on behalf of itself and the Term Secured Parties) and the ABL Agent (on
behalf of itself and the ABL Secured Parties) agrees (i) that it will not
institute any suit or other proceeding or assert in any suit, Insolvency
Proceeding or other proceeding any claim, in the case of the Term Agent and
each Term Secured Party, against either the ABL Agent or any other ABL Secured
Party, and in the case of the ABL Agent and each other ABL Secured Party,
against either the Term Agent or any other Term Secured Party, seeking damages
from or other relief by way of specific performance, instructions or otherwise,
with respect to, any action taken or omitted to be taken by such Person with
respect to the Collateral which is consistent with the terms of this Agreement,
and none of such Parties shall be liable for any such action taken or omitted
to be taken, or (ii) it will not be a petitioning creditor or otherwise
assist in the filing of an involuntary Insolvency Proceeding.

 

18

 

(b)                                 Release of Liens.

 

(i)                                     In the event of (A) any private or
public sale of all or any portion of the ABL Priority Collateral in connection
with any Exercise of Secured Creditor Remedies by the ABL Agent or by the ABL
Obligors with the consent of the ABL Agent, or (B) any sale, transfer or
other disposition of all or any portion of the ABL Priority Collateral so long
as such sale, transfer or other disposition is then permitted by the ABL
Documents and the Term Documents (without giving effect to any amendments to
the Term Documents which add further restrictions to dispositions beyond those
which are in effect on the date hereof) or consented to by the requisite ABL
Lenders and the requisite Term Lenders, the Term Agent agrees, on behalf of
itself and the Term Secured Parties that such sale, transfer or other
disposition will be free and clear of the Liens on such ABL Priority Collateral
securing the Term Obligations, and the Term Agent’s and the Term Secured
Parties’ Liens with respect to the ABL Priority Collateral so sold,
transferred, or disposed shall terminate and be deemed automatically released
and discharged without further action concurrently with, and to the same extent
as, the release and discharge of the ABL Secured Parties’ Liens on such ABL
Priority Collateral; provided, that the Liens of the Parties shall
attach to the proceeds of any such disposition of the ABL Priority Collateral
with the same relative priority as the Liens which attached to the ABL Priority
Collateral so released and discharged. 
In furtherance of, and subject to, the foregoing, the Term Agent agrees
that it will promptly execute any and all Lien releases, discharges, termination
statements or other documents reasonably requested by the ABL Agent in
connection therewith.  The Term Agent
hereby appoints the ABL Agent and any officer or duly authorized person of the
ABL Agent, with full power of substitution, as its true and lawful
attorney-in-fact with full irrevocable power of attorney in the place and stead
of the Term Agent and in the name of the Term Agent or in the ABL Agent’s own
names, from time to time, in the ABL Agent’s sole discretion, for the purposes
of carrying out the terms of this paragraph, to take any and all appropriate
action and to execute and deliver any and all documents and instruments as may
be necessary or desirable to accomplish the purposes of this paragraph,
including any financing statements, termination statements, discharges,
endorsements, assignments, releases or other documents or instruments of
transfer (which appointment, being coupled with an interest, is irrevocable).

 

(ii)                                  In the event of (A) any private or
public sale of all or any portion of the Term Priority Collateral in connection
with any Exercise of Secured Creditor Remedies by or with the consent of the
Term Agent, or (B) any sale, transfer or other disposition of all or any
portion of the Term Priority Collateral so long as such sale, transfer or other
disposition is then permitted by the Term Documents and the ABL Documents
(without giving effect to any amendments to the ABL Documents which add further
restrictions to dispositions beyond those which are in effect on the date
hereof) or consented to by the requisite Term Lenders or the requisite ABL
Lenders, as applicable, the ABL Agent agrees, on behalf of itself and the ABL
Lenders, that such sale, transfer or disposition will be free and clear of the
Liens on such Term Priority Collateral securing the ABL Obligations and the ABL
Agent’ and the ABL Secured Parties’ Liens with respect to the Term Priority
Collateral so sold, transferred, or disposed shall terminate and be deemed
automatically released and discharged without further action concurrently with,
and to the same extent as, the release and discharge of the Term Secured
Parties’ Liens on such Term Priority Collateral; provided, that the
Liens of the Parties shall attach to the proceeds of any such disposition of
the Term Priority Collateral with the same relative priority as the Liens which
attached to the Term Priority Collateral so released and

 

19

 

discharged.  In furtherance of,
and subject to, the foregoing, the ABL Agent agrees that it will promptly
execute any and all Lien releases, discharges, termination statements or other
documents reasonably requested by the Term Agent in connection therewith.  The ABL Agent hereby appoints the Term Agent
and any officer or duly authorized person of the Term Agent, with full power of
substitution, as their true and lawful attorney-in-fact with full irrevocable
power of attorney in the place and stead of the ABL Agent and in the name of
the ABL Agent or in the Term Agent’s own name, from time to time, in the Term
Agent’s sole discretion, for the purposes of carrying out the terms of this
paragraph, to take any and all appropriate action and to execute and deliver
any and all documents and instruments as may be necessary or desirable to
accomplish the purposes of this paragraph, including any financing statements,
termination statements, discharges, endorsements, assignments, releases or
other documents or instruments of transfer (which appointment, being coupled
with an interest, is irrevocable).

 

Section 2.5                                   No New Liens.

 

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

 

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

 

Section 2.6                                   Waiver
of Marshalling.

 

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

 

20

 

rights a junior secured creditor may have under
applicable law with respect to the ABL Priority Collateral.

 

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

 

ARTICLE 3

ACTIONS
OF THE PARTIES

 

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

 

Section 3.2                                   Agent
for Perfection.  The ABL Agent,
for and on behalf of itself and each ABL Secured Party, and the Term Agent, for
and on behalf of itself and each Term Secured Party, as applicable, each agree
to hold all Collateral in their respective possession, custody, or control (or
in the possession, custody, or control of agents or bailees for either) as
agent for the other solely for the purpose of perfecting the security interest
granted to each in such Collateral, subject to the terms and conditions of this
Section 3.2.  Without limiting the
foregoing, the ABL Agent agrees to act as agent for the benefit of the Term
Agent and the Term Secured Parties under each account control agreement with
respect to any Deposit Accounts or Securities Accounts of a Borrower or an ABL
Guarantor.  None of the ABL Agent, the
ABL Secured Parties, the Term Agent, or the Term Secured Parties, as
applicable, shall have any obligation whatsoever to the others to assure that
the Collateral is genuine or owned by any ABL Obligor, Term Obligor or any
other Person or to preserve rights or benefits of any Person.  The duties or responsibilities of the ABL
Agent and the Term Agent under this Section 3.2 are and shall be limited
solely to holding or maintaining control of the Collateral described in this Section 3.2
as agent for the other Party for purposes of perfecting the Lien held by the
Term Agent or the ABL Agent, as applicable. 
The
ABL Agent is not and shall not be deemed to be a fiduciary of any 

 

21

 

kind
for the Term Secured Parties or any other Person.  Without limiting the generality of the
foregoing, but subject to the provisions of Sections 3.6, 3.7, and 4.1(a), the
ABL Secured Parties shall not be obligated to see to the application of any
Proceeds of the Term Priority Collateral deposited into any Deposit Account or
be answerable in any way for the misapplication thereof.  The Term Agent is not and shall not be deemed
to be a fiduciary of any kind for the ABL Secured Parties, or any other Person.

 

Section 3.3                                   Insurance.  Proceeds of Collateral include insurance
proceeds and, therefore, the Lien Priority shall govern the ultimate
disposition of casualty insurance proceeds. 
The ABL Agent and the Term Agent shall each be named as additional
insured or loss payee, as applicable, with respect to all insurance policies
relating to the Collateral.  Until
Discharge of the ABL Obligations, the ABL Agent shall have the sole and
exclusive right, as against the Term Agent, to adjust settlement of insurance
claims in the event of any covered loss, theft or destruction of ABL Priority
Collateral and take other such actions with respect to insurance covering the
ABL Priority Collateral as set forth in the ABL Credit Agreement.  Until Discharge of the Term Obligations, the
Term Agent shall have the sole and exclusive right, as against the ABL Agent,
to adjust settlement of insurance claims in the event of any covered loss,
theft or destruction of Term Priority Collateral and take other such actions
with respect to insurance covering the Term Priority Collateral as set forth in
the Term Credit Agreement.  All proceeds
of such insurance shall be remitted to the ABL Agent or the Term Agent, as the
case may be, and each of the Term Agent and ABL Agent shall cooperate (if
necessary) in a reasonable manner in effecting the payment of insurance
proceeds in accordance with Section 4.1 hereof.

 

Section 3.4                                   No
Additional Rights For the Obligors Hereunder.  If any ABL Secured Party or
Term Secured Party shall enforce its rights or remedies in violation of the
terms of this Agreement, the Obligors shall not be entitled to use such
violation as a defense to any action by any ABL Secured Party or Term Secured
Party, nor to assert such violation as a counterclaim or basis for set off or
recoupment against any ABL Secured Party or Term Secured Party.

 

Section 3.5                                   Inspection
and Access Rights.

 

(a)                                  Without limiting any rights the ABL Agent
or any other ABL Secured Party may otherwise have under applicable law or by
agreement, in connection with the exercise of any of such rights, including,
without limitation, in the event of any liquidation of the ABL Priority
Collateral (or any other Exercise of Any Secured Creditor Remedies by the ABL
Agent) and whether or not the Term Agent or any other Term Secured Party has
commenced and is continuing to Exercise Any Secured Creditor Remedies of the
Term Agent, the ABL Agent or any other Person (including any ABL Obligor)
acting with the consent, or on behalf, of the ABL Agent, shall have the right (a) during
normal business hours on any Business Day, to access ABL Priority Collateral
that (i) is stored or located in or on, or (ii) has become an
accession with respect to (within the meaning of Section 9-335 of the
Uniform Commercial Code), or (iii) has been commingled with (within the
meaning of Section 9-336 of the Uniform Commercial Code), Term Priority
Collateral, and (b) during the Use Period, shall have the right to use the
Term Priority Collateral, each of the foregoing in order to assemble, inspect,
copy or download information stored on, take action to perfect its Liens on,
complete a production run of inventory, take possession of, move, prepare and
advertise for sale, sell (by public auction, private sale or a 

 

22

 

“store closing”, “going out of business” or similar
sale, whether in bulk, in lots or to customers in the ordinary course of
business or otherwise and which sale may include augmented Inventory of the
same type sold in the any ABL Obligor’s business), store or otherwise deal with
the ABL Priority Collateral, in each case without notice to, the involvement of
or interference by any Term Secured Party or liability to any Term Secured
Party, provided that the ABL Agent shall, furnish prompt written notice to the
Term Agent of the exercise of any rights of the ABL Agent and ABL Secured
Parties hereunder.  In the event that any
ABL Secured Party has commenced and is continuing the Exercise of Any Secured
Creditor Remedies with respect to any ABL Priority Collateral or any other sale
or liquidation of the ABL Priority Collateral has been commenced by an ABL Obligor
(with the consent of the ABL Agent), the Term Agent may not sell, assign or
otherwise transfer the related Term Priority Collateral prior to the expiration
of the Use Period, unless the purchaser, assignee or transferee thereof agrees
to be bound by the provisions of this Section 3.5.

 

(b)                                 In furtherance of the ABL Agent’s rights
under Section 3.5(a), at all times during the Use Period, the Term Agent (i) shall,
to the extent permitted by law, permit the ABL Agent and its agents or
representatives at the ABL Agent’s option to use, on a nonexclusive, royalty
free basis, any of the Intellectual Property as is or may be necessary for the
ABL Agent to sell or otherwise liquidate the ABL Priority Collateral and (ii) hereby
grants to the ABL Agent a nonexclusive, irrevocable, royalty-free, worldwide
license to use any and all Intellectual Property as is or may be necessary to
sell or otherwise liquidate the ABL Priority Collateral.  The Term Agent (A) acknowledges and
consents to the grant to the ABL Agent by the ABL Obligors on the date hereof
of a continuing, limited, non-exclusive royalty-free license for the uses
described in clauses (b)(i) and (b)(ii) above at any time (the “Effective Date License”) and (B) agrees that its Liens
on the Term Priority Collateral shall be subject to the Effective Date License
as set forth herein.  Furthermore, the
Term Agent agrees that, in connection with any foreclosure sale conducted by
the Term Agent in respect of the Intellectual Property, (1) any notice
required to be given by the Term Agent in connection with such foreclosure
shall contain an acknowledgement that the Term Agent’s Lien is subject to the
Effective Date License, and (2) the Term Agent shall deliver a copy of the
Effective Date License to any purchaser at such foreclosure and provide written
notice to such purchaser that the Term Agent’s Lien and the purchaser’s rights
in the such transferred Collateral are subject to the Effective Date License.

 

(c)                                  During the period of actual occupation,
use and/or control by the ABL Secured Parties and/or the ABL Agent (or their
respective employees, agents, advisers and representatives) of any Term
Priority Collateral, the ABL Secured Parties and the ABL Agent shall be
obligated to repair at their expense any physical damage (but not any other
diminution in value) to such Term Priority Collateral resulting from such
occupancy, use or control, and to leave such Term Priority Collateral in
substantially the same condition as it was at the commencement of such
occupancy, use or control, ordinary wear and tear excepted.  Notwithstanding the foregoing, in no event
shall the ABL Secured Parties or the ABL Agent have any liability to the Term
Secured Parties and/or to the Term Agent pursuant to this Section 3.5 as a
result of any condition (including any environmental condition, claim or
liability) on or with respect to the Term Priority Collateral existing prior to
the date of the exercise by the ABL Secured Parties (or the ABL Agent, as the
case may be) of their rights under Section 3.5 and the ABL Secured Parties
shall have no duty or liability to maintain the Term Priority Collateral in a
condition or manner better than that in which it was maintained prior to the
use thereof by the 

 

23

 

ABL Secured Parties, or for any diminution in the
value of the Term Priority Collateral that results from ordinary wear and tear
resulting from the use of the Term Priority Collateral by the ABL Secured
Parties in the manner and for the time periods specified under this Section 3.5.  The ABL Agent shall cooperate and use reasonable
efforts to ensure that its activities during the Use Period as described above
do not interfere materially with the activities of the Term Agent as described
above, including the right of the Term Agent to commence foreclosure of the
Term Priority Collateral, to show the Term Priority Collateral to prospective
purchasers and to ready the Term Priority Collateral for sale.

 

(d)                                 The ABL Agent and the ABL Secured Parties
shall not be obligated to pay any rent, fee or other amounts to the Term Agent
or the Term Secured Parties (or any person claiming by, through or under the
Term Secured Parties, including any purchaser of the Term Priority Collateral)
or to the ABL Obligors, for or in respect of the use by the ABL Agent and the
ABL Secured Parties of the Term Priority Collateral.

 

(e)                                  The ABL Secured Parties shall (i) use
the Term Priority Collateral in accordance with applicable law; (ii) insure
for damage to property and liability to persons, including property and
liability insurance for the benefit of the Term Secured Parties; and (iii) indemnify
and hold harmless the Term Secured Parties from any claim, loss, damage, cost
or liability arising from the ABL Secured Parties’ use of the Term Priority
Collateral (except for those arising from the gross negligence or willful
misconduct of any Term Secured Party).

 

(f)                                    The Term Agent and the other Term Secured
Parties shall use commercially reasonable efforts to not hinder or obstruct the
ABL Agent and the other ABL Secured Parties from exercising the rights
described in Section 3.5(a) hereof.

 

Section 3.6                                   Tracing
of and Priorities in Proceeds. 
The ABL Agent, for itself and on behalf of the ABL Secured Parties, and
the Term Agent, for itself and on behalf of the Term Secured Parties, further
agree that prior to an issuance of any notice of Exercise of Any Secured
Creditor Remedies by such Secured Party (unless a bankruptcy or insolvency
Event of Default then exists), any proceeds of Collateral, whether or not
deposited under control agreements, which are used by any Obligor to acquire
other property which is Collateral shall not (solely as between the Agents and
the Lenders) be treated as Proceeds of Collateral for purposes of determining
the relative priorities in the Collateral which was so acquired. Each of the
ABL Agent and the Term Agent agrees that after an issuance of an Enforcement
Notice, each such Person shall cooperate in good faith to identify the proceeds
of the ABL Priority Collateral and the Term Priority Collateral, as the case
may be; provided, however, that neither ABL Agent nor Term Agent
shall be liable or in any way responsible for any claims or damages from
conversion of the ABL Priority Collateral or Term Priority Collateral, as the
case may be (it being understood and agreed that the only obligation of any
holder of a junior Lien on any Collateral is to pay over to the holder of the
senior Lien on such Collateral, in the same form as received, with any necessary
endorsements, all proceeds that such holder of a junior Lien received that have
been identified as proceeds of Collateral on which such holder does not have
priority).

 

24

 

Section 3.7                                   Payments
Over.

 

(a)                                  So long as the Discharge of ABL
Obligations has not occurred, any ABL Priority Collateral or Proceeds thereof
not constituting Term Priority Collateral received by the Term Agent or any
Term Secured Parties in connection with the exercise of any right or remedy
(including set off) relating to the ABL Priority Collateral in contravention of
this Agreement or actually known to the Term Agent to be proceeds of ABL
Priority Collateral (without any obligation to undertake any independent
investigation as to the source of such Proceeds) shall be segregated and held
in trust and forthwith paid over to the ABL Agent for the benefit of the ABL
Secured Parties in the same form as received, with any necessary endorsements
or as a court of competent jurisdiction may otherwise direct.  The ABL Agent is hereby authorized to make
any such endorsements as agent for the Term Agent or any such Term Secured
Parties.  This authorization is coupled
with an interest and is irrevocable until such time as this Agreement is
terminated in accordance with its terms.

 

(b)                                 So long as the Discharge of Term
Obligations has not occurred, any Term Priority Collateral or Proceeds thereof
not constituting ABL Priority Collateral received by the ABL Agent or any other
ABL Secured Party in connection with the exercise of any right or remedy
(including set off) relating to the Term Priority Collateral in contravention
of this Agreement or actually known to the ABL Agent to be proceeds of Term
Priority Collateral (without any obligation to undertake any independent
investigation as to the source of such Proceeds) shall be segregated and held
in trust and forthwith paid over to the Term Agent for the benefit of the Term
Secured Parties in the same form as received, with any necessary endorsements
or as a court of competent jurisdiction may otherwise direct.  The Term Agent is hereby authorized to make
any such endorsements as agent for the ABL Agent or any such other ABL Secured
Parties.  This authorization is coupled
with an interest and is irrevocable until such time as this Agreement is
terminated in accordance with its terms.

 

ARTICLE 4

APPLICATION
OF PROCEEDS

 

Section 4.1                                   Application
of Proceeds.

 

(a)                                  Revolving Nature of ABL Obligations. 
The Term Agent, for and on behalf of itself and the Term Secured
Parties, expressly acknowledges and agrees that (i) the ABL Credit
Agreement includes a revolving commitment, that in the ordinary course of
business the ABL Agent and the ABL Lenders will apply payments and make
advances thereunder, and that no application of any Collateral or the release
of any Lien by the ABL Agent upon any portion of the Collateral in connection
with a permitted disposition by the ABL Obligors under any ABL Credit Agreement
shall constitute the Exercise of Secured Creditor Remedies under this
Agreement; (ii) subject to the terms hereof, the amount of the ABL
Obligations that may be outstanding at any time or from time to time may be
increased or reduced and subsequently reborrowed, and that the terms of the ABL
Obligations may be modified, extended or amended from time to time, and that
the aggregate amount of the ABL Obligations may be increased, replaced or
refinanced, in each event, without notice to or consent by the Term Secured
Parties and without affecting the provisions hereof; and (iii) all
Collateral received by the ABL Agent (other than through the Exercise of Any
Secured Creditor Remedies or actually known to the ABL Agent to be proceeds of
Term Priority Collateral (without any obligation to undertake any independent
investigation as to the source of such Proceeds)) may be applied, reversed,
reapplied 

 

25

 

or credited, in whole or in part, to the ABL
Obligations at any time; provided, however, that from and after
the date on which the ABL Agent (or any ABL Secured Party) or the Term Agent
(or any Term Secured Party) commences the Exercise of Any Secured Creditor
Remedies, all amounts received by the ABL Agent or any ABL Lender shall be
applied as specified in Sections 4.1(b) and (c).  The Lien Priority shall not be altered or
otherwise affected by any such amendment, modification, supplement, extension,
repayment, reborrowing, increase, replacement, renewal, restatement or
refinancing of either the ABL Obligations or the Term Obligations, or any
portion thereof.

 

(b)                                 Application of Proceeds of ABL Priority
Collateral.  The ABL Agent and the Term Agent hereby agree
that all ABL Priority Collateral, ABL Priority Proceeds and all other Proceeds
thereof, received by either of them in connection with any Exercise of Secured
Creditor Remedies with respect to the ABL Priority Collateral shall be applied,

 

first, to the
payment of costs and expenses of the ABL Agent in connection with such Exercise
of Secured Creditor Remedies to the extent provided in the ABL Documents,

 

second, to the
payment of the ABL Obligations (other than Excess ABL Obligations) in
accordance with the ABL Documents,

 

third, to the
payment of the Term Obligations in accordance with the Term Documents until the
Discharge of Term Obligations shall have occurred,

 

fourth, to the
payment of the Excess ABL Obligations in accordance with the ABL Documents
until the Discharge of ABL Obligations shall have occurred, and

 

fifth, the balance,
if any, to the ABL Obligors or as a court of competent jurisdiction may direct.

 

(c)                                  Application of Proceeds of Term Priority
Collateral.  The ABL Agent and the Term Agent hereby agree
that all Term Priority Collateral, Term Priority Proceeds and all other
Proceeds thereof, received by either of them in connection with any Exercise of
Secured Creditor Remedies with respect to the Term Priority Collateral shall be
applied,

 

first, to the
payment of costs and expenses of the Term Agent in connection with such
Exercise of Secured Creditor Remedies to the extent provided in the Term
Documents,

 

second, to the
payment of the Term Obligations in accordance with the Term Documents until the
Discharge of Term Obligations shall have occurred,

 

third, to the
payment of the ABL Obligations in accordance with the ABL Documents until the
Discharge of ABL Obligations shall have occurred, and

 

fourth, the balance,
if any, to the Term Obligors or as a court of competent jurisdiction may
direct.

 

26

 

(d)                                 Limited Obligation or Liability. 
In exercising remedies, whether as a secured creditor or otherwise, the
ABL Agent shall have no obligation or liability to the Term Agent or to any
Term Secured Party, and the Term Agent shall have no obligation or liability to
the ABL Agent or any ABL Secured Party, regarding the adequacy of any Proceeds
or for any action or omission, except solely for an action or omission that
breaches the express obligations undertaken by each Party under the terms of
this Agreement.  Notwithstanding anything
to the contrary herein contained, none of the Parties hereto waives any claim
that it may have against a Secured Party on the grounds that any sale, transfer
or other disposition by the Secured Party was not commercially reasonable in
every respect as required by the Uniform Commercial Code.

 

(e)                                  Turnover of Collateral. 
Upon the Discharge of the ABL Obligations, the ABL Agent shall deliver
to the Term Agent or shall execute such documents as the Term Agent may
reasonably request (at the expense of the Term Borrower) to enable the Term
Agent to have control over any Control Collateral still in the ABL Agent’s
possession, custody, or control in the same form as received with any necessary
endorsements, or as a court of competent jurisdiction may otherwise direct,
subject to the reinstatement provisions of Section 5.3 below.  Upon the Discharge of Term Obligations, the
Term Agent shall deliver to the ABL Agent or shall execute such documents as
the ABL Agent may reasonably request (at the expense of the ABL Borrowers) to
enable the ABL Agent to have control over any Control Collateral still in the
Term Agent’s possession, custody or control in the same form as received with
any necessary endorsements, or as a court of competent jurisdiction may otherwise
direct, subject to the reinstatement provisions of Section 5.3 hereof.

 

Section 4.2                                   Specific
Performance.  Each of the
ABL Agent and the Term Agent is hereby authorized to demand specific
performance of this Agreement, whether or not any Obligor shall have complied
with any of the provisions of any of the Credit Documents, at any time when the
other Party shall have failed to comply with any of the provisions of this
Agreement applicable to it.  Each of the
ABL Agent, for and on behalf of itself and the ABL Secured Parties, and the
Term Agent, for and on behalf of itself and the Term Secured Parties, hereby
irrevocably waives any defense based on the adequacy of a remedy at law that
might be asserted as a bar to such remedy of specific performance.

 

ARTICLE 5

INTERCREDITOR
ACKNOWLEDGEMENTS AND WAIVERS

 

Section 5.1                                   Notice
of Acceptance and Other Waivers.

 

(a)                                  All ABL Obligations at any time made or
incurred by any Borrower shall be deemed to have been made or incurred in
reliance upon this Agreement, and the Term Agent, on behalf of itself and the
Term Secured Parties, hereby waives notice of acceptance, or proof of reliance
by the ABL Agent or any ABL Secured Party of this Agreement and notice of the
existence, increase, renewal, extension, accrual, creation, or non-payment of
all or any part of the ABL Obligations. 
All Term Obligations at any time made or incurred by the Term Borrower
shall be deemed to have been made or incurred in reliance upon this Agreement,
and the ABL Agent, on behalf of itself and the ABL Secured Parties, hereby
waives notice of acceptance, or proof of reliance, by the Term Agent or any
Term Secured Party of this Agreement and notice of 

 

27

 

the existence, increase, renewal, extension, accrual,
creation, or non-payment of all or any part of the Term Obligations.

 

(b)                                 None of the ABL Agent, any ABL Secured
Party, or any of their respective Affiliates, directors, officers, employees,
or agents shall be liable for failure to demand, collect, or realize upon any
of the Collateral or any Proceeds, or for any delay in doing so, or shall be
under any obligation to sell or otherwise dispose of any Collateral or Proceeds
thereof or to take any other action whatsoever with regard to the Collateral or
any part or Proceeds thereof, except as specifically provided in this
Agreement.  If the ABL Agent or any ABL
Secured Party honors (or fails to honor) a request by any Borrower for an
extension of credit pursuant to any ABL Credit Agreement or any of the other
ABL Documents, whether the ABL Agent or any ABL Secured Party have knowledge
that the honoring of (or failure to honor) any such request would constitute a
default under the terms of any Term Credit Agreement or any other Term Document
or an act, condition, or event that, with the giving of notice or the passage
of time, or both, would constitute such a default, or if the ABL Agent or any
ABL Secured Party otherwise should exercise any of its contractual rights or
remedies under any ABL Documents (subject to the express terms and conditions
hereof), neither the ABL Agent nor any ABL Secured Party shall have any
liability whatsoever to the Term Agent or any Term Secured Party as a result of
such action, omission, or exercise (so long as any such exercise does not
breach the express terms and provisions of this Agreement or mandatory
provisions of applicable law).  The ABL
Agent and the ABL Secured Parties shall be entitled to manage and supervise
their loans and extensions of credit under any ABL Credit Agreement and any of
the other ABL Documents as they may, in their sole discretion, deem
appropriate, and may manage their loans and extensions of credit without regard
to any rights or interests that the Term Agent or any of the Term Secured Parties
have in the Collateral, except as otherwise expressly set forth in this
Agreement.  The Term Agent, on behalf of
itself and the Term Secured Parties, agrees that neither the ABL Agent nor any
ABL Secured Party shall incur any liability as a result of a sale, lease,
license, application, or other disposition of all or any portion of the
Collateral or Proceeds thereof, pursuant to the ABL Documents, so long as such
disposition is conducted in accordance with mandatory provisions of applicable
law and does not breach the provisions of this Agreement.

 

(c)                                  None of the Term Agent, any Term Secured
Party or any of their respective Affiliates, directors, officers, employees, or
agents shall be liable for failure to demand, collect, or realize upon any of
the Collateral or any Proceeds, or for any delay in doing so, or shall be under
any obligation to sell or otherwise dispose of any Collateral or Proceeds
thereof or to take any other action whatsoever with regard to the Collateral or
any part or Proceeds thereof, except as specifically provided in this
Agreement.  If an act, condition, or
event that, with the giving of notice or the passage of time, or both, would
constitute an Event of Default under any ABL Document, or if the Term Agent or
any Term Secured Party otherwise should exercise any of its contractual rights
or remedies under the Term Documents (subject to the express terms and
conditions hereof), neither the Term Agent nor any Term Secured Party shall
have any liability whatsoever to the ABL Agent or any ABL Secured Party as a
result of such action, omission, or exercise (so long as any such exercise does
not breach the express terms and provisions of this Agreement or mandatory
provisions of applicable law).  The Term
Agent and the Term Secured Parties shall be entitled to manage and supervise
their loans and extensions of credit under the Term Documents as they may, in
their sole discretion, deem 

 

28

 

appropriate, and may manage their loans and extensions
of credit without regard to any rights or interests that the ABL Agent or any
ABL Secured Party has in the Collateral, except as otherwise expressly set
forth in this Agreement.  The ABL Agent,
on behalf of itself and the ABL Secured Parties, agrees that none of the Term
Agent or the Term Secured Parties shall incur any liability as a result of a
sale, lease, license, application, or other disposition of the Collateral or
any part or Proceeds thereof, pursuant to the Term Documents, so long as such
disposition is conducted in accordance with mandatory provisions of applicable
law and does not breach the provisions of this Agreement.

 

Section 5.2                                   Modifications
to ABL Documents and Term Documents.

 

(a)                                  The Term Agent, on behalf of itself and
the Term Secured Parties, hereby agrees that, without affecting the obligations
of the Term Agent and the Term Secured Parties hereunder, the ABL Agent and the
ABL Secured Parties may, at any time and from time to time, in their sole
discretion without the consent of or notice to the Term Agent or any Term
Secured Party, and without incurring any liability to the Term Agent or any
Term Secured Party or impairing or releasing the Lien Priority provided for
herein, amend, restate, supplement, replace, refinance, extend, consolidate,
restructure, or otherwise modify any of the ABL Documents in any manner
whatsoever, other than in a manner which would have the effect of contravening
the terms of this Agreement, provided, however, without the consent of the Term
Agent, the ABL Agent and the ABL Lenders shall not agree to any amendment or
modification of the ABL Credit Agreement which would (i) increase the
Total Commitments (as defined in the ABL Credit Agreement as in effect on the
date hereof) to an amount in excess of the amounts set forth in clause (a) of
the definition of Maximum ABL Obligations, (ii) directly increase the
interest rates on the ABL Obligations to a rate greater than 2.0% per annum
above rates as are in effect on the date hereof (excluding, without limitation,
fluctuations in underlying rate indices, pricing grid level changes due to
changes in average daily Excess Availability, and imposition of a default rate
of interest not greater than 2.0% per annum), (iii) directly or indirectly
prohibit or restrict the payment of principal of, interest on, the Term
Obligations, in a manner more restrictive than the prohibitions and
restrictions contained in the ABL Credit Agreement as in effect on the date
hereof, (iv) except as a result of the Permitted Insolvency Increase
Amount, change the definition of “Borrowing Base”, “Overadvance”, “Inadvertent
Overadvance”, or “Permitted Overadvance” contained in the ABL Credit Agreement
or any component definition thereof by increasing advance rates or changing the
eligibility criteria for the assets included therein if such change would
result in an increase of the amounts available to be borrowed thereunder, or (v) reduce
the amount of Excess Availability (as defined in the ABL Credit Agreement as in
effect on the date hereof) that is required to be maintained in Section 6.8(b) of
the ABL Credit Agreement as in effect on the date hereof.  The ABL Agent agrees that upon the request of
the Term Agent, it shall make itself available for discussion with the Term
Agent regarding the amount or computation of any Reserves (as defined in the
ABL Credit Agreement as in effect on the date hereof) that are permitted to be
established pursuant to the ABL Credit Agreement, provided that, except
as provided below, the foregoing agreement shall not limit or impair the ABL
Agent’s rights to establish, increase, reduce or eliminate any such Reserves or
require any prior notice to, or consent from, the Term Agent or the Term
Secured Parties thereto; provided further that the ABL Agent shall not eliminate
any category of Reserves existing as of the date hereof or change the
methodology for the calculation of such Reserves without the consent of the
Term Agent.  Furthermore, the ABL Agent
agrees that, if and to the extent that

 

29

 

 

Excess Availability (as defined in the ABL Credit
Agreement as of the date hereof) is less than $75,000,000 at any time, upon the
request of the Term Agent, the ABL Agent shall establish a Reserve (the “Term
Reserve”) in an amount equal to two and one-half percent (2.5%) of the
Borrowing Base as calculated as of the time of the Term Agent’s request (it
being understood that the Term Agent may make additional requests due to
increases in the Borrowing Base so that the Term Reserve is at all times equal
to two and one-half percent (2.5%) of the Borrowing Base if Excess Availability
is less than $75,000,000).  Once
established, except as otherwise permitted in the Term Credit Agreement, the
Term Reserve shall not be eliminated or reduced by the ABL Agent without the
prior written consent of the Term Agent.

 

(b)                                 The ABL Agent, on behalf of itself and
the ABL Secured Parties, hereby agrees that, without affecting the obligations
of the ABL Agent and the ABL Secured Parties hereunder, the Term Agent and the
Term Secured Parties may, at any time and from time to time, in their sole
discretion without the consent of or notice to the ABL Agent or any ABL Secured
Party, and without incurring any liability to the ABL Agent or any ABL Secured
Party or impairing or releasing the Lien Priority provided for herein, amend,
restate, supplement, replace, refinance, extend, consolidate, restructure, or
otherwise modify any of the Term Documents in any manner whatsoever other than
in a manner which would have the effect of contravening the terms of this
Agreement, provided, however, without the consent of the ABL Agent, the Term Agent and
the Term Lenders shall not agree to any amendment or modification of the Term
Credit Agreement which would (i) increase the amount of the Term Loan
(other than through the capitalization of PIK Amounts (as defined in the Term
Credit Agreement as amended, restated, supplemented or otherwise modified in
accordance with the terms hereof)) in excess of the sum of $150,000,000 less
any principal payments made on account thereof, (ii) directly increase the
interest rates on the Term Obligations to a rate greater than 2.0% per annum
above rates as are in effect on the date hereof (excluding imposition of a
default rate of interest not greater than 2.0% per annum), (iii) terminate
the Term Borrower’s right to the PIK Election (as defined in the Term Credit
Agreement as in effect on the date hereof); provided that the foregoing
shall not be deemed to limit any amendments which increase the accrued interest
which may become a PIK Amount, (iv) directly or indirectly prohibit or
restrict the payment of principal of, interest on, the ABL Obligations, in a
manner more restrictive than the prohibitions and restrictions contained in the
Term Credit Agreement as in effect on the date hereof, (v) shorten the
scheduled maturity of the Term Obligations, (vi) require any scheduled
principal payments or other mandatory principal payments on account of the Term
Obligations (other than for mandatory prepayments under the Term Credit
Agreement (as in effect on the date hereof)) or require that any payment on the
Term Obligations be made earlier than the date originally scheduled for such
payment, or (vii) change any provisions of Sections 7.05 or 7.08(d) of
the Term Credit Agreement that would be more restrictive than those in effect
under the Term Documents as of the date hereof.

 

(c)                                  No consent furnished by the ABL Agent or
the Term Agent pursuant to Sections 5.2(a) or 5.2(b) hereof shall be
deemed to constitute the modification or waiver of any provisions of the ABL
Documents or the Term Documents, each of which remain in full force and
effect.  Without limiting the foregoing,
the ABL Agent and the ABL Lenders may continue to make loans and advances and
issue letters of credit for the account of the ABL Borrowers notwithstanding
that an Event of Default exists or may arise therefrom under the Term Documents
and neither the ABL Agent nor the ABL Secured Parties shall have any liability
to the Term Agent or the Term Secured Parties on account thereof.

 

30

 

(d)                                 The ABL Obligations and the Term
Obligations may be refinanced, in whole or in part, in each case, without
notice to, or the consent (except to the extent a consent is required pursuant
to Section 5.2(a) or (b) above or to permit the refinancing
transaction under any ABL Document or any Term Document) of the ABL Agent, the
ABL Secured Parties, the Term Agent or the Term Secured Parties, as the case
may be, all without affecting the Lien Priority provided for herein or the
other provisions hereof, provided, however, that the holders of
such refinancing Indebtedness (or an authorized agent or trustee on their
behalf) bind themselves in writing to the terms of this Agreement pursuant to
such documents or agreements (including amendments or supplements to this
Agreement) as the ABL Agent or the Term Agent, as the case may be, shall
reasonably request and in form and substance reasonably acceptable to the ABL
Agent or the Term Agent, as the case may be, and any such refinancing
transaction shall be in accordance with any applicable provisions of both the
ABL Documents and the Term Documents (to the extent such documents survive the
refinancing).

 

Section 5.3                                   Reinstatement
and Continuation of Agreement.

 

(a)                                  If the ABL Agent or any ABL Secured Party
is required in any Insolvency Proceeding or otherwise to turn over or otherwise
pay to the estate of any Obligor or any other Person any payment made in
satisfaction of all or any portion of the ABL Obligations (an  “ABL Recovery”),
then the ABL Obligations shall be reinstated to the extent of such ABL
Recovery.  If this Agreement shall have
been terminated prior to such ABL Recovery, this Agreement shall be reinstated
in full force and effect in the event of such ABL Recovery, and such prior
termination shall not diminish, release, discharge, impair, or otherwise affect
the obligations of the Parties from such date of reinstatement.  All rights, interests, agreements, and
obligations of the ABL Agent, the Term Agent, the ABL Secured Parties, and the
Term Secured Parties under this Agreement shall remain in full force and effect
and shall continue irrespective of the commencement of, or any discharge,
confirmation, conversion, or dismissal of, any Insolvency Proceeding by or
against any Obligor or any other circumstance which otherwise might constitute
a defense available to, or a discharge of any Obligor in respect of the ABL
Obligations or the Term Obligations.  No
priority or right of the ABL Agent or any ABL Secured Party shall at any time
be prejudiced or impaired in any way by any act or failure to act on the part
of any Obligor or by the noncompliance by any Person with the terms,
provisions, or covenants of any of the ABL Documents, regardless of any
knowledge thereof which the ABL Agent or any ABL Secured Party may have.

 

(b)                                 If the Term Agent or any Term Secured
Party is required in any Insolvency Proceeding or otherwise to turn over or
otherwise pay to the estate of any Obligor or any other Person any payment made
in satisfaction of all or any portion of the Term Obligations (a “Term Recovery”), then the Term
Obligations shall be reinstated to the extent of such Term Recovery.  If this Agreement shall have been terminated
prior to such Term Recovery, this Agreement shall be reinstated in full force
and effect in the event of such Term Recovery, and such prior termination shall
not diminish, release, discharge, impair, or otherwise affect the obligations
of the Parties from such date of reinstatement. 
All rights, interests, agreements, and obligations of the ABL Agent, the
Term Agent, the ABL Secured Parties, and the Term Secured Parties under this
Agreement shall remain in full force and effect and shall continue irrespective
of the commencement of, or any discharge, confirmation, conversion, or
dismissal of, any Insolvency Proceeding by or against any Obligor or any other
circumstance which otherwise

 

31

 

might constitute a defense available to, or a
discharge of any Obligor in respect of the ABL Obligations or the Term
Obligations.  No priority or right of the
Term Agent or any Term Secured Party shall at any time be prejudiced or
impaired in any way by any act or failure to act on the part of any Obligor or
by the noncompliance by any Person with the Terms, provisions, or covenants of
any of the Term Documents, regardless of any knowledge thereof which the Term
Agent or any Term Secured Party may have.

 

ARTICLE 6

INSOLVENCY
PROCEEDINGS

 

Section 6.1                                   DIP
Financing.

 

(a)                                  This Agreement shall be applicable with
respect to the ABL Obligations and Term Obligations both before and after the
filing of any petition by or against any of the Obligors under any Insolvency
Proceeding, and all references herein to the Obligors shall be deemed to apply
to the Obligors as debtors-in-possession.

 

(b)                                 If any Obligor shall be subject to any
Insolvency Proceeding at any time prior to the Discharge of ABL Obligations,
and the ABL Agent or any of the ABL Secured Parties shall seek to provide any
Obligor with, or consent to a third party providing, any financing under Section 364
of the Bankruptcy Code or consent to any order for the use of cash collateral
constituting ABL Priority Collateral under Section 363 of the Bankruptcy
Code (or any similar provision of any foreign Debtor Relief Laws or under a
court order in respect of interim financing or similar measures granted with
similar effect under any foreign Debtor Relief Laws) (each, a “DIP Financing”),
with such DIP Financing to be secured by all or any portion of the Collateral
(including assets that, but for the application of Section 552 of the
Bankruptcy Code would be Collateral), then the Term Agent, on behalf of itself
and the Term Secured Parties, agrees that it will raise no objection and will
not support any objection to such DIP Financing or use of cash collateral or to
the Liens securing the same on any basis, including, without limitation, on the
grounds of a failure to provide “adequate protection” for the Liens of the Term
Agent securing the Term Obligations (and will not request any adequate
protection solely as a result of such DIP Financing or use of cash collateral
that is ABL Priority Collateral, and will not offer or support any
debtor-in-possession or interim financing which would compete with such DIP
Financing); provided that (i) the Term Agent retains its Lien on
the ABL Priority Collateral to secure the Term Obligations (in each case,
including Proceeds thereof arising after the commencement of the case under the
any Debtor Relief Laws) (to the extent such Liens were valid,
perfected, enforceable and not avoided) subject to the Liens in favor of the ABL Secured
Parties on the ABL Priority Collateral existing prior to the commencement of
such Insolvency Proceeding, to any adequate protection Liens granted in favor
of the ABL Obligations, to the senior priority of the DIP Financing and, to the extent a
reserve therefor is maintained in the Borrowing Base, to any carve-out amount
for professionals and directors and officers following the occurrence of any
event of default under any such DIP Financing or the United States Trustee or
any other insolvency officer and its counsel, or, with respect to any Canadian
Insolvency Proceeding, to the extent a reserve therefor is maintained in the
Borrowing Base, any other prior charges permitted under applicable law relating
to the Insolvency Proceeding that have been agreed upon by the ABL Agent, and (ii) unless it shall otherwise
consent, the Term Agent shall retain its Lien on the Term Priority Collateral
with the same priority as existed prior to the

 

32

 

commencement of the case under the subject Debtor
Relief Laws and any Lien of the ABL Agent (or other provider of DIP Financing)
(to the extent such Liens were valid, perfected, enforceable and not
avoided) on the Term
Priority Collateral securing such DIP Financing is junior and subordinate to
the Lien of the Term Agent on the Term Priority Collateral (to the extent of
the Term Obligations), (iii) all Liens on ABL Priority Collateral securing
any such DIP Financing shall be senior to or on a parity with the Liens of the
ABL Agent and the ABL Secured Parties securing the ABL Obligations on ABL
Priority Collateral, (iv) the DIP Financing shall not
seek to permit the making, issuance or incurrence of loans or letter of credit
accommodations pursuant to such DIP Financing that would cause the sum of (A) the
aggregate outstanding principal amount of such loans and letter of credit
accommodations made pursuant to such DIP Financing plus (B) the
outstanding principal amount of pre-petition ABL Obligations to exceed the amounts set forth in clause (a) of
the definition of Maximum ABL Obligations, (v) the DIP Financing
shall be on terms which would not result in a violation of the provisions of Section 5.2(a) hereof
(it being understood that the increase of the Borrowing Base by the Permitted
Insolvency Increase Amount shall not be violative thereof) and (vi) the foregoing provisions of
this Section 6.1(a) shall not prevent the Term Agent and the Term
Secured Parties from objecting to any provision in any DIP Financing relating
to any provision or content of a plan of reorganization, arrangement, proposal,
or other plan of similar effect under any Debtor Relief Laws.

 

(c)                                  All Liens granted to the ABL Agent or the
Term Agent in any Insolvency Proceeding, whether as adequate protection or
otherwise, are intended by the Parties to be and shall be deemed to be subject
to the Lien Priority and the other terms and conditions of this Agreement.

 

(d)                                 The Term Agent and the Term Secured
Parties hereby agree that they shall not offer, and shall not permit any
Affiliate of any of them to offer, to provide any DIP Financing to any Obligor
in any Insolvency Proceeding or endorse the provision of any DIP Financing to
any Obligor in any Insolvency Proceeding other than (i) any DIP Financing
provided by or consented to by the ABL Agent, (ii) if the ABL Agent and
the ABL Lenders fail to offer to provide DIP Financing to any Obligor within
five (5) Business Days after the commencement of any Insolvency
Proceeding, any DIP Financing provided by the Term Agent or any Term Lenders,
or (iii) any DIP Financing consisting solely of a “rollover” of the
pre-petition Term Obligations on the same terms as existed prior to the
commencement of the Insolvency Proceeding. 
Except for DIP Financings permitted under clauses (d)(i) and (iii),
nothing in this Intercreditor Agreement shall limit the rights of the
ABL Secured Parties to object to the terms of any post-petition financing
provided by the Term Agent and/or the Term Secured Parties following any
Insolvency Proceeding on any grounds.

 

Section 6.2                                   Relief
From Stay. Until the Discharge of ABL Obligations has
occurred, the Term Agent, on behalf of itself and the Term Secured Parties,
agrees not to seek relief from the automatic stay or any other stay in any
Insolvency Proceeding in respect of any portion of the ABL Priority Collateral
without the ABL Agent’s express written consent.  Until the Discharge of Term Obligations has
occurred, the ABL Agent, on behalf of itself and the ABL Secured Parties,
agrees not to seek relief from the automatic stay or any other stay in any
Insolvency Proceeding in respect of any portion of the Term Priority Collateral
without the Term Agent’s express written consent.  In addition, neither the Term Agent nor the
ABL Agent shall seek any

 

33

 

relief from the automatic stay or any other stay with respect to any
Collateral without providing three (3) days’ prior written notice to the
other, unless such period is agreed by both the ABL Agent and the Term Agent to
be modified or unless the ABL Agent or Term Agent, as applicable, makes a good
faith determination that either (A) the ABL Priority Collateral or the
Term Priority Collateral, as applicable, will decline speedily in value or (B) the
failure to take any action will have a reasonable likelihood of endangering the
ABL Agent’s or the Term Agent’s ability to realize upon its Collateral.

 

Section 6.3                                   No Contest; Adequate
Protection.  

 

(a)                                  The Term Agent, on behalf of itself and
the Term Secured Parties, agrees that, prior to the Discharge of ABL
Obligations, none of them shall contest (or support any other Person
contesting) (i) any request by the ABL Agent or any ABL Secured Party for
adequate protection of its interest in the Collateral, (ii) subject to Section 6.1(b) above,
any proposed provision of DIP Financing by the ABL Agent and the ABL Secured
Parties (or any other Person proposing to provide DIP Financing with the
consent of the ABL Agent) or (iii) any objection by the ABL Agent or any
ABL Secured Party to any motion, relief, action, or proceeding based on a claim
by the ABL Agent or any ABL Secured Party that its interests in the Collateral
are not adequately protected (or any other similar request under any law
applicable to an Insolvency Proceeding), so long as any Liens granted to the
ABL Agent as adequate protection of its interests are subject to this
Agreement.

 

(b)                                 The ABL Agent, on behalf of itself and
the ABL Secured Parties, agrees that, prior to the Discharge of Term
Obligations, none of them shall contest (or support any other Person
contesting) (i) any request by the Term Agent or any Term Secured Party
for adequate protection of its interest in the Collateral (unless in
contravention of Section 6.1(b) above or 6.3(c) below), (ii) any
offer to provide DIP Financing pursuant to clauses (i) through (iii) of
Section 6.1(d) above by the Term Agent and the Term Secured Parties
(or any other Person proposing to provide DIP Financing with the consent of the
Term Agent), subject to the right of the ABL Secured Parties to object to the
terms of any such DIP Financing in accordance with the last sentence of Section 6.1(d) above,
or (ii) any objection by the Term Agent or any Term Secured Party to any
motion, relief, action or proceeding based on a claim by the Term Agent or any
Term Secured Party that its interests in the Collateral (unless in
contravention of Section 6.1(b) above) are not adequately protected
(or any other similar request under any law applicable to an Insolvency
Proceeding), so long as any Liens granted to the Term Agent as adequate
protection of its interests are subject to this Agreement.

 

(c)                                  Notwithstanding
the foregoing provisions in this Section 6.3, in any Insolvency
Proceeding:

 

(i)                                     if the ABL
Secured Parties (or any subset thereof) are granted adequate protection with
respect to the ABL Priority Collateral in the form of additional collateral
(even if such collateral is not of a type which would otherwise have
constituted ABL Priority Collateral), then the ABL Agent, on behalf of itself
and the ABL Secured Parties, agrees that the Term Agent, on behalf of itself or
any of the Term Secured Parties, may seek or request (and the ABL Secured
Parties will not oppose such request) adequate protection with respect to its
interests in such Collateral in the form of a Lien on the same additional
collateral;

 

34

 

(ii)                                  in the event
the Term Agent, on behalf of itself or any of the Term Secured Parties, is
granted adequate protection in respect of Term Priority Collateral in the form
of additional collateral (even if such collateral is not of a type which would
otherwise have constituted Term Priority Collateral), then the Term Agent, on
behalf of itself and any of the Term Secured Parties, agrees that the ABL Agent
on behalf of itself or any of the ABL Secured Parties, may seek or request (and
the Term Secured Parties will not oppose such request) adequate protection with
respect to its interests in such Collateral in the form of a Lien on the same
additional collateral; and

 

(iii)                               except as otherwise
expressly set forth in Section 6.1 or in connection with the exercise of
remedies with respect to (A) the ABL Priority Collateral, nothing herein
shall limit the rights of the Term Agent or the Term Secured Parties from
seeking adequate protection with respect to their rights in the Collateral in
any Insolvency Proceeding (including adequate protection in the form of a cash
payment, periodic cash payments or otherwise) or (B) the Term Priority
Collateral, nothing herein shall limit the rights of the ABL Agent or the ABL
Secured Parties from seeking adequate protection with respect to their rights
in the Collateral in any Insolvency Proceeding (including adequate protection
in the form of a cash payment, periodic cash payments or otherwise).

 

Section 6.4                                   Asset
Sales.

 

(a)                                  The Term Agent
agrees, on behalf of itself and the Term Secured Parties, that it will not
oppose any sale consented to by the ABL Agent of any ABL Priority Collateral
pursuant to Section 363(f) of the Bankruptcy Code (or any similar
provision under the law applicable to any Insolvency Proceeding or under a
court order in respect of measures granted with similar effect under any
foreign Debtor Relief Laws) so long as the Liens of the Parties attach to the
proceeds of such sale consistent with the Lien Priority on the assets sold and
such proceeds are otherwise applied in accordance with this Agreement. The ABL
Agent agrees, on behalf of itself and the ABL Secured Parties, that they will
not oppose any sale consented to by the Term Agent of any Term Priority Collateral
pursuant to Section 363(f) of the Bankruptcy Code (or any similar
provision under the law applicable to any Insolvency Proceeding or under a
court order in respect of measures granted with similar effect under any
foreign Debtor Relief Laws) so long as the Liens of the Parties attach to the
proceeds of such sale consistent with the Lien Priority on the assets sold, the
purchaser assumes and agrees to the provisions of  Section 3.5 hereof as set forth therein
and such proceeds are otherwise applied in accordance with this Agreement.  If
such sale of Collateral includes both ABL Priority Collateral and Term Priority
Collateral, and if the Parties are unable after negotiating in good faith to
agree on the allocation of the purchase price between the ABL Priority
Collateral and Term Priority Collateral, either Party may apply to the court in
such Insolvency Proceeding to make a determination of such allocation, and the
court’s determination shall be binding upon the Parties.

 

(b)                                 Upon the
Discharge of the ABL Obligations (or if the Discharge of the ABL Obligations
will occur immediately upon the consummation of any such bid) the Term Agent
and each Term Secured Party at any sale under a plan of reorganization or plan
of liquidation, or any sale under Section 363 of the Bankruptcy Code or
similar provision under any Debtor Relief Law shall be entitled to credit bid
for or purchase the ABL Priority Collateral.

 

35

 

Section 6.5                                   Separate
Grants of Security and Separate Classification.  Each Term Secured Party and each ABL Secured
Party acknowledges and agrees that (i) the grants of Liens pursuant to the
ABL Security Documents and the Term Security Documents constitute two separate
and distinct grants of Liens and (ii) because of, among other things,
their differing rights in the Collateral, the Term Obligations are
fundamentally different from the ABL Obligations and must be separately
classified in any plan of reorganization (or other plan of similar effect under
any Debtor Relief Laws) proposed or adopted in an Insolvency Proceeding.  To further effectuate the intent of the
parties as provided in the immediately preceding sentence, if it is held that
the claims of the ABL Secured Parties and the Term Secured Parties in respect
of the Collateral constitute only one secured claim (rather than separate
classes of senior and junior secured claims), then the ABL Secured Parties and
the Term Secured Parties hereby acknowledge and agree that all distributions
shall be made as if there were separate classes of ABL Obligation claims and
Term Obligation claims against the Obligors, with the effect being that, to the
extent that the aggregate value of the ABL Priority Collateral or Term Priority
Collateral is sufficient (for this purpose ignoring all claims held by the
other Secured Parties), the ABL Secured Parties or the Term Secured Parties,
respectively, shall be entitled to receive, in addition to amounts distributed
to them in respect of principal, pre-petition interest and other claims, all
amounts owing in respect of post-petition interest that is available from each
pool of Priority Collateral for each of the ABL Secured Parties and the Term
Secured Parties, respectively, before any distribution is made in respect of
the claims held by the other Secured Parties from such Priority Collateral,
with the other Secured Parties hereby acknowledging and agreeing to turn over
to the respective other Secured Parties amounts otherwise received or
receivable by them to the extent necessary to effectuate the intent of this
sentence, even if such turnover has the effect of reducing the aggregate
recoveries.

 

Section 6.6                                   Enforceability.  The provisions of this Agreement are intended
to be and shall be enforceable under Section 510(a) of the Bankruptcy
Code and all other similar provisions of applicable law.

 

Section 6.7                                   ABL
Obligations Unconditional.  All rights of the ABL Agent hereunder, and
all agreements and obligations of the Term Agent and the Obligors (to the
extent applicable) hereunder, shall, except as otherwise specifically provided
herein, remain in full force and effect irrespective of:

 

(i)                                     any lack of validity or enforceability of
any ABL Document;

 

(ii)                                  any change in the time, place or manner
of payment of, or in any other term of, all or any portion of the ABL
Obligations, or any amendment, waiver or other modification, whether by course
of conduct or otherwise, or any refinancing, replacement, refunding or
restatement of any ABL Document (but solely to the extent permitted pursuant to
Section 5.2(a) above);

 

(iii)                               any exchange, release, voiding, avoidance
or non perfection of any security interest in or Lien on any Collateral or any
other collateral, or any release, amendment, waiver or other modification,
whether by course of conduct or otherwise, or any refinancing, replacement,
refunding, restatement or increase of all or any portion of the ABL Obligations
or any guarantee or guaranty thereof; or

 

36

 

(iv)                              any other circumstances that otherwise
might constitute a defense available to, or a discharge of, any ABL Obligor in
respect of the ABL Obligations, or of any of the Term Agent or any Term
Obligor, to the extent applicable, in respect of this Agreement.

 

Section 6.8                                   Term
Obligations Unconditional.  All rights of the Term Agent hereunder, all
agreements and obligations of the ABL Agent and the Obligors (to the extent
applicable) hereunder, shall, except as otherwise specifically provided herein,
remain in full force and effect irrespective of:

 

(i)                                     any lack of validity or enforceability of
any Term Document;

 

(ii)                                  any change in the time, place or manner
of payment of, or in any other term of, all or any portion of the Term
Obligations, or any amendment, waiver or other modification, whether by course
of conduct or otherwise, or any refinancing, replacement, refunding or
restatement of any Term Document (but solely to the extent permitted pursuant
to Section 5.2(b) above);

 

(iii)                               any exchange, release, voiding, avoidance
or non perfection of any security interest in or Lien on any Collateral, or any
other collateral, or any release, amendment, waiver or other modification,
whether by course of conduct or otherwise, or any refinancing, replacement,
refunding, restatement or increase of all or any portion of the Term
Obligations or any guarantee or guaranty thereof; or

 

(iv)                              any other circumstances that otherwise
might constitute a defense available to, or a discharge of, any Term Obligor in
respect of the Term Obligations, or of any of the ABL Agent or any ABL Obligor,
to the extent applicable, in respect of this Agreement.

 

ARTICLE 7

PURCHASE
OPTION

 

Section 7.1                                   Option
to Purchase ABL Obligations.

 

(a)                                  Option to
Purchase of Term Secured Parties.  (i) If all of the ABL Obligations shall
have been accelerated by vote of the ABL Agent or the ABL Lenders (and not by
an automatic acceleration upon the commencement of an Insolvency Proceeding),
or (ii) following the non-payment of the ABL Obligations after the
Extended Term Maturity Date (as such term is defined in the ABL Credit
Agreement) or (iii) if the ABL Agent has delivered an Enforcement Notice
(each a “Trigger Event”), the Term Secured Parties shall have the option
to purchase all, and not less than all, of the ABL Obligations from the ABL
Agent and the ABL Secured Parties. The ABL Agent shall furnish the Term Agent
with prompt notice of the occurrence of any Trigger Event under clauses (a)(i) and
(ii) hereof.

 

(b)                                 Exercise
of Option to Purchase of Term Secured Parties — Sale Without Consent.  In order to exercise their option to purchase
described in Section 7.1(a), the Term Agent shall furnish irrevocable
written notice to the ABL Agent (with copies to the Borrowers) of the election
of the Term Secured Parties to purchase the ABL Obligations, which notice shall

 

37

 

be received by the ABL
Agent within five (5) Business Days’ after the first occurrence of a
Trigger Event. On the date specified by the Term Agent in such notice (which
shall not be more than ten (10) Business Days after the receipt by the ABL
Agent of the notice from the Term Agent of the election by the Term Secured
Parties to exercise such option), the ABL Agent and the ABL Secured Parties
shall sell to the Term Secured Parties exercising such option, and such Term
Secured Parties shall purchase from the ABL Agent and the ABL Secured Parties,
all of the ABL Obligations without the prior written consent of the Borrowers
or any other ABL Obligor. During the period commencing on the date such notice is received by
the ABL Agent and ending on the date specified in such notice for the
consummation of the purchase, absent Exigent Circumstances, the ABL Agent shall
not Exercise Any Secured Creditor Remedies without the consent of the Term
Agent (such consent not to be unreasonably withheld or delayed).

 

(c)                                  Payment of
Purchase Price.  Upon
the date of such purchase and sale, the Term Secured Parties that have
exercised such option shall, pursuant to documentation in form and substance
reasonably satisfactory to the ABL Agent, (i) pay to the ABL Secured
Parties as the purchase price therefor the full amount of all the ABL
Obligations then outstanding and unpaid (including, without limitation,
principal, reimbursement obligations in respect of any letters of credit,
interest, fees, indemnities and expenses, including reasonable attorneys’ fees
and legal expenses) at par, (ii) cash collateralize any letters of credit
outstanding under the ABL Credit Agreement in an amount equal to 103% of the
aggregate undrawn face amount thereof, (iii) agree to reimburse the ABL
Agent and the ABL Secured Parties for any loss, cost, damage or expense
(including reasonable attorneys’ fees and legal expenses) in connection with
any commissions, fees, costs or expenses related to any issued and outstanding
letters of credit as described above, (iv) cash collateralize any
Obligations with respect to Bank Products, Cash Management Services in an
amount equal to 103% of the aggregate amount thereof, and (v) the delivery or provision of cash
collateral or backstop letters of credit for any Asserted Known Bank
Indemnification Claims, in an amount reasonably estimated by the ABL Agent but
in any event not to exceed 100% of the ABL Obligors’ obligations to the ABL Agent
and the ABL Secured Parties in respect thereof.  Such purchase price and cash collateral shall
be remitted by wire transfer in federal funds to such bank account of the ABL
Agent for the ratable account of the ABL Agent and the ABL Secured Parties, as
the ABL Agent may designate in writing to the Term Agent for such purpose.  Interest shall be calculated to but excluding
the Business Day on which such purchase and sale shall occur if the amounts so
paid by the Term Secured Parties that have exercised such option to the bank
account designated by the ABL Agent are received in such bank account prior to
2:00 p.m., Eastern time and interest shall be calculated to and including
such Business Day if the amounts so paid by such Term Secured Parties to the
bank account designated by the ABL Agent are received in such bank account
later than 2:00 p.m., Eastern time on such Business Day.

 

(d)                                 Exclusion
of Representations and Warranties; No Recourse.  Such purchase shall be expressly made without
recourse, representation or warranty of any kind by the ABL Agent or any ABL
Secured Parties as to the ABL Documents or the ABL Obligations owed to such
Person or otherwise (including, without limitation, as to the validity or
enforceability thereof, the collectability of such ABL Obligations, or the
attachment or perfection of any Liens thereunder), except that each such Person
shall represent and warrant:  (i) the
amount of the ABL Obligations being sold by it, (ii) that such Person has
not created any Lien on any ABL

 

38

 

Obligation being sold
by it and (iii) that such Person has the right to assign such ABL
Obligations being assigned by it and its assignment is duly authorized.

 

ARTICLE 8

MISCELLANEOUS

 

Section 8.1                                   Rights
of Subrogation.  The Term
Agent, for and on behalf of itself and the Term Secured Parties, agrees that no
payment to the ABL Agent or any ABL Secured Party pursuant to the provisions of
this Agreement shall entitle the Term Agent or any Term Secured Party to
exercise any rights of subrogation in respect thereof until the Discharge of
ABL Obligations.  Thereafter, the ABL
Agent agrees to execute such documents, agreements, and instruments as the Term
Agent or any Term Secured Party may reasonably request to evidence the transfer
by subrogation to any such Person of an interest in the ABL Obligations
resulting from payments to the ABL Agent by such Person, so long as all costs
and expenses (including all reasonable legal fees and disbursements) incurred
in connection therewith by the ABL Agent are paid by such Person upon request
for payment thereof.  The ABL Agent, for
and on behalf of itself and the ABL Secured Parties, agrees that no payment to
the Term Agent or any Term Secured Party pursuant to the provisions of this
Agreement shall entitle the ABL Agent or any ABL Secured Party to exercise any
rights of subrogation in respect thereof until the Discharge of Term
Obligations.  Thereafter, the Term Agent
agrees to execute such documents, agreements, and instruments as the ABL Agent
or any ABL Secured Party may reasonably request to evidence the transfer by
subrogation to any such Person of an interest in the Term Obligations resulting
from payments to the Term Agent by such Person, so long as all costs and expenses
(including all reasonable legal fees and disbursements) incurred in connection
therewith by the Term Agent are paid by such Person upon request for payment
thereof. Each ABL Obligor and Term Obligor acknowledges and agrees that, to the
extent permitted by applicable law, the value of any payments or distributions
in cash, property or other assets received by the ABL Agent and the ABL Secured
Parties or Term Agent and the Term Secured Parties that are paid over to other
Secured Parties pursuant to this Agreement shall not reduce the amounts the ABL
Obligors or the Term Obligors, as applicable, shall be obligated to pay to the
Persons making such payment.

 

Section 8.2                                   Further
Assurances.  The Parties
will, at their own expense and at any time and from time to time, promptly
execute and deliver all further instruments and documents, and take all further
action, that may be necessary or desirable, or that either Party may reasonably
request, in order to protect any right or interest granted or purported to be
granted hereby or to enable the ABL Agent or the Term Agent to exercise and
enforce their rights and remedies hereunder; provided, however,
that no Party shall be required to pay over any payment or distribution,
execute any instruments or documents, or take any other action referred to in
this Section 7.2, to the extent that such action would contravene any law,
order or other legal requirement or any of the terms or provisions of this
Agreement, and in the event of a controversy or dispute, such Party may
interplead any payment or distribution in any court of competent jurisdiction,
without further responsibility in respect of such payment or distribution under
this Section 7.2.

 

Section 8.3                                   Representations.  The Term Agent represents and warrants to the
ABL Agent that it has the requisite power and authority under the Term
Documents to enter into, execute, deliver, and carry out the terms of this
Agreement on behalf of itself and the Term

 

39

 

Secured Parties and that this Agreement shall be binding obligations of
the Term Agent and the Term Secured Parties, enforceable against the Term Agent
and the Term Secured Parties in accordance with its terms.  The ABL Agent represents and warrants to the
Term Agent that it has the requisite power and authority under the ABL
Documents to enter into, execute, deliver, and carry out the terms of this
Agreement on behalf of itself and the ABL Secured Parties and that this
Agreement shall be binding obligations of the ABL Agent and the ABL Secured
Parties, enforceable against the ABL Agent and the ABL Secured Parties in
accordance with its terms.

 

Section 8.4            Amendments.  No amendment or waiver of any provision of
this Agreement nor consent to any departure by any Party hereto shall be
effective unless it is in a written agreement executed by the Term Agent and
the ABL Agent and then such waiver or consent shall be effective only in the
specific instance and for the specific purpose for which given.

 

Section 8.5            Addresses
for Notices.  Unless
otherwise specifically provided herein, any notice or other communication
herein required or permitted to be given shall be in writing and may be
personally served, telecopied, or sent by overnight express courier service or
mail and shall be deemed to have been given when delivered in person or by
courier service, upon receipt of a telecopy or three (3) days after
deposit in the mail (certified, with postage prepaid and properly
addressed).  For the purposes hereof, the
addresses of the parties hereto (until notice of a change thereof is delivered
as provided in this Section) shall be as set forth below or, as to each party,
at such other address as may be designated by such party in a written notice to
all of the other parties.

 

	
  ABL
  Agent:     

  	
  Bank of America, N.A.

  
	
   

  	
  100 Federal Street

  
	
   

  	
  Boston, Massachusetts
  02109

  
	
   

  	
  Attention:
  Andrew Cerussi

  
	
   

  	
  Fax:
  (617) 434-4131

  
	
   

  	
   

  
	
   

  	
  With a copy to:

  
	
   

  	
   

  
	
   

  	
  Riemer &
  Braunstein, LLP

  
	
   

  	
  Three
  Center Plaza

  
	
   

  	
  Boston,
  MA 02108

  
	
   

  	
  Attention:
  David S. Berman, Esquire

  
	
   

  	
  Fax:
  (617) 880-3456

  

 

40

 

	
  Term
  Agent:     

  	
  Z
  investments Holdings, LLC

  
	
   

  	
  One
  Embarcadero Center, 39th Floor

  
	
   

  	
  San
  Francisco, California 94111

  
	
   

  	
  Attention:  Stefan Kaluzny

  
	
   

  	
  Fax:  (415) 983-2701

  
	
   

  	
   

  
	
   

  	
  With
  a copy to:

  
	
   

  	
   

  
	
   

  	
  Kirkland &
  Ellis, LLP

  
	
   

  	
  555
  California Street

  
	
   

  	
  San
  Francisco, California 94104

  
	
   

  	
  Attention:  John E. Friedrichs, Esquire

  
	
   

  	
  Fax:  (415) 439-1500

  

 

Section 8.6            No
Waiver; Remedies.  No
failure on the part of any Party to exercise, and no delay in exercising, any
right hereunder shall operate as a waiver thereof; nor shall any single or
partial exercise of any right hereunder preclude any other or further exercise
thereof or the exercise of any other right. 
The remedies herein provided are cumulative and not exclusive of any
remedies provided by law.

 

Section 8.7            Continuing
Agreement, Transfer of Secured Obligations.  This Agreement is a continuing agreement and
shall (a) remain in full force and effect until the earlier of the
Discharge of ABL Obligations or the Discharge of Term Obligations, (b) be
binding upon the Parties and their successors and assigns, and (c) inure
to the benefit of and be enforceable by the Parties and their respective
successors, transferees and assigns. 
Nothing herein is intended, or shall be construed to give, any other
Person any right, remedy or claim under, to or in respect of this Agreement or
any Collateral.  All references to any
Obligor shall include any Obligor as debtor-in-possession and any receiver or
trustee for such Obligor in any Insolvency Proceeding.  Without limiting the generality of the
foregoing clause (c), the ABL Agent, any ABL Secured Party, the Term Agent, or
any Term Secured Party may assign or otherwise transfer all or any portion of
the ABL Obligations or the Term Obligations, as applicable, to any other Person
(other than any Obligor or any Affiliate of any Obligor and any Subsidiary of
any Obligor) and such other Person shall thereupon become vested with all the
rights and obligations in respect thereof granted to the ABL Agent, the Term
Agent, any ABL Secured Party, or any Term Secured Party, as the case may be,
herein or otherwise.  The ABL Secured
Parties and the Term Secured Parties may continue, at any time and without
notice to the other parties hereto, to extend credit and other financial
accommodations, lend monies and provide Indebtedness to, or for the benefit of,
any Borrower on the faith hereof.

 

Section 8.8            Governing
Law; Entire Agreement.  The validity, performance, and enforcement of
this Agreement shall be governed by, and construed in accordance with, the laws
of the State of New York.  This Agreement
constitutes the entire agreement and understanding among the Parties with
respect to the subject matter hereof and supersedes any prior agreements,
written or oral, with respect thereto.

 

41

 

Section 8.9            Counterparts.  This Agreement may be executed in any number
of counterparts, and it is not necessary that the signatures of all Parties be
contained on any one counterpart hereof, each counterpart will be deemed to be
an original, and all together shall constitute one and the same document.

 

Section 8.10         No Third Party Beneficiaries.  This Agreement is solely for the benefit of
the ABL Agent, ABL Secured Parties, Term Agent and Term Secured Parties.  No other Person (including any Obligor or any
Affiliate of any Obligor, or any Subsidiary of any Obligor) shall be deemed to
be a third party beneficiary of this Agreement.

 

Section 8.11         Headings.  The headings of the articles and sections of
this Agreement are inserted for purposes of convenience only and shall not be
construed to affect the meaning or construction of any of the provisions
hereof.

 

Section 8.12         Severability.  If any of the provisions in this Agreement
shall, for any reason, be held invalid, illegal or unenforceable in any
respect, such invalidity, illegality, or unenforceability shall not affect any
other provision of this Agreement and shall not invalidate the Lien Priority or
the application of Proceeds and other priorities set forth in this Agreement.

 

Section 8.13         Attorneys’ Fees.  The Parties agree that if any dispute,
arbitration, litigation, or other proceeding is brought with respect to the
enforcement of this Agreement or any provision hereof, the prevailing party in
such dispute, arbitration, litigation, or other proceeding shall be entitled to
recover its reasonable attorneys’ fees and all other costs and expenses
incurred in the enforcement of this Agreement, irrespective of whether suit is
brought.

 

Section 8.14         VENUE; JURY TRIAL WAIVER.

 

(a)           EACH PARTY HERETO HEREBY IRREVOCABLY AND
UNCONDITIONALLY SUBMITS, FOR ITSELF AND ITS PROPERTY, TO THE NONEXCLUSIVE
JURISDICTION OF THE SUPREME COURT OF THE STATE OF NEW YORK SITTING IN NEW YORK
COUNTY AND OF THE UNITED STATES DISTRICT COURT OF THE SOUTHERN DISTRICT OF NEW
YORK, AND ANY APPELLATE COURT FROM ANY THEREOF, IN ANY ACTION OR PROCEEDING
ARISING OUT OF OR RELATING TO THIS AGREEMENT, OR FOR RECOGNITION OR ENFORCEMENT
OF ANY JUDGMENT, AND EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY AND
UNCONDITIONALLY AGREES THAT ALL CLAIMS IN RESPECT OF ANY SUCH ACTION OR
PROCEEDING MAY BE HEARD AND DETERMINED IN SUCH NEW YORK STATE OR, TO THE
EXTENT PERMITTED BY LAW, IN SUCH FEDERAL COURT. 
EACH OF THE PARTIES HERETO AGREES THAT A FINAL JUDGMENT IN ANY SUCH
ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER
JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY
LAW.  NOTHING IN THIS AGREEMENT SHALL
AFFECT ANY RIGHT THAT ANY ABL SECURED PARTY OR ANY TERM SECURED PARTY MAY OTHERWISE
HAVE TO BRING ANY ACTION OR PROCEEDING RELATING TO THIS AGREEMENT, ANY TERM
DOCUMENTS, OR ANY ABL DOCUMENTS AGAINST ANY OBLIGOR OR ITS PROPERTIES IN THE
COURTS OF ANY JURISDICTION.

 

42

 

(b)           EACH PARTY HERETO HEREBY WAIVES ITS RESPECTIVE RIGHTS
TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF
THIS AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREIN, INCLUDING
CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW
OR STATUTORY CLAIMS.  EACH PARTY HERETO
REPRESENTS THAT IT HAS REVIEWED THIS WAIVER AND IT KNOWINGLY AND VOLUNTARILY
WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL.  IN THE EVENT OF LITIGATION, A COPY OF THIS
AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.

 

(c)           EACH PARTY TO THIS AGREEMENT IRREVOCABLY CONSENTS TO
SERVICE OF PROCESS IN THE MANNER PROVIDED FOR NOTICES IN SECTION 7.5.  NOTHING IN THIS AGREEMENT WILL AFFECT THE
RIGHT OF ANY PARTY TO THIS AGREEMENT TO SERVE PROCESS IN ANY OTHER MANNER
PERMITTED BY LAW.

 

Section 8.15         Intercreditor Agreement.  This Agreement is the Intercreditor Agreement
referred to in the ABL Credit Agreement and the Term Credit Agreement.  Nothing in this Agreement shall be deemed to
subordinate the obligations due to (i) any ABL Secured Party to the
obligations due to any Term Secured Party or (ii) any Term Secured Party
to the obligations due to any ABL Secured Party (in each case, whether before
or after the occurrence of an Insolvency Proceeding), it being the intent of
the Parties that this Agreement shall effectuate a subordination of Liens but
not a subordination of Indebtedness.

 

Section 8.16         No Warranties or Liability.  The Term Agent and the ABL Agent acknowledge
and agree that neither has made any representation or warranty with respect to
the execution, validity, legality, completeness, collectability or enforceability
of any other ABL Document or any Term Document. 
Except as otherwise provided in this Agreement, the Term Agent and the
ABL Agent will be entitled to manage and supervise their respective extensions
of credit to any Borrower in accordance with law and their usual practices,
modified from time to time as they deem appropriate.

 

Section 8.17         Conflicts.  In the event of any conflict between the
provisions of this Agreement and the provisions of any ABL Document or any Term
Document, the provisions of this Agreement shall govern.

 

Section 8.18         Information Concerning Financial
Condition of the Obligors.

 

(a)           Each of the Term Agent and the ABL Agent hereby
assumes responsibility for keeping itself informed of the financial condition
of the Obligors and all other circumstances bearing upon the risk of nonpayment
of the ABL Obligations or the Term Obligations. 
The Term Agent and the ABL Agent hereby agree that no party shall have
any duty to advise any other party of information known to it regarding such
condition or any such circumstances.  In
the event the Term Agent or the ABL Agent, in their sole discretion, undertakes
at any time or from time to time to provide any information to any other party
to this Agreement, (a) it shall be under no obligation (i) to provide
any such information to such other party or any other party on any subsequent
occasion, (ii) to undertake any investigation not a part of its regular
business routine, or (iii) to disclose any 

 

43

 

other information, (b) it makes no representation
as to the accuracy or completeness of any such information and shall not be
liable for any information contained therein, and (c) the Party receiving
such information hereby agrees to hold the providing Party harmless from any
action the receiving Party may take or conclusion the receiving Party may reach
or draw from any such information, as well as from and against any and all
losses, claims, damages, liabilities, and expenses to which such receiving Party
may become subject arising out of or in connection with the use of such
information.

 

(b)           The Obligors agree that any information provided to
the ABL Agent, the Term Agent, any ABL Secured Party or any Term Secured Party
may be shared by such Person with any ABL Secured Party, any Term Secured
Party, the ABL Agent or the Term Agent notwithstanding a request or demand by
such Obligors that such information be kept confidential; provided that
such information shall otherwise be subject to the respective confidentiality
provisions in the ABL Credit Agreement and the Term Credit Agreement, as
applicable

 

[SIGNATURE
PAGES FOLLOW]

 

44

 

IN WITNESS WHEREOF, the ABL
Agent, for and on behalf of itself and the ABL Lenders, and the Term Agent, for
and on behalf of itself and the Term Lenders, have caused this Agreement to be
duly executed and delivered as of the date first above written.

 

	
   

  	
  BANK OF AMERICA, N.A., in its capacity as ABL
  Agent

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ ANDREW CERUSSI

  
	
   

  	
  Name:

  	
  Andrew Cerussi

  
	
   

  	
  Title:

  	
  SVP

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Z INVESTMENT HOLDINGS, LLC, in its
  capacity as the Term Agent

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ PETER MORROW

  
	
   

  	
  Name:

  	
  Peter Morrow

  
	
   

  	
  Title:

  	
  Manager

  

 

Signature Page to Intercreditor
Agreement

 

 

ACKNOWLEDGMENT

 

Each ABL Obligor and Term
Obligor hereby acknowledges that it has received a copy of this Agreement and
consents thereto, agrees to recognize all rights granted thereby to the ABL
Agent and the Term Agent, and will not do any act or perform any obligation
which is not in accordance with the agreements set forth in this Agreement.
Each ABL Obligor and Term Obligor further acknowledges and agrees that it is
not an intended beneficiary or third party beneficiary under this Agreement and
(i) as between the ABL Secured Parties and the ABL Obligors, the ABL
Documents remain in full force and effect as written and are in no way modified
hereby, and (ii) as between the Term Secured Parties, the Term Obligors,
the Term Documents remain in full force and effect as written and are in no way
modified hereby.  Without limiting the
foregoing, the Obligors acknowledge and agree that the Discharge of ABL
Obligations and/or the Discharge of Term Obligations shall not limit, impair,
reduce or otherwise modify their liability to the Secured Parties for any
amounts which thereafter may become due under the Credit Documents.

 

	
   

  	
  ZALE DELAWARE, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ STEVE MASSANELLI

  
	
   

  	
  Name: Steve Massanelli

  
	
   

  	
  Title: Senior Vice President and Treasurer

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  ZALE CORPORATION

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ STEVE MASSANELLI

  
	
   

  	
  Name: Steve Massanelli

  
	
   

  	
  Title: Senior Vice President and Treasurer

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  ZGCO, LLC

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ STEVE MASSANELLI

  
	
   

  	
  Name: Steve Massanelli

  
	
   

  	
  Title: Senior Vice President and Treasurer

  

 

Acknowledgement
— Intercreditor Agreement

 

 

	
   

  	
  TXDC, L.P.

  
	
   

  	
   

  
	
   

  	
  By:

  	
   ZALE DELAWARE, INC.

  
	
   

  	
   

  	
  Its General Partner

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ STEVE MASSANELLI

  
	
   

  	
  Name: Steve Massanelli

  
	
   

  	
  Title: Senior Vice President and Treasurer

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  ZALE PUERTO RICO, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ STEVE MASSANELLI

  
	
   

  	
  Name: Steve Massanelli

  
	
   

  	
  Title: Senior Vice President and Treasurer

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  ZALE CANADA CO.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ STEVE MASSANELLI

  
	
   

  	
  Name: Steve Massanelli

  
	
   

  	
  Title: Senior Vice President and Treasurer

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  ZALE CANADA DIAMOND SOURCING INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ STEVE MASSANELLI

  
	
   

  	
  Name: Steve Massanelli

  
	
   

  	
  Title: Senior Vice President and Treasurer

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  ZAP, INC.

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ STEVE MASSANELLI

  
	
   

  	
  Name: Steve Massanelli

  
	
   

  	
  Title: Senior Vice President and Treasurer

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  ZALE CANADA HOLDING, LP.

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ STEVE MASSANELLI

  
	
   

  	
  Name: Steve Massanelli

  
	
   

  	
  Title: Senior Vice President and Treasurer

  

 

Acknowledgement
— Intercreditor Agreement

 

 

	
   

  	
  ZCSC, LLC

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ STEVE MASSANELLI

  
	
   

  	
  Name: Steve Massanelli

  
	
   

  	
  Title: Senior Vice President and Treasurer

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  ZALE INTERNATIONAL, INC.

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ STEVE MASSANELLI

  
	
   

  	
  Name: Steve Massanelli

  
	
   

  	
  Title: Senior Vice President and Treasurer

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  ZALE EMPLOYEES’ CHILD CARE ASSOCIATION, INC.

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ STEVE MASSANELLI

  
	
   

  	
  Name: Steve Massanelli

  
	
   

  	
  Title: Senior Vice President and Treasurer

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  ZALE CANADA FINCO 2, INC.

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ STEVE MASSANELLI

  
	
   

  	
  Name: Steve Massanelli

  
	
   

  	
  Title: Senior Vice President and Treasurer

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  FINCO HOLDING LP.

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ STEVE MASSANELLI

  
	
   

  	
  Name: Steve Massanelli

  
	
   

  	
  Title: Senior Vice President and Treasurer

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  FINCO PARTNERSHIP LP.

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ STEVE MASSANELLI

  
	
   

  	
  Name: Steve Massanelli

  
	
   

  	
  Title: Senior Vice President and Treasurer

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  ZALE CANADA FINCO, LLC

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ STEVE MASSANELLI

  
	
   

  	
  Name: Steve Massanelli

  
	
   

  	
  Title: Senior Vice President and Treasurer

  

 

Acknowledgement
— Intercreditor Agreement

 

 

	
   

  	
  ZALE CANADA FINCO 1, INC.

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ STEVE MASSANELLI

  
	
   

  	
  Name: Steve Massanelli

  
	
   

  	
  Title: Senior Vice
  President and Treasurer

  

 

Acknowledgement
— Intercreditor Agreement

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