Document:

Exhibit
10.2

 

EXECUTION
COPY

 

 

SECOND LIEN
 GUARANTEE AND COLLATERAL AGREEMENT

 

made by

 

NEW WORLD RESTAURANT GROUP,
INC.

 

and certain of its
Subsidiaries

 

in favor of

 

BEAR STEARNS CORPORATE LENDING INC.,

as Administrative Agent

 

Dated as of February 28, 2006

 

 

 

TABLE OF CONTENTS

	
   

  	
   

  	
  Page

  
	
  SECTION 1. DEFINED TERMS

  	
  1

  
	
  1.1.

  	
  Definitions

  	
  1

  
	
  1.2.

  	
  Other Definitional Provisions

  	
  4

  
	
   

  	
   

  	
   

  
	
  SECTION 2. GUARANTEE

  	
  4

  
	
  2.1.

  	
  Guarantee

  	
  4

  
	
  2.2.

  	
  Right of Contribution

  	
  4

  
	
  2.3.

  	
  No Subrogation

  	
  5

  
	
  2.4.

  	
  Amendments, etc. with respect to the Borrower Obligations

  	
  5

  
	
  2.5.

  	
  Guarantee Absolute and Unconditional

  	
  5

  
	
  2.6.

  	
  Reinstatement

  	
  6

  
	
  2.7.

  	
  Payments

  	
  6

  
	
   

  	
   

  	
   

  
	
  SECTION 3. GRANT OF SECURITY INTEREST

  	
  6

  
	
   

  	
   

  
	
  SECTION 4. REPRESENTATIONS AND WARRANTIES

  	
  8

  
	
  4.1.

  	
  Representations in Second Lien Credit Agreement

  	
  8

  
	
  4.2.

  	
  Title; No Other Liens

  	
  8

  
	
  4.3.

  	
  Perfected Second Priority Liens

  	
  8

  
	
  4.4.

  	
  Jurisdiction of Organization; Chief Executive Office

  	
  9

  
	
  4.5.

  	
  Inventory and Equipment

  	
  9

  
	
  4.6.

  	
  Farm Products

  	
  9

  
	
  4.7.

  	
  Pledged Securities

  	
  9

  
	
  4.8.

  	
  Receivables

  	
  9

  
	
  4.9.

  	
  Intellectual Property

  	
  9

  
	
   

  	
   

  	
   

  
	
  SECTION 5. COVENANTS

  	
  10

  
	
  5.1.

  	
  Covenants in Second Lien Credit Agreement

  	
  10

  
	
  5.2.

  	
  Delivery of Instruments and Chattel Paper

  	
  10

  
	
  5.3.

  	
  Maintenance of Insurance

  	
  10

  
	
  5.4.

  	
  Payment of Obligations

  	
  11

  
	
  5.5.

  	
  Maintenance of Perfected Security Interest; Further Documentation

  	
  11

  
	
  5.6.

  	
  Changes in Name, etc.

  	
  11

  
	
  5.7.

  	
  Notices

  	
  12

  
	
  5.8.

  	
  Investment Property

  	
  12

  
	
  5.9.

  	
  Receivables

  	
  13

  
	
  5.10.

  	
  Intellectual Property

  	
  13

  
	
   

  	
   

  	
   

  
	
  SECTION 6. REMEDIAL PROVISIONS

  	
  14

  
	
  6.1.

  	
  Certain Matters Relating to Receivables

  	
  14

  
	
  6.2.

  	
  Communications with Obligors; Grantors Remain Liable

  	
  15

  
	
  6.3.

  	
  Pledged Stock

  	
  15

  
	
  6.4.

  	
  Proceeds to be Turned Over to the Administrative Agent

  	
  16

  

 

i

 

	
  6.5.

  	
  Application of Proceeds

  	
  17

  
	
  6.6.

  	
  Code and Other Remedies

  	
  17

  
	
  6.7.

  	
  Private Sales

  	
  18

  
	
  6.8.

  	
  Deficiency

  	
  18

  
	
   

  	
   

  	
   

  
	
  SECTION 7. THE ADMINISTRATIVE AGENT

  	
  18

  
	
  7.1.

  	
  Administrative Agent’s Appointment as Attorney-in-Fact, etc.

  	
  18

  
	
  7.2.

  	
  Duty of Administrative Agent

  	
  20

  
	
  7.3.

  	
  Financing Statements

  	
  20

  
	
  7.4.

  	
  Authority of Administrative Agent

  	
  20

  
	
   

  	
   

  	
   

  
	
  SECTION 8. MISCELLANEOUS

  	
  21

  
	
  8.1.

  	
  Amendments in Writing

  	
  21

  
	
  8.2.

  	
  Notices

  	
  21

  
	
  8.3.

  	
  No Waiver by Course of Conduct; Cumulative Remedies

  	
  21

  
	
  8.4.

  	
  Enforcement Expenses; Indemnification

  	
  21

  
	
  8.5.

  	
  Successors and Assigns

  	
  22

  
	
  8.6.

  	
  Set-Off

  	
  22

  
	
  8.7.

  	
  Counterparts

  	
  22

  
	
  8.8.

  	
  Severability

  	
  22

  
	
  8.9.

  	
  Section Headings

  	
  22

  
	
  8.10.

  	
  Integration

  	
  22

  
	
  8.11.

  	
  GOVERNING LAW

  	
  23

  
	
  8.12.

  	
  Submission To Jurisdiction; Waivers

  	
  23

  
	
  8.13.

  	
  Acknowledgments

  	
  23

  
	
  8.14.

  	
  Additional Grantors

  	
  23

  
	
  8.15.

  	
  Releases

  	
  24

  
	
  8.16.

  	
  WAIVER OF JURY TRIAL

  	
  24

  
	
  8.17.

  	
  Intercreditor Agreement

  	
  24

  
	
  8.18.

  	
  Second Lien Qualified Counterparties.

  	
  24

  

 

	
  SCHEDULES

  	
   

  	
   

  
	
  Schedule 1

  	
   

  	
  Notice Addresses

  
	
  Schedule 2

  	
   

  	
  Investment Property

  
	
  Schedule 3

  	
   

  	
  Perfection Matters

  
	
  Schedule 4

  	
   

  	
  Jurisdictions of Organization and Chief Executive Offices

  
	
  Schedule 5

  	
   

  	
  Inventory and Equipment Locations

  
	
  Schedule 6

  	
   

  	
  Intellectual Property

  

 

ii

SECOND LIEN GUARANTEE AND
COLLATERAL AGREEMENT, dated as of February 28, 2006, made by each of the
signatories hereto (together with any other entity that may become a party
hereto as provided herein, the “Grantors”), in favor of BEAR STEARNS
CORPORATE LENDING INC., as administrative agent (in such capacity, the “Administrative
Agent”) for the Secured Parties (as hereinafter defined).

W
I T N E S S E T H:

WHEREAS, pursuant to the
Second Lien Credit Agreement, dated as of January 26, 2006 (as amended, supplemented,
revised, replaced, restated or otherwise modified from time to time, the “Second
Lien Credit Agreement”), among New World Restaurant Group, Inc., a Delaware
corporation (the “Borrower”), the Lenders, Bear, Stearns & Co. Inc.,
as sole lead arranger and sole bookrunner (in such capacity, the “Lead
Arranger”) and the Administrative Agent, the Lenders have severally agreed
to make extensions of credit to the Borrower upon the terms and subject to the
conditions set forth therein;

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

WHEREAS, it is a condition
precedent to the obligation of the Lenders to make their respective extensions
of credit to the Borrower under the Second Lien Credit Agreement and of Second
Lien Qualified Counterparties to provide financial accommodation under
Specified Hedge Agreements and Specified Cash Management Agreements, as the
case may be, that the Grantors shall have executed and delivered this Agreement
to the Administrative Agent for the ratable benefit of the Secured Parties;

NOW, THEREFORE, in
consideration of the premises and to induce the Administrative Agent and the
Lenders to enter into the Second Lien Credit Agreement and to induce the
Lenders to make their respective extensions of credit to the Borrower
thereunder and to induce the Second Lien Qualified Counterparties to enter into
Specified Hedge Agreements and Specified Cash Management Agreements, as the
case may be, each Grantor hereby agrees with the Administrative Agent, for the
ratable benefit of the Secured Parties as follows:

SECTION 1.  DEFINED
TERMS

1.1.          Definitions. 
(a)  Unless otherwise defined
herein, terms defined in the Second Lien Credit Agreement and used herein shall
have the meanings given to them in the Second Lien Credit Agreement, and the
following terms which are defined in the New York UCC on the date hereof are
used herein as so defined:  Accounts,
Chattel Paper, Documents, Equipment, Farm Products, General Intangibles, Goods,
Instruments, Inventory and Investment Property.

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

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

“Borrower Obligations”:  the Second Lien Obligations of the Borrower.

“Collateral”:  as defined in Section 3.

“Collateral Account”:  any collateral account established by the
Administrative Agent as provided in Section 6.1 or 6.4.

1

 

“Copyrights”:  (i) all copyrights arising under the laws of
the United States, any other country or any political subdivision thereof,
whether registered or unregistered and whether published or unpublished
(including, without limitation, those listed in Schedule 6), all
registrations and recordings thereof, and all applications in connection
therewith, including, without limitation, all registrations, recordings and
applications in the United States Copyright Office, and (ii) the right to
obtain all renewals thereof.

“Copyright Licenses”:  any written agreement naming any Grantor as
licensor or licensee (including, without limitation, those listed in Schedule
6), granting any right under any Copyright, including, without limitation,
the grant of rights to manufacture, distribute, exploit and sell materials
derived from any Copyright.

“Deposit Account”:  as defined in the Uniform Commercial Code of
any applicable jurisdiction and, in any event, including, without limitation,
any demand, time, savings, passbook or like account maintained with a
depositary institution.

“First Lien
Administrative Agent”:  as defined in
the Intercreditor Agreement.

“First Priority Lien”:  as defined in Section 4.2.

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

 “Funding Office”:  the office of the Administrative Agent
specified in Section 11.2 of the Second Lien Credit Agreement, or such
other office as the Administrative Agent may designate in writing.

 “Guarantor Obligations”:  with respect to any Guarantor, the Second
Lien Obligations of such Guarantor.

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

“Intellectual Property”:  the collective reference to all rights,
priorities and privileges relating to any and all intellectual property,
whether arising under United States, multinational or foreign laws or
otherwise, including, without limitation, the Copyrights, the Copyright
Licenses, the Patents, the Patent Licenses, the Trademarks and the Trademark
Licenses, and all rights to sue at law or in equity for any infringement or
other impairment thereof, including the right to receive all proceeds and
damages therefrom.

“Intercompany Note”:  any promissory note evidencing loans made by
any Grantor to any of its Subsidiaries or other Indebtedness owing by any of
its Subsidiaries to any Grantor.

“Investment Property”:  the collective reference to (i) all “investment
property” as such term is defined in Section 9-102(a)(49) of the New York UCC
(other than any Foreign Subsidiary Voting Stock excluded from the definition of
“Pledged Stock”) and (ii) whether or not constituting “investment property” as
so defined, all Pledged Notes and all Pledged Stock.

“Issuers”:  the collective reference to each issuer of
any Investment Property.

“New York UCC”:  the Uniform Commercial Code as from time to
time in effect in the State of New York.

 

2

 

“Patents”:  (i) all letters patent of the United States,
any other country or any political subdivision thereof, all reissues and
extensions thereof and all goodwill associated therewith, including, without
limitation, any of the foregoing referred to in Schedule 6, (ii) all
applications for letters patent of the United States or any other country and
all divisions, continuations and continuations-in-part thereof, including,
without limitation, any of the foregoing referred to in Schedule 6, and
(iii) all rights to obtain any reissues or extensions of the foregoing.

“Patent License”:  all written agreements providing for the
grant by or to any Grantor of any right to manufacture, use or sell any
invention covered in whole or in part by a Patent, including, without
limitation, any of the foregoing referred to in Schedule 6.

“Pledged Notes”:  all promissory notes listed on Schedule 2,
all Intercompany Notes at any time issued to any Grantor and all other
promissory notes issued to or held by any Grantor (other than promissory notes
issued in connection with extensions of trade credit by any Grantor in the
ordinary course of business or any promissory note evidencing Investments
permitted by Section 8.8(d) of the Second Lien Credit Agreement).

“Pledged Securities”:  the collective reference to the Pledged Notes
and the Pledged Stock.

“Pledged Stock”:  the shares of Capital Stock listed on Schedule
2, together with any other shares, stock certificates, options, interests
or rights of any nature whatsoever in respect of the Capital Stock of any
Person that may be issued or granted to, or held by, any Grantor while this
Agreement is in effect; provided that in no event shall more than 65% of
the total outstanding Foreign Subsidiary Voting Stock of any Excluded Foreign
Subsidiary be required to be pledged hereunder.

“Proceeds”:  all “proceeds” as such term is defined in
Section 9-102(a)(64) of the New York UCC on the date hereof and, in any event,
shall include, without limitation, all dividends or other income from the
Investment Property, collections thereon or distributions or payments with
respect thereto.

“Receivable”:  any right to payment for goods sold or leased
or for services rendered, whether or not such right is evidenced by an
Instrument or Chattel Paper and whether or not it has been earned by
performance (including, without limitation, any Account).

“Second Lien Qualified
Counterparty”:  as defined in the
Intercreditor Agreement.

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

“Secured Parties”:
the collective reference to the Administrative Agent, the Lenders and Second
Lien Qualified Counterparty.  The Secured
Parties are hereby designated Second Lien Claimholders for purposes of the
Intercreditor Agreement.

 “Trademarks”:  (i) all trademarks, trade names, corporate
names, company names, business names, fictitious business names, trade styles,
service marks, logos and other source or business identifiers, and all goodwill
associated therewith, now existing or hereafter adopted or acquired, all
registrations and recordings thereof, and all applications in connection
therewith, whether in the United States Patent and Trademark Office or in any
similar office or 

 

3

 

agency of the United States,
any State thereof or any other country or any political subdivision thereof, or
otherwise, and all common-law rights related thereto, including, without
limitation, any of the foregoing referred to in Schedule 6, and (ii) the
right to obtain all renewals thereof.

“Trademark License”:  any written agreement providing for the grant
by or to any Grantor of any right to use any Trademark, including, without
limitation, any of the foregoing referred to in Schedule 6.

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

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

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

SECTION 2. 
GUARANTEE

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

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

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

(d)           The guarantee contained in this Section 2 shall remain in
full force and effect until the conditions set forth in Section 8.15 shall have
been satisfied, notwithstanding that from time to time during the term of the
Second Lien Credit Agreement, the Borrower may be free from any Borrower
Obligations.

(e)           No payment made by the Borrower, any of the Guarantors,
any other guarantor or any other Person or received or collected by any Secured
Party from the Borrower, any of the Guarantors, any other guarantor or any
other Person by virtue of any action or proceeding or any set-off or
appropriation or application at any time or from time to time in reduction of
or in payment of the Borrower Obligations shall be deemed to modify, reduce,
release or otherwise affect the liability of any Guarantor hereunder which
shall, notwithstanding any such payment (other than any payment made by such
Guarantor in respect of the Borrower Obligations or any 

 

4

 

payment received or collected from such Guarantor in
respect of the Borrower Obligations), remain liable for the Borrower Obligations
up to the maximum liability of such Guarantor hereunder until the conditions
set forth in Section 8.15 shall have been satisfied.

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

2.3.          No Subrogation. 
Notwithstanding any payment made by any Guarantor hereunder or any
set-off or application of funds of any Guarantor by any Secured Party, no
Guarantor shall be entitled to be subrogated to any of the rights of any
Secured Party against the Borrower or any other Guarantor or any collateral
security or guarantee or right of offset held by any Secured Party for the
payment of the Borrower Obligations, nor shall any Guarantor seek or be
entitled to seek any contribution or reimbursement from the Borrower or any
other Guarantor in respect of payments made by such Guarantor hereunder, in
either case, until all amounts owing to the Secured Parties by the Borrower on
account of the Borrower Obligations are paid in full and the Term Loan
Commitments under the Facility are terminated. 
If any amount shall be paid to any Guarantor on account of such
subrogation rights at any time when all of the Borrower Obligations shall not
have been paid in full, such amount shall be held by such Guarantor in trust
for the Secured Parties, segregated from other funds of such Guarantor, and
shall, forthwith upon receipt by such Guarantor, be turned over to the
Administrative Agent in the exact form received by such Guarantor (duly
indorsed by such Guarantor to the Administrative Agent, if required), to be
applied against the Borrower Obligations, whether matured or unmatured in
accordance with the provisions of Section 6.5 hereof.

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

 

5

 

2.5.          Guarantee Absolute and Unconditional.  Each Guarantor waives any and all notice of
the creation, renewal, extension or accrual of any of the Borrower Obligations
and notice of or proof of reliance by any Secured Party upon the guarantee
contained in this Section 2 or acceptance of the guarantee contained in this
Section 2; the Borrower Obligations, and any of them, shall conclusively be
deemed to have been created, contracted or incurred, or renewed, extended,
amended or waived, in reliance upon the guarantee contained in this Section 2;
and all dealings between the Borrower and any of the Guarantors, on the one
hand, and the Secured Parties, on the other hand, likewise shall be
conclusively presumed to have been had or consummated in reliance upon the
guarantee contained in this Section 2. 
To the extent permitted by applicable law, each Guarantor waives
diligence, presentment, protest, demand for payment and notice of default or
nonpayment to or upon the Borrower or any of the Guarantors with respect to the
Borrower Obligations.  Each Guarantor
understands and agrees that, to the extent permitted by applicable law, the
guarantee contained in this Section 2 shall be construed as a continuing,
absolute and unconditional guarantee of payment without regard to (1) the
validity or enforceability of the Second Lien Credit Agreement or any other
Loan Document, any of the Borrower Obligations or any other collateral security
therefor or guarantee or right of offset with respect thereto at any time or
from time to time held by any Secured Party, (2) any defense, set-off or
counterclaim (other than a defense of payment or performance) which may at any
time be available to or be asserted by the Borrower or any other Person against
any Secured Party, or (3) any other circumstance whatsoever (other than a
defense of performance) (with or without notice to or knowledge of the Borrower
or such Guarantor) which constitutes, or might be construed to constitute, an
equitable or legal discharge of the Borrower for the Borrower Obligations, or
of such Guarantor under the guarantee contained in this Section 2, in
bankruptcy or in any other instance. 
When making any demand hereunder or otherwise pursuing its rights and
remedies hereunder against any Guarantor, any Secured Party may, but shall be
under no obligation to, make a similar demand on or otherwise pursue such
rights and remedies as it may have against the Borrower, any other Guarantor or
any other Person or against any collateral security or guarantee for the
Borrower Obligations or any right of offset with respect thereto, and any
failure by any Secured Party to make any such demand, to pursue such other
rights or remedies or to collect any payments from the Borrower, any other
Guarantor or any other Person or to realize upon any such collateral security
or guarantee or to exercise any such right of offset, or any release of the
Borrower, any other Guarantor or any other Person or any such collateral
security, guarantee or right of offset, shall not relieve any Guarantor of any
obligation or liability hereunder, and shall not impair or affect the rights
and remedies, whether express, implied or available as a matter of law, of any
Secured Party against any Guarantor.  For
the purposes hereof “demand” shall include the commencement and continuance of
any legal proceedings.

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

2.7.          Payments. 
Each Guarantor hereby guarantees that payments hereunder will be paid to
the Administrative Agent without set-off or counterclaim in Dollars at the
Funding Office.

 

6

 

SECTION 3.  GRANT OF
SECURITY INTEREST

Each Grantor hereby assigns
and transfers to the Administrative Agent, and hereby grants to the Administrative
Agent, for the ratable benefit of the Secured Parties, a security interest in
all of the following property now owned or at any time hereafter acquired by
such Grantor or in which such Grantor now has or at any time in the future may
acquire any right, title or interest (collectively, the “Collateral”),
as collateral security for the prompt and complete payment and performance when
due (whether at the stated maturity, by acceleration or otherwise) of such
Grantor’s Second Lien Obligations:

(a)           all Accounts;

(b)           all Chattel Paper;

(c)           all  Deposit
Accounts;

(d)           all Documents;

(e)           all Equipment;

(f)            all General Intangibles;

(g)           all Instruments;

(h)           all Intellectual Property;

(i)            all Inventory;

(j)            all Investment Property;

(k)           all Goods and other property not otherwise described
above;

(l)            all books and records pertaining to the Collateral; and

(m)          to the extent not otherwise included, all Proceeds and
products of any and all of the foregoing and all collateral security and
guarantees given by any Person with respect to any of the foregoing; provided,
however, that notwithstanding any of the other provisions set forth in this
Section 3, this Agreement shall not constitute a grant of a security interest
in any property to the extent that such grant of a security interest is
prohibited by any Requirements of Law of a Governmental Authority, requires a
consent not obtained of any Governmental Authority pursuant to such Requirement
of Law or is prohibited by, or constitutes a breach or default under or results
in the termination of or requires any consent not obtained under, any contract,
license, agreement, instrument or other document evidencing or giving rise to
such property or, in the case of any Investment Property, Pledged Stock or
Pledged Note, any applicable shareholder or similar agreement, except to the
extent that such Requirement of Law or the term in such contract, license,
agreement, instrument or other document or shareholder or similar agreement
providing for such prohibition, breach, default or termination or requiring
such consent is ineffective under applicable law.

 

7

 

SECTION 4. 
REPRESENTATIONS AND WARRANTIES

To induce the Administrative
Agent and the Lenders to enter into the Second Lien Credit Agreement and to
induce the Lenders to make their respective extensions of credit to the
Borrower thereunder and to induce the Second Lien Qualified Counterparties to
enter into the Specified Hedge Agreements or the Specified Cash Management
Agreements, as the case may be, each Grantor hereby represents and warrants (in
the case of the Borrower, such representations and warranties being limited to
itself and its Subsidiaries) to the Administrative Agent and each Lender that:

4.1.          Representations in Second Lien Credit Agreement.  In the case of each Guarantor, the
representations and warranties set forth in Section 5 of the Second Lien Credit
Agreement as they relate to such Guarantor or to the Loan Documents to which
such Guarantor is a party, each of which is hereby incorporated herein by
reference, are true and correct in all material respects, and each Secured
Party shall be entitled to rely on each of them as if they were fully set forth
herein, provided that each reference in each such representation and
warranty to the Borrower’s or to any Loan Party’s knowledge shall, for the
purposes of this Section 4.1, be deemed to be a reference to such Guarantor’s
knowledge.

4.2.          Title; No Other Liens.  Except for the security interest granted to
the Administrative Agent for the ratable benefit of the Secured Parties
pursuant to this Agreement and the other Liens permitted to exist on the
Collateral by the Second Lien Credit Agreement (including security interests
granted under the First Lien Security Documents (the “First Priority Lien”)),
such Grantor owns each item of its Collateral free and clear of any and all
Liens or claims of others.  No financing
statement or other public notice with respect to all or any part of the
Collateral is on file or of record in any public office, except such as have
been filed in favor of the Administrative Agent, for the ratable benefit of the
Secured Parties, pursuant to this Agreement or as are permitted by the Second
Lien Credit Agreement (including financing statements or other public notices
filed in favor of the First Lien Administrative Agent).  For the avoidance of doubt, it is understood
and agreed that any Grantor may, as part of its business, grant licenses to
third parties to use Intellectual Property owned or developed by a
Grantor.  For purposes of this Agreement
and the other Loan Documents, such licensing activity shall not constitute a “Lien”
on such Intellectual Property.  Each
Secured Party understands that any such licenses may be exclusive to the
applicable licensees, and such exclusivity provisions may limit the ability of
the Administrative Agent to utilize, sell, Lease or transfer the related
Intellectual Property or otherwise realize value from such Intellectual
Property pursuant hereto.

4.3.          Perfected Second Priority Liens.  The security interests granted pursuant to
this Agreement upon completion of the filings and other actions specified on Schedule 3
(which, in the case of all filings and other documents referred to on said
Schedule, have been delivered to the Administrative Agent in completed and duly
executed form) will constitute valid perfected security interests, to the
extent a security interest may be perfected therein under the New York UCC, in
all of the Collateral in favor of the Administrative Agent, for the ratable
benefit of the Secured Parties, as collateral security for such Grantor’s
Second Lien Obligations, enforceable in accordance with the terms hereof
against all creditors of such Grantor and any Persons purporting to purchase
any Collateral from such Grantor and are prior to all other Liens on the
Collateral in existence on the date hereof except for (i) the First Priority
Lien and (ii) unrecorded Liens permitted by the Second Lien Credit Agreement
which have priority over the Liens on the Collateral by operation of law.

 

8

 

4.4.          Jurisdiction of Organization; Chief Executive Office.  On the date hereof, such Grantor’s
jurisdiction of organization, identification number from the jurisdiction of
organization (if any), and the location of such Grantor’s chief executive
office or sole place of business are specified on Schedule 4.  Such Grantor has furnished to the
Administrative Agent a certified charter, certificate of incorporation or other
organization document and long form good standing certificate as of a date
which is recent to the date hereof.

4.5.          Inventory and Equipment.  On the date hereof, the Inventory and the
Equipment of such Grantor (other than mobile goods) are kept at the locations
listed on Schedule 5.

4.6.          Farm Products. 
None of such Grantor’s Collateral constitutes, or is the Proceeds of,
Farm Products.

4.7.          Pledged Securities. 
(a)  The shares of Pledged Stock
pledged by such Grantor hereunder constitute all the issued and outstanding
shares of all classes of the Capital Stock of each Issuer owned by such Grantor
or, in the case of Foreign Subsidiary Voting Stock, if less, 65% of the issued
and outstanding shares of all classes of Foreign Subsidiary Voting Stock of
each relevant Issuer.

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

(c)           To such Grantor’s knowledge, each of the Pledged Notes
constitutes the legal, valid and binding obligation of the obligor with respect
thereto, enforceable in accordance with its terms, subject to the effects of
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and
other similar laws relating to or affecting creditors’ rights generally,
general equitable principles (whether considered in a proceeding in equity or
at law) and an implied covenant of good faith and fair dealing.

(d)           Such Grantor is the record and beneficial owner of, and
has good title to, the Investment Property pledged by it hereunder, free of any
and all Liens or options in favor of, or claims of, any other Person, except
the security interest created by this Agreement and, prior to the Discharge of
First Lien Obligations, by the First Lien Guarantee and Collateral Agreement or
Liens arising by operation of law.

4.8.          Receivables. 
No amount payable to such Grantor under or in connection with any
Receivable is evidenced by any Instrument or Chattel Paper which has not been
delivered to the First Lien Administrative Agent (or, if the First Priority
Lien shall have been released in accordance with Section 8.15(a) of the First
Lien Guarantee and Collateral Agreement, to the Administrative Agent) (except
as provided in Section 5.2).

4.9.          Intellectual Property.  (a)  Schedule 6
lists all Intellectual Property that is registered or for which registrations
are pending owned by such Grantor in its own name on the date hereof.

(b)           On the date hereof, all material Intellectual Property of
such Grantor described on Schedule 6 is valid, subsisting, unexpired and
enforceable (excepting for any pending applications), has not been abandoned
and does not, to the knowledge of Grantor, infringe the Intellectual Property
rights of any other Person in any material respect.

(c)           Except as set forth in Schedule 6, on the date
hereof, none of the Intellectual Property is the subject of any licensing or
franchise agreement, other than licensing or franchise 

 

9

 

agreements entered into by Grantor as part of its
ordinary course of business, pursuant to which such Grantor is the licensor or
franchisor.

(d)            No holding, decision or judgment has been rendered by any
Governmental Authority which would limit, cancel or question the validity of,
or such Grantor’s rights in, any Intellectual Property in any respect that
could reasonably be expected to have a Material Adverse Effect.

(e)           No action or proceeding is pending, or, to the knowledge
of such Grantor, threatened, on the date hereof (1) seeking to limit, cancel or
question the validity of any Intellectual Property or such Grantor’s ownership
interest therein, or (2) which, if adversely determined, would have a
Material Adverse Effect on the value of any Intellectual Property.

SECTION 5. 
COVENANTS

Each Grantor covenants and
agrees with the Secured Parties that, from and after the date of this Agreement
until the First Lien Obligations shall have been paid in full and the Term Loan
Commitments under the Facility shall have terminated:

5.1.          Covenants in Second Lien Credit Agreement.  In the case of each Guarantor, such Guarantor
shall take, or shall refrain from taking, as the case may be, each action that
is necessary to be taken or not taken, as the case may be, so that no Default
or Event of Default is caused by the failure to take such action or to refrain
from taking such action by such Guarantor or any of its Subsidiaries.

5.2.          Delivery of Instruments and Chattel Paper.  If any amount payable under or in connection
with any of the Collateral shall be or become evidenced by any Instrument,
Certificated Security or Chattel Paper, such Instrument, Certificated Security
or Chattel Paper shall be, immediately following the reasonable request of the
Administrative Agent, delivered to the First Lien Administrative Agent (or, if
after the Discharge of First Lien Obligations, to the Administrative Agent),
duly indorsed in a manner satisfactory to the Administrative Agent, to be held
as Collateral pursuant to this Agreement, provided that, no Grantor will
be required to deliver any Instrument or Chattel Paper with a value of $75,000
or less unless an Event of Default has occurred and is continuing and the
Administrative Agent has requested delivery of such Instrument or Chattel
Paper.

5.3.          Maintenance of Insurance.  (a) 
Such Grantor will maintain, with financially sound and reputable
companies, insurance policies (i) insuring the Inventory and Equipment against
loss by fire, explosion, theft and such other casualties as may be reasonably
satisfactory to the Administrative Agent and (ii) to the extent reasonably
requested by the Administrative Agent, insuring such Grantor, the
Administrative Agent and the Secured Parties against liability for personal
injury and property damage relating to such Inventory and Equipment, such
policies to be in such form and amounts and having such coverage as may be
reasonably satisfactory to the Administrative Agent and the Lenders.

(b)           All such insurance shall (i) provide that no cancellation,
material reduction in amount or material change in coverage thereof shall be
effective until at least 30 days after receipt by the Administrative Agent
of written notice thereof, (ii) name the Administrative Agent as
additional insured or loss payee as its interest may appear, (iii) include
deductibles consistent with past practice or consistent with industry practice,
(iv) if reasonably requested by the 

 

10

 

Administrative Agent, include a breach of warranty
clause and (v) be reasonably satisfactory in all other respects to the
Administrative Agent.

(c)           If reasonably requested by the Administrative Agent, the
Borrower shall deliver to the Administrative Agent and the Lenders a
certificate of insurance of an insurance broker with respect to such insurance substantially
concurrently with the delivery by the Borrower to the Administrative Agent of
its audited financial statements for each fiscal year.

5.4.          Payment of Obligations.  Such Grantor will pay and discharge or
otherwise satisfy at or before maturity or before they become delinquent, as
the case may be, all material taxes, assessments and governmental charges or
levies imposed upon such Grantor’s Collateral or in respect of income or
profits therefrom, as well as all material claims of any kind (including,
without limitation, claims for labor, materials and supplies) against or with
respect to such Grantor’s Collateral, except that no such charge need be paid
if the amount or validity thereof is currently being contested in good faith by
appropriate proceedings, reserves in conformity with GAAP with respect thereto
have been provided on the books of such Grantor.

5.5.          Maintenance of Perfected Security Interest; Further
Documentation.  (a)  Such Grantor shall maintain the security
interest in such Grantor’s Collateral created by this Agreement as a perfected
security interest having at least the priority described in Section 4.3 and
shall defend such security interest against the claims and demands of all
Persons whomsoever.

(b)           Such Grantor will furnish to the Administrative Agent and
the Lenders from time to time, unless a Default or an Event of Default shall
have occurred and be continuing, statements and schedules further identifying
and describing such Grantor’s Collateral and such other reports in connection
with such Grantor’s Collateral as the Administrative Agent may reasonably
request, all in reasonable detail.

(c)           At any time and from time to time, upon the written
request of the Administrative Agent, and at the sole expense of such Grantor,
such Grantor will promptly and duly execute and deliver, and have recorded,
such further instruments and documents and take such further actions as the
Administrative Agent may reasonably request for the purpose of obtaining or
preserving the full benefits of this Agreement and of the rights and powers
herein granted, including, without limitation, (1) the filing of any financing
or continuation statements under the Uniform Commercial Code (or other similar
laws) in effect in any jurisdiction with respect to the security interests
created hereby and (2) in the case of 
Investment Property, Deposit Accounts and any other relevant Collateral,
taking any commercially reasonable actions to enable the First Lien
Administrative Agent (or, after the Discharge of First Lien Obligations,
Administrative Agent) to obtain “control” (within the meaning of the applicable
Uniform Commercial Code) with respect thereto.

5.6.          Changes in Name, etc.  Such Grantor will not, except upon 15 days’
prior written notice to the Administrative Agent, (I) change its jurisdiction
of organization or the location of its chief executive office or sole place of
business from that referred to in Section 4.4 or (II) change its name, identity
or corporate structure to such an extent that any financing statement filed by
the Administrative Agent in connection with this Agreement would become
misleading and shall deliver promptly to the Administrative Agent (1) all
additional financing statements and other documents reasonably requested by the
Administrative Agent to maintain the validity, perfection and priority of the
security interests provided for herein and (2) if applicable, a written 

 

11

 

supplement to Schedule 5
showing any additional location at which such Grantor’s Inventory or Equipment
shall be kept.

5.7.          Notices.  Such
Grantor will promptly give notice to the Administrative Agent, addressed to the
Administrative Agent and the Lenders, in reasonable detail, of:

(a)           any Lien (other than security interests created hereby or
Liens permitted under the Second Lien Credit Agreement) on any of such Grantor’s
Collateral which would materially adversely affect the ability of the
Administrative Agent to exercise any of its remedies hereunder; and

(b)           the occurrence of any other event which would reasonably
be expected to have a material adverse effect on the security interests created
hereby.

5.8.          Investment Property. 
(a)  So long as the Borrower
Obligations are still outstanding, at any time following the Discharge of First
Lien Obligations, if such Grantor shall become entitled to receive or shall
receive any stock certificate (including, without limitation, any certificate
representing a stock dividend or a distribution in connection with any
reclassification, increase or reduction of capital or any certificate issued in
connection with any reorganization), option or rights in respect of the Capital
Stock of any Issuer, whether in addition to, in substitution of, as a
conversion of, or in exchange for, any shares of the Pledged Stock, or
otherwise in respect thereof, such Grantor shall accept the same as the agent
of the Secured Parties, hold the same in trust for the Secured Parties and
deliver the same forthwith to the Administrative Agent in the exact form
received, duly indorsed by such Grantor to the Administrative Agent, if
required, together with an undated stock power covering such certificate duly
executed in blank by such Grantor and with, if the Administrative Agent so
requests, signature guaranteed, to be held by the Administrative Agent, subject
to the terms hereof, as additional collateral security for the Grantor’s First
Lien Obligations.  So long as the
Borrower Obligations are still outstanding, at any time following the Discharge
of First Lien Obligations, other than any liquidation or dissolution permitted
by Section 8.4(b) of the Second Lien Credit Agreement, any sums paid upon or in
respect of the Investment Property upon the liquidation or dissolution of any
Issuer shall be paid over to the Administrative Agent to be held by it
hereunder as additional collateral security for the Grantor’s Second Lien
Obligations, and in case any distribution of capital shall be made on or in
respect of the Investment Property or any property shall be distributed upon or
with respect to the Investment Property pursuant to the recapitalization or
reclassification of the capital of any Issuer or pursuant to the reorganization
thereof, in each case, at any time following the Discharge of First Lien
Obligations, so long as the Borrower Obligations are still outstanding, the
property so distributed shall, unless otherwise subject to a perfected security
interest in favor of the Administrative Agent, be delivered to the
Administrative Agent to be held by it hereunder as additional collateral
security for such Grantor’s Second Lien Obligations.  If any sums of money or property so paid or
distributed in respect of the Investment Property shall be received by such
Grantor at any time following the Discharge of First Lien Obligations, so long
as the Borrower Obligations are still outstanding, such Grantor shall, until
such money or property is paid or delivered to the Administrative Agent, hold
such money or property in trust for the Secured Parties, segregated from other
funds of such Grantor, as additional collateral security for the Grantor’s
Second Lien Obligations.

(b)           Without the prior written consent of the Administrative
Agent, such Grantor will not (i) vote to enable, or take any other action to
permit, any Issuer to issue any stock or other equity securities of any nature
or to issue any other securities convertible into or granting the right to
purchase or exchange for any stock or other equity securities of any nature of
any Issuer, 

 

12

 

(except as otherwise permitted by the Second Lien
Credit Agreement) (ii) sell, assign, transfer, exchange, or otherwise dispose
of, or grant any option with respect to, the Investment Property or Proceeds
thereof (except pursuant to a transaction expressly permitted by the Second
Lien Credit Agreement), (iii) create, incur or permit to exist any Lien or
option in favor of, or any claim of any Person with respect to, any of the
Investment Property or Proceeds thereof, or any interest therein, except for
the security interests created by this Agreement and, prior to the Discharge of
First Lien Obligations, the First Lien Guarantee and Collateral Agreement, as
otherwise permitted by the Second Lien Credit Agreement, or Liens arising by operation
of law or (iv) enter into any agreement or undertaking restricting the right or
ability of such Grantor or the Administrative Agent to sell, assign or transfer
any of the Investment Property or Proceeds thereof other than agreements
permitted under Section 8.15 of the Second Lien Credit Agreement.

(c)           In the case of each Grantor which is an Issuer, such
Issuer agrees that (i) it will be bound by the terms of this Agreement relating
to the Investment Property issued by it and will comply with such terms insofar
as such terms are applicable to it, (ii) it will notify the Administrative
Agent promptly in writing of the occurrence of any of the events described in
Section 5.8(a) with respect to the Investment Property issued by it and
(iii) the terms of Sections 6.3(c) and 6.7 shall apply to it, mutatis
mutandis, with respect to all actions that may be required of it
pursuant to Section 6.3(c) or 6.7 with respect to the Investment Property
issued by it.

5.9.          Receivables. 
Other than in the ordinary course of business consistent with its past
practice, such Grantor will not (i) grant any extension of the time of payment
of any Receivable, (ii) compromise or settle any Receivable for less than the
full amount thereof, (iii) release, wholly or partially, any Person liable
for the payment of any Receivable, (iv) allow any credit or discount
whatsoever on any Receivable or (v) amend, supplement or modify any Receivable
in any manner that could adversely affect the value thereof.

5.10.        Intellectual Property. 
(a)  Such Grantor (either itself
or through licensees) will (i) continue to use each Trademark that is
material to Grantor’s then current business in order to maintain such Trademark
in full force free from any claim of abandonment for non-use, (ii) maintain
as in the past the quality of products and services offered under such
Trademark, (iii) use such Trademark with the notices and legends required
by applicable Requirements of Law, (iv) not adopt or use any mark which is
confusingly similar or a colorable imitation of such Trademark unless the
Administrative Agent, for the ratable benefit of the Secured Parties, shall
obtain a perfected security interest in such mark pursuant to this Agreement,
and (v) not (and not permit any licensee or sublicensee thereof to) do any
act or knowingly omit to do any act whereby such Trademark may become
invalidated or impaired in any material way.

(b)           Such Grantor (either itself or through licensees) will not
do any act, or omit to do any act, whereby any Patent that is material to
Grantor’s then current business may become forfeited, abandoned or dedicated to
the public.

(c)           Such Grantor (either itself or through licensees) will not
(and will not permit any licensee or sublicensee thereof to) do any act or
knowingly omit to do any act whereby any portion of the Copyrights that is
material to Grantor’s then current business may become invalidated or otherwise
impaired.  Such Grantor will not (either
itself or through licensees) do any act whereby any portion of such Copyrights
that is material to Grantor’s then current business may fall into the public
domain.

 

13

 

(d)           Such Grantor (either itself or through licensees) will not
do any act that knowingly uses any material Intellectual Property to infringe
the Intellectual Property rights of any other Person.

(e)           Such Grantor will notify the Administrative Agent in
accordance with Section 5.7 immediately if it knows, or has reason to know,
that any application or registration relating to any Intellectual Property that
is material to Grantor’s then current business may become forfeited, abandoned
or dedicated to the public, or of any adverse determination or development
(including, without limitation, the institution of, or any such determination
or development in, any adversarial proceeding with a third party in the United
States Patent and Trademark Office, the United States Copyright Office or any
court or tribunal in any country) regarding such Grantor’s ownership of, or the
validity of, any Intellectual Property that is material to Grantor’s then
current business or such Grantor’s right to register the same or to own and
maintain the same.

(f)            Whenever such Grantor, either by itself or through any
agent, employee, licensee or designee, files an application for the
registration of any Intellectual Property with the United States Patent and
Trademark Office, the United States Copyright Office or any similar office or
agency in any other country or any political subdivision thereof, such Grantor
shall report such filing to the Administrative Agent within 15 Business Days
after the last day of the fiscal quarter in which such filing occurs.  Such Grantor shall execute and deliver, and
have recorded, any and all agreements, instruments, documents, and papers as
the Administrative Agent may reasonably request to evidence the Secured Parties’
security interest in any Copyright, Patent or Trademark and the goodwill and
general intangibles of such Grantor relating thereto or represented thereby.

(g)           Such Grantor will take all reasonable and necessary steps,
including, without limitation, in any proceeding before the United States
Patent and Trademark Office, the United States Copyright Office or any similar
office or agency in any other country or any political subdivision thereof, to
maintain and pursue each application (and to obtain the relevant registration)
and to maintain each registration of the Intellectual Property that is material
to Grantor’s then current business, including, without limitation, filing of
applications for renewal, affidavits of use and affidavits of incontestability.

(h)           In the event that any Intellectual Property that is
material to Grantor’s then current business is infringed, misappropriated or
diluted by a third party, such Grantor shall take such actions as such Grantor
shall reasonably deem appropriate under the circumstances to protect such
Intellectual Property.

SECTION 6.  REMEDIAL
PROVISIONS

6.1.          Certain Matters
Relating to Receivables.  (a) At any
time after the occurrence and during the continuance of a Default or an Event
of Default, the Administrative Agent shall have the right to make test
verifications of the Receivables in any manner and through any medium that it
reasonably considers advisable, and each Grantor shall furnish all such
assistance and information as the Administrative Agent may require in
connection with such test verifications. 
At any time and from time to time upon the Administrative Agent’s
request and at the expense of the relevant Grantor, such Grantor shall furnish
to the Administrative Agent internally prepared reports showing
reconciliations, aging, test verifications of, and trial balances for, the
Receivables and any other information required by the Second Lien Credit
Agreement.

 

14

 

(b)           The Administrative Agent hereby authorizes each Grantor to
collect such Grantor’s Receivables, subject to the Administrative Agent’s
direction and control, and the Administrative Agent may curtail or terminate
said authority at any time after the occurrence and during the continuance of
an Event of Default.  If required by the
Administrative Agent at any time after the occurrence and during the
continuance of an Event of Default, any payments of Receivables, when collected
by any Grantor, (i) shall be forthwith
(and, in any event, within five Business Days) deposited by such Grantor in the
exact form received, duly indorsed by such Grantor to the Administrative Agent
if required, in a Collateral Account maintained under the sole dominion and
control of the Administrative Agent, subject to withdrawal by the
Administrative Agent for the account of the Secured Parties only as provided in
Section 6.5, and (ii) until so
turned over, shall be held by such Grantor in trust for the Secured Parties,
segregated from other funds of such Grantor. 
Each such deposit of Proceeds of Receivables shall be accompanied by a
report identifying in reasonable detail the nature and source of the payments
included in the deposit.

(c)           At the Administrative Agent’s request at any time after
the occurrence and during the continuance of a Default or an Event of Default,
each Grantor shall deliver to the Administrative Agent all existing original
and other documents evidencing, and relating to, the agreements and
transactions which gave rise to the Receivables, including, without limitation,
all original orders, invoices and shipping receipts.

6.2.          Communications with Obligors; Grantors Remain Liable.  (a)  At
any time after the occurrence and during the continuance of an Event of Default,
the Administrative Agent in its own name or in the name of others may at any
time communicate with obligors under the Receivables to verify with them to the
Administrative Agent’s satisfaction the existence, amount and terms of any
Receivables.

(b)           Upon the request of the Administrative Agent at any time
after the occurrence and during the continuance of an Event of Default, each
Grantor shall notify obligors on the Receivables that the Receivables have been
assigned to the Administrative Agent for the ratable benefit of the Secured
Parties and that payments in respect thereof shall be made directly to the
Administrative Agent.

(c)           Anything herein to the contrary notwithstanding, each
Grantor shall remain liable under each of the Receivables to observe and
perform all the conditions and obligations to be observed and performed by it
thereunder, all in accordance with the terms of any agreement giving rise
thereto.  No Secured Party shall have any
obligation or liability under any Receivable (or any agreement giving rise
thereto) by reason of or arising out of this Agreement or the receipt by any
Secured Party of any payment relating thereto, nor shall any Secured Party be
obligated in any manner to perform any of the obligations of any Grantor under
or pursuant to any Receivable (or any agreement giving rise thereto), to make
any payment, to make any inquiry as to the nature or the sufficiency of any
payment received by it or as to the sufficiency of any performance by any party
thereunder, to present or file any claim, to take any action to enforce any
performance or to collect the payment of any amounts which may have been
assigned to it or to which it may be entitled at any time or times.

6.3.          Pledged Stock. 
(a)  Unless an Event of Default
shall have occurred and be continuing and the Administrative Agent shall have
given notice to the relevant Grantor of the Administrative Agent’s intent to
exercise its corresponding rights pursuant to Section 6.3(b), each Grantor
shall be permitted to receive all cash dividends paid in respect of the Pledged
Stock and all payments made in respect of the Pledged Notes, in each case paid
in the normal course of 

 

15

 

business of the relevant
Issuer and consistent with past practice, to the extent permitted in the Second
Lien Credit Agreement, and to exercise all voting and corporate rights with
respect to the Investment Property; provided, however, that no
vote shall be cast or corporate or other organizational right exercised or
other action taken which, in the Administrative Agent’s reasonable judgment,
would be inconsistent with or result in any violation of any provision of the
Second Lien Credit Agreement, this Agreement or any other Loan Document.

(b)           If an Event of Default shall occur and be continuing at
any time following the Discharge of First Obligations, and the Administrative
Agent shall give notice of its intent to exercise such rights to the relevant
Grantor or Grantors, (i) the Administrative Agent shall have the right to
receive any and all cash dividends, payments or other Proceeds paid in respect
of the Investment Property and make application thereof to the Second Lien
Obligations in the order set forth in Section 6.5, and (ii) any or all of the
Investment Property shall be registered in the name of the Administrative Agent
or its nominee, and the Administrative Agent or its nominee may thereafter
exercise (1) all voting, corporate and other rights pertaining to such
Investment Property at any meeting of shareholders of the relevant Issuer or
Issuers or otherwise and (2) any and all rights of conversion, exchange
and subscription and any other rights, privileges or options pertaining to such
Investment Property as if it were the absolute owner thereof (including,
without limitation, the right to exchange at its discretion any and all of the
Investment Property upon the merger, consolidation, reorganization,
recapitalization or other fundamental change in the corporate structure of any
Issuer, or upon the exercise by any Grantor or the Administrative Agent of any
right, privilege or option pertaining to such Investment Property, and in
connection therewith, the right to deposit and deliver any and all of the
Investment Property with any committee, depositary, transfer agent, registrar
or other designated agency upon such terms and conditions as the Administrative
Agent may determine), all without liability except to account for property
actually received by it, but the Administrative Agent shall have no duty to any
Grantor to exercise any such right, privilege or option and shall not be
responsible for any failure to do so or delay in so doing.

(c)           Each Grantor hereby authorizes and instructs each Issuer
of any Investment Property pledged by such Grantor hereunder to (i) comply with
any instruction received by it from the Administrative Agent in writing that
(1) states that an Event of Default has occurred and is continuing and (2) is
otherwise in accordance with the terms of this Agreement, without any other or
further instructions from such Grantor, and each Grantor agrees that each
Issuer shall be fully protected in so complying, and (ii) at any time following the Discharge of First Lien Obligations,
unless otherwise expressly permitted hereby, pay any dividends or other
payments with respect to the Investment Property directly to the Administrative
Agent.

6.4.          Proceeds to be Turned Over to the Administrative Agent.  In addition to the rights of the Secured
Parties specified in Section 6.1 with respect to payments of Receivables, at
any time following the Discharge of First Lien Obligations, if an Event of
Default shall occur and be continuing, all Proceeds received by any Grantor
consisting of cash, checks and other near-cash items shall be held by such
Grantor in trust for the Secured Parties, segregated from other funds of such
Grantor, and shall, forthwith upon receipt by such Grantor, be turned over to
the Administrative Agent in the exact form received by such Grantor (duly
indorsed by such Grantor to the Administrative Agent, if required).  All Proceeds received by the Administrative
Agent hereunder shall be held by the Administrative Agent in a Collateral
Account maintained under its sole dominion and control.  All Proceeds while held by the Administrative
Agent in a Collateral Account (or by such Grantor in trust for the Secured
Parties) shall continue to be held as 

 

16

 

collateral security for all
the Second Lien Obligations and shall not constitute payment thereof until
applied as provided in Section 6.5.

6.5.          Application of Proceeds.  At such intervals as may be agreed upon by
the Borrower and the Administrative Agent, or, if an Event of Default shall
have occurred and be continuing, at any time at the Administrative Agent’s
election, the Administrative Agent may apply all or any part of Proceeds
constituting Collateral, whether or not held in any Collateral Account, and any
proceeds of the guarantee set forth in Section 2, in payment of the Second Lien
Obligations in the following order (it being understood that any application of
such Proceeds constituting Collateral by the Administrative Agent towards the
payment of the Second Lien Obligations shall be made in the following order):

First, to pay
incurred and unpaid fees and expenses of the Administrative Agent under the
Loan Documents;

Second, to the
Administrative Agent, for application by it towards payment of amounts then due
and owing and remaining unpaid in respect of the Second Lien Obligations, pro
rata among the Secured Parties according to the amounts of the
Obligations then due and owing and remaining unpaid to the Secured Parties;

Third, to the
Administrative Agent, for application by it towards prepayment of the Second
Lien Obligations, pro  rata among the Secured Parties according to
the amounts of the Second Lien Obligations then held by the Secured Parties;
and

Fourth, any balance
of such Proceeds remaining after the Second Lien Obligations shall have been
paid in full shall be paid over to the Borrower or to whomsoever may be
lawfully entitled to receive the same.

6.6.          Code and Other Remedies.  If an Event of Default shall occur and be
continuing, the Administrative Agent, on behalf of the Secured Parties, may
exercise, in addition to all other rights and remedies granted to them in this
Agreement and in any other instrument or agreement securing, evidencing or
relating to the Second Lien Obligations, all rights and remedies of a secured
party under the New York UCC or any other applicable law.  Without limiting the generality of the
foregoing, to the extent permitted by applicable law, the Administrative Agent,
without demand of performance or other demand, presentment, protest,
advertisement or notice of any kind (except any notice required by law referred
to below) to or upon any Grantor or any other Person (all and each of which
demands, defenses, advertisements and notices are hereby waived), may in such
circumstances forthwith collect, receive, appropriate and realize upon the
Collateral, or any part thereof, and/or may forthwith sell, lease, assign, give
option or options to purchase, or otherwise dispose of and deliver the
Collateral or any part thereof (or contract to do any of the foregoing), in one
or more parcels at public or private sale or sales, at any exchange, broker’s
board or office of any Secured Party or elsewhere upon such terms and
conditions as it may deem advisable and at such prices as it may deem best, for
cash or on credit or for future delivery without assumption of any credit
risk.  Any Secured Party shall have the
right upon any such public sale or sales, and, to the extent permitted by law,
upon any such private sale or sales, to purchase the whole or any part of the
Collateral so sold, free of any right or equity of redemption in any Grantor,
which right or equity is hereby waived and released.  Each Grantor further agrees, at the
Administrative Agent’s request, to assemble the Collateral and make it
available to the Administrative Agent at places which the Administrative Agent
shall reasonably select, whether at such Grantor’s premises or elsewhere.  The Administrative Agent shall apply the net
proceeds of any action taken by it pursuant to this Section 6.6, after
deducting all 

 

17

 

reasonable costs and
expenses of every kind incurred in connection therewith or incidental to the
care or safekeeping of any of the Collateral or in any way relating to the
Collateral or the rights of the Secured Parties hereunder, including, without
limitation, reasonable attorneys’ fees and disbursements, to the payment in
whole or in part of the Second Lien Obligations, in accordance with Section
6.5, may elect, and only after such application and after the payment by the
Administrative Agent of any other amount required by any provision of law,
including, without limitation, Section 9-615(a)(3) of the New York UCC, need
the Administrative Agent account for the surplus, if any, to any Grantor.  To the extent permitted by applicable law,
each Grantor waives all claims, damages and demands it may acquire against any
Secured Party arising out of the exercise by them of any rights hereunder.  If any notice of a proposed sale or other
disposition of Collateral shall be required by law, such notice shall be deemed
reasonable and proper if given at least 10 days before such sale or other
disposition.

6.7.          Private Sales. 
Each Grantor recognizes that the Administrative Agent may be unable to
effect a public sale of any or all the Pledged Stock, by reason of certain
prohibitions contained in the Securities Act and applicable state securities
laws or otherwise, and may be compelled to resort to one or more private sales
thereof to a restricted group of purchasers which will be obliged to agree,
among other things, to acquire such securities for their own account for
investment and not with a view to the distribution or resale thereof.  Each Grantor acknowledges and agrees that any
such private sale may result in prices and other terms less favorable than if such
sale were a public sale and, notwithstanding such circumstances, agrees that
any such private sale shall be deemed to have been made in a commercially
reasonable manner.  Each Grantor agrees
to use its best efforts to do or cause to be done all such other acts as may be
necessary to make such sale or sales of all or any portion of the Pledged Stock
pursuant to this Section 6.7 valid and binding and in compliance with any and
all other applicable Requirements of Law; it being understood that no Grantor shall
be required to cause any Issuer to become a reporting company or to register
any such securities for public sale under the Securities Act or under any
applicable state securities laws.

6.8.          Deficiency. 
Each Grantor shall remain liable for any deficiency if the proceeds of
any sale or other disposition of the Collateral are insufficient to pay its
Second Lien Obligations and the fees and disbursements of any attorneys
employed by any Secured Party to collect such deficiency.

SECTION 7.  THE
ADMINISTRATIVE AGENT

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

(i)            in the name of such Grantor or its
own name, or otherwise, take possession of and indorse and collect any checks,
drafts, notes, acceptances or other instruments for the payment of moneys due
under any Receivable or with respect to any other Collateral and file any claim
or take any other action or proceeding in any court of 

 

18

 

law or equity or otherwise
deemed appropriate by the Administrative Agent for the purpose of collecting
any and all such moneys due under any Receivable or with respect to any other
Collateral whenever payable;

(ii)           in the case of any Intellectual
Property, execute and deliver, and have recorded, any and all agreements,
instruments, documents and papers as the Administrative Agent may reasonably
request to evidence the Secured Parties’ security interest in such Intellectual
Property and the goodwill and general intangibles of such Grantor relating
thereto or represented thereby;

(iii)          pay or discharge taxes and Liens
levied or placed on or threatened against the Collateral, effect any repairs or
any insurance called for by the terms of this Agreement and pay all or any part
of the premiums therefor and the costs thereof;

(iv)          execute, in connection with any sale
provided for in Section 6.6 or 6.7, any indorsements, assignments or other
instruments of conveyance or transfer with respect to the Collateral; and

(v)           (1) 
direct any party liable for any payment under any of the Collateral to
make payment of any and all moneys due or to become due thereunder directly to
the Administrative Agent or as the Administrative Agent shall direct; (2) ask or demand for, collect, and receive
payment of and receipt for, any and all moneys, claims and other amounts due or
to become due at any time in respect of or arising out of any Collateral; (3)
sign and indorse any invoices, freight or express bills, bills of lading,
storage or warehouse receipts, drafts against debtors, assignments,
verifications, notices and other documents in connection with any of the
Collateral; (4) commence and prosecute any suits, actions or proceedings
at law or in equity in any court of competent jurisdiction to collect the
Collateral or any portion thereof and to enforce any other right in respect of
any Collateral; (5) defend any suit, action or proceeding brought against
such Grantor with respect to any Collateral; (6) settle, compromise or adjust
any such suit, action or proceeding and, in connection therewith, give such
discharges or releases as the Administrative Agent may deem appropriate; (7)
subject to any existing licenses or reserved rights, assign any Copyright,
Patent or Trademark (along with the goodwill of the business to which any such
Copyright, Patent or Trademark pertains), throughout the world for such term or
terms, on such conditions, and in such manner, as the Administrative Agent
shall in its sole discretion determine; and (8) generally, sell, transfer,
pledge and make any agreement with respect to or otherwise deal with any of the
Collateral as fully and completely as though the Administrative Agent were the
absolute owner thereof for all purposes, and do, at the Administrative Agent’s
option and such Grantor’s expense, at any time, or from time to time, all acts
and things which the Administrative Agent deems necessary to protect, preserve
or realize upon the Collateral and the Secured Parties’ security interests
therein and to effect the intent of this Agreement, all as fully and
effectively as such Grantor might do.

Anything in this Section
7.1(a) to the contrary notwithstanding, the Administrative Agent agrees that it
will not exercise any rights under the power of attorney provided for in this
Section 7.1(a) unless an Event of Default shall have occurred and be
continuing.

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

 

19

 

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

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

7.2.          Duty of Administrative Agent.  The Administrative Agent’s sole duty with
respect to the custody, safekeeping and physical preservation of the Collateral
in its possession, under Section 9-207 of the New York UCC or otherwise, shall
be to deal with it in the same manner as the Administrative Agent deals with
similar property for its own account.  No
Secured Party nor any of their respective officers, directors, employees or
agents shall be liable for failure to demand, collect or realize upon any of
the Collateral or for any delay in doing so or shall be under any obligation to
sell or otherwise dispose of any Collateral upon the request of any Grantor or
any other Person or to take any other action whatsoever with regard to the
Collateral or any part thereof.  The
powers conferred on the Secured Parties hereunder are solely to protect the
Secured Parties’ interests in the Collateral and shall not impose any duty upon
any Secured Party to exercise any such powers. 
The Secured Parties shall be accountable only for amounts that they
actually receive as a result of the exercise of such powers, and neither they
nor any of their officers, directors, employees or agents shall be responsible
to any Grantor for any act or failure to act hereunder, except for their own
gross negligence or willful misconduct.

7.3.          Financing Statements.  Pursuant to Section 9-509 of the New York UCC
and any other applicable law, each Grantor authorizes the Administrative Agent
to file or record financing statements and other filing or recording documents
or instruments with respect to the Collateral without the signature of such
Grantor in such form and in such offices as the Administrative Agent and such
Grantor reasonably determines appropriate to perfect the security interests of
the Administrative Agent under this Agreement. 
Each Grantor authorizes the Administrative Agent to use the collateral
description “all personal property” in any such financing statements.  Each Grantor hereby ratifies and authorizes
the filing by the Administrative Agent of any financing statement with respect
to the Collateral made prior to the date hereof.

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

 

20

 

SECTION 8. 
MISCELLANEOUS

8.1.          Amendments in Writing.  None of the terms or provisions of this
Agreement may be waived, amended, supplemented or otherwise modified except in
accordance with Section 11.1 of the Second Lien Credit Agreement and the
Intercreditor Agreement; provided, that no such waiver amendment, supplement or
modification shall require the consent of any Second Lien Qualified
Counterparty except as expressly provided in Section 11.1 of the Second Lien
Credit Agreement.

8.2.          Notices.  All
notices, requests and demands to or upon the Administrative Agent or any
Grantor hereunder shall be effected in the manner provided for in Section 11.2
of the Second Lien Credit Agreement; provided that any such notice,
request or demand to or upon any Guarantor shall be addressed to such Guarantor
at its notice address set forth on Schedule 1 or to such other
address for notice, request or demand which a Grantor may designate by written
notice to the Administrative Agent.

8.3.          No Waiver by Course of Conduct; Cumulative Remedies.  No Secured Party shall by any act (except by
a written instrument pursuant to Section 8.1), delay, indulgence, omission or
otherwise be deemed to have waived any right or remedy hereunder or to have
acquiesced in any Default or Event of Default. 
No failure to exercise, nor any delay in exercising, on the part of any
Secured Party, any right, power or privilege hereunder shall operate as a
waiver thereof.  No single or partial
exercise of any right, power or privilege hereunder shall preclude any other or
further exercise thereof or the exercise of any other right, power or
privilege.  A waiver by any Secured Party
of any right or remedy hereunder on any one occasion shall not be construed as
a bar to any right or remedy which the Administrative Agent or any such Lender
would otherwise have on any future occasion. 
The rights and remedies herein provided are cumulative, may be exercised
singly or concurrently and are not exclusive of any other rights or remedies
provided by law.

8.4.          Enforcement Expenses; Indemnification.  (a) 
Each Guarantor agrees to pay, or reimburse each Secured Party for all
its costs and expenses incurred in collecting against such Guarantor under the
guarantee contained in Section 2 or otherwise enforcing or preserving any
rights under this Agreement and the other Loan Documents to which such
Guarantor is a party, including, without limitation, the fees and disbursements
of counsel to each Secured Party.

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

(c)           Each Guarantor agrees to pay, and to save the Secured
Parties harmless from, any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements of any
kind or nature whatsoever with respect to the execution, delivery, enforcement,
performance and administration of this Agreement to the extent the Borrower
would be required to do so pursuant to Section 11.5 of the Second Lien Credit
Agreement.

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

 

21

 

8.5.          Successors and Assigns.  This Agreement shall be binding upon the
successors and assigns of each Grantor and shall inure to the benefit of the
Administrative Agent and the other Secured Parties and their successors and
permitted assigns; provided that no Grantor may assign, transfer or
delegate any of its rights or obligations under this Agreement without the
prior written consent of the Administrative Agent.

8.6.          Set-Off.  Each
Grantor hereby irrevocably authorizes the Administrative Agent and each Secured
Party at any time after the occurrence of and during the continuance of a
Default or an Event of Default under Section 9(a) of the Second Lien Credit
Agreement, without prior notice to such Grantor or any other Grantor, any such
notice being expressly waived by each Grantor to the extent permitted by
applicable law, to set-off and appropriate and apply any and all deposits
(general or special, time or demand, provisional or final), in any currency,
and any other credits, indebtedness or claims, in any currency, in each case
whether direct or indirect, absolute or contingent, matured or unmatured, at
any time held or owing by such Secured Party to or for the credit or the
account of such Grantor, or any part thereof in such amounts as such Agent or
such Secured Party may elect, against and on account of the obligations and
liabilities of such Grantor to such Agent or such Secured Party hereunder and
claims of every nature and description of such Agent or such Secured Party
against such Grantor, in any currency, whether arising hereunder, under the
Second Lien Credit Agreement or any other Loan Document, as such Agent or such
Secured Party may elect, whether or not any Secured Party has made any demand
for payment and although such obligations, liabilities and claims may be
contingent or unmatured.  The
Administrative Agent and each Secured Party shall notify such Grantor promptly
of any such set-off and the application made by the Administrative Agent or
such Secured Party of the proceeds thereof, provided that the failure to
give such notice shall not affect the validity of such set-off and
application.  The rights of the
Administrative Agent and each Secured Party under this Section are in addition
to other rights and remedies (including, without limitation, other rights of
set-off) which the Administrative Agent or such Secured Party may have.

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

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

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

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

 

22

 

8.11.        GOVERNING
LAW.  THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.

8.12.        Submission To Jurisdiction; Waivers.  Each Grantor hereby irrevocably and
unconditionally:

(a)           submits for itself and its property in any legal action or
proceeding relating to this Agreement and the other Loan Documents to which it
is a party, or for recognition and enforcement of any judgment in respect
thereof, to the non-exclusive general jurisdiction of the Courts of the
State of New York located in the City or County of New York, the courts of the
United States of America for the Southern District of New York, and
appellate courts from any thereof;

(b)           consents that any such action or proceeding may be brought
in such courts and waives any objection that it may now or hereafter have to
the venue of any such action or proceeding in any such court or that such
action or proceeding was brought in an inconvenient court and agrees not to
plead or claim the same;

(c)           agrees that service of process in any such action or proceeding
may be effected by mailing a copy thereof by registered or certified mail (or
any substantially similar form of mail), postage prepaid, to such Grantor at
its address referred to in Section 8.2 or at such other address of which the
Administrative Agent and the Administrative Agent shall have been notified
pursuant thereto;

(d)           agrees that nothing herein shall affect the right to
effect service of process in any other manner permitted by law or shall limit
the right to sue in any other jurisdiction; and

(e)           waives, to the maximum extent not prohibited by law, any
right it may have to claim or recover in any legal action or proceeding
referred to in this Section any special, exemplary, punitive or consequential
damages.

8.13.        Acknowledgments. 
Each Grantor hereby acknowledges that:

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

(b)           no Secured Party has any fiduciary relationship with or
duty to any Grantor arising out of or in connection with this Agreement or any
of the other Loan Documents, and the relationship between the Grantors, on the
one hand, and the Secured Parties, on the other hand, in connection herewith or
therewith is solely that of debtor and creditor; and

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

8.14.        Additional Grantors. 
Each Subsidiary of the Borrower that is required to become a party to
this Agreement pursuant to Section 7.10 of the Second Lien Credit Agreement
shall become a Grantor for all purposes of this Agreement upon execution and
delivery by such Subsidiary of an Assumption Agreement in the form of Annex 1
hereto.

 

23

 

8.15.        Releases. 
(a)  At such time as the Loans and
the other Second Lien Obligations under the Loan Documents (other than First
Lien Obligations under or in respect of Specified Hedge Agreements or Specified
Cash Management Agreements and unasserted contingent indemnification
obligations) shall have been paid in full and the Term Loan Commitments under
the Facility shall have been terminated, the Collateral shall be released from
the Liens created hereby, and this Agreement and all obligations (other than
those expressly stated to survive such termination) of the Administrative Agent
and each Grantor hereunder shall terminate, all without delivery of any
instrument or performance of any act by any party, and all rights to the
Collateral shall revert to the Grantors. 
At the request and sole expense of any Grantor following any such
termination, the Administrative Agent shall deliver to such Grantor any
Collateral held by the Administrative Agent hereunder (subject however, to the
obligations of the Administrative Agent under the Intercreditor Agreement), and
execute and deliver to such Grantor such documents as such Grantor shall
reasonably request to evidence such termination.

(b)           If any of the Collateral shall be sold, transferred or
otherwise disposed of by any Grantor in a transaction permitted by the Second
Lien Credit Agreement, then the Administrative Agent, at the request and sole
expense of such Grantor, shall execute and deliver to such Grantor all releases
or other documents reasonably necessary or desirable for the release of the
Liens created hereby on such Collateral. 
At the request and sole expense of the Borrower, a Subsidiary Guarantor
shall be released from its obligations hereunder in the event that all the
Capital Stock of such Subsidiary Guarantor shall be sold, transferred or
otherwise disposed of in a transaction permitted by the Second Lien Credit
Agreement; provided that the Borrower shall have delivered to the
Administrative Agent and the Administrative Agent, at least five Business Days
prior to the date of the proposed release, a written request for release
identifying the relevant Subsidiary Guarantor and the terms of the sale or
other disposition in reasonable detail, including the price thereof and any
expenses in connection therewith, together with a certification by the Borrower
stating that such transaction is in compliance with the Second Lien Credit
Agreement and the other Loan Documents.

8.16.        WAIVER
OF JURY TRIAL.  EACH GRANTOR
AND, BY ACCEPTANCE OF THE BENEFITS HEREOF, THE ADMINISTRATIVE AGENT AND EACH
SECURED PARTY, HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES TRIAL BY JURY IN
ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER LOAN
DOCUMENT AND FOR ANY COUNTERCLAIM THEREIN.

8.17.        Intercreditor Agreement.  Notwithstanding anything to the contrary
contained herein, the terms of this Agreement shall be subject to the terms of
the Intercreditor Agreement and in the event of any inconsistency between any
provision herein and therein, the terms of the Intercreditor Agreement shall
govern.

8.18.        Second Lien Qualified Counterparties.  By accepting the applicable benefits of the
Loan Documents, each Second Lien Qualified Counterparty shall be deemed to have
agreed to, and be bound by, all of the applicable provisions thereof.

 

24

 

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

 

	
   

  	
  NEW WORLD RESTAURANT GROUP, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Paul J.B. Murphy, III

  
	
   

  	
   

  	
  Paul J.B. Murphy, III

  
	
   

  	
   

  	
  President and Chief Executive Officer

  

 

25

 

	
   

  	
  MANHATTAN
  BAGEL COMPANY, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Paul J.B. Murphy, III

  
	
   

  	
   

  	
  Paul
  J.B. Murphy, III

  
	
   

  	
   

  	
  President
  and Chief Executive Officer

  
	
   

  	
   

  	
   

  
	
   

  	
  CHESAPEAKE
  BAGEL FRANCHISE CORP.

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Paul J.B. Murphy, III

  
	
   

  	
   

  	
  Paul
  J.B. Murphy, III

  
	
   

  	
   

  	
  President
  and Chief Executive Officer

  
	
   

  	
   

  	
   

  
	
   

  	
  EINSTEIN
  AND NOAH CORP.

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Paul J.B. Murphy, III

  
	
   

  	
   

  	
  Paul
  J.B. Murphy, III

  
	
   

  	
   

  	
  President
  and Chief Executive Officer

  
	
   

  	
   

  	
   

  
	
   

  	
  EINSTEIN/NOAH
  BAGEL PARTNERS, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Paul J.B. Murphy, III

  
	
   

  	
   

  	
  Paul
  J.B. Murphy, III

  
	
   

  	
   

  	
  President
  and Chief Executive Officer

  
	
   

  	
   

  	
   

  
	
   

  	
  I.
  & J. BAGEL, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Paul J.B. Murphy, III

  
	
   

  	
   

  	
  Paul
  J.B. Murphy, III

  
	
   

  	
   

  	
  President
  and Chief Executive Officer

  

 

26

Annex I
 to

Second Lien Guarantee and Collateral Agreement

ASSUMPTION AGREEMENT, dated
as of                                ,
200  , made by                                                                ,
a                            
corporation (the “Additional Grantor”), in favor of Bear Stearns
Corporate Lending Inc., as administrative agent (in such capacity, the “Administrative
Agent”) for the Secured Parties.  All
capitalized terms not defined herein shall have the meaning ascribed to them in
such Second Lien Credit Agreement.

W I T N E S S E T H :

WHEREAS, New World
Restaurant Group, Inc., a Delaware corporation (the “Borrower”), the
Lenders and the Administrative Agent and certain other parties have entered
into a Second Lien Credit Agreement, dated as of January 26, 2006 (as amended,
supplemented or otherwise modified from time to time, the “Second Lien  Credit
Agreement”);

WHEREAS, in connection with
the Second Lien Credit Agreement, the Borrower and certain of their Affiliates
(other than the Additional Grantor) have entered into the (i) Second Lien
Guarantee and Collateral Agreement, dated as of February 28, 2006  (as amended, supplemented or otherwise
modified from time to time, the “Guarantee and Collateral Agreement”) in
favor of the Administrative Agent for the benefit of the Administrative Agent
and the Secured Parties and (ii) the Intercreditor Agreement referred to in the
Second Lien Credit Agreement;

WHEREAS, the Second Lien
Credit Agreement requires the Additional Grantor to become a party to the
Guarantee and Collateral Agreement and the Intercreditor Agreement requires the
Additional Grantor to become a party thereto; and

WHEREAS, the Additional
Grantor has agreed to execute and deliver this Assumption Agreement in order to
become a party to the Guarantee and Collateral Agreement and the Intercreditor
Agreement;

NOW, THEREFORE, IT IS
AGREED:

1.  Second Lien Guarantee and Collateral
Agreement.  By executing and
delivering this Assumption Agreement, the Additional Grantor, as provided in
Section 8.14 of the Guarantee and Collateral Agreement, hereby becomes a party
to the Guarantee and Collateral Agreement as a Grantor thereunder with the same
force and effect as if originally named therein as a Grantor and, without
limiting the generality of the foregoing, hereby expressly assumes all
obligations and liabilities of a Grantor thereunder.  The information set forth in Annex 1-A hereto
is hereby added to the information set forth in the Schedules to the Guarantee
and Collateral Agreement.  The Additional
Grantor hereby represents and warrants that each of the representations and
warranties contained in Section 4 of the Guarantee and Collateral Agreement is
true and correct as to the Additional Grantor on and as the date hereof (after
giving effect to this Assumption Agreement) as if made on and as of such date.

 

 

2.  Intercreditor Agreement.   By executing and delivering this Assumption
Agreement, the Additional Grantor, as provided in Section 9.11 of the
Intercreditor Agreement, hereby becomes a party to the Intercreditor Agreement
as a Loan Party (as defined therein) thereunder with the same force and effect
as if originally named therein as a Loan Party and, without limiting the
generality of the foregoing, hereby expressly assumes all obligations of a Loan
Party thereunder.

3.  GOVERNING LAW.  THIS ASSUMPTION AGREEMENT SHALL BE GOVERNED
BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF
NEW YORK.

 

2

 

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

	
   

  	
  [ADDITIONAL
  GRANTOR]

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  

 

3

 

Annex 1-A to

Assumption Agreement

Supplement
to Schedule 1

Supplement
to Schedule 2

Supplement
to Schedule 3

Supplement
to Schedule 4

Supplement
to Schedule 5

Supplement
to Schedule 6

 

 

Annex II

to

Second Lien Guarantee and Collateral Agreement

ACKNOWLEDGMENT AND CONSENT

The undersigned hereby
acknowledges receipt of a copy of the Second Lien Guarantee and Collateral
Agreement dated as of February 28, 2006 (the “Agreement”), made by the
Grantors parties thereto for the benefit of Bear Stearns Corporate Lending
Inc., as Administrative Agent.  The
undersigned agrees for the benefit of the Administrative Agent and the Secured
Parties as follows:

1.     The undersigned will be bound by the terms of the Agreement and
will comply with such terms insofar as such terms are applicable to the
undersigned.

2.     The undersigned will notify the Administrative Agent promptly in
writing of the occurrence of any of the events described in Section 5.8(a) of
the Agreement.

3.     The terms of Sections 6.3(a) and 6.7 of the Agreement shall
apply to it, mutatis  mutandis, with respect to all actions that
may be required of it pursuant to Section 6.3(a) or 6.7 of the Agreement.

	
   

  	
  [NAME
  OF ISSUER]

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By

  	
   

  
	
   

  	
  Title

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Address
  for Notices:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Fax:Exhibit 10.3

 

 

 

GUARANTEE AGREEMENT

 

made by

 

certain Subsidiaries of

 

NEW WORLD RESTAURANT GROUP,
INC.

 

 

in favor of

 

GREENLIGHT CAPITAL, L.P.

and

GREENLIGHT CAPITAL
QUALIFIED, L.P.

 

Dated as of February 28,
2006

 

 

 

THIS INSTRUMENT IS SUBJECT
TO THE TERMS OF A SUBORDINATION AGREEMENT, DATED AS OF JANUARY 26, 2006, BY AND
AMONG NEW WORLD RESTAURANT GROUP, INC., ITS SUBSIDIARIES AND GREENLIGHT
CAPITAL, L.P. AND GREENLIGHT CAPITAL QUALIFIED, L.P., AS THE SENIOR
SUBORDINATED CREDITORS, IN FAVOR OF WELLS FARGO FOOTHILL, INC., AS AGENT FOR
THE FIRST LIEN LENDERS, AND BEAR STEARNS CORPORATE LENDING INC., AS AGENT FOR
THE SECOND LIEN LENDERS.  NEW WORLD
RESTAURANT GROUP, INC. SHALL FURNISH A COPY OF SUCH SUBORDINATION AGREEMENT TO
THE HOLDER HEREOF UPON WRITTEN REQUEST AND WITHOUT CHARGE

GUARANTEE AGREEMENT, dated
as of February 28, 2006, made by each of the signatories hereto (together with
any other entity that may become a party hereto as provided herein, the “Guarantors”), in favor of GREENLIGHT
CAPITAL, L.P. and GREENLIGHT CAPITAL QUALIFIED, L.P. (collectively, the “Lenders”), as lenders to New World
Restaurant Group, Inc. (the “Borrower”).

W
I T N E S S E T H:

WHEREAS, pursuant to the
Credit Agreement, dated as of January 26, 2006 (as amended, supplemented, revised,
replaced, restated or otherwise modified from time to time, the “Credit Agreement”), among the Borrower
and Lenders, the Lenders have severally agreed to make Loans to the Borrower
upon the terms and subject to the conditions set forth therein;

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

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

NOW, THEREFORE, in
consideration of the premises and to induce the Lenders to enter into the
Credit Agreement and to induce the Lenders to make the Loans thereunder, each Guarantor
hereby agrees with the Lenders, for the ratable benefit of the Lenders, as
follows:

SECTION 1.  DEFINED
TERMS

1.1.          Definitions.

(a)           Unless otherwise defined herein, terms defined in the
Credit Agreement and used herein shall have the meanings given to them in the
Credit Agreement.

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

“Agreement”
shall mean this Guarantee Agreement, as the same may be amended, supplemented,
revised, restated or otherwise modified from time to time.

 

1

 

“Borrower
Obligations” shall mean the collective reference to the Outstanding
Amount and any other obligations of the Borrower under the Credit Agreement and
the Loan Documents.

“Intercompany
Note” shall mean any promissory note evidencing loans made by
any Guarantor to any of its Subsidiaries or other Indebtedness owing by any of
its Subsidiaries to any Guarantor.

1.2.          Other Definitional Provisions.

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

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

SECTION 2. 
GUARANTEE

2.1.          Guarantee.

(a)           Each of the Guarantors hereby, jointly and severally,
unconditionally and irrevocably, guarantees to the Lenders and their respective
successors, indorsees, transferees and assigns, the prompt and complete payment
and performance by the Borrower when due (whether at the stated maturity, by
acceleration or otherwise) of the Borrower Obligations.

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

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

(d)           The guarantee contained in this Section 2.1 shall
remain in full force and effect until the conditions set forth in Section
5.15 hereof shall have been satisfied.

(e)           No payment made by the Borrower, any of the Guarantors,
any other guarantor or any other Person or received or collected by any Lender from
the Borrower, any of the Guarantors, any other guarantor or any other Person by
virtue of any action or proceeding or any set-off or appropriation or
application at any time or from time to time in reduction of or in payment of
the Borrower Obligations shall be deemed to modify, reduce, release or otherwise
affect the liability of any Guarantor hereunder which shall, notwithstanding
any such payment (other than any payment made by such Guarantor in respect of
the Borrower Obligations or any 

 

2

 

payment
received or collected from such Guarantor in respect of the Borrower
Obligations), remain liable for the Borrower Obligations up to the maximum
liability of such Guarantor hereunder until the conditions set forth in Section
5.15 shall have been satisfied.

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

2.3.          No Subrogation. 
Notwithstanding any payment made by any Guarantor hereunder or
application of funds of any Guarantor by any Lender, no Guarantor shall be
entitled to be subrogated to any of the rights of any Lender against the
Borrower or any other Guarantor or guarantee held by any Lender for the payment
of the Borrower Obligations, nor shall any Guarantor seek or be entitled to
seek any contribution or reimbursement from the Borrower or any other Guarantor
in respect of payments made by such Guarantor hereunder, in either case, until
all amounts owing to the Lenders by the Borrower on account of the Borrower
Obligations are paid in full.  If any
amount shall be paid to any Guarantor on account of such subrogation rights at
any time when all of the Borrower Obligations shall not have been paid in full,
such amount shall be held by such Guarantor in trust for the Lenders,
segregated from other funds of such Guarantor, and shall, forthwith upon
receipt by such Guarantor, be turned over to the Lenders in the exact form
received by such Guarantor, to be applied against the Borrower Obligations,
whether matured or unmatured, in accordance with the provisions of Section
8.2 of the Credit Agreement.

2.4.          Amendments, etc. with respect to the Borrower
Obligations.  Each Guarantor shall
remain obligated hereunder notwithstanding that, without any reservation of
rights against any Guarantor and without notice to or further assent by any
Guarantor, any demand for payment of any of the Borrower Obligations made by
any Lender may be rescinded by such Lender and any of the Borrower Obligations
continued, and the Borrower Obligations, or the liability of any other Person
upon or for any part thereof, or guarantee therefor, may, from time to time, in
whole or in part, be renewed, extended, amended, modified, accelerated,
compromised, waived, surrendered or released by any Lender, and the Credit
Agreement and the other Loan Documents and any other documents executed and
delivered in connection therewith may be amended, modified, supplemented or
terminated, in whole or in part, as the Borrower or the Required Lenders or all
Lenders, as the case may be, may deem advisable from time to time, and any
guarantee at any time held by the Lenders for the payment of the Borrower
Obligations may be sold, exchanged, waived, surrendered or released.

2.5.          Guarantee Absolute and Unconditional.  Each Guarantor waives any and all notice of
the creation, renewal, extension or accrual of any of the Borrower Obligations
and notice of or proof of reliance by any Lender upon the guarantee contained
in this Section 2 or acceptance of the guarantee contained in this Section
2; the Borrower Obligations, and any of them, shall conclusively be deemed
to have been created, contracted or incurred, or renewed, 

 

3

 

extended, amended or waived,
in reliance upon the guarantee contained in this Section 2; and all
dealings between the Borrower and any of the Guarantors, on the one hand, and
the Lenders, on the other hand, likewise shall be conclusively presumed to have
been had or consummated in reliance upon the guarantee contained in this Section
2.  To the extent permitted by
applicable law, each Guarantor waives diligence, presentment, protest, demand
for payment and notice of default or nonpayment to or upon the Borrower or any
of the Guarantors with respect to the Borrower Obligations.  Each Guarantor understands and agrees that,
to the extent permitted by applicable law, the guarantee contained in this Section
2 shall be construed as a continuing, absolute and unconditional guarantee
of payment without regard to (1) the
validity or enforceability of the Credit Agreement or any other Loan Document,
any of the Borrower Obligations or guarantee at any time or from time to time
held by any Lender, (2) any defense,
set-off or counterclaim (other than a defense of payment or performance) which
may at any time be available to or be asserted by the Borrower or any other
Person against any Lender, or (3) any
other circumstance whatsoever (other than defenses of performance) (with or
without notice to or knowledge of the Borrower or such Guarantor) which
constitutes, or might be construed to constitute, an equitable or legal
discharge of the Borrower for the Borrower Obligations, or of such Guarantor
under the guarantee contained in this Section 2, in bankruptcy or in any
other instance.  When making any demand
hereunder or otherwise pursuing its rights and remedies hereunder against any
Guarantor, any Lender may, but shall be under no obligation to, make a similar
demand on or otherwise pursue such rights and remedies as it may have against
the Borrower, any other Guarantor or any other Person or against any guarantee
for the Borrower Obligations, and any failure by any Lender to make any such
demand, to pursue such other rights or remedies or to collect any payments from
the Borrower, any other Guarantor or any other Person or to realize upon any
guarantee, or any release of the Borrower, any other Guarantor or any other
Person or guarantee, shall not relieve any Guarantor of any obligation or liability
hereunder, and shall not impair or affect the rights and remedies, whether
express, implied or available as a matter of law, of any Lender against any
Guarantor.  For the purposes hereof ”demand”
shall include the commencement and continuance of any legal proceedings.

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

2.7.          Payments. 
Each Guarantor hereby guarantees that payments hereunder will be paid to
the Lenders without set-off or counterclaim in Dollars at the Funding Office.

SECTION 3. 
REPRESENTATIONS AND WARRANTIES

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

 

4

 

3.1.          Representations in Credit Agreement.  In the case of each Guarantor, the
representations and warranties set forth in Section 4 of the Credit
Agreement as they relate to such Guarantor or to the Loan Documents to which
such Guarantor is a party, each of which is hereby incorporated herein by
reference, are true and correct in all material respects, and each Lender shall
be entitled to rely on each of them as if they were fully set forth herein,
provided that each reference in each such representation and warranty to the
Borrower’s or to any Loan Party’s knowledge shall, for the purposes of this Section
3.1, be deemed to be a reference to such Guarantor’s knowledge.

SECTION 4. 
COVENANTS

Each Guarantor covenants and
agrees with the Lenders, from and after the date of this Agreement until all
the conditions set forth in Section 5.15 shall have been completely
satisfied, that:

4.1.          Covenants in Credit Agreement.  In the case of each Guarantor, such Guarantor
shall take, or shall refrain from taking, as the case may be, each action that
is necessary to be taken or not taken, as the case may be, so that no Default
or Event of Default is caused by the failure to take such action or to refrain
from taking such action by such Guarantor or any of its Subsidiaries.

4.2.          Maintenance of Insurance.  Such Guarantor will maintain, with
financially sound and reputable companies, insurance policies as may be
required by Section 6.5 of the Credit Agreement.

SECTION 5. 
MISCELLANEOUS

5.1.          Amendments in Writing.  None of the terms or provisions of this
Agreement may be waived, amended, supplemented or otherwise modified except in
accordance with Section 9.1 of the Credit Agreement.

5.2.          Notices.  All
notices, requests and demands to or upon the Lenders or any Guarantor hereunder
shall be effected in the manner provided for in Section 9.2 of the
Credit Agreement; provided that any such notice, request or demand to or upon
any Guarantor shall be addressed to such Guarantor at its notice address set
forth on Schedule 1 or to such other address for notice, request or
demand which a Guarantor may designate by written notice to the Lenders.

5.3.          No Waiver by Course of Conduct; Cumulative Remedies.  No Lender shall by any act (except by a
written instrument pursuant to Section 5.1), delay, indulgence, omission
or otherwise be deemed to have waived any right or remedy hereunder or to have
acquiesced in any Default or Event of Default. 
No failure to exercise, nor any delay in exercising, on the part of any Lender,
any right, power or privilege hereunder shall operate as a waiver thereof.  No single or partial exercise of any right,
power or privilege hereunder shall preclude any other or further exercise
thereof or the exercise of any other right, power or privilege.  A waiver by any Lender of any right or remedy
hereunder on any one occasion shall not be construed as a bar to any right or
remedy which any Lender would otherwise have on any future occasion.  The rights and 

 

5

 

remedies herein may be
exercised singly or concurrently and are not exclusive of any other rights or
remedies provided by law.

5.4.          Enforcement Expenses; Indemnification.

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

(b)           Each Guarantor agrees to pay, and to hold the Lenders harmless
from, any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements of any kind or
nature whatsoever with respect to the execution, delivery, enforcement,
performance and administration of this Agreement to the extent the Borrower
would be required to do so pursuant to Section 9.5 of the Credit
Agreement.

(c)           The agreements in this Section 5.4 shall survive
repayment of the Loans and all other amounts payable under the Credit Agreement
and the other Loan Documents.

5.5.          Successors and Assigns.  This Agreement shall be binding upon the
successors and assigns of each Guarantor and shall inure to the benefit of the Lenders
and their successors and permitted assigns; provided that no Guarantor may
assign, transfer or delegate any of its rights or obligations under this
Agreement without the prior written consent of the Lenders.

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

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

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

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

5.10.        GOVERNING LAW.  THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.

 

6

 

5.11.        Submission To Jurisdiction; Waivers.  Each Guarantor hereby irrevocably and
unconditionally:

(a)           submits for itself and its property in any legal action or
proceeding relating to this Agreement and the other Loan Documents to which it
is a party, or for recognition and enforcement of any judgment in respect
thereof, to the non-exclusive general jurisdiction of the Courts of the
State of New York located in the City or County of New York, the courts of the
United States of America for the Southern District of New York, and
appellate courts from any thereof;

(b)           consents that any such action or proceeding may be brought
in such courts and waives any objection that it may now or hereafter have to
the venue of any such action or proceeding in any such court or that such
action or proceeding was brought in an inconvenient court and agrees not to
plead or claim the same;

(c)           agrees that service of process in any such action or
proceeding may be effected by mailing a copy thereof by registered or certified
mail (or any substantially similar form of mail), postage prepaid, to such Guarantor
at its address referred to in Section 5.2 or at such other address of
which the Lenders shall have been notified pursuant thereto;

(d)           agrees that nothing herein shall affect the right to
effect service of process in any other manner permitted by law or shall limit
the right to sue in any other jurisdiction; and

(e)           waives, to the maximum extent not prohibited by law, any
right it may have to claim or recover in any legal action or proceeding
referred to in this Section 5.12 any special, exemplary, punitive or
consequential damages.

5.12.        Acknowledgments. 
Each Guarantor hereby acknowledges that:

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

(b)           no Lender has any fiduciary relationship with or duty to
any Guarantor arising out of or in connection with this Agreement or any of the
other Loan Documents, and the relationship between the Guarantor, on the one
hand, and the Lenders, on the other hand, in connection herewith or therewith
is solely that of debtor and creditor; and

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

5.13.        Additional Guarantors. 
Each Subsidiary of the Borrower that is required to become a party to
this Agreement pursuant to Section 5.2 of the Credit Agreement shall
become a Guarantor for all purposes of this Agreement upon execution and
delivery by such Subsidiary of an Assumption Agreement in the form of Annex 1
hereto.

5.14.        WAIVER OF JURY TRIAL.  EACH GUARANTOR AND, BY ACCEPTANCE OF THE
BENEFITS HEREOF, EACH LENDER, HEREBY IRREVOCABLY AND 

 

7

 

UNCONDITIONALLY WAIVES TRIAL
BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY
OTHER LOAN DOCUMENT AND FOR ANY COUNTERCLAIM THEREIN.

5.15.        Releases of Guarantees.  At such time as the Borrower Obligations
shall have been paid in full and the Loan Commitments shall have been
terminated, all obligations (other than those expressly stated to survive such
termination) of each Guarantor under this Agreement shall terminate, all
without delivery of any instrument or performance of any act by any Person.

 

[SIGNATURE PAGE FOLLOWS]

 

8

 

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

 

	
   

  	
  EINSTEIN
  AND NOAH CORP.

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Paul J.B. Murphy, III

  
	
   

  	
   

  	
  Paul J.B. Murphy, III

  
	
   

  	
   

  	
  President and Chief
  Executive Officer

  
	
   

  	
   

  	
   

  
	
   

  	
  MANHATTAN
  BAGEL COMPANY

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Paul J.B. Murphy, III

  
	
   

  	
   

  	
  Paul J.B. Murphy, III

  
	
   

  	
   

  	
  President and Chief
  Executive Officer

  
	
   

  	
   

  	
   

  
	
   

  	
  CHESAPEAKE
  BAGEL FRANCHISE CORP.

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Paul J.B. Murphy, III

  
	
   

  	
   

  	
  Paul J.B. Murphy, III

  
	
   

  	
   

  	
  President and Chief Executive
  Officer

  
	
   

  	
   

  	
   

  
	
   

  	
  EINSTEIN/NOAH
  BAGEL PARTNERS, INC.

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Paul J.B. Murphy, III

  
	
   

  	
   

  	
  Paul J.B. Murphy, III

  
	
   

  	
   

  	
  President and Chief
  Executive Officer

  
	
   

  	
   

  	
   

  
	
   

  	
  I.
  & J. BAGEL, INC.

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Paul J.B. Murphy, III

  
	
   

  	
   

  	
  Paul J.B. Murphy, III

  
	
   

  	
   

  	
  President and Chief
  Executive Officer

  

 

Signature
Page to Guarantee Agreement

 

9

 

Schedule 1

NOTICE ADDRESSES OF
GUARANTORS

	
  Einstein and Noah Corp.

  	
   

  	
  c/o
  New World Restaurant Group, Inc.

  
	
   

  	
   

  	
  1687
  Cole Boulevard

  
	
   

  	
   

  	
  Golden,
  CO 80401

  
	
   

  	
   

  	
  Attention:
  Richard P. Dutkiewicz, Chief Financial Officer

  
	
   

  	
   

  	
  Telecopy:
  (303) 568-8402

  
	
   

  	
   

  	
  Telephone:
  (303) 568-8004

  
	
   

  	
   

  	
   

  
	
  Manhattan Bagel Company,
  Inc.

  	
   

  	
  c/o
  New World Restaurant Group, Inc.

  
	
   

  	
   

  	
  1687
  Cole Boulevard

  
	
   

  	
   

  	
  Golden,
  CO 80401

  
	
   

  	
   

  	
  Attention:
  Richard P. Dutkiewicz, Chief Financial Officer

  
	
   

  	
   

  	
  Telecopy:
  (303) 568-8402

  
	
   

  	
   

  	
  Telephone:
  (303) 568-8004

  
	
   

  	
   

  	
   

  
	
  Chesapeake Bagel Franchise
  Corp.

  	
   

  	
  c/o
  New World Restaurant Group, Inc.

  
	
   

  	
   

  	
  1687
  Cole Boulevard

  
	
   

  	
   

  	
  Golden,
  CO 80401

  
	
   

  	
   

  	
  Attention:
  Richard P. Dutkiewicz, Chief Financial Officer

  
	
   

  	
   

  	
  Telecopy:
  (303) 568-8402

  
	
   

  	
   

  	
  Telephone:
  (303) 568-8004

  
	
   

  	
   

  	
   

  
	
  Einstein/Noah Bagel
  Partners, Inc.

  	
   

  	
  c/o
  New World Restaurant Group, Inc.

  
	
   

  	
   

  	
  1687
  Cole Boulevard

  
	
   

  	
   

  	
  Golden,
  CO 80401

  
	
   

  	
   

  	
  Attention:
  Richard P. Dutkiewicz, Chief Financial Officer

  
	
   

  	
   

  	
  Telecopy:
  (303) 568-8402

  
	
   

  	
   

  	
  Telephone:
  (303) 568-8004

  
	
   

  	
   

  	
   

  
	
  I. & J. Bagel, Inc.

  	
   

  	
  c/o
  New World Restaurant Group, Inc.

  
	
   

  	
   

  	
  1687
  Cole Boulevard

  
	
   

  	
   

  	
  Golden,
  CO 80401

  
	
   

  	
   

  	
  Attention:
  Richard P. Dutkiewicz, Chief Financial Officer

  
	
   

  	
   

  	
  Telecopy:
  (303) 568-8402

  
	
   

  	
   

  	
  Telephone:
  (303) 568-8004

  

 

 

Annex I
 to

Guarantee Agreement

ASSUMPTION AGREEMENT, dated
as of                      ,
200   , made by                                           ,
a                       
corporation (the “Additional Guarantor”), in
favor of the Lenders.  All capitalized
terms not defined herein shall have the meaning ascribed to them in such Credit
Agreement.

W I T N E S S E T H:

WHEREAS, New World
Restaurant Group, Inc., a Delaware corporation (the “Borrower”)
and the Lenders have entered into a Credit Agreement, dated as of January 26,
2006 (as amended, supplemented or otherwise modified from time to time, the “Credit Agreement”);

WHEREAS, in connection with
the Credit Agreement, the Borrower and certain of their Affiliates (other than
the Additional Guarantor) have entered into the (i) Guarantee Agreement, dated
as of February     , 2006 (as amended, supplemented or
otherwise modified from time to time, the “Guarantee Agreement”)
in favor of the Lenders;

WHEREAS, the Credit
Agreement requires the Additional Guarantor to become a party to the Guarantee
Agreement; and

WHEREAS, the Additional Guarantor
has agreed to execute and deliver this Assumption Agreement in order to become
a party to the Guarantee Agreement;

NOW, THEREFORE, IT IS AGREED:

1.  Guarantee Agreement.  By executing and delivering this Assumption
Agreement, the Additional Guarantor, as provided in Section 5.13 of
the Guarantee Agreement, the undersigned hereby becomes a party to the
Guarantee Agreement as a Guarantor thereunder with the same force and effect as
if originally named therein as a Guarantor and, without limiting the generality
of the foregoing, hereby expressly assumes all obligations and liabilities of a
Guarantor thereunder.  The information
set forth in Annex 1-A hereto is hereby added to the information set forth
in the Schedules to the Guarantee Agreement. 
The Additional Guarantor hereby represents and warrants that each of the
representations and warranties contained in Section 3 of the
Guarantee Agreement is true and correct as to the Additional Guarantor on and
as the date hereof (after giving effect to this Assumption Agreement) as if
made on and as of such date.

2.  GOVERNING LAW.  THIS ASSUMPTION AGREEMENT SHALL BE GOVERNED
BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF
NEW YORK.

 

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

	
   

  	
  [ADDITIONAL
  GUARANTOR]

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  

 

 

Annex 1-A to

Assumption Agreement

Supplement
to Schedule 1

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