Document:

Exhibit
10.25

 

SECURITY AGREEMENT

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

PRELIMINARY STATEMENTS

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

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

C.           Holdings has executed and
delivered the Holdings Guaranty, and Subsidiary Grantors have executed and
delivered the Subsidiary Guaranty, in each case in favor of Secured Party for
the benefit of Lenders and any Hedge Agreement Counterparties, pursuant to
which Holdings and each Subsidiary Grantor have guarantied the prompt payment
and performance when due of all Obligations under the Credit Agreement and
under the other Loan Documents.

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

NOW, THEREFORE, in consideration of the
agreements set forth herein and in the Credit Agreement and in order to induce
Lenders to make Loans and other extensions of credit under the Credit Agreement
and to induce Hedge Agreement Counterparties to enter into the Lender Hedge
Agreements, and for other good and valuable consideration, the receipt and

 

 

 

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adequacy
of which are hereby acknowledged, each Grantor hereby agrees with Secured Party
as follows:

 

SECTION
1.           Grant of Security.

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

 

(a)           all Accounts;

 

(b)           all Chattel Paper;

 

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

(d)           all Documents;

 

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

 

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

 

(g)           all Instruments;

 

(h)           all Investment Property;

 

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

 

(j)            all Records;

 

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

 

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

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

Notwithstanding the foregoing, in no event shall the
security interest granted under this Section 1 attach to (a) any lease,
license, contract, property rights or agreement to

 

 

 

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which
any Grantor is a party or any of its rights or interests thereunder if and for
so long as the grant of such security interest shall constitute or result in
(i) the abandonment, invalidation or unenforceability of any right, title or
interest of any Grantor therein or (ii) in a breach or termination pursuant to
the terms of, or a default under, any such lease, license, contract, property
rights or agreement (other than to the extent that any such term is actually
rendered ineffective pursuant to Sections 9-406, 9-407, 9-408 or 9-409 of the
UCC (or any successor provision or provisions) of any relevant jurisdiction or
any other Section of the UCC or any other applicable law (including the
Bankruptcy Code) or principles of equity), provided, however,
that such security interest shall attach immediately at such time as the
condition causing such abandonment, invalidation or unenforceability shall be
remedied and, to the extent severable, shall attach immediately to any portion
of such lease, license, contract, property rights or agreement that does not
result in any of the consequences specified in (i) or (ii) above; or (b) in any
of the outstanding capital stock of a controlled foreign corporation (used hereinafter
as such term is defined in Section 957(a) or any successor provision of the
Internal Revenue Code) in excess of 66% of the voting power of all classes of
capital stock of such controlled foreign corporation entitled to vote,
provided, however, that, immediately upon the amendment of the
Internal Revenue Code to allow the pledge of a greater percentage of the voting
power of capital stock in a controlled foreign corporation without resulting in
repatriation of earnings or other material adverse tax consequences, the
Collateral shall include, and the security interest granted by each Grantor
shall attach to, such greater percentage of capital stock of each controlled
foreign corporation.

SECTION
2.           Security for Obligations. 

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

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

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

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

Guaranty;

in each case together with all extensions or renewals
thereof, whether for principal, interest, reimbursement of amounts drawn under
Letters of Credit, payments for early termination of Lender Hedge Agreements,
fees, expenses, indemnities or otherwise, whether voluntary or involuntary,
direct or indirect, absolute or contingent, liquidated or unliquidated, whether
or not jointly owed with others, and whether or not from time to time decreased
or extinguished and

 

 

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later increased, created or incurred, and all or any
portion of such obligations or liabilities that are paid, to the extent all or
any part of such payment is avoided or recovered directly or indirectly from
Secured Party or any Lender or Hedge Agreement Counterparty as a preference,
fraudulent transfer or otherwise (and whether as a result of any demand,
settlement, litigation or otherwise), and all obligations of every nature of
Grantors now or hereafter existing under this Agreement (including, without
limitation, interest and other amounts that, but for the fling of a petition in
bankruptcy with respect to Company or any other Grantor, would accrue on such
obligations, whether or not a claim is allowed against Company or such Grantor
for such amounts in the related bankruptcy proceeding).

 

SECTION
3.           Grantors Remain Liable.

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

 

SECTION 4.           Representations and Warranties.

Each
Grantor represents and warrants as
follows:

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

(b)           Perfection. The security interests in the Collateral granted
to Secured Party for the benefit of Lenders and Hedge Agreement Counterparties
hereunder constitute valid security interests in the Collateral (subject to
Liens expressly permitted by the Credit Agreement), securing the payment of the
Secured Obligations. Upon (i) the filing of UCC financing statements naming
each Grantor as “debtor”, naming Secured Party as “secured party” and
describing the Collateral in the fling offices with respect to such Grantor set
forth on Schedule 2 annexed hereto, (ii) in the case of the Securities
Collateral consisting of certificated securities or evidenced by Instruments,
in addition to filing of such UCC financing statements, delivery of the certificates
representing such certificated Securities and delivery of such Instruments to
Secured Party (and in the case of Securities Collateral issued by a foreign
issuer,

 

 

 

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

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

(d)           Names.
Each Grantor’s exact legal name is set forth on Schedule A annexed
hereto, or, in the case of an Additional Grantor, the applicable Counterpart
executed by

 

 

 

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

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

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

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

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

 

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

 

 

 

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

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

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

SECTION
5.           Further Assurances.

(a)           Generally. Each Grantor agrees
that from time to time, at the expense of Grantors, such Grantor will
promptly execute and deliver all further instruments and documents, and take
all further action, that may be necessary or desirable, or that Secured Party
may request, in order to perfect and protect any security interest granted or purported
to be granted hereby or to enable Secured Party to exercise and enforce its
rights and remedies hereunder with respect to any Collateral. Without limiting
the generality of the foregoing, each Grantor will: (i) (A) notify Secured
Party in writing of receipt by such Grantor of any interest in Chattel Paper
having a value (determined by reference to the principal amount or termination
value, if any) in excess of $200,000 and (B) at the request of Secured Party,
mark conspicuously each such item of Chattel Paper and, at the request of
Secured Party after an Event of Default has occurred, each of its records
pertaining to the Collateral, with a legend, in form and substance satisfactory
to Secured Party, indicating that such Collateral is subject to the security
interest granted hereby, (ii) deliver to Secured Party all promissory notes and
other Instruments (excluding checks and promissory notes obtained in the ordinary
course of business) and, at the request of Secured Party, all original
counterparts of Chattel Paper having a value (determined by reference to the
principal amount or termination value, if any) in excess of $200,000 in the
aggregate, duly endorsed and accompanied by duly executed instruments of
transfer or assignment, all in form and substance reasonably satisfactory to
Secured Party, (iii) (A) execute (if necessary) and file such financing or
continuation statements, or amendments thereto, (B) execute and deliver, and
cause to be executed and delivered, agreements establishing that Secured Party
has control of electronic Chattel Paper and Letter-of-Credit Rights having a value (determined
by reference to the principal amount or termination value, if any, in the case
of electronic Chattel Paper and by reference to the face amount of the undrawn
portion of all relevant letters of credit, in the case of Letter-of-Credit
Rights) in excess of $200,000 individually, and Deposit Accounts and Investment
Property of such Grantor to the extent required by the Credit Agreement or this
Agreement, as applicable, and (C) deliver such other instruments or notices, in
each case, as may be necessary or desirable and as Secured Party may request,
in order to perfect and preserve the security interests granted or purported to
be granted hereby, (iv) furnish to Secured Party from time to time statements
and schedules further identifying and describing the Collateral and such other
reports in connection with the Collateral as Secured Party may reasonably
request, all in reasonable
detail, (v) at any reasonable time, upon request by Secured Party,
exhibit the Collateral to and allow inspection of the Collateral by Secured
Party, or persons designated by Secured Party, (vi) at Secured Party’s request,
appear in and defend any action or proceeding that

 

 

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may affect such Grantor’s title to or Secured Party’s
security interest in all or any material part of the Collateral, and (vii) upon
the reasonable request of Secured Party, use commercially reasonable efforts to
obtain any third party consents necessary to create and perfect a security
interest in favor of Secured Party with respect to any Collateral.
Notwithstanding the foregoing, Grantors shall only be required to register the
Intellectual Property Collateral on a basis consistent with their current and
historical business practice; provided that in the event any Grantor
decides to deviate from such current and historical business practice in
connection with this matter, such Grantor shall obtain prior written consent of
Administrative Agent, which consent shall not be unreasonably withheld. Each
Grantor hereby authorizes Secured Party to file one or more financing or
continuation statements, and amendments thereto, relative to all or any part of
the Collateral (including any financing statement indicating that it covers “all
assets” or “all personal property” of such Grantor) without the signature of
any Grantor.

(b)           Securities Collateral. Without limiting the generality of
the foregoing Section 5(a) but subject to the limitations contained therein,
each Grantor agrees that (i) all certificates or Instruments (excluding checks
and promissory notes obtained in the ordinary course of business) representing
or evidencing the Securities Collateral shall be delivered to and held by or on
behalf of Secured Party pursuant hereto-and shall be in suitable form for transfer by delivery or, as applicable, shall be
accompanied by such Grantor’s endorsement, where necessary, or duly executed
instruments of transfer or assignment in blank, all in form and substance
satisfactory to Secured Party and (ii) it will, upon obtaining any additional
Equity Interests or Indebtedness, promptly (and in any event within five
Business Days, in the case of Equity Interests in a Subsidiary or Joint Venture
of Holdings or any of its Subsidiaries or Indebtedness with an aggregate
outstanding balance (including principal, accrued interest, accrued fees and other
amounts then owing) exceeding $500,000, otherwise, no later than the date of
delivery of the next Compliance Certificate delivered more than five Business
Days after such Equity Interests or Indebtedness was obtained) deliver to
Secured Party a Pledge Supplement, duly executed by such Grantor, in respect of
such additional Pledged Equity or Pledged Debt, which Pledge Supplement shall
be accompanied by the items described in clause (i) above; provided,
that the failure of any Grantor to execute a Pledge Supplement with respect to
any additional Pledged Equity or Pledged Debt shall not impair the security
interest of Secured Party therein or otherwise adversely affect the rights and
remedies of Secured Party hereunder with respect thereto. Upon each such acquisition,
the representations and warranties contained in Section 4(f) hereof shall be
deemed to have been made by such Grantor as to such Pledged Equity or Pledged
Debt, whether or not such Pledge Supplement is delivered.

(c)           Intellectual Property Collateral. Without limiting the
generality of the foregoing Section 5(a) but subject to the limitations
contained therein, if any Grantor shall hereafter obtain rights to any new
Intellectual Property Collateral or become entitled to the benefit of (i) any
patent application or patent or any reissue, division, continuation, renewal,
extension or continuation-in-part of any Patent or any improvement of any
Patent or (ii) any Copyright Registration, application for Copyright
Registration or renewals or extension of any Copyright, then in any such case,
the provisions of this Agreement shall automatically apply thereto. At least
quarterly, concurrently with the delivery of financial statements after the end
of each calendar quarter, each Grantor shall promptly notify Secured Party in
writing of any of the foregoing rights acquired by such Grantor after the date
hereof which is material to the business of the Loan Parties taken as a whole
and of any Trademark Registrations issued or application

 

 

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for a Trademark Registration, any Patent issued or
application for a Patent made, and any Copyright Registrations issued or
application for Copyright Registration made, in any such case, after the date
hereof. At least quarterly, concurrently with the delivery of financial
statements after the end of each calendar quarter during which such Grantor
obtains new Intellectual Property Collateral, each Grantor shall execute and
deliver to Secured Party an IP Supplement, and submit a Grant for recordation
with respect thereto in the applicable IP Filing Office; provided, the
failure of any Grantor to execute an IP Supplement or submit a Grant for
recordation with respect to any additional Intellectual Property Collateral
shall not impair the security interest of Secured Party therein or otherwise
adversely affect the rights and remedies of Secured Party hereunder with
respect thereto. Upon delivery to Secured Party of an IP Supplement,
Schedules 8, 9 and 10 annexed hereto and Schedule A to each Grant,
as applicable, shall be deemed modified to include reference to any right,
title or interest in any existing Intellectual Property Collateral or any
Intellectual Property Collateral set forth on Schedule A to such IP
Supplement. Upon each such acquisition, the representations and warranties
contained in
Section 4 (g) hereof shall be deemed to have been made by such Grantor
as to such Intellectual Property Collateral, whether or not such IP Supplement
is delivered.

(d)           Commercial Tort Claims. Grantors have no Commercial Tort
Claims as of the date hereof, except as set forth on Schedule 1 annexed
hereto. In the event that a Grantor shall at any time after the date hereof
have any Commercial Tort Claims with an aggregate value in excess of $500,000,
such Grantor shall promptly notify Secured Party thereof in writing, which
notice shall (i) set forth in reasonable detail the basis for and nature of
such Commercial Tort Claim and (ii) constitute an amendment to this Agreement
by which such Commercial Tort Claim shall constitute part of the Collateral.

 

SECTION
6.           Certain Covenants of
Grantors.

 

Each
Grantor shall:

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

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

 

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

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

 

 

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judgment,
writ or warrant of attachment entered or fled against such Grantor or any of
the Collateral as a result of the failure to make such payment;

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

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

 

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

 

Each
Grantor shall:

(a)
          if any Inventory is in
possession or control of any of such Grantor’s agents, subcontractors. third-party vendors or processors, if the
aggregate book value of all such Inventory in possession or control of any such
agent, subcontractor, third-party vendor or processor other than QVC, Inc.,
exceeds $1,500,000, and in any event upon the occurrence of an Event of Default
(including, without limitation, in the case of inventory in the possession or
control of QVC, Inc.), instruct such agent or processor to hold all such
Inventory for the account of Secured Party and subject to the instructions of
Secured Party, unless Secured Party, in its sole discretion, elects not to
require such action;

(b)           if
requested by Secured Party, enter into and deliver to Secured Party a
Collateral Access Agreement with respect to any leased warehouse; and

 

(c)           promptly upon the issuance and
delivery to such Grantor of any negotiable

Document, deliver such
Document to Secured Party.

 

SECTION 8.           Special Covenants with respect to
Accounts.

 

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

(b)           Except
as otherwise provided in this subsection (b), each Grantor shall continue to
collect, at its own expense, all amounts due or to become due to such Grantor
under the Accounts. In connection with such collections, each Grantor may take
(and, upon the occurrence and during the continuance of an Event of Default at
Secured Party’s direction, shall take) such action as such Grantor or Secured
Party may deem reasonably necessary or advisable to enforce collection of
amounts due or to become due under the Accounts; provided, however, that
Secured Party shall have the right at any time, upon the occurrence and during
the continuation of an Event of Default and upon written notice to such Grantor
of its intention to do so, to (i) notify the account debtors or obligors under
any Accounts of the assignment of such

 

 

10

 

 

Accounts
to Secured Party and to direct such account debtors or obligors to make payment
of all  amounts due or to become due to
such Grantor thereunder directly to Secured Party, (ii) notify  each Person maintaining a lockbox or similar
arrangement to which account debtors or obligors  under any Accounts have been directed to make
payment to remit all amounts representing  collections on checks and other payment items
from time to time sent to or deposited in such  lockbox or other arrangement directly to
Secured Party, (iii) enforce collection of any such Accounts at the expense of
Grantors, and (iv) adjust, settle or compromise the amount or  payment thereof, in the same manner and to the
same extent as such Grantor might have done.  After receipt by such Grantor of the notice
from Secured Party referred to in the proviso to the  preceding sentence, (I) all amounts and proceeds
(including checks and other Instruments)  received by such Grantor in respect of the
Accounts shall be received for the benefit of Secured  Party hereunder, shall be segregated from
other funds of such Grantor and shall be forthwith paid  over or delivered to Secured Party in the same
form as so received (with any necessary  endorsement)
to be held as cash Collateral and applied as provided by Section 17 hereof, and
(II)  such Grantor shall not, without the
written consent of Secured Party, adjust, settle or compromise  the amount or payment of any Account, or
release wholly or partly any account debtor or obligor  thereof, or allow any credit or discount
thereon.

 

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

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

(b)          Covenants. Each Grantor shall (i) not, except as expressly
permitted by the Credit Agreement, permit any issuer of Pledged Subsidiary
Equity to merge or consolidate unless all the outstanding Equity Interests of
the surviving or resulting Person are, upon such merger or consolidation,
pledged hereunder and no cash, securities or other property is distributed in
respect of the outstanding Equity Interests of any other constituent
corporation; provided that, if the surviving or resulting Person upon
any such merger or consolidation is a controlled foreign corporation, then such
Grantor shall only be required to pledge outstanding Equity Interests of such
surviving or resulting Person possessing up to but not exceeding 66% of the
voting power of all classes of Equity Interests of such issuer entitled to
vote; (ii) cause each issuer of Pledged Subsidiary Equity not to issue Equity
Interests in addition to or in substitution for the Pledged Subsidiary Equity
issued by such issuer, except to such Grantor; (iii) immediately upon its acquisition
(directly or indirectly) of any Equity Interests, including additional Equity
Interests in each issuer of Pledged Equity, comply with Section 5(b);
provided that, notwithstanding anything contained in this clause (iv) to
the contrary, such Grantor shall only be required to pledge the outstanding
Equity Interests of a controlled foreign corporation possessing up to but not
exceeding 66% of the voting power of all classes of capital stock of such
controlled foreign corporation entitled to vote; (v) immediately upon issuance
of any and all Instruments or other evidences of additional Indebtedness from
time to time owed to such

 

 

 

11

 

Grantor by any obligor on the Pledged Debt, comply with
Section 5; (vi) promptly deliver to Secured Party all written notices received
by it with respect to the Securities Collateral; (vii) at its expense (A)
perform and comply in all material respects with all terms and provisions of
any agreement related to the Securities Collateral required to be performed or
complied with by it, (B) maintain all such agreements in full force and effect
and (C) enforce all such agreements in accordance with their terms; and (viii) to the
extent required under Section 6.11 of the Credit Agreement, at the
request of Secured Party, promptly execute and deliver to Secured Party an
agreement providing for control by Secured Party of all Securities
Entitlements, Securities Accounts, Commodity Contracts and Commodity Accounts
of such Grantor.

(c)          Voting and Distributions. So long as no Event of Default
shall have occurred and be continuing, (i) each Grantor shall be entitled to
exercise any and all voting and other consensual rights pertaining to the
Securities Collateral or any part thereof for any purpose not prohibited by the
terms of this Agreement or the Credit Agreement; provided, no Grantor
shall exercise or refrain from exercising any such right if Secured Party shall
have notified such Grantor that, in Secured Party’s judgment, such action would
have a material adverse effect on the value of the Securities Collateral or any
part thereof; and (ii) each Grantor shall be entitled to receive and retain any
and all dividends, other distributions, principal and interest paid in respect
of the Securities Collateral.

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

In order to permit Secured Party to exercise the voting
and other consensual rights which it may be entitled to exercise pursuant
hereto and to receive all dividends and other distributions which it may be entitled to
receive hereunder, (I) each Grantor shall promptly execute and deliver
(or cause to be executed and delivered) to Secured Party all such proxies,
dividend payment orders and other instruments as Secured Party may from time to
time reasonably request, and (II) without limiting the effect of clause (I)
above, each Grantor hereby grants to Secured Party an irrevocable proxy to vote
the Pledged Equity and to exercise all other rights, powers, privileges and
remedies to which a holder of the Pledged Equity would be entitled (including
giving or withholding written consents of shareholders or other holders of
equity interests, calling special meetings of shareholders or other holders of
equity interests and voting at such meetings), which proxy shall be effective,
automatically and without the necessity

 

 

 

12

 

of any action (including any transfer of any Pledged
Equity on the record books of the issuer thereof) by any other Person
(including the issuer of the Pledged Equity or any officer or agent thereof),
upon the occurrence of an Event of Default and delivery of the notice required
above and which proxy shall only terminate upon the payment in full of the
Secured Obligations (other than Unasserted Obligations), the cure of such Event
of Default or waiver thereof as evidenced by a writing executed by Secured
Party.

 

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

 

(a)           Each Grantor shall:

 

(i)            use commercially reasonable efforts so as not to permit the inclusion in any contract (other than “shrink-wrap
licenses” or “click-wrap licenses” for off-the-shelf software, to the extent,
if any, that any such “license” constitutes a contract) to which it hereafter
becomes a party of any provision that could or might in any way impair or
prevent the creation of a security interest in, or the assignment of, such
Grantor’s rights and interests in any property included within the definitions
of any Intellectual Property Collateral acquired under such contracts;

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

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

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

(b)           Except
as otherwise provided in this Section 10, each Grantor shall continue to
collect, at its own expense, all amounts due or to become due to such Grantor
in respect of the Intellectual Property Collateral or any portion thereof. In
connection with such collections, each Grantor may take (and, after the occurrence
and during the continuation of any Event of Default at Secured Party’s
reasonable direction, shall take) such action as such Grantor or Secured Party
may deem reasonably necessary or advisable to enforce collection of such
amounts; provided, Secured Party shall have the right at any time, upon
the occurrence and during the continuation of an Event of Default and upon
written notice to such Grantor of its intention to do so, to notify the
obligors with respect to any such amounts of the existence of the security
interest created hereby and to direct such obligors to make payment of all such
amounts directly to Secured Party, and, upon such notification and at the
expense of such Grantor, to enforce collection of any such amounts and to
adjust, settle or compromise the amount or payment thereof, in the same manner
and to the same extent as such Grantor might have done.

 

 

13

 

 

 

 

 

After receipt by any Grantor of the notice from Secured
Party referred to in the proviso to the  preceding
sentence and upon the occurrence and during the continuation of any Event of
Default,  (i) all amounts and proceeds
(including checks and other Instruments) received by each Grantor in respect of
amounts due to such Grantor in respect of the Intellectual Property Collateral
or any  portion thereof shall be received
in trust for the benefit of Secured Party hereunder, shall be  segregated from other funds of such Grantor
and shall be forthwith paid over or delivered to  Secured Party in the same form as so received
(with any necessary endorsement) to be held as  cash Collateral and applied as provided by
Section 17 hereof and (ii) at the direction of Secured  Party, such Grantor shall not adjust, settle
or compromise the amount or payment of any such  amount or release wholly or partly any obligor
with respect thereto or allow any credit or  discount thereon.

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

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

(e)           In addition
to, and not by way of limitation of the granting of a security interest in the
Collateral pursuant hereto, each Grantor, effective upon the occurrence and
during the continuation of an Event of Default, hereby assigns, transfers and
conveys to Secured Party the nonexclusive right and license to use all
Trademarks, tradenames, Copyrights, Patents or technical processes (including,
without limitation, the Intellectual Property Collateral) owned or used by such
Grantor that relate to the Collateral, together with any goodwill associated

 

 

 

14

 

therewith,
all to the extent necessary to enable Secured Party to realize on the
Collateral in accordance with this Agreement and to enable any transferee or
assignee of the Collateral to enjoy the benefits of the Collateral. This right
shall inure to the benefit of all successors, assigns and transferees of
Secured Party and its successors, assigns and transferees, whether by voluntary
conveyance, operation of law, assignment, transfer, foreclosure, deed in lieu
of foreclosure or otherwise. Such right and license shall be granted free of
charge, without requirement that any monetary payment whatsoever be made to
such Grantor. If and to the extent that any Grantor is permitted to license the
Intellectual Property Collateral, Secured Party shall promptly enter into a
non-disturbance agreement or other similar arrangement, at such Grantor’s
request and expense, with such Grantor and any licensee of any Intellectual
Property Collateral permitted hereunder in form and substance reasonably
satisfactory to Secured Party pursuant to which (i) Secured Party shall agree
not to disturb or interfere with such licensee’s rights under its license
agreement with such Grantor so long as such licensee is not in default
thereunder, and (ii) such licensee shall acknowledge and agree that the
Intellectual Property Collateral licensed to it is subject to the security
interest created in favor of Secured Party and the other terms of this Agreement.

 

SECTION
11.           Collateral Account.

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

 

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

To the fullest extent permitted by applicable law, each
Grantor hereby irrevocably appoints Secured Party as such Grantor’s attorney-in-fact,
with full authority in the place and

 

 

 

15

 

 

stead of such Grantor and in the name of such Grantor,
Secured Party or otherwise, from time to time in Secured Party’s discretion to
take any action and to execute any instrument that Secured Party may deem
necessary or advisable to accomplish the purposes of this Agreement, including,
without limitation:

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

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

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

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

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

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

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

 

 

 

16

 

 

SECTION 13.         Secured Party May Perform.

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

SECTION
14.         Standard of Care.

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

SECTION
15.         Remedies.

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

 

 

17

 

 

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

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

 

 

 

18

 

of any Securities Collateral to be sold hereunder from
time to time to furnish to Secured Party all such information as Secured Party
may request in order to determine the number of shares and other instruments
included in the Collateral which may be sold by Secured Party in exempt
transactions under the Securities Act and the rules and regulations of the
Securities and Exchange Commission thereunder, as the same are from time to
time in effect.

 

(c)          Collateral Account. If an Event of
Default has occurred and is continuing and, in accordance with Section 8
of the Credit Agreement, Company is required to pay to Secured Party an amount
(the “Aggregate Available Amount”) equal to
the maximum amount that may at any time be drawn under all Letters of Credit
then outstanding under the Credit Agreement, Company shall deliver funds in
such an amount for deposit in the Collateral Account. If for any reason the
aggregate amount delivered by Company for deposit in the Collateral Account as
aforesaid is less than the Aggregate Available Amount, the aggregate amount so
delivered by Company shall be apportioned among all outstanding Letters of
Credit for purposes of this Section in accordance with the ratio of the maximum
amount available for drawing under each such Letter of Credit (as to such
Letter of Credit, the “Maximum Available Amount”)
to the Aggregate Available Amount. Upon any drawing under any outstanding
Letter of Credit in respect of which Company has deposited in the-Collateral
Account an amount described above, Secured Party shall apply the amount
apportioned to such Letter of Credit to reimburse the Issuing Lender for the
amount of such drawing. In the event of cancellation or expiration of any
Letter of Credit in respect of which Company has deposited in the Collateral
Account any amounts described above, or in the event of any reduction in the
Maximum Available Amount under such Letter of Credit, Secured Party shall apply
the amount then on deposit
in the Collateral Account in respect of such Letter of Credit (less, in the
case of such a reduction, the Maximum
Available Amount under such Letter of Credit immediately after such reduction) first,
to the payment of any amounts payable to Secured Party pursuant to Section 17
hereof, second, to the extent of any excess, to the cash collateralization
pursuant to the terms of this Agreement of any outstanding Letters of Credit in
respect of which Company has failed to pay all or a portion of the amounts
described above (such cash collateralization to be apportioned among all such
Letters of Credit in the manner described above), third, to the extent of any
further excess, to the payment of any other outstanding Secured Obligations in
such order as provided in Section 17, and fourth, to the extent of any further
excess, to the payment to whomsoever shall be lawfully entitled to receive such
funds.

 

SECTION
16.         Additional Remedies for
Intellectual Property Collateral.

(a)           Anything contained
herein to the contrary notwithstanding, upon the occurrence and during
the continuation of an Event of Default, (i) Secured Party shall have the right (but not
the obligation) to bring suit, in the name of any Grantor, Secured Party or
otherwise, to enforce any Intellectual Property Collateral, in which event each
Grantor shall, at the reasonable request of Secured Party, do any and all
lawful acts and execute any and all documents reasonably required by Secured
Party in aid of such enforcement and each Grantor shall promptly, upon demand,
reimburse and indemnify Secured Party as provided in subsections 10.2 and 10.3
of the Credit Agreement and Section 18 hereof, as applicable, in connection
with the exercise of its rights under this Section 16, and, to the extent that
Secured Party shall elect not to bring suit to enforce any Intellectual
Property Collateral as provided in this Section, each Grantor agrees to use all
reasonable measures, whether by action, suit, proceeding or otherwise,

 

 

 

19

 

to
prevent the infringement of any of the Intellectual Property Collateral by
others and for that purpose agrees to use its commercially reasonable judgment
in maintaining any action, suit or proceeding against any Person so infringing
reasonably necessary to prevent such infringement; (ii) upon written demand
from Secured Party, each Grantor shall execute and deliver to Secured Party an
assignment or assignments of the Intellectual Property Collateral and such
other documents as are necessary or appropriate to carry out the intent and
purposes of this Agreement; (iii) each Grantor agrees that such an assignment
and/or recording shall be applied to reduce the Secured Obligations outstanding
only to the extent that Secured Party (or any Lender) receives cash proceeds in
respect of the sale of, or other realization upon, the Intellectual Property
Collateral; and (iv) within five Business Days after written notice from
Secured Party, each Grantor shall make available to Secured Party, to the
extent within such Grantor’s power and authority, such personnel in such
Grantor’s employ as Secured Party may reasonably designate, by name, title or
job responsibility, to permit such Grantor to continue, directly or indirectly,
to produce, advertise and sell the products and services sold or delivered by
such Grantor under or in connection with the Trademarks, Trademark
Registrations and Trademark Rights, such persons to be available to perform
their prior functions on Secured Party’s behalf and to be compensated by
Secured Party at such Grantor’s expense on a per diem, pro-rata basis
consistent with the salary and benefit-structure applicable to each as of the
date of such Event of Default.

(b)          If (i)
an Event of Default shall have occurred and, by reason of cure, waiver, modification,
amendment or otherwise, no longer be continuing, (ii) no other Event of Default
shall have occurred and be continuing, (iii) an assignment to Secured Party of
any rights, title and interests in and to the Intellectual Property Collateral
shall have been previously made, and (iv) the Secured Obligations shall not
have become immediately due and payable, upon the written request of any
Grantor, Secured Party shall promptly execute and deliver to such Grantor such
assignments as may be necessary to reassign to such Grantor any such rights,
title and interests as may have been assigned to Secured Party as aforesaid,
subject to any disposition thereof that may have been made by Secured Party;
provided, after giving effect to such reassignment, Secured Party’s
security interest granted pursuant hereto, as well as all other rights and
remedies of Secured Party granted hereunder, shall continue to be in full force
and effect; and provided further, the rights, title and interests so reassigned
shall be free and clear of all Liens other than Liens (if any) encumbering such
rights, title and interest at the time of their assignment to Secured Party and
Permitted Encumbrances.

 

SECTION
17.         Application of Proceeds.

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

 

SECTION
18.         Indemnity and Expenses. 

 

(a)           Grantors jointly and severally agree
to indemnify Secured Party, each Lender and each Hedge Agreement Counterparty from and against any and all
claims, losses and liabilities in any way relating to, growing out of or
resulting from this Agreement and the transactions contemplated hereby
(including, without limitation, enforcement of this Agreement),

 

 

20

 

 

except
to the extent such claims, losses or liabilities result solely from Secured
Party’s or such Lender’s or Hedge Agreement Counterparty’s gross negligence or
willful misconduct as finally determined by a court of competent jurisdiction.

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

 

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

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

(a)           This
Agreement shall create a continuing security interest in the Collateral and
shall (i) remain in fall-force and effect until the payment in full of the-Secured
Obligations  (other than Secured
Obligations which, after the occurrence of all of the foregoing actions, are  contingent and unliquidated and not due and
owing on such date and which pursuant to the  provisions of the Credit Agreement, Lender
Hedge Agreements, Letters of Credit or any other  Loan Documents survive the termination of the
Credit Agreement, the repayment of the Secured  Obligations, the termination of the
Commitments, the expiration, cancellation or cash  collateralization of all Letters of Credit and
the termination, expiration or cancellation of all  Lender Hedge Agreements), the cancellation or
termination of the Commitments and the  cancellation
or expiration of all outstanding Letters of Credit (or the cash
collateralization  thereof), (ii) be
binding upon Grantors and their respective successors and assigns, and (iii)  inure, together with the rights and remedies
of Secured Party hereunder, to the benefit of Secured  Party (on its own behalf and as Administrative
Agent for and representative of the Beneficiaries)  and its (and such Beneficiaries’) successors,
transferees and assigns. Without limiting the  generality of the foregoing clause (iii), (A)
but subject to the provisions of subsection 10.1 of the  Credit Agreement, any Lender may assign or
otherwise transfer any Loans held by it to any other  Person, and such other Person shall thereupon
become vested with all the benefits in respect  thereof granted to Lenders herein or otherwise
and (B) any Hedge Agreement Counterparty may  assign or otherwise transfer any Lender Hedge
Agreement to which it is a party to any other  Person in accordance with the terms of such
Lender Hedge Agreement, and such other Person  shall thereupon become vested with all the benefits
in respect thereof granted to Hedge  Agreement
Counterparties herein or otherwise.

(b)          Upon the payment in
full of all Secured Obligations (other than Secured Obligations which, after
the occurrence of all of the foregoing actions, are contingent and unliquidated
and not due and owing on such date and which pursuant to the provisions of the
Credit Agreement, Lender Hedge Agreements, Letters of Credit or the Loan
Documents survive the termination of the Credit Agreement, the repayment of the
Secured Obligations, the termination of the Commitments, the cancellation,
expiration or cash collateralization of all Letters of Credit and the
termination, expiration or cancellation of all Lender Hedge Agreements), the
cancellation or termination of the Commitments and the cancellation or

 

 

21

 

 

expiration of all outstanding Letters of Credit (or the
cash collateralization thereof), the security interest granted hereby (other
than with respect to any cash collateral in respect of Letters of Credit) shall
terminate and all rights to the Collateral shall revert to the applicable
Grantors. Upon any such termination Secured Party will, at Grantors’ expense,
execute and deliver to Grantors such documents as Grantors shall reasonably
request to evidence such termination. In addition, upon the proposed sale or
other disposition of any Collateral by a Grantor in accordance with the Credit
Agreement for which such Grantor desires a security interest release from
Secured Party, a security interest release may be obtained pursuant to the
provisions of subsection 10.14 of the Credit Agreement.

SECTION
20. Secured Party as Agent.

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

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

 

 

22

 

 

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

 

SECTION
21.         Additional Grantors.

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

SECTION
22.         Amendments; Etc.

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

 

SECTION
23.         Notices.

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

 

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

No failure or delay on the part of Secured Party in the
exercise of any power, right or privilege hereunder shall impair such power,
right or privilege or be construed to be a waiver

 

 

23

 

 

of any default or acquiescence therein, nor shall any
single or partial exercise of any such power, right or privilege preclude any
other or further exercise thereof or of any other power, right or privilege. All
rights and remedies existing under this Agreement are cumulative to, and not
exclusive of, any rights or remedies otherwise available.

 

SECTION
25.         Severability.

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

 

SECTION
26.         Headings.

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

 

SECTION
27.         Governing Law; Rules of
Construction.

 

THIS AGREEMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND SHALL BE
CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF
NEW YORK (INCLUDING, WITHOUT LIMITATION, SECTIONS 5-1401 AND 5 1402 OF THE
GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK), WITHOUT REGARD TO CONFLICTS
OF LAWS PRINCIPLES THAT WOULD REQUIRE THE APPLICATION OF ANOTHER LAW, EXCEPT TO
THE EXTENT THAT THE UCC PROVIDES THAT THE PERFECTION OF THE SECURITY INTEREST
HEREUNDER, OR REMEDIES HEREUNDER, IN RESPECT OF ANY PARTICULAR COLLATERAL ARE
GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF NEW YORK, IN
WHICH CASE THE LAWS OF SUCH JURISDICTION SHALL GOVERN WITH RESPECT TO THE
PERFECTION OF THE SECURITY INTEREST IN, OR THE REMEDIES WITH RESPECT TO, SUCH
PARTICULAR COLLATERAL. The rules of construction set forth in
subsection 1.3 of the Credit Agreement shall be applicable to this Agreement mutatis mutandis.

 

SECTION
28.         Consent to Jurisdiction and
Service of Process.

 

ALL JUDICIAL PROCEEDINGS BROUGHT AGAINST ANY GRANTOR ARISING OUT OF OR
RELATING TO THIS AGREEMENT, OR ANY OBLIGATIONS HEREUNDER, MAY BE BROUGHT IN ANY
STATE OR FEDERAL COURT OF COMPETENT JURISDICTION IN THE STATE, COUNTY AND CITY
OF NEW YORK. BY EXECUTING AND DELIVERING THIS AGREEMENT, EACH GRANTOR, FOR
ITSELF AND IN CONNECTION WITH ITS PROPERTIES, IRREVOCABLY (I) ACCEPTS GENERALLY
AND UNCONDITIONALLY THE NONEXCLUSIVE JURISDICTION AND VENUE OF SUCH COURTS;
(II) WAIVES

 

 

 

24

 

ANY DEFENSE OF FORUM NON CONVENIENS;
(III) AGREES THAT SERVICE OF ALL PROCESS IN ANY SUCH PROCEEDING IN ANY SUCH
COURT MAY BE MADE BY REGISTERED OR CERTIFIED MAIL, RETURN RECEIPT REQUESTED, TO
SUCH GRANTOR AT ITS ADDRESS PROVIDED IN ACCORDANCE WITH SECTION 23 HEREOF; (IV)
AGREES THAT SERVICE AS PROVIDED IN CLAUSE (III) ABOVE IS SUFFICIENT TO CONFER
PERSONAL JURISDICTION OVER SUCH GRANTOR IN ANY SUCH PROCEEDING IN ANY SUCH
COURT, AND OTHERWISE CONSTITUTES EFFECTIVE AND BINDING SERVICE IN EVERY
RESPECT; (V) AGREES THAT SECURED PARTY RETAINS THE RIGHT TO SERVE PROCESS IN
ANY OTHER MANNER PERMITTED BY LAW OR TO BRING PROCEEDINGS AGAINST SUCH GRANTOR
IN THE COURTS OF ANY OTHER JURISDICTION; AND (VI) AGREES THAT THE PROVISIONS OF
THIS SECTION 28 RELATING TO JURISDICTION AND VENUE SHALL BE BINDING AND
ENFORCEABLE TO THE FULLEST EXTENT PERMISSIBLE UNDER NEW YORK GENERAL
OBLIGATIONS LAW SECTION 5-1402 OR OTHERWISE.

SECTION
29.         Waiver of Jury Trial. 

GRANTORS AND SECURED PARTY HEREBY AGREE TO WAIVE THEIR RESPECTIVE
RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING
OUT OF THIS AGREEMENT. THE SCOPE OF THIS WAIVER IS INTENDED TO BE ALL
ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT AND THAT
RELATE TO THE SUBJECT MATTER OF THIS TRANSACTION, INCLUDING, WITHOUT
LIMITATION, CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER
COMMON LAW AND STATUTORY CLAIMS. EACH GRANTOR AND SECURED PARTY ACKNOWLEDGES
THAT THIS WAIVER IS A MATERIAL INDUCEMENT FOR GRANTORS AND SECURED PARTY TO
ENTER INTO A BUSINESS RELATIONSHIP, THAT GRANTORS AND SECURED PARTY HAVE
ALREADY RELIED ON THIS WAIVER IN ENTERING INTO THIS AGREEMENT AND THAT EACH
WILL CONTINUE TO RELY ON THIS WAIVER IN THEIR RELATED FUTURE DEALINGS. EACH GRANTOR
AND SECURED PARTY FURTHER WARRANTS AND REPRESENTS THAT EACH HAS REVIEWED THIS
WAIVER WITH ITS LEGAL COUNSEL, AND THAT EACH KNOWINGLY AND VOLUNTARILY WAIVES
ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. THIS WAIVER IS
IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING
(OTHER THAN BY A MUTUAL WRITTEN WAIVER SPECIFICALLY REFERRING TO THIS SECTION
29 AND EXECUTED BY EACH OF THE PARTIES HERETO), AND THIS WAIVER SHALL APPLY TO
ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS
AGREEMENT. In the event of litigation,
this Agreement may be filed as a written consent to a trial by the court.

SECTION
30.         Counterparts.

This Agreement may be executed in one or more counterparts
and by different parties hereto in separate counterparts, each of which when so
executed and delivered shall be

 

 

25

 

 

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

SECTION
31.         Definitions.

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

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

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

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

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

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

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

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

 

 

 

26

 

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

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

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

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

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

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

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

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

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

 

(a)          Copyrights, Copyright Registrations and
Copyright Rights, including, without limitation, each of the Copyrights,
rights, titles and interests in and to the Copyrights, all

 

 

 

27

 

derivative
works and other works protectable by copyright, which are presently, or in the
future may be, owned, created (as a work for hire for the benefit of such
Grantor), authored (as a work for hire for the benefit of such Grantor), or
acquired by such Grantor, in whole or in part, and all Copyright Rights with
respect thereto and all Copyright Registrations therefor, heretofore or
hereafter granted or applied for, and all renewals and extensions thereof,
throughout the world, including all proceeds thereof (such as, by way of
example and not by limitation, license royalties and proceeds of infringement
suits), the right (but not the obligation) to renew and extend such Copyright
Registrations and Copyright Rights and to register works protectable by
copyright and the right (but not the obligation) to sue in the name of such
Grantor or in the name of Secured Party or Lenders for past, present and future
infringements of the Copyrights and Copyright Rights;

 

(b)          Patents;

 

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

 

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

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

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

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

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

“Pledged Equity”
means all Equity Interests now or hereafter owned by a Grantor, including all
securities convertible into, and rights, warrants, options and other rights to
purchase or otherwise acquire, any of the foregoing, including those owned on
the date hereof and set forth on Schedule 6 annexed hereto, the certificates
or other instruments representing any of the

 

 

28

 

foregoing
and any interest of such Grantor in the entries on the books of any securities
intermediary pertaining thereto and all distributions, dividends and other
property received, receivable or otherwise distributed in respect of or
exchanged therefor.

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

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

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

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

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

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

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

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

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

 

 

29

 

 

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

 

SECTION
32.         Effect of Intercreditor
Agreement to this Agreement.

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

 

[Remainder of page intentionally left
blank]

 

 

 

 

 

 

 

 

30

 

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

 

 

 

 

 

	
  GRANTORS:

  	
  MD BEAUTY, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Leslie A. Blodgett

  
	
   

  	
   

  	
  Name:

  	
  Leslie A. Blodgett

  
	
   

  	
   

  	
  Title:

  	
  President, Chief Executive Officer and Secretary

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  STB BEAUTY, INC.

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Leslie A. Blodgett

  
	
   

  	
   

  	
  Name:

  	
  Leslie A. Blodgett

  
	
   

  	
   

  	
  Title:

  	
  President, Chief Executive Officer and Secretary

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  BARE ESCENTUALS, INC.

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Leslie A. Blodgett

  
	
   

  	
   

  	
  Name:

  	
  Leslie A. Blodgett

  
	
   

  	
   

  	
  Title:

  	
  President, Chief Executive Officer and Secretary

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  BIOCEUTIX INC.

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Leslie A. Blodgett

  
	
   

  	
   

  	
  Name:

  	
  Leslie A. Blodgett

  
	
   

  	
   

  	
  Title:

  	
  President, Chief Executive Officer and Secretary

  

 

 

 

 

S-1

 

 

 

	
   

  	
  ID DIRECT, INC.

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Leslie A. Blodgett

  
	
   

  	
   

  	
  Name:

  	
  Leslie A. Blodgett

  
	
   

  	
   

  	
  Title:

  	
  President, Chief Executive Officer and Secretary

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  MD BEAUTY SALES, INC.

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Leslie A. Blodgett

  
	
   

  	
   

  	
  Name:

  	
  Leslie A. Blodgett

  
	
   

  	
   

  	
  Title:

  	
  President, Chief Executive Officer and Secretary

  

 

 

 

 

S-2

 

	
  SECURED PARTY:

  	
  BNP PARIBAS,

  as Administrative Agent and as Secured Party

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Amy Kirschner

  
	
   

  	
   

  	
  Name:

  	
  Amy Kirschner

  
	
   

  	
   

  	
  Title:

  	
  Director

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ M. Girbelman

  
	
   

  	
   

  	
  Name:

  	
  M. Girbelman

  
	
   

  	
   

  	
  Title:

  	
  Managing Director

  

 

 

 

S-3Exhibit 10.26

 

FORM OF
TERM NOTE

MD
BEAUTY, INC.

 

	
  $________________________1

  	
  ____________________________2

  
	
   

  	
  [**Issuance
  date**]

  

 

FOR VALUE
RECEIVED, MD BEAUTY, INC., a Delaware corporation (“Company”),
promises to pay to ____________________3 (“Payee”)
or its registered assigns the principal
                    
amount
                    
of
                    
________________________4 ($[**________________________1**]).
The principal amount of this Note shall be payable on the dates and in the
amounts specified in the Credit Agreement; provided that the final such
installment shall be in an amount, if such amount is different than specified
therein, sufficient to repay the entire unpaid principal balance of this Note,
together with all accrued and unpaid interest thereon.

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

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

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

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

2               Insert
place of delivery of Note.

3               Insert
Lender’s name in capital letters.

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

 

1

 

shall limit or otherwise affect the rights of Payee or
the obligations of Company hereunder with respect to payments of principal of
or interest on this Note.

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

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

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

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

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

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

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

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

 

2

 

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

 

	
   

  	
  MD BEAUTY, INC.

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  

 

 

3

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