TABLE OF CONTENTS

 

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Section 1.	DEFINED TERMS	1
1.1.	Definitions	1
1.2.	Other Definitional Provisions	5
Section 2.	GUARANTEE	5
2.1.	Guarantee	5
2.2.	Right of Contribution	6
2.3.	No Subrogation	6
2.4.	Amendments, etc., with respect to the Borrower Obligations	7
2.5.	Guarantee Absolute and Unconditional	7
2.6.	Reinstatement	8
2.7.	Payments	8
Section 3.	GRANT OF SECURITY INTEREST	8
Section 4.	REPRESENTATIONS AND WARRANTIES	10
4.1.	Title; No Other Liens	10
4.2.	Perfected First Priority Liens	11
4.3.	Jurisdiction of Organization	11
4.4.	Inventory and Equipment	11
4.5.	Farm Products	11
4.6.	Investment Property	11
4.7.	Receivables	12
4.8.	Intellectual Property	12
4.9.	Commercial Tort Claims	12
Section 5.	COVENANTS	12
5.1.	Delivery of Instruments, Certificated Securities and Chattel Paper	13
5.2.	Maintenance of Insurance	13
5.3.	Maintenance of Perfected Security Interest; Further Documentation	13
5.4.	Changes in Locations, Name, etc.	14
5.5.	Notices	14
5.6.	Investment Property	14
5.7.	Receivables	16
5.8.	Intellectual Property	16
5.9.	Commercial Tort Claims	18
Section 6.	REMEDIAL PROVISIONS	18
6.1.	Certain Matters Relating to Receivables	18
6.2.	Communications with Obligors; Grantors Remain Liable	19
6.3.	Pledged Equity	20
6.4.	Proceeds to be Turned Over to Administrative Agent	21

 

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		Page
6.5.	Application of Proceeds	21
6.6.	Code and Other Remedies	21
6.7.	Registration Rights	22
6.8.	Deficiency	23
Section 7.	THE ADMINISTRATIVE AGENT	23
7.1.	Administrative Agent’s Appointment as Attorney-in-Fact, etc.	23
7.2.	Duty of Administrative Agent	25
7.3.	Execution of Financing Statements	25
7.4.	Authority of Administrative Agent	26
Section 8.	MISCELLANEOUS	26
8.1.	Amendments in Writing	26
8.2.	Notices	26
8.3.	No Waiver by Course of Conduct; Cumulative Remedies	26
8.4.	Enforcement Expenses; Indemnification	26
8.5.	Successors and Assigns	27
8.6.	Setoff	27
8.7.	Counterparts	27
8.8.	Severability	28
8.9.	Section Headings	28
8.10.	Integration	28
8.11.	GOVERNING LAW	28
8.12.	Submission To Jurisdiction; Waivers	28
8.13.	Acknowledgments	29
8.14.	Additional Guarantors and Grantors	29
8.15.	Releases	29
8.16.	WAIVER OF JURY TRIAL	30
8.17.	Effectiveness of the Merger; Assignment and Delegation to and Assumption by Reader’s Digest	30
8.18.	German Borrower Security	30
8.19.	Parallel Obligations	31

 

SCHEDULES

 

Schedule 1	Notice Addresses
Schedule 2	Investment Property
Schedule 3	Perfection Matters
Schedule 4	Jurisdictions of Organization
Schedule 5	Inventory and Equipment Locations
Schedule 6	Intellectual Property
Schedule 7	Commercial Tort Claims

 

ANNEX

 

Annex 1	Form of Security Agreement Supplement
Annex 2	Form of Perfection Certificate

 

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GUARANTEE AND COLLATERAL AGREEMENT, dated as of March 2, 2007, made by each of the signatories hereto (other than the German Borrower, and together with any other entity that may become a party hereto as provided herein, the “ Grantors ”), in favor of JPMORGAN CHASE BANK, N.A., as Administrative Agent (in such capacity, the “ Administrative Agent ”) for the lending and other financial institutions (the “ Lenders ”) from time to time parties to the Credit Agreement, dated as of the date hereof (as amended, supplemented or otherwise modified from time to time, the “ Credit Agreement ”), among DOCTOR ACQUISITION CO., a Delaware corporation (to be merged with and into Reader’s Digest (as defined below), the “ Company ”), RDA HOLDING CO., a Delaware corporation (“ Holdings ”), THE READER’S DIGEST ASSOCIATION, INC., a Delaware corporation (“ Reader’s Digest ”), the Overseas Borrowers from time to time party thereto (together with the Company, the “ Borrowers ”), the Lenders and the Administrative Agent.

 

W   I   T   N   E   S   S   E   T   H :

 

WHEREAS, Holdings, the Borrowers, the Lenders and the Administrative Agent have entered into the Credit Agreement, pursuant to which the Lenders have severally agreed to make extensions of credit to the Borrowers upon the terms and subject to the conditions set forth therein;

 

WHEREAS, each Borrower is a member of an affiliated group of companies that, following the consummation of the Acquisitions, will include each other Grantor;

 

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

 

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

 

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

 

NOW, THEREFORE, in consideration of the premises and the agreements hereinafter set forth, and in order to induce the Administrative Agent and the Lenders to enter into the Credit Agreement and in order to induce the Lenders to make their respective extensions of credit to the Borrowers thereunder, each Grantor hereby agrees with the Administrative Agent, for the ratable benefit of the Secured Parties, as follows:

 

SECTION 1.   DEFINED TERMS

 

1.1.                               Definitions .  (a)  Unless otherwise defined herein, terms defined in the Credit Agreement and used herein shall have the meanings given to them in the Credit Agreement, and the following terms are used herein as defined in the New York UCC:  Accounts, Certificated Security, Chattel Paper, Commercial Tort Claims, Documents,

 

 

Equipment, Farm Products, General Intangibles, Instruments, Inventory, Letter of Credit Rights and Supporting Obligations.

 

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

 

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

 

“ Applicable Governmental Authority ”:  as defined in Section 5.7(c).

 

“ Borrower Obligations ”:  the “Obligations” as defined in the Credit Agreement.

 

“ Collateral ”:  as defined in Section 3.

 

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

 

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

 

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

 

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

 

“ Excluded Property ”: as defined in Section 3.

 

“ Foreign Subsidiary ”:  any direct or indirect Restricted Subsidiary of the Company which (i) is not a Domestic Subsidiary or (ii) is set forth on Schedule 1.01E to the Credit Agreement.

 

“ Foreign Subsidiary Voting Stock ”:  the voting Equity Interests of any Foreign Subsidiary and of any Domestic Subsidiary substantially all of whose assets consist of voting Equity Interests of one or more Foreign Subsidiaries.

 

“ Guarantor Obligations ”:  with respect to any Guarantor, all obligations and liabilities of such Guarantor which may arise under or in connection with this Agreement (including, without limitation, Section 2) or any other Loan Document or any Secured Hedge Agreement to which such Guarantor is a party, in each case whether on account of guarantee obligations, reimbursement obligations, fees, indemnities, costs, expenses or

 

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otherwise (including, without limitation, all Attorney Costs that are required to be paid by such Guarantor pursuant to the terms of this Agreement or any other Loan Document).

 

“ Guarantors ”:  the collective reference to each Grantor other than the Company; provided that the term “Guarantors” shall include the Company in the case of the Overseas Obligations.

 

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

 

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

 

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

 

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

 

“ LTIBR ”:  any interest-bearing receivables, including deposits or other funds, with a maturity that qualifies as long-term pursuant to section 8 no. 1 German Trade Tax Act ( Gewerbesteuergesetz ) to be applied mutatis mutandis in accordance with marginal notes 20 and 37 of the decree to § 8a of the German Corporate Income Tax Act ( Körperschaftsteuergesetz ) dated July 15, 2004.

 

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

 

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

 

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

 

“ Patent License ”:  all agreements, whether written or oral, providing for the grant by or to any Grantor of any right to manufacture, use or sell any invention covered in

 

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whole or in part by a Patent, including, without limitation, any of the foregoing referred to in Schedule 6 .

 

“ Perfection Certificate ”:  means a certificate substantially in the form of Annex 2, completed and supplemented with the schedules and attachments contemplated thereby, and duly executed by the associate general counsel or the chief legal officer of Reader’s Digest.

 

“ Pledged Debt ”:  all promissory notes listed on Schedule 2 , all Intercompany Notes at any time issued to any Grantor and all other promissory notes issued to or held by any Grantor (other than promissory notes issued in connection with extensions of trade credit by any Grantor in the ordinary course of business).

 

“ Pledged Equity ”:  the Equity Interests listed on Schedule 2 , together with any other shares, stock certificates, options or rights of any nature whatsoever in respect of the Equity Interests of any Person that may be issued or granted to, or held by, any Grantor while this Agreement is in effect; provided that in no event shall (i) more than 65% of the issued and outstanding Foreign Subsidiary Voting Stock of any Foreign Subsidiary or of any Domestic Subsidiary substantially all of whose assets consist of voting Equity Interests of one or more Foreign Subsidiaries, (ii) Equity Interests of any Unrestricted Subsidiary, (iii) the Company Preferred Stock or (iv) Equity Interests of any Restricted Subsidiary pledged to secure Indebtedness permitted under Section 7.03(g) of the Credit Agreement constitute Pledged Equity or be required to be pledged hereunder.

 

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

 

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

 

“ Secured Parties ”:  the collective reference to the Administrative Agent, the other Agents, the L/C Issuers, the Lenders, the Hedge Banks, any Affiliate of a Lender, the Supplemental Administrative Agent and each co-agent or sub-agent appointed by the Administrative Agent from time to time pursuant to Section 9.01(c) of the Credit Agreement, to which Borrower Obligations or Guarantor Obligations, as applicable, are owed.

 

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

 

“ Specified Assets ” means (a) LTIBR and (b) following any amendment or replacement of § 8a of the German Corporate Income Tax Act ( Körperschaftsteuergesetz ), any other property or assets owned by any Loan Party or any other provider of security, direct or indirect access to which property or assets (whether through inclusion in the Collateral or otherwise) would result in adverse tax

 

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consequences to Holdings and its Subsidiaries as a consequence of any such amendment or replacement, provided that the aggregate fair market value of the property and assets included in the definition of Specified Assets pursuant to this clause (b) shall not exceed an amount equal to 10% of the consolidated total assets of the German Borrower and its Subsidiaries.

 

“ Subsidiary Guarantor ”:  any Subsidiary of the Company that is or becomes a party to this Agreement.

 

“ Trademarks ”:  (i) all trademarks, trade names, corporate names, company names, business names, fictitious business names, trade styles, service marks, logos and other source or business identifiers, and all goodwill associated therewith, now existing or hereafter adopted or acquired, all registrations and recordings thereof, and all applications in connection therewith, whether in the United States Patent and Trademark Office or in any similar office or agency of the United States, any State thereof or any other country or any political subdivision thereof, or otherwise, and all common-law rights related thereto, including, without limitation, any of the foregoing referred to in Schedule 6 , and (ii) the right to obtain all renewals thereof.

 

“ Trademark License ”:  any agreement, whether written or oral, providing for the grant by or to any Grantor of any right to use any Trademark.

 

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

 

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

 

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

 

SECTION 2.   GUARANTEE

 

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

 

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

 

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

 

(d)          The guarantee contained in this Section 2 shall remain in full force and effect until all the Obligations (other than contingent indemnification and contingent expense reimbursement obligations, any Obligations in respect of Secured Hedge Agreements and Cash Management Obligations) shall have been satisfied by payment in full, no Letter of Credit shall be outstanding and the Commitments shall be terminated, notwithstanding that from time to time during the term of the Credit Agreement the Borrowers may be free from any Borrower Obligations.

 

(e)           Except as provided in Section 8.15, no payment made by any Borrower, any of the Guarantors, any other guarantor or any other Person or received or collected by the Administrative Agent or any Lender from any Borrower, any of the Guarantors, any other guarantor or any other Person by virtue of any action or proceeding or any setoff, appropriation or application at any time or from time to time in reduction of or in payment of the Borrower Obligations shall be deemed to modify, reduce, release or otherwise affect the liability of any Guarantor hereunder which shall, notwithstanding any such payment (other than any payment made by such Guarantor in respect of the Borrower Obligations or any payment received or collected from such Guarantor in respect of the Borrower Obligations), remain liable for the Borrower Obligations up to the maximum liability of such Guarantor hereunder until the Borrower Obligations are paid in full, no Letter of Credit is outstanding and the Commitments are terminated.

 

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

 

2.3.                               No Subrogation .  Notwithstanding any payment made by any Guarantor hereunder or any setoff or application of funds of any Guarantor by the Administrative Agent or any Lender, no Guarantor shall be entitled to be subrogated to any of the rights of the Administrative Agent or any Lender against any Borrower or any other Guarantor or any collateral security, guarantee or right of offset held by the Administrative Agent or any Lender for the payment of the Borrower Obligations, nor shall any Guarantor seek any contribution or reimbursement from any Borrower or any other Guarantor in respect of payments made by such Guarantor hereunder, until all amounts owing to the Administrative Agent and the Lenders by the Borrowers on account of the Borrower Obligations are paid in full, no Letter of Credit is outstanding and the Commitments are terminated.  If any amount shall be paid to any Guarantor on account of such subrogation rights at any time when all of the Borrower Obligations shall not

 

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have been paid in full, such amount shall be held by such Guarantor in trust for the Administrative Agent and the Lenders, segregated from other funds of such Guarantor, and shall, forthwith upon receipt by such Guarantor, be turned over to the Administrative Agent in the exact form received by such Guarantor (duly indorsed by such Guarantor to the Administrative Agent, if required), to be applied against the Borrower Obligations, whether matured or unmatured, in such order as the Administrative Agent may determine.  For the avoidance of doubt, nothing in the foregoing shall operate as a waiver of any subrogation rights.

 

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

 

2.5.                               Guarantee Absolute and Unconditional .  To the fullest extent permitted by applicable law, each Guarantor waives any and all notice of the creation, renewal, extension or accrual of any of the Borrower Obligations and notice of or proof of reliance by the Administrative Agent or any Lender upon the guarantee contained in this Section 2 or acceptance of the guarantee contained in this Section 2; the Borrower Obligations, and any of them, shall conclusively be deemed to have been created, contracted or incurred, or renewed, extended, amended or waived, in reliance upon the guarantee contained in this Section 2; and all dealings between any Borrower and any of the Guarantors, on the one hand, and the Administrative Agent and the Lenders, on the other hand, likewise shall be conclusively presumed to have been had or consummated in reliance upon the guarantee contained in this Section 2.  To the fullest extent permitted by applicable law, each Guarantor waives diligence, presentment, protest, demand for payment and notice of default or nonpayment to or upon any Borrower or any of the Guarantors with respect to the Borrower Obligations.  Each Guarantor understands and agrees that the guarantee contained in this Section 2, to the fullest extent permitted by applicable law, shall be construed as a continuing, absolute and unconditional guarantee of payment without regard to (a) the validity or enforceability of the Credit Agreement or any other Loan Document, any of the Borrower Obligations or any other collateral security therefor or guarantee or right of offset with respect thereto at any time or from time to time held by the Administrative Agent or any Lender, (b) any defense, setoff or counterclaim (other than a defense of payment or performance)

 

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which may at any time be available to or be asserted by any Borrower or any other Person against the Administrative Agent or any Lender or (c) any other circumstance whatsoever (with or without notice to or knowledge of any Borrower or such Guarantor) which constitutes, or might be construed to constitute, an equitable or legal discharge of any Borrower for the Borrower Obligations, or of such Guarantor under the guarantee contained in this Section 2, in bankruptcy or in any other instance.  When making any demand hereunder or otherwise pursuing its rights and remedies hereunder against any Guarantor, the Administrative Agent or any Lender may, but shall be under no obligation to, make a similar demand on or otherwise pursue such rights and remedies as it may have against any Borrower, any other Guarantor or any other Person or against any collateral security or guarantee for the Borrower Obligations or any right of offset with respect thereto, and any failure by the Administrative Agent or any Lender to make any such demand, to pursue such other rights or remedies or to collect any payments from any Borrower, any other Guarantor or any other Person or to realize upon any such collateral security or guarantee or to exercise any such right of offset, or any release of any Borrower, any other Guarantor or any other Person or any such collateral security, guarantee or right of offset, shall not relieve any Guarantor of any obligation or liability hereunder, and shall not impair or affect the rights and remedies, whether express, implied or available as a matter of law, of the Administrative Agent or any Lender against any Guarantor.  For the purposes hereof “demand” shall include the commencement and continuance of any legal proceedings.

 

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

 

2.7.                               Payments .  Each Guarantor hereby guarantees that payments hereunder will be paid to the Administrative Agent without setoff or counterclaim in Dollars at the Administrative Agent’s Office.

 

SECTION 3.   GRANT OF SECURITY INTEREST

 

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

 

(a)           all Accounts;

 

(b)          all Chattel Paper;

 

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(c)           all Deposit Accounts;

 

(d)          all Documents;

 

(e)           all Equipment;

 

(f)             all Fixtures;

 

(g)          all General Intangibles;

 

(h)          all Instruments;

 

(i)              all Intellectual Property;

 

(j)              all Inventory;

 

(k)           all Investment Property;

 

(l)              all Letter of Credit Rights;

 

(m)        all Commercial Tort Claims with respect to the matters described on Schedule 7 ;

 

(n)          all other personal property not otherwise described above;

 

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

 

(p)          to the extent not otherwise included, all Proceeds, Supporting Obligations and products of any and all of the foregoing and all collateral security and guarantees given by any Person with respect to any of the foregoing;

 

provided , however , that notwithstanding any of the other provisions set forth in this Section 3, the term Collateral and the terms set forth in this Section defining the components of Collateral shall not include, and this Agreement shall not constitute a grant of a security interest in, any of the following (the “ Excluded Property ”): (i) any property to the extent that such grant of a security interest is prohibited by any applicable Law of a Governmental Authority, requires a consent not obtained of any Governmental Authority pursuant to such Law or is prohibited by, or constitutes a breach or default under or results in the termination of or gives rise to a right on the part of the parties thereto other than Holdings, the Company and the Company’s Subsidiaries to terminate (or materially modify) or requires any consent not obtained under any contract, license, agreement, instrument or other document evidencing or giving rise to such property or, in the case of any Investment Property, Pledged Equity or Pledged Debt, any applicable shareholder or similar agreement, except to the extent that such Law or the term in such contract, license, agreement, instrument or other document or shareholder or similar agreement providing for such prohibition, breach, default or right of termination or modification or requiring such consent is ineffective under applicable law, (ii) any property owned by any Grantor on the date hereof or hereafter acquired that is subject to a Lien securing a purchase money, project financing or capital or finance lease obligation permitted to be incurred pursuant to the Credit Agreement if

 

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the contract or other agreement in which such Lien is granted (or the documentation providing for such purchase money, project financing or capital or finance lease obligation) prohibits the creation of any other Lien on such property, (iii) any trucks, trailers, tractors, service vehicles, automobiles, rolling stock or other registered mobile equipment or equipment covered by certificates of title or ownership of any Grantor, (iv) Deposit Accounts exclusively used for payroll, payroll taxes and other employee wage and benefit payments or any other Deposit Account with an average annual balance of less than $5,000,000 and (v) the Equity Interests of Direct Holdings IP L.L.C., a Delaware limited liability company, and any joint venture in respect of which Holdings or any of its Subsidiaries holds an Equity Interest if (and only so long as), in any case, the grant of any such security interest is prohibited by, or constitutes a breach or default under or results in the termination of or gives rise to a right on the part of the parties thereto other than Holdings, the Company and the Company’s Subsidiaries to terminate (or materially modify) or requires any consent not obtained under any contract, license, agreement, instrument or other document evidencing or giving rise to such property or any applicable shareholder, joint venture or similar agreement; provided , however , that Excluded Property shall not include any Proceeds, substitutions or replacements of any Excluded Property referred to above and such Proceeds shall not constitute “Excluded Property” (unless such Proceeds, substitutions or replacements would constitute Excluded Property referred to above).  If an Event of Default shall have occurred and be continuing, each Grantor shall, if requested to do so by the Administrative Agent, use commercially reasonable efforts to obtain any required consent that is reasonably obtainable with respect to Collateral which the Administrative Agent reasonably determines to be material.

 

SECTION 4.   REPRESENTATIONS AND WARRANTIES

 

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

 

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

 

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4.2.                               Perfected First Priority Liens .  The Perfection Certificate has been duly prepared, completed and executed and the information set forth therein, including the exact legal name of each Grantor, is correct and complete in all material aspects as of the Closing Date.  The security interests granted pursuant to this Agreement (i) upon completion of the filings and other actions specified on Schedule 3 (which, in the case of all filings and other documents referred to on said Schedule, have been delivered to the Administrative Agent in completed and, where required, duly executed form) (x) will constitute valid perfected security interests in all of the Collateral (other than Intellectual Property) in favor of the Administrative Agent, for the ratable benefit of the Secured Parties, as collateral security for such Grantor’s Obligations, enforceable in accordance with the terms hereof against all creditors of such Grantor and any Persons purporting to purchase any Collateral from such Grantor, to the extent a security interest therein may be perfected by filing, recording or registration in the United States pursuant to the New York UCC, and (y) will constitute valid perfected security interests in all of the Collateral consisting of Intellectual Property in favor of the Administrative Agent, for the ratable benefit of the Secured Parties, as collateral security for such Grantor’s Obligations, enforceable in accordance with the terms hereof against all creditors of such Grantor and any Persons purporting to purchase any Collateral from such Grantor, to the extent a security interest therein may be perfected by filings to be made in the United States Patent and Trademark Office and the United States Copyright Office, and (ii) are prior to all other Liens on the Collateral in existence on the date hereof except for Liens permitted by the Credit Agreement which have priority over the Liens on the Collateral by operation of law (including the priority rules under the New York UCC) or which, in the case of Collateral consisting of Pledged Equity and Pledged Debt, are nonconsensual Liens permitted pursuant to Section 7.01 of the Credit Agreement to be prior to the security interests granted pursuant to this Agreement or which, in the case of Collateral other than Pledged Equity and Pledged Debt, are permitted pursuant to Section 7.01 of the Credit Agreement to be prior to the security interests granted pursuant to this Agreement.

 

4.3.                               Jurisdiction of Organization .  On the date hereof, such Grantor’s jurisdiction of organization and identification number from the jurisdiction of organization (if any) are specified on Schedule 4 .  Such Grantor has furnished to the Administrative Agent a certified charter, certificate of incorporation or other organization document and long-form good standing certificate as of a date which is recent to the date hereof.

 

4.4.                               Inventory and Equipment .  On the date hereof, the Inventory and the Equipment of each Grantor are kept at the locations listed on Schedule 5 .  The provisions of this Section 4.4 shall not apply to Equipment or Inventory in transit, that has been sold (including sales on consignment or approval in the ordinary course of business), that is out for repair, that is at other locations for purposes of onsite maintenance or repair or to Equipment and Inventory at locations with less than $5,000,000 in aggregate value.

 

4.5.                               Farm Products .  None of the Collateral constitutes, or is the Proceeds of, Farm Products.

 

4.6.                               Investment Property .  (a)  On the date hereof, the shares of Pledged Equity pledged by such Grantor hereunder constitute all the issued and outstanding shares of all classes of the Equity Interests of each Restricted Subsidiary owned by such Grantor or, in the case of Restricted Subsidiaries that are Foreign Subsidiaries or Domestic Subsidiaries substantially all of

 

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whose assets consist of voting Equity Interests of one or more Foreign Subsidiaries, the shares of such Issuers pledged by such Grantor constitute 65% of the outstanding Foreign Subsidiary Voting Stock of each such Issuer (or, if such Grantor owns less than 65% of the outstanding Foreign Subsidiary Voting Stock of any such Issuer, constitute all the Foreign Subsidiary Voting Stock of such Issuer owned by such Grantor) in each case to the extent required by clause (d) of the Collateral and Guarantee Requirement.

 

(b)          All the shares of the Pledged Equity as to which the Company or a Restricted Subsidiary of the Company is the Issuer have been duly and validly issued and are fully paid and nonassessable.

 

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

 

(d)          Such Grantor is the beneficial owner of, and has good and marketable title to, the Investment Property pledged by it hereunder, free of any and all Liens or options in favor of any other Person, except the security interest created by this Agreement or nonconsensual Liens permitted pursuant to Section 7.01 of the Credit Agreement.

 

4.7.                               Receivables .  (a)  No amount payable to such Grantor under or in connection with any Receivable of an amount greater than $5,000,000 is evidenced by any Instrument or Chattel Paper which has not been delivered to the Administrative Agent.

 

(b)          As of the Effective Date, the aggregate amount of Receivables required to be included in Collateral owed by Governmental Authorities to the Grantors does not exceed $5,000,000.

 

4.8.                               Intellectual Property .  Schedule 6 lists all Intellectual Property (other than Copyright Licenses and Trademark Licenses) that is registered in the United States or for which application for registration in the United States has been filed and that is material to the operation of the business of the Company and its Subsidiaries taken as a whole owned by such Grantor in its own name on the date hereof.

 

4.9.                               Commercial Tort Claims .  On the date hereof, except to the extent listed in Section 3 above, no Grantor has knowledge of rights in any Commercial Tort Claim as to which it reasonably expects to recover more than $5,000,000.

 

SECTION 5.   COVENANTS

 

Each Grantor covenants and agrees with the Administrative Agent and the Lenders that, from and after the date of this Agreement until the Obligations (other than contingent indemnification and contingent expense reimbursement obligations, any Obligations

 

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(c)           At any time and from time to time, upon the written request of the Administrative Agent, and at the sole expense of such Grantor, such Grantor will promptly and duly execute and deliver, and have recorded, such further instruments and documents and take such further actions as the Administrative Agent may reasonably request for the purpose of obtaining or preserving the full benefits of this Agreement and of the rights and powers herein granted, including, without limitation, (i) filing any financing or continuation statements under the Uniform Commercial Code (or other similar laws) in effect in any jurisdiction with respect to the security interests created hereby and (ii) in the case of Investment Property not issued by the Company or its Subsidiaries, Deposit Accounts, Letter of Credit Rights and any other relevant Collateral, using commercially reasonable efforts to take, at any time after the occurrence and during the continuation of an Event of Default, any actions necessary to enable the Administrative Agent to obtain “control” (within the meaning of the applicable Uniform Commercial Code) with respect thereto.

 

5.4.                               Changes in Locations, Name, etc.   Such Grantor will not, except upon 10 days’ prior written notice to the Administrative Agent (or such