EXECUTION COPY

 

Table of Contents

 

		Page
Article I
DEFINITIONS
Section 1.1.	Terms Defined in Credit Agreement	5
Section 1.2.	Terms Defined in UCC	6
Section 1.3.	Definitions of Certain Terms Used Herein	6
Article II
GRANT OF SECURITY INTEREST
Article III
REPRESENTATIONS AND WARRANTIES
Section 3.1.	Title, Perfection and Priority	13
Section 3.2.	Type and Jurisdiction of Organization, Organizational and Identification Numbers	13
Section 3.3.	Principal Location	13
Section 3.4.	Collateral Locations	13
Section 3.5.	Bailees, Warehousemen, Etc.	13
Section 3.6.	Exact Names	14
Section 3.7.	Letter-of-Credit Rights and Chattel Paper	14
Section 3.8.	Accounts and Chattel Paper	14
Section 3.9.	Inventory	15
Section 3.10.	Intellectual Property	15
Section 3.11.	No Financing Statements Security Agreements	15
Section 3.12.	Pledged Collateral	15

 

 

Section 3.13.	Commercial Tort Claims	16
Section 3.14.	Perfection Certificate	17
Article IV
COVENANTS
Section 4.1.	General	17
Section 4.2.	Receivables	19
Section 4.3.	Inventory Count; Inventory Reporting System	20
Section 4.4.	Delivery of Instruments, Securities, Chattel Paper and Documents	20
Section 4.5.	Uncertificated Pledged Collateral	20
Section 4.6.	Pledged Collateral	21
Section 4.7.	Intellectual Property	22
Section 4.8.	Commercial Tort Claims	23
Section 4.9.	Letter-of-Credit Rights	23
Section 4.10.	No Interference	23
Section 4.11.	Insurance	23
Section 4.12.	Collateral Access Agreements	24
Section 4.13.	Certain Accounts	24
Article V
REMEDIES
Section 5.1.	Remedies	24
Section 5.2.	Grantor’s Obligations Upon Default	26
Section 5.3.	Grant of Intellectual Property License	26
Article VI
ACCOUNT VERIFICATION; ATTORNEY IN FACT; PROXY
Section 6.1.	Account Verification	27

 

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Section 6.2.	Authorization for Secured Party to Take Certain Action	27
Section 6.3.	PROXY	28
Section 6.4.	NATURE OF APPOINTMENT; LIMITATION OF DUTY	29
Article VII
GENERAL PROVISIONS
Section 7.1.	Waivers	29
Section 7.2.	Limitation on Agent’s and Secured Party’s Duty with Respect to the Collateral	30
Section 7.3.	Compromises and Collection of Collateral	30
Section 7.4.	Secured Party Performance of Debtor Obligations	31
Section 7.5.	Specific Performance of Certain Covenants	31
Section 7.6.	Dispositions Not Authorized	31
Section 7.7.	No Waiver; Amendments; Cumulative Remedies	31
Section 7.8.	Limitation by Law; Severability of Provisions	32
Section 7.9.	Reinstatement	32
Section 7.10.	Benefit of Agreement	32
Section 7.11.	Survival of Representations	32
Section 7.12.	Taxes and Expenses	33
Section 7.13.	Additional Subsidiaries	33
Section 7.14.	Headings	33
Section 7.15.	Termination or Release	33
Section 7.16.	Entire Agreement	34
Section 7.17.	CHOICE OF LAW	34
Section 7.18.	CONSENT TO JURISDICTION	34
Section 7.19.	WAIVER OF JURY TRIAL	35

 

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Section 7.20.	Indemnity	35
Section 7.21.	Counterparts	35
Section 7.22.	INTERCREDITOR AGREEMENT GOVERNS	35
Section 7.23.	Delivery of Collateral	36
Section 7.24.	Mortgages	36
Section 7.25.	Acknowledgement of Agent	36
Article VIII
NOTICES
Section 8.1.	Sending Notices	37
Section 8.2.	Change in Address for Notices	37
Article IX
THE AGENT

 

EXHIBITS:
Exhibit A —	Location, Chief Executive Office, Type of Organization, Jurisdiction of Organization and Organizational Identification Number
Exhibit B —	Bailees, Warehousemen and Third Party Possessors of Collateral
Exhibit C —	Letter of Credit Rights and Chattel Paper
Exhibit D —	Intellectual Property
Exhibit E —	Commercial Tort Claims
Exhibit F —	Pledged Collateral
Exhibit G —	UCC Filing Offices
Exhibit H —	Form of Security Agreement Amendment
Exhibit I —	Form of Perfection Certificate
Exhibit J —	Subsidiary Parties
Exhibit K —	Form of Collateral Access Agreement
Exhibit L —	Form of Joinder

 

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AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT

 

THIS AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT (as it may be amended or modified from time to time, this “ Security Agreement ”) is entered into as of July 15, 2009 by and among Neiman Marcus, Inc., a Delaware corporation (“ Holdings ”), The Neiman Marcus Group, Inc., a Delaware corporation (the “ Company ”), the Subsidiary Parties (as defined below) from time to time party hereto and Bank of America, N.A., in its capacity as administrative agent and co-collateral agent for the lenders party to the Credit Agreement referred to below (in such capacities, the “ Agent ”).

 

PRELIMINARY STATEMENTS

 

WHEREAS, the Company, the other Loan Parties, the Revolving Lenders party thereto, Deutsche Bank Trust Company Americas, as administrative agent and collateral agent (the “ Existing Agent ”), and the other parties thereto entered into that certain Credit Agreement dated as of October 6, 2005 (as amended prior to the date hereto, the “ Existing Credit Agreement ”); and

 

WHEREAS, in connection with the Existing Credit Agreement, Holdings, the Company, the Subsidiary Parties party thereto and the Existing Agent entered into that certain Pledge and Security Agreement dated as of October 6, 2005 (as amended prior to the date hereto, the “ Original Security Agreement ”); and

 

WHEREAS, the Loan Parties, the Agent, the Co-Collateral Agents and the Lenders are entering into an Amended and Restated Credit Agreement dated as of the date hereof which amends and restates the Existing Credit Agreement and provides for loans in an aggregate principal amount of up to $600,000,000 outstanding at any time (subject to increase as provided therein) (as it may be further amended or modified from time to time, the “ Credit Agreement ”); and

 

WHEREAS, the Grantors are entering into this Amended and Restated Pledge and Security Agreement for the purpose of amending and restating the Original Security Agreement and in order to induce the Lenders to enter into and extend credit to the Borrowers under the Credit Agreement and to secure the Secured Obligations, including in the case of each Grantor that is a Loan Guarantor, its obligations under the Loan Guaranty.

 

ACCORDINGLY, the parties hereto agree that the Existing Security Agreement is amended and restated in full as follows:

 

ARTICLE I

 

DEFINITIONS

 

Section 1.1.            Terms Defined in Credit Agreement .  All capitalized terms used herein and not otherwise defined shall have the meanings assigned to such terms in the Credit Agreement.

 

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Section 1.2.            Terms Defined in UCC .  Terms defined in the UCC that are not otherwise defined in this Security Agreement or the Credit Agreement are used herein as defined in the UCC.

 

Section 1.3.            Definitions of Certain Terms Used Herein .  As used in this Security Agreement, in addition to the terms defined in the preamble and Preliminary Statement above, the following terms shall have the following meanings:

 

“ Account ” shall have the meaning set forth in Article 9 of the UCC.

 

“ Article ” means a numbered article of this Security Agreement, unless another document is specifically referenced.

 

“ Borrower ” means any of the Company, each Domestic Subsidiary party hereto as of the date hereof as a Borrower and each other Domestic Subsidiary of the Company that becomes a Borrower pursuant to Section 5.11(a) of the Credit Agreement.

 

“ Chattel Paper ” shall have the meaning set forth in Article 9 of the UCC.

 

“ Collateral ” shall have the meaning set forth in Article II.

 

“ Collateral Access Agreement ” means a landlord waiver or other agreement, substantially in the form attached hereto as Exhibit K or such other form as shall be reasonably satisfactory to the Agent, between the Agent and any third party (including any bailee, consignee, customs broker, or other similar Person) in possession of any Collateral or any landlord of any premises where any Collateral is located, as such landlord waiver or other agreement may be amended, restated, or otherwise modified from time to time.

 

“ Collateral Report ” means any certificate (including any Borrowing Base Certificate), report or other document delivered by any Grantor to the Agent with respect to the Collateral pursuant to any Loan Document.

 

“ Commercial Tort Claim ” shall have the meaning set forth in Article 9 of the UCC.

 

“ Consignment Inventory ” means any Inventory held by a Grantor on a consignment basis, which Inventory is not owned by a Grantor (and would not be reflected on a consolidated balance sheet of Borrower and its Subsidiaries prepared in accordance with GAAP).

 

“ Consignment Proceeds ” means any proceeds from the sale of any Consignment Inventory, solely to the extent that such proceeds are identifiable proceeds from the sale of Consignment Inventory and that the Company identifies such proceeds as such through a method of tracing reasonably satisfactory to the Agent.

 

“ Control ” shall have the meaning set forth in Article 8 or, if applicable, in Section 9-104, 9-105, 9-106 or 9-107 of Article 9 of the UCC.

 

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“ Copyrights ” means, with respect to any Person, all of such Person’s right, title, and interest in and to the following:  (a) all copyrights, rights and interests in copyrights, works protectable by copyright, copyright registrations, and copyright applications; (b) all renewals of any of the foregoing; (c) all income, royalties, damages, and payments now or hereafter due and/or payable under any of the foregoing, including, without limitation, damages or payments for past or future infringements for any of the foregoing; (d) the right to sue for past, present, and future infringements of any of the foregoing; and (e) all rights corresponding to any of the foregoing throughout the world.

 

“ Deposit Account ” shall have the meaning set forth in Article 9 of the UCC.

 

“ Document ” shall have the meaning set forth in Article 9 of the UCC.

 

“ Equipment ” shall have the meaning set forth in Article 9 of the UCC.

 

“ Excluded Assets ” means

 

(a)           the Specified Credit Card Receivables, any Specified Credit Card Payments and any Specified In-Store Credit Card Payments;

 

(b)           more than 65% of the issued and outstanding voting Equity Interests of any Foreign Subsidiary;

 

(c)           any Domestic Subsidiary that is taxed as a partnership for federal income tax purposes that holds Equity Interests of a Foreign Subsidiary whose Equity Interests are pledged pursuant to this Security Agreement;

 

(d)           any Margin Stock;

 

(e)           Equity Interests in Willow Bend Beverage Corporation;

 

(f)            any intercompany Indebtedness of (i) the Company or any Subsidiary that is a Loan Party owing to a Subsidiary that is a Loan Party, (ii) a Subsidiary that is a Loan Party owing to the Company or (iii) any subsidiary that is not a Loan Party owing to the Company or owing to a subsidiary that is a Loan Party (in the case of (iii), other than such Indebtedness that is Indebtedness for borrowed money and has a principal amount of $5,000,000 or more);

 

(g)           subject to Section 7.15(d) , any Equity Interests to the extent that a pledge of such Equity Interests would give rise to additional subsidiary reporting requirements under Rule 3-10 or Rule 3-16 of Regulation S-X promulgated under the Exchange Act of 1934;

 

(h)           any Consignment Inventory and any Consignment Proceeds;

 

(i)            any Leased-Department Inventory and any Leased-Department Proceeds;

 

(j)            any leases, licenses, rights or other agreements contained within the Collateral to which any Grantor is a party or any of its rights or interests are subject thereto to the extent and solely to the extent that the proximate result of the grant of such security interest shall

 

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be to (1) constitute or result in the abandonment, invalidation or unenforceability of any right, title or interest in such Grantor therein, or (2) create a situation under which such Grantor shall be deemed to have breached or terminated pursuant to the terms of, or defaulted under, any such Collateral; and in each case under clauses (1) and (2) above such abandonment, invalidation, unenforceability, breach, termination or default would not be rendered ineffective pursuant to Sections 9-406, 9-407, 9-408 or 9-409 of the Uniform Commercial Code (or any successor provision or provisions) of any relevant jurisdiction or any other applicable law or principles or equity; provided , however , that the Excluded Assets shall not include, and such security interest shall attach immediately at such time as the condition causing such abandonment, invalidation, unenforceability, breach, termination or default shall be remedied or shall cease to exist and to the extent severable, shall attach immediately to, any portion of such lease, license, right or agreement that does not result in any of the consequences specified in (1) or (2) above; and

 

(k)           assets that are acquired by any Grantor with the proceeds of Indebtedness incurred pursuant to Section 6.01(e)  and 6.01(f)  of the Credit Agreement and that are subject to a purchase money Lien in favor of the lenders under such Indebtedness; provided , however , that the aggregate purchase price paid for the acquisition of such assets shall not exceed $75,000,000 in the aggregate.

 

“ Exhibit ” refers to a specific exhibit to this Security Agreement, unless another document is specifically referenced.

 

“ Fixture ” shall have the meaning set forth in Article 9 of the UCC.

 

“ General Intangible ” shall have the meaning set forth in Article 9 of the UCC.

 

“ Goods ” shall have the meaning set forth in Article 9 of the UCC.

 

“ Grantors ” means Holdings, the Company and the Subsidiary Parties.

 

“ Instrument ” shall have the meaning set forth in Article 9 of the UCC.

 

“ Intercreditor Agreement ” means the Lien Subordination and Intercreditor Agreement dated as of October 6, 2005, among Holdings, the Company, the Subsidiaries from time to time party thereto, the Agent and the Term Loan Agent (as defined in the Intercreditor Agreement), as previously amended, as amended as of the date hereof, and as it may be further amended, modified or supplemented from time to time.

 

“ Inventory ” shall have the meaning set forth in Article 9 of the UCC.

 

“ Investment Property ” shall have the meaning set forth in Article 9 of the UCC.

 

“ Leased-Department Inventory ” means any Inventory relating to a leased department within one of the Grantors’ retail stores, which Inventory is not owned by a Grantor (and would not be reflected on a consolidated balance sheet of the Company and its Subsidiaries prepared in accordance with GAAP).

 

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“ Leased-Department Proceeds ” means any proceeds from the sale of any Leased-Department Inventory, solely to the extent that such proceeds are identifiable proceeds from the sale of Leased-Department Inventory and that the Company identifies such proceeds as such through a method of tracing reasonably satisfactory to the Agent.

 

“ Letter-of-Credit Right ” shall have the meaning set forth in Article 9 of the UCC.

 

“ Licenses ” means, with respect to any Grantor, all of such Grantor’s right, title, and interest in and to (a) any and all licensing agreements or similar arrangements in and to its owned (1) Patents, (2) Copyrights, or (3) Trademarks, (b) all income, royalties, damages, claims, and payments now or hereafter due or payable under and with respect thereto, including, without limitation, damages and payments for past and future breaches thereof, and (c) all rights to sue for past, present, and future breaches thereof.

 

“ Patents ” means, with respect to any Person, all of such Person’s right, title, and interest in and to:  (a) any and all patents and patent applications; (b) all inventions and improvements described and claimed therein; (c) all reissues, divisions, continuations, renewals, extensions, and continuations-in-part thereof; (d) all income, royalties, damages, claims, and payments now or hereafter due or payable under and with respect thereto, including, without limitation, damages and payments for past and future infringements thereof; (e) all rights to sue for past, present, and future infringements thereof; and (f) all rights corresponding to any of the foregoing throughout the world.

 

“ Perfection Certificate ” means a certificate substantially in the form of Exhibit I completed and supplemented with the schedules and attachments contemplated thereby, and duly executed by a Responsible Officer of the Company.

 

“ Pledged Collateral ” means all Instruments, Securities and other Investment Property owned by any Grantor, other than any Instruments, Securities or Investment Property that is an Excluded Asset (for so long and to the extent it remains an Excluded Asset), whether or not physically delivered to the Agent pursuant to this Security Agreement; provided that the term Pledged Collateral shall in no event include any Credit Card Processor Accounts or the proceeds thereof.

 

“ Receivables ” means the Accounts, Chattel Paper, Documents, Investment Property, Instruments and any other rights or claims to receive money (other than the Specified Credit Card Receivables) that are General Intangibles or that are otherwise included as Collateral.

 

“ Required Secured Parties ” means (a) prior to the Discharge of Revolving Facility Obligations, (i) prior to an acceleration of the Revolving Facility Obligations under the Credit Agreement, the Required Lenders, (ii) after an acceleration of the Revolving Facility Obligations under the Credit Agreement but prior to the date upon which the Credit Agreement has terminated by its terms and all of the obligations thereunder have been paid in full, Revolving Lenders holding in the aggregate at least a majority of the total of the aggregate Revolving Exposure of all the Revolving Lenders, and (iii) after the Credit Agreement has terminated by its terms and after Payment in Full of all the Revolving Exposure thereunder (whether or not the

 

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Revolving Facility Obligations under the Credit Agreement were ever accelerated), Revolving Lenders holding (or whose Affiliates are holding) in the aggregate at least a majority of the aggregate net Secured Swap Obligations and Banking Services Obligations then due and unpaid from the Grantors to the Revolving Lenders and their respective Affiliates under Swap Agreements or in respect of Banking Services, as determined by the Agent in its reasonable discretion and (b) after the Discharge of Revolving Facility Obligations, the Required Incremental Term Loan Lenders.

 

“ Revolving Facility Mortgages ” shall have the meaning set forth in the Intercreditor Agreement.

 

“ Section ” means a numbered section of this Security Agreement, unless another document is specifically referenced.

 

“ Secured Parties ” means (a) the Lenders, (b) the Agent, (c) each Issuing Bank, (d) each counterparty to any Swap Agreement with a Loan Party the obligations under which constitute Secured Swap Obligations, (e) each Co-Collateral Agent, (f) the beneficiaries of each indemnification obligations undertaken by any Loan Party under any Loan Document, (g) each Person providing Banking Services which constitute Banking Services Obligations and (h) the successors and permitted assigns of each of the foregoing.

 

“ Security ” shall have the meaning set forth in Article 8 of the UCC.

 

“ Specified Credit Card Receivables ” means the Accounts, Documents and other rights or claims to receive money which are General Intangibles and that have been or from time to time are sold or otherwise transferred to (i) HSBC pursuant to the HSBC Arrangements or (ii) any third party pursuant to any Permitted Replacement Credit Card Program.

 

“ Specified Credit Card Payments ” means any payments by the holder of a private label credit card subject to any Permitted Replacement Credit Card Program to the issuer of such credit card that are made to a specified account of a Grantor prior to the transition of ownership of such account to the applicable third party in connection with the establishment of the applicable Permitted Replacement Credit Card Program.

 

“ Specified In-Store Credit Card Payments ” means any payments made in-person by customers in respect of private label credit cards subject to the HSBC Arrangements or any Permitted Replacement Credit Card Program in one of the Grantors’ retail stores, solely to the extent that such payments are identifiable payments from the holders of such private label credit cards and that the Company identifies such payments as such through a method of tracing reasonably satisfactory to the Agent.

 

“ Stock Rights ” means all dividends, instruments or other distributions and any other right or property which any Grantor shall receive or shall become entitled to receive for any reason whatsoever with respect to, in substitution for or in exchange for any Equity Interest constituting Collateral, any right to receive an Equity Interest constituting Collateral and any right to receive earnings, in which such Grantor now has or hereafter acquires any right, issued by an issuer of such Equity Interest.

 

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“ Subsidiary Parties ” means (a) the Subsidiaries identified on Exhibit J hereto, (b) NM Nevada Trust, a Massachusetts business trust, and (c) each other Domestic Subsidiary that becomes a party to this Agreement as a Subsidiary Party after the date hereof, in accordance with Section 7.13 herein and Section 5.11 of the Credit Agreement.

 

“ Supporting Obligation ” shall have the meaning set forth in Article 9 of the UCC.

 

“ Term Loan Agent ” shall have the meaning set forth in the Intercreditor Agreement.

 

“ Term Loan Obligations ” shall have the meaning set forth in the Intercreditor Agreement.

 

“ Term Loan First Lien Collateral Transition Date ” shall have the meaning set forth in the Intercreditor Agreement.

 

“ Term Loan Security Agreement ” shall have the meaning set forth in the Intercreditor Agreement.

 

“ Term Loan Security Documents ” shall have the meaning set forth in the Intercreditor Agreement.

 

“ Trademarks ” means, with respect to any Person, all of such Person’s right, title, and interest in and to the following:  (a) all trademarks (including service marks), trade names, trade dress, and trade styles and the registrations and applications for registration thereof and the goodwill of the business symbolized by the foregoing; (b) all licenses of the foregoing, whether as licensee or licensor; (c) all renewals of the foregoing; (d) all income, royalties, damages, and payments now or hereafter due or payable with respect thereto, including, without limitation, damages, claims, and payments for past and future infringements thereof; (e) all rights to sue for past, present, and future infringements of the foregoing, including the right to settle suits involving claims and demands for royalties owing; and (f) all rights corresponding to any of the foregoing throughout the world.

 

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

 

The foregoing definitions shall be equally applicable to both the singular and plural forms of the defined terms.

 

ARTICLE II

 

GRANT OF SECURITY INTEREST

 

Each Grantor hereby pledges, assigns and grants to the Agent, on behalf of and for the ratable benefit of the Secured Parties, and to secure the prompt and complete payment and performance of all Secured Obligations, a security interest in all of its right, title and interest in, to and under all personal property and other assets, whether now owned by or owing to, or hereafter acquired by or arising in favor of such Grantor (including under any trade name or

 

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derivations thereof), and regardless of where located (all of which are collectively referred to as the “ Collateral ”), including:

 

(i)            all Accounts;

 

(ii)           all Chattel Paper;

 

(iii)          all Copyrights, Patents and Trademarks;

 

(iv)          all Documents;

 

(v)           all Equipment;

 

(vi)          all Fixtures;

 

(vii)         all General Intangibles;

 

(viii)        all Goods;

 

(ix)           all Instruments;

 

(x)            all Inventory;

 

(xi)           all Investment Property;

 

(xii)          all cash or cash equivalents;

 

(xiii)         all letters of credit, Letter-of-Credit Rights and Supporting Obligations;

 

(xiv)        all Deposit Accounts with any bank or other financial institution;

 

(xv)         all Commercial Tort Claims as specified from time to time in Exhibit E ; and

 

(xvi)        all accessions to, substitutions for and replacements, proceeds (including Stock Rights), insurance proceeds and products of the foregoing, together with all books and records, customer lists, credit files, computer files, programs, printouts and other computer materials and records related thereto and any General Intangibles at any time evidencing or relating to any of the foregoing.

 

Notwithstanding the foregoing or anything herein to the contrary, in no event shall the “Collateral” include or the security interest attach to any Excluded Asset.

 

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ARTICLE III

 

REPRESENTATIONS AND WARRANTIES

 

The Grantors, jointly and severally, represent and warrant to the Agent, for the benefit of the Secured Parties, that:

 

Section 3.1.            Title, Perfection and Priority .  Each Grantor has good and valid rights in or the power to transfer the Collateral and title to the Collateral with respect to which it has purported to grant a security interest hereunder, free and clear of all Liens except for Liens permitted under Section 4.1(e) , and has full power and authority to grant to the Agent the security interest in such Collateral pursuant hereto.  This Agreement creates in favor of the Agent for the benefit of the Secured Parties a valid security interest in the Collateral granted by each Grantor.  No consent, approval, authorization, or other action by, and no giving of notice to or filing with, any Governmental Authority or any other Person is required for the grant of the security interest pursuant to this Security Agreement or for the exercise by the Agent of the rights provided for in this Security Agreement or the remedies in respect of the Collateral pursuant to this Security Agreement, except as have been obtained and are in full force and effect,  except for filings necessary to perfect Liens created pursuant to the Loan Documents (all of which have been timely made or otherwise provided for (including, where applicable, delivery to the Agent of documents to perfect Liens created pursuant to the Loan Documents)).  When financing statements have been filed in the appropriate offices against such Grantor in the locations listed on Exhibit G , the Agent will have a fully perfected first priority security interest in that Collateral in which a security interest may be perfected by filing under the Uniform Commercial Code in effect in the applicable jurisdiction, subject only to Liens permitted under Section 4.1(e)  and to the terms of the Intercreditor Agreement.

 

Section 3.2.            Type and Jurisdiction of Organization, Organizational and Identification Numbers .  The type of entity of each Grantor, its jurisdiction of organization, the organizational number issued to it by its jurisdiction of organization and its federal employer identification number are set forth on Exhibit A .

 

Section 3.3.            Principal Location .  Each Grantor’s mailing address and the location of its place of business (if it has only one) or its chief executive office (if it has more than one place of business), is disclosed on Exhibit A .

 

Section 3.4.            Collateral Locations .  Each location where Collateral is located as of the date hereof (except for Inventory in transit) is listed on Exhibit A .  All of said locations are owned by a Grantor except for locations (i) that are leased by a Grantor as lessee and designated in Part III(b)  of Exhibit A and (ii) at which Inventory is held in a public warehouse or is otherwise held by a bailee or on consignment as designated in Part III(c)  of Exhibit A .

 

Section 3.5.            Bailees, Warehousemen, Etc .  Exhibit B hereto sets forth a list, as of the date hereof, of each bailee, warehouseman and other third party in possession or control of any Inventory of any Grantor (except for Inventory in transit) and specifies as to each bailee, warehouseman or other third party whether the value of the Inventory, at cost, possessed or controlled by such bailee, warehouseman or other third party exceeds $2,500,000.

 

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Section 3.6.            Exact Names .  The name in which each Grantor has executed this Security Agreement is the exact name as it appears in such Grantor’s organizational documents, as amended, as filed with such Grantor’s jurisdiction of organization.  No Grantor has, during the past five years, been known by or used any other corporate or fictitious name, or been a party to any merger or consolidation, except as disclosed in the Perfection Certificate.

 

Section 3.7.            Letter-of-Credit Rights and Chattel Paper .  Exhibit C lists all Letter-of-Credit Rights and Chattel Paper of each Grantor.  All actions necessary or desirable to protect and perfect the Agent’s Lien under the laws of the United States, on each item listed on Exhibit C (including the delivery of all originals as required hereunder) has been duly taken by each Grantor.  The Agent will have a fully perfected first priority security interest in the Collateral listed on Exhibit C , subject only to Liens permitted under Section 4.1(e)  and to the terms of the Intercreditor Agreement.

 

Section 3.8.            Accounts and Chattel Paper .

 

(a)           The names of the obligors, amounts owing, due dates and other information with respect to each Grantor’s Accounts and Chattel Paper that are Collateral are and will be correctly stated, at the time furnished, in all records of such Grantor relating thereto and in all invoices and each Collateral Report with respect thereto furnished to the Agent by such Grantor from time to time.  The Company has provided the Agent with true and complete copies of the HSBC Agreements in effect on the date hereof.

 

(b)           With respect to Accounts that are not Excluded Assets, except as specifically disclosed on the most recent Collateral Report, (i) all such Accounts represent bona fide sales of Inventory or rendering of services to Account Debtors in the ordinary course of the applicable Grantor’s business and are not evidenced by a judgment, Instrument or Chattel Paper; (ii) there are no setoffs, claims or disputes existing or asserted with respect thereto and no Grantor has made any agreement with any Account Debtor for any extension of time for the payment thereof, any compromise or settlement for less than the full amount thereof, any release of any Account Debtor from liability therefor, or any deduction therefrom except a discount or allowance allowed by a Grantor in the ordinary course of its business for prompt payment and disclosed to the Agent; (iii) to the knowledge of such Grantor, there are no facts, events or occurrences that in any way impair the validity or enforceability thereof or could reasonably be expected to reduce the amount payable thereunder as shown on such Grantor’s books and records and any invoices, statements and the most recent Collateral Report with respect thereto; (iv) no Grantor has received any notice of proceedings or actions that are threatened or pending against any Account Debtor that might result in any material adverse change in such Account Debtor’s financial condition; and (v) no Grantor has knowledge that any Account Debtor is unable generally to pay its debts as they become due.

 

(c)           In addition, with respect to all Accounts that are not Excluded Assets, (i) the amounts shown on all invoices, statements and the most recent Collateral Report with respect thereto are actually and absolutely owing to a Grantor as indicated thereon and are not in any way contingent; and (ii) no payments have been or shall be made thereon except payments delivered to a Blocked Account subject to a Blocked Account Agreement or a DDA in respect of

 

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which a DDA Notification has been delivered, in each case in accordance with Section 2.21 of the Credit Agreement.

 

Section 3.9.            Inventory .  With respect to any Inventory scheduled or listed on the most recent Collateral Report, (a) such Inventory (other than Inventory in transit) is located at one of the Grantors’ locations set forth on Exhibit A , (b) no Inventory (other than Inventory in transit) is now, or shall at any time or times hereafter be stored at any other location not set forth on Exhibit A except as permitted by Section 4.1(h) , (c) the Grantors have good, indefeasible and merchantable title to such Inventory and such Inventory is not subject to any Lien or security interest or document whatsoever except for the Lien granted to the Agent, for the benefit of the Secured Parties, and except for Liens permitted under Section 6.02 of the Credit Agreement, (d) except as specifically disclosed in the most recent Collateral Report, such Inventory is Eligible Inventory, (e) such Inventory is not subject to any licensing, patent, royalty, trademark, trade name or copyright agreement with any third party that would, upon sale or other disposition of such Inventory by the Agent in accordance with the terms hereof, infringe the rights of such third-party licensor, violate any contract with such third-party licensor, or cause the Agent to incur any liability with respect to payment of royalties other than royalties incurred pursuant to sale of such Inventory under the current licensing agreement related thereto, (f) such Inventory has been produced in accordance with the Federal Fair Labor Standards Act of 1938, as amended, and all rules, regulations and orders thereunder and (g) the completion of manufacture, sale or other disposition of such Inventory by the Agent following an Event of Default shall not require the consent of any Person and shall not constitute a breach or default under any contract or agreement to which any Grantor is a party or to which such Inventory is subject.

 

Section 3.10.          Intellectual Property .  No Grantor has any interest in, or title to, any Patent, Trademark or Copyright except as set forth on Exhibit D .  This Security Agreement is effective to create a valid and continuing Lien under the UCC and the laws of the United States and, upon filing of appropriate financing statements in the offices listed on Exhibit G and this Security Agreement with the United States Copyright Office and the United States Patent and Trademark Office, fully perfected first priority security interests under the UCC and the laws of the United States (subject to the terms of the Intercreditor Agreement) in favor of the Agent for the ratable benefit of the Secured Parties on the Patents, Trademarks and Copyrights of the Grantors, such perfected security interests are enforceable as such as against any and all creditors of and purchasers from the Grantors; and all action necessary or desirable under the UCC and the laws of the United States to protect and perfect the Agent’s Lien on the Patents, Trademarks or Copyrights of the Grantors shall have been duly taken.

 

Section 3.11.          No Financing Statements Security Agreements .  No financing statement or security agreement describing all or any portion of the Collateral that has not lapsed or been terminated naming a Grantor as debtor has been filed or is of record in any jurisdiction except (a) for financing statements or security agreements naming the Agent on behalf of the Secured Parties as the secured party and (b) as permitted by Section 4.1(e)  and 4.1(f) .

 

Section 3.12.          Pledged Collateral .

 

(a)           Exhibit F sets forth a complete and accurate list of all of the Pledged Collateral (other than such Pledged Collateral that is held by a securities intermediary, which has

 

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been listed and delivered to the Agent and the Lenders pursuant to Section 4.01 of the Credit Agreement) and the percentage of the total issued and outstanding Equity Interests of the issuer represented thereby (except any Equity Interests in respect of which the Grantors collectively own less than 10% of the Equity Interests of the issuer of such Equity Interests).  Each Grantor is the direct, sole beneficial owner and sole holder of record of the Pledged Collateral listed on Exhibit F as being owned by it, free and clear of any Liens, except for the security interest granted to the Agent for the ratable benefit of the Secured Parties hereunder and Liens permitted under Section 6.02 of the Credit Agreement.  Each Grantor further represents and warrants that (i) all Pledged Collateral constituting an Equity Interest has been (to the extent such concepts are relevant with respect to such Pledged Collateral) duly authorized and validly issued by the issuer thereof and are fully paid and non-assessable, (ii) with respect to any certificates delivered to the Agent (or its bailee) representing an Equity Interest, either such certificates are Securities as defined in Article 8 of the UCC as a result of actions by the issuer or otherwise, or, if such certificates are not Securities, such Grantor has so informed the Agent so that the Agent (or its bailee) may take steps to perfect its security interest therein as a General Intangible, (iii) it shall have used its commercially reasonable efforts to ensure that all Pledged Collateral held by a securities intermediary is covered by a control agreement among the applicable Grantor, the securities intermediary and the Agent (or its bailee) pursuant to which the Agent (or its bailee) has Control, and (iv) all Pledged Collateral that represents Indebtedness owed to any Grantor has been duly authorized, authenticated or issued and delivered by the issuer of such Indebtedness, is the legal, valid and binding obligation of such issuer and such issuer is not in default thereunder.

 

(b)           (i) None of the Pledged Collateral has been issued or transferred in violation of the securities registration, securities disclosure or similar laws of any jurisdiction to which such issuance or transfer may be subject, (ii) none of the Pledged Collateral is or will be subject to any option, right of first refusal, shareholders agreement, charter or by-law provisions or contractual restriction of any nature that might prohibit, impair, delay or otherwise affect the pledge of such Pledged Collateral hereunder, the sale or disposition thereof pursuant hereto or the exercise by the Agent of rights and remedies hereunder, and (iii) no consent, approval, authorization, or other action by, and no giving of notice, filing with, any governmental authority or any other Person is required for the pledge by the Grantors of the Pledged Collateral pursuant to this Security Agreement or for the execution, delivery and performance of this Security Agreement by the Grantors, or for the exercise by the Agent of the voting or other rights provided for in this Security Agreement or for the remedies in respect of the Pledged Collateral pursuant to this Security Agreement, except as may be required in connection with such disposition by laws affecting the offering and sale of securities generally.

 

(c)           Except as set forth on Exhibit F , none of the Pledged Collateral which represents Indebtedness owed to a Grantor is subordinated in right of payment to other Indebtedness or subject to the terms of an indenture.

 

Section 3.13.          Commercial Tort Claims .  As of the date hereof, no Grantor holds any Commercial Tort Claims having a value in excess of $1,000,000 for which such Grantor has filed a complaint in a court of competent jurisdiction, except as indicated on Exhibit E hereto.

 

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Section 3.14.          Perfection Certificate .  The Perfection Certificate has been duly prepared, completed and executed and the information set forth therein is correct and complete in all material respects as of the date thereof.

 

ARTICLE IV

 

COVENANTS

 

From the date hereof, and thereafter until this Security Agreement is terminated, each Grantor agrees that:

 

Section 4.1.            General .

 

(a)           Collateral Records .  Each Grantor will maintain complete and accurate books and records as is consistent with its practices as of the date hereof in all material respects with respect to the Collateral, and furnish to the Agent such reports relating to the Collateral as the Agent shall from time to time reasonably request.

 

(b)           Authorization to File Financing Statements; Ratification .  Each Grantor hereby authorizes the Agent to file, and if requested will deliver to the Agent, all financing statements and other documents and take such other actions as may from time to time be requested by the Agent in order to maintain a first priority (subject to the terms of the Intercreditor Agreement) perfected security interest in and, if applicable, Control of, the Collateral.  Any financing statement filed by the Agent may be filed in any filing office in any applicable Uniform Commercial Code jurisdiction and may (i) indicate the Collateral (1) as all assets of the applicable Grantor or words of similar effect, regardless of whether any particular asset comprised in the Collateral falls within the scope of Article 9 of the Uniform Commercial Code of such jurisdiction, or (2) by any other description which reasonably approximates the description contained in this Security Agreement, and (ii) contain any other information required by part 5 of Article 9 of the UCC for the sufficiency or filing office acceptance of any financing statement or amendment, including (A) whether the Grantor is an organization, the type of organization and any organization identification number issued to the Grantor and (B) in the case of a financing statement filed as a fixture filing, a sufficient description of real property to which the Collateral relates.  Each Grantor also agrees to furnish any such information to the Agent promptly upon request.  Each Grantor also ratifies its authorization for the Agent to have filed in any Uniform Commercial Code jurisdiction any initial financing statements or amendments thereto if filed prior to the date hereof.

 

(c)           Further Assurances .  Each Grantor will, if reasonably requested by the Agent, but, so long as an Event of Default shall not have occurred and be continuing, not more frequently than once per quarter, furnish to the Agent statements and schedules further identifying and describing the Collateral and such other reports and information in connection with the Collateral as the Agent may reasonably request, all in such detail as the Agent may reasonably specify.  Each Grantor also agrees to take any and all actions necessary to defend title to the Collateral against all persons and to defend the security interest of the Agent in the Collateral and the priority thereof against any Lien not permitted under Section 6.02 of the Credit Agreement and shall take such actions as the Agent reasonably deems appropriate under

 

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applicable law to evidence or perfect its Lien on any Collateral, or otherwise to give effect to the intent of this Agreement.

 

(d)           Disposition of Collateral .  No Grantor will sell, lease, transfer or otherwise dispose of the Collateral except for sales, leases, transfers and other dispositions specifically permitted under Section 6.05 of the Credit Agreement.

 

(e)           Liens .  No Grantor will create, incur, or suffer to exist any Lien on the Collateral except (i) the security interest created by this Security Agreement, and (ii) Liens permitted by Section 6.02 of the Credit Agreement.

 

(f)            Other Financing Statements .  No Grantor will authorize the filing of any financing statement naming it as debtor covering all or any portion of the Collateral, except to cover security interests as permitted by Section 4.1(e) .  Each Grantor acknowledges that it is not authorized to file any financing statement or amendment or termination statement with respect to any financing statement without the prior written consent of the Agent, subject to such Grantor’s rights under Section 9-509(d)(2) of the UCC.  Without limiting the foregoing, each Grantor shall use its commercially reasonable efforts to ensure that any financing statement filed by any Person with respect to Consignment Inventory shall clearly indicate that such financing statement relates to a consignment transaction with respect to such Consignment Inventory between the applicable Grantor and such Person.

 

(g)           Change of Name, Etc.   Each Grantor agrees to furnish to the Agent prompt written notice of any change in:  (i) such Grantor’s name; (ii) the location of such Grantor’s chief executive office or its principal place of business; (iii) such Grantor’s organizational legal entity designation or jurisdiction of incorporation or formation; (iv) such Grantor’s Federal Taxpayer Identification Number or organizational identification number assigned to it by its jurisdiction of incorporation or formation; or (v) the acquisition by such Grantor of any material property for which additional filings or recordings are necessary to perfect and maintain the Agent’s security interest therein (to the extent perfection of the security interest in such property is required by the terms hereof).  Each Grantor agrees not to effect or permit any change referred to in the preceding sentence unless all filings have been made under the Uniform Commercial Code or other applicable law that are required in order for the Agent to continue at all times following such change to have a valid, legal and perfected, first priority security interest (subject to the terms of the Intercreditor Agreement and to Liens permitted under Section 6.02 of the Credit Agreement that have priority by operation of applicable law) in the Collateral for its benefit and the benefit of the other Secured Parties.

 

(h)           Locations of Collateral .  No Grantor will maintain any Collateral consisting of Inventory the aggregate value of which, at cost, is $2,500,000 or more at any location other than those locations listed on Exhibit B or facilities purchased or leased by any Grantor after the date hereof in accordance with the Credit Agreement, unless, in the case of any location (other than a retail store or clearance center or a location that is owned by a Grantor and that is not subject to any mortgage other than a Mortgage) where any Collateral consisting of Inventory the aggregate value of which, at cost, is $2,500,000 or more is located, such Grantor shall have obtained a Collateral Access Agreement for such location.

 

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(i)            Compliance with Terms .  Each Grantor will perform and comply in all material respects with all obligations in respect of the Collateral and all material agreements relating to the Collateral to which it is a party or by which it is bound.  Anything herein to the contrary notwithstanding, (a) the exercise by the Agent of any of the rights hereunder shall not release any Grantor from any of its duties or obligations under the contracts and agreements included in the Collateral and (b) no Secured Party shall have any obligation or liability under the contracts and agreements included in the Collateral by reason of this Security Agreement or any other Loan Document, nor shall any 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 4.2.            Receivables .

 

(a)           Certain Agreements on Receivables .  No Grantor will make or agree to make any discount, credit, rebate or other reduction in the original amount owing on a Receivable or accept in satisfaction of a Receivable less than the original amount thereof, except that, prior to the occurrence of an Event of Default, any Grantor may reduce the amount of Accounts other than Credit Card Processor Accounts, whether from the sale of Inventory or otherwise, in accordance with its present policies and in the ordinary course of business.

 

(b)           Collection of Receivables .  Except as otherwise provided in this Security Agreement, each Grantor will collect and enforce, in accordance with its present policies and in the ordinary course of business, all amounts due or hereafter due to such Grantor under the Receivables.

 

(c)           Electronic Chattel Paper .  If any Grantor at any time holds or acquires an interest in any Electronic Chattel Paper or any “transferable record”, as that term is defined in Section 201 of the Federal Electronic Signatures in Global and National Commerce Act, or in Section 16 of the Uniform Electronic Transactions Act as in effect in any relevant jurisdiction, such Grantor shall promptly notify the Agent thereof and, at the request of the Agent, shall take such action as the Agent may reasonably request to vest in the Agent Control under UCC Section 9-105 of such Electronic Chattel Paper or control (to the extent the meaning of “control” has not been clearly established under such provisions, “control” in this paragraph (c) to have such meaning as the Agent shall in good faith specify in writing after consultation with the Company) under Section 201 of the Federal Electronic Signatures in Global and National Commerce Act or, as the case may be, Section 16 of the Uniform Electronic Transactions Act, as so in effect in such jurisdiction, of such transferable record.  The Agent agrees with such Grantor that the Agent will arrange, pursuant to procedures reasonably satisfactory to the Agent and so long as such procedures will not result in the Agent’s loss of Control or control, as applicable, for the Grantor to make alterations to the Electronic Chattel Paper or transferable record permitted under UCC Section 9-105 or, as the case may be, Section 201 of the Federal Electronic Signatures in Global and National Commerce Act or Section 16 of the Uniform Electronic Transactions Act for a party in Control to allow without loss of Control or control, as applicable, unless an Event of Default has occurred and is continuing or would occur after taking into account any action by such Grantor with respect to such Electronic Chattel Paper or transferable record.

 

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Section 4.3.            Inventory Count; Inventory Reporting System .  (a) The Grantors will conduct a physical count of the Inventory at least once per fiscal year (and will provide the Agent with reasonable prior notice of each physical count), and after an occurrence and during the continuation of an Event of Default, at such other times as the Agent requests.  The Agent or its representative may participate in and observe each physical count upon reasonable prior notice to the Grantors.  The Grantors, at their own expense, shall deliver to the Agent the results of each physical verification that the Grantors have made, or have caused any other Person to make on its behalf, of all or any portion of its Inventory.  The Grantors will maintain a retail stock ledger inventory reporting system at all times.  Each Borrower shall keep accurate and complete records of its Inventory.

 

(b)           No Grantor shall return any Eligible Inventory to a supplier, vendor or other Person, whether for cash, credit or otherwise, unless such return is in the ordinary course of business.

 

(c)           The Grantors shall use, store and maintain all Inventory with reasonable care and caution, in accordance with applicable requirements of any applicable insurance policies covering such Inventory.

 

Section 4.4.            Delivery of Instruments, Securities, Chattel Paper and Documents .  Each Grantor will (a) deliver to the Agent immediately upon execution of this Security Agreement the originals of all Chattel Paper, Securities and Instruments constituting Collateral if any then exist, (b) hold in trust for the Agent upon receipt and promptly thereafter deliver to the Agent any Chattel Paper, Securities and Instruments constituting Collateral received after the date hereof, (c) upon the Agent’s request, deliver to the Agent, and thereafter hold in trust for the Agent upon receipt and promptly deliver to the Agent any Document evidencing or constituting Collateral and (d) upon the Agent’s request, deliver to the Agent a duly executed amendment to this Security Agreement, in the form of Exhibit H hereto (each, an “ Amendment ”), pursuant to which such Grantor will pledge any additional Collateral.  Each Grantor hereby authorizes the Agent to attach each Amendment to this Security Agreement and agrees that all additional collateral set forth in such Amendments shall be considered to be part of the Collateral.

 

Section 4.5.            Uncertificated Pledged Collateral .  The Grantors will permit the Agent from time to time to cause (subject to the terms of the Intercreditor Agreement) the appropriate issuers (and, if held with a securities intermediary, such securities intermediary) of uncertificated securities or other types of Pledged Collateral with respect to which the Grantors collectively own 50% or more of the Equity Interests of the issuer of such Pledged Collateral not represented by certificates to mark their books and records with the numbers and face amounts of all such uncertificated securities or other types of Pledged Collateral not represented by certificates and all rollovers and replacements therefor to reflect the Lien of the Agent granted pursuant to this Security Agreement.  The Grantors will take any actions reasonably necessary to cause (a) the issuers of uncertificated securities which are Pledged Collateral with respect to which the Grantors collectively own 50% or more of the Equity Interests of the issuer of such Pledged Collateral, and (b) any securities intermediary which is the holder of any Pledged Collateral, to cause the Agent to have and retain Control over such Pledged Collateral (subject to the terms of the Intercreditor Agreement).  Without limiting the foregoing, each applicable Grantor will use its commercially reasonable efforts to cause, with respect to Pledged Collateral

 

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held with a securities intermediary in an account with an aggregate asset value of $5,000,000 or more, such securities intermediary to enter into a control agreement with the Agent, in form and substance satisfactory to the Agent, giving the Agent Control (subject to the terms of the Intercreditor Agreement).

 

Section 4.6.            Pledged Collateral .

 

(a)           Registration in Nominee Name; Denominations .  Subject to the terms of the Intercreditor Agreement, the Agent, on behalf of the Secured Parties, shall hold certificated Pledged Collateral in the name of the applicable Grantor, endorsed or assigned in blank or in favor of the Agent, but following the occurrence and during the continuance of an Event of Default shall have the right (in its sole and absolute discretion) to hold the Pledged Collateral in its own name as pledgee, or in the name of its nominee (as pledgee or as sub-agent).  Each Grantor will promptly give to the Agent copies of any notices or other communications received by it with respect to Pledged Collateral registered in the name of such Grantor.  Subject to the terms of the Intercreditor Agreement, following the occurrence and during the continuance of an Event of Default, the Agent shall at all times have the right to exchange the certificates representing Pledged Collateral for certificates of smaller or larger denominations for any purpose consistent with this Security Agreement

 

(b)           Any Indebtedness of any Subsidiary that is not a Loan Party owing to the Company or any Subsidiary that is a Loan Party in excess of $5,000,000 shall be or become evidenced by a promissory note or other instrument, and such note or instrument shall be promptly pledged and delivered to the Agent, duly endorsed in a manner satisfactory to the Agent.

 

(c)           Exercise of Rights in Pledged Collateral .  Subject, in each case, to the Intercreditor Agreement,

 

(i)            Without in any way limiting the foregoing and subject to clause (ii) below, each Grantor shall have the right to exercise all voting rights or other rights relating to the Pledged Collateral for all purposes not inconsistent with this Security Agreement, the Credit Agreement or any other Loan Document; provided , however , that no vote or other right shall be exercised or action taken which would reasonably be expected to have the effect of materially and adversely impairing the rights of the Agent in respect of the Pledged Collateral.

 

(ii)           Each Grantor will permit the Agent or its nominee at any time after the occurrence and during the continuance of an Event of Default, without notice, to exercise all voting rights or other rights relating to Pledged Collateral, including, without limitation, exchange, subscription or any other rights, privileges, or options pertaining to any Equity Interest or Investment Property constituting Pledged Collateral as if it were the absolute owner thereof.

 

(iii)          Each Grantor shall be entitled to receive and retain any and all dividends, interest, principal and other distributions paid on or distributed in respect of the Pledged Collateral to the extent and only to the extent that such dividends, interest,

 

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principal and other distributions are permitted by, and otherwise paid or distributed in accordance with, the terms and conditions of the Credit Agreement, the other Loan Documents and applicable law; provided , however , that any non-cash dividends, interest, principal or other distributions that would constitute Pledged Collateral, whether resulting from a subdivision, combination or reclassification of the outstanding Equity Interests of the issuer of any Pledged Collateral or received in exchange for Pledged Collateral or any part thereof, or in redemption thereof, or as a result of any merger, consolidation, acquisition or other exchange of assets to which such issuer may be a party or otherwise, shall be and become part of the Pledged Collateral, and, if received by any Grantor, shall not be commingled by such Grantor with any of its other funds or property but shall be held separate and apart therefrom, shall be held in trust for the ratable benefit of the Secured Parties and shall be forthwith delivered to the Agent in the same form as so received (with any necessary endorsement or instrument of assignment).  The proviso to the first sentence of this clause (iii) shall not apply to dividends between or among the Company and the other Loan Parties only of property subject to a perfected security interest under this Security Agreement; provided that the Company notifies the Agent in writing, specifically referring to this Section 4.6 , at the time of such dividend and takes any actions the Agent reasonably specifies to ensure the continuance of its perfected security interest in such property under this Security Agreement.

 

Section 4.7.            Intellectual Property .

 

(a)           Upon the occurrence and during the continuance of an Event of Default, each Grantor will use its best efforts to obtain all consents and approvals necessary or appropriate for the assignment to or for the benefit of the Agent of any License held by such Grantor in order to enforce the security interests granted hereunder.

 

(b)           Each Grantor shall notify the Agent promptly if it knows or reasonably expects that any application or registration relating to any Patent, Trademark or Copyright (now or hereafter existing) material to the conduct of such Grantor’s business may become abandoned or dedicated, or of any material adverse determination or development (including the institution of, or any such determination or development in, any proceeding in the United States Patent and Trademark Office, the United States Copyright Office or any court) regarding such Grantor’s ownership of any such Patent, Trademark or Copyright, its right to register the same, or to keep and maintain the same.

 

(c)           In no event shall any Grantor, either directly or through any agent, employee, licensee or designee, file an application for the registration of any material Patent, Trademark or Copyright with the United States Patent and Trademark Office, the United States Copyright Office or any similar office or agency without giving the Agent prompt written notice thereof, and, upon request of the Agent, such Grantor shall execute and deliver any and all security agreements or other instruments as the Agent may reasonably request to evidence the Agent’s security interest in such Patent, Trademark or Copyright, and the General Intangibles of such Grantor relating thereto or represented thereby.

 

(d)           Each Grantor shall take all actions necessary or reasonably requested by the Agent to maintain and pursue each material application, to obtain the relevant registration

 

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and to maintain the registration of each of the Patents, Trademarks and Copyrights (now or hereafter existing) material to the conduct of such Grantor’s business, except in cases where, in the ordinary course of business consistent with past practice, such Grantor reasonably decides to abandon, allow to lapse or expire any Patent, Trademark or Copyright, including the filing of applications for renewal, affidavits of use, affidavits of noncontestability and, if consistent with good business judgment and past practice, to initiate opposition and interference and cancellation proceedings against third parties.

 

(e)           Consistent with each Grantor’s past practice, each Grantor shall, unless it shall reasonably determine that a Patent, Trademark or Copyright is not material to the conduct of its business, promptly notify the Agent and shall, if consistent with good business judgment, promptly sue for infringement, misappropriation or dilution of such Patent, Trademark or Copyright and to recover any and all damages for such infringement, misappropriation or dilution, and shall take such other actions as are appropriate under the circumstances to protect such Patent, Trademark or Copyright.

 

Section 4.8.            Commercial Tort Claims .  Each Grantor shall promptly notify the Agent of any Commercial Tort Claim having a value in excess of $1,000,000 acquired by it for which such Grantor has filed a complaint in a court of competent jurisdiction and, unless the Agent otherwise consents, such Grantor shall update Exhibit E to this Security Agreement, thereby granting to Agent a first priority security interest in such Commercial Tort Claim (subject to the terms of the Intercreditor Agreement).

 

Section 4.9.            Letter-of-Credit Rights .  Subject to the Intercreditor Agreement, if any Grantor is or becomes the beneficiary of a letter of credit having a face amount in excess of $1,000,000, such Grantor shall promptly notify the Agent thereof and cause the issuer and/or confirmation bank to (i) consent to the assignment of any Letter-of-Credit Rights to the Agent and (ii) agree to direct all payments thereunder following the occurrence and during the continuance of an Event of Default or a Liquidity Event to the BANA Account or such other account as directed by the Agent for application to the Secured Obligations, in accordance with the provisions of the Credit Agreement, all in form and substance reasonably satisfactory to the Agent.

 

Section 4.10.          No Interference .  Each Grantor agrees that it will not interfere with any right, power and remedy of the Agent provided for in this Security Agreement or now or hereafter existing at law or in equity or by statute or otherwise, or the exercise or beginning of the exercise by the Agent of any one or more of such rights, powers or remedies.

 

Section 4.11.          Insurance .

 

(a)           In the event any Collateral is located in any area that has been designated by the Federal Emergency Management Agency as a “Special Flood Hazard Area”, the applicable Grantor shall purchase and maintain flood insurance on such Collateral (including any personal property which is located on any real property leased by such Loan Party within a “Special Flood Hazard Area”).  The amount of all insurance required by this Section shall at a minimum comply with applicable law, including the Flood Disaster Protection Act of 1973, as amended.  All premiums on such insurance shall be paid when due by such Grantor, and copies

 

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of the policies delivered to the Agent.  If any Grantor fails to obtain any insurance as required by this Section, the Agent at the direction of the Required Lenders may obtain such insurance at the Company’s expense.  By purchasing such insurance, the Agent shall not be deemed to have waived any Default arising from the Grantors’ failure to maintain such insurance or pay any premiums therefor.

 

(b)           All insurance policies required under Section 5.10 of the Credit Agreement (i) shall name the Agent (for the benefit of the Agent and the other Secured Parties) as an additional insured or as loss payee, as applicable, and shall contain loss payable clauses or mortgagee clauses, through endorsements in form and substance satisfactory to the Agent, which provide that (A) all proceeds thereunder with respect to any Collateral shall be payable to the Agent, (B) no such insurance shall be affected by any act or neglect of the insured or owner of the property described in such policy, and (C) such policy and loss payable or mortgagee clauses may be canceled, amended, or terminated only upon at least thirty days prior written notice given to the Agent and (ii) shall be maintained with insurers with a Best Rating of at least A7, unless otherwise approved by the Agent, provided that in the event of a downgrade of an insurer below A7, each Grantor shall have 45 days (as may be extended upon the approval by the Agent in its sole discretion) to replace such insurer.

 

Section 4.12.          Collateral Access Agreements .  Each Grantor shall use commercially reasonable efforts to obtain a Collateral Access Agreement, from the lessor of each of its leased warehouse and distribution facilities, any holder of indebtedness secured by any Grantor’s real property, as contemplated by Section 6.01(e)(i)  and (ii)  of the Credit Agreement, and the bailee, warehouseman or other third party with respect to any warehouse or other location, in each case where Collateral is stored or located.  Each Grantor shall timely and fully pay and perform its obligations under all leases and other agreements with respect to each leased location or third-party warehouse where any Collateral is or may be located.

 

Section 4.13.          Certain Accounts .  Each Grantor shall use commercially reasonable efforts to transfer ownership of any account established in connection with the establishment of the applicable Permitted Replacement Credit Card Program prior to the establishment thereof or as promptly thereafter as is reasonably practicable.

 

ARTICLE V

 

REMEDIES

 

Section 5.1.            Remedies .

 

(a)           Upon the occurrence and during the continuance of an Event of Default, the Agent may exercise any or all of the following rights and remedies:

 

(i)            those rights and remedies provided in this Security Agreement, the Credit Agreement, or any other Loan Document; provided that this Section 5.1(a)  shall not be understood to limit any rights available to the Agent and the Lenders prior to an Event of Default;

 

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(ii)           those rights and remedies available to a secured party under the UCC (whether or not the UCC applies to the affected Collateral) or under any other applicable law (including, without limitation, any law governing the exercise of a bank’s right of setoff or bankers’ Lien) when a debtor is in default under a security agreement;

 

(iii)          give notice of sole control or any other instruction under any Credit Card Notification, DDA Notification, Blocked Account Agreement, Collateral Access Agreement or any other control or similar agreement and take any action provided therein with respect to the applicable Collateral;

 

(iv)          without notice (except as specifically provided in Section 7.1 or elsewhere herein), demand or advertisement of any kind to any Grantor or any other Person, enter the premises of any Grantor where any Collateral is located (through self-help and without judicial process) to collect, receive, assemble, process, appropriate, sell, lease, assign, grant an option or options to purchase or otherwise dispose of, deliver, or realize upon, the Collateral or any part thereof in one or more parcels at public or private sale or sales (which sales may be adjourned or continued from time to time with or without notice and may take place at such Grantor’s premises or elsewhere), for cash, on credit or for future delivery without assumption of any credit risk, and upon such other terms as the Agent may deem commercially reasonable; and

 

(v)           concurrently with written notice to the Grantors, transfer and register in its name or in the name of its nominee the whole or any part of the Pledged Collateral, to exchange certificates or instruments representing or evidencing Pledged Collateral for certificates or instruments of smaller or larger denominations, to exercise the voting and all other rights as a holder with respect thereto, to collect and receive all cash dividends, interest, principal and other distributions made thereon and to otherwise act with respect to the Pledged Collateral as though the Agent was the outright owner thereof.

 

(b)           Each Grantor acknowledges and agrees that the compliance by the Agent, on behalf of the Secured Parties with any applicable state or federal law requirements in connection with a disposition of the Collateral and compliance will not be considered to adversely affect the commercial reasonableness of any sale of the Collateral.

 

(c)           The Agent shall have the right upon any public sale or sales and, to the extent permitted by law, upon any private sale or sales, to purchase for the benefit of the Agent and the Secured Parties, the whole or any part of the Collateral so sold, free of any right of equity redemption, which equity redemption each Grantor hereby expressly releases.

 

(d)           Until the Agent is able to effect a sale, lease, transfer or other disposition of Collateral, the Agent shall have the right to hold or use Collateral, or any part thereof, to the extent that it deems appropriate for the purpose of preserving Collateral or the value of the Collateral, or for any other purpose deemed appropriate by the Agent.  The Agent may, if it so elects, seek the appointment of a receiver or keeper to take possession of Collateral and to enforce any of the Agent’s remedies (for the benefit of the Agent and Secured Parties), with respect to such appointment without prior notice or hearing as to such appointment.

 

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(e)           If, after the Credit Agreement has terminated by its terms and Payment in Full of all other Revolving Facility Obligations has occurred, there remain Secured Swap Obligations outstanding, the Required Secured Parties may exercise the remedies provided in this Section 5.1 upon the occurrence of any event which would allow or require the termination or acceleration of such Secured Swap Obligations pursuant to the terms of any relevant Swap Agreement.

 

(f)            Notwithstanding the foregoing, neither the Agent nor the Secured Parties shall be required to (i) make any demand upon, or pursue or exhaust any of their rights or remedies against, the Grantors, any other obligor, guarantor, pledgor or any other Person with respect to the payment of the Secured Obligations or to pursue or exhaust any of their rights or remedies with respect to any Collateral therefor or any direct or indirect guarantee thereof, (ii) marshal the Collateral or any guarantee of the Secured Obligations or to resort to the Collateral or any such guarantee in any particular order, or (iii) effect a public sale of any Collateral.

 

(g)           Each Grantor recognizes that the Agent may be unable to effect a public sale of any or all the Pledged Collateral and may be compelled to resort to one or more private sales thereof.  Each Grantor also acknowledges that any private sale may result in prices and other terms less favorable to the seller than if such sale were a public sale and, notwithstanding such circumstances, agrees that any such private sale shall not be deemed to have been made in a commercially unreasonable manner solely by virtue of such sale being private.  The Agent shall be under no obligation to delay a sale of any of the Pledged Collateral for the period of time necessary to permit any Grantor or the issuer of the Pledged Collateral to register such securities for public sale under the Securities Act of 1933, as amended, or under applicable state securities laws, even if any Grantor and the issuer would agree to do so (it being acknowledged and agreed that no Grantor shall have any obligation hereunder to do so).

 

(h)           Notwithstanding the foregoing, any rights and remedies provided in this Section 5.1 shall be subject to the Intercreditor Agreement.

 

Section 5.2.            Grantor’s Obligations Upon Default .  Upon the request of the Agent after the occurrence and during the continuance of an Event of Default, each Grantor will:

 

(a)           assemble and make available to the Agent the Collateral and all books and records relating thereto at any place or places reasonably specified by the Agent, whether at such Grantor’s premises or elsewhere; and

 

(b)           permit the Agent, by the Agent’s representatives and agents, to enter, occupy and use any premises where all or any part of the Collateral, or the books and records relating thereto, or both, are located, to take possession of all or any part of the Collateral or the books and records relating thereto, or both, to remove all or any part of the Collateral or the books and records relating thereto, or both, and to conduct sales of the Collateral, without any obligation to pay any Grantor for such use and occupancy.

 

Section 5.3.            Grant of Intellectual Property License .  For the purpose of enabling the Agent to exercise the rights and remedies under this Article V at such time as the Agent shall

 

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be lawfully entitled to exercise such rights and remedies, each Grantor hereby (a) grants to the Agent, for the benefit of the Agent and the Secured Parties, an irrevocable, nonexclusive license (exercisable without payment of royalty or other compensation to such Grantor) to use, license or sublicense any intellectual property rights now owned or hereafter acquired by such Grantor, wherever the same may be located, and including in such license access to all media in which any of the licensed items may be recorded or stored and to all computer software and programs used for the compilation or printout thereof and (b) irrevocably agrees that, at any time and from time to time following the occurrence and during the continuance of an Event of Default, the Agent may sell any Grantor’s Inventory directly to any Person, including without limitation Persons who have previously purchased any Grantor’s Inventory from such Grantor and in connection with any such sale or other enforcement of the Agent’s rights under this Security Agreement, may (subject to any restrictions contained in applicable third party licenses entered into by a Grantor) sell Inventory which bears any Trademark owned by or licensed to any Grantor and any Inventory that is covered by any Copyright owned by or licensed to such Grantor and the Agent may finish any work in process and affix any relevant Trademark owned by or licensed to any Grantor and sell such Inventory as provided herein.  The use of the license granted pursuant to clause (a) of the preceding sentence by the Agent may be exercised, at the option of the Agent, only upon the occurrence and during the continuance of an Event of Default; provided , however , that any license, sublicense or other transaction entered into by the Agent in accordance herewith shall be binding upon each Grantor notwithstanding any subsequent cure of an Event of Default.

 

ARTICLE VI

ACCOUNT VERIFICATION; ATTORNEY IN FACT; PROXY

 

Section 6.1.            Account Verification .  The Agent may at any time and from time to time following the occurrence and during the continuance of an Event of Default, in the Agent’s own name, in the name of a nominee of the Agent, or in the name of any Grantor communicate (by mail, telephone, facsimile or otherwise) with the Account Debtors of such Grantor, parties to contracts with such Grantor and obligors in respect of Instruments of such Grantor to verify with such Persons, to the Agent’s satisfaction, the existence, amount, terms of, and any other matter relating to, Accounts, Instruments, Chattel Paper, payment intangibles and/or other Receivables that are Collateral.

 

Section 6.2.            Authorization for Secured Party to Take Certain Action .

 

(a)           Each Grantor irrevocably authorizes the Agent and appoints the Agent as its attorney in fact (i) at any time and from time to time in the sole discretion of the Agent (1) to execute on behalf of such Grantor as debtor and to file financing statements necessary or desirable in the Agent’s reasonable discretion to perfect and to maintain the perfection and priority of the Agent’s security interest in the Collateral, (2) to file a carbon, photographic or other reproduction of this Security Agreement or any financing statement with respect to the Collateral as a financing statement and to file any other financing statement or amendment of a financing statement (which would not add new collateral or add a debtor) in such offices as the Agent in its reasonable discretion deems necessary or desirable to perfect and to maintain the perfection and priority of the Agent’s security interest in the Collateral, (3) to contact and enter

 

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into one or more agreements with the issuers of uncertificated securities which are Pledged Collateral or with securities intermediaries holding Pledged Collateral as may be necessary or advisable to give the Agent Control over such Pledged Collateral (subject to the terms of the Intercreditor Agreement), and (4) to discharge past due taxes, assessments, charges, fees or Liens on the Collateral (except for such Liens as are specifically permitted hereunder); (ii) at any time following the occurrence and during the continuance of an Event of Default, (1) to endorse and collect any cash proceeds of the Collateral and to apply the proceeds of any Collateral received by the Agent to the Secured Obligations as provided herein or in the Credit Agreement or any other Loan Document, subject to the terms of the Intercreditor Agreement, (2) to demand payment or enforce payment of the Receivables in the name of the Agent or any Grantor and to endorse any and all checks, drafts, and other instruments for the payment of money relating to the Receivables, (3) to sign any Grantor’s name on any invoice or bill of lading relating to the Receivables, drafts against any Account Debtor of such Grantor, assignments and verifications of Receivables, (4) to exercise all of any Grantor’s rights and remedies with respect to