Guarantee And Collateral Agreement

GUARANTEE AND COLLATERAL AGREEMENT



GUARANTEE AND COLLATERAL AGREEMENT, dated as of November 25, 2003, made by each of the signatories hereto (together with any other entity that may become a party hereto as provided herein, the "Grantors"), in favor of BANK ONE, NA, as Administrative Agent (in such capacity, the "Administrative Agent") for the banks and other financial institutions (the "Lenders") from time to time parties to the Credit Agreement, dated as of November 25, 2003 (as amended, restated, supplemented or otherwise modified from time to time, the "Credit Agreement"), among DEPARTMENT 56, INC. (the "Borrower"), the Lenders and the Administrative Agent.





W I T N E S S E T H :



WHEREAS, pursuant to the Credit Agreement, the Lenders have severally agreed to make extensions of credit to the Borrower upon the terms and subject to the conditions set forth therein;



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



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



WHEREAS, the Borrower 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 Borrower under the Credit Agreement that the Grantors shall have executed and delivered this Agreement to the Administrative Agent for the ratable benefit of the Lenders;



NOW, THEREFORE, in consideration of the premises and 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 Borrower thereunder, each Grantor hereby agrees with the Administrative Agent, for the ratable benefit of the Lenders, as follows:





SECTION 1. DEFINED TERMS



1.1 Definitions . (a) Unless otherwise defined herein, terms defined in the Credit Agreement and used herein shall have the meanings given to them in the Credit Agreement, and the following terms are used herein as defined in the New York UCC: Certificated Security, Uncertificated Security, Chattel Paper, Instruments, Investment Property and General Intangibles.



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



"Agreement" means this Guarantee and Collateral Agreement, as the same may be amended, restated, supplemented or otherwise modified from time to time.








"Borrower Obligations" means the collective reference to all Secured Obligations.



"Collateral" is defined in Section 3.



"Collateral Account" means any collateral account established by the Administrative Agent as provided in Section 6.2.



"Foreign Subsidiary" means any Subsidiary organized under the laws of any jurisdiction outside the United States of America.



"Foreign Subsidiary Voting Stock" means the voting Capital Stock of any Foreign Subsidiary.



"Guarantor Obligations" means, 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 hereof) or any other Loan Document to which such Guarantor is a party and all Rate Management Obligations of such Guarantor, in each case whether on account of guarantee obligations, reimbursement obligations, fees, indemnities, costs, expenses or otherwise (including, without limitation, all reasonable and documented fees and disbursements of counsel to the Administrative Agent or to the Lenders that are required to be paid by such Guarantor pursuant to the terms of this Agreement or any other Loan Document).



"Guarantors" means the collective reference to each Grantor other than the Borrower.



"Issuers" means the collective reference to each Subsidiary of a Grantor which is an issuer of any Pledged Stock.



"New York UCC" means the Uniform Commercial Code as from time to time in effect in the State of New York; provided that if by reason of mandatory provisions of law, the perfection or the effect of perfection or non-perfection of the security interests in any Collateral or the availability of any remedy hereunder is governed by the Uniform Commercial Code as in effect on or after the date hereof in any other jurisdiction, "New York UCC" means the Uniform Commercial Code as in effect in such other jurisdiction for purposes of the provisions hereof relating to such perfection or effect of perfection or non-perfection or availability of such remedy.



"Obligations" means (i) in the case of the Borrower, the Borrower Obligations, and (ii) in the case of each Guarantor, its Guarantor Obligations.



"Permitted Liens" means Liens permitted by Sections 7.3(a) and (g) of the Credit Agreement.



"Pledged Stock" means the shares of Capital Stock listed on Schedule 2, together with any other shares, stock certificates, options or rights of any nature whatsoever in respect of the Capital Stock of each Issuer that may be issued or granted to, or held by, any Grantor while this Agreement is in effect, including, without limitation, any Investment Property and/or General Intangibles comprising or arising out of any of the foregoing; provided that in no event shall Foreign Subsidiary Voting Stock with more than 65% of the total combined voting power of all classes of stock entitled to vote of any Foreign Subsidiary be required to be pledged hereunder.



"Proceeds" means all "proceeds" as such term is defined in Section 9-102(a)(64) of the New York UCC.



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"Securities Act" means the Securities Act of 1933, as amended.



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 Grantor92s 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 Lenders and, to the extent provided herein, their Affiliates, and their respective successors, indorsees, transferees and assigns, the prompt and complete payment and performance by the Borrower when due (whether at the stated maturity, by acceleration or otherwise) of the Borrower Obligations.



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



(c) Each Guarantor agrees that the Borrower Obligations may at any time and from time to time exceed the amount of the liability of such Guarantor hereunder without impairing the guarantee contained in this Section 2 or affecting the rights and remedies of 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 Borrower Obligations and the obligations of each Guarantor under the guarantee contained in this Section 2 shall have been satisfied by payment in full, no LC Obligations shall be outstanding and the Commitments shall be terminated, notwithstanding that from time to time during the term of the Credit Agreement the Borrower may be free from any Borrower Obligations; provided, however, that any Guarantor shall be released from its obligations hereunder if such Guarantor pursuant to a transaction permitted under the Credit Agreement, ceases to be a Subsidiary of the Borrower.



(e) No payment made by the Borrower, any of the Guarantors, any other guarantor or any other Person or received or collected by the Administrative Agent or any Lender from the Borrower, any of the Guarantors, any other guarantor or any other Person by virtue of any action or proceeding or any set-off or appropriation or application at any time or from time to time in reduction of or in payment of the Borrower Obligations shall be deemed to modify, reduce, release or otherwise affect the liability of any Guarantor hereunder, each of 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 LC Obligations shall be outstanding and the Commitments are terminated.



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2.2 Right of Contribution . Each Guarantor hereby agrees that to the extent that a Guarantor shall have paid more than its proportionate share of any payment made hereunder, such Guarantor shall be entitled to seek and receive contribution from and against each other Guarantor hereunder which has not paid its proportionate share of such payment. Each Guarantor92s right of contribution shall be subject to the terms and conditions of Section 2.3. The provisions of this Section 2.2 shall in no respect limit the obligations and liabilities of any Guarantor to the Administrative Agent and the Lenders, and each Guarantor shall remain liable to the Administrative Agent and the Lenders for the full amount guaranteed by such Guarantor hereunder.



2.3 No Subrogation . Notwithstanding any payment made by any Guarantor hereunder or any set-off or application of funds of any Guarantor by 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 the Borrower or any other Guarantor or any collateral security or 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 or be entitled to seek any contribution or reimbursement from the Borrower or any other Guarantor in respect of payments made by such Guarantor hereunder, until all amounts owing to the Administrative Agent and the Lenders by the Borrower on account of the Borrower Obligations are paid in full, no LC Obligations shall be 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 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.



2.4 Amendments, etc. with Respect to the Borrower Obligations . Each Guarantor shall remain obligated hereunder notwithstanding that, without any reservation of rights against any Guarantor and without notice to or further assent by any Guarantor, any demand for payment of any of the Borrower Obligations made by 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 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 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.



The Administrative Agent or any Lender may, from time to time, at its sole discretion and without notice to any Guarantor (or any of them), take any or all of the following actions: (a) retain or obtain a security interest in any property to secure any of the Secured Obligations or any obligation hereunder; provided that nothing in this Agreement shall constitute or require a grant of any such security interest other than in respect of the Collateral, (b) retain or obtain the primary or secondary obligation of



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any obligor or obligors, in addition to the undersigned, with respect to any of the Secured Obligations, (c) extend or renew any of the Secured Obligations for one or more periods (whether or not longer than the original period), alter or exchange any of the Secured Obligations, or release or compromise any obligation of any of the undersigned hereunder or any obligation of any nature of any other obligor with respect to any of the Secured Obligations, (d) release any guaranty or right of offset or its security interest in, or surrender, release or permit any substitution or exchange for, all or any part of any property securing any of the Secured Obligations or any obligation hereunder, or extend or renew for one or more periods (whether or not longer than the original period) or release, compromise, alter or exchange any obligations of any nature of any obligor with respect to any such property, and (e) resort to the undersigned (or any of them) for payment of any of the Secured Obligations when due, whether or not the Administrative Agent or such Lender shall have resorted to any property securing any of the Secured Obligations or any obligation hereunder or shall have proceeded against any other of the undersigned or any other obligor primarily or secondarily obligated with respect to any of the Secured Obligations.



2.5 Guarantee Absolute and Unconditional . Each Guarantor waives any and all notice of the creation, renewal, extension or accrual of any of the Borrower Obligations and notice of or proof of reliance by 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 the 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. Each Guarantor waives diligence, presentment, protest, demand for payment and notice of default, dishonor or nonpayment and all other notices whatsoever to or upon the Borrower or any of the Guarantors with respect to the Borrower Obligations.



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 the Borrower or any Guarantor, or upon or as a result of the appointment of a receiver, intervenor or conservator of, or trustee or similar officer for, the Borrower or any Guarantor or any substantial part of its property, or otherwise, all as though such payments had not been made. In the event that any payment, or any part thereof, is rescinded, reduced, restored or returned, the Obligations shall be reinstated and deemed reduced only by such amount paid and not so rescinded, reduced, restored or returned.



2.7 Payments . Each Guarantor hereby guarantees that payments hereunder will be paid to the Administrative Agent without set-off or counterclaim in Dollars at the office of the Administrative Agent set forth on the signature page of the Credit Agreement.



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 Lenders and, to the extent provided herein, their Affiliates, and their respective successors, indorsees, transferees and assigns, a continuing security interest in, all Pledged Stock 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 and all Proceeds thereof (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 Grantor92s Obligations.



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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 Borrower thereunder, each Grantor, hereby represents and warrants to the Administrative Agent and each Lender that:



4.1 Title; No Other Liens . Except for Permitted Liens, such Grantor owns each item of the Collateral free and clear of any and all Liens or claims of others. No financing statement or other public notice with respect to all or any part of the Collateral has been authorized and 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 Lenders, pursuant to this Agreement.



4.2 Perfected First Priority Liens . Upon the execution and delivery of this Agreement and (a) in the case of Pledged Stock that constitutes Certificated Securities (as defined in the New York UCC), when stock certificates representing such Pledged Stock are delivered to the Administrative Agent together with undated stock powers covering such certificates executed in blank, the Grantors have granted to the Administrative Agent a fully perfected Lien on, and security interest in, all right, title and interest of the Loan Parties in such Collateral and the Proceeds thereof, as security for the Obligations, in each case prior and superior in right to any other Person or Lien (except Permitted Liens, and subject, in the case of Proceeds, to the applicable limitations under Section 9-315 of the New York UCC) and (b) in the case of the Pledged Stock of Department 56 Minnesota, LLC, and any items that become Pledged Stock after the Closing Date that will constitute General Intangibles or Uncertificated Securities (as defined in the New York UCC) when financing statements in appropriate form are filed in the offices specified on Schedule 3 and, in the case of Uncertificated Securities, the Administrative Agent has obtained " control" (within the meaning of the New York UCC) of such Uncertificated Securities, the Grantors have granted to the Administrative Agent a fully perfected Lien on, and security interest in, all right, title and interest of the Loan Parties in such Collateral and the Proceeds thereof, as security for the Obligations, in each case prior and superior in any right to any other Person or Lien (except, Permitted Liens, and subject, in the case of Proceeds to the applicable limitations under Section 9-315 of the New York UCC). Schedule 3 specifies the locations in which to file the financing statements which may perfect a legal, valid and enforceable security interest granted under this Agreement in the Investment Property pursuant to Section 9-305(c) of the New York UCC.



4.3 Chief Executive Office . On the date hereof, such Grantor92s exact legal name, jurisdiction of organization, organizational identification number (if any), and the location of such Grantor92s chief executive office or sole place of business are specified on Schedule 4.



4.4 Pledged Stock . (a) The shares of Pledged Stock pledged by such Grantor hereunder constitute all the issued and outstanding shares of all classes of the Capital Stock of each Issuer owned by such Grantor or, in the case of Foreign Subsidiary Voting Stock, if less, Foreign Subsidiary Voting Stock with 65% of the total combined voting power of all classes of stock entitled to vote of each relevant Issuer.



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



(c) Such Grantor is the record and beneficial owner of, and has good and marketable title to, the Pledged Stock pledged by it hereunder, free of any and all Liens or options in favor of, or claims of, any other Person, except the security interest created by this Agreement.



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SECTION 5. COVENANTS



Each Grantor covenants and agrees with the Administrative Agent and the Lenders that, from and after the date of this A ...