Subsidiary Pledge And Security Agreement

EXHIBIT 10.3
SUBSIDIARY PLEDGE AND SECURITY AGREEMENT, DATED AS OF FEBRUARY 20, 2002,
MADE BY AMERICAN ACHIEVEMENT CORPORATION IN FAVOR OF THE BANK
OF NOVA SCOTIA, AS ADMINISTRATIVE AGENT FOR EACH OF THE
SECURED PARTIES (AS DEFINED THEREIN)


SUBSIDIARY PLEDGE AND SECURITY AGREEMENT


This SUBSIDIARY PLEDGE AND SECURITY AGREEMENT, dated as of February 20, 2002 (as amended, supplemented, amended and restated or otherwise modified from time to time, this "AGREEMENT"), is made by each Subsidiary that is a U.S. Subsidiary of the Borrower (as defined below) from time to time a party to this Agreement (each individually a "GRANTOR" and collectively, the "GRANTORS"), in favor of THE BANK OF NOVA SCOTIA, as administrative agent (together with its successor(s) thereto in such capacity, the "ADMINISTRATIVE AGENT") for each of the Secured Parties.


W I T N E S S E T H :


WHEREAS, pursuant to a Credit Agreement, dated as of the date hereof (as amended, supplemented, amended and restated or otherwise modified from time to time, the "CREDIT AGREEMENT"), among American Achievement Corporation (formerly known as Commemorative Brands Holding Corp.), a Delaware corporation (the "BORROWER"), the Lenders, General Electric Capital Corporation, as the Syndication Agent for the Lenders, Bankers Trust Company, as the Documentation Agent for the Lenders and the Administrative Agent, the Lenders and the Issuer have extended Commitments to make Credit Extensions to the Borrower; and


WHEREAS, as a condition precedent to the making of the Credit Extensions under the Credit Agreement, each Grantor is required to execute and deliver this Agreement;


NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, each Grantor agrees, for the benefit of each Secured Party, as follows:


ARTICLE I
DEFINITIONS


SECTION 1.1. CERTAIN TERMS. The following terms (whether or not underscored)
when used in this Agreement, including its preamble and recitals, shall
have the following meanings (such definitions to be equally applicable to
the singular and plural forms thereof):


"ADMINISTRATIVE AGENT" is defined in the PREAMBLE.


"AGREEMENT" is defined in the PREAMBLE.


"BORROWER" is defined in the FIRST RECITAL.


"COLLATERAL" is defined in SECTION 2.1.


"COLLATERAL ACCOUNT" is defined in CLAUSE (b) of SECTION 4.3.


"COMPUTER HARDWARE AND SOFTWARE COLLATERAL" means:


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(a) all computer and other electronic data processing hardware, integrated
computer systems, central processing units, memory units, display
terminals, printers, features, computer elements, card readers, tape
drives, hard and soft disk drives, cables, electrical supply hardware,
generators, power equalizers, accessories and all peripheral devices and
other related computer hardware;


(b) all software programs (including both source code, object code and all
related applications and data files), whether now owned, licensed or leased
or hereafter acquired by a Grantor, designed for use on the computers and
electronic data processing hardware described in CLAUSE (a) above;


(c) all firmware associated therewith;


(d) all documentation (including flow charts, logic diagrams, manuals, guides
and specifications) with respect to such hardware, software and firmware
described in the preceding CLAUSES (a) through (c); and


(e) all rights with respect to all of the foregoing, including any and all
copyrights, licenses, options, warranties, service contracts, program
services, test rights, maintenance rights, support rights, improvement
rights, renewal rights and indemnifications and any substitutions,
replacements, additions or model conversions of any of the foregoing.


"CONTROL AGREEMENT" means an agreement in form and substance satisfactory to the Administrative Agent which provides for the Administrative Agent to have "control" (as defined in Section 8-106 of the UCC, as such term relates to investment property (other than certificated securities or commodity contracts), or as used in Section 9-106 of the UCC, as such term relates to commodity contracts).


"COPYRIGHT COLLATERAL" means all copyrights of the Grantors, whether statutory or common law, registered or unregistered and whether published or unpublished, now or hereafter in force throughout the world including all of the Grantors' rights, titles and interests in and to all copyrights registered in the United States Copyright Office or anywhere else in the world, including the copyrights referred to in ITEM A of SCHEDULE V hereto, and registrations and recordings thereof and all applications for registration thereof, whether pending or in preparation, all copyright licenses, including each copyright license referred to in ITEM B of SCHEDULE V hereto, the right to sue for past, present and future infringements of any of the foregoing, all rights corresponding thereto, all extensions and renewals of any thereof and all proceeds of the foregoing, including licenses, royalties, income, payments, claims, damages and proceeds of suit.


"CREDIT AGREEMENT" is defined in the FIRST RECITAL.


"DISTRIBUTIONS" means all non-cash dividends paid on Capital Securities, liquidating dividends paid on Capital Securities, Capital Securities resulting from (or in connection with the exercise of) stock splits, reclassifications, warrants, options, non-cash dividends, mergers and consolidations, and all other distributions (whether similar or dissimilar to the foregoing) on or with respect to any Capital Securities constituting Collateral, but excluding Dividends.


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"DIVIDENDS" means cash dividends and cash distributions with respect to any Capital Securities constituting Collateral that are not a liquidating dividend.


"GOLD CONSIGNOR" means The Bank of Nova Scotia, in its capacity as consignor under the Gold Consignment Agreement (or its Affiliates in such capacity).


"GRANTOR" and "GRANTORS" are defined in the PREAMBLE.


"INTELLECTUAL PROPERTY COLLATERAL" means, collectively, the Computer Hardware and Software Collateral, the Copyright Collateral, the Patent Collateral, the Trademark Collateral and the Trade Secrets Collateral.


"PATENT COLLATERAL" means:


(a) all letters patent and applications for letters patent throughout
the world, including all patent applications in preparation for filing and
each patent and patent application referred to in ITEM A of SCHEDULE III
hereto;


(b) all reissues, divisions, continuations, continuations-in-part, extensions,
renewals and reexaminations of any of the items described in CLAUSE (a);


(c) all patent licenses, and other agreements providing a Grantor with the
right to use any items of the type referred to in CLAUSES (a) and (b)
above, including each patent license referred to in ITEM B of SCHEDULE III
hereto; and


(d) all proceeds of, and rights associated with, the foregoing (including
license royalties and proceeds of infringement suits), the right to sue
third parties for past, present or future infringements of any patent or
patent application, and for breach or enforcement of any patent license.


"PLEDGED NOTE" means a promissory note payable to the Grantor, in form and substance satisfactory to the Administrative Agent, as amended, modified or supplemented from time to time in accordance with CLAUSE (c) of SECTION 4.7, together with any notes delivered in extension or renewal thereof or substitution therefor.


"RECEIVABLES" is defined in CLAUSE (c) of SECTION 2.1.


"RELATED CONTRACTS" is defined in CLAUSE (c) of SECTION 2.1.


"RESTRICTED ASSET" is defined in SECTION 2.1.


"SECURED PARTY" means, collectively, (i) each of the Secured Parties, as such term is defined in the Credit Agreement and (ii) the Gold Consignor.


"SECURITIES ACT" is defined in CLAUSE (a) of SECTION 6.2.


"SPECIFIED EVENT" means the occurrence and continuance of a Default under clauses (a) through (d) of Section 8.1.9 of the Credit Agreement or any other Event of Default.


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"TERMINATION DATE" means the date on which (i) all Obligations (other than contingent indemnification obligations to the extent no unsatisfied claim giving rise thereto has been asserted) have been paid in full in cash, all Letters of Credit have been terminated or expired (or been Cash Collateralized), all Rate Protection Agreements have been terminated and all Commitments shall have terminated and (ii) all obligations (other than contingent indemnification obligations to the extent no unsatisfied claim giving rise thereto has been asserted) arising under or in connection with the Gold Consignment Agreement (and related documents and instruments) have been paid in full in cash and all commitments of the Gold Consignor thereunder have terminated.


"TRADEMARK COLLATERAL" means:


(e) (i) all trademarks, trade names, corporate names, company names,
business names, fictitious business names, trade styles, service marks,
certification marks, collective marks, logos and other source or business
identifiers, and all goodwill of the business associated therewith, now
existing or hereafter adopted or acquired including those referred to in
ITEM A of SCHEDULE IV hereto, whether currently in use or not, all
registrations and recordings thereof and all applications in connection
therewith, whether pending or in preparation for filing, including
registrations, recordings and applications in the United States Patent and
Trademark Office or in any office or agency of the United States of America
or any State thereof or any other country or political subdivision thereof
or otherwise, and all common-law rights relating to the foregoing, and (ii)
the right to obtain all reissues, extensions or renewals of the foregoing
(collectively referred to as the "TRADEMARK");


(f) all Trademark licenses for the grant by or to a Grantor of any right to use
any Trademark, including each Trademark license referred to in ITEM B of
SCHEDULE IV hereto;


(g) all of the goodwill of the business connected with the use of, and
symbolized by the items described in, clause (a) and, to the extent
applicable clause (b);


(h) the right to sue third parties for past, present and future infringements
of any Trademark Collateral described in clause (a) and, to the extent
applicable, clause (b); and


(i) all proceeds of, and rights associated with, the foregoing, including any
claim by a Grantor against third parties for past, present or future
infringement or dilution of any Trademark, Trademark registration or
Trademark license, or for any injury to the goodwill associated with the
use of any such Trademark or for breach or enforcement of any Trademark
license and all rights corresponding thereto throughout the world.


"TRADE SECRETS COLLATERAL" means all common law and statutory trade secrets and all other confidential, proprietary or useful information and all know-how obtained by or used in or contemplated at any time for use in the business of a Grantor (all of the foregoing being collectively called a "TRADE SECRET"), whether or not such Trade Secret has been reduced to a writing or other tangible form, including all documents and things embodying, incorporating or referring in any way to such Trade Secret, all Trade Secret licenses, including each Trade Secret license referred to in SCHEDULE VI hereto, and including the right to sue for and to enjoin and to


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collect damages for the actual or threatened misappropriation of any Trade Secret and for the breach or enforcement of any such Trade Secret license.


SECTION 1.2. CREDIT AGREEMENT DEFINITIONS. Unless otherwise defined herein or
the context otherwise requires, terms used in this Agreement, including its
preamble, recitals, schedules and exhibits, have the meanings provided in
the Credit Agreement.


SECTION 1.3. UCC DEFINITIONS. Unless otherwise defined herein or in the Credit
Agreement or the context otherwise requires, terms for which meanings are
provided in the UCC are used in this Agreement, including its preamble,
recitals, schedules and exhibits, with such meanings.


ARTICLE II
SECURITY INTEREST


SECTION 2.1. GRANT OF SECURITY INTEREST. Each Grantor hereby assigns, pledges,
hypothecates, charges, mortgages, delivers, and transfers to the
Administrative Agent, for its benefit and the ratable benefit of each other
Secured Party, and hereby grants to the Administrative Agent, for its
benefit and the ratable benefit of each other Secured Party, a continuing
security interest in all assets, including without limitation all of the
following property, whether tangible or intangible, whether now or
hereafter existing, owned or acquired by such Grantor, and wherever located
(the "COLLATERAL"):


(a) (i) all investment property in which such Grantor has an interest
(including the Capital Securities of each issuer of such Capital Securities
described in SCHEDULE I hereto) and (ii) all other Capital Securities which
are interests in limited liability companies or partnerships in which such
Grantor has an interest (including the Capital Securities of each issuer of
such Capital Securities described in ITEM A of SCHEDULE I hereto), in each
case together with Dividends and Distributions payable in respect of the
Collateral described in the foregoing CLAUSES (a)(i) and (a)(ii);


(b) all goods, including all equipment (including any equipment that is or may
constitute a fixture) and inventory in all of its forms of such Grantor;


(c) all accounts, contracts, contract rights, chattel paper, documents,
instruments, promissory notes (including Pledged Notes described in ITEM B
of SCHEDULE I) and general intangibles (including tax refunds and all
payment intangibles) of such Grantor, whether or not arising out of or in
connection with the sale or lease of goods or the rendering of services,
and all rights of such Grantor now or hereafter existing in and to all
security agreements, guaranties, leases and other contracts securing or
otherwise relating to any such accounts, contracts, contract rights,
chattel paper, documents, instruments, promissory notes and general
intangibles (all of the foregoing collectively referred to as the
"RECEIVABLES", and any and all such security agreements, guaranties, leases
and other contracts collectively referred to as the "RELATED CONTRACTS");


(d) all Intellectual Property Collateral of such Grantor;


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(e) all deposit accounts (including the Collateral Account) of such Grantor and
all cash, checks, drafts, notes, bills of exchange, money orders, other
like instruments and all investment property held in the Collateral Account
(or in any sub-account thereof) and all interest and earnings in respect
thereof;


(f) all of such Grantor's letter of credit rights;


(g) all commercial tort claims in which such Grantor has rights (including as a
plaintiff), as set forth on ITEM F of SCHEDULE II hereto;


(h) all books, records, writings, data bases, information and other property
relating to, used or useful in connection with, evidencing, embodying,
incorporating or referring to, any of the foregoing in this Section;


(i) all of such Grantor's other property and rights of every kind and
description and interests therein; and


(j) all products, offspring, rents, issues, profits, returns, income,
supporting obligations and proceeds of and from any and all of the
foregoing Collateral (including proceeds which constitute property of the
types described in CLAUSES (a) through (i), and, to the extent not
otherwise included, all payments under insurance (whether or not the
Administrative Agent is the loss payee thereof), or any indemnity, warranty
or guaranty, payable by reason of loss or damage to or otherwise with
respect to any of the foregoing Collateral).


Notwithstanding the foregoing, "Collateral" shall not include (i) such Grantor's real property leaseholds; (ii) any general intangibles or other rights arising under any contracts, instruments, licenses or other documents as to which the grant of a security interest would (A) constitute a violation of a valid and enforceable restriction in favor of a third party on such grant, unless and until any required consents shall have been obtained or (B) give any other party to such contract, instrument, license or other document the right to terminate its obligations thereunder (the "RESTRICTED ASSETS"), PROVIDED that this clause shall not limit the grant of any security interest in any proceeds of any Restricted Asset or any Restricted Asset to the extent that the UCC or any other applicable law provides that such grant of security interest is effective irrespective of any prohibitions to such grant provided in the underlying contract, instrument, license or other document; and (iii) Capital Securities of a Foreign Subsidiary in excess of 65% of the total combined voting power of all Capital Securities of such Foreign Subsidiary (other than a Foreign Subsidiary that (i) is treated as a partnership under the Code or (ii) is not treated as an entity that is separate from such Grantor); PROVIDED, that, if any change in, or the introduction, adoption, effectiveness, interpretation, reinterpretation or phase in of, any law or regulation, directive or guidelines of any Governmental Authority could reasonably be expected to reduce the amount of United States federal income tax that would otherwise be payable by such Grantor if it pledged more than 65% of such combined voting power, then the Administrative Agent or the Required Lenders may require such Grantor to pledge more than 65% of the Capital Securities of such Foreign Subsidiary.


SECTION 2.2. SECURITY FOR OBLIGATIONS. This Agreement and the Collateral in
which the Administrative Agent for the benefit of the Secured Parties is
granted a security interest


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hereunder by the Grantors secures the payment of all Obligations now or
hereafter existing.


SECTION 2.3. GRANTORS REMAIN LIABLE. Anything herein to the contrary notwithstanding


(a) the Grantors will remain liable under the contracts and agreements
included in the Collateral to the extent set forth therein, and will
perform all of their duties and obligations under such contracts and
agreements to the same extent as if this Agreement had not been executed;


(b) the exercise by the Administrative Agent of any of its rights hereunder
will not release any Grantor from any of its duties or obligations under
any such contracts or agreements included in the Collateral; and


(c) no Secured Party will have any obligation or liability (other than as a
result of such Secured Party's gross negligence or willful misconduct)
under any contracts or agreements included in the Collateral by reason of
this Agreement, nor will 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 2.4. DIVIDENDS ON PLEDGED SHARES. In the event that any Dividend with
respect to any Capital Securities pledged hereunder is permitted to be paid
(in accordance with Section 7.2.6 of the Credit Agreement), such Dividend
or payment may be paid directly to the applicable Grantor. If any Dividend
or payment is paid in contravention of Section 7.2.6 of the Credit
Agreement, then such Grantor shall hold the same segregated and in trust
for the Administrative Agent until paid to the Administrative Agent in
accordance with SECTION 4.1.5 hereto.


SECTION 2.5. CBI SENIOR SUBORDINATED NOTES.


(a) Notwithstanding any other provision in this Agreement to the contrary, the
Administrative Agent shall not be entitled to exercise any rights or
remedies under this Agreement against the CBI Senior Subordinated Notes
purchased by Taylor Holding Co. on or around July 27, 2000 (collectively,
the "PLEDGED CBI SENIOR SUBORDINATED NOTES"), unless and until an Event of
Default has occurred and is continuing under Section 8.1.9 of the Credit
Agreement (any such Event of Default is herein referred to as a "BANKRUPTCY
EVENT OF DEFAULT") and if any such Bankruptcy Event of Default has occurred
and is continuing, the only rights the Administrative Agent shall have with
respect to the Pledged CBI Senior Subordinated Notes shall be to exercise
voting rights pertaining to the Pledged CBI Senior Subordinated Notes (but
not to assign such rights to vote) and collect payments owing thereon for
application to the Obligations in accordance with SECTION 6.1 (but not the
right to assign such rights to collect payment). It being understood that
the Administrative Agent shall not be (x) entitled to exercise the
aforementioned voting rights unless the then acting Administrative Agent
was a party to the Credit Agreement as of the Closing Date or for at least
six months prior to the occurrence of the Bankruptcy Event of Default and
the Required Lenders directing the Administrative Agent to vote in the
exercise of the aforementioned voting rights were a


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party to the Credit Agreement as of the Closing Date or for at least six
months prior to the occurrence of the Bankruptcy Event of Default or (y)
permitted to assign such voting rights or such collection rights except to
a successor Administrative Agent under the Credit Agreement (bound as the
Administrative Agent to the terms hereof). The Administrative Agent shall
not assign, pledge, sell or otherwise transfer in any manner whatsoever the
Pledged CBI Senior Subordinated Notes to any Person at any time for any
reason. The Administrative Agent acknowledges and agrees that a breach of
any of the covenants contained in this CLAUSE (a) will cause irreparable
injury to the Obligors and that the Obligors have no adequate remedy at law
in respect of such breaches and therefore agrees that such covenants of the
Administrative Agent contained in this CLAUSE (a) shall be specifically
enforceable against the Administrative Agent.


(b) Taylor Holding Co. shall not assign, pledge (except in favor of the
Administrative Agent), sell or otherwise transfer in any manner whatsoever
the Pledged CBI Senior Subordinated Notes to any Person. Taylor Holding Co.
acknowledges and agrees that a breach of the covenant contained in this
CLAUSE (b) will cause irreparable injury to the Administrative Agent and
the other Secured Parties and that the Administrative Agent has no adequate
remedy at law in respect of such breaches and therefore agrees, without
limiting the right of the Administrative Agent to seek and obtain specific
performance of other obligations of any Obligor contained in this
Agreement, that such covenant of Taylor Holding Co. contained in this
CLAUSE (b) shall be specifically enforceable against Taylor Holding Co.


SECTION 2.6. POSTPONEMENT OF SUBROGATION. Each Grantor agrees that it will not
exercise any rights which it may acquire by way of rights of subrogation
under any Loan Document to which it is a party. No Grantor shall seek or be
entitled to seek any contribution or reimbursement from any Obligor, in
respect of any payment made under any Loan Document or otherwise, until
following the Termination Date. Any amount paid to such Grantor on account
of any such subrogation rights prior to the Termination Date shall be held
in trust for the benefit of the Secured Parties and shall immediately be
paid and turned over to the Administrative Agent for the benefit of the
Secured Parties in the exact form received by such Grantor (duly endorsed
in favor of the Administrative Agent, if required), to be credited and
applied against the Obligations, whether matured or unmatured, in
accordance with SECTION 6.1; PROVIDED that if such Grantor has made payment
to the Secured Parties of all or any part of the Obligations and the
Termination Date has occurred, then at such Grantor's request, the
Administrative Agent (on behalf of the Secured Parties) will, at the
expense of such Grantor, execute and deliver to such Grantor appropriate
documents (without recourse and without representation or warranty)
necessary to evidence the transfer by subrogation to such Grantor of an
interest in the Obligations resulting from such payment. In furtherance of
the foregoing, at all times prior to the Termination Date, such Grantor
shall refrain from taking any action or commencing any proceeding against
any Obligor (or its successors or assigns, whether in connection with a
bankruptcy proceeding or otherwise) to recover any amounts in respect of
payments made under this Agreement to any Secured Party.


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ARTICLE III
REPRESENTATIONS AND WARRANTIES


In order to induce the Secured Parties (other than the Gold Consignor) to enter into the Credit Agreement and make Credit Extensions thereunder, to induce Secured Parties (other than the Gold Consignor) to enter into Rate Protection Agreements, and to induce the Gold Consignor to continue its obligations under the Gold Consignment Agreement, the Grantors represent and warrant to each Secured Party as set forth below.


SECTION 3.1. AS TO CAPITAL SECURITIES OF THE SUBSIDIARIES. With respect to any
Subsidiary of any Grantor that is


(a) a corporation, business trust, joint stock company or similar Person, all
Capital Securities issued by such Subsidiary are duly authorized and
validly issued, fully paid and non-assessable, and represented by a
certificate; and


(b) a partnership or limited liability company, no Capital Securities issued by
such Subsidiary (i) are dealt in or traded on securities exchanges or in
securities markets, (ii) expressly provide that such Capital Securities are
a security governed by Article 8 of the UCC, (iii) are held in a securities
account or (iv) are represented by a certificate.


The percentage of the issued and outstanding Capital Securities of each Subsidiary pledged by any Grantor hereunder as of the Closing Date is as set forth on SCHEDULE I hereto.


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