Borrower Pledge And Security Agreement

EXHIBIT 10.4


BORROWER PLEDGE AND SECURITY AGREEMENT, DATED AS OF FEBRUARY
20, 2002, MADE BY EACH DOMESTIC SUBSIDIARY OF AMERICAN
ACHIEVEMENT CORPORATION FROM TIME TO TIME PARTY HERETO IN
FAVOR OF THE BANK OF NOVA SCOTIA, AS ADMINISTRATIVE AGENT FOR
EACH OF THE SECURED PARTIES (AS DEFINED THEREIN)


BORROWER PLEDGE AND SECURITY AGREEMENT


This BORROWER 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 AMERICAN ACHIEVEMENT CORPORATION (formerly known as Commemorative Brands Holding Corp.), a Delaware corporation (the "GRANTOR"), 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 the Grantor (as 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 Grantor; and


WHEREAS, as a condition precedent to the making of the Credit Extensions under the Credit Agreement, the 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, the 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.


"COLLATERAL" is defined in SECTION 2.1.


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


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"COMPUTER HARDWARE AND SOFTWARE COLLATERAL" means:


(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 the 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 (b) 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 Grantor, 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 Grantor's 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" is 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 the 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:


(a) (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");


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


(c) 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);


(d) 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


(e) all proceeds of, and rights associated with, the foregoing,
including any claim by the 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 the 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


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license referred to in SCHEDULE VI hereto, and including the right to sue for and to enjoin and to 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. The 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 the Grantor, and wherever located (the "COLLATERAL"):


(a) (i) all investment property in which the 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 the 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 the 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 the 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 the 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 the Grantor;


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(e) all deposit accounts (including the Collateral Account) of the 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 the Grantor's letter of credit rights;


(g) all commercial tort claims in which the 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 the 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) the 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 the 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 the Grantor if it pledged more than 65% of such combined voting power, then the Administrative Agent or the Required Lenders may require the Grantor to pledge more than 65% of the Capital Securities of such Foreign Subsidiary.


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


SECTION 2.3. GRANTOR REMAINS LIABLE. Anything herein to the contrary notwithstanding


(a) the Grantor will remain liable under the contracts and agreements included in the Collateral to the extent set forth therein, and will perform all of its 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 the Grantor from any of its duties or obligations under any 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 the 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 Grantor. If any Dividend or payment is paid in contravention of Section 7.2.6 of the Credit Agreement, then the 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.


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 Grantor represents and warrants to each Secured Party as set forth below.


SECTION 3.1. AS TO CAPITAL SECURITIES OF THE SUBSIDIARIES. With respect to any Subsidiary of the 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)


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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 the Grantor hereunder as of the Closing Date is as set forth on SCHEDULE I hereto.


SECTION 3.2. GRANTOR NAME, ETC. The Grantor's jurisdiction of incorporation is Delaware. The Grantor does not have any trade names other than those set forth in ITEM A of SCHEDULE II hereto. During the four months preceding the date hereof, the Grantor has not been known by any legal name different from the one set forth on the signature page hereto (other than Commemorative Brands Holding Corp.), nor has the Grantor been the subject of any merger or other corporate reorganization. During the four months preceding the date hereof, the Grantor's equipment and inventory (if any) has been located at the places set forth in ITEM B of SCHEDULE II hereto. The Grantor's federal taxpayer identification number and organizational identification number are (and, during the four months preceding the date hereof, the Grantor has not had a federal taxpayer identification number or organizational identification number different from that) set forth in ITEM C of SCHEDULE II hereto. If the Collateral of the Grantor includes any inventory located in the State of California, the Grantor is not a "retail merchant" within the meaning of Section 9102 of the California UCC. The Grantor is not a party to any federal, state or local government contract which is part of the Collateral except as set forth in ITEM D of SCHEDULE II hereto. The Grantor does not maintain any deposit accounts with any Person except as set forth in ITEM E of SCHEDULE II hereto. As of the Closing Date, the Grantor has rights with respect to the commercial tort claims set forth on ITEM F of SCHEDULE II hereto.


SECTION 3.3. OWNERSHIP, NO LIENS, ETC. The Grantor owns its Collateral free and clear of any Lien, except for Liens (a) created by this Agreement and (b) in the case of Collateral other than any investment property (including Capital Securities), permitted by Section 7.2.3 of the Credit Agreement. No effective financing statement or other filing similar in effect covering any Collateral is on file in any recording office, except those filed in favor of the Administrative Agent relating to this Agreement or those filed in connection with Liens permitted by Section 7.2.3 of the Credit Agreement or as to which a termination statement relating to such financing statement or other instrument has been delivered to the Administrative Agent on the Closing Date. The Grantor does not own any Restricted Assets that would impair, in any material respect, the Administrative Agent's ability to sell or otherwise transfer the Grantor's business as a going concern.


SECTION 3.4. POSSESSION OF INVENTORY, ETC. The Grantor agrees that it will maintain exclusive possession of its goods, instruments, promissory notes and inventory, other than (a) inventory in transit in the ordinary course of business, (b) instruments or promissory notes that have been delivered to the Administrative Agent pursuant to SECTION 3.5 or (c) as otherwise permitted hereunder.


SECTION 3.5. NEGOTIABLE DOCUMENTS, INSTRUMENTS AND CHATTEL PAPER. The Grantor has delivered to the Administrative Agent possession of all originals of all negotiable documents, instruments, promissory notes (including Pledged Notes) and chattel paper owned or held by the Grantor on the Closing Date.


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SECTION 3.6. INTELLECTUAL PROPERTY COLLATERAL. With respect to any Intellectual Property Collateral the loss, impairment or infringement of which could reasonably be expected to have a Material Adverse Effect:


(a) such Intellectual Property Collateral is subsisting and has not been adjudged invalid or unenforceable, in whole or in part;


(b) such Intellectual Property Collateral is valid and enforceable;


(c) the Grantor has made all necessary filings and recordations to protect its interest in such Intellectual Property Collateral, including recordations of all of its interests in the Patent Collateral and Trademark Collateral in the United States Patent and Trademark Office and (subject to the terms of the Credit Agreement) in corresponding offices throughout the world, and its claims to the Copyright Collateral in the United States Copyright Office and (subject to the terms of the Credit Agreement) in corresponding offices throughout the world;


(d) the Grantor is the exclusive owner of the entire and unencumbered right, title and interest in and to such Intellectual Property Collateral and no claim has been made that the use of such Intellectual Property Collateral does or may violate the asserted rights of any third party; and


(e) the Grantor has performed and will continue to perform all acts and has paid and will continue to pay all required fees and Taxes to maintain each and every such item of Intellectual Property Collateral in full force and effect throughout the world, as applicable.


The Grantor owns directly or is entitled to use by license or otherwise, all patents, Trademarks, Trade Secrets, copyrights, mask works, licenses, technology, know-how, processes and rights with respect to any of the foregoing used in, necessary for or of importance to the conduct of the Grantor's business.


SECTION 3.7. VALIDITY, ETC. This Agreement creates a valid security interest in favor of the Administrative Agent (for the benefit of the Secured Parties) in the Collateral as security for the Obligations. The Administrative Agent's having possession of all instruments and cash constituting Collateral from time to time, the recording of the Patent Security Agreement, the Trademark Security Agreement, and the Copyright Security Agreement, as applicable, executed pursuant hereto in the United States Patent and Trademark Office and the United States Copyright Office, as applicable, and the filing of the Filing Statements described in SCHEDULE VII hereto and, with respect to Patent Collateral, Trademark Collateral and Copyright Collateral hereafter existing and not covered by a Patent Security Agreement, Trademark Security Agreement or Copyright Security Agreement, as applicable, the recording in the United States Patent and Trademark Office and the United States Copyright Office, as applicable, of appropriate instruments of assignmen ...