SECURITY AGREEMENT
THIS SECURITY AGREEMENT (this "Security Agreement") is entered into as of
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August 30, 1999 among RACING CHAMPIONS, INC., an Illinois corporation ("RCI");
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RACING CHAMPIONS SOUTH, INC., a North Carolina corporation ("RCS") (each of RCI
and RCS individually a "U.S. Borrower" and, collectively, the "U.S. Borrowers");
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RACING CHAMPIONS WORLDWIDE LIMITED, a corporation organized under the laws of
the United Kingdom (the "U.K. Borrower"); together with the U.S. Borrowers, the
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"Borrowers"; the Domestic Subsidiaries of the Borrower indicated on the
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signature pages hereto (individually a "Guarantor" and collectively the
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"Guarantors"; together with the Borrowers, individually an "Obligor" and
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collectively the "Obligors"); and FIRST UNION NATIONAL BANK, in its capacity as
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administrative agent (in such capacity, the "Administrative Agent") for the
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lenders from time to time party to the Credit Agreement described below (the
"Lenders").
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R E C I T A L S
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WHEREAS, pursuant to that certain Credit Agreement dated as of April 13,
1999 (as amended, modified, extended, renewed or replaced from time to time, the
"Credit Agreement"), among the Borrowers, the Guarantors, the Lenders and the
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Administrative Agent, the Lenders have agreed to make Loans and issue Letters of
Credit upon the terms and subject to the conditions set forth therein;
WHEREAS, the Borrowers, Guarantors, the Lenders and the Administrative
Agent have entered in the First Amendment to Credit Agreement dated as of the
date hereof pursuant to which certain terms and conditions of the Credit
Agreement were amended thereby; and
WHEREAS, it is a condition precedent to the effectiveness of the First
Amendment to Credit Agreement and to the continued obligations of the Lenders to
make their respective Loans and to issue Letters of Credit under the Credit
Agreement, as amended, that the Obligors shall have executed and delivered this
Security Agreement to the Administrative Agent for the ratable benefit of the
Lenders.
NOW, THEREFORE, in consideration of these premises and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
1. Definitions.
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(a) Unless otherwise defined herein, capitalized terms used herein
shall have the meanings ascribed to such terms in the Credit Agreement, and the
following terms which are defined in the Uniform Commercial Code in effect in
the State of North Carolina on the date hereof (the "UCC") are used herein as so
defined: Accounts, Chattel Paper, Deposit Accounts, Documents, Equipment, Farm
Products, Fixtures, General Intangibles, Instruments, Inventory, Investment
Property and Proceeds. For purposes of this Security Agreement, the term
"Lender" shall include any Affiliate of any Lender which has entered into a
Hedging Agreement with the Borrowers.
(b) In addition, the following terms shall have the following
meanings:
"Copyright Licenses": any written agreement, naming any Obligor as
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licensor, granting any right under any Copyright including, without limitation,
any thereof referred to in Schedule 3.16 to the Credit Agreement.
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"Copyrights": (a) all registered United States copyrights in all
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Works, now existing or hereafter created or acquired, all registrations and
recordings thereof, and all applications in connection therewith, including,
without limitation, registrations, recordings and applications in the United
States Copyright office including, without limitation, any thereof referred to
in Schedule 3.16 to the Credit Agreement, and (b) all renewals thereof
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including, without limitation, any thereof referred to in Schedule 3.16 to the
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Credit Agreement.
"Patent License": all agreements, whether written or oral, providing
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for the grant by or to an Obligor of any right to manufacture, use or sell any
invention covered by a Patent, including, without limitation, any thereof
referred to in Schedule 3.16 to the Credit Agreement.
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"Patents": (a) all letters patent of the United States or any other
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country and all reissues and extensions thereof, including, without limitation,
any thereof referred to in Schedule 3.16 to the Credit Agreement, and (b) all
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applications for letters patent of the United States or any other country and
all divisions, continuations and continuations-in-part thereof, including,
without limitation, any thereof referred to in Schedule 3.16 to the Credit
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Agreement.
"Secured Obligations": the collective reference to the following:
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(a) In the case of each Borrower, the prompt performance and
observance by the Borrower of all obligations of the Borrower under the Credit
Agreement, the Notes, this Security Agreement and the other Credit Documents to
which the Borrower is a party;
(b) In the case of the Guarantors, the prompt performance and
observance by the Guarantors of all obligations of the Guarantors under the
Credit Agreement, this Security Agreement and the other Credit Documents to
which any Guarantor is a party, including, without limitation, its guaranty
obligations arising under Article X of the Credit Agreement; and
(c) All other indebtedness, liabilities and obligations of any
kind or nature, now existing or hereafter arising, owing from any Obligor to any
Lender or the Administrative Agent, howsoever evidenced, created, incurred or
acquired, whether primary, secondary, direct, contingent, or joint and several,
including, without limitation, all liabilities arising under Hedging Agreements
and all obligations and liabilities incurred in connection with collecting and
enforcing the Secured Obligations.
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"Trademark License": means any agreement, written or oral, providing
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for the grant by or to an Obligor of any right to use any Trademark, including,
without limitation, any thereof referred to in Schedule 3.16 to the Credit
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Agreement.
"Trademarks": (a) all trademarks, trade names, corporate names,
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company names, business names, fictitious business names, trade styles, service
marks, logos and other source or business identifiers, and the goodwill
associated therewith, now existing or hereafter adopted or acquired, all
registrations and recordings thereof, and all applications in connection
therewith (excluding intent to use trademark applications), whether in the
United States Patent and Trademark Office or in any similar office or agency of
the United States, any State thereof or any other country or any political
subdivision thereof, or otherwise, including, without limitation, any thereof
referred to in Schedule 3.16 to the Credit Agreement, and (b) all renewals
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thereof.
"Work": any work which is subject to copyright protection pursuant to
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Title 17 of the United States Code.
2. Grant of Security Interest in the Collateral. To secure the prompt
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payment and performance in full when due, whether by lapse of time,
acceleration, mandatory prepayment or otherwise, of the Secured Obligations,
each Obligor hereby grants to the Administrative Agent, for the benefit of the
Lenders, a continuing security interest in, and a right to set off against, any
and all right, title and interest of such Obligor in and to the following,
whether now owned or existing or owned, acquired, or arising hereafter
(collectively, the "Collateral"):
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(a) all Accounts;
(b) all Chattel Paper;
(c) all Copyrights;
(d) all Copyright Licenses;
(e) all Deposit Accounts;
(f) all Documents;
(g) all Equipment;
(h) all Fixtures;
(i) all General Intangibles;
(j) all Instruments;
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(k) all Inventory;
(l) all Investment Property;
(m) all Patents;
(n) all Patent Licenses;
(o) all Trademarks;
(p) all Trademark Licenses;
(q) all books, records, ledger cards, files, correspondence,
computer programs, tapes, disks, and related data processing software (owned by
such Obligor or in which it has an interest) that at any time evidence or
contain information relating to any Collateral or are otherwise necessary or
helpful in the collection thereof or realization thereupon; and
(r) to the extent not otherwise included, all Proceeds and
products of any and all of the foregoing.
The Obligors and the Administrative Agent, on behalf of the Lenders, hereby
acknowledge and agree that the security interest created hereby in the
Collateral (i) constitutes continuing collateral security for all of the Secured
Obligations, whether now existing or hereafter arising and (ii) is not to be
construed as an assignment of any Copyrights, Copyright Licenses, Patents,
Patent Licenses, Trademarks or Trademark Licenses.
3. Provisions Relating to Accounts.
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(a) Anything herein to the contrary notwithstanding, each of the
Obligors shall remain liable under each of the Accounts to observe and perform
all the conditions and obligations to be observed and performed by it
thereunder, all in accordance with the terms of any agreement giving rise to
each such Account. Neither the Administrative Agent nor any Lender shall have
any obligation or liability under any Account (or any agreement giving rise
thereto) by reason of or arising out of this Security Agreement or the receipt
by the Administrative Agent or any Lender of any payment relating to such
Account pursuant hereto, nor shall the Administrative Agent or any Lender be
obligated in any manner to perform any of the obligations of an Obligor under or
pursuant to any Account (or any agreement giving rise thereto), to make any
payment, to make any inquiry as to the nature or the sufficiency of any payment
received by it or as to the sufficiency of any performance by any party under
any Account (or any agreement giving rise thereto), to present or file any
claim, to take any action to enforce any performance or to collect the payment
of any amounts which may have been assigned to it or to which it may be entitled
at any time or times.
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(b) Once during each calendar year or at any time after the occurrence
and during the continuation of an Event of Default, the Administrative Agent
shall have the right, but not the obligation, to make test verifications of the
Accounts in any manner and through any medium that it reasonably considers
advisable, and the Obligors shall furnish all such assistance and information as
the Administrative Agent may require in connection with such test verifications.
At any time and from time to time, upon the Administrative Agent's request and
at the expense of the Obligors, the Obligors shall cause independent public
accountants or others satisfactory to the Administrative Agent to furnish to the
Administrative Agent reports showing reconciliations, aging and test
verifications of, and trial balances for, the Accounts. The Administrative
Agent in its own name or in the name of others may communicate with account
debtors on the Accounts to verify with them to the Administrative Agent's
satisfaction the existence, amount and terms of any Accounts.
4. Representations and Warranties. Each Obligor hereby represents and
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warrants to the Administrative Agent, for the benefit of the Lenders, that so
long as any of the Secured Obligations remain outstanding or any Credit Document
or Hedging Agreement is in effect or any Letter of Credit shall remain
outstanding, and until all of the Commitments shall have been terminated:
(a) Chief Executive Office; Books & Records. Each Obligor's chief
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executive office and chief place of business are (and for the prior four months
have been) located at the locations set forth on Schedule 3.19(c) to the Credit
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Agreement, and each Obligor keeps its books and records at such locations.
(b) Location of Collateral. The location of all Collateral owned
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by each Obligor is as shown on Schedule 3.19(b) to the Credit Agreement.
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(c) Ownership. Each Obligor is the legal and beneficial owner of
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its Collateral and has the right to pledge, sell, assign or transfer the same.
Each Obligor's legal name is as shown in this Security Agreement and no Obligor
has in the past four months changed its name, been party to a merger,
consolidation or other change in structure or used any tradename not disclosed
on Schedule 3.16 to the Credit Agreement.
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(d) Security Interest/Priority. This Security Agreement creates a
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valid security interest in favor of the Administrative Agent, for the benefit of
the Lenders, in the Collateral of such Obligor and, when properly perfected by
filing or otherwise, shall constitute a valid perfected security interest in
such Collateral, to the extent such security interest can be perfected by filing
or otherwise under the UCC, free and clear of all Liens except for Permitted
Liens.
(e) Farm Products. None of the Collateral constitutes, or is the
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Proceeds of, Farm Products.
(f) Accounts. (i) Each Account of the Obligors and the papers and
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documents relating thereto are genuine and in all material respects what they
purport to be, (ii) each Account arises out of (A) a bona fide sale of goods
sold and delivered by such Obligor (or is in
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the process of being delivered) or (B) services theretofore actually rendered by
such Obligor to the account debtor named therein, (iii) no Account of an Obligor
is evidenced by any Instrument or Chattel Paper unless such Instrument or
Chattel Paper has been heretofore endorsed over and delivered to the
Administrative Agent and (iv) no surety bond was required or given in connection
with any Account of an Obligor or the contracts or purchase orders out of which
they arose.
(g) Inventory. No Inventory is held by an Obligor pursuant to
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consignment, sale or return, sale on approval or similar arrangement.
(h) Intellectual Property.
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(i) Schedule 3.16 to the Credit Agreement includes all Copyrights,
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Copyright Licenses, Patents, Patent Licenses, Trademarks and Trademark Licenses
owned by the Obligors in their own names as of the date hereof and all
tradenames used by the Obligors as of the date hereof.
(ii) To the best of each Obligor's knowledge, each Copyright,
Patent and Trademark of such Obligor is valid, subsisting, unexpired,
enforceable and has not been abandoned, and such Obligor is legally entitled to
use each of its tradenames.
(iii) Except as set forth in Schedule 3.16 to the Credit
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Agreement, none of such Copyrights, Patents and Trademarks is the subject of any
licensing or franchise agreement.
(iv) No holding, decision or judgment has been rendered by any
Governmental Authority which would limit, cancel or question the validity of any
Copyright, Patent or Trademark.
(v) To the best of each Obligor's knowledge, no action or
proceeding is pending seeking to limit, cancel or question the validity of any
Copyright, Patent or Trademark, or which, if adversely determined, would have a
material adverse effect on the value of any Copyright, Patent or Trademark.
(vi) To the best of each Obligor's knowledge, all applications
pertaining to the Copyrights, Patents and Trademarks of each Obligor have been
duly and properly filed, and all registrations or letters pertaining to such
Copyrights, Patents and Trademarks have been duly and properly filed and issued,
and all of such Copyrights, Patents and Trademarks are valid and enforceable.
(vii) No Obligor has made any assignment or agreement in conflict
with the security interest of the Administrative Agent in the Copyrights,
Patents or Trademarks of each Obligor hereunder.
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5. Covenants. Each Obligor covenants that, so long as any of the
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Secured Obligations remain outstanding or any Credit Document or Hedging
Agreement is in effect or any Letter of Credit shall remain outstanding, and
until all of the Commitments shall have been terminated, such Obligor shall:
(a) Other Liens. Defend the Collateral against the claims and
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demands of all other parties claiming an interest therein other than Permitted
Liens, keep the Collateral free from all Liens, except for Permitted Liens, and
not sell, exchange, transfer, assign, lease or otherwise dispose of the
Collateral or any interest therein, except as permitted under the Credit
Agreement.
(b) Preservation of Collateral. Keep the Collateral in good
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order, condition and repair and not use the Collateral in violation of the
provisions of this Security Agreement or any other agreement relating to the
Collateral or any policy insuring the Collateral or any applicable statute, law,
bylaw, rule, regulation or ordinance.
(c) Instruments/Chattel Paper/Documents. If any amount payable
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under or in connection with any of the Collateral in an amount in excess of
$500,000 shall be or become evidenced by any Instrument or Chattel Paper, or if
any Property comprising Collateral in an amount in excess of $500,000 shall be
stored or shipped subject to a Document, immediately notify the Administrative
Agent of the existence thereof, and upon the Administrative Agent's request,
deliver such Instrument, Chattel Paper or Document to the Administrative Agent,
duly endorsed in a manner satisfactory to the Administrative Agent, to be held
as Collateral pursuant to this Security Agreement.
(d) Change in Location. Not, without providing 30 days prior
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written notice to the Administrative Agent and without filing such amendments to
any previously filed financing statements as the Administrative Agent may
require, (a) change the location of its chief executive office and chief place
of business (as well as its books and records) from the locations set forth on
Schedule 3.19(c) to the Credit Agreement, (b) change the location of its
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Collateral from the locations set forth for such Obligor on Schedule 3.16(b) to
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the Credit Agreement, or (c) change its name, be party to a merger,
consolidation or other change in structure or use any tradename other than as
disclosed on Schedule 3.19 to the Credit Agreement or in connection with mergers
or consolidations allowed pursuant to the Credit Agreement.
(e) Inspection. Upon reasonable notice, and during reasonable
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hours, at all times allow the Administrative Agent or its representatives to
visit and inspect the Collateral as set forth in Section 5.6 of the Credit
Agreement.
(f) Perfection of Security Interest. Execute and deliver to the
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Administrative Agent such agreements, assignments or instruments (including
affidavits, notices, reaffirmations and amendments and restatements of existing
documents, as the Administrative Agent may reasonably request) and do all such
other things as the Administrative Agent may reasonably deem necessary or
appropriate (i) to assure to the Administrative Agent its security interests
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hereunder, including (A) such financing statements (including renewal
statements) or amendments thereof or supplements thereto or other instruments as
the Administrative Agent may from time to time reasonably request in order to
perfect and maintain the security interests granted hereunder in accordance with
the UCC, (B) with regard to Copyrights, a Notice of Grant of Security Interest
in Copyrights for filing with the United States Patent and Trademark Office in
the form of Schedule 5(f)(i) attached hereto, (C) with regard to Patents, a
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Notice of Grant of Security Interest in Patents for filing with the United
States Patent and Trademark Office in the form of Schedule 5(f)(ii) attached
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hereto and (D) with regard to Trademarks, a Notice of Grant of Security Interest
in Trademarks for filing with the United States Patent and Trademark Office in
the form of Schedule 5(f)(iii) attached hereto, (ii) to consummate the
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transactions contemplated hereby and (iii) to otherwise protect and assure the
Administrative Agent of its rights and interests hereunder. To that end, each
Obligor agrees that the Administrative Agent may file one or more financing
statements disclosing the Administrative Agent's security interest in any or all
of the Collateral of such Obligor without, to the extent permitted by law, such
Obligor's signature thereon, and further each Obligor also hereby irrevocably
makes, constitutes and appoints the Administrative Agent, its nominee or any
other person whom the Administrative Agent may designate, as such Obligor's
attorney in fact with full power and for the limited purpose to sign in the name
of such Obligor any such financing statements, or amendments and supplements to
financing statements, renewal financing statements, notices or any similar
documents which in the Administrative Agent's reasonable discretion would be
necessary, appropriate or convenient in order to perfect and maintain perfection
of the security interests granted hereunder, such power, being coupled with an
interest, being and remaining irrevocable so long as the Credit Agreement is in
effect or any amounts payable thereunder or under any other Credit Document, any
Letter of Credit or any Hedging Agreement shall remain outstanding, and until
all of the Commitments thereunder shall have terminated. Each Obligor hereby
agrees that a carbon, photographic or other reproduction of this Security
Agreement or any such financing statement is sufficient for filing as a
financing statement by the Administrative Agent without notice thereof to such
Obligor wherever the Administrative Agent may in its sole discretion desire to
file the same. In the event for any reason the law of any jurisdiction other
than North Carolina becomes or is applicable to the Collateral of any Obligor or
any part thereof, or to any of the Secured Obligations, such Obligor agrees to
execute and deliver all such instruments and to do all such other things as the
Administrative Agent in its sole discretion reasonably deems necessary or
appropriate to preserve, protect and enforce the security interests of the
Administrative Agent under the law of such other jurisdiction (and, if an
Obligor shall fail to do so promptly upon the request of the Administrative
Agent, then the Administrative Agent may execute any and all such requested
documents on behalf of such Obligor pursuant to the power of attorney granted
hereinabove). If any Collateral is in the possession or control of an Obligor's
agents and the Administrative Agent so requests, such Obligor agrees to notify
such agents in writing of the Administrative Agent's security interest therein
and, upon the Administrative Agent's request, instruct them to hold all such
Collateral for the Lenders' account and subject to the Administrative Agent's
instructions. Each Obligor agrees to ▇▇▇▇ its books and records to reflect the
security interest of the Administrative Agent in the Collateral.
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(g) Treatment of Accounts. Upon an Event of Default, not grant or
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extend the time for payment of any Account, or compromise or settle any Account
for less than the full amount thereof, or release any person or property, in
whole or in part, from payment thereof, or allow any credit or discount thereon,
other than as normal and customary in the ordinary course of an Obligor's
business.
(h) Covenants Relating to Copyrights.
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(i) Employ the Copyright for each Work with such notice of
copyright as may be required by law to secure copyright protection.
(ii) Not do any act or knowingly omit to do any act whereby any
material Copyright may become invalidated and (A) not do any act, or knowingly
omit to do any act, whereby any material Copyright may become injected into the
public domain; (B) notify the Administrative Agent immediately if it knows, or
has reason to know, that any material Copyright may become injected into the
public domain or of any adverse determination or development (including, without
limitation, the institution of, or any such determination or development in, any
court or tribunal in the United States or any other country) regarding an
Obligor's ownership of any such Copyright or its validity; (C) take all
necessary steps as it shall deem appropriate under the circumstances, to
maintain and pursue each application (and to obtain the relevant registration)
and to maintain each registration of each material Copyright owned by an Obligor
including, without limitation, filing of applications for renewal where
necessary; and (D) promptly notify the Administrative Agent of any material
infringement of any material Copyright of an Obligor of which it becomes aware
and take such actions as it shall reasonably deem appropriate under the
circumstances to protect such Copyright, including, where appropriate, the
bringing of suit for infringement, seeking injunctive relief and seeking to
recover any and all damages for such infringement.
(iii) Not make any assignment or agreement in conflict with the
security interest in the Copyrights of each Obligor hereunder.
(i) Covenants Relating to Patents and Trademarks.
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(i) (A) Continue to use each material Trademark on each and every
trademark class of goods applicable to its current line as reflected in its
current catalogs, brochures and price lists in order to maintain such Trademark
in full force free from any claim of abandonment for non-use, (B) maintain as in
the past the quality of products and services offered under such material
Trademark, (C) employ such material Trademark with the appropriate notice of
registration, (D) not adopt or use any ▇▇▇▇ which is confusingly similar or a
colorable imitation of such Trademark unless the Administrative Agent, for the
ratable benefit of the Lenders, shall obtain a perfected security interest in
such ▇▇▇▇ pursuant to this Security Agreement, and (E)
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not (and not permit any licensee or sublicensee thereof to) do any act or
knowingly omit to do any act whereby any material Trademark may become
invalidated.
(ii) Not do any act, or omit to do any act, whereby any Patent may
become abandoned or dedicated.
(iii) Notify the Administrative Agent and the Lenders immediately
if it knows, or has reason to know, that any application or registration
relating to any material Patent or material Trademark may become abandoned or
dedicated, or of any adverse determination or development (including, without
limitation, the institution of, or any such determination or development in, any
proceeding in the United States Patent and Trademark Office or any court or
tribunal in any country) regarding an Obligor's ownership of any material Patent
or material Trademark or its right to register the same or to keep and maintain
the same.
(iv) Whenever an Obligor, either by itself or through an agent,
employee, licensee or designee, shall file an application for the registration
of any Patent or Trademark with the United States Patent and Trademark Office,
an Obligor shall report such filing to the Administrative Agent and the Lenders
within 45 days after the last day of the fiscal quarter in which such filing
occurs. Upon request of the Administrative Agent, an Obligor shall execute and
deliver any and all agreements, instruments, documents and papers as the
Administrative Agent may request to evidence the Administrative Agent's and the
Lenders' security interest in any Patent or Trademark and the goodwill and
general intangibles of an Obligor relating thereto or represented thereby.
(v) Take all reasonable and necessary steps, including, without
limitation, in any proceeding before the United States Patent and Trademark
Office, to maintain and pursue each application (and to obtain the relevant
registration) and to maintain each registration of all material Patents and
material Trademarks, including, without limitation, filing of applications for
renewal, affidavits of use and affidavits of incontestability.
(vi) Promptly notify the Administrative Agent and the Lenders
after it learns that any material Patent or material Trademark included in the
Collateral is infringed, misappropriated or diluted by a third party and
promptly take such actions as it shall reasonably deem appropriate under the
circumstances to protect such Patent or Trademark.
(vii) Not make any assignment or agreement in conflict with the
security interest in the Patents or Trademarks of each Obligor hereunder.
(j) New Patents, Copyrights and Trademarks. Provided the
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Administrative Agent within 45 days after the last day of the fiscal quarter in
which such filing occurs with (i) a listing of all applications filed with any
United States filing office, if any, for new Copyrights, Patents
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or Trademarks (together with a listing of the issuance of registrations or
letters on present applications), which new applications and issued
registrations or letters shall be subject to the terms and conditions hereunder,
and (ii) (A) with respect to Copyrights, a duly executed Notice of Security
Interest in Copyrights, (B) with respect to Patents, a duly executed Notice of
Security Interest in Patents, (C) with respect to Trademarks, a duly executed
Notice of Security Interest in Trademarks or (D) such other duly executed
documents as the Administrative Agent may request in a form acceptable to
counsel for the Administrative Agent and suitable for recording to evidence the
security interest in the Copyright, Patent or Trademark which is the subject of
such new application.
(k) Insurance. Insure, repair and replace the Collateral of such
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Obligor as set forth in the Credit Agreement. All insurance proceeds shall be
subject to the security interest of the Administrative Agent hereunder.
6. Advances by Lenders. On failure of any Obligor to perform any of
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the covenants and agreements contained herein, the Administrative Agent may, at
its sole option and in its sole discretion, perform the same and in so doing may
expend such sums as the Administrative Agent may reasonably deem advisable in
the performance thereof, including, without limitation, the payment of any
insurance premiums, the payment of any taxes, a payment to obtain a release of a
Lien or potential Lien, expenditures made in defending against any adverse claim
and all other expenditures which the Administrative Agent or the Lenders may
make for the protection of the security hereof or may be compelled to make by
operation of law. All such sums and amounts so expended shall be repayable by
the Obligors on a joint and several basis promptly upon timely notice thereof
and demand therefor, shall constitute additional Secured Obligations and shall
bear interest from the date said amounts are expended at the default rate
specified in Section 2.7 of the Credit Agreement. No such performance of any
covenant or agreement by the Administrative Agent or the Lenders on behalf of
any Obligor, and no such advance or expenditure therefor, shall relieve the
Obligors of any default under the terms of this Security Agreement, the other
Credit Documents or any Hedging Agreement. The Lenders may make any payment
hereby authorized in accordance with any ▇▇▇▇, statement or estimate procured
from the appropriate public office or holder of the claim to be discharged
without inquiry into the accuracy of such ▇▇▇▇, statement or estimate or into
the validity of any tax assessment, sale, forfeiture, tax lien, title or claim
except to the extent such payment is being contested in good faith by an Obligor
in appropriate proceedings and against which adequate reserves are being
maintained in accordance with GAAP.
7. Events of Default.
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The occurrence of an event which under the Credit Agreement would
constitute an Event of Default shall be an Event of Default hereunder (an "Event
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of Default").
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8. Remedies.
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(a) General Remedies. Upon the occurrence of an Event of Default and
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during continuation thereof, the Lenders shall have, in addition to the rights
and remedies provided herein, in the Credit Documents, in the Hedging Agreements
or by law (including, but not limited to, the rights and remedies set forth in
the Uniform Commercial Code of the jurisdiction applicable to the affected
Collateral), the rights and remedies of a secured party under the UCC
(regardless of whether the UCC is the law of the jurisdiction where the rights
and remedies are asserted and regardless of whether the UCC applies to the
affected Collateral), and further, the Administrative Agent may, with or without
judicial process or the aid and assistance of others, (i) enter on any premises
on which any of the Collateral may be located and, without resistance or
interference by the Obligors, take possession of the Collateral, (ii) dispose of
any Collateral on any such premises, (iii) require the Obligors to assemble and
make available to the Administrative Agent at the expense of the Obligors any
Collateral at any place and time designated by the Administrative Agent which is
reasonably convenient to both parties, (iv) remove any Collateral from any such
premises for the purpose of effecting sale or other disposition thereof, and/or
(v) without demand and without advertisement, notice, hearing or process of law,
all of which each of the Obligors hereby waives to the fullest extent permitted
by law, at any place and time or times, sell and deliver any and all Collateral
held by or for it at public or private sale, by one or more contracts, in one or
more parcels, for cash, upon credit or otherwise, at such prices and upon such
terms as the Administrative Agent deems advisable, in its sole discretion
(subject to any and all mandatory legal requirements). In addition to all other
sums due the Administrative Agent and the Lenders with respect to the Secured
Obligations, the Obligors shall pay the Administrative Agent and each of the
Lenders all reasonable documented costs and expenses incurred by the
Administrative Agent or any such Lender, including, but not limited to,
reasonable attorneys' fees and court costs, in obtaining or liquidating the
Collateral, in enforcing payment of the Secured Obligations, or in the
prosecution or defense of any action or proceeding by or against the
Administrative Agent or the Lenders or the Obligors concerning any matter
arising out of or connected with this Security Agreement, any Collateral or the
Secured Obligations, including, without limitation, any of the foregoing arising
in, arising under or related to a case under the Bankruptcy Code. To the extent
the rights of notice cannot be legally waived hereunder, each Obligor agrees
that any requirement of reasonable notice shall be met if such notice is
personally served on or mailed, postage prepaid, to the Borrowers in accordance
with the notice provisions of Section 9.2 of the Credit Agreement at least 10
days before the time of sale or other event giving rise to the requirement of
such notice. The Administrative Agent and the Lenders shall not be obligated to
make any sale or other disposition of the Collateral regardless of notice having
been given. To the extent permitted by law, any Lender may be a purchaser at
any such sale. To the extent permitted by applicable law, each of the Obligors
hereby waives all of its rights of redemption with respect to any such sale.
Subject to the provisions of applicable law, the Administrative Agent and the
Lenders may postpone or cause the postponement of the sale of all or any portion
of the Collateral by announcement at the time and place of such sale, and such
sale may, without further notice, to the extent permitted by law, be made at the
time and place to which the sale was postponed, or the Administrative Agent and
the Lenders may further postpone such sale by announcement made at such time and
place.
12
(b) Remedies relating to Accounts. Upon the occurrence of an
--------------------------------
Event of Default and during the continuation thereof, whether or not the
Administrative Agent has exercised any or all of its rights and remedies
hereunder, each Obligor will promptly upon request of the Administrative Agent
instruct all account debtors to remit all payments in respect of Accounts to a
mailing location selected by the Administrative Agent. In addition, the
Administrative Agent or its designee may notify any Obligor's customers and
account debtors that the Accounts of such Obligor have been assigned to the
Administrative Agent or of the Administrative Agent's security interest therein,
and may (either in its own name or in the name of an Obligor or both) demand,
collect (including, without limitation, by way of a lockbox arrangement),
receive, take receipt for, sell, ▇▇▇ for, compound, settle, compromise and give
acquittance for any and all amounts due or to become due on any Account, and, in
the Administrative Agent's discretion, file any claim or take any other action
or proceeding to protect and realize upon the security interest of the Lenders
in the Accounts. Each Obligor acknowledges and agrees that the Proceeds of its
Accounts remitted to or on behalf of the Administrative Agent in accordance with
the provisions hereof shall be solely for the Administrative Agent's own
convenience and that such Obligor shall not have any right, title or interest in
such Proceeds or in any such other amounts except as expressly provided herein.
The Administrative Agent and the Lenders shall have no liability or
responsibility to any Obligor for acceptance of a check, draft or other order
for payment of money bearing the legend "payment in full" or words of similar
import or any other restrictive legend or endorsement or be responsible for
determining the correctness of any remittance. Each Obligor hereby agrees to
indemnify the Administrative Agent and the Lenders from and against all
liabilities, damages, losses, actions, claims, judgments, costs, expenses,
charges and reasonable attorneys' fees suffered or incurred by the
Administrative Agent or the Lenders (each, an "Indemnified Party") because of
-----------------
the maintenance of the foregoing arrangements except as relating to or arising
out of the gross negligence or willful misconduct of an Indemnified Party or its
officers, employees or agents. In the case of any investigation, litigation or
other proceeding, the foregoing indemnity shall be effective whether or not such
investigation, litigation or proceeding is brought by an Obligor, its directors,
shareholders or creditors or an Indemnified Party or any other Person or any
other Indemnified Party is otherwise a party thereto.
(c) Access. In addition to the rights and remedies hereunder,
------
upon the occurrence of an Event of Default and during the continuation thereof,
the Administrative Agent shall have the right to enter and remain upon the
various premises of the Obligors without cost or charge to the Administrative
Agent, and use the same, together with materials, supplies, books and records of
the Obligors for the purpose of collecting and liquidating the Collateral, or
for preparing for sale and conducting the sale of the Collateral, whether by
foreclosure, auction or otherwise. In addition, the Administrative Agent may
remove Collateral, or any part thereof, from such premises and/or any records
with respect thereto, in order to effectively collect or liquidate such
Collateral.
(d) Nonexclusive Nature of Remedies. Failure by the
----------------------------------
Administrative Agent or the Lenders to exercise any right, remedy or option
under this Security Agreement, any other
13
Credit Document, any Hedging Agreement or as provided by law, or any delay by
the Administrative Agent or the Lenders in exercising the same, shall not
operate as a waiver of any such right, remedy or option. No waiver hereunder
shall be effective unless it is in writing, signed by the party against whom
such waiver is sought to be enforced and then only to the extent specifically
stated, which in the case of the Administrative Agent or the Lenders shall only
be granted as provided herein. To the extent permitted by law, neither the
Administrative Agent, the Lenders, nor any party acting as attorney for the
Administrative Agent or the Lenders, shall be liable hereunder for any acts or
omissions or for any error of judgment or mistake of fact or law other than
their gross negligence or willful misconduct hereunder. The rights and remedies
of the Administrative Agents and the Lenders under this Security Agreement shall
be cumulative and not exclusive of any other right or remedy which the
Administrative Agent or the Lenders may have.
(e) Retention of Collateral. The Administrative Agent may, after
------------------------
providing the notices required by Section 9-505(2) of the UCC or otherwise
complying with the requirements of applicable law of the relevant jurisdiction,
to the extent the Administrative Agent is in possession of any of the
Collateral, retain the Collateral in satisfaction of the Secured Obligations.
Unless and until the Administrative Agent shall have provided such notices,
however, the Administrative Agent shall not be deemed to have retained any
Collateral in satisfaction of any Secured Obligations for any reason.
(f) Deficiency. Subject to applicable law, in the event that the
----------
proceeds of any sale, collection or realization are insufficient to pay all
amounts to which the Administrative Agent or the Lenders are legally entitled,
the Obligors shall be jointly and severally liable for the deficiency, together
with interest thereon at the default rate specified in Section 2.7 of the Credit
Agreement, together with the costs of collection and the reasonable fees of any
attorneys employed by the Administrative Agent to collect such deficiency. Any
surplus remaining after the full payment and satisfaction of the Secured
Obligations shall be returned to the Obligors or to whomsoever a court of
competent jurisdiction shall determine to be entitled thereto.
9. Rights of the Administrative Agent.
--------------------------------------
(a) Power of Attorney. In addition to other powers of attorney
-------------------
contained herein, each Obligor hereby designates and appoints the Administrative
Agent, on behalf of the Lenders, and each of its designees or agents, as
attorney-in-fact of such Obligor, irrevocably and with power of substitution,
with authority to take any or all of the following actions upon the occurrence
and during the continuation of an Event of Default:
(i) to demand, collect, settle, compromise, adjust, give
discharges and releases, all as the Administrative Agent may reasonably
determine;
(ii) to commence and prosecute any actions at any court for the
purposes of collecting any Collateral and enforcing any other right in respect
thereof;
14
(iii) to defend, settle or compromise any action brought and, in
connection therewith, give such discharge or release as the Administrative Agent
may deem reasonably appropriate;
(iv) to receive, open and dispose of mail addressed to an Obligor
and endorse checks, notes, drafts, acceptances, money orders, bills of lading,
warehouse receipts or other instruments or documents evidencing payment,
shipment or storage of the goods giving rise to the Collateral of such Obligor
on behalf of and in the name of such Obligor, or securing, or relating to such
Collateral;
(v) to sell, assign, transfer, make any agreement in respect of,
or otherwise deal with or exercise rights in respect of, any Collateral or the
goods or services which have given rise thereto, as fully and completely as
though the Administrative Agent were the absolute owner thereof for all
purposes;
(vi) to adjust and settle claims under any insurance policy
relating thereto;
(vii) to execute and deliver all assignments, conveyances,
statements, financing statements, renewal financing statements, security
agreements, affidavits, notices and other agreements, instruments and documents
that the Administrative Agent may determine necessary in order to perfect and
maintain the security interests and liens granted in this Security Agreement and
in order to fully consummate all of the transactions contemplated therein;
(viii) to institute any foreclosure proceedings that the
Administrative Agent may deem appropriate; and
(ix) to do and perform all such other acts and things as the
Administrative Agent may reasonably deem to be necessary, proper or convenient
in connection with the Collateral.
This power of attorney is a power coupled with an interest and shall be
irrevocable (i) for so long as any of the Secured Obligations remain
outstanding, any Credit Document or any Hedging Agreement is in effect or any
Letter of Credit shall remain outstanding and (ii) until all of the Commitments
shall have been terminated. The Administrative Agent shall be under no duty to
exercise or withhold the exercise of any of the rights, powers, privileges and
options expressly or implicitly granted to the Administrative Agent in this
Security Agreement, and shall not be liable for any failure to do so or any
delay in doing so. The Administrative Agent shall not be liable for any act or
omission or for any error of judgment or any mistake of fact or law in its
individual capacity or its capacity as attorney-in-fact except acts or omissions
resulting from its gross negligence or willful misconduct. This power of
attorney is conferred
15
on the Administrative Agent solely to protect, preserve and realize upon its
security interest in the Collateral.
(b) Performance by the Administrative Agent of Obligations. If
---------------------------------------------------------
any Obligor fails to perform any agreement or obligation contained herein, the
Administrative Agent itself may perform, or cause performance of, such agreement
or obligation, and the expenses of the Administrative Agent incurred in
connection therewith shall be payable by the Obligors on a joint and several
basis pursuant to Section 11 hereof.
(c) Assignment by the Administrative Agent. The Administrative
-----------------------------------------
Agent may from time to time assign the Secured Obligations and any portion
thereof and/or the Collateral and any portion thereof, and the assignee shall be
entitled to all of the rights and remedies of the Administrative Agent under
this Security Agreement in relation thereto.
(d) The Administrative Agent's Duty of Care. Other than the
--------------------------------------------
exercise of reasonable care to assure the safe custody of the Collateral while
being held by the Administrative Agent hereunder, the Administrative Agent shall
have no duty or liability to preserve rights pertaining thereto, it being
understood and agreed that the Obligors shall be responsible for preservation of
all rights in the Collateral, and the Administrative Agent shall be relieved of
all responsibility for the Collateral upon surrendering it or tendering the
surrender of it to the Obligors. The Administrative Agent shall be deemed to
have exercised reasonable care in the custody and preservation of the Collateral
in its possession if the Collateral is accorded treatment substantially equal to
that which the Administrative Agent accords its own property, which shall be no
less than the treatment employed by a reasonable and prudent agent in the
industry, it being understood that the Administrative Agent shall not have
responsibility for taking any necessary steps to preserve rights against any
parties with respect to any of the Collateral.
10. Application of Proceeds. Upon the occurrence and during the
-------------------------
continuation of an Event of Default, any payments in respect of the Secured
Obligations and any proceeds of the Collateral, when received by the
Administrative Agent or any of the Lenders in cash or its equivalent, will be
applied in reduction of the Secured Obligations as the Agent reasonably
determines, and each Obligor irrevocably waives the right to direct the
application of such payments and proceeds and acknowledges and agrees that the
Administrative Agent shall have the continuing and exclusive right to apply and
reapply any and all such payments and proceeds in the Administrative Agent's
sole discretion, notwithstanding any entry to the contrary upon any of its books
and records.
11. Costs of Counsel. If at any time hereafter, whether upon the
------------------
occurrence of an Event of Default or not, the Administrative Agent employs
counsel to prepare or consider amendments, waivers or consents with respect to
this Security Agreement, or to take action or make a response in or with respect
to any legal or arbitral proceeding relating to this Security Agreement or
relating to the Collateral, or to protect the Collateral or exercise any rights
or remedies under this Security Agreement or with respect to the Collateral,
then the Obligors agree to promptly pay upon demand any and all such reasonable
documented costs and expenses of the Administrative Agent or the Lenders, all of
which costs and expenses shall constitute Secured Obligations hereunder.
16
12. Continuing Agreement.
---------------------
(a) This Security Agreement shall be a continuing agreement in
every respect and shall remain in full force and effect so long as any of the
Secured Obligations remain outstanding or any Credit Document or Hedging
Agreement is in effect or any Letter of Credit shall remain outstanding, and
until all of the Commitments thereunder shall have terminated (other than any
obligations with respect to the indemnities and the representations and
warranties set forth in the Credit Documents). Upon such payment and
termination, this Security Agreement shall be automatically terminated and the
Administrative Agent and the Lenders shall, upon the request and at the expense
of the Obligors, forthwith release all of its liens and security interests
hereunder and shall execute and deliver all UCC termination statements and/or
other documents reasonably requested by the Obligors evidencing such
termination. Notwithstanding the foregoing all releases and indemnities
provided hereunder shall survive termination of this Security Agreement.
(b) This Security Agreement shall continue to be effective or be
automatically reinstated, as the case may be, if at any time payment, in whole
or in part, of any of the Secured Obligations is rescinded or must otherwise be
restored or returned by the Administrative Agent or any Lender as a preference,
fraudulent conveyance or otherwise under any bankruptcy, insolvency or similar
law, all as though such payment had not been made; provided that in the event
--------
payment of all or any part of the Secured Obligations is rescinded or must be
restored or returned, all reasonable costs and expenses (including without
limitation any reasonable legal fees and disbursements) incurred by the
Administrative Agent or any Lender in defending and enforcing such reinstatement
shall be deemed to be included as a part of the Secured Obligations.
13. Amendments; Waivers; Modifications. This Security Agreement and
------------------------------------
the provisions hereof may not be amended, waived, modified, changed, discharged
or terminated except as set forth in Section 9.1 of the Credit Agreement.
14. Successors in Interest. This Security Agreement shall create a
------------------------
continuing security interest in the Collateral and shall be binding upon each
Obligor, its successors and assigns and shall inure, together with the rights
and remedies of the Administrative Agent and the Lenders hereunder, to the
benefit of the Administrative Agent and the Lenders and their successors and
permitted assigns; provided, however, that none of the Obligors may assign its
-------- -------
rights or delegate its duties hereunder without the prior written consent of
each Lender or the Required Lenders, as required by the Credit Agreement. To
the fullest extent permitted by law, each Obligor hereby releases the
Administrative Agent and each Lender, and its successors and assigns, from any
liability for any act or omission relating to this Security Agreement or the
Collateral, except for any liability arising from the gross negligence or
willful misconduct of the Administrative Agent, or such Lender, or its officers,
employees or agents.
15. Notices. All notices required or permitted to be given under this
-------
Security Agreement shall be in conformance with Section 9.2 of the Credit
Agreement.
17
16. Counterparts. This Security Agreement may be executed in any
------------
number of counterparts, each of which where so executed and delivered shall be
an original, but all of which shall constitute one and the same instrument. It
shall not be necessary in making proof of this Security Agreement to produce or
account for more than one such counterpart.
17. Headings. The headings of the sections and subsections hereof are
--------
provided for convenience only and shall not in any way affect the meaning or
construction of any provision of this Security Agreement.
18. Governing Law; Submission to Jurisdiction; Venue.
-----------------------------------------------------
(a) THIS SECURITY AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE
PARTIES HEREUNDER SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NORTH CAROLINA. Any legal action or
proceeding with respect to this Security Agreement may be brought in the courts
of the State of North Carolina, or of the United States for the Western District
of North Carolina, and, by execution and delivery of this Security Agreement,
each Obligor hereby irrevocably accepts for itself and in respect of its
property, generally and unconditionally, the jurisdiction of such courts. Each
Obligor further irrevocably consents to the service of process out of any of the
aforementioned courts in any such action or proceeding by the mailing of copies
thereof by registered or certified mail, postage prepaid, to it at the address
for notices pursuant to Section 9.2 of the Credit Agreement, such service to
become effective 30 days after such mailing. Nothing herein shall affect the
right of the Administrative Agent to serve process in any other manner permitted
by law or to commence legal proceedings or to otherwise proceed against any
Obligor in any other jurisdiction.
(b) Each Obligor hereby irrevocably waives any objection which it
may now or hereafter have to the laying of venue of any of the aforesaid actions
or proceedings arising out of or in connection with this Security Agreement
brought in the courts referred to in subsection (a) hereof and hereby further
irrevocably waives and agrees not to plead or claim in any such court that any
such action or proceeding brought in any such court has been brought in an
inconvenient forum.
19. Waiver of Jury Trial. TO THE EXTENT PERMITTED BY APPLICABLE LAW,
----------------------
EACH OF THE PARTIES TO THIS SECURITY AGREEMENT HEREBY IRREVOCABLY WAIVES ALL
RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF
OR RELATING TO THIS SECURITY AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
20. Severability. If any provision of any of the Security Agreement is
------------
determined to be illegal, invalid or unenforceable, such provision shall be
fully severable and the remaining provisions
18
shall remain in full force and effect and shall be construed without giving
effect to the illegal, invalid or unenforceable provisions.
21. Entirety. This Security Agreement, the other Credit Documents and
--------
the Hedging Agreements represent the entire agreement of the parties hereto and
thereto, and supersede all prior agreements and understandings, oral or written,
if any, including any commitment letters or correspondence relating to the
Credit Documents, the Hedging Agreements or the transactions contemplated herein
and therein.
22. Survival. All representations and warranties of the Obligors
--------
hereunder shall survive the execution and delivery of this Security Agreement,
the other Credit Documents and the Hedging Agreements, the delivery of the Notes
and the making of the Loans and the issuance of the Letters of Credit under the
Credit Agreement.
23. Other Security. To the extent that any of the Secured Obligations
---------------
are now or hereafter secured by property other than the Collateral (including,
without limitation, real property and securities owned by an Obligor), or by a
guarantee, endorsement or property of any other Person, then the Administrative
Agent and the Lenders shall have the right to proceed against such other
property, guarantee or endorsement upon the occurrence of any Event of Default,
and the Administrative Agent and the Lenders have the right, in their sole
discretion, to determine which rights, security, liens, security interests or
remedies the Administrative Agent and the Lenders shall at any time pursue,
relinquish, subordinate, modify or take with respect thereto, without in any way
modifying or affecting any of them or any of the Administrative Agent's and the
Lenders' rights or the Secured Obligations under this Security Agreement, under
any other of the Credit Documents or under any Hedging Agreement.
24. Joint and Several Obligations of Obligors.
----------------------------------------------
(a) Each of the Obligors is accepting joint and several liability
hereunder in consideration of the financial accommodation to be provided by the
Lenders under the Credit Agreement, for the mutual benefit, directly and
indirectly, of each of the Obligors and in consideration of the undertakings of
each of the Obligors to accept joint and several liability for the obligations
of each of them.
(b) Each of the Obligors jointly and severally hereby irrevocably
and unconditionally accepts, not merely as a surety but also as a co-debtor,
joint and several liability with the other Obligors with respect to the payment
and performance of all of the Secured Obligations arising under this Security
Agreement, the other Credit Documents and the Hedging Agreements, it being the
intention of the parties hereto that all the Obligations shall be the joint and
several obligations of each of the Obligors without preferences or distinction
among them.
(c) Notwithstanding any provision to the contrary contained herein
or in any other of the Credit Documents, to the extent the obligations of a
Guarantor shall be adjudicated to be invalid or unenforceable for any reason
(including, without limitation,
19
because of any applicable state or federal law relating to fraudulent
conveyances or transfers) then the obligations of each Guarantor hereunder shall
be limited to the maximum amount that is permissible under applicable law
(whether federal or state and including, without limitation, the Bankruptcy
Code).
25. Rights of Required Lenders. All rights of the Administrative Agent
--------------------------
hereunder, if not exercised by the Administrative Agent, may be exercised by the
Required Lenders.
[remainder of page intentionally left blank]
20
Each of the parties hereto has caused a counterpart of this Security
Agreement to be duly executed and delivered as of the date first above written.
U.S. BORROWERS: RACING CHAMPIONS, INC.,
---------------
an Illinois corporation
By:/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
--------------------------
Name:▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
---------------------
Title:Executive Vice President
--------------------------
RACING CHAMPIONS SOUTH, INC.,
a North Carolina corporation
By:/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
--------------------------
Name:▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
---------------------
Title:Executive Vice President
--------------------------
U.K. BORROWER: RACING CHAMPIONS WORLDWIDE
--------------
LIMITED,
a United Kingdom corporation
By:/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
--------------------------
Name:▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
---------------------
Title:Director
--------
21
GUARANTORS: RACING CHAMPIONS CORPORATION,
----------
a Delaware corporation
GREEN'S RACING SOUVENIRS, INC.,
a Virginia corporation
RCNA HOLDINGS, INC.,
a Delaware corporation
THE ERTL COMPANY, INC.,
a Delaware corporation
ERTL DIRECT, INC.,
a Delaware corporation
By:/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
--------------------------
Name:▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
---------------------
Title:Executive Vice President
--------------------------
22
AGENT: FIRST UNION NATIONAL BANK,
------
as Administrative Agent and as a Lender
By:/s/ ▇▇▇▇ ▇▇▇▇▇
----------------
Name:▇▇▇▇ ▇▇▇▇▇
-----------
Title:
23