EXHIBIT 15(C)
SECURITY AGREEMENT
(BORROWERS)
This SECURITY AGREEMENT ("Agreement"), dated as of October 12, 2001, is
made by JAKKS PACIFIC, INC., a Delaware corporation, FLYING COLORS TOYS, INC., a
Michigan corporation, ROAD CHAMPS, INC., a Delaware corporation, and PENTECH
INTERNATIONAL INC., a Delaware corporation (each a "Grantor" and collectively,
"Grantors"), jointly and severally, in favor of BANK OF AMERICA, N.A., as
Administrative Agent under the Loan Agreement hereafter referred to, the Lenders
therein named and in favor of each of the Lenders which may hereafter become a
party thereto, collectively as Secured Party, with reference to the following
facts:
RECITALS
A. Grantors have entered into a Loan Agreement of even date herewith
among Grantors, the Lenders referred to therein, and Bank of America, N.A., as
Administrative Agent (as it may from time to time be amended, restated,
extended, renewed, modified or supplemented, the "Loan Agreement"). This
Agreement is the Borrower Security Agreement referred to in the Loan Agreement
and is one of the "Loan Documents" referred to in the Loan Agreement.
B. Pursuant to the Loan Documents of even date the Lenders are making
certain credit facilities available to Grantors.
C. As a condition of the availability of such credit facilities,
Grantors are required to enter into this Agreement to grant security interests
to Secured Party as herein provided.
AGREEMENT
NOW, THEREFORE, in order to induce Secured Party to extend the
aforementioned credit facilities, and for other good and valuable consideration,
the receipt and adequacy of which hereby is acknowledged, Grantors hereby
jointly and severally represent, warrant, covenant, agree, assign and grant as
follows:
1. Definitions. Terms defined in the Loan Agreement and not otherwise
defined in this Agreement shall have the meanings defined for those terms in the
Loan Agreement. Terms defined in the California Uniform Commercial Code (as
amended from time to time) and not otherwise defined in this Agreement or in the
Loan Agreement shall have the meanings defined for those terms in the Uniform
Commercial Code, as enacted in the State of California. In addition, as used in
this Agreement, the following terms shall have the meanings respectively set
forth after each:
"Agreement" means this Security Agreement, and any extensions,
modifications, renewals, restatements, supplements or amendments hereof.
"Collateral" means and includes all present and future right,
title and interest of Grantors, or any of them, in or to any personal
property whatsoever, and all rights and powers of Grantors, or any of
them, to transfer any interest in or to any personal property
whatsoever, including, without limitation, any and all of the following
personal property:
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(a) All present and future accounts, accounts receivable, agreements,
contracts, leases, contract rights, payment intangibles, rights to payment,
instruments, documents, chattel paper (whether tangible or electronic), security
agreements, guaranties, letters of credit, letter-of-credit rights,
undertakings, surety bonds, insurance policies, notes and drafts, and all forms
of obligations owing to Grantors, or any of them, or in which Grantors, or any
of them, may have any interest, however created or arising;
(b) All present and future general intangibles, all tax refunds of every
kind and nature to which Grantors, or any of them, now or hereafter may become
entitled, however arising, all other refunds, and all deposits, goodwill, choses
in action, trade secrets, computer programs, software, customer lists,
trademarks, trade names, service marks, patents, licenses, copyrights,
technology, processes, proprietary information and insurance proceeds;
(c) All present and future deposit accounts of Grantors, or any of them,
including, without limitation, any demand, time, savings, passbook or like
account maintained by Grantors, or any of them, with any bank, savings and loan
association, credit union or like organization, and all money, Cash and Cash
Equivalents of Grantors, or any of them, whether or not deposited in any such
deposit account;
(d) All present and future books and records, including, without
limitation, books of account and ledgers of every kind and nature, all
electronically recorded data relating to Grantors, or their businesses, all
receptacles and containers for such records, and all files and correspondence;
(e) All present and future goods, including, without limitation, all
consumer goods, farm products, inventory, equipment, machinery, tools, molds,
dies, furniture, furnishings, trade fixtures, fixtures, motor vehicles and all
other goods used in connection with or in the conduct of Grantors' or any of
their businesses;
(f) All present and future inventory and merchandise, including, without
limitation, all present and future goods held for sale or lease or to be
furnished under a contract of service, all raw materials, work in process and
finished goods, all packing materials, supplies and containers relating to or
used in connection with any of the foregoing, and all bills of lading, warehouse
receipts or documents of title relating to any of the foregoing;
(g) All present and future investment property, stocks, bonds,
debentures, securities (whether certificated or uncertificated), subscription
rights, options, warrants, puts, calls, certificates, partnership interests,
limited liability company memberships or other interests, joint venture
interests, Investments and/or brokerage accounts and all rights, preferences,
privileges, dividends, distributions, redemption payments, or liquidation
payments with respect thereto;
(h) All present and future accessions, appurtenances, components,
repairs, repair parts, spare parts, replacements, substitutions, additions,
issue and/or improvements to or of or with respect to any of the foregoing;
(i) All other tangible and intangible personal property of Grantors, or
any of them;
(j) All rights, remedies, powers and/or privileges of Grantors, or any
of them, with respect to any of the foregoing; and
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(k) Any and all proceeds and products of any of the foregoing,
including, without limitation, all money, accounts, payment intangibles, general
intangibles, deposit accounts, promissory notes, documents, instruments,
certificates of deposit, chattel paper, goods, insurance proceeds, and any other
tangible or intangible property received upon the sale or disposition of any of
the foregoing.
"Secured Obligations" means any and all present and future
Obligations of any type or nature of Grantors, or any one or more of
them, arising under or relating to the Loan Documents or any one or more
of them, whether due or to become due, matured or unmatured, liquidated
or unliquidated, or contingent or noncontingent, including Obligations
of performance as well as Obligations of payment, and including interest
that accrues after the commencement of any bankruptcy or insolvency
proceeding by or against any Grantor.
"Secured Party" means the Administrative Agent under the Loan
Agreement, the Lenders therein named and each of the Lenders which may
hereafter become a party thereto. All rights of the Secured Party under
this Agreement shall be exercised by the Administrative Agent, acting
with the consent of those Lenders required by the Loan Agreement.
2. Further Assurances. At any time and from time to time at the request
of Secured Party, Grantors, and each of them, shall execute and deliver to
Secured Party all such financing statements and other instruments and documents
in form and substance satisfactory to Secured Party as shall be necessary or
desirable to fully perfect, when filed and/or recorded, Secured Party's security
interests granted pursuant to Section 3 of this Agreement. At any time and from
time to time, Secured Party shall be entitled to file and/or record any or all
such financing statements, instruments and documents held by it, and any or all
such further financing statements, documents and instruments, and to take all
such other actions, as Secured Party may deem appropriate to perfect and to
maintain perfected the security interests granted in Section 3 of this
Agreement. Before and after the occurrence of any Event of Default, at Secured
Party's request, Grantors, and each of them, shall execute all such further
financing statements, instruments and documents, and shall do all such further
acts and things, as may be deemed necessary or desirable by Secured Party to
create and perfect, and to continue and preserve, an indefeasible security
interest in the Collateral in favor of Secured Party, or the priority thereof.
With respect to any Collateral consisting of certificated securities,
instruments, documents, certificates of title or the like, as to which Secured
Party's security interest need be perfected by, or the priority thereof need be
assured by, possession or control of such Collateral, Grantors, and each of
them, will upon demand of Secured Party deliver possession or control, as
applicable, of same in pledge to Secured Party. With respect to any Collateral
consisting of securities, instruments, partnership or joint venture interests,
limited liability company memberships or the like, Grantors hereby jointly and
severally consent and agree that the issuers of, or obligors on, any such
Collateral, or any registrar or transfer agent or trustee for any such
Collateral, shall be entitled to accept the provisions of this Agreement as
conclusive evidence of the right of Secured Party to effect any transfer or
exercise any right hereunder or with respect to any such Collateral,
notwithstanding any other notice or direction to the contrary heretofore or
hereafter given by Grantors, or any of them, or any other Person to such issuers
or such obligors or to any such registrar or transfer agent or trustee.
3. Security Agreement. For valuable consideration, Grantors hereby
jointly and severally assign and pledge to Secured Party, and grant to Secured
Party a security interest in, all
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presently existing and hereafter acquired Collateral, as security for the timely
payment and performance of the Secured Obligations, and each of them. This
Agreement is a continuing and irrevocable agreement and all the rights, powers,
privileges and remedies hereunder shall apply to any and all Secured
Obligations, including those arising under successive transactions which shall
either continue the Secured Obligations, increase or decrease them, or from time
to time create new Secured Obligations after all or any prior Secured
Obligations have been satisfied, and notwithstanding the bankruptcy of any
Grantor or any other Person or any other event or proceeding affecting any
Person.
4. Grantors' Representations, Warranties and Agreements. Except as
otherwise disclosed to Secured Party in writing concurrently herewith, Grantors
jointly and severally represent, warrant and agree that: (a) Grantors will pay,
prior to delinquency, all taxes, charges, Liens and assessments against the
Collateral, except such as are expressly permitted by the Loan Agreement or are
timely contested in good faith, and upon its failure to pay or so contest such
taxes, charges, Liens and assessments, Secured Party at its option may pay any
of them, and Secured Party shall be the sole judge of the legality or validity
thereof and the amount necessary to discharge the same; (b) the Collateral will
not be knowingly used for any unlawful purpose or in material violation of any
Law, regulation or ordinance, nor used in any way that will void or impair any
insurance required to be carried in connection therewith; (c) Grantors will, to
the extent consistent with good business practice, keep the Collateral in
reasonably good repair, working order and condition, and from time to time make
all needful and proper repairs, renewals, replacements, additions and
improvements thereto and, as appropriate and applicable, will otherwise deal
with the Collateral in all such ways as are considered good practice by owners
of like Property; (d) Grantors will take all steps to preserve and protect the
Collateral; (e) Grantors will maintain, with responsible insurance companies,
insurance covering the Collateral against such insurable losses as is required
by the Loan Agreement and as is consistent with sound business practice, and
will cause Secured Party to be designated as an additional insured and loss
payee with respect to such insurance, will obtain the written agreement of the
insurers that such insurance shall not be cancelled, terminated or materially
modified to the detriment of Secured Party without at least 30 days prior
written notice to Secured Party, and will furnish copies of such insurance
policies or certificates to Secured Party promptly upon request therefor; and
(f) Grantors will promptly notify Secured Party in writing in the event of any
substantial or material damage to the Collateral from any source whatsoever,
and, except for the disposition of collections and other proceeds of the
Collateral permitted by Section 6 hereof, Grantors will not remove or permit to
be removed any part of the Collateral from its place of business without the
prior written consent of Secured Party, except for such items of the Collateral
as are removed in the ordinary course of business or in connection with any
transaction or disposition otherwise permitted by the Loan Documents.
5. Secured Party's Rights Re Collateral. At any time (whether or not an
Event of Default has occurred), without notice or demand and at the expense of
Grantors, Secured Party may, to the extent it may be necessary or desirable to
protect the security hereunder, but Secured Party shall not be obligated to: (a)
enter upon any premises on which Collateral is situated upon reasonable notice
and examine the same or (b) upon any Event of Default, to perform any obligation
of Grantors under this Agreement or any obligation of any other Person under the
Loan Documents. Grantors shall maintain books and records pertaining to the
Collateral in such detail, form and scope as is consistent with Grantors' past
practices. Grantors shall at any time at Secured Party's request ▇▇▇▇ the
Collateral and/or Grantors' ledger cards, books of account and other records
relating to the Collateral with appropriate notations satisfactory to Secured
Party disclosing that they are subject to Secured Party's security interests.
Secured Party shall at all times on reasonable notice have full access to and
the right to audit any and all of Grantors' books and records pertaining to the
Collateral, and to
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confirm and verify the value of the Collateral and to do whatever else Secured
Party reasonably may deem necessary or desirable to protect its interests;
provided, however, that any such action which involves communicating with
customers of Grantors shall be carried out by Secured Party through Grantors'
independent auditors unless Secured Party shall then have the right directly to
notify obligors on the Collateral as provided in Section 9. Secured Party shall
be under no duty or obligation whatsoever to take any action to preserve any
rights of or against any prior or other parties in connection with the
Collateral, to exercise any voting rights or managerial rights with respect to
any Collateral, whether or not an Event of Default shall have occurred, or to
make or give any presentments, demands for performance, notices of
non-performance, protests, notices of protests, notices of dishonor or notices
of any other nature whatsoever in connection with the Collateral or the Secured
Obligations. Secured Party shall be under no duty or obligation whatsoever to
take any action to protect or preserve the Collateral or any rights of Grantors
therein, or to make collections or enforce payment thereon, or to participate in
any foreclosure or other proceeding in connection therewith.
6. Collections on the Collateral. Except as otherwise provided in any
Loan Document, Grantors shall have the right to use, dispose of and to continue
to make collections on and receive dividends and other proceeds of all of the
Collateral in the ordinary course of business so long as no Event of Default
shall have occurred and be continuing. Upon the occurrence and during the
continuance of an Event of Default, at the option of Secured Party, except as
prohibited by applicable Law, Grantors' right to make collections on and receive
dividends and other proceeds of the Collateral and to use or dispose of such
collections and proceeds shall terminate, and any and all dividends, proceeds
and collections, including all partial or total prepayments, then held or
thereafter received on or on account of the Collateral will be held or received
by Grantors in trust for Secured Party and immediately delivered in kind to
Secured Party. Any remittance received by Grantors from any Person shall be
presumed to relate to the Collateral and to be subject to Secured Party's
security interests. Upon the occurrence and during the continuance of an Event
of Default, Secured Party shall have the right at all times to receive, receipt
for, endorse, assign, deposit and deliver, in the name of Secured Party or in
the name of Grantors, any and all checks, notes, drafts and other instruments
for the payment of money constituting proceeds of or otherwise relating to the
Collateral; and Grantors each hereby authorize Secured Party to affix, by
facsimile signature or otherwise, the general or special endorsement of it, in
such manner as Secured Party shall deem advisable, to any such instrument in the
event the same has been delivered to or obtained by Secured Party without
appropriate endorsement, and Secured Party and any collecting bank are hereby
authorized to consider such endorsement to be a sufficient, valid and effective
endorsement by Grantors, and each of them, to the same extent as though it were
manually executed by the duly authorized officer of each Grantor, regardless of
by whom or under what circumstances or by what authority such facsimile
signature or other endorsement actually is affixed, without duty of inquiry or
responsibility as to such matters, and each Grantor hereby expressly waives
demand, presentment, protest and notice of protest or dishonor and all other
notices of every kind and nature with respect to any such instrument.
7. Possession of Collateral by Secured Party. All the Collateral now,
heretofore or hereafter delivered to Secured Party shall be held by Secured
Party in its possession, custody and control. Any or all of the cash Collateral
delivered to Secured Party will be held in an interest bearing account until it
is applied in accordance with the terms hereof. Nothing herein shall obligate
Secured Party to invest any Collateral or obtain any particular return thereon.
Upon the occurrence and during the continuance of an Event of Default, whenever
any of the Collateral is in Secured Party's possession, custody or control,
Secured Party may use, operate and consume the Collateral, as reasonably
necessary, whether for the purpose of preserving and/or protecting the
Collateral, or for
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the purpose of performing any of Grantors' obligations with respect thereto, or
otherwise. Secured Party may at any time deliver or redeliver the Collateral or
any part thereof to Grantors, and the receipt of any of the same by Grantors
shall be complete and full acquittance for the Collateral so delivered, and
Secured Party thereafter shall be discharged from any liability or
responsibility therefor. Notwithstanding anything to the contrary in this
agreement, so long as Secured Party exercises reasonable care with respect to
any Collateral in its possession, custody or control, Secured Party shall have
no liability for any loss of or damage to such Collateral, and in no event shall
Secured Party have liability for any diminution in value of Collateral
occasioned by economic or market conditions or events. Secured Party shall be
deemed to have exercised reasonable care within the meaning of the preceding
sentence if the Collateral in the possession, custody or control of Secured
Party is accorded treatment substantially equal to that which Secured Party
accords its own property, it being understood that Secured Party shall not have
any responsibility for (a) ascertaining or taking action with respect to calls,
conversions, exchanges, maturities, tenders or other matters relating to any
Collateral, whether or not Secured Party has or is deemed to have knowledge of
such matters, or (b) taking any necessary steps to preserve rights against any
Person with respect to any Collateral.
8. Events of Default. There shall be an Event of Default hereunder upon
the occurrence and during the continuance of an Event of Default under the Loan
Agreement.
9. Rights Upon Event of Default. Upon the occurrence and during the
continuance of an Event of Default, Secured Party shall have, in any
jurisdiction where enforcement hereof is sought, in addition to all other rights
and remedies that Secured Party may have under applicable Law or in equity or
under this Agreement (including, without limitation, all rights set forth in
Section 6 hereof) or under any other Loan Document, all rights and remedies of a
secured party under the Uniform Commercial Code as enacted in any jurisdiction,
and, in addition, the following rights and remedies, all of which may be
exercised with or without notice to Grantors and without affecting the
Obligations of Grantors hereunder or under any other Loan Document, or the
enforceability of the Liens and security interests created hereby: (a) to
foreclose the Liens and security interests created hereunder or under any other
agreement relating to any Collateral by any available judicial procedure or
without judicial process; (b) to enter any premises where any Collateral may be
located for the purpose of securing, protecting, inventorying, appraising,
inspecting, repairing, preserving, storing, preparing, processing, taking
possession of or removing the same; (c) to sell, assign, lease or otherwise
dispose of any Collateral or any part thereof, either at public or private sale
or at any broker's board, in lot or in bulk, for cash, on credit or otherwise,
with or without representations or warranties and upon such terms as shall be
acceptable to Secured Party; (d) to notify obligors on the Collateral that the
Collateral has been assigned to Secured Party and that all payments thereon are
to be made directly and exclusively to Secured Party; (e) to collect by legal
proceedings or otherwise all dividends, distributions, interest, principal or
other sums now or hereafter payable upon or on account of the Collateral; (f) to
enter into any extension, reorganization, deposit, merger or consolidation
agreement, or any other agreement relating to or affecting the Collateral, and
in connection therewith Secured Party may deposit or surrender control of the
Collateral and/or accept other Property in exchange for the Collateral; (g) to
settle, compromise or release, on terms acceptable to Secured Party, in whole or
in part, any amounts owing on the Collateral and/or any disputes with respect
thereto; (h) to extend the time of payment, make allowances and adjustments and
issue credits in connection with the Collateral in the name of Secured Party or
in the name of Grantors; (i) to enforce payment and prosecute any action or
proceeding with respect to any or all of the Collateral and take or bring, in
the name of Secured Party or in the name of Grantors, any and all steps,
actions, suits or proceedings deemed by Secured Party necessary or desirable to
effect collection of or to realize upon the Collateral, including any judicial
or nonjudicial
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foreclosure thereof or thereon, and each Grantor specifically consents to any
nonjudicial foreclosure of any or all of the Collateral or any other action
taken by Secured Party which may release any obligor from personal liability on
any of the Collateral, and each Grantor waives any right not expressly provided
for in this Agreement to receive notice of any public or private judicial or
nonjudicial sale or foreclosure of any security or any of the Collateral; and
any money or other property received by Secured Party in exchange for or on
account of the Collateral, whether representing collections or proceeds of
Collateral, and whether resulting from voluntary payments or foreclosure
proceedings or other legal action taken by Secured Party or Grantors may be
applied by Secured Party without notice to Grantors, to the Secured Obligations
in such order and manner as Secured Party in its sole discretion shall
determine; (j) to insure, process and preserve the Collateral; (k) to exercise
all rights, remedies, powers or privileges provided under any of the Loan
Documents; (l) to remove, from any premises where the same may be located, the
Collateral and any and all documents, instruments, files and records, and any
receptacles and cabinets containing the same, relating to the Collateral, and
Secured Party may, at the cost and expense of Grantors, use such of its
supplies, equipment, facilities and space at its places of business as may be
necessary or appropriate to properly administer, process, store, control,
prepare for sale or disposition and/or sell or dispose of the Collateral or to
properly administer and control the handling of collections and realizations
thereon, and Secured Party shall be deemed to have a rent-free tenancy of any
premises of Grantors for such purposes and for such periods of time as
reasonably required by Secured Party; (m) to receive, open and dispose of all
mail addressed to Grantors, or any of them, and notify postal authorities to
change the address for delivery thereof to such address as Secured Party may
designate; provided that Secured Party agrees that it will promptly deliver over
to Grantors such mail as does not relate to the Collateral; and (n) to exercise
all other rights, powers, privileges and remedies of an owner of the Collateral;
all at Secured Party's sole option and as Secured Party in its sole discretion
may deem advisable. Grantors will, at Secured Party's request, assemble the
Collateral and make it available to Secured Party at places which Secured Party
may designate, whether at the premises of Grantors or elsewhere, and will make
available to Secured Party, free of cost, all premises, equipment and facilities
of Grantors for the purpose of Secured Party's taking possession of the
Collateral or storing same or removing or putting the Collateral in salable form
or selling or disposing of same.
Upon the occurrence and during the continuance of an Event of Default,
Secured Party also shall have the right, without notice or demand, either in
person, by agent or by a receiver to be appointed by a court, and without regard
to the adequacy of any security for the Secured Obligations, to take possession
of the Collateral or any part thereof and to collect and receive the rents,
issues, profits, income and proceeds thereof. Taking possession of the
Collateral shall not cure or waive any Event of Default or notice thereof or
invalidate any act done pursuant to such notice. The rights, remedies and powers
of any receiver appointed by a court shall be as ordered by said court.
Any public or private sale or other disposition of the Collateral may be
held at any office of Secured Party, or at any Grantor's place of business, or
at any other place permitted by applicable Law, and without the necessity of the
Collateral's being within the view of prospective purchasers. Secured Party may
direct the order and manner of sale of the Collateral, or portions thereof, as
it in its sole and absolute discretion may determine, and Grantors, expressly
waive any right to direct the order and manner of sale of any Collateral.
Secured Party or any Person on Secured Party's behalf may bid and purchase at
any such sale or other disposition. The net cash proceeds resulting from the
collection, liquidation, sale, lease or other disposition of the Collateral
shall be applied, first, to the expenses (including attorneys' fees and
disbursements) of retaking, holding, storing, processing and preparing for sale
or lease, selling, leasing, collecting, liquidating and the like, and then to
the satisfaction of the Secured Obligations in such order as shall be determined
by
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Secured Party in its sole and absolute discretion. Grantors and any other Person
then obligated therefor shall pay to Secured Party on demand any deficiency with
regard thereto which may remain after such sale, disposition, collection or
liquidation of the Collateral.
Unless the Collateral is perishable or threatens to decline speedily in
value or is of a type customarily sold on a recognized market, Secured Party
will send or otherwise make available to Grantors notice of the time and place
of any public sale thereof or of the time on or after which any private sale
thereof is to be made. The requirement of sending notice conclusively shall be
met if such notice is given in the manner contemplated by the Loan Agreement at
least ten (10) days before the date of the sale. Each Grantor expressly waives
any right to receive notice of any public or private sale of any Collateral or
other security for the Secured Obligations except as expressly provided for in
this paragraph.
With respect to any Collateral consisting of securities, partnership
interests, joint venture interests, limited liability company memberships,
Investments or the like, and whether or not any of such Collateral has been
effectively registered under the Securities Act of 1933 or other applicable
Laws, Secured Party may, in its sole and absolute discretion, sell all or any
part of such Collateral at private sale in such manner and under such
circumstances as Secured Party may deem necessary or advisable in order that the
sale may be lawfully conducted. Without limiting the foregoing, Secured Party
may (i) approach and negotiate with a limited number of potential purchasers,
and (ii) restrict the prospective bidders or purchasers to persons who will
represent and agree that they are purchasing such Collateral for their own
account for investment and not with a view to the distribution or resale
thereof. In the event that any such Collateral is sold at private sale, each
Grantor agrees that if such Collateral is sold for a price which Secured Party
in good faith believes to be reasonable under the circumstances then existing,
then (a) the sale shall be deemed to be commercially reasonable in all respects,
(b) no Grantor shall be entitled to a credit against the Secured Obligations in
an amount in excess of the purchase price, and (c) Secured Party shall not incur
any liability or responsibility to any Grantor in connection therewith,
notwithstanding the possibility that a substantially higher price might have
been realized at a public sale. Each Grantor recognizes that a ready market may
not exist for such Collateral if it is not regularly traded on a recognized
securities exchange, and that a sale by Secured Party of any such Collateral for
an amount substantially less than a pro rata share of the fair market value of
the issuer's assets minus liabilities may be commercially reasonable in view of
the difficulties that may be encountered in attempting to sell a large amount of
such Collateral or Collateral that is privately traded.
Upon consummation of any sale of Collateral hereunder, Secured Party
shall have the right to assign, transfer and deliver to the purchaser or
purchasers thereof the Collateral so sold. Each such purchaser at any such sale
shall hold the Collateral so sold absolutely free from any claim or right upon
the part of any Grantor or any other Person, and each Grantor hereby waives (to
the extent permitted by applicable Laws) all rights of redemption, stay and
appraisal which it now has or may at any time in the future have under any rule
of Law or statute now existing or hereafter enacted. If the sale of all or any
part of the Collateral is made on credit or for future delivery, Secured Party
shall not be required to apply any portion of the sale price to the Secured
Obligations until such amount actually is received by Secured Party, and any
Collateral so sold may be retained by Secured Party until the sale price is paid
in full by the purchaser or purchasers thereof. Secured Party shall not incur
any liability in case any such purchaser or purchasers shall fail to pay for the
Collateral so sold, and, in case of any such failure, the Collateral may be sold
again.
10. Voting Rights; Dividends; etc. With respect to any Collateral
consisting of
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securities, partnership interests, joint venture interests, limited liability
company memberships, Investments or the like (referred to collectively and
individually in this Section 10 and in Section 11 as the "Investment
Collateral"), so long as no Event of Default occurs and remains continuing:
(a) Voting Rights. Grantors shall be entitled to exercise any
and all voting and other consensual rights pertaining to the Investment
Collateral, or any part thereof, for any purpose not inconsistent with
the terms of this Agreement, the Loan Agreement, or the other Loan
Documents; provided, however, that Grantors shall not exercise, or shall
refrain from exercising, any such right if it would result in a Default.
(b) Dividend and Distribution Rights. Except as otherwise
provided in any Loan Document, Grantors shall be entitled to receive and
to retain and use any and all dividends or distributions paid in respect
of the Investment Collateral; provided, however, that any and all such
dividends or distributions received in the form of capital stock,
certificated securities, warrants, options or rights to acquire capital
stock or certificated securities forthwith shall be, and the
certificates representing such capital stock or certificated securities,
if any, forthwith shall be delivered to Secured Party to hold as pledged
Collateral and shall, if received by Grantors, be received in trust for
the benefit of Secured Party, be segregated from the other Property of
Grantors, and forthwith be delivered to Secured Party as pledged
Collateral in the same form as so received (with any necessary
endorsements).
11. Rights During Event of Default. With respect to any Investment
Collateral, so long as an Event of Default has occurred and is continuing:
(a) Voting, Dividend, and Distribution Rights. At the option of
Secured Party, all rights of Grantors to exercise the voting and other
consensual rights which it would otherwise be entitled to exercise
pursuant to Section 10(a) above, and to receive the dividends and
distributions which it would otherwise be authorized to receive and
retain pursuant to Section 10(b) above, shall cease, and all such rights
thereupon shall become vested in Secured Party which thereupon shall
have the sole right to exercise such voting and other consensual rights
and to receive and to hold as pledged Collateral such dividends and
distributions.
(b) Dividends and Distributions Held in Trust. All dividends and
other distributions which are received by Grantors contrary to the
provisions of this Agreement shall be received in trust for the benefit
of Secured Party, shall be segregated from other funds of Grantors and
forthwith shall be paid over to Secured Party as pledged Collateral in
the same form as so received (with any necessary endorsements).
(c) Irrevocable Proxy. Each Grantor hereby revokes all previous
proxies with regard to the Investment Collateral and appoints Secured
Party as its proxyholder to attend and vote at any and all meetings of
the shareholders or other equity holders of the Persons that issued the
Investment Collateral and any adjournments thereof, held on or after the
date of the giving of this proxy and prior to the termination of this
proxy, and to execute any and all written consents of shareholders or
equity holders of such Persons executed on or after the date of the
giving of this proxy and prior to the termination of this proxy, with
the same effect as if such Grantor had personally attended the meetings
or had personally voted its shares or other interests or had personally
signed the written consents; provided, however, that the proxyholder
shall have rights hereunder only upon the occurrence and during the
continuance of an Event of Default. Each Grantor hereby authorizes
Secured Party to substitute another
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Person as the proxyholder and, upon the occurrence and during the
continuance of any Event of Default, hereby authorizes the proxyholder
to file this proxy and any substitution instrument with the secretary or
other appropriate official of the appropriate Person. This proxy is
coupled with an interest and is irrevocable until such time as all
Secured Obligations have been paid and performed in full.
12. Attorney-in-Fact. Each Grantor hereby irrevocably nominates and
appoints Secured Party as its attorney-in-fact for the following purposes: (a)
to do all acts and things which Secured Party may deem necessary or advisable to
perfect and continue perfected the security interests created by this Agreement
and, upon the occurrence and during the continuance of an Event of Default, to
preserve, process, develop, maintain and protect the Collateral; (b) upon the
occurrence and during the continuance of an Event of Default, to do any and
every act which such Grantor is obligated to do under this Agreement, at the
expense of the Grantors, so obligated and without any obligation to do so; (c)
to prepare, sign, file and/or record, for such Grantor, in the name of the
Grantor, any financing statement, application for registration, or like paper,
and to take any other action deemed by Secured Party necessary or desirable in
order to perfect or maintain perfected the security interests granted hereby;
and (d) upon the occurrence and during the continuance of an Event of Default,
to execute any and all papers and instruments and do all other things necessary
or desirable to preserve and protect the Collateral and to protect Secured
Party's security interests therein; provided, however, that Secured Party shall
be under no obligation whatsoever to take any of the foregoing actions, and,
absent bad faith or actual malice, Secured Party shall have no liability or
responsibility for any act taken or omission with respect thereto.
13. Costs and Expenses. Each Grantor agrees to pay to Secured Party all
costs and expenses (including, without limitation, attorneys' fees and
disbursements) incurred by Secured Party in the enforcement or attempted
enforcement of this Agreement, whether or not an action is filed in connection
therewith, and in connection with any waiver or amendment of any term or
provision hereof. All advances, charges, costs and expenses, including
attorneys' fees and disbursements, incurred or paid by Secured Party in
exercising any right, privilege, power or remedy conferred by this Agreement
(including, without limitation, the right to perform any Secured Obligation of
such Grantor under the Loan Documents), or in the enforcement or attempted
enforcement thereof, shall be secured hereby and shall become a part of the
Secured Obligations and shall be paid to Secured Party by such Grantor,
immediately upon demand, together with interest thereon at the Default Rate.
14. Statute of Limitations and Other Laws. Until the Secured Obligations
shall have been paid and performed in full, the power of sale and all other
rights, privileges, powers and remedies granted to Secured Party hereunder shall
continue to exist and may be exercised by Secured Party at any time and from
time to time irrespective of the fact that any of the Secured Obligations may
have become barred by any statute of limitations. Each Grantor expressly waives
the benefit of any and all statutes of limitation, and any and all Laws
providing for exemption of property from execution or for valuation and
appraisal upon foreclosure, to the maximum extent permitted by applicable Law.
15. Other Agreements. Nothing herein shall in any way modify or limit
the effect of terms or conditions set forth in any other security or other
agreement executed by Grantors, or any of them, or in connection with the
Secured Obligations, but each and every term and condition hereof shall be in
addition thereto. All provisions contained in the Loan Agreement or any other
Loan Document that apply to Loan Documents generally are fully applicable to
this Agreement and are
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incorporated herein by this reference.
16. Understandings With Respect to Waivers and Consents. Each Grantor
warrants and agrees that each of the waivers and consents set forth herein are
made after consultation with legal counsel and with full knowledge of their
significance and consequences, with the understanding that events giving rise to
any defense or right waived may diminish, destroy or otherwise adversely affect
rights which such Grantor otherwise may have against Secured Party or others, or
against Collateral, and that, under the circumstances, the waivers and consents
herein given are reasonable and not contrary to public policy or Law. If any of
the waivers or consents herein are determined to be contrary to any applicable
Law or public policy, such waivers and consents shall be effective to the
maximum extent permitted by Law.
17. Release of Grantors. This Agreement and all Secured Obligations of
Grantors hereunder shall be released when all Secured Obligations have been paid
in full in cash or otherwise performed in full and when no portion of the
Commitment remains outstanding. Upon such release of Grantors' Secured
Obligations hereunder, Secured Party shall return any pledged Collateral to
Grantors, or to the Person or Persons legally entitled thereto, and shall
endorse, execute, deliver, record and file all instruments and documents, and do
all other acts and things, reasonably required for the return of the Collateral
to Grantors, or to the Person or Persons legally entitled thereto, and to
evidence or document the release of Secured Party's interests arising under this
Agreement, all as reasonably requested by, and at the sole expense of, Grantors.
18. WAIVER OF JURY TRIAL. EACH GRANTOR AND SECURED PARTY EXPRESSLY WAIVE
THEIR RESPECTIVE RIGHTS TO A TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE
OF ACTION BASED UPON OR ARISING OUT OF OR RELATED TO THIS AGREEMENT, THE LOAN
AGREEMENT, THE OTHER LOAN DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY OR
THEREBY IN ANY ACTION, PROCEEDING OR OTHER LITIGATION OF ANY TYPE BROUGHT BY ANY
OF THE PARTIES AGAINST ANY OTHER PARTY OR PARTIES, WHETHER NOW EXISTING OR
HEREAFTER ARISING AND WHETHER WITH RESPECT TO CONTRACT CLAIMS, TORT CLAIMS, OR
OTHERWISE. EACH GRANTOR AND SECURED PARTY AGREE THAT ANY SUCH CLAIM, DEMAND,
ACTION OR CAUSE OF ACTION SHALL BE TRIED BY A COURT TRIAL WITHOUT A JURY.
WITHOUT LIMITING THE FOREGOING, THE PARTIES FURTHER AGREE THAT THEIR RESPECTIVE
RIGHTS TO A TRIAL BY JURY ARE WAIVED BY OPERATION OF THIS SECTION AS TO ANY
ACTION, COUNTERCLAIM OR OTHER PROCEEDING WHICH SEEKS, IN WHOLE OR IN PART, TO
CHALLENGE THE VALIDITY OR ENFORCEABILITY OF THIS AGREEMENT, THE LOAN AGREEMENT
OR THE OTHER LOAN DOCUMENTS OR ANY PROVISION HEREOF OR THEREOF. THIS WAIVER
SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS
TO THIS AGREEMENT, THE LOAN AGREEMENT AND THE OTHER LOAN DOCUMENTS. ANY PARTY
HERETO MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS SECTION WITH ANY COURT
AS WRITTEN EVIDENCE OF THE CONSENT OF THE SIGNATORIES HERETO TO THE WAIVER OF
THEIR RIGHT TO TRIAL BY JURY.
19. Incorporation of Suretyship Provisions and Waivers. The attached
Exhibit A, "Suretyship Provisions and Waivers" is hereby incorporated by this
reference as though set forth herein in full.
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IN WITNESS WHEREOF, each Grantor has executed this Agreement by its duly
authorized officer as of the date first written above.
"Grantors"
JAKKS PACIFIC, INC.
FLYING COLORS TOYS, INC.
ROAD CHAMPS, INC.
PENTECH INTERNATIONAL INC.
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇▇
▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Title: Exec. V.P./C.F.O. of each of
the foregoing
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EXHIBIT A
TO
SECURITY AGREEMENT
SURETYSHIP PROVISIONS AND WAIVERS
1. Waivers and Consents. Each Grantor acknowledges that the Liens and
security interests created or granted herein will or may secure obligations of
Persons other than such Grantor and, in full recognition of that fact, each
Grantor consents and agrees that Secured Party may, at any time and from time to
time, without notice or demand, and without affecting the enforceability or
security hereof:
(a) supplement, modify, amend, extend, renew, or otherwise
change the time for payment or the terms of the Obligations or any part thereof,
including any increase or decrease of the rate(s) of interest thereon;
(b) supplement, modify, amend or waive, or enter into or give
any agreement, approval or consent with respect to, the Obligations or any part
thereof or any of the Loan Documents or any additional security or guaranties,
or any condition, covenant, default, remedy, right, representation or term
thereof or thereunder;
(c) accept new or additional instruments, documents or
agreements in exchange for or relative to any of the Loan Documents or the
Obligations or any part thereof;
(d) accept partial payments on the Obligations;
(e) receive and hold additional security or guaranties for the
Obligations or any part thereof;
(f) release, reconvey, terminate, waive, abandon, subordinate,
exchange, substitute, transfer and enforce any security or guaranties, and apply
any security and direct the order or manner of sale thereof as Secured Party in
its sole and absolute discretion may determine;
(g) release any Person or any guarantor from any personal
liability with respect to the Obligations or any part thereof;
(h) settle, release on terms satisfactory to Secured Party or by
operation of applicable Laws or otherwise liquidate or enforce any Obligations
and any security or guaranty therefor in any manner, consent to the transfer of
any security and bid and purchase at any sale; and
(i) consent to the merger, change or any other restructuring or
termination of the corporate existence of any Borrower or any other Person, and
correspondingly restructure the Obligations, and any such merger, change,
restructuring or termination shall not affect the liability of any Grantor or
the continuing existence of any Liens hereunder, under any other Loan Document
to which any Grantor is a party or the enforceability hereof or thereof with
respect to all or any part of the Obligations.
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Upon the occurrence of and during the continuance of any Event of
Default, Secured Party may enforce this Agreement independently as to each
Grantor and independently of any other remedy or security Secured Party at any
time may have or hold in connection with the Obligations, and it shall not be
necessary for Secured Party to marshal assets in favor of any Grantor, any
Borrower or any other Person or to proceed upon or against and/or exhaust any
other security or remedy before proceeding to enforce this Agreement. Each
Grantor expressly waives any right to require Secured Party to marshal assets in
favor of such Grantor, any Borrower or any other Person or to proceed against
any other Person or any collateral provided by any other Person, and agrees that
Secured Party may proceed against any Person and/or collateral in such order as
it shall determine in its sole and absolute discretion. Secured Party may file a
separate action or actions against any Grantor, whether action is brought or
prosecuted with respect to any other security or against any other Grantor, any
Borrower or any other Person, or whether any other Person is joined in any such
action or actions. Each Grantor agrees that Secured Party and the Borrowers and
any other Person may deal with each other in connection with the Obligations or
otherwise, or alter any contracts or agreements now or hereafter existing
between any of them, in any manner whatsoever, all without in any way altering
or affecting the security of this Agreement. Secured Party's rights hereunder
shall be reinstated and revived, and the enforceability of this Agreement shall
continue, with respect to any amount at any time paid on account of the
Obligations which thereafter shall be required to be restored or returned by
Secured Party upon the bankruptcy, insolvency or reorganization of any Borrower,
any Grantor or any other Person, or otherwise, all as though such amount had not
been paid. The Liens created or granted herein and the enforceability of this
Agreement at all times shall remain effective to secure the full amount of all
the Obligations including, without limitation, the amount of all loans and
interest thereon at the rates provided for in the Loan Agreement, even though
the Obligations, including any part thereof or any other security or guaranty
therefor, may be or hereafter may become invalid or otherwise unenforceable as
against the Borrowers or any other Person and whether or not the Borrowers or
any other Person shall have any personal liability with respect thereto. Each
Grantor expressly waives any and all defenses now or hereafter arising or
asserted by reason of (a) any disability or other defense of any Borrower or any
other Person with respect to the Obligations, (b) the unenforceability or
invalidity of any security or guaranty for the Obligations or the lack of
perfection or continuing perfection or failure of priority of any security for
the Obligations, (c) the cessation for any cause whatsoever of the liability of
any Borrower or any other Person (other than by reason of the full payment and
performance of all Obligations), (d) any failure of Secured Party to marshal
assets in favor of such Grantor or any other Person, (e) except as otherwise
required by Law or as provided in this Agreement, any failure of Secured Party
to give notice of sale or other disposition of collateral to such Grantor or any
other Person or any defect in any notice that may be given in connection with
any sale or disposition of collateral, (f) except as otherwise required by Law
or as provided in this Agreement, any failure of Secured Party to comply with
applicable Laws in connection with the sale or other disposition of any
collateral or other security for any Obligation, including without limitation
any failure of Secured Party to conduct a commercially reasonable sale or other
disposition of any collateral or other security for any Obligation, (g) any act
or omission of Secured Party or others that directly or indirectly results in or
aids the discharge or release of any Borrower, any Grantor or any other Person
or the Obligations or any other security or guaranty therefor by operation of
law, (h) any Law which provides that the obligation of a surety or guarantor
must neither be larger in amount nor in other respects more burdensome than that
of the principal or which reduces a surety's or guarantor's obligation in
proportion to the principal obligation, (i) any failure of Secured Party to file
or enforce a claim in any bankruptcy or other proceeding with respect to any
Person, (j) the election by Secured Party, in any bankruptcy proceeding of any
Person, of the application or non-application of Section 1111(b)(2) of the
United States Bankruptcy Code, (k) any extension of credit or the grant of any
Liens under Section 364 of the United States Bankruptcy Code, (l) any use of
cash collateral under Section 363 of the United States Bankruptcy Code, (m) any
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agreement or stipulation with respect to the provision of adequate protection in
any bankruptcy proceeding of any Person, (n) the avoidance of any Liens in favor
of Secured Party for any reason, (o) any bankruptcy, insolvency, reorganization,
arrangement, readjustment of debt, liquidation or dissolution proceeding
commenced by or against any Person, including any discharge of, or bar or stay
against collecting, all or any of the Obligations (or any interest thereon) in
or as a result of any such proceeding, or (p) to the extent permitted, the
benefits of any form of one-action rule. Until no part of any commitment to lend
remains outstanding and all of the Obligations have been paid and performed in
full, Grantors shall have no right of subrogation, contribution, reimbursement
or indemnity, and each Grantor expressly waives any right to enforce any remedy
that Secured Party now has or hereafter may have against any other Person and
waives the benefit of, or any right to participate in, any other security now or
hereafter held by Secured Party. Each Grantor expressly waives all setoffs and
counterclaims and all presentments, demands for payment or performance, notices
of nonpayment or nonperformance, protests, notices of protest, notices of
dishonor and all other notices or demands of any kind or nature whatsoever with
respect to the Obligations, and all notices of acceptance of this Agreement or
of the existence, creation or incurring of new or additional Obligations.
2. Condition of Grantors and their Subsidiaries. Each Grantor represents
and warrants to Secured Party that such Grantor has established adequate means
of obtaining from each other Grantor and its Subsidiaries, on a continuing
basis, financial and other information pertaining to the businesses, operations
and condition (financial and otherwise) of each other Grantor and its
Subsidiaries and their properties, and such Grantor now is and hereafter will be
completely familiar with the businesses, operations and condition (financial and
otherwise) of each other Grantor and its Subsidiaries and their properties. Each
Grantor hereby expressly waives and relinquishes any duty on the part of Secured
Party to disclose to such Grantor any matter, fact or thing related to the
businesses, operations or condition (financial or otherwise) of any Grantor or
its Subsidiaries or their properties, whether now known or hereafter known by
Secured Party during the life of this Agreement. With respect to any of the
Obligations, Secured Party need not inquire into the powers of any Grantor or
any Subsidiaries thereof or the officers or employees acting or purporting to
act on their behalf, and all Obligations made or created in good faith reliance
upon the professed exercise of such powers shall be secured hereby.
3. Liens on Real Property. In the event that all or any part of the
Obligations at any time are secured by any one or more deeds of trust or
mortgages creating or granting Liens on any interests in real property, each
Grantor authorizes Secured Party, upon the occurrence of and during the
continuance of any Event of Default, at its sole option, without notice or
demand and without affecting any Obligations, the enforceability of this
Agreement, or the validity or enforceability of any Liens of any Secured Party
on any collateral, to foreclose any or all of such deeds of trust or mortgages
by judicial or nonjudicial sale. Insofar as the Liens created herein secure the
obligations of other Persons, (i) each Grantor expressly waives any defenses to
the enforcement of this Agreement or any Liens created or granted hereby or to
the recovery by Secured Party against the Borrowers or any other Person liable
therefor of any deficiency after a judicial or nonjudicial foreclosure or sale,
even though such a foreclosure or sale may impair the subrogation rights of such
Grantor and may preclude such Grantor from obtaining reimbursement or
contribution from any other Person and (ii) each Grantor expressly waives any
defenses or benefits that may be derived from California Code of Civil Procedure
- 580a, 580b, 580d or 726, or comparable provisions of the Laws of any other
jurisdiction and all other suretyship defenses it otherwise might or would have
under California Law or other applicable Law. Each Grantor expressly waives any
right to receive notice of any judicial or nonjudicial foreclosure or sale of
any real property or interest therein subject to any such deeds of trust or
mortgages and such Grantor's failure to receive any such notice shall not impair
or affect such
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Grantor's obligations hereunder or the enforceability of this Agreement or any
Liens created or granted hereby.
4. Waiver of Rights of Subrogation. Notwithstanding anything to the
contrary elsewhere contained herein or in any other Loan Document to which any
Grantor is a Party, each Grantor hereby waives with respect to the Borrowers and
their successors and assigns (including any surety) and any other Party any and
all rights at Law or in equity, to subrogation, to reimbursement, to
exoneration, to contribution, to setoff or to any other rights that could accrue
to a surety against a principal, to a guarantor against a maker or obligor, to
an accommodation party against the party accommodated, or to a holder or
transferee against a maker and which such Grantor may have or hereafter acquire
against any Borrower or any other Party in connection with or as a result of
such Grantor's execution, delivery and/or performance of this Agreement or any
other Loan Document to which such Grantor is a party. Each Grantor agrees that
it shall not have or assert any such rights against any Borrower or its
successors and assigns or any other Person (including any surety), either
directly or as an attempted setoff to any action commenced against such Grantor
by any Borrower (as borrower or in any other capacity) or any other Person. Each
Grantor hereby acknowledges and agrees that this waiver is intended to benefit
Secured Party and shall not limit or otherwise affect such Grantor's liability
hereunder, under any other Loan Document to which such Grantor is a party, or
the enforceability hereof or thereof.
5. Understandings with Respect to Waivers and Consents. Each Grantor
warrants and agrees that each of the waivers and consents set forth herein is
made with full knowledge of its significance and consequences, with the
understanding that events giving rise to any defense waived may diminish,
destroy or otherwise adversely affect rights which such Grantor otherwise may
have against the Borrowers, Secured Party or others, or against collateral, and
that, under the circumstances, the waivers and consents herein given are
reasonable and not contrary to public policy or Law. If any of the waivers or
consents herein are determined to be contrary to any applicable Law or public
policy, such waivers and consents shall be effective to the maximum extent
permitted by Law.
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