EXHIBIT 10.53
SECURITY AND PLEDGE AGREEMENT
THIS SECURITY AND PLEDGE AGREEMENT ("SECURITY AGREEMENT"), is made and
entered into as of the19th day of December, 2001, by and between Brilliant
Digital Entertainment, Inc., a Delaware corporation ("BORROWER"), and each
Subsidiary of Borrower listed on the signature pages hereof (Borrower and each
such Subsidiary being individually a "GRANTOR" and collectively the "GRANTORS"),
in favor of Xxxxxx Xxxxx ("XXXXX"), an individual, as agent (in such capacity,
"AGENT") for himself and the holders party to the Purchase Agreements referred
to below (Toibb and the holders party to the Purchase Agreements collectively
"HOLDERS").
W I T N E S S E T H:
WHEREAS, pursuant to a Note and Warrant Purchase Agreement between Borrower
and a Holder (as the same may from time to time be amended, modified, or
supplemented, each a "PURCHASE AGREEMENT" and collectively, the "PURCHASE
AGREEMENTS") of even date herewith, each Holder has agreed to make a loan
(collectively, the "CONVERTIBLE NOTE LOANS") to Borrower; and
WHEREAS, each Holder is willing to make a Convertible Note Loan but only
upon the condition, among others, that each Grantor shall have executed and
delivered this Security Agreement to Agent for the ratable benefit of Holders.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants herein contained and for other good and valuable consideration, the
receipt of which is hereby acknowledged, the parties hereto agree as follows:
1. DEFINED TERMS. Unless otherwise defined herein, terms defined in the
Purchase Agreements are used herein as therein defined, and the following terms
shall have the following meanings (such meanings being equally applicable to
both the singular and plural forms of the terms defined):
"ACCOUNT DEBTOR" shall mean any "account debtor," as such term is defined
in section 9102(a)(3) of the UCC.
"ACCOUNTS" shall mean any "account," as such term is defined in section
9102(a)(2) of the UCC, now owned or hereafter acquired by any Grantor.
"CHATTEL PAPER" shall mean any "chattel paper," as such term is defined in
section 9102(a)(11) of the UCC, now owned or hereafter acquired by any Grantor.
"COLLATERAL" shall have the meaning assigned to such term in Section 2 of
this Security Agreement.
"CONTRACTS" shall mean all contracts, undertakings, or other agreements
(other than rights evidenced by Chattel Paper, Documents, or Instruments) in or
under which any Grantor may now or hereafter have any right, title or interest,
including, without limitation, with respect to an Account, any agreement
relating to the terms of payment or the terms of performance thereof.
"COPYRIGHTS" shall mean all of the following now or hereafter acquired by
any Grantor: (i) all copyrights, registrations, and applications therefor; (ii)
all renewals and extensions thereof; (iii) all income, royalties, damages, and
payments now and hereafter due or payable or both with respect thereto,
including, without limitation, damages and payments for past or future
infringements or misappropriations thereof; (iv) all rights to xxx for past,
present, and future infringements or misappropriations thereof; and (v) all
other rights corresponding thereto throughout the world.
"DOCUMENTS" shall mean any "documents," as such term is defined in section
9102(a)(30) of the UCC, now owned or hereafter acquired by any Grantor.
"EQUIPMENT" shall mean any "equipment," as such term is defined in section
9102(a)(33) of the UCC, now owned or hereafter acquired by any Grantor.
"GENERAL INTANGIBLES" shall mean any "general intangibles," as such term is
defined in section 9102(a)(42) of the UCC, now owned or hereafter acquired by
any Grantor.
"HEREBY," "HEREIN," "HEREOF," "HEREUNDER" and words of similar import refer
to this Security Agreement as a whole (including, without limitation, any
schedules hereto) and not merely to the specific section, paragraph, or clause
in which the respective word appears.
"INSTRUMENTS" shall mean any "instrument," as such term is defined in
section 9102(a)(47) of the UCC, now owned or hereafter acquired by any Grantor,
other than instruments that constitute, or are a part of a group of writings
that constitute, Chattel Paper.
"INTELLECTUAL PROPERTY COLLATERAL" shall mean all of the Copyrights,
Licenses, Patents, Trademarks, and Trade Secrets as to which Agent for the
ratable benefit of Holders has been granted a security interest hereunder.
"INVENTORY" shall mean all "inventory," as such term is defined in section
9102(a)(48) of the UCC, now owned or hereafter acquired by any Grantor.
"LICENSE" shall mean any Patent License, Trademark License, or other
license as to which Agent for the ratable benefit of Holders has been granted a
security interest hereunder.
"LIENS" shall mean, with respect to any asset, (a) any mortgage, deed of
trust, lien, pledge, hypothecation, encumbrance, charge or security interest in,
on or of such asset, (b) the interest of a vendor or a lessor under any
conditional sale agreement, capital lease or title retention agreement (or any
financing lease having substantially the same economic effect as any of the
foregoing) relating to such asset and (c) in the case of securities, any
purchase option, call or similar right of a third party with respect to such
securities.
"PATENT LICENSE" shall mean all of the following now owned or hereafter
acquired by any Grantor: any written agreement granting any right to practice
any invention on which a Patent is in existence.
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"PATENTS" shall mean all of the following now or hereafter acquired by any
Grantor: (i) all patents and patent applications; (ii) all inventions and
improvements described and claimed therein; (iii) all reissues, divisions,
continuations, renewals, extensions, and continuations-in-part thereof; (iv) all
income, royalties, damages and payments now and hereafter due and/or payable to
such Grantor with respect thereto, including, without limitation, damages and
payments for past, present or future infringements or misappropriations thereof;
(v) all rights to xxx for past, present, and future infringements or
misappropriations thereof; and (vi) all other rights corresponding thereto
throughout the world.
"PERMITTED LIENS" shall mean (i) Liens for taxes not yet delinquent, (ii)
Liens imposed by law and incurred in the ordinary course of business for
obligations not yet due to carriers, warehousemen, laborers, materialmen, (iii)
Liens in respect of pledges or deposits under workers' compensation laws or
similar legislation, (v) Liens reflected on Borrower's audited Balance Sheet as
at December 31, 2000, and (vi) Liens granted pursuant to the terms of that
certain Security and Pledge Agreement dated as of May 23, 2001 and executed by
Borrower and Grantors in favor of Toibb.
"PROCEEDS" shall mean "proceeds," as such term is defined in section
9102(a)(64) of the UCC.
"SECURED OBLIGATIONS" shall mean (i) all of the unpaid principal amount of,
and accrued interest on, the Convertible Notes; PROVIDED THAT upon the
conversion to the Borrower's capital stock of any Convertible Note by any
Holder, the Secured Obligations that have thus far accrued in respect of any
such Convertible Note shall automatically terminate without any further action
by Borrower or Guarantors; (ii) all prepayment and other fees owing by Borrower
under the Purchase Agreements to Agent or any Holder; (iii) the obligations of
each Guarantor pursuant to the Guaranty to Agent or any Holder; and (iv) all
other indebtedness, liabilities and obligations of each Grantor to Agent or any
Holder, whether now existing or hereafter incurred, and whether created under,
arising out of, or in connection with the Purchase Agreements, this Security
Agreement, any other document or agreement, or otherwise.
"SECURITY AGREEMENT" shall mean this Security Agreement, as the same may
from time to time be amended, modified, or supplemented and shall refer to this
Security Agreement as in effect on the date such reference becomes operative.
"TRADE SECRETS" shall mean trade secrets, along with any and all (i)
income, royalties, damages, and payments now and hereafter due and/or payable to
any Grantor with respect thereto, including, without limitation, damages and
payments for past or future infringements or misappropriations thereof; (ii)
rights to xxx for past, present, and future infringements or misappropriations
thereof; and (iii) all other rights corresponding thereto throughout the world.
"TRADEMARK LICENSE" shall mean all of the following now owned or hereafter
acquired by any Grantor: any written agreement granting any right to use any
Trademark or Trademark registration.
"TRADEMARKS" shall mean all of the following now owned or hereafter
acquired by any Grantor: (i) all trademarks (including service marks and trade
names, whether registered or at common law), registrations and applications
therefor, and the entire product lines and goodwill of
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such Grantor's business connected therewith and symbolized thereby; (ii) all
renewals thereof; (iii) all income, royalties, damages, and payments now and
hereafter due or payable or both with respect thereto, including, without
limitation, damages and payments for past, present, or future infringements or
misappropriations thereof; (iv) all rights to xxx for past, present, and future
infringements or misappropriations thereof; and (v) all other rights
corresponding thereto throughout the world.
"UCC" shall mean the Uniform Commercial Code as the same may, from time to
time, be in effect in the State of California; provided, however, in the event
that, by reason of mandatory provisions of law, any or all of the attachment,
perfection or priority of Agent's and Holders' security interest in any
Collateral is governed by the Uniform Commercial Code as in effect in a
jurisdiction other than the State of California, the term "UCC" shall mean the
Uniform Commercial Code as in effect in such other jurisdiction for purposes of
the provisions hereof relating to such attachment, perfection, or priority and
for purposes of definitions related to such provisions.
2. GRANT OF SECURITY INTEREST AND PLEDGE.
(a) As collateral security for the prompt and complete payment and
performance when due (whether at stated maturity, by acceleration, or otherwise)
of all the Secured Obligations and to induce Agent and each Holder to enter into
the Purchase Agreement and to make the Convertible Note Loans in accordance with
the terms thereof, each Grantor hereby assigns, conveys, mortgages, pledges,
hypothecates, and transfers to Agent for the ratable benefit of Holders, and
hereby grants to Agent for the ratable benefit of Holders, a security interest
in, all of such Grantor's right, title and interest in, to, and under the
following (all of which being hereinafter collectively called the "COLLATERAL"):
(i) all Accounts of such Grantor;
(ii) all Chattel Paper of such Grantor and rights to receive monies
included thereby;
(iii) all Contracts of such Grantor;
(iv) all Copyrights of such Grantor;
(v) all Documents of such Grantor;
(vi) all Equipment of such Grantor;
(vii) all General Intangibles of such Grantor;
(viii) all Instruments of such Grantor and rights to receive monies
included thereby;
(ix) all Inventory of such Grantor;
(x) all Patent Licenses of such Grantor;
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(xi) all Trade Secrets of such Grantor;
(xii) all Trademark Licenses of such Grantor;
(xiii) all shares of capital stock of every class of each Subsidiary
listed on the signature page hereof; PROVIDED THAT so long as no Default or
Event of Default has occurred and is continuing, each Grantor shall be entitled
to receive all cash dividends paid, to vote shares, and to give consents,
waivers, and ratifications in respect of the stock secured or pledged hereby;
PROVIDED, HOWEVER, that no vote shall be cast or consent, waiver, or
ratification, given by any Grantor if the effect thereof would in the reasonable
judgment of the Agent impair the stock secured or pledged hereby or be
inconsistent with or result in any violation of the provisions of the Purchase
Agreement or this Security Agreement;
(xiv) all other goods and personal property of such Grantor whether
tangible or intangible or whether now owned or hereafter acquired by such
Grantor and wherever located; and
(xv) to the extent not otherwise included, all Proceeds of each of the
foregoing and all accessions to, substitutions, and replacements for, and rents,
profits, and products of each of the foregoing.
(b) In addition, as collateral security for the prompt and complete payment
when due of the Secured Obligations and in order to induce Holders as aforesaid,
Agent, for the ratable benefit of each Holders, is hereby granted a lien and
security interest in all property of each Grantor held by Agent or such Holder,
including, without limitation, all property of every description, now or
hereafter in the possession or custody of or in transit to Agent or such Holder
for any purpose, including safekeeping, collection or pledge, for the account of
such Grantor, or as to which such Grantor may have any right or power.
3. RIGHTS OF AGENT AND HOLDERS; LIMITATIONS ON AGENT'S AND HOLDERS'
OBLIGATIONS.
(a) It is expressly agreed by each Grantor that, anything herein to the
contrary notwithstanding, such Grantor shall remain liable under each of its
Contracts and each of its Licenses to observe and perform all the conditions and
obligations to be observed and performed by it thereunder and each Grantor shall
perform all of its duties and obligations thereunder, all in accordance with and
pursuant to the terms and provisions of each such Contract or License. Neither
Agent nor any Holder shall have any obligation or liability under any Contract
or License by reason of or arising out of this Security Agreement or the
granting to Agent or any Holder of a security interest therein or the receipt by
Agent or Holders of any payment relating to any Contract or License pursuant
hereto, nor shall Agent or any Holder be required or obligated in any manner to
perform or fulfill any of the obligations of any Grantor under or pursuant to
any Contract or License, or to make any payment, or to make any inquiry as to
the nature or the sufficiency of any payment received by it or the sufficiency
of any performance by any party under any Contract or License, or to present or
file any claim, or to take any action to collect or enforce any performance or
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) Agent authorizes each Grantor to collect its Accounts provided that
such collection is performed in a prudent and businesslike manner, and Agent for
the ratable benefit of Holders may, upon the occurrence and during the
continuation of any Default or Event of Default and without notice, limit or
terminate such authority at any time. If required by Agent at any time during
the continuation of any Default or Event of Default, any Proceeds, when first
collected by any Grantor, received in payment of any such Account or in payment
for any of its Inventory or on account of any of its Contracts, shall be
promptly deposited by such Grantor in precisely the form received (with all
necessary endorsements) in a special bank account maintained by Agent for the
ratable benefit of Holders subject to withdrawal by Agent for the ratable
benefit of Holders only, as hereinafter provided, and until so turned over shall
be deemed to be held in trust by such Grantor for and as Agent's property for
the ratable benefit of Holders and shall not be commingled with such Grantor's
other funds or properties. Such Proceeds, when deposited, shall continue to be
collateral security for all of the Secured Obligations and shall not constitute
payment thereof until applied as hereinafter provided. Agent shall apply all or
a part of the funds on deposit in said special account to the principal of or
interest on or both in respect of any of the Secured Obligations in accordance
with the provisions of SECTION 8(D) hereof and any part of such funds which
Agent elects not so to apply and deems not required as collateral security for
the Secured Obligations shall be paid over from time to time by Agent to such
Grantor. If a Default or an Event of Default has occurred and is continuing, at
the request of Agent such Grantor shall deliver to Agent for the ratable benefit
of Holders all original and other documents evidencing, and relating to, the
sale and delivery of such Inventory or the performance of labor or service that
created such Accounts, including, without limitation, all original orders,
invoices, and shipping receipts; and, prior to the occurrence of a Default or an
Event of Default such Grantor shall deliver photocopies thereof to Agent for the
ratable benefit of Holders at the Agent's request.
(c) Agent may at any time, upon the occurrence and during the continuation
of any Default or Event of Default (whether or not waived), after first
notifying each Grantor of its intention to do so, notify Account Debtors of such
Grantor, parties to the Contracts of such Grantor, obligors of Instruments of
such Grantor and obligors in respect of Chattel Paper of such Grantor that the
Accounts and the right, title, and interest of such Grantor in and under such
Contracts, such Instruments, and such Chattel Paper have been assigned to Agent
for the ratable benefit of Holders and that payments shall be made directly to
Agent for the ratable benefit of Holders. Upon the request of Agent, such
Grantor will so notify such Account Debtors, parties to such Contracts, obligors
of such Instruments, and obligors in respect of such Chattel Paper. Upon the
occurrence and during the continuation of a Default or an Event of Default
(whether or not waived) Agent may in its own name or in the name of others
communicate with such Account Debtors, parties to such Contracts, obligors of
such Instruments, and obligors in respect of such Chattel Paper to verify with
such Persons to Agent's satisfaction the existence, amount, and terms of any
such Accounts, Contracts, Instruments, or Chattel Paper.
(d) Upon reasonable prior notice to each Grantor (unless a Default or an
Event of Default has occurred and is continuing, in which case no notice is
necessary), Agent shall have the right, during normal business hours, to make
test verifications of the Accounts and physical verifications of the Inventory
in any reasonable manner and through any reasonable medium, and such Grantor
agrees to furnish all such assistance and information as Agent may require in
connection therewith. Each Grantor at its expense will cause certified
independent public accountants satisfactory to Agent to prepare and deliver to
Agent for the ratable benefit of Holders
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upon Agent's reasonable request, the following reports: (i) a reconciliation of
all its Accounts; (ii) an aging of all its Accounts; (iii) trial balances; and
(iv) a test verification of such Accounts as Agent may request. Such Grantor at
its expense will cause certified independent public accountants satisfactory to
Agent to prepare and deliver to Agent for the ratable benefit of Holders upon
Agent's reasonable request the results of the annual physical verification of
its Inventory made or observed by such accountants.
4. REPRESENTATIONS AND WARRANTIES. Each Grantor hereby represents and
warrants that:
(a) Except for the security interest granted to Agent for the ratable
benefit of Holders pursuant to this Security Agreement and other Permitted
Liens, such Grantor is the sole owner of each item of the Collateral in which it
purports to grant a security interest hereunder, having good and marketable
title thereto, free and clear of any and all Liens.
(b) No effective security agreement, financing statement, equivalent
security or lien instrument, or continuation statement covering all or any part
of the Collateral is on file or of record in any public office, except such as
may have been filed by such Grantor in favor of Agent for the ratable benefit of
Holders pursuant to this Security Agreement or such as relate to other Permitted
Liens.
(c) Upon appropriate financing statements having been filed in the
jurisdictions listed on Schedule I hereto, this Security Agreement is effective
to create a valid and continuing priority lien on and priority perfected
security interest in the Collateral with respect to which a security interest
may be perfected by filing pursuant to the UCC, in favor of Agent for the
ratable benefit of Holders, prior to all other Liens except Permitted Liens
(other than the Lien granted to Agent for the ratable benefit of Holders under
this Security Agreement), and is enforceable as such as against creditors of and
purchasers from such Grantor (other than purchasers of Inventory in the ordinary
course of business) and as against any purchaser of real property where any of
the Equipment is located and any present or future creditor obtaining a Lien on
such real property.
(d) Such Grantor's principal place of business and the place where its
records concerning the Collateral are kept and the location of its Inventory and
Equipment are set forth on Schedule II hereto, and such Grantor will not change
such principal place of business or remove such records or change the location
of its Inventory and Equipment unless it has taken such action as is necessary
to cause the security interest of Agent for the ratable benefit of Holders in
the Collateral to continue to be perfected in accordance with the provisions of
SECTION 4(C) hereof. Such Grantor will not change its principal place of
business or the place where its records concerning the Collateral are kept or
change the location of its Inventory and Equipment without giving thirty (30)
days' prior written notice thereof to Agent.
(e) The amount represented by such Grantor to Agent from time to time as
owing by each Account Debtor or by all Account Debtors in respect of the
Accounts of such Grantor will at such time be the correct amount actually and
unconditionally owing by such Account Debtors thereunder.
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5. COVENANTS. Each Grantor covenants and agrees with Agent and Holders that
from and after the date of this Security Agreement and until the Secured
Obligations are fully satisfied:
(a) FURTHER DOCUMENTATION; PLEDGE OF INSTRUMENTS. Upon the written request
of Agent, and at the sole expense of such Grantor, such Grantor will promptly
and duly execute and deliver any and all such further instruments and documents
and take such further action as Agent may reasonably deem desirable to obtain
the full benefits of this Security Agreement and of the rights and powers herein
granted, including, without limitation, using their best efforts to secure all
consents and approvals necessary or appropriate for the assignment to Agent for
the ratable benefit of Holders of any Contract held by such Grantor or in which
such Grantor has any rights not heretofore assigned, the filing of any financing
or continuation statements under the UCC with respect to the Liens and security
interests granted hereby, transferring Collateral to the Agent's possession (if
a security interest in such Collateral can be perfected by possession) for the
ratable benefit of Holders, placing the interest of Agent as lienholder on the
certificate of title of any vehicle, and using its best efforts to obtain
waivers of Liens from landlords and mortgagees. Such Grantor also hereby
authorizes Agent to file any such financing or continuation statement without
the signature of such Grantor to the extent permitted by applicable law.
(b) MAINTENANCE OF RECORDS. Such Grantor will keep and maintain at its own
cost and expense satisfactory and complete records of the Collateral, including,
without limitation, a record of all payments received and all credits granted
with respect to the Collateral and all other dealings with the Collateral. If
requested by Agent, such Grantor will xxxx its books and records pertaining to
the Collateral to evidence this Security Agreement and the security interests
granted hereby. If requested by Agent, all Chattel Paper will be marked with the
following legend: "This writing and the obligations evidenced or secured hereby
are subject to the security interest of Xxxxxx Xxxxx, as Agent for the ratable
benefit of Holders." If requested by Agent, the security interest of the Agent
shall be noted on the certificate of title of each vehicle. For Agent's and
Holders' further security, such Grantor agrees that Agent and Holders shall have
a special property interest in all of such Grantor's books and records
pertaining to the Collateral and, upon the occurrence and during the
continuation of any Default or Event of Default, and upon request by Agent, such
Grantor shall deliver and turn over any such books and records to Agent for the
ratable benefit of Holders or to its representatives. Prior to the occurrence of
a Default or an Event of Default and upon reasonable notice from Agent, such
Grantor shall permit any representative of Agent reasonable access to inspect
such books and records and will provide photocopies thereof to Agent.
(c) INDEMNIFICATION. In any suit, proceeding, or action brought by Agent or
any Holder, or against any Agent or Holder by a third party, relating to any
Account, Chattel Paper, Contract, General Intangible, or Instrument for any sum
owing thereunder, or to enforce any provision of any Account, Chattel Paper,
Contract, General Intangible, or Instrument, such Grantor will save, indemnify,
and keep Agent and Holders harmless from and against all expense, loss, or
damage suffered by reason of any defense, setoff, counterclaim, recoupment, or
reduction of liability whatsoever of the obligor thereunder, arising out of a
breach by such Grantor of any obligation thereunder or arising out of any other
agreement, indebtedness, or liability at any time owing to, or in favor of, such
obligor or its successors from such Grantor, and all such obligations of such
Grantor shall be and remain enforceable against and only against such Grantor
and shall not be enforceable against Agent or Holders.
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(d) COMPLIANCE WITH LAWS. Such Grantor will comply, in all material
respects, with all acts, rules, regulations, orders, decrees, and directions of
any governmental authority, applicable to the Collateral or any part thereof or
to the operation of such Grantor's business; PROVIDED, HOWEVER, that such
Grantor may contest any act, regulation, order, decree, or direction in any
reasonable manner that shall not in the reasonable opinion of Agent adversely
affect Agent's or Holders' rights hereunder or adversely affect the first
priority of its security interest in the Collateral.
(e) LIMITATION ON LIENS ON COLLATERAL. Such Grantor will not create,
permit, or suffer to exist, and will defend the Collateral against and take such
other action as is necessary to remove, any Lien on the Collateral except
Permitted Liens, and will defend the right, title, and interest of Agent and
Holders in and to any of such Grantor's rights under the Chattel Paper,
Contracts, Documents, General Intangibles, and Instruments and to the Equipment
and Inventory and in and to the Proceeds thereof against the claims and demands
of all Persons whomsoever.
(f) FURTHER IDENTIFICATION OF COLLATERAL. Such Grantor will if so requested
by Agent furnish to Agent for the ratable benefit of Holders, as often as Agent
reasonably requests, statements and schedules further identifying and describing
the Collateral and such other reports in connection with the Collateral as Agent
may reasonably request, all in reasonable detail.
(g) MAINTENANCE OF EQUIPMENT. Such Grantor will keep and maintain the
Equipment in good operating condition sufficient for the continuation of the
business conducted by such Grantor on a basis consistent with past practices,
and such Grantor will provide all maintenance and service and all repairs
necessary for such purpose.
(h) CONTINUOUS PERFECTION. Such Grantor will not change its name, identity,
or corporate structure in any manner that might make any financing or
continuation statement filed in connection herewith seriously misleading within
the meaning of section 9507 of the UCC (or any other then applicable provision
of the UCC) unless such Grantor shall have given Agent at least thirty (30)
days' prior written notice thereof and shall have taken all action (or made
arrangements to take such action substantially simultaneously with such change
if it is impossible to take such action in advance) necessary or reasonably
requested by Agent to amend such financing statement or continuation statement
so that it is not seriously misleading.
6. AGENT'S APPOINTMENT AS ATTORNEY-IN-FACT.
(a) Each Grantor hereby irrevocably constitutes and appoints Agent and any
officer or agent thereof, with full power of substitution, as its true and
lawful attorney-in-fact with full irrevocable power and authority in the place
and stead of such Grantor and in the name of such Grantor or in its own name,
from time to time in Agent's discretion, for the purpose of carrying out the
terms of this Security Agreement, to take any and all appropriate action and to
execute and deliver any and all documents and instruments that may be necessary
or desirable to accomplish the purposes of this Security Agreement and, without
limiting the generality of the foregoing, hereby gives Agent the power and
right, on behalf of such Grantor, without notice to or assent by such Grantor to
do the following:
(i) to ask, demand, collect, receive, and give acquittances and receipts
for any and all moneys due and to become due under any Collateral and, in the
name of such Grantor or its own name or otherwise, to take possession of and
endorse and collect any checks, drafts,
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notes, acceptances, or other Instruments for the payment of moneys due under any
Collateral and to file any claim or to take any other action or proceeding in
any court of law or equity or otherwise deemed appropriate by Agent for the
purpose of collecting any and all such moneys due under any Collateral whenever
payable and to file any claim or to take any other action or proceeding in any
court of law or equity or otherwise deemed appropriate by Agent for the purpose
of collecting any and all such moneys due under any Collateral whenever payable;
(ii) to pay or discharge taxes, Liens, security interests, or other
encumbrances levied or placed on or threatened against the Collateral, to effect
any repairs or any insurance called for by the terms of this Security Agreement
and to pay all or any part of the premiums therefor and the costs thereof; and
(iii) (A) to direct any party liable for any payment under any of the
Collateral to make payment of any and all moneys due, and to become due
thereunder, directly to Agent for the ratable benefit of Holders or as Agent
shall direct; (B) to receive payment of and receipt for any and all moneys,
claims and other amounts due, and to become due at any time, in respect of or
arising out of any Collateral; (C) to sign and indorse any invoices, freight or
express bills, bills of lading, storage or warehouse receipts, drafts against
debtors, assignments, verifications, and notices in connection with accounts and
other Documents constituting or relating to the Collateral; (D) to commence and
prosecute any suits, actions, or proceedings at law or in equity in any court of
competent jurisdiction to collect the Collateral or any part thereof and to
enforce any other right in respect of any Collateral; (E) to defend any suit,
action, or proceeding brought against such Grantor with respect to any
Collateral; (F) to settle, compromise, or adjust any suit, action, or proceeding
described above and, in connection therewith, to give such discharges or
releases as Agent may deem appropriate; (G) to license or, to the extent
permitted by an applicable license, sublicense, whether general, special, or
otherwise, and whether on an exclusive or non-exclusive basis, any Copyright,
Patent, or Trademark, throughout the world for such term or terms, on such
conditions, and in such manner, as Agent shall in its sole discretion determine;
and (H) generally to sell, transfer, pledge, make any agreement with respect to,
or otherwise deal with any of the Collateral as fully and completely as though
Agent were the absolute owner thereof for all purposes, and to do, at Agent's
option and such Grantor's expense, at any time, or from time to time, all acts
and things that Agent reasonably deems necessary to protect, preserve, or
realize upon the Collateral and Agent's and Holders' Lien therein, in order to
effect the intent of this Security Agreement, all as fully and effectively as
such Grantor might do.
(b) Agent agrees that, except upon the occurrence and during the
continuation of a Default or an Event of Default, it will forebear from
exercising the power of attorney or any rights granted to Agent for the ratable
benefit of Holders pursuant to this SECTION 6. Each Grantor hereby ratifies, to
the extent permitted by law, all that said attorneys shall lawfully do or cause
to be done by virtue hereof. The power of attorney granted pursuant to this
SECTION 6 is a power coupled with an interest and shall be irrevocable until the
Secured Obligations are indefeasibly paid in full.
(c) The powers conferred on Agent for the ratable benefit of Holders
hereunder are solely to protect Agent's and Holders' interests in the Collateral
and shall not impose any duty upon it to exercise any such powers. Agent shall
be accountable only for amounts that it actually receives as a result of the
exercise of such powers and neither it nor any of its officers, directors,
employees, or agents shall be responsible to any Grantor for any act or failure
to act, except for its own gross negligence or willful misconduct.
Page 10
(d) Each Grantor also authorizes Agent, at any time and from time to time
upon the occurrence and during the continuation of any Default or Event of
Default, (i) to communicate in its own name with any party to any Contract with
regard to the assignment of the right, title, and interest of such Grantor in
and under the Contracts hereunder and other matters relating thereto and (ii) to
execute, in connection with the sale provided for in SECTION 8 hereof, any
endorsements, assignments, or other instruments of conveyance or transfer with
respect to the Collateral.
7. PERFORMANCE BY AGENT OF GRANTORS' OBLIGATIONS. If any Grantor
fails to perform or comply with any of its agreements contained herein and
Agent, as provided for by the terms of this Security Agreement, shall itself
perform or comply, or otherwise cause performance or compliance, with such
agreement, the reasonable expenses of Agent incurred in connection with such
performance or compliance, together with interest thereon at the rate then in
effect in respect of the Convertible Note Loans, shall be payable by such
Grantor to Agent for the ratable benefit of Holders on demand and shall
constitute Secured Obligations secured hereby.
8. REMEDIES, RIGHTS UPON DEFAULT.
(a) If any Default or Event of Default shall occur and be continuing, Agent
may, and shall at the request of the Required Holders, exercise in addition to
all other rights and remedies granted to it in this Security Agreement and in
any other instrument or agreement securing, evidencing, or relating to the
Secured Obligations, all rights and remedies of a secured party under the UCC.
Without limiting the generality of the foregoing, each Grantor expressly agrees
that in any such event Agent, without demand of performance or other demand,
advertisement, or notice of any kind (except the notice specified below of time
and place of public or private sale) to or upon such Grantor or any other person
(all and each of which demands, advertisements, and/or notices are hereby
expressly waived to the maximum extent permitted by the UCC and other applicable
law), may forthwith collect, receive, appropriate, and realize upon the
Collateral, or any part thereof, and/or may forthwith sell, lease, assign, give
an option or options to purchase, or sell or otherwise dispose of and deliver
such Collateral (or contract to do so), or any part thereof, in one or more
parcels at public or private sale or sales, at any exchange or broker's board or
at any of Agent's offices or elsewhere at such prices as it may deem best, for
cash or on credit or for future delivery without assumption of any credit risk.
Agent shall have the right upon any such public sale or sales, and, to the
extent permitted by law, upon any such private sale or sales, to purchase the
whole or any part of such Collateral so sold, free of any right or equity of
redemption, which equity of redemption such Grantor hereby releases. Each
Grantor further agrees, at Agent's request, to assemble the Collateral and make
it available to Agent at places that Agent shall reasonably select, whether at
such Grantor's premises or elsewhere. The Agent shall apply the net proceeds of
any such collection, recovery, receipt, appropriation, realization, or sale, as
provided in SECTION 8(D) hereof, such Grantor remaining liable for any
deficiency remaining unpaid after such application, and only after so paying
over such net proceeds and after the payment by Agent of any other amount
required by any provision of law, including section 9615(a)(3) of the UCC, need
Agent account for the surplus, if any, to such Grantor. To the maximum extent
permitted by applicable law, each Grantor waives all claims, damages, and
demands against Agent and Holders arising out of the repossession, retention, or
sale of the Collateral except such as arise out of the gross negligence or
willful misconduct of Agent or any Holder. Each Grantor agrees that the Agent
need not give more than ten (10) days' notice (which notification shall be
deemed given when mailed or delivered on an overnight basis, postage prepaid,
addressed to such Grantor at its address referred to in
Page 11
SECTION 12 hereof) of the time and place of any public sale or of the time after
which a private sale may take place and that such notice is reasonable
notification of such matters. Each Grantor shall remain liable for any
deficiency if the proceeds of any sale or disposition of the Collateral are
insufficient to pay all amounts to which Agent and Holders are entitled, such
Grantor also being liable for the fees of any attorneys employed by Agent and
Holders to collect such deficiency.
(b) Each Grantor also agrees to pay all costs of Agent and Holders,
including, without limitation, reasonable attorneys' fees, incurred in
connection with the enforcement of any of its rights and remedies hereunder.
(c) Each Grantor hereby waives presentment, demand, protest, or any notice
(to the maximum extent permitted by applicable law) of any kind in connection
with this Security Agreement or any Collateral.
(d) The Proceeds of any sale, disposition, or other realization upon all or
any part of the Collateral shall be distributed by Agent in the following order:
first to payment in full of all the Secured Obligations and then to pay to the
Grantors, or their representatives or as a court of competent jurisdiction may
direct, any surplus then remaining from such Proceeds.
(e) For purposes of this SECTION 8, the term "Required Holders" shall mean
Holders holding 60% or more of the then outstanding Secured Obligations.
9. GRANT OF LICENSE TO USE INTELLECTUAL PROPERTY COLLATERAL. For the
purpose of enabling Agent to exercise rights and remedies under SECTION 8 hereof
at such time as Agent, without regard to this SECTION 9, shall be lawfully
entitled to exercise such rights and remedies, each Grantor hereby grants to
Agent for the ratable benefit of Holders an irrevocable, non-exclusive license
(exercisable without payment of royalty or other compensation to any Grantor) to
use, license, or sublicense any Copyright, Patent, Trade Secret, or Trademark,
now owned or hereafter acquired by such Grantor, and wherever the same may be
located, and including, without limitation, in such license reasonable access to
all media in which any of the licensed items may be recorded or stored and to
all computer and automatic machinery software and programs used for the
compilation or printout thereof.
10. APPOINTMENT OF AGENT; LIMITATION ON AGENT'S DUTY IN RESPECT OF
COLLATERAL. Agent, or any successor thereof, has been appointed as Agent
hereunder by Holders under, and shall be entitled to the benefits of, the
Purchase Agreements. Agent shall be obligated and shall have the right hereunder
to make demands, to give notices, to exercise or refrain from exercising any
rights, and to take or refrain from taking action (including, without
limitation, the release or substitution of Collateral) solely in accordance with
this Security Agreement and the Purchase Agreements, and Holders shall be bound
thereby. Agent shall not have any duty as to any Collateral in its possession or
control or in the possession or control of any agent or nominee of it or any
income thereon or as to the preservation of rights against prior parties or any
other rights pertaining thereto, except that Agent shall use reasonable care
with respect to the Collateral in its possession or under its control.
Furthermore, neither the Agent nor any of its officers, directors, agents, or
employees shall be liable for any action taken or omitted by any of them
hereunder or any other Transaction Document or in connection herewith or
therewith, unless caused by it or their gross negligence or willful misconduct.
Upon request of any Grantor, Agent shall account for any moneys received by it
in respect of any foreclosure on or disposition of the Collateral.
Page 12
11. REINSTATEMENT. This Security Agreement shall remain in full force and
effect and continue to be effective should any petition be filed by or against
any Grantor for liquidation or reorganization, should any Grantor become
insolvent or make an assignment for the benefit of creditors, or should a
receiver or trustee be appointed for all or any significant part of any
Grantor's assets, and shall continue to be effective or be reinstated, as the
case may be, if at any time payment and performance of the Secured Obligations,
or any part thereof, is, pursuant to applicable law, rescinded or reduced in
amount, or must otherwise be restored or returned by any obligee of the Secured
Obligations, whether as a "voidable preference", "fraudulent conveyance", or
otherwise, all as though such payment or performance had not been made. In the
event that any payment, or any part thereof, is rescinded, reduced, restored, or
returned, the Secured Obligations shall be reinstated and deemed reduced only by
such amount paid and not so rescinded, reduced, restored, or returned.
12. WAIVER OF RIGHTS UNDER SECTION 362 OF THE BANKRUPTCY CODE. In the event
that one or more of the Grantors files a petition under the United States
Bankruptcy Code or under any other similar federal or state law, each such
Grantor unconditionally and irrevocably agrees that the Agent, on behalf of the
Holders, shall be entitled, and each such Grantor hereby unconditionally and
irrevocably consents, to relief from the automatic stay so as to allow the Agent
to exercise its rights and remedies under this Agreement with respect to the
Collateral, including taking possession of the Collateral, foreclosing on its
lien or security interests or otherwise exercising its rights and remedies with
respect to the Collateral. In such event, each such Grantor hereby agrees it
shall not, in any manner, oppose or otherwise delay any motion filed by the
Agent for relief from the automatic stay.
13. NOTICES. Except as otherwise provided herein, whenever it is provided
herein that any notice, demand, request, consent, approval, declaration, or
other communication shall or may be given to or served upon any of the parties
by any other party, or whenever any of the parties desires to give or serve upon
any other communication with respect to this Security Agreement, each such
notice, demand, request, consent, approval, declaration, or other communication
shall be in writing and either shall be delivered in person with receipt
acknowledged or sent by registered or certified mail, return receipt requested,
postage prepaid, or by telecopy, and confirmed by telecopy answerback addressed
as follows:
(a) If to the Agent, at:
Xxxxxx Xxxxx
0000 Xxxxxxx Xxxxxx Xxxx., Xxxxx 000
Xxxxxxxx Xxxxx, XX 00000
Facsimile Number: (000) 000-0000
With copies to:
Xxxxxxx, Xxxxxxxx & Xxxxx, Professional Corporation
0000 Xxxxxxxx Xxxxxxxxx, Xxxxx 000
Xxx Xxxxxxx, Xxxxxxxxxx 00000
Attn: Xxxxxx Xxxx
Facsimile Number: (000) 000-0000
Page 13
(b) If to any Grantor, at its principal business
address specified on Schedule II hereto
With a copy to:
Akin, Gump, Strauss, Xxxxx & Xxxx, L.L.P.
0000 Xxxxxxx Xxxx Xxxx, 00xx Xxxxx
Xxx Xxxxxxx, Xxxxxxxxxx 00000
Attn: Xxxxxx Xxxxxxxx
Facsimile Number: (000) 000-0000
or at such other address as may be substituted by notice given as herein
provided. The giving of any notice required hereunder may be waived in writing
by the party entitled to receive such notice. Every notice, demand, request,
consent, approval, declaration, or other communication hereunder shall be deemed
to have been duly given or served on the date on which personally delivered,
with receipt acknowledged, telecopied, and confirmed by telecopy answerback, or
three (3) Business Days after the same shall have been deposited in the United
States mail. Failure or delay in delivering copies of any notice, demand,
request, consent, approval, declaration, or other communication to the persons
designated above to receive copies shall in no way adversely affect the
effectiveness of such notice, demand, request, consent, approval, declaration,
or other communication.
14. SEVERABILITY. Any provision of this Security Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
15. NO WAIVER; CUMULATIVE REMEDIES. Neither Agent nor any Holder shall by
any act, delay, omission, or otherwise be deemed to have waived any of its
rights or remedies hereunder, and no waiver shall be valid unless in writing,
signed by Agent, and then only to the extent therein set forth. A waiver by
Agent of any right or remedy hereunder on any one occasion shall not be
construed as a bar to any right or remedy which Agent would otherwise have had
on any future occasion. No failure to exercise nor any delay in exercising on
the part of Agent, any right, power, or privilege hereunder, shall operate as a
waiver thereof, nor shall any single or partial exercise of any right, power or
privilege hereunder preclude any other or future exercise thereof or the
exercise of any other right, power, or privilege. The rights and remedies
hereunder provided are cumulative and may be exercised singly or concurrently,
and are not exclusive of any rights and remedies provided by law. None of the
terms or provisions of this Security Agreement may be waived, altered, modified,
or amended except by an instrument in writing, duly executed by Agent and, where
applicable by the Grantors.
16. SUCCESSORS AND ASSIGNS; GOVERNING LAW.
(a) This Security Agreement and all obligations of each Grantor hereunder
shall be binding upon the successors and assigns of such Grantor, and shall,
together with the rights and remedies of Agent hereunder, inure to the benefit
of Agent, Holders, all future holders of the Convertible Notes and their
respective successors and assigns. No sales of participations, other
Page 14
sales, assignments, transfers, or other dispositions of any agreement governing
or instrument evidencing the Secured Obligations or any portion thereof or
interest therein shall in any manner affect the security interest granted to
Agent for the ratable benefit of Holders, hereunder.
(b) This Security Agreement shall be governed by, and be construed and
interpreted in accordance with, the laws of the State of California, without
regard to the provisions thereof relating to conflict of laws.
17. USE AND PROTECTION OF INTELLECTUAL PROPERTY COLLATERAL. Notwithstanding
anything to the contrary contained herein, unless a Default or Event of Default
has occurred and is continuing, Agent shall from time to time execute and
deliver, upon the written request of any Grantor, any and all instruments,
certificates, or other documents, in the form so requested, necessary or
appropriate in the judgment of such Grantor to permit such Grantor to continue
to exploit, license, use, enjoy, and protect the Intellectual Property
Collateral.
18. FURTHER INDEMNIFICATION. Each Grantor agrees to pay, and to save Agent
and each Holder harmless from, any and all liabilities with respect to, or
resulting from any delay in paying, any and all excise, sales, or other similar
taxes that may be payable or determined to be payable with respect to any of the
Collateral or in connection with any of the transactions contemplated by this
Security Agreement.
19. WAIVER OF JURY TRIAL. Each Grantor waives all right to trial by jury in
any action or proceeding to enforce or defend any rights or remedies hereunder,
or under the Purchase Agreements, or relating to each of the foregoing.
20. SECTION TITLES. The Section titles contained in this Security Agreement
are and shall be without substantive meaning or content of any kind whatsoever
and are not a part of the agreement between the parties hereto.
21. COUNTERPARTS. This Security Agreement may be executed in any number of
counterparts, which shall, collectively and separately, constitute one
agreement.
Page 15
IN WITNESS WHEREOF, each of the parties hereto has caused this Security
Agreement to be executed and delivered by its duly authorized officer on the
date first set forth above.
BRILLIANT DIGITAL ENTERTAINMENT, INC.,
a Delaware corporation
By: /S/ XXXXXX XXXXXX
----------------------------
Xxxxxx Xxxxxx
Title: Chief Operating Officer and
Chief Financial Officer
SUBSIDIARIES:
BRILLIANT STUDIOS, INC.,
a Delaware corporation
By: /S/ XXXXX XXXXXXXXXX
----------------------------
Xxxxx Xxxxxxxxxx
Title: President
B3D, INC.
a Delaware corporation
By: /S/ XXXXX XXXXXXXXXX
----------------------------
Xxxxx Xxxxxxxxxx
Title: President
Accepted and acknowledged by:
XXXXXX XXXXX,
as Agent for the ratable
benefit of Holders
/S/ XXXXXX XXXXX
-----------------------------
Xxxxxx Xxxxx
Page 16
SCHEDULE I
FILINGS
GRANTORS JURISDICTION FILING OFFICE
-------- ------------ -------------
Brilliant Digital Entertainment, Inc.; Delaware Secretary of State
Brilliant Studios, Inc.; and B3D, Inc.
SCHEDULE II
LOCATION OF RECORDS AND CERTAIN COLLATERAL
PRINCIPAL PLACE OF LOCATION OF
BUSINESS AND INVENTORY
GRANTOR LOCATION OF RECORDS AND EQUIPMENT
------- ------------------- --------------
Brilliant Digital 0000 Xxxxxxx Xxxxxx Xxxx. 0000 Xxxxxxx Xxxxxx Xxxx.
Entertainment, Inc. Xxxxx 000 Xxxxx 000
Xxxxxxxx Xxxxx, XX 00000 Xxxxxxxx Xxxxx, XX 00000
Facsimile: (000) 000-0000 Facsimile: (000) 000-0000
Brilliant Studios, Inc. 0000 Xxxxxxx Xxxxxx Xxxx. 6355 Topanga Canyon Blvd.
Suite 120 Suite 120
Woodland Hills, CA 91367 Xxxxxxxx Xxxxx, XX 00000
Facsimile: (000) 000-0000 Facsimile: (000) 000-0000
B3D, Inc. 0000 Xxxxxxx Xxxxxx Xxxx. 6355 Topanga Canyon Blvd.
Suite 120 Suite 120
Woodland Hills, CA 91367 Xxxxxxxx Xxxxx, XX 00000
Facsimile: (000) 000-0000 Facsimile: (000) 000-0000
and and
Brilliant Interactive Ideas Brilliant Interactive Ideas
Pty. Ltd. Pty. Ltd.
Xxxxx 0 Xxxxx 0
00 Xxxxxxx Xxxxxx 00 Xxxxxxx Xxxxxx
Xxxxx Xxxxxxxx, XXX 0000 Xxxxx Xxxxxxxx, XXX 0000
Xxxxxxxxx Xxxxxxxxx
