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EXHIBIT 10.40C
SECURITY AGREEMENT
(J-X ENTERPRISES, INC.)
This Agreement, dated as of October 21, 1997, is made by and
between J-X ENTERPRISES, INC., a New York corporation (the "Debtor"), and
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION, a national banking association
(the "Secured Party").
Road Champs Limited, a Hong Kong limited company ("Road Champs
Limited"), JP (HK) Limited, a Hong Kong limited company ("JP (HK) Limited") and
JAKKS Pacific (HK) Limited, a Hong Kong limited company ("JAKKS Pacific (HK)
Limited"; and together with Road Champs Limited and JP (HK) Limited,
collectively, the "Borrowers") have requested that the Secured Party make loans
and extend other credit and financial accommodations to the Borrowers.
As a condition to making loans and extending other credit and
financial accommodations to the Borrowers, the Secured Party has required, among
other things, the execution and delivery of the Debtor's Guaranty of even date
herewith, guaranteeing the payment and performance of all of the Obligations
(defined below) of the Borrowers (the "Guaranty").
As a further condition to making loans and extending other
credit and financial accommodations to the Borrowers, the Secured Party has
required the execution and delivery of this Agreement by the Debtor.
ACCORDINGLY, in consideration of the mutual covenants
contained herein, the parties hereby agree as follows:
1. Definitions. As used herein, the following terms have
the meanings set forth below:
"Accounts" means each and every account and other right of the
Debtor to the payment of money, whether such right to payment now
exists or hereafter arises, whether such right to payment arises out of
a sale, lease or other disposition of goods or other property by the
Debtor, out of a rendering of services by the Debtor, out of a loan by
the Debtor, out of the overpayment of taxes or other liabilities of the
Debtor, or otherwise arises under any contract or agreement, whether
such right to payment is or is not already earned by performance, and
howsoever such right to payment may be evidenced, together with all
other rights and interests (including all liens and security interests)
which the Debtor may at any time have by law or agreement against any
account debtor or other obligor obligated to make any such payment or
against any of the property of such account debtor or other obligor,
all including but not limited to all present and future debt
instruments, chattel papers, accounts, loans and obligations
receivable, tax refunds and royalties, including, without limitation,
all rights to
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payment and/or proceeds in respect of all letters of credit which are
issued for the benefit of the Debtor or in which the Debtor has any
interest.
"Collateral" means the Accounts, Inventory and Investment
Property, together with all substitutions and replacements for,
products and proceeds of, any of the foregoing property, all
accessions, all accessories, attachments, parts, equipment and repairs
now or hereafter attached or affixed to or used in connection with any
of the foregoing, and all warehouse receipts, bills of lading and other
documents of title now or hereafter covering any of the foregoing.
"Event of Default" has the meaning specified in Section 6.
"Inventory" means all inventory of the Debtor, whether now
owned or hereafter acquired and wherever located.
"Investment Property" means all of the Debtor's investment
property, whether now owned or hereafter acquired, including but not
limited to all securities, security entitlements, securities accounts,
commodity contracts, commodity accounts, stocks, bonds, mutual fund
shares, money market shares and U.S. Government securities.
"Obligations" means (i) each and every debt, liability and
obligation of every type and description which the Borrowers may now or
at any time hereafter owe to the Secured Party, whether such debt,
liability or obligation now exists or is hereafter created or incurred
and whether it is or may be direct or indirect, due or to become due,
or absolute or contingent, whether now existing or hereafter arising,
and (ii) each and every debt, liability and obligation of every type
and description which the Debtor may now or at any time hereafter owe
to the Secured Party, whether such debt, liability or obligation now
exists or is hereafter created or incurred and whether it is or may be
direct or indirect, due or to become due, or absolute or contingent,
including without limitation all obligations under the Guaranty.
"Security Interest" has the meaning specified in Section 2.
2. Security Interest. The Debtor hereby grants the
Secured Party a security interest (the "Security Interest") in the Collateral to
secure payment of the Obligations.
3. Representations, Warranties and Agreements. The
Debtor hereby represents, warrants and agrees as follows:
(a) TITLE. The Debtor (i) has absolute title to each
item of Collateral in existence on the date hereof, free and clear of
all security interests, liens and encumbrances, except the Security
Interest, (ii) will have, at the time the Debtor acquires any rights
in Collateral hereafter arising, absolute title to each such item of
Collateral free and clear of all security interests, liens and
encumbrances, except the Security Interest, (iii) will keep all
Collateral free and clear of all security interests,
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liens and encumbrances except the Security Interest and (iv) will
defend the Collateral against all claims or demands of all persons
other than the Secured Party. The Debtor will not sell or otherwise
dispose of the Collateral or any interest therein without the prior
written consent of the Secured Party, except that, until the occurrence
of an Event of Default and the revocation by the Secured Party of the
Debtor's right to do so, the Debtor may sell any inventory constituting
Collateral to buyers in the ordinary course of business.
(b) CHIEF EXECUTIVE OFFICE; IDENTIFICATION NUMBER. The
Debtor's chief executive office is located at the address set forth
under its signature below. The Debtor's federal employer identification
number is correctly set forth under its signature below.
(c) LOCATION OF COLLATERAL. As of the date hereof, the
tangible Collateral is located only in the states as set forth on
Exhibit A attached hereto. The Debtor will not permit any tangible
Collateral to be located in any state (and, if county filing is
required, in any county) in which a financing statement covering such
Collateral is required to be, but has not in fact been, filed in order
to perfect the Security Interest.
(d) CHANGES IN NAME OR LOCATION. The Debtor will not
change its business name, without prior written notice to the Secured
Party. The Debtor will not change its business address, without prior
written notice to the Secured Party.
(e) FIXTURES. The Debtor will not permit any tangible
Collateral to become part of or to be affixed to any real property
without first assuring to the reasonable satisfaction of the Secured
Party that the Security Interest will be prior and senior to any
interest or lien then held or thereafter acquired by any mortgagee of
such real property or the owner or purchaser of any interest therein.
No part of the tangible Collateral is now or will become so related to
particular real estate as to be a fixture.
(f) RIGHTS TO PAYMENT. Each right to payment and each
instrument, document, chattel paper and other agreement constituting or
evidencing Collateral is (or will be when arising, issued or assigned
to the Secured Party) the valid, genuine and legally enforceable
obligation, subject to no defense, setoff or counterclaim (other than
those arising in the ordinary course of business), of the account
debtor or other obligor named therein or in the Debtor's records
pertaining thereto as being obligated to pay such obligation. The
Debtor will neither agree to any material modification or amendment nor
agree to any forbearance, release or cancellation of any such
obligation without the Secured Party's prior written consent, and will
not subordinate any such right to payment to claims of other creditors
of such account debtor or other obligor, unless the Debtor in good
faith believes it is appropriate to do so in order to maximize recovery
from such account debtor or other obligor or such account debtor or
other obligor has a legitimate basis for requesting any of the
foregoing based on the Debtor's performance.
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(g) MISCELLANEOUS COVENANTS. The Debtor will:
(i) keep all tangible Collateral in good repair,
working order and condition, normal depreciation excepted, and
will, from time to time, replace any worn, broken or defective
parts thereof;
(ii) promptly pay all taxes and other
governmental charges levied or assessed upon or against any
Collateral or upon or against the creation, perfection or
continuance of the Security Interest;
(iii) at all reasonable times, permit the Secured
Party or its representatives to examine or inspect any
Collateral, wherever located, and to examine, inspect and copy
the Debtor's books and records pertaining to the Collateral
and its business and financial condition and to send and
discuss with account debtors and other obligors requests for
verifications of amounts owed to the Debtor;
(iv) keep accurate and complete records
pertaining to the Collateral and pertaining to the Debtor's
business and financial condition and submit to the Secured
Party such periodic reports concerning the Collateral and the
Debtor's business and financial condition as the Secured Party
may from time to time reasonably request;
(v) promptly notify the Secured Party of any
loss of or material damage to any Collateral or of any adverse
change, known to the Debtor, in the prospect of payment of any
sums due on or under any instrument, chattel paper, or account
constituting Collateral;
(vi) if the Secured Party at any time so requests
(whether the request is made before or after the occurrence of
an Event of Default), promptly deliver to the Secured Party
any instrument, document or chattel paper constituting
Collateral, duly endorsed or assigned by the Debtor;
(vii) at all times keep all tangible Collateral
insured against risks of fire (including so-called extended
coverage), theft, collision (in case of Collateral consisting
of motor vehicles) and such other risks and in such amounts as
the Secured Party may reasonably request, with any loss
payable to the Secured Party to the extent of its interest;
(viii) from time to time execute such financing
statements as the Secured Party may reasonably require in
order to perfect the Security Interest and, if any Collateral
consists of a motor vehicle, execute such documents as may be
required to have the Security Interest properly noted on a
certificate of title;
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(ix) pay when due or reimburse the Secured Party
on demand for all costs of collection of any of the
Obligations and all other out-of-pocket expenses (including in
each case all reasonable attorneys' fees) incurred by the
Secured Party in connection with the creation, perfection,
satisfaction, protection, defense or enforcement of the
Security Interest or the creation, continuance, protection,
defense or enforcement of this Agreement or any or all of the
Obligations, including expenses incurred in any litigation or
bankruptcy or insolvency proceedings;
(x) execute, deliver or endorse any and all
instruments, documents, assignments, security agreements and
other agreements and writings which the Secured Party may at
any time reasonably request in order to secure, protect,
perfect or enforce the Security Interest and the Secured
Party's rights under this Agreement; and
(xi) not use or keep any Collateral, or permit it
to be used or kept, for any unlawful purpose or in violation
of any federal, state or local law, statute or ordinance.
(h) SECURED PARTY'S RIGHT TO TAKE ACTION. If the Debtor
at any time fails to perform or observe any agreement contained in
Section 3(g), and if such failure continues for a period of ten
calendar days after the Secured Party gives the Debtor written notice
thereof (or, in the case of the agreements contained in clauses (vii)
and (viii) of Section 3(g), immediately upon the occurrence of such
failure, without notice or lapse of time), the Secured Party may (but
need not) perform or observe such agreement on behalf and in the name,
place and stead of the Debtor (or, at the Secured Party's option, in
the Secured Party's own name) and may (but need not) take any and all
other actions which the Secured Party may reasonably deem necessary to
cure or correct such failure (including, without limitation the payment
of taxes, the satisfaction of security interests, liens, or
encumbrances, the performance of obligations under contracts or
agreements with account debtors or other obligors, the procurement and
maintenance of insurance, the execution of financing statements, the
endorsement of instruments, and the procurement of repairs,
transportation or insurance); and, except to the extent that the effect
of such payment would be to render any loan or forbearance of money
usurious or otherwise illegal under any applicable law, the Debtor
shall thereupon pay the Secured Party on demand the amount of all
moneys expended and all costs and expenses (including reasonable
attorneys' fees) incurred by the Secured Party in connection with or as
a result of the Secured Party's performing or observing such agreements
or taking such actions, together with interest thereon from the date
expended or incurred by the Secured Party at the highest rate then
applicable to any of the Obligations. To facilitate the performance or
observance by the Secured Party of such agreements of the Debtor, the
Debtor hereby irrevocably appoints (which appointment is coupled with
an interest) the Secured Party, or its delegate, as the
attorney-in-fact of the Debtor with
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the right (but not the duty) from time to time to create, prepare,
complete, execute, deliver, endorse or file, in the name and on behalf
of the Debtor, any and all instruments, documents, financing
statements, applications for insurance and other agreements and
writings required to be obtained, executed, delivered or endorsed by
the Debtor under this Section 3 and Section 4.
4. Rights of Secured Party. At any time and from time to
time, whether before or after an Event of Default, the Secured Party may take
any or all of the following actions:
(a) ACCOUNT VERIFICATION. The Secured Party may verify
any accounts in the name of the Debtor or in its own name; and the
Debtor, whenever requested, shall furnish the Secured Party with
duplicate statements of the accounts, which statements may be mailed or
delivered by the Secured Party for that purpose. The Secured Party may
also at any time and from time to time telephone account debtors and
other obligors to verify accounts.
(b) COLLATERAL ACCOUNT. The Secured Party may establish a
collateral account for the deposit of checks, drafts and cash payments
made by the Debtor's account debtors. If a collateral account is so
established, the Debtor shall promptly deliver to the Secured Party,
for deposit into said collateral account, all payments on accounts and
chattel paper received by it. All such payments shall be delivered to
the Secured Party in the form received (except for the Debtor's
endorsement where necessary). Until so deposited, all payments on
accounts and chattel paper received by the Debtor shall be held in
trust by the Debtor for and as the property of the Secured Party and
shall not be commingled with any funds or property of the Debtor. All
deposits in said collateral account shall constitute proceeds of
Collateral and shall not constitute payment of any Obligation. At all
times prior to the occurrence of a Default or Event of Default, the
Secured Party shall permit the Debtor to withdraw all or any part of
the balance on deposit in said collateral account. Following the
occurrence and during the continuance of a Default or Event of Default,
the Secured Party may, at its option at any time, apply finally
collected funds on deposit in said collateral account to the payment of
the Obligations in such order of application as the Secured Party may
determine, or permit the Debtor to withdraw all or any part of the
balance on deposit in said collateral account.
(c) LOCKBOX. The Secured Party may, by notice to the
Debtor, require the Debtor to direct each of its account debtors to
make payments due under the relevant account or chattel paper directly
to a special lockbox to be under the control of the Secured Party. The
Debtor hereby authorizes and directs the Secured Party to deposit all
checks, drafts and cash payments received in said lockbox into the
collateral account established as set forth above.
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(d) DIRECT COLLECTION. The Secured Party may, after the
occurrence and during the continuance of an Event of Default, notify
any account debtor, or any other person obligated to pay any amount
due, that such chattel paper, account, or other right to payment has
been assigned or transferred to the Secured Party for security and
shall be paid directly to the Secured Party. If the Secured Party so
requests at any time, the Debtor will so notify such account debtors
and other obligors in writing and will indicate on all invoices to such
account debtors or other obligors that the amount due is payable
directly to the Secured Party. At any time after the Secured Party or
the Debtor gives such notice to an account debtor or other obligor, the
Secured Party may (but need not), in its own name or in the Debtor's
name, demand, xxx for, collect or receive any money or property at any
time payable or receivable on account of, or securing, any such chattel
paper, account, or other right to payment, or grant any extension to,
make any compromise or settlement with or otherwise agree to waive,
modify, amend or change the obligations (including collateral
obligations) of any such account debtor or other obligor.
5. Assignment of Insurance. The Debtor hereby assigns to
the Secured Party, as additional security for the payment of the Obligations,
any and all moneys (including but not limited to proceeds of insurance and
refunds of unearned premiums) due or to become due under, and all other rights
of the Debtor under or with respect to, any and all policies of insurance
covering the Collateral, and the Debtor hereby directs the issuer of any such
policy to pay any such moneys directly to the Secured Party. Both before and
after the occurrence of an Event of Default, the Secured Party may (but need
not), in its own name or in the Debtor's name, execute and deliver proofs of
claim, receive all such moneys, endorse checks and other instruments
representing payment of such moneys, and adjust, litigate, compromise or release
any claim against the issuer of any such policy.
6. Events of Default. Each of the following occurrences
shall constitute an event of default under this Agreement (herein called "Event
of Default"): (i) an Event of Default shall occur under any letter agreement,
loan agreement, reimbursement agreement, general customer agreement or other
agreement or document evidencing any of the Obligations; or (ii) the Debtor
shall fail to pay any or all of the Obligations when due or (if payable on
demand) on demand; or (iii) the Debtor shall fail to observe or perform any
covenant or agreement binding on it under the Guaranty of this Agreement.
7. Remedies upon Event of Default. Upon the occurrence
of an Event of Default and at any time thereafter, the Secured Party may
exercise any one or more of the following rights and remedies: ( i) declare all
unmatured Obligations to be immediately due and payable, and the same shall
thereupon be immediately due and payable, without presentment or other notice or
demand; ( ii) exercise and enforce any or all rights and remedies available upon
default to a secured party under the Uniform Commercial Code, including but not
limited to the right to take possession of any Collateral, proceeding without
judicial process or by judicial process (without a prior hearing or notice
thereof, which the Debtor hereby expressly waives), and the right to sell, lease
or otherwise dispose of any or all
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of the Collateral, and in connection therewith, the Secured Party may require
the Debtor to make the Collateral available to the Secured Party at a place to
be designated by the Secured Party which is reasonably convenient to both
parties, and if notice to the Debtor of any intended disposition of Collateral
or any other intended action is required by law in a particular instance, such
notice shall be deemed commercially reasonable if given (in the manner specified
in Section 9) at least 10 calendar days prior to the date of intended
disposition or other action; ( iii) exercise or enforce any or all other rights
or remedies available to the Secured Party by law or agreement against the
Collateral, against the Debtor or against any other person or property. The
Secured Party is hereby granted a nonexclusive, worldwide and royalty-free
license to use or otherwise exploit all trademarks, trade secrets, franchises,
copyrights and patents of the Debtor that the Secured Party deems necessary or
appropriate to the disposition of any Collateral.
8. Other Personal Property. Unless at the time the
Secured Party takes possession of any tangible Collateral, or within seven days
thereafter, the Debtor gives written notice to the Secured Party of the
existence of any goods, papers or other property of the Debtor, not affixed to
or constituting a part of such Collateral, but which are located or found upon
or within such Collateral, describing such property, the Secured Party shall not
be responsible or liable to the Debtor for any action taken or omitted by or on
behalf of the Secured Party with respect to such property without actual
knowledge of the existence of any such property or without actual knowledge that
it was located or to be found upon or within such Collateral.
9. Notice. All notices and other communications
hereunder shall be in writing and shall be ( a) personally delivered, ( b) sent
by first class United States mail, ( c) sent by overnight courier of national
reputation, or ( d) transmitted by telecopy, in each case addressed or
telecopied to the party to whom notice is being given at its address or
telecopier number as set forth below its signature or, as to each party, at such
other address or telecopier number as may hereafter be designated by such party
in a written notice to the other party complying as to delivery with the terms
of this Section. All such notices, requests, demands and other communications
shall be deemed to have been given on ( i) the date received if personally
delivered, ( ii) when deposited in the mail if delivered by mail, ( iii) the
date sent if sent by overnight courier, or ( iv) the date of transmission if
delivered by telecopy.
10. Miscellaneous. This Agreement has been duly and
validly authorized by all necessary corporate action. This Agreement does not
contemplate a sale of accounts, or chattel paper. This Agreement can be waived,
modified, amended, terminated or discharged, and the Security Interest can be
released, only explicitly in a writing signed by the Secured Party. A waiver
signed by the Secured Party shall be effective only in the specific instance and
for the specific purpose given. Mere delay or failure to act shall not preclude
the exercise or enforcement of any of the Secured Party's rights or remedies.
All rights and remedies of the Secured Party shall be cumulative and may be
exercised singularly or concurrently, at the Secured Party's option, and the
exercise or enforcement of any one such right or remedy shall neither be a
condition to nor bar the exercise or enforcement of any other. The Secured
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Party's duty of care with respect to Collateral in its possession (as imposed by
law) shall be deemed fulfilled if the Secured Party exercises reasonable care in
physically safekeeping such Collateral or, in the case of Collateral in the
custody or possession of a bailee or other third person, exercises reasonable
care in the selection of the bailee or other third person, and the Secured Party
need not otherwise preserve, protect, insure or care for any Collateral. The
Secured Party shall not be obligated to preserve any rights the Debtor may have
against prior parties, to realize on the Collateral at all or in any particular
manner or order, or to apply any cash proceeds of Collateral in any particular
order of application. This Agreement shall be binding upon and inure to the
benefit of the Debtor and the Secured Party and their respective successors and
assigns and shall take effect when signed by the Debtor and delivered to the
Secured Party, and the Debtor waives notice of the Secured Party's acceptance
hereof. The Secured Party may execute this Agreement if appropriate for the
purpose of filing, but the failure of the Secured Party to execute this
Agreement shall not affect or impair the validity or effectiveness of this
Agreement. A carbon, photographic or other reproduction of this Agreement or of
any financing statement signed by the Debtor shall have the same force and
effect as the original for all purposes of a financing statement. If any
provision or application of this Agreement is held unlawful or unenforceable in
any respect, such illegality or unenforceability shall not affect other
provisions or applications which can be given effect and this Agreement shall be
construed as if the unlawful or unenforceable provision or application had never
been contained herein or prescribed hereby. All representations and warranties
contained in this Agreement shall survive the execution, delivery and
performance of this Agreement and the creation and payment of the Obligations.
The parties hereto hereby ( v) consent to the personal jurisdiction of the state
and federal courts located in the State of Minnesota in connection with any
controversy related to this Agreement; ( vi) waive any argument that venue in
any such forum is not convenient, ( vii) agree that any litigation initiated by
the Debtor in connection with this Agreement or the other Loan Documents shall
be venued in either the District Court of Hennepin County, Minnesota, or the
United States District Court, District of Minnesota, Fourth Division; and (viii)
agree that a final judgment in any such suit, action or proceeding shall be
conclusive and may be enforced in other jurisdictions by suit on the judgment or
in any other manner provided by law. THE PARTIES WAIVE ANY RIGHT TO TRIAL BY
JURY IN ANY ACTION OR PROCEEDING BASED ON OR PERTAINING TO THIS AGREEMENT.
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IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date and year first above written.
NORWEST BANK MINNESOTA, J-X ENTERPRISES, INC.
NATIONAL ASSOCIATION
By /s/ XXXX X. XXXXXX By /s/ XXXX XXXXXXXX
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Its Vice President Its CEO/President
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Address: Address:
Norwest Center
Sixth Street and Marquette Avenue 000 Xxxxx Xxxxxx, Xxxx 000
Xxxxxxxxxxx, Xxxxxxxxx 00000-0000 Xxx Xxxx, Xxx Xxxx 00000
Employer identification number: 00-0000000 Employer identification number: 00-0000000
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EXHIBIT A TO SECURITY AGREEMENT
LOCATIONS OF COLLATERAL
000 Xxxxx Xxxxxx, Xxxx 000
Xxx Xxxx, Xxx Xxxx 00000
