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EXHIBIT 10.4
SECURITY AGREEMENT
SECURITY AGREEMENT (this "Security Agreement"), dated as of
October 24, 1997, between JAKKS Pacific, Inc., a Delaware corporation (the
"Debtor"), and Xxxxx-Xxxxxx International, Inc., a New York corporation (the
"Lender").
W I T N E S S E T H :
WHEREAS, pursuant to the terms of the Trademark Purchase
Agreement, dated as of the date hereof, by and among the Debtor and the Lender
(the "Acquisition Agreement"), the Lender has agreed to receive $1,200,000 of
consideration thereunder in the form of a promissory note of the Debtor (the
"Note") upon the terms and subject to the conditions set forth in Acquisition
Agreement and the Note (collectively, the "Loan").
NOW, THEREFORE, in consideration of these premises and to induce
the Lender to enter into the Acquisition Agreement and to make the Loan to the
Debtor under the Note, the Debtor and the Lender hereby agree as follows:
1. Defined Terms. Unless otherwise defined herein, capitalized
terms which are used herein and not otherwise defined shall have the respective
meanings ascribed to them in the Acquisition Agreement; terms for which meanings
are provided in the UCC are used herein with such meanings unless otherwise
defined herein; and the following terms shall have the following meanings:
"Acceleration Event" has the meaning set forth in Paragraph 5 of
the Note.
"Books and Records" means all books, documents, files and
records, now or hereafter existing, pertaining to the Collateral wherever
located, including, without limitation, all correspondence, ledger sheets,
computer files and programs, tapes, discs, cards, accounting records, customer
lists, credit files, marketing materials and data, and all Equipment containing
any of the foregoing.
"Business Day" means any day other than a Saturday, Sunday or any
day which is a legal or bank holiday under the laws of the State of New York.
"Collateral" has the meaning set forth in Section 2 of this
Security Agreement.
"Lien" means any lien, security interest, pledge or other charge
or encumbrance of any kind, or any other type of preferential arrangement,
including, without limitation, the lien or retained security title of a
conditional vendor and any easement, right of way or other encumbrance on title
to real property.
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"Person" means any person, firm, corporation, partnership,
limited liability company, joint venture, association, trust or other enterprise
or any governmental or political subdivision or agency, department or
instrumentality thereof.
"Secured Obligations" means the collective reference to, but
without duplication, all obligations and liabilities (direct or indirect,
absolute or contingent, due or to become due or now existing or hereafter
incurred), whether for principal, interest, premium, fees, indemnity, costs,
expenses or otherwise, of the Debtor under the Acquisition Agreement, the Note
and the Manufacturing and Supply Agreement, dated as of the date hereof, by and
between the Debtor and the Lender.
"UCC" means the Uniform Commercial Code as in effect in the State
of New York; provided, however, that if by reason of any mandatory provision of
law, the perfection or the effect of perfection or non-perfection of the
security interest in any Collateral is governed by the Uniform Commercial Code
as in effect in a jurisdiction other than New York, "UCC" means the Uniform
Commercial Code as in effect in such other jurisdiction for purposes of the
provisions hereof relating to such perfection or effect of perfection or
non-perfection.
2. Grant of Security Interest. As collateral security for the
prompt and complete payment and performance when due (whether at the stated
maturity, by acceleration or otherwise) of the Secured Obligations, the Debtor
hereby pledges, assigns, transfers and grants to the Lender a continuing
security interest in all of the property described on Schedule A hereto
(collectively, the "Collateral") subordinate in right only to those creditors of
the Debtor set forth on Schedule B hereto. The Lender acknowledges and agrees
that the Lien of each such creditor is senior and prior in right to the security
interests granted to the Lender hereby, and that the Lender shall not take any
action the effect of which would be to restrict or impair the prior rights of
such other creditors to enforce their respective Liens.
3. Representations and Warranties. The Debtor hereby represents
and warrants that:
(a) Title; No Other Liens. Except for the Liens granted to the
creditors of the Debtor listed on Schedule B and the Lender pursuant to this
Security Agreement, the Debtor owns each item of the Collateral free and clear
of any and all Liens or claims of others. Except as set forth on Schedule B, no
security agreement, financing statement or other public notice with respect to
all or any part of the Collateral is on file or of record in any public office.
(b) Perfected Liens. Upon proper filing of the applicable UCC
financing statements, the Liens granted pursuant to this Security Agreement
constitute perfected Liens on the Collateral in favor of the Lender, enforceable
as such against all creditors of and purchasers from the Debtor (except
purchasers of goods in the ordinary course of business).
(c) Power and Authority; Authorization. The Debtor has the
requisite corporate power and authority and the legal right to execute and
deliver, to perform its obligations under, and to grant the Lien on the
Collateral pursuant to, this Security
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Agreement and has taken all necessary action to authorize the execution,
delivery and performance of, and grant the Lien on the Collateral pursuant to,
this Security Agreement.
(d) Enforceability. This Security Agreement constitutes a legal,
valid and binding obligation of the Debtor enforceable against the Debtor in
accordance with its terms, except as enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the
enforcement of creditors' rights generally and by general principles of equity.
(g) No Conflict. The execution, delivery and performance of this
Security Agreement and the granting by the Debtor of the Lien hereunder will not
violate any provision of any requirement of law or contractual obligation of the
Debtor and will not result in the creation or imposition of any Lien on any of
the properties or revenues of the Debtor pursuant to any requirement of law or
contractual obligation of the Debtor, except as contemplated hereby.
(h) No Consents, etc. No consent or authorization of, filing
with, or other act by or in respect of, any arbitrator or governmental authority
and no consent of any other Person (including, without limitation, any creditor
of the Debtor), is required either (i) for the execution, delivery and
performance of this Security Agreement or for the grant by the Debtor of the
Lien granted hereby or (ii) to ensure the legality, validity, enforceability or
admissibility of this Security Agreement in any jurisdiction in which any of the
Collateral is located.
4. Performance by the Lender of the Debtor's Obligations. If the
Debtor fails to perform or comply with any of its agreements contained herein
and the Lender, 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 out-of-pocket expenses of the Lender incurred in connection
with such performance or compliance shall be payable by the Debtor to the Lender
on demand and shall constitute Secured Obligations secured hereby.
5. Further Assurances. The Debtor covenants and agrees with the
Lender that, from and after the date of this Security Agreement until the
Secured Obligations are paid and finally discharged in full and this Security
Agreement is terminated pursuant to the terms hereof:
(a) Further Documentation. At any time and from time to time,
upon the request of the Lender and at the sole expense of the Debtor, the Debtor
will promptly and duly execute and deliver such further instruments, agreements
and documents and take such further action as the Lender may deem desirable and
may request for the purpose of obtaining or preserving the full benefits of this
Security Agreement and the rights and powers herein granted, including, without
limitation, in order to perfect and protect any pledge, assignment or security
interest granted or purported to be granted hereunder or hereby, or to enable
the Lender to exercise and enforce its rights and remedies hereunder with
respect to any Collateral.
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(b) Financing Statements. The Debtor hereby authorizes the Lender
to file one or more financing or continuation statements, and amendments
thereto, relating to all or any part of the Collateral without the signature of
the Debtor to the extent permitted by applicable law.
6. Remedies. If an Acceleration Event shall occur and be
continuing, the Lender may 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, but subject to the UCC, if applicable, the Lender,
without demand of performance or other demand, presentment, protest,
advertisement or notice of any kind (except any notice required by law referred
to below) to or upon the Debtor or any other Person (all and each of which
demands, defenses, advertisements and notices are hereby waived), may in such
circumstances 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 otherwise dispose of and deliver the
Collateral or any part thereof (or contract to do any of the foregoing), in one
or more parcels at public or private sale or sales, at any exchange, broker's
board or office of the Lender or elsewhere upon such terms and conditions as it
may deem advisable and at such prices as it may deem best, for cash or on credit
or for future delivery without assumption of any credit risk. The Lender 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 the Collateral so sold, free of any right or equity of redemption in the
Debtor, which right or equity is hereby waived or released. The Debtor further
agrees at the Lender's request upon the occurrence and continuance of an
Acceleration Event to assemble the Collateral and make it available to the
Lender at places which the Lender shall reasonably select, whether at the
Debtor's premises or elsewhere. The Lender shall apply the net proceeds of any
such collection, recovery, receipt, appropriation, realization or sale, after
deducting all reasonable costs and expenses of every kind incurred therein or
incidental to the care or safekeeping of any of the Collateral or in any way
relating to the Collateral or the rights of the Lender hereunder, including,
without limitation, reasonable attorneys' fees and disbursements, to the payment
in whole or in part of the Secured Obligations, and only after such application
and after the payment by the Lender of any other amount required by any
provision of law, including, without limitation, Section 9-504(1)(c) of the UCC,
need the Lender account for the surplus, if any, to the Debtor. If any notice of
a proposed sale or other disposition of Collateral shall be required by law,
such notice shall be deemed reasonable and proper if given at least five days
before such sale or other disposition. The Debtor shall remain liable for any
deficiency if the proceeds of any sale or other disposition of the Collateral
are insufficient to pay the Secured Obligations and the reasonable fees and
disbursements of counsel employed by the Lender to collect such deficiency.
7. 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.
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8. No Waiver; Cumulative Remedies. The Lender shall not by any
act (except by a written instrument pursuant to Section 9 hereof), delay,
indulgence, omission or otherwise be deemed to have waived any right or remedy
hereunder or to have acquiesced in any Acceleration Event or in any breach of
any of the terms or conditions hereof. No failure to exercise nor any delay in
exercising any right, power or privilege hereunder on the part of the Lender
shall operate as a waiver thereof. No single or partial exercise of any right,
power or privilege hereunder shall preclude any other or further exercise
thereof or the exercise of any other right, power or privilege. A waiver by the
Lender of any right or remedy hereunder on any one occasion shall not be
construed as a bar to any right or remedy which the Lender would otherwise have
on any future occasion. The rights and remedies herein provided are cumulative,
may be exercised singly or concurrently and are not exclusive of any rights or
remedies provided by law.
9. Waivers and Amendments; Successors and Assigns. None of the
terms or provisions of this Security Agreement may be waived, amended,
supplemented or otherwise modified except by a written instrument executed by
the Debtor and the Lender, provided that any provision of this Security
Agreement may be waived by the Lender in a written letter or agreement executed
by the Lender. Subject to Section 11 hereof, this Security Agreement shall be
binding upon the successors and assigns of the Debtor and shall inure to the
benefit of the Lender and its successors and assigns.
10. Termination and Reinstatement. This Security Agreement and
the security interests in the Collateral created hereby will terminate when the
Secured Obligations have been paid and finally discharged in full.
Notwithstanding any such termination, if at any time, all or part of the payment
of the Secured Obligations theretofore made by the Debtor or any other Person is
rescinded or otherwise must be returned by the Lender for any reason whatsoever
(including, without limitation, the insolvency, bankruptcy or reorganization of
the Debtor or such other Person), the Liens granted hereunder or under any other
present or future agreement between the Debtor and the Lender, and all rights of
the Lender and all Secured Obligations shall be reinstated as to the monetary
Secured Obligations that were satisfied by the payment to be rescinded or
returned, all as though such payment had not been made, and the Debtor shall
sign and deliver to the Lender all documents and things necessary to re-perfect
all terminated Liens. The Debtor may not assign this Security Agreement without
the express written consent of the Lender.
11. Notices. Any notices, elections or demands permitted or
required to be made under this Security Agreement shall be in writing, signed by
the Person giving such notice, sent by personal delivery or through a nationally
recognized overnight courier service or by registered or certified mail, postage
prepaid, or transmitted by telecopier and shall be addressed as follows:
If to the Debtor: JAKKS Pacific, Inc.
00000 Xxxxxxx Xxxxx Xxxxxxx
Xxxxxx, Xxxxxxxxxx 00000
Attention: Xxxx Xxxxxxxx
Fax: (000) 000-0000
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With a copy to: Feder, Kaszovitz, Isaacson, Weber,
Xxxxx & Bass LLP
International Plaza
000 Xxxxxxxxx Xxxxxx
Xxx Xxxx, XX 00000
Attn: Xxxxxx X. Xxxxx, Esq.
Fax: (000) 000-0000
If to the Lender: Xxxxx-Xxxxxx International, Inc.
0000 Xxxxxxxx, Xxxxx 000
Xxx Xxxx, Xxx Xxxx 00000-0000
Attn: Xxxxxx Xxxxx
Fax: (000) 000-0000
With a copy to: Kramer, Levin, Naftalis & Xxxxxxx
000 Xxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attn: Xxxxx X. Xxxxx, Esq.
Fax: (000) 000-0000
All notices, elections and demands shall be deemed to have been delivered on the
date of their delivery if personally delivered or if transmitted by telecopier
(provided receipt of such transmission is confirmed by answer back), on the
second Business Day after deposit with the courier service if delivered by a
nationally recognized overnight courier service or five Business Days after the
date on which the same is mailed if delivered by registered or certified mail.
12. Governing Law. THIS SECURITY AGREEMENT SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK,
WITHOUT GIVING EFFECT TO PRINCIPLES OF CONFLICT OF LAWS.
13. Forum Selection and Consent to Jurisdiction. ANY LITIGATION
BASED HEREON, OR ARISING OUT OF, UNDER OR IN CONNECTION WITH, THIS SECURITY
AGREEMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENT (WHETHER ORAL
OR WRITTEN) OR ACTIONS OF THE LENDER OR THE DEBTOR SHALL BE BROUGHT AND
MAINTAINED EXCLUSIVELY IN THE COURTS OF THE STATE OF NEW YORK OR IN THE UNITED
STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK; PROVIDED, HOWEVER,
THAT ANY SUIT SEEKING ENFORCEMENT AGAINST ANY COLLATERAL OR OTHER PROPERTY MAY
BE BROUGHT, AT THE LENDER'S OPTION, IN THE COURTS OF ANY JURISDICTION WHERE SUCH
COLLATERAL OR OTHER PROPERTY MAY BE FOUND. THE DEBTOR AND THE LENDER HEREBY
EXPRESSLY AND IRREVOCABLY SUBMIT TO THE JURISDICTION OF THE COURTS OF THE STATE
OF NEW YORK AND OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF
NEW YORK FOR THE PURPOSE OF
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ANY SUCH LITIGATION AS SET FORTH ABOVE AND IRREVOCABLY AGREE TO BE BOUND BY ANY
JUDGMENT RENDERED THEREBY IN CONNECTION WITH SUCH LITIGATION. THE DEBTOR FURTHER
IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS BY REGISTERED MAIL, POSTAGE
PREPAID, OR BY PERSONAL SERVICE WITHIN OR WITHOUT THE STATE OF NEW YORK. THE
DEBTOR HEREBY EXPRESSLY AND IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED
BY LAW, ANY OBJECTION WHICH IT MAY HAVE OR HEREAFTER MAY HAVE TO THE LAYING OF
VENUE OF ANY SUCH LITIGATION BROUGHT IN ANY SUCH COURT REFERRED TO ABOVE AND ANY
CLAIM THAT ANY SUCH LITIGATION HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. TO THE
EXTENT THAT THE DEBTOR HAS OR HEREAFTER MAY ACQUIRE ANY IMMUNITY FROM
JURISDICTION OF ANY COURT OF FROM ANY LEGAL PROCESS (WHETHER THROUGH SERVICE OR
NOTICE, ATTACHMENT PRIOR TO JUDGMENT, ATTACHMENT IN AID OF EXECUTION OR
OTHERWISE) WITH RESPECT TO ITSELF OF ITS PROPERTY, THE DEBTOR HEREBY IRREVOCABLY
WAIVES SUCH IMMUNITY IN RESPECT OF THE SECURED OBLIGATIONS UNDER THIS SECURITY
AGREEMENT.
14. Waiver of Jury Trial. THE LENDER AND THE DEBTOR HEREBY
KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHTS THEY MAY HAVE TO A
TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF,
UNDER OR IN CONNECTION WITH, THIS SECURITY AGREEMENT AND EVERY OTHER DOCUMENT
RELATING HERETO, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENT (WHETHER
ORAL OR WRITTEN) OR ACTIONS OF THE LENDER OR THE DEBTOR. THE DEBTOR ACKNOWLEDGES
AND AGREES THAT IT HAS RECEIVED FULL AND SUFFICIENT CONSIDERATION FOR THIS
PROVISION (AND EACH OTHER PROVISION OF EACH OTHER DOCUMENT RELATING HERETO TO
WHICH IT IS A PARTY) AND THAT THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE
LENDER ENTERING INTO THE ACQUISITION AGREEMENT, AND ANY RELATED DOCUMENTS, AND
MAKING THE LOAN AVAILABLE.
15. Counterparts. This Agreement may be executed in counterparts,
each one of which shall be deemed an original and which together shall
constitute one and the same instrument.
16. No Presumptions. Each party hereto acknowledges that it has
participated, with the advice of counsel, in the preparation of this Agreement.
No party hereto is entitled to any presumption with respect to the
interpretation of any provision hereof or the resolution of any alleged
ambiguity herein based on any claim that the other party hereto drafted or
controlled the drafting of this Agreement.
17. Incorporation by Reference. The Schedules hereto are an
integral part of this Agreement and are incorporated in their entirety herein by
this reference.
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IN WITNESS WHEREOF, the parties hereto have caused this Security
Agreement to be duly executed and delivered as of the date first above written.
JAKKS PACIFIC, INC.
By: /s/ XXXX XXXXXXXX
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Name: Xxxx Xxxxxxxx
Title: President
XXXXX-XXXXXX INTERNATIONAL, INC.
By: /s/ XXXX XXXXXX
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Name: Xxxx Xxxxxx
Title: President
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SCHEDULE A
Trademark with design
Remco
Child Guidance
Baby Twinkle Tunes
Dancin' Pals
Prancin' Pals
Soft Stuff
Touch & Play
Tuff Ones
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SCHEDULE A (cont'd)
International Current Current
Country Trademark Class Application No. Registration No.
------------- ------------------------- -------------- --------------- ------------------
U.S.A. Baby Twinkle Tunes* 28 75/115,066
U.S.A. Child Guidance* 12 74/538,445
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25
U.S.A. Child Guidance 28 75/975,037 1,977,407
U.S.A. Child Guidance 28 74/802,439 1,915,763
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U.S.A. Child Guidance 10 74/506,250 1,932,639
20
21
25
28
U.S.A. Dancin' Pals* 28 75/264,693
U.S.A. Prancing Pals* 28 75/209,235
U.S.A. Remco Design 28 73/196,420 1,136,911
U.S.A. Teddy Twinkle Tunes* 28 75/193,599
U.S.A. Tuff Ones 28 74/072,033 1,693,255
U.S.A. A Child Guidance Toy 28 72/264,515 871,689
U.S.A. Child Guidance Toys 28 72/003,975 657,565
(stylized)
Australia Baby Twinkle Tunes 28 720,774
Australia Child Guidance 28 700,290
Australia Remco 28 352,239 A352,239
Benelux Remco 28 625,739 354,581
* Intent to Use
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International Current Current
Country Trademark Class Application No. Registration No.
------------- ------------------------- -------------- --------------- ------------------
Canada Baby Twinkle Tunes N/A 826,134
Canada Child Guidance N/A 471,882 281,321
Canada Remco N/A 429,242 248,067
Denmark Remco 28 3620/1978 0000/00
Xxxxxx Remco 28 962,487 1,494,877
Great Baby Twinkle Tunes 28 2109537
Britain
Great Child Guidance 28 912364 B912,364
Britain
Great Remco 28 1,099,995 1,099,995
Britain
UK Twinkie 28 894,867 894,867
UK Twinkle 28 1,260,907 1,260,907
Germany Remco 28 A30 590/28 WZ 998,786
Guatemala Remco 28 54117 38525/125/92
Hong Kong Remco 28 1564/78 375/79
Israel Remco 28 84241 00000
Xxxxx Child Guidance 28 399,644
Italy Remco 28 20262 C/78 360,547
Japan Remco Japan Class 122/79 1,592,129
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Mexico Remco 28 91364 386,355
New Child Guidance 28 256,890
Zealand
New Remco 28 138,448 138,448
Zealand
Norway Remco 28 78,2089 110,592
Puerto Remco NA 22 21812 21,812
Rico
South Remco 28 78/3723 78/3723
Africa
* Intent to Use
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International Current Current
Country Trademark Class Application No. Registration No.
------------- ------------------------- -------------- --------------- ------------------
Singapore Xxxxx 00 00000 00000
Xxxxx Remco 28 1,913,742 1,913,742
Sweden Child Guidance 28 81-4552 179,904
Sweden Remco 28 78-3810 177,810
Switzerland Remco 28 4051 296,832
Venezuela Remco XX 00 0000-00 96.302F
* Intent to Use
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SCHEDULE B
SENIOR LENDERS
1. Holders of the Debtor's 9% Convertible Debentures Due 2003
2. NorWest Bank Minnesota, National Association
3. NorWest Business Credit, Inc.
