EXHIBIT 10.7
SECURITY AND PLEDGE AGREEMENT
THIS SECURITY AND PLEDGE AGREEMENT ("SECURITY AGREEMENT"), is made and
entered into as of the 23rd day of May, 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 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"), each
Holder has agreed to make a loan (collectively, the "CONVERTIBLE NOTE LOANS") to
Borrower; and
WHEREAS, Holders are willing to make the Convertible Note Loans
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 9105(1)(a) of the UCC.
"ACCOUNTS" shall mean any "account," as such term is defined in
section 9106 of the UCC, now owned or hereafter acquired by any Grantor and, in
any event, shall include, without limitation, all accounts receivable, book
debts, and other forms of obligations (other than forms of obligations evidenced
by Chattel Paper, Documents, or Instruments) now owned or hereafter received or
acquired by or belonging or owing to any Grantor (including, without limitation,
under any trade names, styles, or divisions thereof) whether arising out of
goods sold or services rendered by such Grantor or from any other transaction,
whether or not the same involves the sale of goods or services by such Grantor
(including, without limitation, any such obligation that might be characterized
as an account or contract right under the UCC) and all of any Grantor's rights
in, to, and under all purchase orders or receipts now owned or hereafter
acquired by it for goods or services, and all of any Grantor's rights to any
goods represented by any of the foregoing (including, without limitation, unpaid
seller's rights of rescission, replevin, reclamation, and stoppage in transit,
and rights to returned, reclaimed, or repossessed goods), and all moneys due or
to become due to any Grantor under all contracts for the sale of goods or the
performance of services or both by such
Grantor (whether or not yet earned by performance on the part of such Grantor or
in connection with any other transaction), now in existence or hereafter
occurring, including, without limitation, the right to receive the proceeds of
such purchase orders and contracts, and all collateral security and guaranties
of any kind given by any Person with respect to any of the foregoing.
"CHATTEL PAPER" shall mean any "chattel paper," as such term is
defined in section 9105(1)(b) 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 9105(1)(f) of the UCC, now owned or hereafter acquired by any
Grantor.
"EQUIPMENT" shall mean any "equipment," as such term is defined
in section 9109(2) of the UCC, now owned or hereafter acquired by any Grantor
and, in any event, shall include, without limitation, all machinery, equipment,
furnishings, fixtures, vehicles, and computers, and other electronic
data-processing and other office equipment now owned or hereafter acquired by
any Grantor and any and all additions, substitutions, and replacements of any of
the foregoing, wherever located, together with all attachments, components,
parts, equipment, and accessories installed thereon or affixed thereto.
"GENERAL INTANGIBLES" shall mean any "general intangibles," as
such term is defined in section 9106 of the UCC, now owned or hereafter acquired
by any Grantor and, in any event, shall include, without limitation, all right,
title, and interest that any Grantor may now or hereafter have in or under any
Contract, all customer lists, Copyrights, Trademarks, Patents, rights in
intellectual property, Licenses, permits, Trade Secrets, proprietary or
confidential information, inventions (whether patented or patentable or not),
and technical information, procedures, designs, knowledge, know-how, software,
data bases, data, skill, expertise, experience, processes, models, drawings,
materials, and records now owned or hereafter acquired by any Grantor, goodwill,
and rights of indemnification.
"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.
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"INSTRUMENTS" shall mean any "instrument," as such term is
defined in section 9105(1)(i) 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 9-109(4) of the UCC, now owned or hereafter acquired by any Grantor
and, in any event, shall include, without limitation, all inventory,
merchandise, goods, and other personal property now owned or hereafter acquired
by any Grantor which are held for sale or lease or are furnished or are to be
furnished under a contract of service or which constitute raw materials, work in
process, or materials used or consumed or to be used or consumed in any
Grantor's business, or the processing, packaging, delivery, or shipping of the
same, and all finished goods.
"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.
"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, and (v) Liens reflected on Borrower's
audited Balance Sheet as at December 31, 2000.
"PROCEEDS" shall mean "proceeds," as such term is defined in
section 9306(1) of the UCC and, in any event, shall include, without limitation,
(i) any and all proceeds of any insurance,
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indemnity, warranty or guaranty payable to any Grantor from time to time with
respect to any of the Collateral; (ii) any and all payments (in any form
whatsoever) made or due and payable to any Grantor from time to time in
connection with any requisition, confiscation, condemnation, seizure, or
forfeiture of all or any part of the Collateral by any governmental body,
authority, bureau, or agency (or any person acting under color of governmental
authority); (iii) any claim of any Grantor against third parties (A) for past,
present, or future infringement of any Patent or Patent License or (B) for past,
present, or future infringement or dilution of any Trademark or Trademark
License or for injury to the goodwill associated with any Trademark, Trademark
registration, or Trademark licensed under any Trademark License; and (iv) any
and all other amounts from time to time paid or payable under or in connection
with any of the Collateral.
"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, 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 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
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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;
(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;
(ix) all Inventory of such Grantor;
(x) all Patent Licenses of such Grantor;
(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
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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.
(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
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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 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:
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(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 first priority lien on and first
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.
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
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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.
(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,
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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 9402(7) 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, 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
Page 10
(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.
(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
Page 11
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 shall, at the request of the Required Holders or may with the
consent 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 9504(1)(c) 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 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.
Page 12
(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.
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.
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.
Page 13
12. 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
(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.
13. 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
Page 14
prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
14. 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.
15. 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 Notes and their respective
successors and assigns. No sales of participations, other 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.
16. 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.
17. 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.
18. 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.
Page 15
19. 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.
20. COUNTERPARTS. This Security Agreement may be executed in any
number of counterparts, which shall, collectively and separately, constitute one
agreement.
Page 16
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 17
SCHEDULE I
FILINGS
GRANTORS JURISDICTION FILING OFFICE
-------- ------------ -------------
Brilliant Digital Entertainment, Inc.; California 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
Page 19
