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EXHIBIT 10.39
SECURITY AGREEMENT
(JAKKS PACIFIC, INC.)
This Agreement, dated as of October 21, 1997, is made by and
between JAKKS PACIFIC, INC., a Delaware 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, except
for a security interest in favor of Renaissance Capital Growth & Income
Fund III, Inc. and Renaissance US Growth & Income Trust PLC (the
"Permitted Lien"), ( ii) will have, at the time the Debtor acquires any
rights in Collateral hereafter arising, absolute title to each such item
of
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Collateral free and clear of all security interests, liens and
encumbrances, except the Security Interest and the Permitted Lien, ( iii)
will keep all Collateral free and clear of all security interests, liens
and encumbrances except the Security Interest and the Permitted Lien and (
iv) will defend the Collateral against all claims or demands of all
persons other than the Secured Party and the holder of the Permitted Lien.
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
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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.
(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
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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;
(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
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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 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
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all checks, drafts and cash payments received in said lockbox into the
collateral account established as set forth above.
(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,
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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 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
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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 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, JAKKS PACIFIC, INC.
NATIONAL ASSOCIATION
By /s/ Xxxx X. Xxxxxx By /s/ Xxxx Xxxxxxxx
--------------------------------- ---------------------------------
Its Vice President Its CEO/President
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Address: Address:
Norwest Center
Sixth Street and Marquette Avenue 00000 Xxxxxxx Xxxxx Xxxxxxx,
Xxxxxxxxxxx, Xxxxxxxxx 00000-0000 Xxxxx 000 Xxxxxx, Xxxxxxxxxx 00000
Employer identification number: 00-0000000 Employer identification number: 00-0000000
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EXHIBIT A TO SECURITY AGREEMENT
LOCATION OF COLLATERAL
00000 Xxxxxxx Xxxxx Xxxxxxx, Xxxxx 000
Xxxxxx, Xxxxxxxxxx 00000
