BUYER SECURITY AGREEMENT
This BUYER SECURITY AGREEMENT, dated as of January 6, 2002, is made by Toy
Soldier, Inc., a Delaware corporation ("Grantor"), in favor of F.A.O. Xxxxxxx, a
New York corporation, and Quality Fulfillment Services, Inc., a Virginia
corporation (collectively, the "Subordinated Secured Parties"), holders of
certain subordinated notes (the "Subordinated Notes") issued by Grantor to
Subordinated Secured Parties, with reference to the following facts:
RECITALS
A. Pursuant to the Asset Purchase Agreement by and among Grantor, The Right
Start, Inc., a California corporation, Royal Vendex KBB N.V., a Netherlands
corporation, and the Subordinated Secured Parties, dated November 19, 2001 (the
"Asset Purchase Agreement"), the Subordinated Secured Parties have agreed to
accept, in partial payment of the Initial Purchase Price (as defined in the
Asset Purchase Agreement), the Subordinated Notes.
B. The Asset Purchase Agreement provides, as condition of acceptance of the
Subordinated Notes, that Grantor shall enter into this Agreement and shall grant
security interests to the Subordinated Secured Parties as herein provided.
C. The security interests created under this Security Agreement are junior
and subordinated as specified in Section 8 hereof.
AGREEMENT
NOW, THEREFORE, for good and valuable consideration, the receipt and
adequacy of which hereby is acknowledged, Grantor hereby represents, warrants,
covenants, agrees, assigns and grants as follows:
1. Definitions. This Agreement is the Buyer Security Agreement referred to
in the Asset Purchase Agreement. Terms defined in the Subordinated Notes and not
otherwise defined in this Agreement shall have the meanings defined for those
terms in the Subordinated Notes. Terms defined in the New York Uniform
Commercial Code and not otherwise defined in this Agreement or in the
Subordinated Notes shall have the meanings defined for those terms in the New
York Uniform Commercial Code. As used in this Agreement, the following terms
shall have the meanings respectively set forth after each:
"Agreement" means this Buyer Security Agreement, and any extensions,
modifications, renewals, restatements, supplements or amendments hereof.
"Collateral" means all of Grantor's now owned or hereafter acquired right,
title and interest in and to each of the following:
(a) accounts, contract rights, and all other forms of obligations owing to
Grantor arising out of the sale or lease of goods or the rendition of services
by Grantor, irrespective of whether earned by performance, and any and all
credit insurance, guaranties, or security therefor;
(b) books and records including: ledgers; records indicating, summarizing,
or evidencing Grantor's properties or assets or liabilities; all information
relating to Grantor's business operations or financial condition; and all other
computer programs, disk or tape files, printouts, runs, or other computer
prepared information;
(c) deposit accounts (as that term is defined from time to time in the
Uniform Commercial Code as in effect in the State of New York);
(d) all of Grantor's general intangibles and other personal property
(including contract rights, rights arising under common law, statutes, or
regulations, choses or things in action, commercial tort claims, goodwill,
patents, trade names, trademarks, service marks, copyrights, blueprints,
drawings, purchase orders, customer lists, monies due or recoverable from
pension funds, route lists, rights to payment and other rights under any royalty
or licensing agreements, infringement claims, computer programs, information
contained in computer disks or tapes, literature, reports, catalogs, insurance
premium rebates, tax refunds, and tax refund claims);
(e) goods (as that term is defined from time to time in the Uniform
Commercial Code as in effect in the State of New York);
(f) investment property (as that term is defined from time to time in the
Uniform Commercial Code as in effect in the State of New York);
(g) negotiable collateral, including all Grantor's right, title and
interest with respect to any letters of credit, letter of credit rights,
instruments, drafts, documents and chattel paper (as each term is defined from
time to time in the Uniform Commercial Code as in effect in the State of New
York) and any and all supporting obligations in respect thereof;
(h) all parcels of real property and the related improvements thereto
(whether as owner, lessee, or otherwise);
(i) money or other assets of Grantor that now or hereafter come into the
possession, custody, or control of Grantor; and
(j) the proceeds and products, whether tangible or intangible, of any of
the foregoing, including proceeds of insurance covering any or all of the
foregoing, and any and all of the foregoing, or other tangible or intangible
property resulting from the sale, exchange, collection, or other disposition of
any of the foregoing, or any portion thereof or interest therein, and the
proceeds thereof.
"Secured Obligations" means any and all present and future obligations of
Grantor arising under or relating to the Subordinated Notes or any one or more
of them, whether due or to become due, matured or unmatured, or liquidated or
unliquidated, including interest that accrues after the commencement of any
bankruptcy or insolvency proceeding by or against Grantor.
"Trade Debt" means the principal of, interest on (including any interest
accruing after the commencement of any bankruptcy event or which would have
accrued but for such event whether or not allowed) and other amounts due on or
with respect to indebtedness of Grantor to its vendors, suppliers and trade
creditors incurred in the ordinary course of business.
2
2. Further Assurances. At any time and from time to time at the request of
the Subordinated Secured Parties, Grantor shall execute and deliver to the
Subordinated Secured Parties all such financing statements and other instruments
and documents in form and substance satisfactory to the Subordinated Secured
Parties as shall be necessary or desirable to fully perfect, when filed and/or
recorded, the Subordinated Secured Parties' subordinated security interests
granted pursuant to Section 3 of this Agreement. At any time and from time to
time, the Subordinated Secured Parties shall be entitled to file and/or record
any or all such financing statements, instruments and documents held by them,
and any or all such further financing statements, documents and instruments, and
to take all such other actions, as the Subordinated Secured Parties may deem
appropriate to perfect and to maintain perfected the subordinated security
interests granted in Section 3 of this Agreement. Before and after the
occurrence of any Event of Default, at the Subordinated Secured Parties'
request, Grantor shall execute all such further financing statements,
instruments and documents, and shall do all such further acts and things, as may
be deemed necessary or desirable by the Subordinated Secured Parties to create
and perfect, and to continue and preserve, an indefeasible subordinated security
interest in the Collateral in favor of the Subordinated Secured Parties, or the
priority thereof, including causing any such financing statements to be filed
and/or recorded in the applicable jurisdiction.
3. Security Agreement. For valuable consideration, Grantor assigns and
pledges to the Subordinated Secured Parties, and grants to the Subordinated
Secured Parties a subordinated security interest in, all currently existing and
hereafter acquired Collateral, as security for the timely payment of all of the
Secured Obligations. This Agreement is a continuing and irrevocable agreement
and all the rights, powers, privileges and remedies hereunder shall apply to any
and all Secured Obligations, including those Secured Obligations arising under
successive transactions which shall either continue the Secured Obligations,
increase or decrease them, or from time to time create new Secured Obligations
after all or any prior Secured Obligations have been satisfied, and
notwithstanding the bankruptcy of Grantor.
4. Events of Default. There shall be an Event of Default hereunder upon the
occurrence and during the continuance of an Event of Default under the
Subordinated Notes.
5. Rights Upon Event of Default. Upon the occurrence and during the
continuance of an Event of Default, the Subordinated Secured Parties shall have,
in any jurisdiction where enforcement hereof is sought, in addition to all other
rights and remedies that the Subordinated Secured Parties may have under
applicable law or in equity or under this Agreement all rights and remedies of a
secured party under the Uniform Commercial Code as enacted in any jurisdiction.
6. Voting Rights; Dividends; Etc. With respect to any Collateral consisting
of securities, partnership interests, joint venture interests, investments or
the like in the possession of the Subordinated Secured Parties (referred to
collectively and individually in this Section 6 and in Section 7 as the
"Investment Collateral"), so long as no Event of Default occurs and remains
continuing:
6.1 Voting Rights. Grantor shall be entitled to exercise any and all voting
and other consensual rights pertaining to the Investment Collateral, or any part
thereof, for any purpose not inconsistent with the terms of this Agreement, the
Subordinated Notes or the Asset Purchase Agreement.
6.2 Dividend and Distribution Rights. Grantor shall be entitled to receive
and to retain and use any and all dividends or distributions paid in respect of
the Investment Collateral.
7. Rights During Event of Default. With respect to any Investment
Collateral in the possession of the Subordinated Secured Parties, so long as an
Event of Default has occurred and is continuing:
3
7.1 Voting, Dividend and Distribution Rights. At the option of the
Subordinated Secured Parties, all rights of Grantor to exercise the voting and
other consensual rights which they would otherwise be entitled to exercise
pursuant to Section 6.1 above, and to receive the dividends and distributions
which they would otherwise be authorized to receive and retain pursuant to
Section 6.2 above, shall cease, and all such rights thereupon shall become
vested in the Subordinated Secured Parties which thereupon shall have the sole
right to exercise such voting and other consensual rights and to receive and to
hold as pledged Collateral such dividends and distributions.
7.2 Dividends and Distributions Held in Trust. All dividends and other
distributions which are received by Grantor contrary to the provisions of this
Agreement shall be received in trust for the benefit of the Subordinated Secured
Parties, shall be segregated from other funds of Grantor and forthwith shall be
paid over to Subordinated Secured Parties as pledged Collateral in the same form
as so received (with any necessary endorsements).
8. Subordination. This Agreement and the rights and obligations evidenced
hereby are subordinate in the manner and to the extent set forth in that certain
Subordination and Intercreditor Agreement dated as of January 6, 2002 (as
amended, supplemented or otherwise modified from time to time, the
"Subordination Agreement") among Royal Vendex KBB N.V., Subordinated Secured
Parties, Grantor, The Right Start, Inc. and Xxxxx Fargo Retail Finance, LLC (the
"Senior Lender"), to the indebtedness (including interest) owed by Grantor
pursuant to the loan and security agreement between The Right Start, Inc.,
Grantor and Xxxxx Fargo Retail Finance, LLC, dated as of January 23, 2001 (as
amended, supplemented or otherwise modified from time to time, the "Xxxxx Loan
Agreement") as contemplated by the Subordination Agreement, and to any other
secured indebtedness of Grantor permitted to be incurred by the Xxxxx Loan
Agreement, and each Subordinated Secured Party, by acceptance hereof, agrees to
be bound by the provisions of the Subordination Agreement. In the event that any
provisions of this Guaranty are deemed to conflict with the Subordination
Agreement, the provisions of the Subordination Agreement shall govern.
9. Costs and Expenses. Grantor agrees to pay to the Subordinated Secured
Parties all costs and expenses (including, without limitation, reasonable
attorneys' fees and disbursements) incurred by the Subordinated Secured Parties
in the enforcement or attempted enforcement of this Agreement, whether or not an
action is filed in connection therewith, and in connection with any waiver or
amendment of any term or provision hereof. All advances, charges, costs and
expenses, including reasonable attorneys' fees and disbursements, incurred or
paid by the Subordinated Secured Parties in exercising any right, privilege,
power or remedy conferred by this Agreement, or in the enforcement or attempted
enforcement thereof, shall be secured hereby and shall become a part of the
Secured Obligations and shall be paid to the Subordinated Secured Parties by
Grantor, immediately upon demand, together with interest thereon from the date
of demand at the rate of 8% per annum.
10. Continuing Effect. This Agreement shall remain in full force and effect
and continue to be effective should any petition be filed by or against Grantor
for liquidation or reorganization, should 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 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 the Subordinated Secured Parties, 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.
4
11. Release of Grantor. This Agreement shall be terminated and all Secured
Obligations of Grantor hereunder shall be released when all Secured Obligations
have been paid in full or upon such release of Grantor's Secured Obligations
hereunder. Upon such termination Subordinated Secured Parties shall return any
pledged Collateral to Grantor, or to the person or persons legally entitled
thereto, and shall endorse, execute, deliver, record and file all instruments
and documents, and do all other acts and things reasonably required for the
return of the Collateral to Grantor, or to the person or persons legally
entitled thereto, and to evidence or document the release of the Subordinated
Secured Parties' interests arising under this Agreement, all as reasonably
requested by, and at the sole expense of, Grantor.
12. Agreement to be Pari Passu with Trade Debt. Upon any dissolution,
winding up, liquidation, reorganization (under bankruptcy law) or insolvency of
the Grantor (whether (a) in bankruptcy, insolvency or receivership proceedings
or upon an assignment for the benefit of creditors, (b) upon the assets of the
Grantor becoming less than its liabilities, (c) in the event that the Grantor is
unable to pay its debts when they become due or (d) any other dissolution,
winding up or liquidation of the Grantor) (a "Triggering Event"), the
Subordinated Secured Parties agree that from and after the date the Subordinated
Secured Parties are notified that a Triggering Event has occurred, the holders
of the Trade Debt shall be pari passu in right of payment and shall be entitled
to share the proceeds of the Collateral pro rata based on the aggregate
principal amount of the Trade Debt then outstanding, the interest thereon and
any other amounts due thereon and the aggregate amount of Secured Obligations
then outstanding.
13. GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK.
IN WITNESS WHEREOF, Grantor has executed this Agreement by its duly
authorized officer as of the date first written above.
"Grantor"
TOY SOLDIER, INC.,
a Delaware corporation
By: /s/ Xxxxx X. Xxxxx
Title: Chairman and CEO
5
ACCEPTED AND AGREED
AS OF THE DATE FIRST
ABOVE WRITTEN:
"Subordinated Secured Parties"
F.A.O. XXXXXXX
By /s/ Xxx Xxxxxxx
Title: CEO
QUALITY FULFILLMENT SERVICES, INC.
By /s/ Xxx Xxxxxxx
Title: CEO
