Exhibit 10.118
SUBORDINATED SECURITY AGREEMENT
This SUBORDINATED SECURITY AGREEMENT (this “Agreement”) is made this 23rd day of
December, 2008, among Grantors listed on the signature pages hereof and those
additional entities that hereafter become parties hereto by executing the form
of Supplement attached hereto as Annex 1 (collectively, jointly and severally,
“Grantors” and each individually, “Grantor”), and RUSS BERRIE AND COMPANY, INC.
(together with its successors and assigns, “Secured Party”).
W I T N E S S E T H:
WHEREAS, pursuant to that certain Purchase Agreement (as amended, restated,
supplemented or otherwise modified from time to time, the “Acquisition
Agreement”), dated December 23, 2008, between The Russ Companies, Inc., a
Delaware corporation (the “Purchaser”) and the Secured Party, the Purchaser will
purchase all of the issued and outstanding capital stock of each Sub (as defined
in the Acquisition Agreement) and certain other assets described therein.
WHEREAS, in connection with the Acquisition Agreement, the Purchaser issued to
Secured Party a Secured Promissory Note, dated as of December 23, 2008, in the
original principal amount of $19,000,000 (as amended, restated, supplemented or
otherwise modified from time to time, the “Note”).
WHEREAS, the Secured Party is party to that certain Guaranty (as amended,
restated, supplemented or otherwise modified from time to time, the “Guaranty”),
dated as of December 23, 2008, by and among the Secured Party, The Encore Group
Inc. and the other guarantors thereunder (together with The Encore Group, Inc.,
“Guarantors”), pursuant to which Guarantors have agreed, inter alia, to guaranty
Purchaser’s obligations under the Note.
WHEREAS, the Purchaser and the other Grantors are party to that certain Credit
and Security Agreement of even date herewith (as amended, restated, supplemented
or otherwise modified from time to time, the “Financing Agreement”) among each
of such Grantors as borrowers and Wells Fargo Bank, National Association, as
lender (“WF”).
WHEREAS, the Secured Party is party to that certain Intercreditor Agreement (as
amended or otherwise modified from time to time, the “Subordination Agreement”),
dated December 23, 2008, between the Secured Party and WF, and acknowledged by
the Purchaser.
WHEREAS, in order to induce the Secured Party to enter into the Acquisition
Agreement, Grantors have agreed to grant to the Secured Party a continuing
security interest in and to the Collateral (subject to the terms of the
Subordination Agreement) in order to secure the payment of the Secured
Obligations (as defined herein), by the granting of the security interests
contemplated by this Agreement.

 

 

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NOW, THEREFORE, for and in consideration of the recitals made above and other
good and valuable consideration, the receipt, sufficiency and adequacy of which
are hereby acknowledged, the parties hereto agree as follows:
1. Defined Terms. All capitalized terms used herein (including, without
limitation, in the preamble and recitals hereof) without definition shall have
the meanings ascribed thereto in the Acquisition Agreement. In addition to those
terms defined elsewhere in this Agreement, as used in this Agreement, the
following terms shall have the following meanings:
(a) “Account” means an account (as that term is defined in the Code).
(b) “Account Debtor” means any Person who is or who may become obligated under,
with respect to, or on account of, an Account Receivable, chattel paper, or a
general intangible.
(c) “Account Receivable” means, with respect to any Person, all of such Person’s
now owned or hereafter acquired right, title, and interest with respect to
“accounts” (as that term is defined in the Code), any and all “supporting
obligations” (as that term is defined in the Code) in respect thereof, and any
and all other accounts receivable, collections and payments receivable
(including insurance proceeds, proceeds of cash sales, rental proceeds and tax
refunds).
(d) “Capitalized Lease” means, with respect to any Person, any lease of real or
personal property by such Person as lessee which is required in accordance with
GAAP to be capitalized on the balance sheet of such Person.
(e) “Capitalized Lease Obligations” means, with respect to any Person,
obligations of such Person and its Subsidiaries under Capitalized Leases, and,
for purposes hereof, the amount of any such obligation shall be the capitalized
amount thereof determined in accordance with GAAP.
(f) “Capital Stock” means (i) with respect to any Person that is a corporation,
any and all shares, interests, participations or other equivalents (however
designated and whether or not voting) of corporate stock, and (ii) with respect
to any Person that is not a corporation, any and all partnership, membership or
other equity interests of such Person.
(g) “Cash and Cash Equivalents” means all cash, deposit or securities account
balances, certificates of deposit or other financial instruments properly
classified as cash or cash equivalents under GAAP.
(h) “Code” means the New York Uniform Commercial Code, as in effect from time to
time; provided, however, that in the event that, by reason of mandatory
provisions of law, any or all of the attachment, perfection, priority, or
remedies with respect to Secured Party’s Lien on any Collateral is governed by
the Uniform Commercial Code as enacted and in effect in a jurisdiction other
than the State of New York, the term “Code” shall mean the Uniform Commercial
Code as enacted and in effect in such other jurisdiction solely for purposes of
the provisions thereof relating to such attachment, perfection, priority, or
remedies.
(i) “Collateral” has the meaning specified in Section 2.
(j) “Control Agreement” means a control agreement, in form and substance
satisfactory to Secured Party, executed and delivered by each relevant Grantor,
Secured Party or its agent, and the applicable securities intermediary (with
respect to a Securities Account) or bank (with respect to a Deposit Account).
(k) “Copyrights” means copyrights and copyright registrations, including,
without limitation, the copyright registrations and recordings thereof and all
applications in connection therewith listed on Schedule 1 attached hereto and
made a part hereof, and (i) all reissues, continuations, extensions or renewals
thereof, (ii) all income, royalties, damages and payments now and hereafter due
and/or payable under and with respect thereto, including, without limitation,
payments under all licenses entered into in connection therewith and damages and
payments for past or future infringements or dilutions thereof, (iii) the right
to sue for past, present and future infringements and dilutions thereof,
(iv) the goodwill of each such Grantor’s business symbolized by the foregoing
and connected therewith, and (v) all of each such Grantor’s rights corresponding
thereto throughout the world.

 

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(l) “Copyright Security Agreement” means each Copyright Security Agreement among
Grantors, or any of them, and Secured Party in substantially the form of
Exhibit A attached hereto, pursuant to which Grantors have granted to Secured
Party a security interest in all their respective Copyrights.
(m) “Deposit Accounts” means a deposit account (as that term is defined in the
Code).
(n) “Domestic Subsidiary” means any Subsidiary of the Purchaser that is not a
“controlled foreign corporation” as defined in the Internal Revenue Code of
1986, as amended (or any successor statute thereto) and the regulations
thereunder.
(o) “Effective Date” means the date of this Agreement.
(p) “Equipment” means equipment (as that term is defined in the Code).
(q) “Equity Interests” means all shares, units, options, warrants, interests,
participations, or other equivalents (regardless of how designated) of or in a
corporation, partnership, limited liability company, or equivalent entity or
other Person, whether voting or nonvoting, including general partner partnership
interests, limited partner partnership interests, limited liability company
membership interests, common stock, preferred stock, or any other “equity
security” (as such term is defined in Rule 3a11-1 of the General Rules and
Regulations promulgated by the SEC under the Exchange Act); in each case whether
constituting “general intangibles” or “investment property” or otherwise under
(and as defined in) the Code.
(r) “Event of Default” means (i) the failure by the Purchaser to pay all or any
portion of any Secured Obligation as and when due, (ii) the occurrence of any
Event of Default described in Section III of the Note or (iii) the occurrence of
any event described in Section V of the Note.
(s) “Governmental Authority” means any nation or government, any Federal, state,
city, town, municipality, county, local or other political subdivision thereof
or thereto and any department, commission, board, bureau, instrumentality,
agency or other entity exercising executive, legislative, judicial, taxing,
regulatory or administrative powers or functions of or pertaining to government.
(t) “Intellectual Property” means any and all Intellectual Property Licenses,
Patents, Copyrights, Trademarks, the goodwill associated with such Trademarks,
trade secrets and customer lists.
(u) “Intellectual Property Licenses” means rights under or interest in any
patent, trademark, copyright or other intellectual property, including software
license agreements with any other party, whether the applicable Grantor is a
licensee or licensor under any such license agreement, including, without
limitation, the license agreements listed on Schedule 2 attached hereto and made
a part hereof, and the right to use the foregoing in connection with the
enforcement of the payment of the Secured Obligations, including, without
limitation, the right to prepare for sale and sell any and all Inventory and
Equipment now or hereafter owned by any such Grantor and now or hereafter
covered by such licenses.
(v) “Inventory” means inventory (as that term is defined in the Code).
(w) “Investment Related Property” means (i) investment property (as that term is
defined in the Code), and (ii) all of the following regardless of whether
classified as investment property under the Code: all Pledged Interests, Pledged
Operating Agreements, and Pledged Partnership Agreements.

 

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(x) “Lien” means any mortgage, deed of trust, pledge, lien (statutory or
otherwise), security interest, charge or other encumbrance or security or
preferential arrangement of any nature, including, without limitation, any
conditional sale or title retention arrangement, any Capitalized Lease and any
assignment, deposit arrangement or financing lease intended as, or having the
effect of, security.
(y) “Mortgage” means a mortgage, deed of trust or deed to secure debt, in form
and substance substantially similar to that provided in accordance with the
Financing Agreement or the Senior Security Agreement, as applicable, made by a
Grantor in favor of the Secured Party securing the Secured Obligations and
delivered to the Secured Party pursuant to the provisions hereof or otherwise.
(z) “Patents” means patents and patent applications, including, without
limitation, the patents and patent applications listed on Schedule 3 attached
hereto and made a part hereof, and (i) all renewals thereof, (ii) all income,
royalties, damages and payments now and hereafter due and/or payable under and
with respect thereto, including, without limitation, payments under all licenses
entered into in connection therewith and damages and payments for past or future
infringements or dilutions thereof, (iii) the right to sue for past, present and
future infringements and dilutions thereof, and (iv) all of each Grantor’s
rights corresponding thereto throughout the world.
(aa) “Patent Security Agreement” means each Patent Security Agreement among
Grantors, or any of them, and Secured Party in substantially the form of
Exhibit B attached hereto, pursuant to which Grantors have granted to Secured
Party a security interest in all their respective Patents.
(bb) “Permitted Discretion” means a determination made in the exercise of
reasonable (from the perspective of a secured lender) business judgment.
(cc) “Permitted Liens” has the meaning specified in the Financing Agreement.
(dd) “Person” means an individual, corporation, limited liability company,
partnership, association, joint-stock company, trust, unincorporated
organization, joint venture or other enterprise or entity or Governmental
Authority.
(ee) “Pledged Companies” means, each Person listed on Schedule 4 hereto as a
“Pledged Company”, together with each other Person, all or a portion of whose
Equity Interests are acquired or otherwise owned by a Grantor after the
Effective Date.
(ff) “Pledged Interests” means all of each Grantor’s right, title and interest
in and to all of the Equity Interests now or hereafter owned by such Grantor,
regardless of class or designation, including, without limitation, in each of
the Pledged Companies, and all substitutions therefor and replacements thereof,
all proceeds thereof and all rights relating thereto, including, without
limitation, any certificates representing the Equity Interests, the right to
request after the occurrence and during the continuation of an Event of Default
that such Equity Interests be registered in the name of Secured Party or any of
its nominees, the right to receive any certificates representing any of the
Equity Interests and the right to require that such certificates be delivered to
Secured Party together with undated powers or assignments of investment
securities with respect thereto, duly endorsed in blank by such Grantor, all
warrants, options, share appreciation rights and other rights, contractual or
otherwise, in respect thereof and of all dividends, distributions of income,
profits, surplus, or other compensation by way of income or liquidating
distributions, in cash or in kind, and cash, instruments, and other property
from time to time received, receivable, or otherwise distributed in respect of
or in addition to, in substitution of, on account of, or in exchange for any or
all of the foregoing; provided, however, that Pledged Interests shall not
include more than 65% of the issued and outstanding Equity Interests in any
direct or indirect Subsidiary of such Grantor which is not incorporated under
the laws of any state of the United States of America or the District of
Columbia.

 

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(gg) “Pledged Interests Addendum” means a Pledged Interests Addendum
substantially in the form of Exhibit C to this Agreement.
(hh) “Pledged Operating Agreements” means all of each Grantor’s rights, powers,
and remedies under the limited liability company operating agreements of each of
the Pledged Companies that is a limited liability company.
(ii) “Pledged Partnership Agreements” means all of each Grantor’s rights,
powers, and remedies under the partnership agreements of each of the Pledged
Companies that is a partnership.
(jj) “Real Property” means any estates or interests in real property now owned
or hereafter acquired by Grantors or any Domestic Subsidiary of any Grantor and
the improvements thereto.
(kk) “Records” means information that is inscribed on a tangible medium or which
is stored in an electronic or other medium and is retrievable in perceivable
form.
(ll) “Secured Obligations” means, collectively, (i) any and all amounts payable
to the Secured Party under the Note; (ii) all principal, premium, interest,
fees, attorneys’ fees, costs, charges, expenses, reimbursement obligations,
indemnities, guaranties, and all other amounts payable by the Purchaser in
relation to the foregoing; (iii) the Guaranteed Obligations (as such term is
defined in the Guaranty); (v) all obligations of each Grantor under this
Agreement and any other Security Document, in each case whether arising before,
during or after the commencement of any Insolvency Proceeding with respect to
one or more Grantors (including, in each case, all fees, interest, attorneys’
fees, costs, charges, reimbursement obligations, indemnities, guaranties and all
other amounts which would accrue and become due but for the commencement of such
Insolvency Proceeding whether or not such amounts are allowed or allowable in
whole or in part in any such Insolvency Proceeding).
(mm) “Securities Account” means a securities account (as that term is defined in
the Code).
(nn) “Security Documents” means, collectively, this Agreement, each Copyright
Security Agreement, Patent Security Agreement and Trademark Security Agreement,
the Assignment of Life Insurance Policy as Collateral insuring the life of
Richard Snow, and any other agreement, instrument or document securing the
Secured Obligations.
(oo) “Senior Lender” means Wells Fargo Bank, National Association.
(pp) “Senior Security Agreement” means the Financing Agreement.
(qq) “Subsidiary” means, with respect to any Person at any date, any
corporation, limited or general partnership, limited liability company, trust,
estate, association, joint venture or other business entity (i) the accounts of
which would be consolidated with those of such Person in such Person’s
consolidated financial statements if such financial statements were prepared in
accordance with GAAP or (ii) of which more than 50% of (A) the outstanding
Capital Stock having (in the absence of contingencies) ordinary voting power to
elect a majority of the board of directors or other managing body of such
Person, (B) in the case of a partnership or limited liability company, the
interest in the capital or profits of such partnership or limited liability
company or (C) in the case of a trust, estate, association, joint venture or
other entity, the beneficial interest in such trust, estate, association or
other entity business is, at the time of determination, owned or controlled
directly or indirectly through one or more intermediaries, by such Person.

 

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(rr) “Trademarks” means trademarks, trade names, registered trademarks,
trademark applications, service marks, registered service marks and service mark
applications, including, without limitation, the trade names, registered
trademarks, trademark applications, registered service marks and service mark
applications listed on Schedule 5 attached hereto and made a part hereof, and
(i) all renewals thereof, (ii) all income, royalties, damages and payments now
and hereafter due and/or payable under and with respect thereto, including,
without limitation, payments under all licenses entered into in connection
therewith and damages and payments for past or future infringements or dilutions
thereof, (iii) the right to sue for past, present and future infringements and
dilutions thereof, (iv) the goodwill of each Grantor’s business symbolized by
the foregoing and connected therewith, and (v) all of each Grantor’s rights
corresponding thereto throughout the world.
(ss) “Trademark Security Agreement” means each Trademark Security Agreement
among Grantors, or any of them, and Secured Party, in substantially the form of
Exhibit D attached hereto, pursuant to which Grantors have granted to Secured
Party a security interest in all their respective Trademarks.
(tt) “URL” means “uniform resource locator,” an internet web address.
If any term used herein is defined by reference to its definition in the Code,
and such term is defined in Article 9 of the Code and in another Article of the
Code, then the Article 9 definition of such term should control for all purposes
hereunder.
2. Grant of Security. Each Grantor hereby unconditionally grants, collaterally
assigns and pledges to Secured Party a continuing security interest in all
personal property of such Grantor whether now owned or hereafter acquired or
arising and wherever located (hereinafter referred to as the “Security
Interest”), including, without limitation, such Grantor’s right, title, and
interest in and to the following, whether now owned or hereafter acquired or
arising and wherever located (the “Collateral”):
(a) all of such Grantor’s Accounts;
(b) all of such Grantor’s books and records (including all of its Records
indicating, summarizing, or evidencing its assets (including the Collateral) or
liabilities, all of its Records relating to its business operations or financial
condition, and all of its goods or General Intangibles related to such
information) (“Books”);
(c) all of such Grantor’s chattel paper (as that term is defined in the Code)
and, in any event, including, without limitation, tangible chattel paper and
electronic chattel paper (“Chattel Paper”);
(d) all of such Grantor’s interest with respect to any Deposit Account;
(e) all of such Grantor’s Equipment and fixtures;

 

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(f) All of such Grantor’s general intangibles (as that term is defined in the
Code) and, in any event, including, without limitation, payment intangibles,
contract rights, rights to payment, rights arising under common law, statutes,
or regulations, choses or things in action, goodwill (including the goodwill
associated with any Trademark, Patent, or Copyright), Patents, Trademarks,
Copyrights, URLs and domain names, industrial designs, other industrial or
Intellectual Property or rights therein or applications therefor, whether under
license or otherwise, programs, programming materials, 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, including Intellectual Property Licenses, infringement claims,
computer programs, information contained on computer disks or tapes, software,
literature, reports, catalogs, pension plan refunds, pension plan refund claims,
insurance premium rebates, tax refunds, and tax refund claims, uncertificated
securities, and any other personal property other than Commercial Tort Claims,
money, Accounts, Chattel Paper, Deposit Accounts, goods (as such term is defined
in the Code), Investment Related Property, Negotiable Collateral, and oil, gas,
or other minerals before extraction (“General Intangibles”);
(g) all of such Grantor’s Inventory;
(h) all of such Grantor’s Investment Related Property;
(i) all of such Grantor’s letters of credit, letter-of-credit rights,
instruments, promissory notes, drafts, and documents (as such terms may be
defined in the Code) (“Negotiable Collateral”);
(j) all of such Grantor’s rights in respect of supporting obligations (as such
term is defined in the Code), including letters of credit and guaranties issued
in support of Accounts, Chattel Paper, documents, General Intangibles,
instruments, or Investment Related Property (“Supporting Obligations”);
(k) all of such Grantor’s interest with respect to any commercial tort claims
(as that term is defined in the Code), including, without limitation those
commercial tort claims listed on Schedule 6 attached hereto (“Commercial Tort
Claims”);
(l) all of such Grantor’s money, Cash Equivalents, or other assets of each such
Grantor that now or hereafter come into the possession, custody, or control of
Secured Party; and
(m) all of the proceeds and products, whether tangible or intangible, of any of
the foregoing, including proceeds of insurance or commercial tort claims
covering or relating to any or all of the foregoing, and any and all Accounts,
Books, Chattel Paper, Deposit Accounts, Equipment, General Intangibles,
Inventory, Investment Related Property, Negotiable Collateral, Supporting
Obligations, Commercial Tort Claims, money, or other tangible or intangible
property resulting from the sale, lease, license, exchange, collection, or other
disposition of any of the foregoing, the proceeds of any award in condemnation
with respect to any of the property of Grantors, any rebates or refunds, whether
for taxes or otherwise, and all proceeds of any such proceeds, or any portion
thereof or interest therein, and the proceeds thereof, and all proceeds of any
loss of, damage to, or destruction of the above, whether insured or not insured,
and, to the extent not otherwise included, any indemnity, warranty, or guaranty
payable by reason of loss or damage to, or otherwise with respect to any of the
foregoing Collateral (the “Proceeds”). Without limiting the generality of the
foregoing, the term “Proceeds” includes whatever is receivable or received when
Investment Related Property or proceeds are sold, exchanged, collected, or
otherwise disposed of, whether such disposition is voluntary or involuntary, and
includes, without limitation, proceeds of any indemnity or guaranty payable to
any Grantor or Secured Party from time to time with respect to any of the
Investment Related Property.

 

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3. Security for Obligations. This Agreement and the Security Interest created
hereby secures the payment and performance of all the Secured Obligations,
whether now existing or arising hereafter. Without limiting the generality of
the foregoing, this Agreement secures the payment of all amounts which
constitute part of the Secured Obligations and would be owed by Grantors, or any
of them, to the Secured Party but for the fact that they are unenforceable or
not allowable due to the existence of an Insolvency Proceeding involving any
Grantor.
4. Grantors Remain Liable. Anything herein to the contrary notwithstanding,
(a) each of the Grantors shall remain liable under the contracts and agreements
included in the Collateral, including, without limitation, the Pledged Operating
Agreements and the Pledged Partnership Agreements, to perform all of the duties
and obligations thereunder to the same extent as if this Agreement had not been
executed and (b) the exercise by Secured Party of any of the rights hereunder
shall not release any Grantor from any of its duties or obligations under such
contracts and agreements included in the Collateral. Until an Event of Default
shall occur and be continuing, except as otherwise provided in this Agreement,
Grantors shall have the right to possession and enjoyment of the Collateral for
the purpose of conducting the ordinary course of their respective businesses,
subject to and upon the terms hereof. Without limiting the generality of the
foregoing, it is the intention of the parties hereto that record and beneficial
ownership of the Pledged Interests, including, without limitation, all voting,
consensual, and dividend rights, shall remain in the applicable Grantor until
the occurrence of an Event of Default and until Secured Party shall notify in
writing the applicable Grantor of Secured Party’s exercise of voting,
consensual, and/or dividend rights with respect to the Pledged Interests
pursuant to Section 15 hereof.
5. Representations and Warranties. Each Grantor hereby represents and warrants
as follows:
(a) The exact legal name of each of the Grantors is set forth on the signature
pages of this Agreement or a written notice provided to Secured Party.
(b) Schedule 7 attached hereto sets forth all Real Property owned in fee by
Grantors as of the Effective Date.
(c) As of the Effective Date, no Grantor has any interest in, or title to, any
Copyrights, Intellectual Property Licenses, Patents, or Trademarks except as set
forth on Schedules 1, 2, 3 and 5, respectively, attached hereto. This Agreement
is effective to create a valid and continuing Lien on such Copyrights,
Intellectual Property Licenses, Patents and Trademarks and, upon filing of the
Copyright Security Agreement with the United States Copyright Office and filing
of the Patent Security Agreement and the Trademark Security Agreement with the
United States Patent and Trademark Office, and the filing of appropriate
financing statements in the jurisdictions listed on Schedule 8 hereto and
payment of all fees, all action necessary or desirable to protect and perfect
the Security Interest in and to on each Grantor’s Patents, Trademarks, or
Copyrights has been taken and such perfected Security Interests are enforceable
as such as against any and all creditors of and purchasers from any Grantor
except with respect to the Senior Lender. No Grantor has any interest in any
Copyright that is necessary or economically desirable in connection with the
operation of the Purchaser’s business, or that generates any revenue in excess
of $100,000, except for those Copyrights identified on Schedule 1 attached
hereto which have been registered with the United States Copyright Office.
(d) This Agreement creates a valid security interest in the Collateral of each
of Grantors, to the extent a security interest therein can be created under the
Code, securing the payment of the Secured Obligations. Except to the extent a
security interest in the Collateral cannot be perfected by the filing of a
financing statement under the Code, all filings and other actions necessary or
desirable to perfect and protect such security interest have been duly taken or
will have been taken upon the filing of financing statements listing each
applicable Grantor, as a debtor, and Secured Party, as secured party, in the
jurisdictions listed next to such Grantor’s name on Schedule 8 attached hereto.
Upon the making of such filings and payment of all fees, Secured Party shall
have a second priority (junior only to the Liens in favor of the Senior Lender
and any Permitted Liens defined in and described in the Financing Agreement)
perfected security interest in the Collateral of each Grantor to the extent such
security interest can be perfected by the filing of a financing statement.

 

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(e) Except for the Security Interest created hereby and under the Senior
Security Agreement, each Grantor is and will at all times be the sole holder of
record and the legal and beneficial owner, free and clear of all Liens other
than Liens permitted under the Senior Security Agreement, of the Pledged
Interests indicated on Schedule 4 as being owned by such Grantor and, when
acquired by such Grantor, any Pledged Interests acquired after the Effective
Date; (ii) all of the Pledged Interests are duly authorized, validly issued,
fully paid and nonassessable and the Pledged Interests constitute or will
constitute the percentage of the issued and outstanding Equity Interests of the
Pledged Companies of such Grantor identified on Schedule 4 hereto as
supplemented or modified by any Pledged Interests Addendum or any Supplement to
this Agreement; (ii) such Grantor has the right and requisite authority to
pledge, the Investment Related Property pledged by such Grantor to Secured Party
as provided herein; (iii) all actions necessary or desirable to perfect,
establish the second priority of, or otherwise protect, Secured Party’s Liens in
the Investment Related Collateral (which Liens are junior only to Liens in favor
of the Senior Lender), and the proceeds thereof, have been duly taken, (A) upon
the execution and delivery of this Agreement; (B) upon the taking of possession
by Secured Party of any certificates constituting the Pledged Interests, to the
extent such Pledged Interests are represented by certificates, together with
undated powers endorsed in blank by the applicable Grantor; (C) upon the filing
of financing statements in the applicable jurisdiction set forth on Schedule 8
attached hereto for such Grantor with respect to the Pledged Interests of such
Grantor that are not represented by certificates, and (D) with respect to any
Securities Accounts, upon the delivery of Control Agreements with respect
thereto; and (iv) each Grantor has delivered to and deposited with the Senior
Lender (or, with respect to any Pledged Interests created after the Effective
Date, will deliver and deposit with the Senior Lender in accordance with
Sections 6(a) and 8 of the Senior Security Agreement) all certificates
representing the Pledged Interests owned by such Grantor to the extent such
Pledged Interests are represented by certificates, and undated powers endorsed
in blank with respect to such certificates.
(f) Except as set forth in the Subordination Agreement, no consent, approval,
authorization, or other order or other action by, and no notice to or filing
with, any Governmental Authority or any other Person is required (i) for the
grant of a Security Interest by such Grantor in and to the Collateral pursuant
to this Agreement or for the execution, delivery, or performance of this
Agreement by such Grantor, or (ii) for the exercise by Secured Party of the
voting or other rights provided for in this Agreement with respect to the
Investment Related Property or the remedies in respect of the Collateral
pursuant to this Agreement, except as may be required in connection with such
disposition of Investment Related Property by laws affecting the offering and
sale of securities generally.
6. Covenants. Subject to the terms of the Subordination Agreement, each Grantor,
jointly and severally, covenants and agrees with Secured Party that from and
after the date of this Agreement and until the date of termination of this
Agreement in accordance with Section 22 hereof:
(a) Possession of Collateral. In the event that any Collateral, including
proceeds, is evidenced by or consists of Control Collateral (as defined in the
Subordination Agreement) such Collateral shall be held by the Senior Lender for
the benefit of the Secured Party for the purpose of perfection the Secured
Party’s security interest therein during the term of the Subordination
Agreement. Subject to the foregoing, to the extent permitted by the
Subordination Agreement (or, in any event, after the termination of the
Subordination Agreement), in the event that any Collateral, including proceeds,
is evidenced by or consists of Negotiable Collateral, Investment Related
Property, or Chattel Paper, and if and to the extent that perfection or priority
of Secured Party’s Security Interest is dependent on or enhanced by possession,
the applicable Grantor, immediately upon the written request of Secured Party
and in accordance with Section 8 hereof, shall execute such other documents as
shall be requested by Secured Party or, if applicable, endorse and deliver
physical possession of such Negotiable Collateral, Investment Related Property,
or Chattel Paper to Secured Party, together with such undated powers endorsed in
blank as shall be requested by Secured Party;

 

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(b) Chattel Paper.
(i) Each Grantor shall take all steps reasonably necessary to grant Secured
Party control of all electronic Chattel Paper in accordance with the Code and
all “transferable records” as that term is defined in Section 16 of the Uniform
Electronic Transaction Act and Section 201 of the federal Electronic Signatures
in Global and National Commerce Act as in effect in any relevant jurisdiction;
(ii) If any Grantor retains possession of any Chattel Paper or instruments
(which retention of possession shall be subject to the extent permitted hereby
and by the Financing Agreement), promptly upon the written request of Secured
Party, such Chattel Paper and instruments shall be marked with the following
legend: “This writing and the obligations evidenced or secured hereby are
subject to the Security Interest of Russ Berrie and Company, Inc.;
(c) Deposit Accounts.
(i) The Deposit Accounts of each Grantor shall be controlled by the Senior
Lender for the benefit of the Secured Party for the purpose of perfection of the
Secured Party’s security interest therein;
(ii) Upon or promptly after termination of the Subordination Agreement, each
Grantor shall obtain in favor of Secured Party an authenticated Control
Agreement from (A) each bank holding a Deposit Account that, immediately prior
to such termination, was subject to a Control Agreement in favor of the Senior
Lender or any Lender, and (B) each issuer of uncertificated securities,
securities intermediary, or commodities intermediary issuing or holding any
financial assets or commodities to or for any Grantor where such financial
assets or commodities were, immediately prior to such termination, subject to a
Control Agreement in favor of the Senior Lender or any Lender;
(d) Letter of Credit Rights. Each Grantor that is or becomes the beneficiary of
a letter of credit shall promptly (and in any event within 5 Business Days after
becoming a beneficiary), notify Secured Party thereof and, upon the written
request by Secured Party, enter into a tri-party agreement with Secured Party
and the issuer and/or confirming bank with respect to letter-of-credit rights
(as that term is defined in the Code) assigning such letter-of-credit rights to
Secured Party and directing all payments thereunder to Secured Party’s account,
which assignment shall be consented to by such issuer or confirming bank, all in
form and substance satisfactory to Secured Party;
(e) Commercial Tort Claims. Each Grantor shall promptly (and in any event within
5 Business Days of receipt thereof), notify Secured Party in writing upon
incurring or otherwise obtaining a Commercial Tort Claim after the date hereof
against any third party and, upon the written request of Secured Party, promptly
amend Schedule 6 to this Agreement, authorize the filing of additional or
amendments to existing financing statements and do such other acts or things
deemed necessary or desirable by Secured Party to give Secured Party a second
priority (junior only to Liens in favor of the Senior Lender), perfected
security interest in any such Commercial Tort Claim;

 

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(f) Government Contracts. Promptly, upon written request by Secured Party, each
Grantor shall execute any instruments or take any steps reasonably required by
Secured Party in order to comply with the Assignment of Claims Act or other
applicable law;
(g) Intellectual Property.
(i) Upon the written request of Secured Party, in order to facilitate filings
with the United States Patent and Trademark Office and the United States
Copyright Office, each Grantor shall execute and deliver to Secured Party one or
more Copyright Security Agreements, Trademark Security Agreements, and/or Patent
Security Agreements to evidence Secured Party’s Lien on such Grantor’s Patents,
Trademarks, and/or Copyrights, and the General Intangibles of such Grantor
relating thereto or represented thereby;
(ii) Each Grantor shall have the duty, to the extent necessary or economically
desirable in the operation of such Grantor’s business, as determined by such
Grantor’s reasonable judgment, (A) to promptly sue for infringement,
misappropriation, or dilution and to recover any and all damages for such
infringement, misappropriation, or dilution, (B) to prosecute diligently any
trademark application or service mark application that is part of the Trademarks
pending as of the date hereof or hereafter until the termination of this
Agreement, (C) to prosecute diligently any patent application that is part of
the Patents pending as of the date hereof or hereafter until the termination of
this Agreement, and (D) to take all reasonable and necessary action to preserve
and maintain all of such Grantor’s Trademarks, Patents, Copyrights, Intellectual
Property Licenses, and its rights therein, including the filing of applications
for renewal, affidavits of use, affidavits of noncontestability and opposition
and interference and cancellation proceedings. Each Grantor shall promptly file
an application with the United States Copyright Office for any Copyright that
has not been registered with the United States Copyright Office if such
Copyright is necessary or economically desirable in connection with the
operation of such Grantor’s business or generates annual revenue in excess of
$100,000. Any expenses incurred in connection with the foregoing shall be borne
by the appropriate Grantor. Each Grantor further agrees not to abandon any
Trademark, Patent, Copyright, or Intellectual Property License that is necessary
or economically desirable in the operation of such Grantor’s business, as
determined by such Grantor’s reasonable judgment, without the prior written
consent of Secured Party, which consent shall not be unreasonably withheld or
denied;
(iii) Grantors acknowledge and agree that the Secured Party shall have no duties
with respect to the Trademarks, Patents, Copyrights, or Intellectual Property
Licenses. Without limiting the generality of this Section 6(g), Grantors
acknowledge and agree that Secured Party shall not be under any obligation to
take any steps necessary to preserve rights in the Trademarks, Patents,
Copyrights, or Intellectual Property Licenses against any other Person, but the
Secured Party may do so at its option from and after the occurrence and during
the continuance of an Event of Default, and all expenses incurred in connection
therewith (including, without limitation, reasonable fees and expenses of
attorneys and other professionals) shall be for the sole account of Grantors;
(iv) In no event shall any Grantor, either itself or through any agent,
employee, licensee, or designee, (A) file an application for the registration of
any Patent or Trademark with the United States Patent and Trademark Office or
any similar office or agency unless it gives Secured Party prompt written notice
thereof; or (B) file an application for the registration of any Copyright with
the United States Copyright Office or any similar office or agency without
giving Secured Party written notice concurrently therewith. Promptly upon any
such filing, each Grantor shall comply with Section 6(g)(i) hereof;

 

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(h) Investment Related Property.
(i) If any Grantor shall receive or become entitled to receive any Pledged
Interests after the Effective Date, it shall promptly (and in any event within 5
Business Days of receipt thereof) deliver to Secured Party a duly executed
Pledged Interests Addendum identifying such Pledged Interests;
(ii) During the term of the Subordination Agreement, in the event that any
Investment Related Property, including proceeds, is evidenced by or consists of
Control Collateral (as defined in the Subordination Agreement) such Collateral
shall be held by the Senior Lender for the benefit of the Secured Party for the
purpose of perfection the Secured Party’s security interest therein;
(iii) All sums of money and property paid or distributed in respect of the
Investment Related Property which are received by any Grantor shall be held by
the Grantors in trust for the benefit of Secured Party segregated from such
Grantor’s other property, and such Grantor shall deliver it forthwith to Secured
Party in the exact form received, unless any such action would violate the terms
of the Subordination Agreement;
(iv) Each Grantor shall promptly deliver to Secured Party a copy of each
material notice or other communication received by it in respect of any Pledged
Interests;
(v) No Grantor shall make or consent to any amendment or other modification or
waiver with respect to any Pledged Interests, Pledged Operating Agreement, or
Pledged Partnership Agreement, or enter into any agreement or permit to exist
any restriction with respect to any Pledged Interests that would violate the
terms of the Subordination Agreement;
(vi) Each Grantor agrees that it will cooperate with Secured Party in obtaining
all necessary approvals and making all necessary filings under federal, state,
local, or foreign law in connection with the Security Interest on the Investment
Related Property or any sale or transfer thereof;
(vii) As to all limited liability company or partnership interests, issued under
any Pledged Operating Agreement or Pledged Partnership Agreement, all limited
liability company or partnership interests, issued each Grantor hereby
represents, warrants and covenants that the Pledged Interests issued pursuant to
such agreement (A) are not and shall not be dealt in or traded on securities
exchanges or in securities markets, (B) do not and will not constitute
investment company securities, and (C) are not and will not be held by such
Pledgor in a securities account. In addition, none of the Pledged Operating
Agreements, the Pledged Partnership Agreements, or any other agreements
governing any of the Pledged Interests issued under any Pledged Operating
Agreement or Pledged Partnership Agreement, provide or shall provide that such
Pledged Interests are securities governed by Article 8 of the Uniform Commercial
Code as in effect in any relevant jurisdiction;
(i) Real Property; Fixtures. Each Grantor covenants and agrees that upon the
acquisition of any fee interest in Real Property it will promptly (and in any
event within 5 Business Days of acquisition) notify Secured Party of the
acquisition of such Real Property and will grant to Secured Party, a second
priority Mortgage (junior only to Liens in favor of the Senior Lender) on each
fee interest in Real Property now or hereafter owned by such Grantor and shall
deliver such other documentation and opinions, in form and substance
satisfactory to Secured Party, in connection with the grant of such Mortgage as
Secured Party shall request in its Permitted Discretion, including, without
limitation, title insurance policies, financing statements, fixture filings and
environmental audits and such Grantor shall pay all recording costs, intangible
taxes and other fees and costs (including reasonable attorneys fees and
expenses) incurred in connection therewith. Each Grantor acknowledges and agrees
that, to the extent permitted by applicable law, all of the Collateral shall
remain personal property regardless of the manner of its attachment or
affixation to real property;

 

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(j) Transfers and Other Liens. Grantors shall not create or permit to exist any
Lien upon or with respect to any of the Collateral of any of Grantors, except
for Liens permitted by the Senior Security Agreement as in effect as of the date
hereof; and
(k) Other Actions as to Any and All Collateral. Each Grantor shall promptly (and
in any event within 5 Business Days of acquiring or obtaining such Collateral)
notify Secured Party in writing upon acquiring or otherwise obtaining any
Collateral after the date hereof consisting of Trademarks, Patents, Copyrights,
Intellectual Property Licenses, Investment Related Property, Chattel Paper
(electronic, tangible or otherwise), documents (as defined in the Code), or
instruments (as defined in the Code) and, upon the written request of Secured
Party and in accordance with Section 8 hereof, promptly execute such other
documents, or if applicable, deliver such Chattel Paper, other documents or
certificates evidencing any Investment Related Property in accordance with
Section 6 hereof and do such other acts or things deemed necessary or desirable
by Secured Party to protect Secured Party’s Security Interest therein.
7. Relation to Other Security Documents. The provisions of this Agreement shall
be read and construed with the documents referred to below in the manner so
indicated.
(a) Note. In the event of any conflict between any provision in this Agreement
and a provision in the Note, such provision of the Note shall control.
(b) Patent, Trademark, Copyright Security Agreements. The provisions of the
Copyright Security Agreements, Trademark Security Agreements, and Patent
Security Agreements are supplemental to the provisions of this Agreement, and
nothing contained in the Copyright Security Agreements, Trademark Security
Agreements, or the Patent Security Agreements shall limit any of the rights or
remedies of Secured Party hereunder.
8. Further Assurances.
(a) Each Grantor agrees that from time to time, at its own expense, such Grantor
will promptly execute and deliver all further instruments and documents, and
take all further action, that may be necessary or that Secured Party may
reasonably request, in order to perfect and protect any Security Interest
granted or purported to be granted hereby or to enable Secured Party to exercise
and enforce its rights and remedies hereunder with respect to any of the
Collateral.
(b) Each Grantor authorizes the filing of such financing or continuation
statements, or amendments thereto, and such Grantor will execute and deliver to
Secured Party such other instruments or notices, as may be necessary or as
Secured Party may reasonably request, in order to perfect and preserve the
Security Interest granted or purported to be granted hereby.
(c) Each Grantor authorizes Secured Party to file, transmit, or communicate, as
applicable, financing statements and amendments describing the Collateral as
“all personal property of debtor” or “all assets of debtor” or words of similar
effect, in order to perfect Secured Party’s security interest in the Collateral
without such Grantor’s signature. Each Grantor also hereby ratifies its
authorization for Secured Party to have filed in any jurisdiction any financing
statements filed prior to the date hereof in connection with this Agreement.

 

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(d) Each Grantor acknowledges that it is not authorized to file any financing
statement or amendment or termination statement with respect to any financing
statement filed in connection with this Agreement without the prior written
consent of Secured Party, subject to such Grantor’s rights under
Section 9-509(d)(2) of the Code.
(e) Each Grantor agrees that, if at any time during the term of the
Subordination Agreement such Grantor shall grant to Senior Lender or any Lender
a Lien over such Grantor’s assets, such Grantor shall also concurrently
therewith grant a Lien on such assets to Secured Party on substantially the same
terms and conditions provided to Senior Lender (subject only to such Liens being
junior in priority to the Liens of Senior Lender). In connection with such
grant, such Grantor shall deliver to Secured Party such agreements, instruments,
filings, recordations, legal opinions and other documents delivered to Senior
Lender in connection with the relevant grant to Senior Lender or such Lender.
Such Grantor agrees that from time to time, at its own expense, such Grantor
will promptly execute and deliver all further instruments and documents, and
take all further action, that may be necessary or that Secured Party may
reasonably request, in order to perfect and protect such Lien or to enable
Secured Party to exercise and enforce its rights and remedies hereunder with
respect to such Lien.
(f) Each Grantor agrees that, if at any time prior to the termination of the
Subordination Agreement, such Grantor shall enter into any collateral access
agreement, bailee agreement or landlord waiver for the benefit of the Senior
Lender or any Lender relating to any location at which Collateral is located,
such Grantor shall concurrently therewith or promptly (and in any event no later
than 60 days) thereafter afford Secured Party the opportunity to enter into an
agreement with respect to such location on substantially the same terms and
conditions as those given to the Senior Lender or make other similar
arrangements acceptable to Secured Party in its sole discretion.
(g) Each Grantor agrees that, if at any time prior to the termination of the
Subordination Agreement, such Grantor makes any of its insurance policies
payable to Senior Lender or any Lender, whether as “loss payee”, “additional
insured” or otherwise, such Grantor shall concurrently therewith or promptly
(and in any event no later than 60 days) thereafter make such insurance policy
payable (subject only to the prior payment of loss proceeds to Senior Lender) to
Secured Party on substantially the same terms and conditions as those given to
the Senior Lender or make other similar arrangements acceptable to Secured Party
in its sole discretion.
9. Secured Party’s Right to Perform Contracts. Upon the occurrence and during
the continuance of an Event of Default, Secured Party (or its designee) may
proceed to perform any and all of the obligations of any Grantor contained in
any contract, lease, or other agreement and exercise any and all rights of any
Grantor therein contained as fully as such Grantor itself could.
10. Secured Party Appointed Attorney-in-Fact. Each Grantor hereby irrevocably
appoints Secured Party its attorney-in-fact, with full authority in the place
and stead of such Grantor and in the name of such Grantor or otherwise, at such
time as an Event of Default has occurred and is continuing and subject to the
terms of the Subordination Agreement, to take any action and to execute any
instrument which Secured Party may reasonably deem necessary or advisable to
accomplish the purposes of this Agreement, including, without limitation:
(a) to ask, demand, collect, sue for, recover, compromise, receive and give
acquittance and receipts for moneys due and to become due under or in connection
with the Accounts or any other Collateral of such Grantor;
(b) to receive and open all mail addressed to such Grantor and to notify postal
authorities to change the address for the delivery of mail to such Grantor to
that of Secured Party;

 

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(c) to receive, indorse, and collect any drafts or other instruments, documents,
Negotiable Collateral or Chattel Paper;
(d) to file any claims or take any action or institute any proceedings which
Secured Party may deem necessary or desirable for the collection of any of the
Collateral of such Grantor or otherwise to enforce the rights of Secured Party
with respect to any of the Collateral;
(e) to repair, alter, or supply goods, if any, necessary to fulfill in whole or
in part the purchase order of any Person obligated to such Grantor in respect of
any Account of such Grantor;
(f) to use any labels, Patents, Trademarks, trade names, URLs, domain names,
industrial designs, Copyrights, advertising matter or other industrial or
intellectual property rights, in advertising for sale and selling Inventory and
other Collateral and to collect any amounts due under Accounts, contracts or
Negotiable Collateral of such Grantor; and
(g) Secured Party shall have the right, but shall not be obligated, to bring
suit in its own name to enforce the Trademarks, Patents, Copyrights and
Intellectual Property Licenses and, if Secured Party shall commence any such
suit, the appropriate Grantor shall, at the request of Secured Party, do any and
all lawful acts and execute any and all proper documents reasonably required by
Secured Party in aid of such enforcement.
To the extent permitted by law, each Grantor hereby ratifies all that such
attorney-in-fact shall lawfully do or cause to be done by virtue hereof. This
power of attorney is coupled with an interest and shall be irrevocable until
this Agreement is terminated.
11. Secured Party May Perform. Subject to the terms of the Subordination
Agreement, if any of Grantors fails to perform any agreement contained herein,
Secured Party may itself perform, or cause performance of, such agreement, and
the reasonable expenses of Secured Party incurred in connection therewith shall
be payable, jointly and severally, by Grantors.
12. Secured Party’s Duties. The powers conferred on Secured Party hereunder are
solely to protect Secured Party’s interest in the Collateral shall not impose
any duty upon Secured Party to exercise any such powers. Except for the safe
custody of any Collateral in its actual possession and the accounting for moneys
actually received by it hereunder, Secured Party shall have no duty as to any
Collateral or as to the taking of any necessary steps to preserve rights against
prior parties or any other rights pertaining to any Collateral. Secured Party
shall be deemed to have exercised reasonable care in the custody and
preservation of any Collateral in its actual possession if such Collateral is
accorded treatment substantially equal to that which Secured Party accords its
own property.
13. Collection of Accounts, General Intangibles and Negotiable Collateral.
Subject to the terms of the Subordination Agreement, at any time upon the
occurrence and during the continuation of an Event of Default, Secured Party or
Secured Party’s designee may (a) notify Account Debtors of any Grantor that the
Accounts, General Intangibles, Chattel Paper or Negotiable Collateral have been
assigned to Secured Party or that Secured Party has a security interest therein,
and (b) collect the Accounts, General Intangibles and Negotiable Collateral
directly, and any collection costs and expenses shall constitute part of such
Grantor’s Secured Obligations.

 

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14. Disposition of Pledged Interests by Secured Party. None of the Pledged
Interests existing as of the date of this Agreement are, and none of the Pledged
Interests hereafter acquired on the date of acquisition thereof will be,
registered or qualified under the various federal or state securities laws of
the United States and disposition thereof after an Event of Default has occurred
and is continuing may be restricted to one or more private (instead of public)
sales in view of the lack of such registration. Each Grantor understands that in
connection with such disposition, Secured Party may approach only a restricted
number of potential purchasers and further understands that a sale under such
circumstances may yield a lower price for the Pledged Interests than if the
Pledged Interests were registered and qualified pursuant to federal and state
securities laws and sold on the open market. Each Grantor, therefore, agrees
that: (a) if Secured Party shall, pursuant to the terms of this Agreement, sell
or cause the Pledged Interests or any portion thereof to be sold at a private
sale, Secured Party shall have the right to rely upon the advice and opinion of
any nationally recognized brokerage or investment firm (but shall not be
obligated to seek such advice and the failure to do so shall not be considered
in determining the commercial reasonableness of such action) as to the best
manner in which to offer the Pledged Interest for sale and as to the best price
reasonably obtainable at the private sale thereof; and (b) such reliance shall
be conclusive evidence that Secured Party has handled the disposition in a
commercially reasonable manner.
15. Voting Rights.
(a) Upon the occurrence and during the continuation of an Event of Default,
(i) Secured Party may, at its option, subject to the terms of the Subordination
Agreement, and with 5 Business Days prior written notice to any Grantor, and in
addition to all rights and remedies available to Secured Party under any other
agreement, at law, in equity, or otherwise, exercise all voting rights, and all
other ownership or consensual rights in respect of the Pledged Interests owned
by such Grantor, but under no circumstances is Secured Party obligated by the
terms of this Agreement to exercise such rights, and (ii) if Secured Party duly
exercises its right to vote any of such Pledged Interests, each Grantor hereby
appoints Secured Party, such Grantor’s true and lawful attorney-in-fact and
IRREVOCABLE PROXY to vote such Pledged Interests in any manner Secured Party
deems advisable for or against all matters submitted or which may be submitted
to a vote of shareholders, partners or members, as the case may be. The
power-of-attorney granted hereby is coupled with an interest and shall be
irrevocable.
(b) For so long as any Grantor shall have the right to vote the Pledged
Interests owned by it, such Grantor covenants and agrees that it will not,
without the prior written consent of Secured Party, vote or take any consensual
action with respect to such Pledged Interests which would materially adversely
affect the rights of Secured Party or the value of the Pledged Interests.
16. Remedies. Upon the occurrence and during the continuance of an Event of
Default, but in all instances subject to the terms of the Subordination
Agreement:
(a) Secured Party may exercise in respect of the Collateral, in addition to
other rights and remedies provided for herein, or otherwise available to it, all
the rights and remedies of a secured party on default under the Code or any
other applicable law. Without limiting the generality of the foregoing, each
Grantor expressly agrees that, in any such event, Secured Party without demand
of performance or other demand, advertisement or notice of any kind (except a
notice specified below of time and place of public or private sale) to or upon
any of Grantors or any other Person (all and each of which demands,
advertisements and notices are hereby expressly waived to the maximum extent
permitted by the Code or any other applicable law), may take immediate
possession of all or any portion of the Collateral and (i) require Grantors to,
and each Grantor hereby agrees that it will at its own expense and upon request
of Secured Party forthwith, assemble all or part of the Collateral as directed
by Secured Party and make it available to Secured Party at one or more locations
where such Grantor regularly maintains Inventory, and (ii) without notice except
as specified below, sell the Collateral or any part thereof in one or more
parcels at public or private sale, at any of Secured Party’s offices or
elsewhere, for cash, on credit, and upon such other terms as Secured Party may
deem commercially reasonable. Each Grantor agrees that, to the extent notice of
sale shall be required by law, at least 10 days written notice to any of
Grantors of the time and place of any public sale or the time after which any
private sale is to be made shall constitute reasonable notification and
specifically such notice shall constitute a reasonable “authenticated
notification of disposition” within the meaning of Section 9-611 of the Code.
Secured Party shall not be obligated to make any sale of Collateral regardless
of notice of sale having been given. Secured Party may adjourn any public or
private sale from time to time by announcement at the time and place fixed
therefor, and such sale may, without further notice, be made at the time and
place to which it was so adjourned.

 

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(b) Secured Party is hereby granted a license or other right to use, without
liability for royalties or any other charge, each Grantor’s labels, Patents,
Copyrights, rights of use of any name, trade secrets, trade names, Trademarks,
service marks and advertising matter, URLs, domain names, industrial designs,
other industrial or intellectual property or any property of a similar nature,
whether owned by any of Grantors or with respect to which any of Grantors have
rights under license, sublicense, or other agreements, as it pertains to the
Collateral, in preparing for sale, advertising for sale and selling any
Collateral, and each Grantor’s rights under all licenses and all franchise
agreements shall inure to the benefit of Secured Party.
(c) Any cash held by Secured Party as Collateral and all cash proceeds received
by Secured Party in respect of any sale of, collection from, or other
realization upon all or any part of the Collateral shall be applied against the
Secured Obligations. In the event the proceeds of Collateral are insufficient to
satisfy all of the Secured Obligations in full, each Grantor shall remain
jointly and severally liable for any such deficiency.
(d) Each Grantor hereby acknowledges that the Secured Obligations arose out of a
commercial transaction, and agrees that if an Event of Default shall occur and
is continuing Secured Party shall have the right to an immediate writ of
possession without notice of a hearing. Secured Party shall have the right to
the appointment of a receiver for the properties and assets of each of Grantors,
and each Grantor hereby consents to such rights and such appointment and hereby
waives any objection such Grantors may have thereto or the right to have a bond
or other security posted by Secured Party.
17. Remedies Cumulative. Each right, power, and remedy of Secured Party as
provided for in this Agreement or now or hereafter existing at law or in equity
or by statute or otherwise shall be cumulative and concurrent and shall be in
addition to every other right, power, or remedy provided for in this Agreement
or now or hereafter existing at law or in equity or by statute or otherwise, and
the exercise or beginning of the exercise by Secured Party, of any one or more
of such rights, powers, or remedies shall not preclude the simultaneous or later
exercise by Secured Party of any or all such other rights, powers, or remedies.
18. Marshaling. Secured Party shall not be required to marshal any present or
future collateral security (including but not limited to the Collateral) for, or
other assurances of payment of, the Secured Obligations or to resort to such
collateral security or other assurances of payment in any particular order, and
all of its rights and remedies hereunder and in respect of such collateral
security and other assurances of payment shall be cumulative and in addition to
all other rights and remedies, however existing or arising. To the extent that
it lawfully may, each Grantor hereby agrees that it will not invoke any law
relating to the marshaling of collateral which might cause delay in or impede
the enforcement of Secured Party’s rights and remedies under this Agreement or
under any other instrument creating or evidencing any of the Secured Obligations
or under which any of the Secured Obligations is outstanding or by which any of
the Secured Obligations is secured or payment thereof is otherwise assured, and,
to the extent that it lawfully may, each Grantor hereby irrevocably waives the
benefits of all such laws.

 

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19. Indemnity and Expenses.
(a) Subject to the terms of the Subordination Agreement, each Grantor agrees to
indemnify Secured Party from and against all claims, lawsuits and liabilities
(including reasonable attorneys fees) growing out of or resulting from this
Agreement (including, without limitation, enforcement of this Agreement), except
claims, losses or liabilities resulting from the gross negligence or willful
misconduct of the party seeking indemnification as determined by a final
non-appealable order of a court of competent jurisdiction.
(b) Subject to the terms of the Subordination Agreement, Grantors, jointly and
severally, shall, upon demand, pay to Secured Party all the reasonable costs and
expenses (including without limitation reasonably attorney’s fees and expenses)
which Secured Party may incur in connection with (i) the administration of this
Agreement, (ii) the custody, preservation, use or operation of, or, upon the
occurrence and during the continuance of an Event of Default, the sale of,
collection from, or other realization upon, any of the Collateral in accordance
with this Agreement, (iii) the exercise or enforcement of any of the rights of
Secured Party hereunder or (iv) the failure by any of Grantors to perform or
observe any of the provisions hereof. This provision shall survive the
termination of this Agreement and the Note and the repayment of the Secured
Obligations.
20. Merger, Amendments; Etc. THIS WRITTEN AGREEMENT REPRESENTS THE FINAL
AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN AGREEMENTS BETWEEN THE PARTIES. No waiver of any provision of this
Agreement, and no consent to any departure by any of Grantors herefrom, shall in
any event be effective unless the same shall be in writing and signed by Secured
Party, and then such waiver or consent shall be effective only in the specific
instance and for the specific purpose for which given. No amendment of any
provision of this Agreement shall be effective unless the same shall be in
writing and signed by Secured Party and each of Grantors to which such amendment
applies.
21. Addresses for Notices. All notices and other communications provided for
hereunder shall be given in the form and manner and delivered to Secured Party
at its address specified in the Note, and to any of the Grantors at the address
specified for the Purchaser in the Note, care of the Purchaser, or, as to any
party, at such other address as shall be designated by such party in a written
notice to the other party.
22. Continuing Security Interest; Assignments. This Agreement shall create a
continuing security interest in the Collateral and shall (a) remain in full
force and effect until the Secured Obligations have been paid in full in cash in
accordance with the provisions of the Note, (b) be binding upon each of
Grantors, and their respective successors and assigns, and (c) inure to the
benefit of, and be enforceable by, Secured Party, and its successors,
transferees and assigns. Upon payment in full in cash of the Secured Obligations
in accordance with the provisions of the Note, the Security Interest granted
hereby shall terminate and this Agreement all rights to the Collateral shall
revert to Grantors or any other Person entitled thereto. At such time, Secured
Party will authorize the filing of appropriate termination statements and/or
releases to terminate such Security Interests immediately and deliver any
Collateral in its possession to the applicable Grantor. No transfer or renewal,
extension, assignment, or termination of this Agreement, or any other instrument
or document executed and delivered by any Grantor to Secured Party, nor the
taking of further security, nor the retaking or re-delivery of the Collateral to
Grantors, or any of them, by Secured Party, shall release any of Grantors from
any obligation, except a release or discharge executed in writing by Secured
Party. Secured Party shall not by any act, delay, omission or otherwise, be
deemed to have waived any of its rights or remedies hereunder, unless such
waiver is in writing and signed by Secured Party and then only to the extent
therein set forth. A waiver by Secured Party of any right or remedy on any
occasion shall not be construed as a bar to the exercise of any such right or
remedy which Secured Party would otherwise have had on any other occasion.

 

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23. Governing Law.
(a) THE VALIDITY OF THIS AGREEMENT, THE CONSTRUCTION, INTERPRETATION, AND
ENFORCEMENT HEREOF, AND THE RIGHTS OF THE PARTIES HERETO AND THERETO WITH
RESPECT TO ALL MATTERS ARISING HEREUNDER OR THEREUNDER OR RELATED HERETO OR
THERETO SHALL BE DETERMINED UNDER, GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF NEW YORK.
(b) THE PARTIES AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING IN CONNECTION WITH
THIS AGREEMENT SHALL BE TRIED AND LITIGATED ONLY IN THE STATE COURTS AND, TO THE
EXTENT PERMITTED BY APPLICABLE LAW, FEDERAL COURTS LOCATED IN THE COUNTY OF NEW
YORK, STATE OF NEW YORK; PROVIDED, HOWEVER, THAT ANY SUIT SEEKING ENFORCEMENT
AGAINST ANY COLLATERAL OR OTHER PROPERTY MAY BE BROUGHT, AT SECURED PARTY’S
OPTION, IN THE COURTS OF ANY JURISDICTION WHERE SECURED PARTY ELECTS TO BRING
SUCH ACTION OR WHERE SUCH COLLATERAL OR OTHER PROPERTY MAY BE FOUND. PURCHASER,
EACH OTHER GRANTOR AND SECURED PARTY WAIVE, TO THE EXTENT PERMITTED UNDER
APPLICABLE LAW, ANY RIGHT EACH MAY HAVE TO ASSERT THE DOCTRINE OF FORUM NON
CONVENIENS OR TO OBJECT TO VENUE TO THE EXTENT ANY PROCEEDING IS BROUGHT IN
ACCORDANCE WITH THIS SECTION 23(b).
(c) PURCHASER AND THE OTHER GRANTORS HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A
JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS
AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING CONTRACT
CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR
STATUTORY CLAIMS. PURCHASER AND EACH OTHER GRANTOR REPRESENT THAT EACH HAS
REVIEWED THIS WAIVER AND EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL
RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION, A
COPY OF THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE
COURT.
24. New Subsidiaries. In the event that any new direct or indirect Subsidiary of
the Purchaser or any other Grantor is required to enter into the Senior Security
Agreement in accordance with the terms thereof, such new Subsidiary shall be
required to enter into this Agreement by executing and delivering in favor of
Secured Party an instrument in the form of Annex 1 attached hereto. Upon the
execution and delivery of Annex 1 by such new Subsidiary, such Subsidiary shall
become a Grantor hereunder with the same force and effect as if originally named
as a Grantor herein. The execution and delivery of any instrument adding an
additional Grantor as a party to this Agreement shall not require the consent of
any other Grantor hereunder. The rights and obligations of each Grantor
hereunder shall remain in full force and effect notwithstanding the addition of
any new Grantor hereunder.
25. Secured Party. Each reference herein to any right granted to, benefit
conferred upon or power exercisable by the “Secured Party” shall be a reference
to Secured Party.

 

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26. Miscellaneous.
(a) This Agreement may be executed in any number of counterparts and by
different parties on separate counterparts, each of which, when executed and
delivered, shall be deemed to be an original, and all of which, when taken
together, shall constitute but one and the same Agreement. Delivery of an
executed counterpart of this Agreement by telefacsimile or other electronic
method of transmission shall be equally as effective as delivery of an original
executed counterpart of this Agreement. Any party delivering an executed
counterpart of this Agreement by telefacsimile or other electronic method of
transmission also shall deliver an original executed counterpart of this
Agreement but the failure to deliver an original executed counterpart shall not
affect the validity, enforceability, and binding effect of this Agreement.
(b) Any provision of this Agreement which is prohibited or unenforceable shall
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof in that jurisdiction or affecting
the validity or enforceability of such provision in any other jurisdiction.
(c) Headings used in this Agreement are for convenience only and shall not be
used in connection with the interpretation of any provision hereof.
(d) The pronouns used herein shall include, when appropriate, either gender and
both singular and plural, and the grammatical construction of sentences shall
conform thereto.
(e) Subordination Agreement. Notwithstanding anything contained herein to the
contrary, the lien and security interest granted to the Secured Party pursuant
to this Agreement and the exercise of any right and remedy by Secured Party are
subject to the terms of the Subordination Agreement. In the event of any
conflict between the terms of the Subordination Agreement and this Agreement,
the terms of the Subordination Agreement shall govern and control.
IN WITNESS WHEREOF, the undersigned parties hereto have executed this Agreement
by and through their duly authorized officers, as of the day and year first
above written.

          GRANTORS:   THE RUSS COMPANIES, INC.,
a Delaware corporation
      By:   /s/ Richard Snow         Name:   Richard Snow        Title:  
President   

 

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            THE ENCORE GROUP, INC.,
a California corporation
      By:   /s/ Richard Snow         Name:   Richard Snow        Title:  
President   

Signature Page to Security Agreement

 

 

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            RUSS BERRIE U.S. GIFT, INC.,
a Delaware corporation
      By:   /s/ Richard Snow         Name:   Richard Snow        Title:  
President   

Signature Page to Security Agreement

 

 

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            RUSS BERRIE AND COMPANY INVESTMENTS, INC.,
a New Jersey corporation
      By:   /s/ Richard Snow         Name:   Richard Snow        Title:  
President   

Signature Page to Security Agreement

 

 

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            RUSS BERRIE AND COMPANY PROPERTIES, INC.,
a New Jersey corporation
      By:   /s/ Richard Snow         Name:   Richard Snow        Title:  
President   

Signature Page to Security Agreement

 

 

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            RUSSPLUS, INC.,
a New Jersey corporation
      By:   /s/ Richard Snow         Name:   Richard Snow        Title:  
President   

Signature Page to Security Agreement

 

 

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          SECURED PARTY:   RUSS BERRIE AND COMPANY, INC.,
a New Jersey corporation
      By:   /s/ Marc Goldfarb         Name:   Marc Goldfarb        Title:  
Senior Vice President, General Counsel & Secretary   

Signature Page to Security Agreement