Exhibit 10.1

 

Execution Version

TERM LOAN AGREEMENT

 

Dated as of June 14, 2018

 

by and among

 

JAKKS PACIFIC, INC.,

DISGUISE, INC.,

JAKKS SALES LLC,

MAUI, INC.,

MOOSE MOUNTAIN MARKETING, INC. and

KIDS ONLY, INC.,

as Borrowers,

 

JAKKS PACIFIC, INC.,

as Borrower Representative,

 

THE OTHER PERSONS PARTY HERETO THAT ARE

DESIGNATED AS CREDIT PARTIES,

 

GACP FINANCE CO., LLC,

as Agent for all Lenders,

 

and

 

THE OTHER FINANCIAL INSTITUTIONS PARTY HERETO,

as Lenders

 

 

 

 

TABLE OF CONTENTS 

 

    Page       ARTICLE I. THE CREDITS 1       Section 1.01 Term Loans 1 Section
1.02 Evidence of Term Loan; Term Notes 1 Section 1.03 Interest 1 Section 1.04
Loan Accounts 2 Section 1.05 Register 2 Section 1.06 Protective Advances 2
Section 1.07 Optional Prepayments 3 Section 1.08 Mandatory Prepayments 3 Section
1.09 Fees 4 Section 1.10 Payments by Borrowers 5 Section 1.11 Settlement 6
Section 1.12 Procedures 7 Section 1.13 Borrower Representative 7       ARTICLE
II. BORROWING BASE 7       Section 2.01 Eligible Accounts 7 Section 2.02
Eligible Licensed Inventory 7       ARTICLE III. CONDITIONS PRECEDENT 9      
Section 3.01 Conditions to Effectiveness 9       ARTICLE IV. REPRESENTATIONS AND
WARRANTIES 9       Section 4.01 Corporate Existence and Power 9 Section 4.02
Corporate Authorization; No Contravention 9 Section 4.03 Governmental
Authorization 9 Section 4.04 Binding Effect 10 Section 4.05 Litigation 10
Section 4.06 No Default 10 Section 4.07 ERISA Compliance 10 Section 4.08 Margin
Regulations 10 Section 4.09 Ownership of Property; Liens 11 Section 4.10 Taxes
11 Section 4.11 Financial Statements; Projections 11 Section 4.12 Material
Adverse Effect 11 Section 4.13 Indebtedness; Contingent Obligations 12 Section
4.14 Environmental Matters 12 Section 4.15 Regulated Entities 12 Section 4.16
Solvency 12 Section 4.17 Labor Relations 12 Section 4.18 Brokers’ Fees;
Transaction Fees 13 Section 4.19 Insurance 13 Section 4.20 Outstanding Stock 13
Section 4.21 Perfection Certificate 13 Section 4.22 Government Contracts 13
Section 4.23 Customer and Trade Relations 13 Section 4.24 Bonding 14 Section
4.25 Disney Licenses 14

 

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TABLE OF CONTENTS

(continued)

 

Section 4.26 [Reserved] 14 Section 4.27 Subordinated Indebtedness 14 Section
4.28 Full Disclosure 14 Section 4.29 OFAC; Sanctions; Anti-Corruption Laws;
Anti-Money Laundering Laws 14 Section 4.30 Patriot Act 14 Section 4.31 HK
Collateral Documents 15       ARTICLE V. AFFIRMATIVE COVENANTS 15       Section
5.01 Financial Statements, Certificates and Other Reports 15 Section 5.02
Appraisals 16 Section 5.03 Notices 16 Section 5.04 Preservation of Corporate
Existence, Etc 17 Section 5.05 Maintenance of Property 18 Section 5.06 Insurance
18 Section 5.07 Compliance with Laws 19 Section 5.08 Inspection of Property and
Books and Records 19 Section 5.09 Use of Proceeds 19 Section 5.10 Cash
Management Systems 20 Section 5.11 Further Assurances 20 Section 5.12
Environmental Matters 21 Section 5.13 OFAC; Sanctions; Anti-Corruption Laws;
Anti-Money Laundering Laws 21 Section 5.15 Applicable License Agreements. 21
Section 5.16 Post-Closing Obligations 21 Section 5.17 Refinancing of 2018
Convertible Notes 21       ARTICLE VI. NEGATIVE COVENANTS 22       Section 6.01
Limitation on Liens 22 Section 6.02 Disposition of Property 23 Section 6.03
Consolidations and Mergers 24 Section 6.04 Acquisitions; Loans and Investments
24 Section 6.05 Limitation on Indebtedness 25 Section 6.06 Employee Loans and
Transactions with Affiliates 25 Section 6.07 Fees and Compensation 26 Section
6.08 Use of Proceeds 26 Section 6.09 Contingent Obligations 26 Section 6.10
Restricted Payments 27 Section 6.11 Change in Business 28 Section 6.12 Change in
Structure 28 Section 6.13 Changes in Accounting, Name or Jurisdiction of
Organization 28 Section 6.14 Amendments to Subordinated Indebtedness and
Applicable License Agreements 28 Section 6.15 No Negative Pledges 28 Section
6.16 Issuances of Stock 28 Section 6.17 Sale-Leasebacks 28 Section 6.18
Hazardous Materials 29 Section 6.19 Prepayments of Other Indebtedness 29      
ARTICLE VII. FINANCIAL COVENANTS 29       Section 7.01 Reserved. 29 Section 7.02
Fixed Charge Coverage Ratio 29 Section 7.03 Minimum Liquidity 29

 

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TABLE OF CONTENTS

(continued)

 

ARTICLE VIII. EVENTS OF DEFAULT 29       Section 8.01 Events of Default 29
Section 8.02 Remedies 32 Section 8.03 Rights Not Exclusive 32       ARTICLE IX.
THE AGENT 32       Section 9.01 Appointment and Duties 32 Section 9.02 Use of
Discretion 33 Section 9.03 Delegation of Rights and Duties 34 Section 9.04
Reliance and Liability 34 Section 9.05 Agent Individually 35 Section 9.06 Lender
Credit Decision 36 Section 9.07 Withholding 36 Section 9.08 Resignation of Agent
36 Section 9.09 Release of Collateral or Guarantors 37 Section 9.10 Additional
Secured Parties 37       ARTICLE X. MISCELLANEOUS 38       Section 10.01
Amendments and Waivers 38 Section 10.02 Notices 39 Section 10.03 Electronic
Transmissions 40 Section 10.04 No Waiver; Cumulative Remedies 41 Section 10.05
Costs and Expenses; Indemnification 41 Section 10.06 Marshaling; Payments Set
Aside 42 Section 10.07 Binding Effect; Assignments and Participations 42 Section
10.08 Non-Public Information; Confidentiality 44 Section 10.09 Set-off; Sharing
of Payments 46 Section 10.10 Counterparts; Facsimile Signature 46 Section 10.11
Severability 46 Section 10.12 Captions 47 Section 10.13 Interpretation 47
Section 10.14 No Third Parties Benefited 47 Section 10.15 Governing Law and
Jurisdiction 47 Section 10.16 Waiver of Jury Trial 48 Section 10.17 Entire
Agreement; Release; Survival 48 Section 10.18 Patriot Act 48 Section 10.19
Replacement of Lender 48 Section 10.20 Joint and Several 49 Section 10.21
Creditor-Debtor Relationship 49 Section 10.22 Keep Well 49 Section 10.23 Waiver
of Immunities 49       ARTICLE XI. 50       Section 11.01 Taxes 50 Section 11.02
Illegality 52 Section 11.03 Increased Costs and Reduction of Return 52 Section
11.04 Funding Losses 53 Section 11.05 Inability to Determine Rates 53 Section
11.06 Reserves on LIBOR Rate Loans 53 Section 11.07 Certificates of Lenders 53  
    ARTICLE XII. DEFINITIONS 54       Section 12.01 Defined Terms in Other
Articles 54 Section 12.02 Definitions 54 Section 12.03 Other Interpretive
Provisions 78 Section 12.04 Accounting Terms and Principles 79 Section 12.05
Payments 79

 

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TABLE OF CONTENTS

(continued)

 

SCHEDULES

 

Schedule 1   Term Loan Commitments Schedule 3.01   Conditions Precedent Schedule
4.05   Litigation Schedule 4.07   ERISA Compliance Schedule 4.10   Tax Audits
Schedule 4.12   Material Adverse Effect Schedule 4.14   Environmental Schedule
4.17   Labor Relations Schedule 4.19   Insurance Schedule 4.21   Perfection
Certificate Schedule 4.22   Government Contracts Schedule 4.23   Customer and
Trade Relations Schedule 4.24   Bonding Schedule 5.01   Financial Statements,
Certificates and Other Reports Schedule 5.10   HK Deposit Accounts Not at Wells
Fargo Schedule 5.16   Post-Closing Obligations Schedule 6.01   Liens Schedule
6.04   Investments Schedule 6.05   Indebtedness Schedule 6.06   Transactions
with Affiliates Schedule 6.09   Contingent Obligations Schedule 10.02   Notice
Addresses

 

EXHIBITS

 

Exhibit 5.01   Form of Compliance Certificate Exhibit 10.07   Form of Assignment
Exhibit 12.02(a)   Form of Borrowing Base Certificate Exhibit 12.02(b)   Form of
Term Note

 

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TERM LOAN AGREEMENT

 

This TERM LOAN AGREEMENT (this “Agreement”) is entered into as of June 14, 2018,
by and among JAKKS PACIFIC, INC., a Delaware corporation, for itself and as
successor by merger to Creative Designs International, Ltd., a Delaware
corporation (“JAKKS”), DISGUISE, INC., a Delaware corporation (“Disguise”),
JAKKS SALES LLC, a Delaware limited liability company (formerly known as JAKKS
Sales Corporation, a Delaware corporation) (“JAKKS Sales”), MAUI, INC., an Ohio
corporation (“Maui”), MOOSE MOUNTAIN MARKETING, INC., a New Jersey corporation
(“Moose”), KIDS ONLY, INC., a Massachusetts corporation (“Kids” and together
with JAKKS, Disguise, JAKKS Sales, Maui and Moose are sometimes referred to
herein collectively as “Borrowers” and individually as a “Borrower”), JAKKS, as
Borrower Representative (“Borrower Representative”), the other Persons party
hereto that are designated as a “Credit Party,” the financial institutions from
time to time party hereto (collectively, “Lenders” and individually each a
“Lender”), and GACP FINANCE CO., LLC, a Delaware limited liability company (in
its individual capacity, “GACP”), as Agent for Secured Parties (in such
capacity, “Agent”).

 

RECITALS

 

Borrowers have requested, and Lenders have agreed to make available to
Borrowers, a term loan facility (the “Term Loan Facility”) upon and subject to
the terms and conditions set forth in this Agreement.

 

AGREEMENT

 

NOW, THEREFORE, in consideration of the mutual agreements, provisions and
covenants contained herein, the parties hereto agree as follows:

 

ARTICLE I.
THE CREDITS

 

Section 1.01         Term Loans. Subject to the terms and conditions of this
Agreement, each Lender severally and not jointly agrees to make a Term Loan, in
Dollars, to Borrowers in the amount set forth opposite such Lender’s name in
Schedule 1 under the heading “Term Loan Commitments”. The Aggregate Term Loan
Commitments shall expire upon the funding of the Term Loan by the Lenders. Once
repaid, whether such payment is voluntary, scheduled or mandatory, no portion of
the Term Loan may be reborrowed.

 

Section 1.02         Evidence of Term Loan; Term Notes. The Term Loan made by
each Lender is evidenced by this Agreement and, if requested by such Lender, a
Term Note payable to such Lender in the original principal amount of such
Lender’s Term Loan Commitment.

 

Section 1.03         Interest.

 

(a)          Interest. Except as otherwise provided herein, each Term Loan shall
bear interest on the outstanding principal amount thereof from the date when
made at a rate per annum equal to LIBOR plus the Applicable Margin. Each
determination of an interest rate by Agent shall be conclusive and binding on
each Borrower and Lenders in the absence of manifest error. All computations of
fees and interest payable under this Agreement shall be made on the basis of a
360-day year and actual days elapsed. Interest and fees shall accrue during each
period during which interest or such fees are computed from the first day
thereof to the last day thereof. Interest on the Term Loan shall be paid in
arrears on each Interest Payment Date. Interest shall also be paid on the date
of any payment or prepayment of any principal portion of the Term Loan.

 

 

 

 

(b)          Default Rate. At the election of Agent or the Required Lenders
while any Event of Default exists and is continuing (or automatically while any
Event of Default under Section 8.01(a), (f) or (g) exists), Borrowers shall pay
interest on the Obligations, from and after the date of occurrence of such Event
of Default and for as long as it continues, at the Default Rate. All such
interest shall be payable on demand of Agent or the Required Lenders.

 

(c)          Maximum Lawful Rate. Anything herein to the contrary
notwithstanding, the obligations of Borrowers hereunder are subject to the
limitation that payments of interest shall not be required, for any period for
which interest is computed hereunder, to the extent (but only to the extent)
that contracting for or receiving such payment by the respective Lender would be
contrary to the provisions of any law applicable to such Lender limiting the
highest rate of interest which may be lawfully contracted for, charged or
received by such Lender, and in such event Borrowers shall pay such Lender
interest at the highest rate permitted by applicable law (“Maximum Lawful
Rate”); provided, that if at any time thereafter the rate of interest payable
hereunder is less than the Maximum Lawful Rate, Borrowers shall continue to pay
interest hereunder at the Maximum Lawful Rate until such time as the total
interest received by Agent, on behalf of Lenders, is equal to the total interest
that would have been received had the interest payable hereunder been (but for
the operation of this paragraph) the interest rate payable since the Closing
Date as otherwise provided in this Agreement.

 

Section 1.04         Loan Accounts. Agent, on behalf of Lenders, shall record on
its books and records the initial principal amount of the Term Loan, the
interest rate applicable, all payments of principal and interest thereon and the
principal balance thereof from time to time outstanding. Agent shall deliver to
Borrower Representative on a monthly basis an interest statement setting forth
such record for the immediately preceding calendar month. Such record shall,
absent manifest error, be conclusive evidence of the amount of the Loans made by
Lenders to Borrowers and the interest and payments thereon. Any failure to so
record or any error in doing so, or any failure to deliver such loan statement
shall not, however, limit or otherwise affect the obligation of Borrowers
hereunder (and under any Note) to pay any amount owing with respect to the Loans
or provide the basis for any claim against Agent.

 

Section 1.05         Register. Agent, acting as a non-fiduciary agent of
Borrowers solely for tax purposes and solely with respect to the actions
described in this Section, shall establish and maintain (a) a record of
ownership (the “Register”), by book entry, of the interests (including any
rights to receive payment hereunder) of Agent and each Lender in the
Obligations, each of their obligations under this Agreement to participate in
each Loan, and any assignment of any such interest, obligation or right and (b)
accounts in the Register in accordance with its usual practice. Notwithstanding
anything to the contrary contained in this Agreement, the Loans (including any
Notes) are registered obligations and shall be maintained in “registered form”
within the meaning of Sections 163(f), 871(h)(2) and 881(c)(2) of the Code and
transferable only upon notation of such transfer in the Register. Credit
Parties, Agent and Lenders shall treat each Person whose name is recorded in the
Register as a Lender for all purposes of this Agreement. Information contained
in the Register with respect to any Lender shall be available for access by
Borrowers, Borrower Representative, Agent, and such Lender (as to only its Term
Loan).

 

Section 1.06         Protective Advances. Agent shall be authorized at any time
after the Closing Date, to make advances (“Protective Advances”) up to an
aggregate principal amount not to exceed at any time $3,000,000, if Agent deems
such Protective Advances necessary or desirable to preserve or protect
Collateral, or to enhance the collectability or repayment of the Obligations.
Each Lender shall participate in each Protective Advance in accordance with its
Term Loan Percentage. All Protective Advances shall constitute Term Loans, shall
bear interest at the Default Rate and shall be due and payable upon demand of
the Agent.

 

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Section 1.07         Optional Prepayments.

 

(a)          Generally. The Borrowers may, upon prior notice by Borrower
Representative to Agent, at any time and from time to time voluntarily prepay
the Term Loan in whole or in part; provided that (i) such notice must be
received by Agent not later than 11:00 a.m. three (3) Business Days prior to any
date of prepayment and (ii) any such prepayment shall be in a minimum amount
equal to $1,000,000 and in increments of $100,000 in excess thereof or, if less,
the entire principal amount of the Term Loan then outstanding. Together with
each prepayment under this Section 1.07, the Borrowers shall pay any amounts
required pursuant to Sections 1.03, 1.09 and 11.04.

 

(b)          Notice. The notice of any prepayment of the Term Loan shall not
thereafter be revocable by the Borrowers or Borrower Representative and Agent
will promptly notify each Lender thereof and of such Lender’s Term Loan
Percentage of such prepayment. The payment amount specified in such notice shall
be due and payable on the date specified therein.

 

Section 1.08         Mandatory Prepayments.

 

(a)          Termination Date. The Borrowers shall pay to the Lenders in full on
the Termination Date the principal amount of the Term Loan outstanding on the
Termination Date, together with any amounts required pursuant to Sections 1.03,
1.09 and 11.04.

 

(b)          Asset Dispositions; Events of Loss. If the aggregate amount of the
Net Proceeds received by a Credit Party in connection with a Disposition or an
Event of Loss and all other Dispositions and Events of Loss occurring during any
Fiscal Year exceeds $500,000, then (i) Borrower Representative shall promptly
notify Agent of such proposed Disposition or Event of Loss (including the amount
of the estimated Net Proceeds in respect thereof) and (ii) subject to the
Intercreditor Agreement, promptly upon receipt by a Credit Party of the Net
Proceeds of such Disposition or Event of Loss, Borrowers shall deliver or cause
to be delivered to Agent for distribution to Lenders as a prepayment of the
Obligations, an amount equal to the lesser of (A) such Net Proceeds or (B) the
outstanding Obligations. If no Default or Event of Default has occurred and is
continuing, such prepayment shall not be required to the extent a Credit Party
reinvests the Net Proceeds of such Disposition or Event of Loss in productive
assets (other than Inventory) of a kind then used or usable in the business of a
Borrower, within 180 days after the date of such Disposition or Event of Loss;
provided, that Borrower Representative notifies Agent of such Credit Party’s
intent to reinvest, the proposed date of such reinvestment at the time such
proceeds are received and the date reinvestment occurs. Pending such
reinvestment, subject to the Intercreditor Agreement, an amount equal to the
lesser of (A) such Net Proceeds or (B) the outstanding Obligations, shall be
delivered to Agent, for distribution to the Lenders. Notwithstanding the
foregoing, amounts otherwise payable pursuant to this Section 1.08(a) on account
of Revolving Loan Priority Collateral (as defined in the Intercreditor
Agreement), if any, shall not be payable hereunder to the extent that they are
paid to the ABL Lenders pursuant to the ABL Credit Agreement.

 

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(c)          Issuance of Securities. Except to the extent applied to any
obligations pursuant to the ABL Credit Agreement and the Share Increase
Transaction (if any), immediately upon the receipt by any Credit Party of the
Net Issuance Proceeds of the issuance of Stock or Stock Equivalents (including
any capital contribution) or debt securities (other than Net Issuance Proceeds
from the issuance of (i) debt securities in respect of Indebtedness permitted
hereunder, and (ii) Excluded Equity Issuances), Borrowers shall deliver, or
cause to be delivered, to Agent, for distribution to Lenders as a prepayment of
the Term Loan, an amount equal to the lesser of (A) such Net Issuance Proceeds
or (B) the outstanding Obligations in accordance with their Term Loan
Percentages.

 

(d)          No Availability. If (a) on any date both (i) the Term Loan
Push-Down Reserve is being applied against the Borrowing Base and (ii) the then
outstanding principal balance of the Revolving Loans exceeds the Maximum
Revolving Loan Balance (such amount, the “ABL Excess”), and (b) Borrowers do not
repay the outstanding Revolving Loans in the amount of the ABL Excess within one
Business Day of such date (or within five Business Days if the ABL Excess
results solely from changes to Reserves (other than the Term Loan Push-Down
Reserve), the criteria of Eligible Accounts or Eligible Inventory, or advance
rates in the Borrowing Base, in each case as implemented by the ABL Agent in
accordance with the terms of the ABL Credit Agreement and the Intercreditor
Agreement), then the Borrowers shall immediately repay the Term Loan in amount
equal to the lesser of (1) the amount of the Term Loan Push-Down Reserve and (2)
the ABL Excess.

 

Section 1.09         Fees.

 

(a)          Fees. Borrowers shall pay to Agent, for Agent’s own account, fees
in the amounts and at the times set forth in the Fee Letter.

 

(b)          Prepayment Fee. If (i) Borrowers make any voluntary prepayment of
the Term Loan, or (ii) Borrowers make or are required to make any mandatory
prepayment of the Term Loan pursuant to Sections 1.08(b), (c) or (d) (other than
any scheduled installment), or (iii) all or any portion of the Term Loan has
become or is deemed to be due and payable pursuant to Article VIII, in each case
whether before or after acceleration of the Obligations, then in each case,
Borrowers shall pay to Agent, for the pro rata benefit of the applicable
Lenders, as liquidated damages and compensation for the costs of being prepared
to make funds available hereunder, a fee (the “Prepayment Fee”) equal to the
following amounts:

 

Prepayment Date   Prepayment Fee From and after the Closing Date through and
including the first anniversary of the Closing Date (the “Prepayment Period”)  

(A) If a Share Increase Transaction has not occurred, an amount equal to (1) the
amount of interest which would have accrued on the Prepaid Principal Amount
during the Prepayment Period (calculated using the interest rate accruing under
Section 1.03(a) on the date of such prepayment), minus the aggregate amount of
cash interest actually paid on such Prepaid Principal Amount to the date of
prepayment plus (2) 2.00% of the Prepaid Principal Amount; or

 

(B) If a Share Increase Transaction has occurred, an amount equal to the greater
of (1) the amount of interest which would have accrued on the Prepaid Principal
Amount during the Prepayment Period (calculated using the interest rate accruing
under Section 1.03(a) on the date of such prepayment), minus the aggregate
amount of cash interest actually paid on such Prepaid Principal Amount to the
date of prepayment or (2) 2.00% of the Prepaid Principal Amount.

      After the first anniversary of the Closing Date and prior to the second
anniversary of the Closing Date   An amount equal to 2.00% of the Prepaid
Principal Amount.       After the second anniversary of the Closing Date and
prior to the third anniversary of the Closing Date   An amount equal to 1.00% of
the Prepaid Principal Amount.

 

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Credit Parties agree that the Prepayment Fee is a reasonable calculation of
Lenders’ lost profits in view of the difficulties and impracticality of
determining actual damages resulting from an early repayment of the Term Loan.

 

Section 1.10         Payments by Borrowers.

 

(a)          Generally. All payments to be made by each Credit Party under the
Loan Documents shall be made without set off, recoupment, counterclaim or
deduction of any kind, shall, except as otherwise expressly provided herein, be
made to Agent (for the ratable account of the Persons entitled thereto) at the
address for payment specified by Agent and shall be made in Dollars, by wire
transfer or ACH transfer in immediately available funds (which shall be the
exclusive means of payment hereunder), no later than 1:00 p.m. on the date due.
Any payment which is received by Agent later than 1:00 p.m. may in Agent’s
discretion be deemed to have been received on the immediately succeeding
Business Day and any applicable interest or fee shall continue to accrue. Each
Credit Party hereby irrevocably waives the right to direct the application
during the continuance of an Event of Default of any and all payments in respect
of any Obligation and any proceeds of Collateral.

 

(b)          Non-Business Day. Subject to the provisions set forth in the
definition of “Interest Period” herein, if any payment hereunder is stated to be
due on a day other than a Business Day, such payment shall be made on the next
succeeding Business Day, and such extension of time shall in such case be
included in the computation of interest or fees, as applicable.

 

(c)          Amortization. The Borrowers shall pay the principal amount of the
Term Loan as follows: (i) 10% per annum in arrears in monthly installments
commencing on the last Business Day of June 2019 and continuing on the last
Business Day of each month thereafter and (ii) a final installment equal to the
remaining outstanding principal balance of the Term Loan, payable on the
Termination Date. Unless sooner paid in full, the outstanding principal balance
of the Term Loan must be paid in full on the Termination Date.

 

(d)          Application Following an Event of Default. During the continuance
of an Event of Default, Agent may, and shall upon the direction of Required
Lenders, apply any payments received by Agent in accordance with clauses first
through sixth below. Notwithstanding any provision herein to the contrary, all
payments made by Credit Parties to Agent after any or all of the Obligations
have been accelerated (so long as such acceleration has not been rescinded),
including proceeds of Collateral, shall be applied as follows and in such
priority:

 

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(i)          first, to all amounts owing to Agent or the Lenders in respect of
Protective Advances;

 

(ii)         second, to payment of costs and expenses, including Attorney Costs,
of Agent payable or reimbursable by Credit Parties under the Loan Documents;

 

(iii)        third, without duplication, to payment of Attorney Costs of Lenders
payable or reimbursable by Borrowers under this Agreement;

 

(iv)        fourth, to payment of all accrued unpaid interest on the Obligations
and fees owed to Agent and Lenders;

 

(v)         fifth, to payment of principal of the Obligations;

 

(vi)        sixth, to payment of any other amounts owing constituting
Obligations; and

 

(vii)       seventh, any remainder shall be for the account of and paid to
whoever may be lawfully entitled thereto.

 

Each of Lenders or other Persons entitled to payment shall receive an amount
equal to its pro rata share of amounts available to be applied pursuant to
clauses first, fourth, fifth and sixth above; provided, that no payments by a
Guarantor and no proceeds of Collateral of a Guarantor shall be applied to
Excluded Rate Contract Obligations of such Guarantor.

 

Section 1.11         Settlement.

 

(a)          Settlement. At least once each calendar month (each, a “Settlement
Date”), Agent shall advise each Lender by telephone or fax of the amount of such
Lender’s Term Loan Percentage of principal, interest and Fees paid for the
benefit of Lenders with respect to each applicable Term Loan. Agent shall pay to
each Lender such Lender’s Term Loan Percentage of principal, interest and fees
paid by Borrowers since the previous Settlement Date for the benefit of such
Lender on the Term Loan held by it. Such payments shall be made by wire transfer
to such Lender not later than 2:00 p.m. on the next Business Day following each
Settlement Date.

 

(b)          Return of Payments. If Agent pays an amount to a Lender under this
Agreement in the belief or expectation that a related payment has been or will
be received by Agent from the Borrowers and such related payment is not received
by Agent, then Agent will be entitled to recover such amount from such Lender on
demand without setoff, counterclaim or deduction of any kind. If Agent
determines at any time that any amount received by Agent under any Loan Document
must be returned to any Credit Party or paid to any other Person pursuant to any
insolvency law or otherwise, then, notwithstanding any other term or condition
of any Loan Document, Agent will not be required to distribute any portion
thereof to any Lender. In addition, each Lender will repay to Agent on demand
any portion of such amount that Agent has distributed to such Lender, together
with interest at such rate, if any, as Agent is required to pay to any Borrower
or such other Person, without setoff, counterclaim or deduction of any kind, and
Agent will be entitled to set-off against future distributions to such Lender
any such amounts (with interest) that are not repaid on demand.

 

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Section 1.12         Procedures. Agent is hereby authorized by each Credit Party
and each other Secured Party to establish commercially reasonable procedures
(and to amend such procedures from time to time) to facilitate administration
and servicing of the Term Loan and other matters incidental thereto. Without
limiting the generality of the foregoing, Agent is hereby authorized to
establish procedures to make available or deliver, or to accept, notices,
documents and similar items on, by posting to or submitting and/or completion
on, E-Systems.

 

Section 1.13         Borrower Representative. JAKKS hereby (a) is designated and
appointed by each Credit Party as its representative and agent on its behalf
(the “Borrower Representative”) and (b) accepts such appointment as Borrower
Representative, in each case, for the purposes of issuing, delivering or
receiving any notices, requests, certificates, instructions and consents under
the Loan Documents and taking all other actions on behalf of any Credit Party or
Credit Parties under the Loan Documents. Agent and each Lender may regard any
notice or other communication pursuant to any Loan Document from Borrower
Representative as a notice or communication from all Credit Parties. Each
warranty, covenant, agreement and undertaking made on behalf of a Credit Party
by Borrower Representative shall be deemed for all purposes to have been made by
such Credit Party and shall be binding upon and enforceable against such Credit
Party to the same extent as if the same had been made directly by such Credit
Party.

 

ARTICLE II.
BORROWING BASE

 

Section 2.01         Eligible Accounts. Agent shall have the right to establish,
modify or eliminate Reserves against Eligible Domestic Accounts and Eligible
Foreign Accounts from time to time in its Permitted Discretion. In addition,
Agent reserves the right, from time to time, to adjust any of the applicable
criteria and to establish new criteria and to adjust advance rates with respect
to Eligible Domestic Accounts or Eligible Foreign Accounts, in its Permitted
Discretion. “Eligible Domestic Accounts” and “Eligible Foreign Accounts” shall
have the meaning as set forth in the ABL Credit Agreement as in effect on the
Closing Date, as may be amended in accordance with the Intercreditor Agreement.

 

Section 2.02         Eligible Licensed Inventory. Agent shall have the right to
establish, modify, or eliminate Reserves against Eligible Licensed Inventory
from time to time in its Permitted Discretion. In addition, Agent reserves the
right, from time to time, to adjust any of the applicable criteria, to establish
new criteria and to adjust advance rates with respect to Eligible Licensed
Inventory in its Permitted Discretion, subject to the approval of Required
Lenders in the case of adjustments or new criteria or changes in advance rates
which have the effect of making more credit available. “Eligible Licensed
Inventory” shall mean (i) Disney Inventory and (ii) Inventory that is subject to
any license under which one or more Borrowers is the licensee and for which the
Borrowers have obtained appropriate waivers and documentation from applicable
Licensors consenting to, among other things, the grant of a security interest in
favor of the Agent and the Agent’s ability to liquidate such Inventory, in each
case in form and substance satisfactory to the Agent in the Agent’s Permitted
Discretion; provided, that Eligible Licensed Inventory shall not include any of
the following:

 

(a)          Condition. Inventory that is excess, obsolete, damaged, unsaleable,
shopworn or seconds;

 

(b)          Locations < $100M. Inventory is located at any site if the
aggregate book value of Inventory at any such location is less than $100,000;

 

(c)          Consignment. Inventory that is placed on consignment;

 

 7 

 

 

(d)          Off-Site. Inventory that (i) is not located on premises owned,
leased or rented by a Credit Party and set forth in the Perfection Certificate
or (ii) is stored at a leased location, unless (A) a reasonably satisfactory
landlord waiver is delivered to Agent, or (B) Reserves satisfactory to Agent
have been established with respect thereto, (iii) is stored with a bailee or
warehouseman unless (A) a reasonably satisfactory, acknowledged bailee letter is
received by Agent with respect thereto and (B) Reserves satisfactory to Agent
have been established with respect thereto, or (iv) is located at an owned
location subject to a mortgage in favor of a lender other than Agent, unless a
reasonably satisfactory mortgagee waiver is delivered to Agent;

 

(e)          In-Transit. Inventory that is in transit, except for Inventory in
transit between domestic locations of Credit Parties as to which Agent’s Liens
have been perfected at origin and destination;

 

(f)          Customized. Inventory subject to any licensing, trademark, trade
name, patent or copyright agreements with any third parties (A) which would
require any consent of any third party for the sale or disposition of that
Inventory (which consent has not been obtained) or the payment of any monies to
any third party upon such sale or other disposition (to the extent of such
monies) and (B) for which such agreement has not been collaterally assigned to
Agent for the benefit of Secured Parties;

 

(g)          Packing/Shipping Materials. Inventory that consists of packing or
shipping materials, or manufacturing supplies;

 

(h)         Tooling. Inventory that consists of tooling or replacement parts;

 

(i)           Display. Inventory that consists of display items;

 

(j)          Returns. Inventory that consists of damaged or defective goods that
have been returned by the buyer;

 

(k)          Freight. Inventory that consists of any costs associated with
“freight in” charges in excess of normal freight charges;

 

(l)          Hazardous Materials. Inventory that consists of Hazardous Materials
or goods that can be transported or sold only with licenses that are not readily
available;

 

(m)         Un-insured. Inventory that is not covered by casualty insurance
reasonably acceptable to Agent;

 

(n)          Not Owned/Other Liens. Inventory that is not owned by a Credit
Party or is subject to Liens other than Permitted Liens described in Section
6.01(b), (c), (d) and (f) or rights of any other Person (including the rights of
a purchaser that has made progress payments and the rights of a surety that has
issued a bond to assure a Credit Party’s performance with respect to that
Inventory);

 

(o)          Not Perfected. Inventory that is not subject to a first priority
Lien in favor of Agent on behalf of itself and Secured Parties, except for Liens
described in Section 6.01(d) (subject to Reserves);

 

 8 

 

 

(p)          Negotiable Bill of Sale. Inventory that is covered by a negotiable
document of title, unless such document is delivered to Agent with all necessary
endorsements, free and clear of all Liens except Liens in favor of Agent, on
behalf of itself and Secured Parties; or

 

(q)          Not Ordinary Course. Inventory (other than raw materials) that is
not of a type held for sale in the Ordinary Course of Business of a Credit
Party.

 

ARTICLE III.
CONDITIONS PRECEDENT

 

Section 3.01         Conditions to Effectiveness. The obligation of each Lender
to make the Term Loans hereunder is subject to satisfaction of the conditions
set forth on Schedule 3.01, in a manner satisfactory to Agent. For the purpose
of determining satisfaction with such conditions, each Lender that has signed
and delivered this Agreement shall be deemed to have accepted, and to be
satisfied with, each document or other matter required under this Section unless
the Agent shall have received written notice from such Lender prior to the
Closing Date specifying its objection thereto.

 

ARTICLE IV.
REPRESENTATIONS AND WARRANTIES

 

Credit Parties, jointly and severally, represent and warrant to Agent and each
Secured Party that the following are true, correct and complete as of the
Closing Date and as of the date each Borrowing Base Certificate is delivered to
Agent pursuant to Schedule 5.01:

 

Section 4.01         Corporate Existence and Power. Each Credit Party, each of
its respective Subsidiaries (other than the Specified Foreign Subsidiaries) and,
to the knowledge of Credit Parties, each of the Specified Foreign Subsidiaries:
(a) is a corporation, limited liability company or limited partnership, as
applicable, duly organized, validly existing and in good standing under the laws
of the jurisdiction of its incorporation, organization or formation, as
applicable; (b) has the power and authority and all governmental licenses,
authorizations, Permits, consents and approvals to own its assets, carry on its
business and execute, deliver, and perform its obligations under, the Loan
Documents to which it is a party; (c) is duly qualified as a foreign
corporation, limited liability company or limited partnership, as applicable,
and licensed and in good standing, under the laws of each jurisdiction where its
ownership, lease or operation of Property or the conduct of its business
requires such qualification or license; and (d) is in compliance with all
Requirements of Law; except, in each case referred to in clause (c) or (d)
above, to the extent that the failure to do so would not reasonably be expected
to have, either individually or in the aggregate, a Material Adverse Effect.

 

Section 4.02         Corporate Authorization; No Contravention. The execution,
delivery and performance by each Credit Party (and any Subsidiary thereof, if
applicable) of each Loan Document to which such Person is party, have been duly
authorized by all necessary action, and do not and will not: (a) contravene the
terms of any of that Person’s Organization Documents; (b) conflict with or
result in any material breach or contravention of, or result in the creation of
any Lien under, any document evidencing any material Contractual Obligation to
which such Person is a party or any order, injunction, writ or decree of any
Governmental Authority to which such Person or its Property is subject; or (c)
violate any Requirement of Law in any material respect.

 

Section 4.03         Governmental Authorization. No approval, consent,
exemption, authorization, or other action by, or notice to, or filing with, any
Governmental Authority is necessary or required in connection with the
execution, delivery or performance by, or enforcement against, any Credit Party
or any Subsidiary of any Loan Document except (a) recordings and filings in
connection with the Liens granted to Agent under the Collateral Documents and
(b) those obtained or made on or prior to the Closing Date.

 

 9 

 

 

Section 4.04         Binding Effect. This Agreement and each other Loan Document
to which any Credit Party or any Subsidiary is a party constitute the legal,
valid and binding obligations of each such Person which is a party thereto,
enforceable against such Person in accordance with their respective terms,
except as enforceability may be limited by applicable bankruptcy, insolvency, or
similar laws affecting the enforcement of creditors’ rights generally or by
equitable principles relating to enforceability.

 

Section 4.05         Litigation. Except as specifically disclosed in Schedule
4.05, there are no actions, suits, proceedings, claims or disputes pending, or
to the knowledge of each Credit Party, threatened in writing, at law, in equity,
in arbitration or before any Governmental Authority, against any Credit Party,
any Subsidiary or any of their respective Properties which: (a) purport to
affect or pertain to any Loan Document, or any transactions contemplated
thereby; (b) would reasonably be expected to result in monetary judgment(s) or
relief, individually or in the aggregate, in excess of $500,000; or (c) seek an
injunction or other equitable relief which would reasonably be expected to have
a Material Adverse Effect. No injunction, writ, temporary restraining order or
any order of any nature is issued by any court or other Governmental Authority
purporting to enjoin or restrain the execution, delivery or performance of any
Loan Document, or directing that the transactions provided therein not be
consummated as provided therein. As of the Closing Date, no Credit Party or any
Subsidiary is the subject of an audit or, to each Credit Party’s knowledge, any
review or investigation by any Governmental Authority (excluding the IRS and
other taxing authorities) concerning the violation or possible violation of any
Requirement of Law.

 

Section 4.06         No Default. No Default or Event of Default exists or would
result from the incurring of any Obligations by any Credit Party or the grant or
perfection of Agent’s Liens on the Collateral. No Credit Party and no Subsidiary
is in default under or with respect to any Contractual Obligation in any respect
which, individually or together with all such defaults, would reasonably be
expected to have a Material Adverse Effect.

 

Section 4.07         ERISA Compliance. Schedule 4.07 sets forth, as of the
Closing Date, a complete and accurate list of, and separately identifies, (a)
all Title IV Plans, (b) all Multiemployer Plans and (c) all material Benefit
Plans. Each Benefit Plan, and each trust thereunder, intended to qualify for tax
exempt status under Section 401 or 501 of the Code or other Requirements of Law
so qualifies and is in compliance in all material respects with applicable
provisions of ERISA, the Code and other Requirements of Law. Except for those
that would not reasonably be expected to result in Liabilities in excess of
$500,000 in the aggregate, there are no existing or pending (or to the knowledge
of any Credit Party, threatened in writing) claims (other than routine claims
for benefits in the normal course), sanctions, actions, lawsuits or other
proceedings or investigation involving any Benefit Plan to which any Credit
Party or any of its Subsidiaries incurs or otherwise has or could have an
obligation or any Liability. No ERISA Event has occurred or is reasonably
expected to occur that, when taken together with all other such ERISA Events,
could reasonably be expected to result in a Material Adverse Effect or the
imposition of a Lien on any property of any Credit Party or any of its
Subsidiaries.

 

Section 4.08         Margin Regulations. No Credit Party or any of its
Subsidiaries owns any Margin Stock or is engaged principally, or as one of its
important activities, in the business of extending credit for the purpose of
purchasing or carrying any Margin Stock. No part of the proceeds of the Loans
will be used to purchase or carry any Margin Stock or to extend credit to others
for the purpose of purchasing or carrying any Margin Stock or for any purpose
that violates the provisions of Regulation T, U or X of the Board of Governors.
Neither any Credit Party nor any of its Subsidiaries expects to acquire any
Margin Stock.

 

 10 

 

 

Section 4.09         Ownership of Property; Liens. Each Credit Party, each of
its respective Subsidiaries (other than the Specified Foreign Subsidiaries) and,
to the knowledge of Credit Parties, each of the Specified Foreign Subsidiaries,
have good record and marketable title in fee simple to, or valid leasehold
interests in, all Real Estate, and good and valid title to all owned personal
property and valid leasehold interests in all leased personal property, in each
instance, necessary or used in the ordinary conduct of their respective
businesses, in each case subject to no Liens other than Permitted Liens.

 

Section 4.10         Taxes. All federal, state, local and foreign income and
franchise and other material Tax returns, reports and statements (collectively,
the “Tax Returns”) required to be filed by any Tax Affiliate have been filed
with the appropriate Governmental Authorities, all such Tax Returns are true and
correct in all material respects, and all Taxes reflected therein or otherwise
due and payable have been paid when due and owing except for those Contested in
Good Faith. Except as set forth on Schedule 4.10, as of the Closing Date, no Tax
Return is under audit or examination by any Governmental Authority, and no
notice of any audit or examination or any assertion of any claim for Taxes is
given or made by any Governmental Authority. Proper and accurate amounts have
been withheld by each Tax Affiliate from their respective employees for all
periods in full and complete compliance with the Tax, social security and
unemployment withholding provisions of applicable Requirements of Law and such
withholdings have been timely paid to the respective Governmental Authorities.
No Tax Affiliate has participated in a “reportable transaction” within the
meaning of Treasury Regulation Section 1.60011-4(b) or is a member of an
affiliated, combined or unitary group other than the group of which a Tax
Affiliate is the common parent.

 

Section 4.11         Financial Statements; Projections. (a) Each of (i) the
audited Financial Statements delivered pursuant hereto, and the related audited
consolidated statements of income or operations, shareholders’ equity and cash
flows for each Fiscal Year and (ii) the unaudited Financial Statements delivered
pursuant hereto for the fiscal months covered thereby, in each case: (A) were
prepared in accordance with GAAP consistently applied throughout the respective
periods covered thereby, subject to, in the case of the unaudited Financial
Statements, normal year-end adjustments and the lack of footnote disclosures;
and (B) taken as a whole, are complete and correct in all material respects, and
accurately and fairly present in all material respects the consolidated
financial condition and of the Consolidated Group as of the dates thereof and
results of operations for the periods covered thereby. (b) The pro forma
unaudited consolidated balance sheet of the Consolidated Group delivered on the
Closing Date was prepared by Credit Parties giving pro forma effect to the
funding of the Loans, was based on the unaudited consolidated and consolidating
balance sheets of the Consolidated Group dated March 31, 2018, and was prepared
in accordance with GAAP, with only such adjustments thereto as would be required
in a manner consistent with GAAP. (c) All financial performance projections
delivered to Agent represent Borrowers’ good faith estimate of future financial
performance and are based on fair and reasonable assumptions and investigations
by Borrowers. (d) No Credit Party has any Contingent Obligations, liabilities
for Taxes or other financial obligations which are material in the aggregate,
except as disclosed in the Financial Statements, other than Contingent
Obligations owing by JAKKS to Licensors under all License Agreement Guaranties,
and other Contingent Obligations disclosed in JAKKS’ Form 10-K or 10-Q, as
applicable, filed with the Securities and Exchange Commission.

 

Section 4.12         Material Adverse Effect. Except as specifically disclosed
in Schedule 4.12, since December 31, 2017, there has been no event, change,
circumstance or occurrence that, individually or in the aggregate, has had or
could reasonably be expected to result in Material Adverse Effect.

 

 11 

 

 

Section 4.13         Indebtedness; Contingent Obligations. Credit Parties and
their Subsidiaries have no Indebtedness other than Indebtedness permitted
pursuant to Section 6.05 and have no Contingent Obligations other than
Contingent Obligations permitted pursuant to Section 6.09.

 

Section 4.14         Environmental Matters. Except as set forth in Schedule
4.14, (a) the operations of each Credit Party and each Subsidiary are and have
been in compliance with all applicable Environmental Laws, including obtaining,
maintaining and complying with all Permits required by any applicable
Environmental Law, (b) no Credit Party and no Subsidiary is party to, and no
Credit Party and no Subsidiary and no Real Estate currently (or to the knowledge
of any Credit Party previously) owned, leased, subleased, operated or otherwise
occupied by or for any such Person is subject to or the subject of, any
Contractual Obligation or any pending (or, to the knowledge of any Credit Party,
threatened) order, action, investigation, suit, proceeding, audit, claim,
demand, dispute or notice of violation or of potential liability or similar
notice relating in any manner to any Environmental Law, (c) no Lien in favor of
any Governmental Authority securing, in whole or in part, Environmental
Liabilities has attached to any Property of any Credit Party or any Subsidiary
and, to the knowledge of any Credit Party, no facts, circumstances or conditions
exist that could reasonably be expected to result in any such Lien attaching to
any such Property, (d) no Credit Party and no Subsidiary has caused or suffered
to occur a Release of Hazardous Materials at, to or from any Real Estate, (e) to
the knowledge of Credit Parties, all Real Estate currently or previously owned,
leased, subleased, operated or otherwise occupied by or for any such Credit
Party and each Subsidiary is free of contamination by any Hazardous Materials
and (f) no Credit Party and no Subsidiary (i) is or has been engaged in, or has
permitted any current or former tenant to engage in, operations in violation of
any Environmental Law or (ii) knows of any facts, circumstances or conditions
reasonably constituting notice of a violation of any Environmental Law,
including receipt of any information request or notice of potential
responsibility under the Comprehensive Environmental Response, Compensation and
Liability Act or similar Environmental Laws, in each case of any of clause (a)
through (f) above, except with respect to the existence of any matter that could
not reasonably be expected to result in, either individually or in the
aggregate, Material Environmental Liabilities to Credit Parties and their
Subsidiaries. Each Credit Party has made available to Agent copies of all
existing environmental reports, reviews and audits and all documents pertaining
to actual or potential Environmental Liabilities, in each case to the extent
such reports, reviews, audits and documents are in their possession, custody,
control or otherwise available to the Credit Parties.

 

Section 4.15         Regulated Entities. None of any Credit Party, any Person
controlling any Credit Party, or any Subsidiary, is (a) an “investment company”
within the meaning of the Investment Company Act of 1940 or (b) subject to
regulation under any federal or state statute, rule or regulation limiting its
ability to incur Indebtedness, pledge its assets or perform its Obligations
under the Loan Documents.

 

Section 4.16         Solvency. Both before and after giving effect to (a) any
Loan made and (b) the payment and accrual of all transaction costs in connection
with the foregoing, Credit Parties, taken as a whole, and the Borrowers, taken
as a whole, are Solvent.

 

Section 4.17         Labor Relations. There are no strikes, work stoppages,
slowdowns or lockouts existing, pending (or, to the knowledge of any Credit
Party, threatened) against or involving any Credit Party or any Subsidiary,
except for those that would not, in the aggregate, reasonably be expected to
have a Material Adverse Effect. Except as set forth in Schedule 4.17, as of the
Closing Date, (a) there is no collective bargaining or similar agreement with
any union, labor organization, works council or similar representative covering
any employee of any Credit Party or any Subsidiary, (b) no petition for
certification or election of any such representative is existing or pending with
respect to any employee of any Credit Party or any Subsidiary and (c) no such
representative has sought certification or recognition with respect to any
employee of any Credit Party or any Subsidiary.

 

 12 

 

 

Section 4.18         Brokers’ Fees; Transaction Fees. Except for fees payable to
Agent and Lenders, none of Credit Parties or any of their respective
Subsidiaries has any obligation to any Person in respect of any finder’s,
broker’s or investment banker’s fee in connection with the transactions
contemplated hereby.

 

Section 4.19         Insurance. Schedule 4.19 lists all insurance policies of
any nature maintained by the Credit Parties, as of the Closing Date, including
issuers, coverages and deductibles. Each Credit Party and each of its
Subsidiaries and their respective Properties are insured with financially sound
and reputable insurance companies which are not Affiliates of Borrowers, in such
amounts, with such deductibles and covering such risks as are customarily
carried by companies engaged in similar businesses of the same size and
character as the business of Credit Parties and, to the extent relevant, owning
similar Properties in localities where such Person operates.

 

Section 4.20         Outstanding Stock. All issued and outstanding Stock and
Stock Equivalents of each Credit Party and each Subsidiary are duly authorized
and validly issued, fully paid, non-assessable, as applicable, and free and
clear of all Liens other than, with respect to the Stock and Stock Equivalents
of Borrowers and Subsidiaries of Borrowers, those in favor of Agent, for the
benefit of Secured Parties. All such securities were issued in compliance with
all applicable state and federal laws concerning the issuance of securities.

 

Section 4.21         Perfection Certificate. The Perfection Certificate contains
a complete and accurate description of (a) each Credit Party’s legal name,
organizational type, jurisdiction of organization or formation and
organizational identification number, if any, (b) the chief executive office,
mailing address and principal place of business of each Credit Party, (c) the
addresses of all owned and leased Real Estate of each Credit Party, the name and
contact information of the landlord with respect to each leased location and the
expiration date of the related lease, (d) all the locations where any Credit
Party maintains tangible personal property (including goods, inventory and
equipment) having an aggregate value in excess of $100,000 per location and all
books and records of such Credit Party, (e) with respect to each Credit Party,
any change of the name, jurisdiction of organization, corporate structure in any
way (e.g. by merger, consolidation, change in corporate form, change in
jurisdiction of organization or otherwise) or chief executive office of such
Credit Party within the five 5 year period immediately preceding the date of the
Perfection Certificate, (f) with respect to each Credit Party, any acquisition
of all or substantially all of the equity interests of, or all or substantially
all of the assets of, another entity within the past five years, (g) all stock,
membership interests, partnership interests or other equity interest held by any
Credit Party, (h) all copyrights, patents and trademarks and other intellectual
property owned by any Credit Party, (i) certain information regarding each
Credit Party’s use of trademarks, (j) all license agreements pursuant to which a
Credit Party licenses from a third party a patent or other invention used in
such Credit Party’s products, (k) all instruments (as such term is defined in
New York UCC Article 9) owed to any Credit Party (other than such checks for
payment of accounts in the ordinary course of business) and (l) such other
information contained therein with respect to Credit Parties, as updated in
accordance with Schedule 5.01.

 

Section 4.22         Government Contracts. Except as set forth in Schedule 4.22,
as of the Closing Date, no Credit Party is a party to any contract or agreement
with any Governmental Authority and no Credit Party’s Accounts are subject to
the Federal Assignment of Claims Act (31 U.S.C. Section 3727) or any similar
state or local law.

 

Section 4.23         Customer and Trade Relations. Except as specifically
disclosed in Schedule 4.23, as of the Closing Date, there exists no actual or,
to the knowledge of any Credit Party, threatened termination or cancellation of,
or any material adverse modification or change in (a) the business relationship
of any Credit Party or any of its respective Subsidiaries with any customer or
group of customers whose purchases during the preceding 12 calendar months
caused them to be ranked among the ten largest customers of such Credit Party or
any of its Subsidiaries or (b) the business relationship of any Credit Party or
any of its Subsidiaries with any supplier essential to its operations.

 

 13 

 

 

Section 4.24         Bonding. Except as set forth in Schedule 4.24, as of the
Closing Date and as of the date of each update thereto, no Credit Party is a
party to or bound by any surety bond agreement, indemnification agreement
therefor or bonding requirement with respect to products or services sold by it.

 

Section 4.25         Disney Licenses. No default has occurred or is existing
under the Disney Licenses or any other Applicable License Agreements.

 

Section 4.26         [Reserved].

 

Section 4.27         Subordinated Indebtedness. As of the Closing Date,
Borrowers have delivered to Agent a complete and correct copy of any
Subordinated Indebtedness Documents. All Obligations constitute Indebtedness
entitled to the benefits of the subordination provisions contained therein or in
a Subordination Agreement, as applicable. Each of the representations and
warranties given by each applicable Credit Party in such Subordinated
Indebtedness Documents is true and correct in all material respects and such
representations and warranties are incorporated into this Agreement by this
Section, mutatis mutandis.

 

Section 4.28         Full Disclosure. None of the representations or warranties
made by any Credit Party in the Loan Documents or any exhibit, report, written
statement or certificate furnished by or on behalf of any Credit Party or any of
their Subsidiaries pursuant thereto, as of the date such representations and
warranties are made or deemed made, contains any untrue statement of a material
fact or omits any material fact required to be stated therein or necessary to
make the statements made therein, in light of the circumstances under which they
are made, not misleading as of the time when made or delivered.

 

Section 4.29         OFAC; Sanctions; Anti-Corruption Laws; Anti-Money
Laundering Laws. No Credit Party or any of its Subsidiaries is in violation of
any Sanctions. No Credit Party or any of its Subsidiaries or, to the knowledge
of each Credit Party, any director, officer, employee, agent or Affiliate of
such Credit Party or such Subsidiary (a) is a Sanctioned Person or a Sanctioned
Entity, (b) has any assets located in Sanctioned Entities, or (c) derives
revenues from investments in, or transactions with Sanctioned Persons or
Sanctioned Entities. Each of the Credit Parties and its Subsidiaries has
implemented and maintains in effect policies and procedures designed to ensure
compliance with all Sanctions, Anti-Corruption Laws and Anti-Money Laundering
Laws. Each of the Credit Parties and its Subsidiaries, and to the knowledge of
each Credit Party, each director, officer, employee, agent and Affiliate of such
Credit Party and each such Subsidiary, is in compliance with all Sanctions,
Anti-Corruption Laws and Anti-Money Laundering Laws. No proceeds of any Loan
made or Letter of Credit issued hereunder will be used to fund any operations
in, finance any investments or activities in, or make any payments to, a
Sanctioned Person or a Sanctioned Entity, or otherwise used in any manner that
would result in a violation of any Sanction, Anti-Corruption Law or Anti-Money
Laundering Law by any Person (including any Lender or other individual or entity
participating in any transaction).

 

Section 4.30         Patriot Act. Credit Parties and each of their Subsidiaries
are in compliance with (a) the Trading with the Enemy Act, and each of the
foreign assets control regulations of the United States Treasury Department and
any other enabling legislation or executive order relating thereto, (b) the
Patriot Act and (c) other federal or state laws relating to “know your customer”
and anti-money laundering rules and regulations. No part of the proceeds of any
Loan will be used directly or indirectly for any payments to any government
official or employee, political party, official of a political party, candidate
for political office, or anyone else acting in an official capacity, in order to
obtain, retain or direct business or obtain any improper advantage, in violation
of the United States Foreign Corrupt Practices Act of 1977.

 

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Section 4.31         HK Collateral Documents.

 

(a)          No Filing or Stamp Taxes. Except for registration fees associated
with the registration of the HK Collateral Documents at the Hong Kong Companies
Registry, there are no Requirements of Law for the HK Collateral Documents to be
filed, recorded or enrolled with any court or other authority or that any stamp,
registration or similar tax be paid on or in relation to the HK Collateral
Documents or the transactions contemplated by the HK Collateral Documents.

 

(b)          Ranking of Collateral. The Agent has a valid and perfected lien on
the Collateral under the HK Collateral Documents, which lien is not subject to
any prior ranking or pari passu ranking Collateral, other than as may be granted
in favor of the ABL Agent to the extent provided in the Intercreditor Agreement.

 

(c)          Ownership. The entire issued share capital of JAKKS HK is legally
and beneficially owned and controlled by JAKKS. The entire issued share capital
of each HK Credit Party (other than JAKKS HK) is legally and beneficially owned
and controlled (directly or indirectly) by JAKKS HK. The shares in the capital
of each HK Credit Party are fully paid and are not subject to any option to
purchase or similar rights.

 

(d)          Legal and beneficial ownership. Each HK Credit Party is the sole
legal and beneficial owner of the respective assets over which it purports to
grant Collateral.

 

(e)          Shares. The constitutional documents of HK Credit Parties do not
restrict or inhibit any transfer of the shares of any HK Credit Party on
creation or enforcement of the HK Collateral Documents. There are no agreements
in force which provide for the issue or allotment of, or grant any person the
right to call for the issue or allotment of, any share or loan capital of any HK
Credit Party (including any option or right of pre-emption or conversion).

 

(f)          Representations and Warranties. The representations and warranties
contained in each HK Collateral Document are true and accurate at the time they
are expressed to be given in each case in accordance with the facts and
circumstances then existing.

 

ARTICLE V.
AFFIRMATIVE COVENANTS

 

Each Credit Party covenants and agrees that until Final Satisfaction:

 

Section 5.01         Financial Statements, Certificates and Other Reports. Each
Credit Party shall maintain, and shall cause each Subsidiary to (a) maintain
books and records and a system of accounting established and administered in
accordance with sound business practices and in conformity with GAAP; provided,
that quarterly financial statements shall not be required to have footnote
disclosures and are subject to normal year-end adjustments, (b) maintain at a
location in the United States that is subject to a collateral access agreement,
true, correct, and current copies of the financial data for the financial
transactions of JAKKS Hong Kong, JAKKS Canada, and each other Foreign Subsidiary
in a manner consistent with past practice, and (c) upon the reasonable request
of Agent, shall cause copies of the books and records of JAKKS Hong Kong and
JAKKS Canada that substantiate the transactions recorded in such general ledger
to be located at a location in the United States that is subject to a collateral
access agreement. Borrowers shall deliver to Agent and each Lender by Electronic
Transmission and in detail reasonably satisfactory to Agent and the Required
Lenders each of the reports described on Schedule 5.01 as set forth thereon, in
each case certified by a Responsible Officer of Borrower Representative.

 

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Section 5.02         Appraisals. Upon Agent’s request, from time to time, Agent
may obtain appraisals, in form and substance and from appraisers reasonably
satisfactory to Agent, stating (i) the then Net Orderly Liquidation Value, or
such other value as determined by Agent, of all or any portion of the Inventory
and (ii) the fair market value, or such other value as determined by Agent
(including replacement cost for purposes of Flood Insurance), of any Real Estate
owned by any Credit Party, including any appraisal required to comply with
FIRREA; provided, that Credit Parties shall only be obligated to reimburse Agent
for the expenses of such appraisals occurring twice per year or more frequently
so long as an Event of Default has occurred and is continuing.

 

Section 5.03         Notices. Borrowers shall notify promptly (and in no event
later than three Business Days after a Responsible Officer becomes aware
thereof) Agent and each Lender by Electronic Transmission of:

 

(a)          Default; Event of Default. The occurrence or existence of (i) any
Default or Event of Default, or any event or circumstance that could reasonably
be expected to become a Default or Event of Default or (ii) any “Default” or
“Event of Default” (each as defined in the ABL Credit Agreement), or any event
or circumstance that could reasonably be expected to become a “Default” or
“Event of Default” (each as defined in the ABL Credit Agreement) under the ABL
Facility;

 

(b)          Breach. Any breach or nonperformance of, or any default under, any
Contractual Obligation of any Credit Party or any Subsidiary, or any violation
of, or non-compliance with, any Requirement of Law, which would reasonably be
expected to result, either individually or in the aggregate, in a Material
Adverse Effect;

 

(c)          Proceeding. (i) Any dispute, litigation, investigation, proceeding
or suspension which may exist at any time between any Credit Party or any
Subsidiary and any Governmental Authority which would reasonably be expected to
result, either individually or in the aggregate, in Liabilities in excess of
$500,000 and (ii) the commencement of, or any material development in, any
litigation or proceeding affecting any Credit Party or any Subsidiary (A) in
which the amount of damages claimed is $500,000 or more, (B) in which injunctive
or similar relief is sought and if adversely determined, would reasonably be
expected to have a Material Adverse Effect, or (C) in which the relief sought is
an injunction or other stay of the performance of any Loan Document;

 

(d)          Material Environmental Liabilities. Any event, change, circumstance
or occurrence (including any unpermitted Release, any violation of or liability
under any Environmental Law or any other Requirement of Law) that, individually
or in the aggregate, has had or could reasonably be expected to result in
Material Environmental Liabilities;

 

(e)          Liens. Any Credit Party shall have knowledge, or received notice,
of any Lien on any Property of any Credit Party other than Permitted Liens;

 

(f)           Environmental. (i) The receipt by any Credit Party of any notice
of violation of or potential liability or similar notice under Environmental
Law, (ii)(A) unpermitted Releases, (B) the existence of any condition that could
reasonably be expected to result in violations of or Liabilities under, any
Environmental Law or (C) the commencement of, or any material change to, any
action, investigation, suit, proceeding, audit, claim, demand, dispute alleging
a violation of or Liability under any Environmental Law which in the case of
clauses (A), (B) and (C) above, in the aggregate for all such clauses, would
reasonably be expected to result in Material Environmental Liabilities, (iii)
the receipt by any Credit Party of notification that any Property of any Credit
Party is subject to any Lien in favor of any Governmental Authority securing, in
whole or in part, Environmental Liabilities and (iv) any proposed acquisition or
lease of Real Estate, if such acquisition or lease would have a reasonable
likelihood of resulting in Material Environmental Liabilities;

 

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(g)          Material Adverse Effect. Subsequent to the date of the most recent
audited financial statements delivered to Agent and Lenders pursuant to this
Agreement, any event, change, circumstance or occurrence (including any
violation of or liability under ERISA or any other Requirement of Law and any
labor controversy resulting in or threatening to result in any strike, work
stoppage, boycott, shutdown or other labor disruption) that, individually or in
the aggregate, has had or could reasonably be expected to have a Material
Adverse Effect (it being acknowledged that the Borrowers have notified the Agent
and Lenders about the TRU Event);

 

(h)          Financial Reporting Change. Any material change in accounting
policies or financial reporting practices by any Credit Party or any Subsidiary;

 

(i)           Subsidiary; Stock. The creation, establishment or acquisition of
any Subsidiary or the issuance by or to any Credit Party of any Stock or Stock
Equivalent;

 

(j)           Tax. (i) The creation, or filing with the IRS or any other
Governmental Authority, of any Contractual Obligation or other document
extending, or having the effect of extending, the period for assessment or
collection of any income or franchise or other material Taxes with respect to
any Tax Affiliate and (ii) the creation of any Contractual Obligation of any Tax
Affiliate, or the receipt of any request directed to any Tax Affiliate, to make
any material adjustment under Section 481(a) of the Code, by reason of a change
in accounting method or otherwise; and

 

(k)          Breach of Applicable License Agreement. Any notice of breach or
nonperformance of, or any default under any Applicable License Agreement or any
material communication from the applicable Licensor to any Credit Party under
any Applicable License Agreement.

 

Each notice pursuant to this Section shall be delivered by Electronic
Transmission, accompanied by a statement by a Responsible Officer of Borrower
Representative, setting forth details of the occurrence referred to therein
(including, if applicable, each clause or provision of any Loan Document that
have been breached or violated), and stating what action Borrowers or other
Person propose to take with respect thereto and at what time.

 

Section 5.04         Preservation of Corporate Existence, Etc. Each Credit Party
shall, and shall cause each of its Subsidiaries to:

 

(a)          preserve and maintain in full force and effect its organizational
existence and good standing under the laws of its jurisdiction of incorporation,
organization or formation, as applicable, except as permitted by Section 6.03;
and

 

(b)          preserve and maintain in full force and effect all rights,
privileges, qualifications, permits, licenses and franchises necessary in the
normal conduct of its business except where the failure to do so would not
reasonably be expected to have, either individually or in the aggregate, a
Material Adverse Effect.

 

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Section 5.05         Maintenance of Property. Each Credit Party shall, and shall
cause each of its Subsidiaries to, maintain and preserve all its Property which
is used or useful in its business in good working order and condition, ordinary
wear and tear excepted and shall make all necessary repairs thereto and renewals
and replacements thereof except where the failure to do so would not reasonably
be expected to have, either individually or in the aggregate, a Material Adverse
Effect.

 

Section 5.06         Insurance.

 

(a)          Requirements. Each Credit Party shall, and shall cause each of its
Subsidiaries to, (i) maintain in full force and effect all policies of insurance
of any kind with respect to the Property and businesses of Credit Parties and
such Subsidiaries (including policies of life, fire, theft, product liability,
public liability, Flood Insurance (other than Real Estate not located in a
Special Flood Hazard Area), property damage, other casualty, employee fidelity,
workers’ compensation, business interruption and employee health and welfare
insurance) with financially sound and reputable insurance companies or
associations (in each case that are not Affiliates of Borrowers) of a nature and
providing such coverage as is sufficient and as is customarily carried by
businesses of the size and character of the business of Credit Parties and (ii)
cause all such insurance relating to any Property or business of any Credit
Party to name Agent as additional insured or lenders loss payee as agent for
Lenders, as appropriate. All policies of insurance on real and personal Property
of Credit Parties will contain an endorsement, in form and substance acceptable
to Agent, showing loss payable to Agent (Form CP 1218 or equivalent and naming
Agent as lenders loss payee as agent for Lenders) and extra expense and business
interruption endorsements. Such endorsement, or an independent instrument
furnished to Agent, will provide that the insurance companies will give Agent at
least 30 days’ prior written notice before any such policy or policies of
insurance is altered or canceled and that no act or default of Credit Parties or
any other Person shall affect the right of Agent to recover under such policy or
policies of insurance in case of loss or damage. Each Credit Party shall direct
all present and future insurers under its “All Risk” policies of property
insurance to pay all proceeds payable thereunder directly to Agent. If any
insurance proceeds are paid by check, draft or other instrument payable to any
Credit Party and Agent jointly, Agent may endorse such Credit Party’s name
thereon and do such other things as Agent may deem advisable to reduce the same
to cash. Agent reserves the right at any time, upon review of each Credit
Party’s risk profile, to require additional forms and limits of insurance.
Within 45 days after written notice from Agent to Credit Parties that any Real
Estate is located in a Special Flood Hazard Area, Credit Parties shall satisfy
the Federal Flood Insurance requirements.

 

(b)          Agent’s Right to Purchase. Unless Credit Parties provide Agent with
evidence of the insurance coverage required by this Agreement, Agent may
purchase insurance at Credit Parties’ expense to protect Agent’s and Lenders’
interests in Credit Parties’ and their Subsidiaries’ Properties. This insurance
need not protect Credit Parties’ and their Subsidiaries’ interests. The coverage
that Agent purchases may not pay any claim that any Credit Party or any
Subsidiary makes or any claim that is made against such Credit Party or any
Subsidiary in connection with said Property. Borrowers may later cancel any
insurance purchased by Agent, but only after providing Agent with evidence that
insurance has been obtained as required by this Agreement. If Agent purchases
insurance, Credit Parties will be responsible for the costs of that insurance,
including interest and any other charges Agent may impose in connection with the
placement of insurance, until the effective date of the cancellation or
expiration of the insurance. The costs of the insurance shall be added to the
Obligations. The costs of the insurance may be more than the cost of insurance
Credit Parties may be able to obtain on their own.

 

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(c)          Settlement. Credit Parties appoint Agent as their attorney-in-fact
to settle or adjust all property damage claims under its casualty insurance
policies; provided, that such power of attorney shall only be exercised so long
as an Event of Default has occurred and is continuing. Agent shall have no duty
to exercise such power of attorney, but may do so at its discretion.

 

Section 5.07         Compliance with Laws. Each Credit Party shall, and shall
cause each of its Subsidiaries to, comply with all Requirements of Law of any
Governmental Authority having jurisdiction over it or its business, except where
the failure to comply would not reasonably be expected to have, either
individually or in the aggregate, a Material Adverse Effect.

 

Section 5.08         Inspection of Property and Books and Records. Each Credit
Party shall, and shall cause each of its Subsidiaries to, with respect to each
owned, leased, or controlled property, during normal business hours and upon
reasonable advance notice (unless an Event of Default shall have occurred and be
continuing, in which event no notice shall be required and Agent shall have
access at any and all times during the continuance thereof): (a) provide access
to such property to Agent and any of its Related Persons, as frequently as Agent
determines to be appropriate; and (b) permit Agent and any of its Related
Persons to conduct field examinations, audit, inspect and make extracts and
copies (or take originals if reasonably necessary) from all of such Credit
Party’s books and records (provided, that any such examination, audit,
inspections, extraction or copying in respect of any personnel records
(including medical records) will be subject to any applicable privacy or
confidentiality restrictions whether imposed by contract or Requirement of Law),
and evaluate and make physical verifications and appraisals of the Inventory and
other Collateral in any manner and through any medium that Agent considers
advisable, in each instance, at Credit Parties’ expense; provided, that the
Agent agrees that as long as no Default or Event of Default has occurred and is
continuing and as long as such field examinations, audits and other inspections
are conducted or obtained by the ABL Agent at least once in each six (6) month
period and with professionals reasonably satisfactory to the Agent, the Agent
shall not exercise its rights to obtain field examinations hereunder, so long as
the ABL Agent furnishes a copy of each such field examination undertaken by it
to the Agent (which the Credit Parties shall authorize and direct the ABL Agent
to so do); provided, further that (x) Credit Parties shall only be obligated to
reimburse Agent for the expenses for two such field examinations, audits and
inspections per year or more frequently if an Event of Default has occurred and
is continuing or during a Trigger Period and (y) Agent and each of its Related
Persons shall not have access to license agreements with third parties which by
their terms prohibit disclosure to non-Credit Parties for so long as any
Inventory covered by such agreements is not included in the Borrowing Base. Any
Lender may accompany Agent or its Related Persons in connection with any
inspection at such Lender’s expense.

 

Section 5.09         Use of Proceeds. Borrowers shall use the proceeds of the
Loans solely as follows: (a) to pay the costs and expenses required to be paid
on the Closing Date; (b) to repurchase the 2018 Convertible Notes; and (c) for
working capital, capital expenditures and other general corporate purposes not
in contravention of any Requirement of Law and not in violation of this
Agreement. Borrowers shall not use any proceeds of the Loans to purchase or
carry any Margin Stock or to extend credit to others for the purpose of
purchasing or carrying any Margin Stock or for any purpose that violates the
provisions of Regulation T, U or X of the Board of Governors.

 

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Section 5.10         Cash Management Systems. (a) Each Credit Party (other than
the HK Credit Parties) shall enter into, and cause each depository, securities
intermediary or commodities intermediary to enter into, Control Agreements, and
(b) each HK Credit Party shall deliver, and cause each depository to
acknowledge, the Bank Account Notices referenced in the HK Security Debenture,
in each case providing for “springing” cash dominion with respect to each
deposit, securities, commodity or similar account maintained by such Person
(other than (a) any payroll account or disbursing account so long as such
account is a zero balance account, (b) petty cash accounts, amounts on deposit
in which do not exceed $15,000 in the aggregate at any one time and (c)
withholding Tax and fiduciary accounts) at all times. In addition, at Agent’s
request, Credit Parties will enter into Control Agreements providing for
“springing” cash dominion over disbursement accounts as of the Closing Date,
except as set forth in the preceding sentence. Unless and until an Event of
Default has occurred and is continuing or Availability falls below $10,000,000,
Agent shall not deliver to the relevant depository, securities intermediary or
commodities intermediary a notice or other instruction which provides for
exclusive control over such account by Agent. Credit Parties shall not maintain
cash on deposit in disbursement accounts in excess of outstanding checks and
wire transfers payable from such accounts and amounts necessary to meet minimum
balance requirements. Except as set forth on Schedule 5.10 with respect to
existing deposit accounts maintained with Shanghai Commercial Bank Ltd., HK
Credit Parties shall maintain all of their deposit accounts only with Wells
Fargo.

 

Section 5.11         Further Assurances.

 

(a)          Each Credit Party shall ensure that all written information,
exhibits and reports furnished to Agent or Lenders do not and will not contain
any untrue statement of a material fact and do not and will not omit to state
any material fact or any fact necessary to make the statements contained therein
not misleading in light of the circumstances in which made, and will promptly
disclose to Agent and Lenders and correct any defect or error that may be
discovered therein or in any Loan Document or in the execution, acknowledgement
or recordation thereof.

 

(b)          Promptly upon request by Agent, Credit Parties shall (and, subject
to the limitations set forth herein and in the Collateral Documents, shall cause
each of their Subsidiaries to) take such additional actions and execute such
documents as Agent may reasonably require from time to time in order (i) to
carry out more effectively the purposes of any Loan Document, (ii) to subject to
the Liens created by any of the Collateral Documents any of the Properties,
rights or interests covered by any of the Collateral Documents, (iii) to perfect
and maintain the validity, effectiveness and priority of any of the Collateral
Documents and the Liens intended to be created thereby, and (iv) to better
assure, convey, grant, assign, transfer, preserve, protect and confirm to
Secured Parties the rights granted or now or hereafter intended to be granted to
Secured Parties under any Loan Document.

 

(c)          Without limiting the generality of the foregoing, Credit Parties
shall cause each of their Domestic Subsidiaries (other than Excluded Domestic
Subsidiaries) and Foreign Subsidiaries (other than Excluded Foreign
Subsidiaries), promptly after formation or acquisition thereof, to guarantee the
Obligations and shall, and shall cause each such Subsidiary, to grant to Agent,
for the benefit of Secured Parties, a security interest in, subject to the
limitations hereinafter set forth, all of such Subsidiary’s Property, whether
now existing or hereinafter acquired, to secure the Obligations and with respect
to any Real Estate with a fair market value in excess of $500,000, within 30
days after the Closing Date or any acquisition thereof, as applicable, such
Person shall execute and/or deliver, or cause to be executed and/or delivered,
to Agent, the Mortgage Supporting Documents. Each Credit Party shall, and shall
cause each of its Domestic Subsidiaries (other than Excluded Domestic
Subsidiaries) to, pledge all of the Stock and Stock Equivalents of each of its
Domestic Subsidiaries (other than Excluded Domestic Subsidiaries) and Foreign
Subsidiaries (other than Excluded Foreign Subsidiaries) and 65% of the
outstanding voting Stock and Stock Equivalents and 100% of the outstanding
non-voting Stock and Stock Equivalents of each of Excluded Foreign Subsidiary
directly owned by a Credit Party, in each instance, to Agent, for the benefit of
Secured Parties, to secure the Obligations, promptly after formation or
acquisition of such Subsidiary. In connection with each pledge of Stock and
Stock Equivalents, Credit Parties shall deliver, or cause to be delivered, to
Agent, irrevocable proxies and stock powers and/or assignments, as applicable,
duly executed in blank.

 

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(d)          If the ABL Lenders receive (directly or indirectly) any additional
guaranty, letter of credit, or any other credit enhancement after the Closing
Date, each applicable Credit Party shall grant the same to Agent for the benefit
of the Lenders.

 

Section 5.12         Environmental Matters. Each Credit Party shall, and shall
cause each of its Subsidiaries to, comply with, and maintain its Real Estate,
whether owned, leased, subleased or otherwise operated or occupied, in
compliance with, all applicable Environmental Laws (including by implementing
any Remedial Action necessary to achieve such compliance) or that is required by
orders and directives of any Governmental Authority except where the failure to
comply would not reasonably be expected to, individually or in the aggregate,
result in a Material Environmental Liability. Without limiting the foregoing, if
an Event of Default is continuing or if Agent at any time has a reasonable basis
to believe that there exist violations of Environmental Laws by any Credit Party
or any Subsidiary or that there exist any Environmental Liabilities, then each
Credit Party shall, promptly upon receipt of request from Agent, cause the
performance of, and allow Agent and its Related Persons access to such Real
Estate for the purpose of conducting, such environmental audits and assessments,
including subsurface sampling of soil and groundwater, and cause the preparation
of such reports, in each case as Agent may from time to time reasonably request.
Such audits, assessments and reports, to the extent not conducted by Agent or
any of its Related Persons, shall be conducted and prepared by reputable
environmental consulting firms reasonably acceptable to Agent and shall be in
form and substance reasonably acceptable to Agent.

 

Section 5.13         OFAC; Sanctions; Anti-Corruption Laws; Anti-Money
Laundering Laws. Each Credit Party will, and will cause each of its Subsidiaries
to comply with all applicable Sanctions, Anti-Corruption Laws and Anti-Money
Laundering Laws. Each of the Credit Parties and its Subsidiaries shall implement
and maintain in effect policies and procedures designed to ensure compliance by
the Credit Parties and their Subsidiaries and their respective directors,
officers, employees, agents and Affiliates with all Sanctions, Anti-Corruption
Laws and Anti-Money Laundering Laws. Each of the Credit Parties shall and shall
cause their respective Subsidiaries to comply with all Sanctions,
Anti-Corruption Laws and Anti-Money Laundering Laws.

 

Section 5.14         Term Loan Push-Down Reserve Maintained by ABL Agent. The
Credit Parties shall request that the ABL Agent implement and maintain the Term
Loan Push-Down Reserve against the Borrowing Base at all times.

 

Section 5.15         Applicable License Agreements. Borrowers shall maintain
each Applicable License Agreement in full force and effect (it being understood
that the expiration and immediate, automatic renewal of an Applicable License
Agreement shall not constitute a breach of this Section 5.15).

 

Section 5.16         Post-Closing Obligations. Borrowers agree to take such
actions or deliver, or cause to be delivered, to Agent, each in form and
substance reasonably satisfactory to Agent, each item specified on Schedule 5.14
within the periods specified with respect to such actions and items, or such
later date to which Agent may consent in writing.

 

Section 5.17         Refinancing of 2018 Convertible Notes. The proceeds of the
Loans shall be deposited into a deposit account subject to a Control Agreement,
and the use of such proceeds shall be restricted in a manner satisfactory to
Agent to the repayment of all or a portion of the outstanding 2018 Convertible
Notes on or before the maturity date thereof. To the extent any of the 2018
Convertible Notes are not repaid (or otherwise defeased or retired) on the
maturity date thereof, (a) the Credit Parties shall have extended such maturity
date to a date that is no sooner than that date that is six months after the
Stated Maturity Date, and (b) any remaining proceeds of the Loans may be used by
Borrowers for working capital, capital expenditures and other general corporate
purposes not in contravention of any Requirement of Law and not in violation of
this Agreement.

 

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ARTICLE VI.
NEGATIVE COVENANTS

 

Each Credit Party covenants and agrees that until Final Satisfaction, no Credit
Party shall, and no Credit Party shall suffer or permit any Subsidiary
(excluding, in all cases, the JV Entities), directly or indirectly, to:

 

Section 6.01         Limitation on Liens. Make, create, incur, assume or suffer
to exist any Lien upon or with respect to any part of its Property, whether now
owned or hereafter acquired, other than the following (“Permitted Liens”):

 

(a)          any Lien existing on the Property of a Credit Party or a Subsidiary
on the Closing Date and set forth in Schedule 6.01 securing Indebtedness
outstanding on such date and permitted by Section 6.05(c), including replacement
Liens on the Property currently subject to such Liens securing Indebtedness
permitted by Section 6.05(c);

 

(b)          any Lien created under any Loan Document;

 

(c)          Liens for Taxes (i) which are not past due or remain payable
without penalty, or (ii) the nonpayment of which is being contested in good
faith by appropriate proceedings diligently prosecuted which stay the filing or
enforcement of any Lien and for which adequate reserves in accordance with GAAP
are being maintained by such Person and the aggregate Liabilities secured by
such Lien do not exceed $500,000;

 

(d)          carriers’, warehousemen’s, mechanics’, landlords’, materialmen’s,
repairmen’s or other similar Liens arising by operation of law, in the Ordinary
Course of Business, which are not past due or remain payable without penalty or
which are being Contested in Good Faith;

 

(e)          Liens (other than any Lien imposed by ERISA) consisting of pledges
or deposits required in the Ordinary Course of Business in connection with
workers’ compensation, unemployment insurance and other social security
legislation or to secure the performance of tenders, statutory obligations,
surety, stay, customs and appeals bonds, bids, leases, governmental contract,
trade contracts, performance and return of money bonds and other similar
obligations (exclusive of obligations for the payment of borrowed money)
disclosed on Schedule 4.24 or to secure liability to insurance carriers, in an
aggregate amount pursuant to this Section 6.01(e) not to exceed $500,000;

 

(f)          Liens (other than for payment of Taxes) arising out of judgments,
attachments or awards not resulting in an Event of Default;

 

(g)          easements, rights of way, zoning and other restrictions, minor
defects or other irregularities in title, and other similar encumbrances
incurred in the Ordinary Course of Business which, either individually or in the
aggregate, are not substantial in amount, and which do not in any case
materially detract from the value of the Property subject thereto or interfere
in any material respect with the ordinary conduct of the businesses of any
Credit Party or any Subsidiary;

 

(h)          Liens on any Property acquired or held by any Credit Party or any
Subsidiary securing Indebtedness incurred or assumed for the purpose of
financing (or refinancing) all or any part of the cost of acquiring such
Property but subject to the dollar limitation in Section 6.05(d); provided, that
(i) any such Lien attaches to such Property concurrently with or within 20 days
after the acquisition thereof, (ii) such Lien attaches solely to the Property so
acquired in such transaction and the proceeds thereof, and (iii) the principal
amount of the debt secured thereby does not exceed 100% of the cost of such
Property;

 

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(i)          Liens securing Capital Lease Obligations permitted under Section
6.05(d);

 

(j)          any interest or title of a lessor or sublessor under any lease
permitted by this Agreement;

 

(k)          Liens evidenced by precautionary UCC financing statements with
respect to any true lease permitted by this Agreement;

 

(l)           licenses and sublicenses granted by a Credit Party and leases or
subleases (by a Credit Party as lessor or sublessor) to third parties in the
Ordinary Course of Business;

 

(m)         Liens in favor of collecting banks arising by operation of law under
Section 4-210 of the UCC or, with respect to collecting banks located in the
State of New York, under 4- 208 of the UCC;

 

(n)          Liens (including the right of set-off) in favor of a bank or other
depository institution arising as a matter of law encumbering deposits; and

 

(o)          Liens in favor of customs and revenue authorities arising as a
matter of law which secure payment of customs duties in connection with the
importation of goods in the Ordinary Course of Business.

 

(p)          Liens securing the ABL Facility (as in effect on the date of this
Agreement and as modified in accordance with this Agreement and the
Intercreditor Agreement), so long as those Liens are subject to the terms of the
Intercreditor Agreement.

 

(q)          Liens arising under the factoring agreements with Standard
Chartered Bank with respect to Accounts owing from Wal-Mart to any of the HK
Credit Parties, so long as such Liens are limited to such Accounts and the
Proceeds thereof.

 

Section 6.02         Disposition of Property. Sell, assign, lease, convey,
transfer or otherwise dispose of (whether in one or a series of transactions)
any Property or enter into any agreement to do any of the foregoing, except:

 

(a)          dispositions to any Person of inventory, or worn out or surplus
equipment, all in the Ordinary Course of Business, provided that such
disposition shall not be made to any Affiliate who is not a Credit Party;

 

(b)          dispositions (other than of any Stock of any Credit Party or any
Subsidiary thereof or any Accounts of any Credit Party) not otherwise permitted
hereunder which are made for fair market value so long as Borrowers make any
mandatory prepayment in the amount of the Net Proceeds of such disposition if
and to the extent required by Section 1.08; provided, that (i) at the time of
any disposition, no Event of Default shall exist or shall result from such
disposition, (ii) not less than 90% of the aggregate sales price from such
disposition shall be paid in cash, (iii) the aggregate fair market value of all
assets so sold by Credit Parties and their Subsidiaries, together, shall not
exceed in any Fiscal Year $1,000,000 and (iv) after giving effect to such
disposition, Credit Parties are in compliance on a pro forma basis with the
covenants set forth in ARTICLE VII;

 

 23 

 

 

(c)          (i) dispositions of Cash Equivalents in the Ordinary Course of
Business made to a Person that is not an Affiliate of any Credit Party and (ii)
conversions of Cash Equivalents into cash or other Cash Equivalents;

 

(d)          transactions permitted under Section 6.01(l); and

 

(e)          dispositions of inventory that are comprised of goods which are
defective.

 

Section 6.03         Consolidations and Mergers. Merge, consolidate with or
into, or convey, transfer, lease or otherwise dispose of (whether in one
transaction or in a series of transactions) all or substantially all of its
assets (whether now owned or hereafter acquired) to or in favor of any Person,
except upon not less than five Business Days prior written notice to Agent, (a)
any Subsidiary that is a Credit Party may merge with, or dissolve or liquidate
into, any other Credit Party, (b) any Subsidiary that is not a Credit Party may
merge with, or dissolve or liquidate into, a Borrower or a Wholly-Owned
Subsidiary which is a Domestic Subsidiary; provided, that (i) such Borrower or
such Wholly-Owned Subsidiary is the continuing or surviving entity and (ii) all
actions required to maintain perfected Liens on the Stock of the surviving
entity and other Collateral in favor of Agent have been completed, and (c) any
Foreign Subsidiary may merge with or dissolve or liquidate into another Foreign
Subsidiary; provided, that if a Foreign Subsidiary that is not an Excluded
Foreign Subsidiary is a constituent entity in such merger, dissolution or
liquidation, such Foreign Subsidiary that is not an Excluded Foreign Subsidiary
shall be the continuing or surviving entity.

 

Section 6.04         Acquisitions; Loans and Investments. Purchase or acquire,
or make any commitment to purchase or acquire any Stock or Stock Equivalents, or
any obligations or other securities of, or any interest in, any Person,
including the establishment or creation of a Subsidiary; make or commit to make
any Acquisitions, or any other acquisition of all or substantially all of the
assets of another Person, or of any business or division of any Person,
including by way of merger, consolidation or other combination; or make or
purchase, or commit to make or purchase, any advance, loan, extension of credit
or capital contribution to or any other investment in, any Person including a
Borrower, any Affiliate of a Borrower or any Subsidiary (each an “Investment”),
except for:

 

(a)          Investments in cash and Cash Equivalents;

 

(b)          Investments consisting of (i) extensions of credit or capital
contributions by any Credit Party to or in any other then existing Credit Party,
(ii) extensions of credit or capital contributions by a Borrower or any other
Credit Party to or in any then existing Foreign Subsidiaries not to exceed
$5,000,000 in the aggregate at any time outstanding for all such extensions of
credit and capital contributions; provided, that (A) if any Credit Party
executes and delivers to any Borrower a note (collectively, the “Intercompany
Notes”) to evidence any Investments described in the foregoing clauses (i) and
(ii) above, that Intercompany Note shall be pledged and delivered to Agent
pursuant to the Guaranty and Security Agreement as additional collateral
security for the Obligations; (B) each Borrower shall accurately record all
intercompany transactions on its books and records; (C) at the time any such
intercompany loan or advance is made by any Borrower to any other Credit Party
and after giving effect thereto, the Borrowers, on a consolidated basis, shall
be Solvent; and (D) the aggregate amount of such intercompany Indebtedness owing
by any Credit Party individually or in the aggregate shall not exceed $5,000,000
at any one time outstanding;

 

 24 

 

 

(c)          Investments received as the non-cash portion of consideration
received in connection with transactions permitted pursuant to Section 6.02(b);

 

(d)          Investments acquired in connection with the settlement of
delinquent Accounts in the Ordinary Course of Business or in connection with the
bankruptcy or reorganization of suppliers or customers;

 

(e)          Investments existing on the Closing Date and set forth in Schedule
6.04; and

 

(f)           loans or advances to employees permitted under Section 6.06.

 

Section 6.05         Limitation on Indebtedness. Create, incur, assume, permit
to exist, or otherwise become or remain directly or indirectly liable with
respect to, any Indebtedness, except:

 

(a)          the Obligations;

 

(b)          Indebtedness consisting of Contingent Obligations described in
clause (j) of the definition of “Indebtedness” and permitted pursuant to Section
6.09;

 

(c)          Indebtedness existing on the Closing Date and set forth in Schedule
6.05 including Permitted Refinancings thereof;

 

(d)          Indebtedness not to exceed $1,000,000 in the aggregate at any time
outstanding, consisting of Capital Lease Obligations or secured by Liens
permitted by Section 6.01(h) and Permitted Refinancings thereof;

 

(e)          unsecured intercompany Indebtedness permitted pursuant to Section
6.04(b);

 

(f)          Permitted Surety Bonds;

 

(g)          post-closing payment obligations existing on the Closing Date with
respect to acquisitions made by JAKKS prior to the Closing Date not to exceed
$2,100,000 in the aggregate;

 

(h)          401(k) deferrals and matches that are paid within 30 days of the
applicable payroll withholding date;

 

(i)          Subordinated Indebtedness (including for the purpose of refinancing
the 2018 Convertible Notes as contemplated by Section 5.17);

 

(j)          Indebtedness under the ABL Loan Documents (as in effect on the
Closing Date and as modified in accordance with this Agreement and the
Intercreditor Agreement); and

 

(k)          Indebtedness arising under the factoring agreements with Standard
Chartered Bank with respect to Accounts owing from Wal-Mart to any of the HK
Credit Parties.

 

Section 6.06         Employee Loans and Transactions with Affiliates. Enter into
any transaction with any Affiliate of a Borrower or of any such Subsidiary,
except:

 

(a)          as expressly permitted by this Agreement;

 

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(b)          in the Ordinary Course of Business and pursuant to the reasonable
requirements of the business of such Credit Party or such Subsidiary upon fair
and reasonable terms no less favorable to such Credit Party or such Subsidiary
than would be obtained in a comparable arm’s length transaction with a Person
not an Affiliate of a Borrower or such Subsidiary and which are disclosed in
writing to Agent;

 

(c)          loans or advances to employees of Credit Parties for travel,
entertainment and relocation expenses and other ordinary business purposes in
the Ordinary Course of Business not to exceed $1,000,000 in the aggregate
outstanding at any time;

 

(d)          non-cash loans or advances made by JAKKS to employees of Credit
Parties that are simultaneously used by such Persons to purchase Stock or Stock
Equivalents of JAKKS;

 

(e)          all such transactions existing as of the Closing Date are described
in Schedule 6.06;

 

(f)          [reserved];

 

(g)          all transactions, payments, outstanding intercompany balances,
Property transfers and other activities constituting the transfer pricing system
consistent with past practice between any Credit Party and its respective
Affiliates; and

 

(h)          property transfers between Borrowers in the Ordinary Course of
Business and consistent with past practice, not otherwise prohibited hereunder
or by any Loan Documents.

 

Section 6.07         Fees and Compensation. Pay any management, consulting or
similar fees to any Affiliate of any Credit Party or to any officer, director or
employee of any Credit Party or any Affiliate of any Credit Party, except:

 

(a)          payment of compensation to officers, employees, consultants, sales
representatives and other agents, in each case for actual services rendered to
Credit Parties and their Subsidiaries in the Ordinary Course of Business and, to
the extent required by any organizational documents, that have been approved by
JAKKS’ board of directors or independent compensation committee, as applicable;
and

 

(b)          payment of directors’ fees and reimbursement of actual
out-of-pocket expenses incurred by directors and officers in the Ordinary Course
of Business in connection with attending board of director meetings;

 

Section 6.08         Use of Proceeds. Use any portion of the Loan proceeds,
directly or indirectly, (a) to purchase or carry Margin Stock or repay or
otherwise refinance Indebtedness of any Credit Party or others incurred to
purchase or carry Margin Stock, (b) to Borrowers’ knowledge, to make any
payments to a Sanctioned Entity or a Sanctioned Person, to fund any investments,
loans or contributions in, or otherwise make such proceeds available to, a
Sanctioned Entity or a Sanctioned Person, to fund any operations, activities or
business of a Sanctioned Entity or a Sanctioned Person, or in any other manner
that would result in a violation of Sanctions by any Person, (iii) to Borrowers’
knowledge, in furtherance of an offer, payment, promise to pay, or authorization
of the payment or giving of money, or anything else of value, to any Person in
violation of any Sanctions, Anti-Corruption Laws or Anti-Money Laundering Laws,
or (iv) or otherwise in any manner which is in contravention of any Requirement
of Law or in violation of this Agreement.

 

Section 6.09         Contingent Obligations. Create, incur, assume or suffer to
exist any Contingent Obligations except in respect of the Obligations and
except:

 

 26 

 

 

(a)          endorsements for collection or deposit in the Ordinary Course of
Business;

 

(b)          Rate Contracts entered into in the Ordinary Course of Business for
bona fide hedging purposes and not for speculation;

 

(c)          Contingent Obligations existing as of the Closing Date and listed
in Schedule 6.09, including extension and renewals thereof which do not increase
the amount of such Contingent Obligations or impose materially more restrictive
or adverse terms on Credit Parties or their Subsidiaries as compared to the
terms of the Contingent Obligation being renewed or extended;

 

(d)          Indemnification obligations in favor of (i) sellers in connection
with Acquisitions permitted hereunder, (ii) purchasers in connection with
dispositions permitted under Section 6.02(b) and (iii) title insurers to cause
such title insurers to issue to Agent title insurance policies;

 

(e)          Guaranties (other than License Agreement Guaranties) made in the
Ordinary Course of Business of obligations of any Credit Party, which
obligations are otherwise permitted hereunder; provided, that if such obligation
is subordinated to the Obligations, such guaranty shall be subordinated to the
same extent; and

 

(f)          Contingent Obligations owing by JAKKS to Licensors under all
License Agreement Guaranties.

 

Section 6.10         Restricted Payments. Declare or make any dividend payment
or other distribution of assets, properties, cash, rights, obligations or
securities on account of any Stock or Stock Equivalent, purchase, redeem or
otherwise acquire for value any Stock or Stock Equivalent now or hereafter
outstanding or make any payment or prepayment of principal of, premium, if any,
interest, fees, redemption, exchange, purchase, retirement, defeasance, sinking
fund or similar payment with respect to, Subordinated Indebtedness (each, a
“Restricted Payment”); except that

 

(a)          any Wholly-Owned Subsidiary of a Borrower may declare and pay
dividends to a Borrower or any Wholly-Owned Subsidiary of a Borrower;

 

(b)          any Credit Party may declare and make dividend payments or other
distributions payable solely in its Stock or Stock Equivalents;

 

(c)          JAKKS may pay interest arising in the Ordinary Course of Business
under the 2018 Convertible Notes, Oasis Convertible Notes and 2020 Convertible
Notes;

 

(d)          JAKKS may refinance, defease, retire or extend the maturity date of
the 2018 Convertible Notes, provided that at the time of such refinancing,
defeasance, retirement or extension and after giving effect thereto, no Default
or Event of Default has occurred and is continuing. For the avoidance of doubt,
JAKKS may not repurchase or repay the 2020 Convertible Notes or the Oasis
Convertible Notes;

 

(e)          [reserved] and

 

(f)          JAKKS may redeem common Stock owned by employees for the express
purpose of permitting such employees to satisfy their respective income tax
obligations that result directly from the vesting of restricted Stock grants
owned by such employees, in an aggregate amount not to exceed $1,000,000 in any
Fiscal Year.

 

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Section 6.11         Change in Business. Engage in any line of business
substantially different from those lines of business carried on by it on the
Closing Date.

 

Section 6.12         Change in Structure. Except as expressly permitted under
Section 6.03, make any material changes in its equity capital structure, issue
any Stock or Stock Equivalents or amend any of its Organization Documents in any
material respect and, in each case, in any respect adverse to Agent or Lenders.
Nothing in this Section 6.12 shall prohibit the issuance of common stock in
connection with the conversion of any of the 2018 Convertible Notes, Oasis
Convertible Notes and 2020 Convertible Notes to the extent not otherwise
prohibited by the terms of this Agreement.

 

Section 6.13         Changes in Accounting, Name or Jurisdiction of
Organization. (a) Make any significant change in accounting treatment or
reporting practices, except as required by GAAP and in compliance with Section
12.04, (b) change the Fiscal Year or method for determining Fiscal Quarters of
any Credit Party or of any consolidated Subsidiary, (c) change its name as it
appears in official filings in its jurisdiction of organization or (d) change
its jurisdiction of organization, in the case of clauses (c) and (d) above,
without at least 20 days’ prior written notice to Agent and the acknowledgement
of Agent that all actions required by Agent to continue the perfection of its
Liens have been completed.

 

Section 6.14         Amendments to Subordinated Indebtedness and Applicable
License Agreements. Change or amend the terms of any (i) Applicable License
Agreements, (ii) Subordinated Indebtedness Documents except to the extent
permitted by the Subordination Agreement, or (iii) any other Subordinated
Indebtedness not subject to a Subordination Agreement, if the effect of such
change or amendment is to: (A) increase the interest rate on such Indebtedness;
(B) shorten the dates upon which payments of principal or interest are due on
such Indebtedness; (C) add or change in a manner adverse to Credit Parties any
event of default or add or make more restrictive any covenant with respect to
such Indebtedness; (D) change in a manner adverse to Credit Parties the
prepayment provisions of such Indebtedness; (E) change the subordination
provisions thereof (or the subordination terms of any guaranty thereof); or (F)
change or amend any other term if such change or amendment would materially
increase the obligations of Credit Parties or confer additional material rights
on the holder of such Indebtedness in a manner adverse to Credit Parties, Agent
or Lenders.

 

Section 6.15         No Negative Pledges. (i) Restrict or limit the ability of
any Credit Party or Subsidiary to pay dividends or make any other distribution
on any of such Credit Party’s or Subsidiary’s Stock or Stock Equivalents or to
pay fees, including management fees, or make other payments and distributions to
a Borrower or any other Credit Party; or (ii) enter into, assume or become
subject to any Contractual Obligation prohibiting or otherwise restricting the
existence of any Lien upon any of its assets in favor of Agent, except (a) in
connection with any document or instrument governing Liens permitted pursuant to
Section 6.01(h) and (i), provided that any such restriction contained therein
relates only to the asset or assets subject to such Permitted Liens, and (b)
with respect to Inventory subject to a license agreement with third parties,
provided that any such Inventory is not included in the Borrowing Base.

 

Section 6.16         Issuances of Stock. Issue any Stock or Stock Equivalents
(i) if such issuance would result in an Event of Default under Section 8.01(j)
and (ii) with respect to each direct or indirect Subsidiary of any Borrower,
unless such Stock and Stock Equivalents are pledged to Agent, for the benefit of
Secured Parties, as security for the Obligations, on substantially the same
terms and conditions as the Stock and Stock Equivalents of Credit Parties owned
by JAKKS are pledged to Agent as of the Closing Date.

 

Section 6.17         Sale-Leasebacks. Engage in a sale leaseback, synthetic
lease or similar transaction involving any of its assets.

 

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Section 6.18         Hazardous Materials. Cause or suffer to exist any Release
of any Hazardous Material at, to or from any Real Estate that would violate any
Environmental Law, form the basis for any Environmental Liabilities or otherwise
adversely affect the value or marketability of any Real Estate (whether or not
owned by any Credit Party or any Subsidiary), other than such violations,
Environmental Liabilities and effects that would not, in the aggregate,
reasonably be expected to have a Material Adverse Effect.

 

Section 6.19         Prepayments of Other Indebtedness. Purchase, redeem,
defease or prepay any portion of, or any interest with respect to, any
Indebtedness prior to its scheduled maturity, other than

 

(a)          the Obligations,

 

(b)          Indebtedness secured by a Permitted Lien if the asset securing such
Indebtedness has been sold or otherwise disposed of in a transaction permitted
hereunder,

 

(c)          a Permitted Refinancing of Indebtedness permitted under Section
6.05(c) or (d),

 

(d)          prepayments of other Indebtedness (excluding Subordinated
Indebtedness) so long as the amounts prepaid do not exceed $1,000,000 in the
aggregate,

 

(e)          prepayment of intercompany Indebtedness to Credit Parties,

 

(f)           prepayments permitted under Section 6.10; and

 

(g)          the payment of the Indebtedness created under the ABL Loan
Documents (subject to the Intercreditor Agreement).

 

ARTICLE VII.
FINANCIAL COVENANTS

 

Each Credit Party covenants and agrees that until Final Satisfaction:

 

Section 7.01         Reserved.

 

Section 7.02         Fixed Charge Coverage Ratio. On any date that Availability
is less than $10,000,000, Credit Parties shall not permit the Fixed Charge
Coverage Ratio of the Credit Parties for the 12 fiscal month period ending as of
the last day of the most recent fiscal month for which monthly financial
statements have been delivered to Agent in accordance with Section 5.01, and on
the end of each fiscal month thereafter, to be less than 1.25 to 1.00.

 

Section 7.03         Minimum Liquidity. The Credit Parties shall not permit
Liquidity to be less than $10,000,000 at any time.

 

ARTICLE VIII.
EVENTS OF DEFAULT

 

Section 8.01         Events of Default. Any of the following shall constitute an
“Event of Default”:

 

(a)          Non-Payment. Any Credit Party fails (i) to pay when due any amount
of principal of, or interest on, any Loan, including after maturity of the
Loans, or (ii) to pay within three Business Days after the same shall become
due, interest on any Loan, any fee or any other amount payable under any Loan
Document;

 

 29 

 

 

(b)          Representation or Warranty. (i) Any representation, warranty or
certification by or on behalf of any Credit Party or any of its Subsidiaries
made or deemed made in any Loan Document, or which is contained in any
certificate, document or financial or other statement by any such Person, or
their respective Responsible Officers, furnished at any time under any Loan
Document, shall prove to have been incorrect in any material respect (without
the duplication of any materiality provisions contained therein) on or as of the
date made or deemed made or (ii) any information contained in any Borrowing Base
Certificate is untrue or incorrect in any respect (other than (A) inadvertent,
immaterial errors not exceeding $100,000 in the aggregate in any Borrowing Base
Certificate, (B) errors understating the Borrowing Base or the Term Loan
Borrowing Base and (C) errors occurring when Availability continues to exceed
$15,000,000 after giving effect to the correction of such errors).

 

(c)          Specific Defaults. Any Credit Party fails to perform or observe any
term, covenant or agreement contained in any of the Fee Letter, Section 5.01,
Section 5.03(a), Section 5.06, Section 5.08, Section 5.09, Section 5.10, Section
5.13, Section 5.14, Section 5.15, Section 5.16, Section 5.17 or ARTICLE VI or
ARTICLE VII.

 

(d)          Other Defaults. Any Credit Party or Subsidiary fails to perform or
observe any other term, covenant or agreement contained in any Loan Document,
and such default shall continue unremedied for a period of 30 days after the
earlier to occur of (i) the date upon which a Responsible Officer of any Credit
Party becomes aware of such default and (ii) the date upon which written notice
thereof is given to Borrower Representative by Agent or Required Lenders;

 

(e)          Cross Default. (1) Any Credit Party or any Subsidiary fails to make
any payment when due or to perform or observe any other condition or covenant,
or any other default or event of default shall occur or condition exist, under
any agreement or instrument relating to (i) any Indebtedness (other than the
Obligations) or Contingent Obligation (other than the Obligations), having an
aggregate principal amount (including undrawn committed or available amounts and
including amounts owing to all creditors under any combined or syndicated credit
arrangement) of more than $5,000,000 (or, in the case of any such Indebtedness
(other than the Obligations) or Contingent Obligation (other than the
Obligations) related to any Disney License or Disney Inventory, $2,500,000),
(ii) the 2020 Convertible Notes, or (iii) the Oasis Convertible Notes and in
each case such failure continues after the applicable grace or notice period, if
any, specified in the document relating thereto on the date of such failure; or
(2) any default under an Applicable License Agreement occurs;

 

(f)           Insolvency; Voluntary Proceedings. The Borrowers, on a
consolidated basis, cease or fail, or Credit Parties and their Subsidiaries on a
consolidated basis, cease or fail, to be Solvent, or any Credit Party or any
Subsidiary: (i) generally fails to pay, or admits in writing its inability to
pay, its debts as they become due, subject to applicable grace periods, if any,
whether at stated maturity or otherwise; (ii) commences any Insolvency
Proceeding with respect to itself; or (iii) takes any action to effectuate or
authorize any of the foregoing;

 

(g)          Involuntary Proceedings. (i) Any involuntary Insolvency Proceeding
is commenced or filed against any Credit Party or any Subsidiary, and any such
proceeding or petition shall not be dismissed, or such writ, judgment, warrant
of attachment, execution or similar process shall not be released, vacated or
fully bonded within 60 days after commencement, filing or levy; (ii) any Credit
Party or Subsidiary admits the material allegations of a petition against it in
any Insolvency Proceeding, or an order for relief (or similar order under
non-U.S. law) is ordered in any Insolvency Proceeding; or (iii) the application
for, or any Credit Party or any Subsidiary acquiesces in, the appointment of a
receiver, trustee, custodian, conservator, liquidator, mortgagee in possession
(or agent therefor), or other similar Person for itself or a substantial portion
of its Property or business;

 

 30 

 

 

(h)          Judgments. One or more judgments, orders, decrees or arbitration
awards shall be entered against any Credit Party or any Subsidiary, and the same
shall remain unsatisfied, unvacated and unstayed pending appeal for a period of
30 days after the entry thereof, or any action shall be legally taken by a
judgment creditor to levy upon assets or properties of any Credit Party or any
Subsidiary to enforce any such judgment and such judgment either (i) involving
in the aggregate a liability of $500,000 or more (excluding amounts covered by
insurance to the extent the relevant independent third party insurer has not
denied coverage therefor) or (ii) is for injunctive relief and could reasonably
be expected to result in a Material Adverse Effect;

 

(i)           Collateral. Any material provision of any Loan Document shall for
any reason cease to be valid and binding on or enforceable against any Credit
Party or any Subsidiary party thereto or any Credit Party or any Subsidiary
shall so state in writing or bring an action to limit its obligations or
liabilities thereunder; or any Collateral Document shall for any reason (other
than pursuant to the terms thereof) cease to create a valid security interest in
the Collateral purported to be covered thereby or such security interest shall
for any reason cease to be a perfected and first priority security interest
subject only to Permitted Liens;

 

(j)           Change in Control. A Change in Control shall have occurred;

 

(k)          ERISA. An ERISA Event shall have occurred that, when taken together
with all other such ERISA Events, would reasonably be expected to result in
liability of any Credit Party (including any liability arising indirectly from
its ERISA Affiliates) in an aggregate amount exceeding $500,000;

 

(l)           Damage; Casualty. Any event occurs, whether or not insured or
insurable, as a result of which revenue-producing activities cease or are
substantially curtailed at facilities of Credit Parties generating more than 10%
of Borrowers’ consolidated revenues for the Fiscal Year preceding such event and
such cessation or curtailment continues for more than 30 days;

 

(m)          Material Agreements. Any default or breach by any Borrower occurs
and is continuing under one or more license agreements generating in the
aggregate more that 10% of Borrowers’ consolidated revenues for the Fiscal Year
preceding such event, or such agreement or agreements are terminated for any
reason;

 

(n)          Invalidity of Subordination Provisions. The subordination
provisions of any agreement or instrument governing any Subordinated
Indebtedness shall for any reason be revoked or invalidated, or otherwise cease
to be in full force and effect, or any Person shall contest in any manner the
validity or enforceability thereof or deny that it has any further liability or
obligation thereunder, or the Obligations, for any reason shall not have the
priority contemplated by this Agreement or such subordination provisions;

 

(o)          ABL Loan Documents. Any default, any breach of any condition or
covenant, or any other event shall occur or condition shall exist, under the ABL
Loan Documents or any instrument relating to any such Indebtedness, if the
effect of such event or condition is to cause, or to permit the holder or
holders of such Indebtedness or beneficiary or beneficiaries of such
Indebtedness (or a trustee or agent on behalf of such holder or holders or
beneficiary or beneficiaries) to cause such Indebtedness to be declared to be
due and payable prior to its stated maturity;

 

 31 

 

 

(p)          Invalidity of Intercreditor Agreement. The Intercreditor Agreement
shall for any reason be revoked or invalidated, or otherwise cease to be in full
force and effect (other than in accordance with its terms), any Credit Party
shall contest in any manner the validity or enforceability thereof or deny that
it has any further liability or obligation thereunder, the Obligations, for any
reason, shall not have the priority contemplated by the Intercreditor Agreement
or any party (other than Agent or any Lender) to the Intercreditor Agreement
fails to perform or observe any term, covenant or agreement contained therein;
or

 

(q)          HK Credit Parties. It is or becomes unlawful for a HK Credit Party
to perform any of its obligations under the Loan Documents, or any HK Credit
Party repudiates or rescinds a Loan Document or evidences an intention to
repudiate/rescind a Loan Document.

 

Section 8.02         Remedies. Upon the occurrence and during the continuance of
any Event of Default, Agent may and shall at the request of the Required
Lenders:

 

(a)          declare all or any portion of the unpaid principal amount of all
outstanding Loans, all interest accrued and unpaid thereon, all fees and premium
(including any amounts due under Section 1.09) and all other amounts owing or
payable hereunder or under any other Loan Document to be immediately due and
payable; without presentment, demand, protest or other notice of any kind, all
of which are hereby expressly waived by each Credit Party; and

 

(b)          exercise on behalf of itself and Lenders all rights and remedies
available to it and Lenders under the Loan Documents or applicable law;

 

provided, that, upon the occurrence of any event specified in Section 8.01(f) or
(g) above (in the case of clause (i) of Section 8.01(g), upon the expiration of
the 60-day period mentioned therein), the unpaid principal amount of all
outstanding Loans and all interest and other amounts as aforesaid shall
automatically become due and payable without further act of Agent or any Lender.

 

Section 8.03         Rights Not Exclusive. The rights provided for in the Loan
Documents are cumulative and are not exclusive of any other rights, powers,
privileges or remedies provided by law or in equity, or under any other
instrument, document or agreement now existing or hereafter arising.

 

ARTICLE IX.
THE AGENT

 

Section 9.01         Appointment and Duties.

 

(a)          Appointment of Agent. Each Lender hereby appoints GACP (together
with any successor Agent pursuant to Section 9.08) as Agent hereunder and
authorizes Agent to (i) execute and deliver the Loan Documents and accept
delivery thereof on its behalf from any Credit Party, (ii) take such action on
its behalf and to exercise all rights, powers and remedies and perform the
duties as are expressly delegated to Agent under such Loan Documents and (iii)
exercise such powers as are incidental thereto.

 

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(b)          Duties as Collateral and Disbursing Agent. Without limiting the
generality of Section 9.01(a), Agent shall have the sole and exclusive right and
authority (to the exclusion of Lenders), and is hereby authorized, to (i) act as
the disbursing and collecting agent for Lenders with respect to all payments and
collections arising in connection with the Loan Documents (including in any
bankruptcy, insolvency or similar proceeding), and each Person making any
payment in connection with any Loan Document to any Secured Party is hereby
authorized to make such payment to Agent, (ii) file and prove claims and file
other documents necessary or desirable to allow the claims of Secured Parties
with respect to any Obligation in any bankruptcy, insolvency or similar
proceeding (but not to vote, consent or otherwise act on behalf of such Person),
(iii) act as collateral agent for each Secured Party for purposes of the
perfection of all Liens created by such agreements and all other purposes stated
therein, (iv) manage, supervise and otherwise deal with the Collateral, (v) take
such other action as is necessary or desirable to maintain the perfection and
priority of the Liens created or purported to be created by the Loan Documents,
(vi) except as may be otherwise specified in any Loan Document, exercise all
remedies given to Agent and the other Secured Parties with respect to the
Collateral, whether under the Loan Documents, applicable Requirements of Law or
otherwise and (vii) execute any amendment, consent or waiver under the Loan
Documents on behalf of any Lender that has consented in writing to such
amendment, consent or waiver; provided, that Agent hereby appoints, authorizes
and directs each Lender to act as collateral sub-agent for Agent and Lenders for
purposes of the perfection of Liens with respect to any deposit account
maintained by a Credit Party with, and cash and Cash Equivalents held by, such
Lender, and may further authorize and direct Lenders to take further actions as
collateral sub-agents for purposes of enforcing such Liens or otherwise to
transfer the Collateral subject thereto to Agent, and each Lender hereby agrees
to take such further actions to the extent, and only to the extent, so
authorized or directed.

 

(c)          Limited Duties. Under the Loan Documents, Agent (i) is acting
solely on behalf of Secured Parties, with duties that are entirely
administrative in nature, notwithstanding the use of the defined term “Agent”,
the terms “agent”, “Agent” and “collateral agent” and similar terms in any Loan
Document to refer to Agent, which terms are used for title purposes only, (ii)
is not assuming any obligation under any Loan Document other than as expressly
set forth therein or any role as agent, fiduciary or trustee of or for any
Lender or any other Person and (iii) shall have no implied functions,
responsibilities, duties, obligations or other liabilities under any Loan
Document, and each Secured Party, by accepting the benefits of the Loan
Documents, hereby waives and agrees not to assert any claim against Agent based
on the roles, duties and legal relationships expressly disclaimed in clauses (i)
through (iii) above.

 

(d)          Binding Effect. Each Secured Party, by accepting the benefits of
the Loan Documents, agrees that (i) any action taken by Agent or the Required
Lenders (or, if required hereby, a greater proportion of Lenders) in accordance
with the provisions of the Loan Documents, (ii) any action taken by Agent in
reliance upon the instructions of Required Lenders (or such greater proportion)
and (iii) the exercise by Agent or the Required Lenders (or such greater
proportion) of the powers set forth herein or therein, together with such other
powers as are incidental thereto, shall be authorized and binding upon all of
Secured Parties.

 

Section 9.02         Use of Discretion.

 

(a)          Agent shall not have any duty to take any discretionary action or
exercise any discretionary powers, except as directed in writing by the Required
Lenders (or such other number or percentage of Lenders as provided for herein or
in the other Loan Documents); provided, that Agent shall not be required to take
any action that, in its opinion or the opinion of its counsel, may expose Agent
to liability or that is contrary to any Loan Document or applicable Requirement
of Law. Agent shall not, except as expressly set forth herein and in the other
Loan Documents, have any duty to disclose, and shall not be liable for the
failure to disclose, any information relating to any Credit Party or its
Affiliates that is communicated to or obtained by Agent or any of its Affiliates
in any capacity.

 

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(b)          Notwithstanding anything to the contrary contained herein or in any
other Loan Document, the authority to enforce rights and remedies hereunder and
under the other Loan Documents against Credit Parties or any of them shall be
vested exclusively in, and all actions and proceedings at law in connection with
such enforcement shall be instituted and maintained exclusively by, Agent in
accordance with the Loan Documents for the benefit of Secured Parties; provided,
that the foregoing shall not prohibit (i) Agent from exercising on its own
behalf the rights and remedies that inure to its benefit (solely in its capacity
as Agent) hereunder and under the other Loan Documents, (ii) any Lender from
exercising setoff rights in accordance with Section 10.09 or (iii) any Lender
from filing proofs of claim or appearing and filing pleadings on its own behalf
during the pendency of a proceeding relative to any Credit Party under any
bankruptcy or other debtor relief law; provided further, that if at any time
there is no Person acting as Agent hereunder and under the other Loan Documents,
then (A) the Required Lenders shall have the rights otherwise ascribed to Agent
pursuant to Section 8.02 and (B) in addition to the matters set forth in clauses
(ii) and (iii) of the preceding proviso and subject to Section 10.09, any Lender
may, with the consent of the Required Lenders, enforce any rights and remedies
available to it and as authorized by the Required Lenders.

 

Section 9.03         Delegation of Rights and Duties. Agent may delegate or
exercise any of its duties, rights, powers and remedies under any Loan Document
by or through any trustee, co-agent, employee, attorney-in-fact and any other
Person (including any Secured Party). Any such Person shall benefit from this
ARTICLE IX to the extent provided by Agent.

 

Section 9.04         Reliance and Liability.

 

(a)          Agent may, without incurring any liability hereunder, (i) treat the
payee of any Note as its holder until such Note is assigned in accordance with
Section 10.07, (ii) rely on the Register, (iii) consult with any of its Related
Persons and any other advisors, accountants and other experts (including
advisors to, and accountants and experts engaged by, any Credit Party) and (iv)
rely and act upon any document and information and any telephone message or
conversation, in each case believed by it to be genuine and transmitted, signed
or otherwise authenticated by the appropriate parties.

 

(b)          None of Agent and its Related Persons shall be liable for any
action taken or omitted to be taken by any of them under or in connection with
any Loan Document, and each Secured Party, each Borrower and each other Credit
Party hereby waive and shall not assert (and each Borrowers shall cause each
other Credit Party to waive and agree not to assert) any right, claim or cause
of action based thereon, except to the extent of liabilities resulting primarily
from the gross negligence or willful misconduct of Agent or, as applicable, such
Related Person (each as determined in a final, non-appealable judgment by a
court of competent jurisdiction) in connection with the duties expressly set
forth herein. Without limiting the foregoing, Agent:

 

(i)          shall not be responsible or otherwise incur liability for any
action or omission taken in reliance upon the instructions of the Required
Lenders or for the actions or omissions of any of its Related Persons selected
with reasonable care (other than employees, officers and directors of Agent,
when acting on behalf of Agent);

 

(ii)         shall not be responsible to any Secured Party or other Person for
the due execution, legality, validity, enforceability, effectiveness,
genuineness, sufficiency or value of, or the attachment, perfection or priority
of any Lien created or purported to be created under or in connection with, any
Loan Document;

 

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(iii)        makes no warranty or representation, and shall not be responsible,
to any Secured Party or other Person for any statement, document, information,
representation or warranty made or furnished by or on behalf of any Credit Party
or any Related Person of any Credit Party, including as to completeness,
accuracy, scope or adequacy thereof, or for the scope, nature or results of any
due diligence performed by Agent in connection with the Loan Documents; and

 

(iv)        shall not have any duty to ascertain or to inquire as to the
performance or observance of any provision of or the satisfaction of any
condition under any Loan Document or as to the existence or continuation of any
Default or Event of Default and shall not be deemed to have notice or knowledge
of such occurrence or continuation unless it has received a notice from Borrower
Representative, any Lender describing such Default or Event of Default clearly
labeled “notice of default” (in which case Agent shall promptly give notice of
such receipt to all Lenders);

 

and, for each of the items set forth in clauses (i) through (iv) above, each
Lender and each Borrower hereby waives and agrees not to assert (and each
Borrower shall cause each other Credit Party to waive and agree not to assert)
any right, claim or cause of action it might have against Agent based thereon.

 

(c)          Each Lender acknowledges and agrees that (i) it is shall not rely
on any audit or other report provided by Agent or its Related Persons (an “Agent
Report”), (ii) it received Agent Report solely as a courtesy, without
consideration, (iii) Agent Report (A) was prepared by Agent or its Related
Persons based upon information provided by Credit Parties solely for Agent’s own
internal use, (B) may not be complete and (C) may not reflect all information
and findings obtained by Agent or its Related Persons regarding the operations
and condition of Credit Parties, (iv) neither Agent nor any of its Related
Persons is making any representations or warranties with respect to (A) any
information contained in any Agent Report or in any related documentation, (B)
the scope or adequacy of Agent’s and its Related Persons’ due diligence, or (C)
the presence or absence of any errors or omissions contained in any Agent Report
or in any related documentation and (v) neither Agent nor any of its Related
Persons shall have any duties or obligations with respect to any Agent Report or
to correct or update any Agent Report. Each Lender releases, and agrees that it
will not assert, any claim against Agent or its Related Persons that in any way
relates to any Agent Report, and agrees to indemnify and hold harmless Agent and
its Related Persons from all claims, liabilities and expenses relating to a
breach by any Lender of its agreements hereunder.

 

Section 9.05         Agent Individually. Agent and its Affiliates may make loans
and other extensions of credit to, acquire Stock and Stock Equivalents of,
engage in any kind of business with, any Credit Party or Affiliate thereof as
though it were not acting as Agent and may receive separate fees and other
payments therefor. To the extent Agent or any of its Affiliates makes any Loan
or otherwise becomes a Lender hereunder, it shall have and may exercise the same
rights and powers hereunder and shall be subject to the same obligations and
liabilities as any other Lender and the terms “Lender,” “Required Lender” and
any similar terms shall, except where otherwise expressly provided in any Loan
Document, include Agent or such Affiliate, as applicable, in its individual
capacity as Lender, Lender or as one of the Required Lenders.

 

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Section 9.06         Lender Credit Decision.

 

(a)          Each Lender acknowledges that it shall, independently and without
reliance upon Agent, any Lender or any of their Related Persons or upon any
document (including any offering and disclosure materials in connection with the
syndication of the Loans) solely or in part because such document was
transmitted by Agent or any of its Related Persons, conduct its own independent
investigation of the financial condition and affairs of each Credit Party and
make and continue to make its own credit decisions in connection with entering
into, and taking or not taking any action under, any Loan Document or with
respect to any transaction contemplated in any Loan Document, in each case based
on such documents and information as it shall deem appropriate. Except for
documents expressly required by any Loan Document to be transmitted by Agent to
Lenders, Agent shall not have any duty or responsibility to provide any Lender
with any information concerning any Credit Party or any Affiliate of any Credit
Party that may come in to the possession of Agent or any of its Related Persons.

 

(b)          If any Lender has elected to abstain from receiving material non-
public information (“MNPI”) concerning Credit Parties or their Affiliates, such
Lender acknowledges that, notwithstanding such election, Agent and/or Credit
Parties will, from time to time, make available syndicate-information (which may
contain MNPI) as required by the terms of, or in the course of administering the
Loans to the credit contact(s) identified for receipt of such information on the
Lender’s administrative questionnaire who are able to receive and use all
syndicate-level information (which may contain MNPI) in accordance with such
Lender’s compliance policies and contractual obligations and applicable law,
including federal and state securities laws; provided, that if such contact is
not so identified in such questionnaire, the relevant Lender hereby agrees to
promptly (and in any event within one Business Day) provide such a contact to
Agent and Credit Parties upon request therefor by Agent or Credit Parties.
Notwithstanding such Lender’s election to abstain from receiving MNPI, such
Lender acknowledges that if such Lender chooses to communicate with Agent, it
assumes the risk of receiving MNPI concerning Credit Parties or their
Affiliates.

 

Section 9.07         Withholding. Agent may withhold from any payment to any
Lender under a Loan Document an amount equal to any applicable withholding Tax.
If the IRS or any other Governmental Authority asserts a claim that Agent did
not properly withhold Tax from amounts paid to or for the account of any Lender
(for any reason), or Agent reasonably determines that it was required to
withhold Taxes from a prior payment but failed to do so, such Lender shall
promptly indemnify Agent fully for all amounts paid, directly or indirectly, by
such Agent as Tax or otherwise, including penalties and interest, and together
with all expenses incurred by Agent, including legal expenses, allocated
internal costs and out-of-pocket expenses. Agent may offset against any payment
to any Lender under a Loan Document, any applicable withholding Tax that was
required to be withheld from any prior payment to such Lender but which was not
so withheld, as well as any other amounts for which Agent is entitled to
indemnification from such Lender under this Section and Section 10.05(c).

 

Section 9.08         Resignation of Agent.

 

(a)          Agent may resign at any time by delivering notice of such
resignation to Lenders and Borrower Representative, effective on the date set
forth in such notice or, if no such date is set forth therein, upon the date
such notice shall be effective in accordance with the terms of this Section. If
Agent delivers any such notice, the Required Lenders shall have the right to
appoint a successor Agent. If, after 30 days after the date of the retiring
Agent’s notice of resignation, no successor Agent is appointed by the Required
Lenders that has accepted such appointment, then the retiring Agent may, on
behalf of Lenders, appoint a successor Agent from among Lenders. So long as no
Event of Default exists, each appointment under this Section shall be subject to
the prior consent of Borrower Representative, which may not be unreasonably
withheld.

 

 36 

 

 

(b)          Effective immediately upon its resignation, (i) the retiring Agent
shall be discharged from its duties and obligations under the Loan Documents,
(ii) Lenders shall assume and perform all of the duties of Agent until a
successor Agent shall have accepted a valid appointment hereunder, (iii) the
retiring Agent and its Related Persons shall no longer have the benefit of any
provision of any Loan Document other than with respect to any actions taken or
omitted to be taken while such retiring Agent was, or because such Agent had
been, acting as Agent under the Loan Documents and (iv) subject to its rights
under Section 9.02, the retiring Agent shall take such action as may be
reasonably necessary to assign to the successor Agent its rights as Agent under
the Loan Documents. Effective immediately upon its acceptance of a valid
appointment as Agent, a successor Agent shall succeed to, and become vested
with, all the rights, powers, privileges and duties of the retiring Agent under
the Loan Documents.

 

Section 9.09         Release of Collateral or Guarantors. Each Secured Party
hereby consents to the release and hereby directs Agent to release (or, in the
case of clause (ii) of Section 9.09(b), release or subordinate) the following:

 

(a)          any Subsidiary from its guaranty of any Obligation if all of the
Stock and Stock Equivalents of such Subsidiary owned by any Credit Party are
sold or transferred in a transaction permitted under the Loan Documents
(including pursuant to a waiver or consent); and

 

(b)          any Lien held by Agent for the benefit of Secured Parties against
(i) any Collateral that is sold, transferred, conveyed or otherwise disposed of
by a Credit Party in a transaction permitted by the Loan Documents (including
pursuant to a waiver or consent), (ii) any Property subject to a Lien permitted
hereunder in reliance upon Section 6.01(h) or (i) and (iii) all of the
Collateral and all Credit Parties, upon Final Satisfaction.

 

Each Lender hereby directs Agent, and Agent hereby agrees, upon receipt of at
least five Business Days’ advance notice from Borrower Representative, to
execute and deliver or file such documents and to perform other actions
reasonably necessary to release the guaranties and Liens when and as directed in
this Section.

 

Section 9.10         Additional Secured Parties. The benefit of the provisions
of the Loan Documents directly relating to the Collateral or any Lien granted
thereunder shall extend to and be available to any Secured Party that is not a
Lender party hereto as long as, by accepting such benefits, such Secured Party
agrees, as among Agent and all other Secured Parties, that such Secured Party is
bound by (and, if requested by Agent, shall confirm such agreement in a writing
in form and substance acceptable to Agent) this ARTICLE IX and Section 10.01,
Section 10.03, Section 10.05(c), Section 10.07, Section 10.08, Section 10.09,
Section 10.14, Section 10.21 and Section 11.01 and the decisions and actions of
Agent and the Required Lenders (or a greater proportion of Lenders or other
parties hereto as required herein) to the same extent a Lender is bound;
provided, that notwithstanding the foregoing, (a) each of Agent and Lenders
party hereto shall be entitled to act at its sole discretion, without regard to
the interest of such Secured Party, regardless of whether any Obligation to such
Secured Party thereafter remains outstanding, is deprived of the benefit of the
Collateral, becomes unsecured or is otherwise affected or put in jeopardy
thereby, and without any duty or liability to such Secured Party or any such
Obligation and (b) except as otherwise set forth herein, such Secured Party
shall not have any right to be notified of, consent to, direct, require or be
heard with respect to, any action taken or omitted in respect of the Collateral
or under any Loan Document.

 

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ARTICLE X.
MISCELLANEOUS

 

Section 10.01       Amendments and Waivers.

 

(a)          No amendment or waiver of any provision of any Loan Document, and
no consent with respect to any departure by any Credit Party therefrom, shall be
effective unless the same shall be in writing and signed by Agent, the Required
Lenders (or by Agent with the consent of the Required Lenders), and Borrowers,
and then such waiver shall be effective only in the specific instance and for
the specific purpose for which given; provided, that unless in writing and
signed by all Lenders directly affected thereby (or by Agent with the consent of
such Lenders), in addition to the Required Lenders (or by Agent with the consent
of the Required Lenders) and Borrowers, no such waiver, amendment, or consent
shall:

 

(i)          Increase or extend the Commitment of any Lender;

 

(ii)         postpone or delay any date fixed for, or reduce or waive, any
scheduled installment of principal or any payment of interest, fees or other
amounts due to Lenders (or any of them) hereunder or under any other Loan
Document (except mandatory prepayments pursuant to Section 1.08 may be
postponed, delayed, reduced, waived or modified with the consent of Required
Lenders);

 

(iii)        reduce the principal of, or the rate of interest specified herein
or the amount of interest payable in cash specified herein on any Loan, or of
any fees or other amounts payable hereunder or under any other Loan Document,
except interest at the Default Rate;

 

(iv)        amend or modify Section 1.10(d);

 

(v)         change the percentage of the Commitments or of the aggregate unpaid
principal amount of the Loans which shall be required for Lenders or any of them
to take any action hereunder;

 

(vi)        amend this Section or the definition of Required Lenders or any
provision providing for consent or other action by all Lenders; or

 

(vii)       (A) discharge any Credit Party from its respective payment
Obligations under the Loan Documents, except as otherwise may be provided in any
Loan Document so long as such does not discharge any Borrower or all or
substantially all of the value of the guaranties from the Guarantors (except in
connection with the merger of any Guarantor into any other Credit Party), in
which case all Lenders’ consent is required, or (B) release all or substantially
all of the Collateral;

 

provided, that all Lenders shall be deemed to be directly affected by an
amendment or waiver of the type described in the preceding clauses (v), (vi) and
(vii) above.

 

(b)          No amendment, waiver or consent shall, unless in writing and signed
by Agent, in addition to the consents required under Section 10.01(a), affect
the rights or duties of Agent under any Loan Document.

 

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(c)          No amendment or waiver shall, unless signed by Agent and Required
Lenders (or by Agent with the consent of Required Lenders): (i) amend or waive
this Section 10.01(c) or the definitions of the terms used in this Section
10.01(c) insofar as the definitions affect the substance of this Section
10.01(c); or (ii) amend or modify the definitions of Eligible Domestic Accounts,
Eligible Foreign Accounts, Eligible Licensed Inventory, Borrowing Base, Term
Loan Borrowing Base or Term Loan Push-Down Reserve, including any increase in
the percentage advance rates in the definition of Borrowing Base, in a manner
which would increase the availability of credit under the Term Loan. No
amendment or waiver shall, unless signed by all Lenders (or by Agent with the
consent of all Lenders) in addition to the Required Lenders (or by Agent with
the consent of the Required Lenders), change the definition of (x) the term
Required Lenders, (y) the percentage of Lenders which shall be required for
Lenders to take any action hereunder or (z) any specific right of Required
Lenders to grant or withhold consent or take or omit to take any action
hereunder.

 

(d)          Notwithstanding anything to the contrary contained in this Section,
(i) Borrowers may amend the Perfection Certificate upon notice to Agent, and
(ii) Agent and Borrowers may amend or modify any Loan Document to grant a new
Lien for the benefit of Secured Parties, extend an existing Lien over additional
Property for the benefit of Secured Parties or join additional Persons as Credit
Parties; provided, that no Accounts or Inventory of such Person shall be
included as Eligible Accounts or Eligible Licensed Inventory until a field
examination (and, if required by Agent, an Inventory appraisal) with respect
thereto is completed to the satisfaction of Agent, including the establishment
of Reserves required in Agent’s Permitted Discretion.

 

Section 10.02       Notices.

 

(a)          Addresses. All notices and other communications required or
expressly authorized to be made by any Loan Document shall be given in writing,
unless otherwise expressly specified herein, and (i) addressed to the address
set forth on Schedule 10.02 (or with respect to Lenders after the Closing Date,
as set forth in the Assignment), (ii) given in accordance with any E-System
approved by or set up by or at the direction of Agent or (iii) addressed to such
other address as notified in writing (A) in the case of Borrowers and Agent, to
the other parties hereto and (B) in the case of all other parties, to Borrower
Representative and Agent. Transmissions made by electronic mail or E-Fax to
Agent shall be effective only (x) for notices where such transmission is
specifically authorized by this Agreement, (y) if such transmission is delivered
in compliance with procedures of Agent applicable at the time and previously
communicated to Borrower Representative, and (z) if receipt of such transmission
is acknowledged by Agent.

 

(b)          Effectiveness. (i) All communications described in Section 10.02(a)
and all other notices, demands, requests and other communications made in
connection with any Loan Document shall be effective and be deemed to have been
received (i) if delivered by hand, upon personal delivery, (ii) if delivered by
overnight courier service, one Business Day after delivery to such courier
service, (iii) if delivered by mail, three Business Days after deposit in the
mail, (iv) if delivered by facsimile (other than to post to an E-System) during
normal business hours, upon sender’s receipt of confirmation of proper
transmission, (v) if delivered by facsimile (other than to post to an E-System)
after normal business hours, upon the later of (A) sender’s receipt of
confirmation of proper transmission and (B) the next Business Day, and (vi) if
delivered by posting to any E-System, on the later of the Business Day of such
posting and the Business Day access to such posting is given to the recipient
thereof in accordance with the standard procedures applicable to such E-System;
provided, that that no communications to Agent pursuant to ARTICLE I shall be
effective until received by Agent.

 

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Each Lender shall notify Agent in writing of any changes in the address to which
notices to such Lender should be directed, of addresses of its Lending Office,
of payment instructions in respect of all payments to be made to it hereunder
and of such other administrative information as Agent shall reasonably request.

 

Section 10.03         Electronic Transmissions.

 

(a)          Authorization. Subject to Section 10.02(a), each of Agent, Lenders,
each Credit Party and each of their Related Persons, is authorized (but not
required) to transmit, post or otherwise make or communicate, in its sole
discretion, Electronic Transmissions in connection with any Loan Document and
the transactions contemplated therein. Each Credit Party and each Secured Party
hereto acknowledges and agrees that the use of Electronic Transmissions is not
necessarily secure and that there are risks associated with such use, including
risks of interception, disclosure and abuse and each indicates it assumes and
accepts such risks by hereby authorizing the transmission of Electronic
Transmissions.

 

(b)          Accuracy. The posting, completion and/or submission by any Credit
Party of any communication pursuant to an E System shall constitute a
representation and warranty by Credit Parties that any representation, warranty,
certification or other similar statement made therein is correct and complete
except as expressly noted in such communication or E-System.

 

(c)          Signatures. Subject to Section 10.02(a), (i)(A) no posting to any
E-System shall be denied legal effect merely because it is made electronically,
(B) each E Signature on any such posting shall be deemed sufficient to satisfy
any requirement for a “signature” and (C) each such posting shall be deemed
sufficient to satisfy any requirement for a “writing,” in each case including
pursuant to any Loan Document, any applicable provision of any UCC, the federal
Uniform Electronic Transactions Act, the Electronic Signatures in Global and
National Commerce Act and any substantive or procedural Requirement of Law
governing such subject matter and (ii) each party hereto or beneficiary hereto
agrees not to contest the validity or enforceability of any posting on any
E-System or E-Signature; provided, that nothing herein shall limit such party’s
or beneficiary’s right to contest whether any posting to any E-System or E-
Signature has been altered after transmission.

 

(d)          Separate Agreements. All uses of an E-System shall be governed by
and subject to the separate terms, conditions and privacy policy posted or
referenced in such E-System (or such terms, conditions and privacy policy as may
be updated from time to time, including on such E System) and related
Contractual Obligations executed by Agent and Credit Parties in connection with
the use of such E-System.

 

(e)          LIMITATION OF LIABILITY. ALL E-SYSTEMS AND ELECTRONIC TRANSMISSIONS
SHALL BE PROVIDED “AS IS” AND “AS AVAILABLE”. NO WARRANTY OF ANY KIND IS MADE BY
AGENT, ANY LENDER OR ANY OF THEIR RELATED PERSONS IN CONNECTION WITH ANY E
SYSTEMS OR ELECTRONIC COMMUNICATION, INCLUDING ANY WARRANTY OF MERCHANTABILITY,
FITNESS FOR A PARTICULAR PURPOSE, NON-INFRINGEMENT OF THIRD-PARTY RIGHTS OR
FREEDOM FROM VIRUSES OR OTHER CODE DEFECTS. Each Credit Party and each Secured
Party agree that Agent has no responsibility for maintaining or providing any
equipment, software, services or any testing required in connection with any
Electronic Transmission or otherwise required for any E-System.

 

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Section 10.04       No Waiver; Cumulative Remedies. No failure to exercise and
no delay in exercising, on the part of any party hereto, any right, remedy,
power or privilege hereunder, shall operate as a waiver thereof; nor shall any
single or partial exercise of any right, remedy, power or privilege hereunder
preclude any other or further exercise thereof or the exercise of any other
right, remedy, power or privilege. No course of dealing between any Credit
Party, any Affiliate of any Credit Party, Agent or any Lender shall be effective
to amend, modify or discharge any provision of any Loan Document.

 

Section 10.05       Costs and Expenses; Indemnification.

 

(a)          Costs and Expenses. Each Credit Party agrees to pay or reimburse
upon demand (i) Agent for all reasonable out-of-pocket costs and expenses
incurred by it or any of its Related Persons, in connection with the
investigation, development, preparation, negotiation, syndication, execution,
interpretation or administration of, any modification of any term of or
termination of, any Loan Document, any commitment or proposal letter therefor,
any other document prepared in connection therewith or the consummation and
administration of any transaction contemplated therein, in each case including
Attorney Costs of Agent, the cost of environmental audits, Collateral audits and
appraisals, background checks and similar expenses, to the extent permitted
hereunder, (ii) Agent for all reasonable costs and expenses incurred by it or
any of its Related Persons in connection with internal audit reviews, field
examinations and Collateral examinations (which shall be reimbursed, in addition
to the out-of-pocket costs and expenses of such examiners, at the per diem rate
per individual charged by Agent for its examiners), (c) each of Agent and its
Related Persons, for all costs and expenses incurred in connection with (A) any
refinancing or restructuring of the credit arrangements provided hereunder in
the nature of a “work-out,” (B) the enforcement or preservation of any right or
remedy under any Loan Document or of any Obligation or any rights in any of the
Collateral or (C) the commencement, defense, conduct of, intervention in, or the
taking of any other action (including any preparation for and/or response to any
subpoena or request for document production) with respect to, any proceeding
(including any bankruptcy or insolvency proceeding) related to any Credit Party,
any Subsidiary, any Loan Document, Obligation or Related Transaction, including
Attorney Costs and (iii) the Lenders for Attorney Costs of one law firm on
behalf of all Lenders (other than Agent) incurred in connection with any of the
matters referred to in clause (ii) above (and in the event of any conflict, such
additional law firms for similarly situated Lenders).

 

(b)          Indemnity. Each Credit Party agrees to indemnify, hold harmless and
defend Agent, each Lender and each of their respective Related Persons (each
such Person, an “Indemnitee”) from and against all Liabilities that may be
imposed on, incurred by or asserted against any such Indemnitee in any matter
relating to or arising out of, in connection with or as a result of (i) any Loan
Document, any Related Agreement, any Obligation (or the repayment thereof), the
use or intended use of the proceeds of any Loan or any securities filing of, or
with respect to, any Credit Party, (ii) any commitment letter, proposal letter
or term sheet with any Person or any Contractual Obligation, arrangement or
understanding with any broker, finder or consultant, in each case entered into
by or on behalf of any Credit Party or any Affiliate of any of them in
connection with any of the foregoing and any Contractual Obligation entered into
in connection with any E-Systems or other Electronic Transmissions, (iii) any
actual or prospective investigation, litigation or other proceeding, whether or
not any such Indemnitee or any of its Related Persons, any holders of securities
or creditors is a party thereto, or (iv) any other act, event or transaction
related, contemplated in or attendant to any of the foregoing (collectively, the
“Indemnified Matters”); provided, that no Credit Party shall have any liability
under this Section to any Indemnitee with respect to any Indemnified Matter to
the extent such liability has resulted primarily from the gross negligence or
willful misconduct of such Indemnitee, as determined by a court of competent
jurisdiction in a final non-appealable judgment or order. Furthermore, each
Credit Party waives and agrees not to assert against any Indemnitee, and shall
cause each other Credit Party to waive and not assert against any Indemnitee,
any right of contribution with respect to any Liabilities that may be imposed
on, incurred by or asserted against any Related Person. Without limiting the
foregoing, “Indemnified Matters” includes all Environmental Liabilities imposed
on, incurred by or asserted against any Indemnitee, including those arising
from, or otherwise involving, any Property of any Credit Party or any Related
Person of any Credit Party or any actual, alleged or prospective damage to
Property or natural resources or harm or injury alleged to have resulted from
any Release of Hazardous Materials on, upon or into such Property or natural
resource or any Property on or contiguous to any Real Estate of any Credit Party
or any Related Person of any Credit Party, whether or not, with respect to any
such Environmental Liabilities, any Indemnitee is a mortgagee pursuant to any
leasehold mortgage, a mortgagee in possession, the successor-in-interest to any
Credit Party or any Related Person of any Credit Party or the owner, lessee or
operator of any Property of any Related Person through any foreclosure action,
in each case except to the extent such Environmental Liabilities (i) are
incurred solely following foreclosure by Agent or following Agent or any Lender
having become the successor-in-interest to any Credit Party or any Related
Person of any Credit Party and (ii) are attributable to acts of such Indemnitee.
This Section 10.05(b) shall not apply with respect to Taxes other than any Taxes
that represent Liabilities arising from any non-Tax claim.

 

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(c)          Lenders’ Obligations. To the extent that Credit Parties for any
reason fail to indefeasibly pay any amount required under Section 10.05(a) or
(b) to be paid by any of them to Agent (or any sub-agent thereof) or any Related
Party of any of the foregoing, each Lender severally and ratably agrees to pay
to Agent (or any such sub-agent) or such Related Party, as applicable, such
unpaid amount; provided, that the unreimbursed expense or indemnified loss,
claim, damage, liability or related expense, as applicable, was incurred by or
asserted against Agent (or any such sub-agent) in its capacity as such, or
against any Related Party of any of the foregoing acting for Agent (or any such
sub-agent) in connection with such capacity.

 

(d)          Waiver. In no event shall any Indemnitee be liable on any theory of
liability for any special, indirect, consequential or punitive damages
(including any loss of profits, business or anticipated savings). Each Credit
Party signatory hereto hereby waives, releases and agrees (and shall cause each
other Credit Party to waive, release and agree) not to sue upon any such claim
for any special, indirect, consequential or punitive damages, whether or not
accrued and whether or not known or suspected to exist in its favor

 

Section 10.06       Marshaling; Payments Set Aside. No Secured Party shall be
under any obligation to marshal any Property in favor of any Credit Party or any
other Person or against or in payment of any Obligation. To the extent that any
Secured Party receives a payment from a Borrower, from any other Credit Party,
from the proceeds of the Collateral, from the exercise of its rights of setoff,
any enforcement action or otherwise, and such payment is subsequently, in full
or in part, invalidated, declared to be fraudulent or preferential, set aside or
required to be repaid to a trustee, receiver or any other party, then to the
extent of such recovery, the obligation or part thereof originally intended to
be satisfied, and all Liens, rights and remedies therefor, shall be revived and
continued in full force and effect as if such payment had not occurred.

 

Section 10.07       Binding Effect; Assignments and Participations. This
Agreement shall become effective when it is executed by Borrowers and Agent and
when Agent is notified by each Lender that such Lender has executed it.
Thereafter, it shall be binding upon and inure to the benefit of the parties
hereto and Secured Parties and, to the extent provided in this Section, their
respective successors and permitted assigns; provided, that any assignment by
any Lender shall be subject to the provisions of this Section; provided 
further, that no Credit Party may assign or transfer any of its rights or
obligations under any Loan Document without the prior written consent of Agent
and each Lender.

 

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(a)          Right to Assign. Each Lender may sell, transfer, negotiate or
assign (a “Sale”) all or a portion of its rights and obligations hereunder to
(i) any existing Lender, (ii) any Affiliate or Approved Fund of any existing
Lender or (iii) any other Person with the consent (which consent shall not be
unreasonably withheld) of Agent; provided, that (w) the aggregate outstanding
principal amount (determined as of the effective date of the applicable
Assignment) of the Loans and Commitments subject to any such Sale shall be in a
minimum amount of $1,000,000, unless such Sale is made to an existing Lender or
an Affiliate or Approved Fund of any existing Lender, is of the assignor’s
(together with its Affiliates and Approved Funds) entire interest or is made
with the prior consent of Borrower Representative (to the extent required) and
Agent, (x) such Sales shall be effective only upon the acknowledgement in
writing of such Sale by Agent, and (y) interest accrued prior to and through the
date of any such Sale may not be assigned. No Sale shall be made to (A) a Credit
Party, an Affiliate of a Credit Party, a holder of Subordinated Indebtedness or
an Affiliate of such a holder, or (B) so long as no Event of Default exists, a
Disqualified Institution.

 

(b)          Procedure. The parties to each Sale shall execute and deliver to
Agent an Assignment via an electronic settlement system designated by Agent (or,
if previously agreed with Agent, via a manual execution and delivery of the
Assignment) evidencing such Sale, together with any existing Note subject to
such Sale (or any affidavit of loss therefor acceptable to Agent), any Tax forms
required to be delivered pursuant to Section 11.01(e) and payment of an
assignment fee in the amount of $3,500 to Agent, unless waived or reduced by
Agent; provided, that (i) if a Sale by a Lender is made to an Affiliate or an
Approved Fund of such assigning Lender, then no assignment fee shall be due in
connection with such Sale, and (ii) if a Sale by a Lender is made to an assignee
that is not an Affiliate or Approved Fund of such assignor Lender, and
concurrently to one or more Affiliates or Approved Funds of such Assignee, then
only one assignment fee of $3,500 shall be due in connection with such Sale
(unless waived or reduced by Agent). Upon receipt of all the foregoing, and any
consent required under this Section, from and after the effective date specified
in such Assignment, Agent shall record in the Register the information contained
in such Assignment.

 

(c)          Effectiveness. Upon Agent’s recording of an Assignment in the
Register, (i) the assignee thereunder shall become a party hereto and have the
rights and obligations of a Lender with respect to the Term Loan Facility, (ii)
the related Obligations (including any applicable Note) shall be transferred to
such assignee through such entry, (iii) the assignor thereunder shall relinquish
its rights with respect to the assigned Term Loan Facility to the extent
assigned and be released from its obligations under the Loan Documents, other
than those relating to events or circumstances occurring prior to such
assignment (and, if all of such Lender’s rights and obligations under the Loan
Documents are being assigned, such Lender shall cease to be a party hereto) and
(iv) the assignor shall file the necessary UCC financing statement amendment
identifying the assignee as the secured party thereunder.

 

(d)          Grant of Security Interests. Without the consent of any Person,
each Lender may grant a security interest in, or otherwise assign as collateral,
any of its rights under this Agreement to any Person (including any federal
reserve bank) without notice to any Person; provided, that no such Person shall
be entitled to any rights of such Lender hereunder (unless foreclosure is made
through an assignment in accordance with Section 10.07(a)), and no such Lender
shall be relieved of any of its obligations hereunder.

 

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(e)          Participants and SPVs. Without the consent of any Person, each
Lender may, (a) with notice to Agent, grant to an SPV the option to make all or
any part of any Loan that such Lender would otherwise be required to make
hereunder (which funding by such SPV shall satisfy such Lender’s obligations)
and such SPV may assign to such Lender the right to receive payment with respect
to any Obligation and (b) without notice to any Person, sell participations to
one or more Persons (other than a Credit Party or any Affiliate of any Credit
Party) in or to all or a portion of its rights and obligations under the Loan
Documents; provided, that (i) no such SPV or participant shall be entitled to
any rights of such Lender hereunder and no such Lender shall be relieved of any
of its obligations hereunder, except that (x) each such participant and SPV
shall be entitled to the benefit of ARTICLE XI, but, with respect to Section
11.01, only to the extent such participant or SPV delivers the Tax forms such
Lender is required to collect pursuant thereto and then only to the extent of
any amount to which such Lender would be entitled in the absence of any such
grant or participation, except to the extent such greater amount results from
any Change in Law that occurs after the date such grant or participation is made
and (y) each such SPV may receive other payments that would otherwise be made to
such Lender with respect to Loans funded by such SPV to the extent provided in
the applicable option agreement and set forth in a notice provided to Agent by
such Lender, provided, that no SPV or participant shall have the right to
enforce any of the terms of any Loan Document, and (ii) unless such SPV or
participant is an Affiliate or an Approved Fund of such Lender, the consent of
such SPV or participant shall not be required for any amendments, waivers or
consents under any Loan Document or to exercise or refrain from exercising any
powers or rights such Lender in respect of the Loan Documents, except for those
described in clauses (ii) and (iii) of Section 10.01(a) to the extent such
participant or SPV would be affected thereby or in clause (vi) of Section
10.01(a). No party hereto shall institute (and each Borrower shall not allow any
Credit Party not to institute) against any such SPV grantee any bankruptcy,
reorganization, insolvency, liquidation or similar proceeding, prior to the date
that is one year and one day after the payment in full of all outstanding
commercial paper of such SPV; provided, that each Lender designating such SPV
agrees to indemnify each Indemnitee against any Liability that may be incurred
by such Indemnitee as a result of failing to institute such proceeding. The
agreement in the preceding sentence shall survive the termination of the
Commitments and the payment in full of the Obligations. Each Lender that sells a
participation shall maintain a register on which it enters the name and address
of each participant and the principal amounts (and stated interest) of each
participant’s interest in the Loans or other obligations under the Loan
Documents (the “Participant Register”); provided, that no Lender shall have any
obligation to disclose all or any portion of the Participant Register (including
the identity of any participant or any information relating to a participant’s
interest) to any Person other than Agent except to the extent that such
disclosure is necessary to establish that such commitment, loan, letter of
credit or other obligation is in registered form under Section 5f.103-1(c) of
the United States Treasury Regulations. The entries in the Participant Register
shall be conclusive absent manifest error, and such Lender shall treat each
Person whose name is recorded in the Participant Register as the owner of such
participation for all purposes of this Agreement notwithstanding any notice to
the contrary. For the avoidance of doubt, Agent shall have no responsibility for
maintaining a Participant Register.

 

Section 10.08       Non-Public Information; Confidentiality.

 

(a)          Non-Public Information. Each of Agent and each Lender acknowledges
and agrees that it may receive MNPI hereunder concerning Credit Parties and
their Affiliates and agrees to use such information in compliance with all
relevant policies, procedures and applicable Requirements of Laws (including
United States federal and state security laws and regulations).

 

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(b)          Confidential Information. Each of Agent and each Lender agrees to
use all reasonable efforts to maintain, in accordance with its customary
practices, the confidentiality of information obtained by it pursuant to any
Loan Document (including due diligence materials provided by the Credit Parties)
and designated in writing by any Credit Party as confidential, except that such
information may be disclosed (i) with Borrower Representative’s consent, (ii) to
Related Persons of such Lender or Agent, as applicable, that are advised of the
confidential nature of such information and are instructed to keep such
information confidential in accordance with the terms hereof, (iii) to the
extent such information presently is or hereafter becomes (A) publicly available
other than as a result of a breach of this Section or (B) available to such
Lender or Agent or any of their Related Persons, as applicable, from a source
(other than any Credit Party) not known by them to be subject to disclosure
restrictions, (iv) to the extent disclosure is required by applicable
Requirements of Law or other legal process or requested or demanded by any
Governmental Authority, (v) (A) to any insurance association or organization,
any examiner or any nationally recognized rating agency or (B) otherwise to the
extent consisting of general portfolio information not identifying Credit
Parties, (vi) to current or prospective assignees, pledgees or participants and
their respective Related Persons, in each case to the extent such Persons agree
to be bound by provisions substantially similar to the provisions of this
Section and as long as such Person is not a Disqualified Institution, (vii) to
any other party hereto, and (viii) in connection with the exercise or
enforcement of any right or remedy under any Loan Document or with any
litigation or other proceeding, or to the extent necessary to respond to public
statements or disclosures by Credit Parties or their Related Persons referring
to a Lender or Agent or any of their Related Persons. In the event of any
conflict between the terms of this Section and those of any other Contractual
Obligation of any Credit Party (whether or not a Loan Document), the terms of
this Section shall govern.

 

(c)          Tombstones. Each Credit Party consents to the publication by Agent
or any Lender of any press releases, tombstones, advertising or other
promotional materials in accordance with all applicable Requirements of Law
(including via any Electronic Transmission) relating to the financing
transactions contemplated by this Agreement using such Credit Party’s name,
product photographs, logo or trademark.

 

(d)          Press Release and Related Matters. No Credit Party shall, or shall
permit any of its Affiliates to, issue any press release or other public
disclosure (other than any document filed with any Governmental Authority
relating to a public offering of securities of any Credit Party) using the name,
logo or otherwise referring to GACP or of any of its Affiliates, the Loan
Documents or any transaction contemplated herein or therein to which GACP or any
of its affiliates is party without the prior written consent of GACP or such
Affiliate except to the extent required to do so under applicable Requirements
of Law and then, only after consulting with GACP.

 

(e)          Distribution of Materials to Lenders. Credit Parties acknowledge
and agree that the Loan Documents and all reports, notices, communications and
other information or materials provided or delivered by, or on behalf of, Credit
Parties hereunder (collectively, the “Borrower Materials”) may be disseminated
by, or on behalf of, Agent, and made available, to Lenders by posting such
Borrower Materials on an E-System. Credit Parties authorize Agent to download
copies of their logos from its website and post copies thereof on an E-System

 

(f)           Material Non-Public Information. Credit Parties hereby agree that
if either they, any parent company or any Subsidiary has publicly traded equity
or debt securities in the U.S., they shall (and shall cause such parent company
or Subsidiary, as applicable, to) (i) identify in writing, and (ii) to the
extent reasonably practicable, clearly and conspicuously mark such Borrower
Materials that contain only information that is publicly available or that is
not material for purposes of U.S. federal and state securities laws as “PUBLIC.”
Credit Parties agree that by identifying such Borrower Materials as “PUBLIC” or
publicly filing such Borrower Materials with the Securities and Exchange
Commission, then Agent and Lenders shall be entitled to treat such Borrower
Materials as not containing any MNPI for purposes of U.S. federal and state
securities laws. Credit Parties agree that the following documents and materials
shall be deemed to be PUBLIC, whether or not so marked, and do not contain any
MNPI: (A) the Loan Documents and (B) materials of a customary nature prepared by
Credit Parties or Agent in connection with the administration or syndication of
the Loans. Before distribution of any Borrower Materials, Credit Parties agree
to execute and deliver to Agent a letter authorizing distribution of the
evaluation materials to prospective Lenders and their employees willing to
receive MNPI, and a separate letter authorizing distribution of evaluation
materials that do not contain MNPI and represent that no MNPI is contained
therein.

 

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Section 10.09       Set-off; Sharing of Payments.

 

(a)          Right of Setoff. Each of Agent and each Lender, and each Affiliate
of any of them is hereby authorized, without notice or demand (each of which is
hereby waived by each Credit Party), from time to time during the continuance of
any Event of Default and to the fullest extent permitted by applicable
Requirements of Law, to set off and apply any deposits at any time held and
other Indebtedness, claims or other obligations at any time owing by Agent, such
Lender, or any of their respective Affiliates to or for the credit or the
account of Borrowers or any other Credit Party against any Obligation of any
Credit Party now or hereafter existing, whether or not any demand was made under
any Loan Document with respect to such Obligation and even though such
Obligation may be unmatured. No Lender shall exercise any such right of setoff
without the prior consent of Agent or Required Lenders. Each of Agent and each
Lender agrees promptly to notify Borrower Representative and Agent after any
such setoff and application made by such Lender or its Affiliates; provided,
that the failure to give such notice shall not affect the validity of such
setoff and application. The rights under this Section are in addition to any
other rights and remedies (including other rights of setoff) that Agent,
Lenders, their Affiliates and the other Secured Parties, may have.

 

(b)          Sharing of Payments, Etc. If any Lender, directly or through an
Affiliate, obtains any payment of any Obligation of any Credit Party and such
payment exceeds the amount such Lender is entitled to receive under the Loan
Documents, such Lender shall purchase for cash from other Lenders such
participations in their Obligations as necessary for such Lender to share such
excess payment with such Lenders to ensure such payment is applied to repay the
Obligations in accordance herewith; provided, that (i) if such payment is
rescinded or otherwise recovered from such Lender in full or in part, such
purchase shall be rescinded and the purchase price therefor shall be returned to
such Lender without interest and (ii) such Lender shall, to the fullest extent
permitted by applicable Requirements of Law, be able to exercise all its rights
of payment (including the right of setoff) with respect to such participation as
fully as if such Lender were the direct creditor of the applicable Credit Party
in the amount of such participation.

 

Section 10.10     Counterparts; Facsimile Signature. This Agreement may be
executed in any number of counterparts, each of which when so executed shall be
deemed to be an original and all of which taken together shall constitute one
and the same agreement. Signature pages may be detached from multiple separate
counterparts and attached to a single counterpart. Delivery of an executed
signature page of this Agreement by facsimile transmission or Electronic
Transmission shall be as effective as delivery of a manually executed
counterpart hereof.

 

Section 10.11      Severability. The illegality or unenforceability of any
provision of any Loan Document or any instrument or agreement required
thereunder shall not in any way affect or impair the legality or enforceability
of the remaining provisions of such Loan Document or any instrument or agreement
required thereunder.

 

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Section 10.12       Captions. The captions and headings of each Loan Document
are for convenience of reference only and shall not affect the interpretation
thereof.

 

Section 10.13       Interpretation. Each Loan Document is the result of
negotiations among and has been reviewed by counsel to Credit Parties, Agent,
each Lender and other parties thereto, and is the product of all parties
thereto. Accordingly, the Loan Documents shall not be construed against Lenders
or Agent merely because of Agent’s or Lenders’ involvement in the preparation of
such documents and agreements. Without limiting the generality of the foregoing,
each of the parties hereto has had the advice of counsel with respect to Section
10.15 and Section 10.16.

 

Section 10.14       No Third Parties Benefited. This Agreement is made and
entered into for the sole protection and legal benefit of Borrowers, Credit
Parties, Lenders, party hereto, Agent and, subject to the provisions of Section
9.10, each other Secured Party, and their permitted successors and assigns, and
no other Person shall be a direct or indirect legal beneficiary of, or have any
direct or indirect cause of action or claim in connection with, any Loan
Document. Neither Agent nor any Lender shall have any obligation to any Person
not a party to any Loan Document.

 

Section 10.15       Governing Law and Jurisdiction.

 

(a)          Governing Law. THE LAWS OF THE STATE OF NEW YORK SHALL GOVERN ALL
MATTERS ARISING OUT OF, IN CONNECTION WITH OR RELATING TO THIS AGREEMENT,
INCLUDING, ITS VALIDITY, INTERPRETATION, CONSTRUCTION, PERFORMANCE AND
ENFORCEMENT (INCLUDING, ANY CLAIMS SOUNDING IN CONTRACT OR TORT LAW ARISING OUT
OF THE SUBJECT MATTER HEREOF AND ANY DETERMINATIONS WITH RESPECT TO
POST-JUDGMENT INTEREST).

 

(b)          Submission to Jurisdiction. Subject to Section 10.15(d), any legal
action or proceeding with respect to any Loan Document shall be brought
exclusively in the courts of the State of New York located in the City of New
York, Borough of Manhattan, or of the United States of America for the Southern
District of New York and, by execution and delivery of this Agreement, each
Credit Party hereby accepts for itself and in respect of its Property, generally
and unconditionally, the jurisdiction of the aforesaid courts. Each Credit Party
hereby irrevocably waives any objection, including any objection to the laying
of venue or based on the grounds of forum non conveniens that any of them may
now or hereafter have to the bringing of any such action or proceeding in such
jurisdictions.

 

(c)          Service of Process. Each Credit Party hereby irrevocably waives
personal service of any and all legal process, summons, notices and other
documents and other service of process of any kind and consents to such service
in any suit, action or proceeding brought in the United States of America with
respect to, arising out of or in connection with any Loan Document by any means
permitted by applicable Requirements of Law, including by the mailing thereof
(by registered or certified mail, postage prepaid) to the address of Borrowers
specified herein (and shall be effective when such mailing shall be effective,
as provided therein). Each Credit Party agrees that a final judgment in any such
action or proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on the judgment or in any other manner provided by law.

 

(d)          Non-Exclusive Jurisdiction. Nothing contained in this Section shall
affect the right of Agent or any Lender to serve process in any other manner
permitted by applicable Requirements of Law or commence legal proceedings or
otherwise proceed against any Credit Party in any other jurisdiction.

 

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Section 10.16       Waiver of Jury Trial. THE PARTIES HERETO, TO THE EXTENT
PERMITTED BY LAW, WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, SUIT, OR
PROCEEDING ARISING OUT OF, IN CONNECTION WITH OR RELATING TO, THIS AGREEMENT,
THE OTHER LOAN DOCUMENTS AND ANY OTHER TRANSACTION CONTEMPLATED HEREBY AND
THEREBY. THIS WAIVER APPLIES TO ANY ACTION, SUIT OR PROCEEDING WHETHER SOUNDING
IN TORT, CONTRACT OR OTHERWISE.

 

Section 10.17      Entire Agreement; Release; Survival. THE LOAN DOCUMENTS
EMBODY THE ENTIRE AGREEMENT OF THE PARTIES AND SUPERSEDE ALL PRIOR AGREEMENTS
AND UNDERSTANDINGS RELATING TO THE SUBJECT MATTER THEREOF AND ANY PRIOR LETTER
OF INTEREST, COMMITMENT LETTER, CONFIDENTIALITY AND SIMILAR AGREEMENTS
(EXCLUDING THE FEE LETTER) INVOLVING ANY CREDIT PARTY AND ANY LENDER OR ANY OF
THEIR RESPECTIVE AFFILIATES RELATING TO A FINANCING OF SUBSTANTIALLY SIMILAR
FORM, PURPOSE OR EFFECT OTHER THAN THE FEE LETTER. IN THE EVENT OF ANY CONFLICT
BETWEEN THE TERMS OF THIS AGREEMENT AND ANY OTHER LOAN DOCUMENT, THE TERMS OF
THIS AGREEMENT SHALL GOVERN (UNLESS SUCH TERMS OF SUCH OTHER LOAN DOCUMENTS ARE
NECESSARY TO COMPLY WITH APPLICABLE REQUIREMENTS OF LAW, IN WHICH CASE SUCH
TERMS SHALL GOVERN TO THE EXTENT NECESSARY TO COMPLY THEREWITH). Execution of
this Agreement by Credit Parties constitutes a full, complete and irrevocable
release of any and all claims which each Credit Party may have at law or in
equity in respect of all prior discussions and understandings, oral or written,
relating to the subject matter of the Loan Documents. (i) Any indemnification or
other protection provided to any Indemnitee pursuant to this Section, Section
10.05 and ARTICLE IX and XI and (ii) the provisions of Section 8.1 of the
Guaranty and Security Agreement, in each case, shall (x) survive the Final
Satisfaction and (y) with respect to clause (i) above, inure to the benefit of
any Person that at any time held a right thereunder (as an Indemnitee or
otherwise) and, thereafter, its successors and permitted assigns.

 

Section 10.18      Patriot Act. Each Lender that is subject to the Patriot Act
hereby notifies Credit Parties that pursuant to the requirements of the Patriot
Act, it is required to obtain, verify and record information that identifies
each Credit Party, which information includes the name and address of each
Credit Party and other information that will allow such Lender to identify each
Credit Party in accordance with the Patriot Act. In addition, Agent and each
Lender shall have the right to periodically conduct due diligence on all Credit
Parties, their senior management and key principals and legal and beneficial
owners. Each Credit Party agrees to provide reasonable cooperation in respect of
the conduct of such due diligence and further agrees that the reasonable
out-of-pocket costs and charges for any such due diligence by Agent shall
constitute costs and expenses reimbursable hereunder and be for the account of
Borrowers.

 

Section 10.19       Replacement of Lender. Within forty-five days after: (i)
receipt by Borrower Representative of written notice and demand from any Lender
that is not Agent or an Affiliate of Agent (an “Affected Lender”) for payment of
additional costs as provided in Section 11.01, Section 11.03 or Section 11.06;
or (ii) any failure by any Lender (other than Agent or an Affiliate of Agent) to
consent to a requested amendment, waiver or modification to any Loan Document to
which Required Lenders have consented but the consent of each Lender (or each
Lender directly affected thereby, as applicable) is required with respect
thereto (“Non-Consenting Lender”), Borrowers may, at their option, notify Agent
and such Affected Lender or Non-Consenting Lender, as applicable, of Borrowers’
intention to obtain, at Borrowers’ expense, a replacement Lender (“Replacement
Lender”) for such Affected Lender or Non- Consenting Lender, which Replacement
Lender shall be reasonably satisfactory to Agent. In the event Borrowers obtain
a Replacement Lender within 45 days following notice of its intention to do so,
the Affected Lender or Non-Consenting Lender, as applicable, shall sell and
assign its Loans and Commitments to such Replacement Lender, at par; provided,
that Borrowers have reimbursed such Affected Lender for its increased costs for
which it is entitled to reimbursement under this Agreement through the date of
such sale and assignment. In the event that a replaced Lender does not execute
an Assignment pursuant to Section 10.07 within five Business Days after receipt
by such replaced Lender of notice of replacement pursuant to this Section and
presentation to such replaced Lender of an Assignment evidencing an assignment
pursuant to this Section, Borrowers shall be entitled (but not obligated) to
execute such an Assignment on behalf of such replaced Lender, and any such
Assignment so executed by Borrowers, the Replacement Lender and Agent, shall be
effective for purposes of this Section and Section 10.07.

 

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Section 10.20       Joint and Several. The obligations of Credit Parties
hereunder and under the other Loan Documents are joint and several. Without
limiting the generality of the foregoing, reference is hereby made to ARTICLE II
of the Guaranty and Security Agreement, to which the obligations of each
Borrower and the other Credit Parties are subject.

 

Section 10.21       Creditor-Debtor Relationship. The relationship between Agent
and each Lender, on the one hand, and Credit Parties, on the other hand, is
solely that of creditor and debtor. No Secured Party has any fiduciary
relationship or duty to any Credit Party arising out of or in connection with,
and there is no agency, tenancy or joint venture relationship between Secured
Parties and Credit Parties by virtue of, any Loan Document or any transaction
contemplated therein.

 

Section 10.22       Keep Well. Each Qualified ECP Guarantor hereby jointly and
severally absolutely, unconditionally and irrevocably undertakes to provide such
funds or other support as may be needed from time to time by each other Credit
Party to honor all of its obligations under the Guaranty and Security Agreement
in respect of Swap Obligations; provided, that each Qualified ECP Guarantor
shall only be liable under this Section for the maximum amount of such liability
that can be hereby incurred without rendering its obligations under this
Section, or otherwise under the Guaranty and Security Agreement, voidable under
applicable Requirements of Law relating to fraudulent conveyance or fraudulent
transfer, and not for any greater amount. The obligations of each Qualified ECP
Guarantor under this Section shall remain in full force and effect until the
guaranties in respect of Swap Obligations have been discharged, or otherwise
released or terminated in accordance with the terms of this Agreement. Each
Qualified ECP Guarantor intends that this Section constitute, and this Section
shall be deemed to constitute, a “keepwell, support, or other agreement” for the
benefit of each other Credit Party for all purposes of Section 1a(18)(A)(v)(II)
of the Commodity Exchange Act.

 

Section 10.23       Waiver of Immunities. Each HK Credit Party irrevocably
waives, to the extent permitted by applicable law, with respect to itself and
its revenues and assets (irrespective of their use or intended use), all
immunity on the grounds of sovereignty or other similar grounds from: (a) suit;
(b) jurisdiction of any court; (c) relief by way of injunction or order for
specific performance or recovery of property; (d) attachment of its assets
(whether before or after judgment); and (e) execution or enforcement of any
judgment to which it or its revenues or assets might otherwise be entitled in
any proceedings in the courts of any jurisdiction (and irrevocably agrees, to
the extent permitted by applicable law, that it will not claim any immunity in
any such proceedings.

 

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ARTICLE XI.

 

TAXES, YIELD PROTECTION AND ILLEGALITY

 

Section 11.01        Taxes.

 

(a)          Payments Free of Taxes. Except as required by a Requirement of Law,
each payment by any Credit Party under any Loan Document shall be made free and
clear of all present or future taxes, levies, imposts, duties, deductions,
withholdings (including backup withholding), assessments, fees or other charges
imposed by any Governmental Authority, including any interest, additions to tax,
penalties or other Liabilities with respect thereto (collectively, “Taxes”). If
any Taxes shall be required by any Requirement of Law to be deducted from or in
respect of any amount payable under any Loan Document to any Secured Party (i)
if such Tax is an Indemnified Tax, such amount payable shall be increased as
necessary to ensure that, after all required deductions for Indemnified Taxes
are made (including deductions applicable to any increases to any amount under
this Section), such Secured Party receives the amount it would have received had
no such deductions been made, (ii) the relevant Credit Party shall make such
deductions, (iii) the relevant Credit Party shall timely pay the full amount
deducted to the relevant Governmental Authority in accordance with applicable
Requirements of Law and (iv) within 30 days after such payment is made, the
relevant Credit Party shall deliver to Agent an original or certified copy of a
receipt evidencing such payment or other evidence of payment reasonably
satisfactory to Agent.

 

(b)          Other Taxes. In addition, Borrowers agree to pay, and authorize
Agent to pay in their name, any stamp, documentary, excise or property Tax,
charges or similar levies imposed by any applicable Requirement of Law or
Governmental Authority and all Liabilities with respect thereto (including by
reason of any delay in payment thereof), in each case arising from the
execution, delivery or registration of, or otherwise with respect to, any Loan
Document or any transaction contemplated therein (collectively, “Other Taxes”).
Within 30 days after any payment of Other Taxes by any Credit Party, Borrowers
shall furnish to Agent, at its address referred to in Section 10.02, evidence of
payment reasonably satisfactory to Agent.

 

(c)          No Tax Advice. The Credit Parties hereby acknowledge and agree that
(i) neither GACP nor any Affiliate of GACP has provided any Tax advice to any
Tax Affiliate in connection with the transactions contemplated hereby or any
other matters and (ii) the Credit Parties have received appropriate Tax advice
to the extent necessary to confirm that the structure of any transaction
contemplated by the Credit Parties in connection with this Agreement complies in
all material respects with applicable federal, state and foreign Tax laws.

 

(d)          Indemnification. Borrowers shall reimburse and indemnify, within 30
days after demand, each Secured Party for all Indemnified Taxes (including any
Indemnified Taxes imposed by any jurisdiction on amounts payable under this
Section) paid or payable by such Secured Party and any Liabilities arising
therefrom or with respect thereto, whether or not such Indemnified Taxes were
correctly or legally asserted. A certificate of Secured Party (or of Agent on
behalf of such Secured Party) claiming any compensation under this Section
11.01(d), setting forth the amounts to be paid thereunder and delivered to
Borrower Representative with copy to Agent, shall be conclusive, binding and
final for all purposes, absent manifest error. In determining such amount, Agent
and such Secured Party may use any reasonable averaging and attribution methods.

 

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(e)          Documentation from Lenders.

 

(i)          Non-U.S. Lender Party. Each Non-U.S. Lender Party that, at any of
the following times, is entitled to an exemption from United States withholding
Tax or, after a change in any Requirement of Law, is subject to such withholding
Tax at a reduced rate under an applicable Tax treaty, shall (w) on or prior to
the date such Non-U.S. Lender Party becomes a “Non-U.S. Lender Party” hereunder,
(x) on or prior to the date on which any such form or certification expires or
becomes obsolete, (y) after the occurrence of any event requiring a change in
the most recent form or certification previously delivered by it pursuant to
this clause (i), and (z) from time to time if requested by Borrower
Representative or Agent (or, in the case of a participant or SPV, the relevant
Lender), provide Agent and Borrower Representative (or, in the case of a
participant or SPV, the relevant Lender) with two completed originals of each of
the following, as applicable: (A) Forms W-8ECI (claiming exemption from U.S.
withholding Tax because the income is effectively connected with a U.S. trade or
business), W-8BEN (claiming exemption from, or a reduction of, U.S. withholding
Tax under an income Tax treaty) and/or W- 8IMY (together with appropriate forms,
certifications and supporting statements) or any successor forms, (B) in the
case of a Non-U.S. Lender Party claiming exemption under Sections 871(h) or
881(c) of the Code, Form W-8BEN (claiming exemption from U.S. withholding Tax
under the portfolio interest exemption) or any successor form and a certificate
in form and substance acceptable to Agent that such Non-U.S. Lender Party is not
(1) a “bank” within the meaning of Section 881(c)(3)(A) of the Code, (2) a “10
percent shareholder” of a Borrower within the meaning of Section 881(c)(3)(B) of
the Code or (3) a “controlled foreign corporation” described in Section
881(c)(3)(C) of the Code or (C) any other applicable document prescribed by the
IRS certifying as to the entitlement of such Non-U.S. Lender Party to such
exemption from United States withholding Tax or reduced rate with respect to all
payments to be made to such Non-U.S. Lender Party under the Loan Documents.
Unless Borrower Representative and Agent have received forms or other documents
satisfactory to them indicating that payments under any Loan Document to or for
a Non-U.S. Lender Party are not subject to United States withholding Tax or are
subject to such Tax at a rate reduced by an applicable Tax treaty, the Credit
Parties and Agent shall withhold amounts required to be withheld by applicable
Requirements of Law from such payments at the applicable statutory rate.

 

(ii)         U.S. Lender Party. Each U.S. Lender Party shall (A) on or prior to
the date such U.S. Lender Party becomes a “U.S. Lender Party” hereunder, (B) on
or prior to the date on which any such form or certification expires or becomes
obsolete, (C) after the occurrence of any event requiring a change in the most
recent form or certification previously delivered by it pursuant to this Section
and (D) from time to time if requested by Borrower Representative or Agent (or,
in the case of a participant or SPV, the relevant Lender), provide Agent and
Borrower Representative (or, in the case of a participant or SPV, the relevant
Lender) with two completed originals of Form W-9 (certifying that such U.S.
Lender Party is entitled to an exemption from U.S. backup withholding Tax) or
any successor form.

 

(iii)        Each Lender having sold a participation in any of its Obligations
or identified an SPV as such to Agent shall collect from such participant or SPV
the documents described in this Section and provide them to Agent.

 

(iv)        If a payment made to a Non-U.S. Lender Party would be subject to
United States federal withholding Tax imposed by FATCA if such Non-U.S. Lender
Party fails to comply with the applicable reporting requirements of FATCA, such
Non-U.S. Lender Party shall deliver to Agent and Borrower Representative any
documentation under any Requirement of Law or reasonably requested by Agent or
Borrower Representative sufficient for Agent or Borrowers to comply with their
obligations under FATCA and to determine that such Non-U.S. Lender has complied
with its obligations under FATCA or to determine the amount to deduct and
withhold from such payment. Solely for the purposes of this clause (iv), “FATCA”
shall include any amendments made to FATCA after the date of this Agreement.

 

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(f)           If any Lender determines, in its sole discretion exercised in good
faith, that it has received a refund of any Indemnified Taxes as to which it has
been indemnified pursuant to this Section, it shall pay to the relevant Credit
Party an amount equal to such refund (but only to the extent of indemnity
payments made under this Section with respect to the Taxes giving rise to such
refund), net of all out-of-pocket expenses (including Taxes) of such Lender and
without interest (other than any interest paid by the relevant Governmental
Authority with respect to such refund). Such Credit Party, upon the request of
such Lender, shall repay to such Lender the amount paid over pursuant to this
Section 11.01(f) (plus any penalties, interest or other charges imposed by the
relevant Governmental Authority) in the event that such Lender is required to
repay such refund to such Governmental Authority. Notwithstanding anything to
the contrary in this Section, in no event shall the Lender be required to pay
any amount to a Credit Party pursuant to this Section 11.01(f) the payment of
which would place the Lender in a less favorable net after-Tax position than the
Lender would have been in if the Tax subject to indemnification and giving rise
to such refund had not been deducted, withheld or otherwise imposed and the
indemnification payments or additional amounts with respect to such Tax had
never been paid. This Section shall not be construed to require any Lender to
make available its Tax returns (or any other information relating to its Taxes
that it deems confidential) to the Credit Party or any other Person.

 

Section 11.02       Illegality. If any Lender shall determine that any Change in
Law or that any central bank or other Governmental Authority has asserted that
it is unlawful, for any Lender to make LIBOR Rate Loans, then, on notice thereof
by such Lender to Borrowers through Agent, the obligation of such Lender to make
LIBOR Rate Loans shall be suspended until such Lender shall have notified Agent
and Borrower Representative that the circumstances giving rise to such
determination no longer exists. Upon any such notice, Borrowers shall prepay in
full all LIBOR Rate Loans of such Lender then outstanding, together with
interest accrued thereon, together with any amounts required to be paid in
connection therewith pursuant to Section 11.04.

 

Section 11.03        Increased Costs and Reduction of Return.

 

(a)          If any Lender shall determine that, due to a Change in Law,

 

(i)          there shall be any increase in the cost to such Lender of making,
funding or maintaining any LIBOR Rate Loans or (ii) such Lender shall be subject
to any Taxes (other than (A) Indemnified Taxes, (B) Taxes described in clauses
(b) through (d) of the definition of “Excluded Taxes” and (C) Connection Income
Taxes) on its loans, loan principal, letters of credit, commitments or other
obligations, or its deposit reserves, other liabilities or capital attributable
thereto, then Borrowers shall, within 30 days of demand therefor by such Lender
(with a copy of such demand to Agent), pay to Agent, for the account of such
Lender, additional amounts as are sufficient to compensate such Lender for such
increased costs or such Taxes.

 

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(b)          If any Lender shall have determined that (i) the introduction or
any change in any Capital Adequacy Regulation, (ii) any interpretation or
administration of any Capital Adequacy Regulation by any central bank or other
Governmental Authority charged with the interpretation or administration
thereof, or (iii) compliance by such Lender or any entity controlling the Lender
with any Capital Adequacy Regulation, affects the amount of capital required or
expected to be maintained by such Lender or any entity controlling such Lender
and (taking into consideration such Lender’s or such entities’ policies with
respect to capital adequacy and such Lender’s desired return on capital)
determines that the amount of such capital is increased as a consequence of this
Agreement, then, within 30 days of demand of such Lender (with a copy to Agent),
Borrowers shall pay to such Lender, from time to time as specified by such
Lender, additional amounts sufficient to compensate such Lender (or the entity
controlling the Lender) for such increase. Notwithstanding anything herein to
the contrary, the Dodd-Frank Wall Street Reform and Consumer Protection Act and
all requests, rules, guidelines or directives thereunder or issued in connection
therewith shall be deemed to be a change in a Capital Adequacy Regulation under
this Section 11.03(b), regardless of the date enacted, adopted or issued.

 

(c)          Borrowers shall not be required to compensate any Lender pursuant
to Section 11.03(a) or (b) for any amounts incurred more than 180 days prior to
the date that such Lender notifies Borrower Representative, in writing, of its
claim of compensation thereof; provided, that if the event giving rise to such
increase is retroactive, then such 180-day period shall be extended to include
the period of retroactive effect.

 

Section 11.04        Funding Losses. Borrowers agree to reimburse each Lender
and to hold each Lender harmless from any loss or expense which such Lender may
sustain or incur as a consequence of: (a) the failure of Borrowers to make any
payment or mandatory prepayment of principal of any LIBOR Rate Loan (including
payments made after any acceleration thereof); (b) the failure of Borrowers to
make any prepayment after Borrowers have given a notice in accordance with
Section 1.11; or (c) the prepayment (including pursuant to Section 1.08 or
Article XI) of a LIBOR Rate Loan on a day which is not the last day of the
Interest Period with respect thereto; including any such loss or expense arising
from the liquidation or reemployment of funds obtained by it to maintain its
LIBOR Rate Loans hereunder or from fees payable to terminate the deposits from
which such funds were obtained. Each LIBOR Rate Loan made by a Lender (and each
related reserve, special deposit or similar requirement) shall be conclusively
deemed to have been funded at the LIBOR used in determining the interest rate
for such LIBOR Rate Loan by a matching deposit or other borrowing in the
interbank Eurodollar market for a comparable amount and for a comparable period,
whether or not such LIBOR Rate Loan is in fact so funded.

 

Section 11.05       Inability to Determine Rates. If Agent or Required Lenders
shall have determined in good faith that adequate and reasonable means do not
exist for ascertaining LIBOR for any requested Interest Period or that the LIBOR
for any requested Interest Period does not adequately and fairly reflect the
cost to Lenders of funding or maintaining such Loan, Agent (either individually
or upon direction of Required Lenders) will forthwith give notice of such
determination to Borrower Representative and each Lender. Thereafter, interest
on the Term Loan shall accrue and be payable at a reasonable equivalent of
LIBOR.

 

Section 11.06       Reserves on LIBOR Rate Loans. Borrowers shall pay to each
Lender, as long as such Lender shall be required under regulations of the
Federal Reserve Board to maintain reserves with respect to liabilities or assets
consisting of or including Eurocurrency funds or deposits, additional costs on
the unpaid principal amount of each LIBOR Rate Loan equal to actual costs of
such reserves allocated to such Loan by such Lender (as determined by such
Lender in good faith, which determination shall be conclusive absent manifest
error), payable on each date on which interest is payable on such Loan;
provided, that if Lender fails to give notice of such additional costs at least
15 days prior to such date, such additional interest shall be payable 15 days
from receipt of such notice.

 

Section 11.07       Certificates of Lenders. Any Lender claiming reimbursement
or compensation pursuant to this ARTICLE XI shall deliver to Borrower
Representative (with a copy to Agent) a certificate setting forth in reasonable
detail the amount payable to such Lender hereunder and such certificate shall be
conclusive and binding on Borrowers in the absence of manifest error.

 

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ARTICLE XII.

DEFINITIONS

 

Section 12.01      Defined Terms in Other Articles. The following terms are
defined in the Sections referenced opposite such terms:

 

“Affected Lender” 10.19 “Agent Report” 9.04(c) “Borrower” and “Borrowers”
Preamble “Borrower Materials” 10.08(e) “Borrower Representative” Preamble
“Eligible Domestic Accounts” 2.01 “Eligible Foreign Accounts” 2.01 “Eligible
Licensed Inventory” 2.02 “Event of Default” 8.01 “Indemnified Matters” 10.05(b)
“Indemnitees” 10.05(b) “Investments” 6.04  “Lender” Preamble  “Maximum Lawful
Rate” 1.03(c) “MNPI” 9.06(b) “Mortgage Supporting Documents” Schedule 3.01
“Other Taxes” 11.01(b) “Participant Register” 10.07(e) “Permitted Liens” 6.01
“Prepayment Fee” 1.09(b) “Prepayment Period” 1.09(b) “Protective Advance” 1.06
“Register” 1.05 “Restricted Payments” 6.10 “Replacement Lender” 10.19  “Sale”
10.07(a)  “Settlement Date” 1.11(a)  “Tax Returns” 4.10 “Taxes” 11.01(a) “Term
Loan Facility” Recitals

 

Section 12.02       Definitions. In addition to the terms defined elsewhere in
this Agreement, the following terms have the following meanings:

 

“2018 Convertible Notes” has the meaning of “Securities” as defined in the 2018
Indenture.

 

“2018 Indenture” means that certain Indenture, dated as of July 24, 2013,
between JAKKS and Wells Fargo Bank, National Association, a national banking
association organized under the laws of the United States, as trustee for the
Holders (as defined therein), pursuant to which JAKKS issued the 2018
Convertible Notes.

 

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“2020 Convertible Notes” means the convertible senior notes due 2020 to be
issued pursuant to the 2020 Indenture in an aggregate principal amount not to
exceed $115,000,000.

 

“2020 Indenture” means that certain Indenture entered into on June 9, 2014,
between JAKKS and Wells Fargo Bank, National Association, a national banking
association organized under the laws of the United States, as trustee for the
Holders (as defined therein), pursuant to which JAKKS issued the 2020
Convertible Notes as further described in the 2020 OM.

 

“2020 OM” means that certain Offering Memorandum dated June 3, 2014, relating to
the offering of $100,000,000 aggregate principal amount of convertible senior
notes of JAKKS due 2020.

 

“ABL Agent” means (a) Wells Fargo Bank, National Association, in its capacity as
agent for the ABL Lenders under the ABL Credit Agreement, (b) any successor to
Wells Fargo Bank, National Association by assignment or otherwise and (c) any
other party that may become agent under the ABL Credit Agreement in connection
with a refinancing, renewal or replacement thereof.

 

“ABL Credit Agreement” means the Credit Agreement dated as of March 27, 2014
among the Borrower Representative, Borrowers, the Guarantors (as defined in the
ABL Credit Agreement), the ABL Agent and the ABL Lenders, as the same has been
amended prior to the Closing Date and may be amended, restated, amended and
restated or otherwise modified from time to time as permitted by the
Intercreditor Agreement.

 

“ABL Facility” means the secured revolving credit facility created pursuant to
the ABL Credit Agreement and the other ABL Loan Documents.

 

“ABL Lenders” means the lenders from time to time party to the ABL Credit
Agreement.

 

“ABL Loan” means any extension of credit by a lender pursuant to the ABL Credit
Agreement.

 

“ABL Loan Documents” means the ABL Credit Agreement and each other document
related to or evidencing the ABL Facility, including the Loan Documents, as
defined in the ABL Credit Agreement, as each may be amended, restated or
otherwise modified from time to time in accordance with the terms of the
Intercreditor Agreement.

 

“Account” means, as at any date of determination, all “accounts” (as such term
is defined in the UCC) of Credit Parties, including the unpaid portion thereof,
as stated on the respective invoice of a Credit Party, net of any credits,
rebates or offsets owed to such customer.

 

“Account Debtor” means the customer of a Credit Party who is obligated on or
under an Account.

 

“Acquisition” means any transaction or series of related transactions for the
purpose of or resulting, directly or indirectly, in (a) the acquisition of all
or substantially all of the assets of a Person, or of any business or division
of a Person, (b) the acquisition of in excess of 50% of the Stock and Stock
Equivalents of any Person or otherwise causing any Person to become a direct or
indirect Subsidiary, or (c) a merger or consolidation or any other combination
with another Person.

 

“Affiliate” means, with respect to any Person, each officer, director, general
partner or joint- venturer of such Person and any other Person that directly or
indirectly controls, is controlled by, or is under common control with, such
Person; provided, that (a) no Secured Party shall be an Affiliate of any Credit
Party or of any Subsidiary solely by reason of the provisions of the Loan
Documents, and (b) Feder Kaszovitz LLP shall be deemed not to be an Affiliate of
any Credit Party or any Subsidiary. For purposes of this definition, “control”
means the possession of either (i) the power to vote, or the beneficial
ownership of, 10% or more of the voting Stock of such Person (either directly or
through the ownership of Stock Equivalents) or (ii) the power to direct or cause
the direction of the management and policies of such Person, whether through the
ownership of voting securities, by contract or otherwise.

 

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“Agent” means GACP, in its capacity as Agent for Lenders or its successor
appointed pursuant to Section 9.07.

 

“Aggregate Term Loan Commitments” means the sum of all of the Term Loan
Commitments of the Lenders. As of the Closing Date, the Aggregate Term Loan
Commitments are $20,000,000.

 

“Anti-Corruption Laws” means the FCPA, the U.K. Bribery Act of 2010, as amended,
and all other applicable laws and regulations or ordinances concerning or
relating to bribery, money laundering or corruption in any jurisdiction in which
any Credit Party or any of its Subsidiaries or Affiliates is located or is doing
business.

 

“Anti-Money Laundering Laws” means the applicable laws or regulations in any
jurisdiction in which any Credit Party or any of its Subsidiaries or Affiliates
is located or is doing business that relates to money laundering, any predicate
crime to money laundering, or any financial record keeping and reporting
requirements related thereto.

 

“Applicable Advance Rate” means (a) with respect to Eligible Domestic Accounts,
the lesser of (i) 10% and (ii) the remainder of 95% minus the corresponding
advance rate under the ABL Credit Agreement (i.e., 10% as of the Closing Date,
calculated as the remainder of 95% minus 85%), (b) with respect to Eligible
Foreign Accounts, the lesser of (i) 20% and (ii) the remainder of 95% minus the
corresponding advance rate under the ABL Credit Agreement (i.e., 20% as of the
Closing Date, calculated as the remainder of 95% minus 75%).

 

“Applicable License Agreement” means any license which governs Eligible Licensed
Inventory.

 

“Applicable Margin” means 9.00% per annum.

 

“Approved Fund” means, with respect to any Lender, any Person (other than a
natural Person) that (a) (i) is or will be engaged in making, purchasing,
holding or otherwise investing in commercial loans and similar extensions of
credit in the Ordinary Course of Business or (ii) temporarily warehouses loans
for any Lender or any Person described in clause (i) above and (b) is advised or
managed by (i) such Lender, (ii) any Affiliate of such Lender or (iii) any
Person (other than an individual) or any Affiliate of any Person (other than an
individual) that administers or manages such Lender.

 

“Arbor Toys Company Limited” means Arbor Toys Company Limited, a company
incorporated in Hong Kong with registered number 1011343.

 

“A.S. Design Limited” means A.S. Design Limited, a company incorporated in Hong
Kong with registered number 453139.

 

“Assignment” means an assignment agreement entered into by a Lender, as
assignor, and any Person, as assignee, pursuant to the terms and provisions of
Section 10.07 (with each consent required by Section 10.07), accepted by Agent,
substantially in the form of Exhibit 10.07 or any other form approved by Agent.

 

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“Attorney Costs” means and includes all reasonable fees and disbursements of any
law firm or other external counsel.

 

“Availability” means “Availability” as defined in the ABL Credit Agreement.

 

“Bankruptcy Code” means the Federal Bankruptcy Reform Act of 1978.

 

“Benefit Plan” means any employee benefit plan as defined in Section 3(3) of
ERISA (whether governed by the laws of the United States or otherwise) to which
any Credit Party incurs or otherwise has any obligation or liability, contingent
or otherwise.

 

“Borrowing” means a borrowing hereunder consisting of Loans made to or for the
benefit of Borrowers on the same day by Lenders pursuant to ARTICLE I.

 

“Borrowing Base” means, the “Borrowing Base” as defined in the ABL Credit
Agreement, as may be amended in accordance with the Intercreditor Agreement.

 

“Borrowing Base Certificate” means a certificate of Borrower Representative, on
behalf of each Credit Party, in substantially the form of Exhibit 12.02(a), duly
completed as of a date acceptable to Agent in its sole discretion.

 

“Business Day” means any day that is not a Saturday, Sunday or a day on which
banks are required or authorized to close in New York City (and, in respect of
any HK Credit Party, Hong Kong) and, when determined in connection with notices
and determinations in respect of LIBOR or any LIBOR Rate Loan or any funding,
conversion, continuation, Interest Period or payment of any LIBOR Rate Loan,
that is also a day on which dealings in Dollar deposits are carried on in the
London interbank market.

 

“Capital Adequacy Regulation” means any guideline, request or directive of any
central bank or other Governmental Authority, or any other law, rule or
regulation, whether or not having the force of law, in each case, regarding
capital adequacy of any Lender or of any corporation controlling a Lender.

 

“Capital Lease” means, with respect to any Person, any lease of, or other
arrangement conveying the right to use, any Property by such Person as lessee
that has been or should be accounted for as a capital lease on a balance sheet
of such Person prepared in accordance with GAAP.

 

“Capital Lease Obligations” means, at any time, with respect to any Capital
Lease, any lease entered into as part of any sale leaseback transaction of any
Person or any synthetic lease, the amount of all obligations of such Person that
is (or that would be, if such synthetic lease or other lease were accounted for
as a Capital Lease) capitalized on a balance sheet of such Person prepared in
accordance with GAAP.

 

“Cash Equivalents” means: (a) any readily-marketable securities (i) issued by,
or directly, unconditionally and fully guaranteed or insured by the United
States federal government, (ii) issued by any agency of the United States
federal government the obligations of which are fully backed by the full faith
and credit of the United States federal government, or (iii) solely with respect
to Investments made by a Foreign Subsidiary, issued by, or unconditionally
guaranteed by, Canada or the government of a country with similar credit quality
rating and backed by the full faith and credit of Canada or such other
government, as applicable; (b) any readily-marketable direct obligations issued
by any other agency of the United States federal government, any state of the
United States or any political subdivision of any such state or any public
instrumentality thereof, in each case having a rating of at least “A-1” from S&P
or at least “P-1” from Moody’s; (c) any commercial paper rated at least “A-1” by
S&P or “P-1” by Moody’s and issued by any Person organized under the laws of any
state of the United States; (d) any Dollar- denominated time deposit, insured
certificate of deposit, overnight bank deposit or bankers’ acceptance issued or
accepted by (i) any Lender or (ii) any commercial bank that is (A) organized
under the laws of the United States, any state thereof or the District of
Columbia (and solely with respect to Investments made by a Foreign Subsidiary,
any bank organized under the laws of a foreign jurisdiction that otherwise
complies with the criteria in clause (a)(iii) above), (B) ”adequately
capitalized” (as defined in the regulations of its primary federal banking
regulators) and (C) has Tier 1 capital (as defined in such regulations) in
excess of $250,000,000; and (e) shares of any United States money market fund
that (i) has substantially all of its assets invested continuously in the types
of investments referred to in clause (a), (b), (c) or (d) above with maturities
as set forth in the proviso below, (ii) has net assets in excess of $500,000,000
and (iii) has obtained from either S&P or Moody’s the highest rating obtainable
for money market funds in the United States; provided, that the maturities of
all obligations specified in any of clauses (a), (b), (c) or (d) above shall not
exceed 365 days.

 

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“Change in Control” means the time at which (a) any Person (including a Person's
Affiliates and associates) or group (within the meaning of Sections 13(d) and
14(d)(2) of the Securities Exchange Act of 1934) (other than the shareholders of
JAKKS on the Closing Date) becomes the beneficial owner (as defined in Rule
13d-3 under the Securities Exchange Act of 1934) of a percentage of the capital
stock of JAKKS equal to at least twenty-five percent (25%), (b) there shall be
consummated any consolidation or merger of JAKKS pursuant to which JAKKS’
capital stock would be converted into cash, securities or other property, other
than a merger or consolidation of JAKKS in which the holders of such capital
stock immediately prior to the merger have substantially the same proportionate
ownership in the aggregate, directly or indirectly, of capital stock of the
surviving Person immediately after the merger as it had of JAKKS’ capital stock
immediately prior to such merger, (c) all or substantially all of JAKKS’ assets
shall be sold, leased, conveyed or otherwise disposed of as an entirety or
substantially as an entirety to any Person (including any Affiliate or associate
of JAKKS) in one or a series of transactions, (d) any Change of Management shall
occur, unless on or before 90 days following the date of such Change of
Management, a successor has commenced employment with JAKKS and is actively
performing the functions of the departed individual, (e) except pursuant to a
transaction permitted under Section 6.03, JAKKS shall fail to own less than the
percentage interest of the issued and outstanding capital stock of each other
Credit Party as set forth in the Perfection Certificate as of the Closing Date,
free and clear of all Liens, other than Permitted Liens, (f) during any period
of 12 consecutive months, a majority of the members of the board of directors of
JAKKS cease to be composed of individuals (i) who were members of that board of
directors on the first day of such period, (ii) whose election or nomination to
that board of directors was approved by individuals referred to in clause (i)
above constituting at the time of such election or nomination at least a
majority of that board of directors or (iii) whose election or nomination to
that board of directors was approved by individuals referred to in clauses (i)
and (ii) above constituting at the time of such election or nomination at least
a majority of that board of directors (excluding, in the case of both clauses
(ii) and (iii), any individual whose initial nomination for, or assumption of
office as, a member of that board of directors occurs as a result of an actual
or threatened solicitation of proxies or consents for the election or removal of
one or more directors by any person or group other than a solicitation for the
election of one or more directors by or on behalf of the board of directors),
(g) any Person, or two or more Persons acting in concert, shall have acquired by
contract or otherwise, or shall have entered into a contract or arrangement
that, upon consummation thereof, will result in its or their acquisition of the
power to exercise, directly or indirectly, a controlling influence over the
management or policies of JAKKS, or control over the capital stock of JAKKS
entitled to vote for members of the board of directors of JAKKS on a
fully-diluted basis (and taking into account all such securities that such
Person or Persons have the right to acquire pursuant to any option right)
representing thirty percent (30%) or more of the combined voting power of such
securities, or (h) a “Fundamental Change” occurs under and as defined in the
2018 Indenture, the Oasis Convertible Note or the 2020 Indenture.

 

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“Change in Law” means any of the following: (a) the introduction of, or any
change in, or in the interpretation of, any Requirement of Law after the Closing
Date, (b) any guideline or request from any central bank or other Governmental
Authority (whether or not having the force of law), including any compliance
thereto after the Closing Date, (c) the Dodd-Frank Wall Street Reform and
Consumer Protection Act and all requests, rules, guidelines or directives
thereunder or issued in connection therewith, regardless of the date enacted,
adopted or issued and (d) all requests, rules, guidelines or directives
promulgated by the Bank for International Settlements, the Basel Committee on
Banking Supervision (or any successor or similar authority) or the United States
or foreign regulatory authorities, in each case pursuant to Basel III,
regardless of the date enacted, adopted or issued.

 

“Change of Management” means if any of the individuals performing the functions
of the president or chief financial officer, respectively, on the Closing Date
shall cease for any reason to perform such functions, whether by reason of
death, disability, resignation, action by the board of directors or shareholders
of Borrowers, or otherwise.

 

“Closing Date” means June 14, 2018.

 

“Code” means the Internal Revenue Code of 1986.

 

“Collateral” means all Property and interests in Property and proceeds thereof
now owned or hereafter acquired by any Credit Party and any other Person who has
granted a Lien to Agent, in or upon which a Lien is granted or purported to be
granted or now or hereafter exists in favor of any Lender or Agent for the
benefit of Secured Parties, whether under this Agreement or under any other
documents executed by any such Persons and delivered to Agent.

 

“Collateral Documents” means, collectively, the Guaranty and Security Agreement,
the Mortgages, each Control Agreement, the HK Collateral Documents, and all
other security agreements, pledge agreements, patent and trademark security
agreements, lease assignments, guaranties and other similar agreements pursuant
to which any Credit Party or any other Person pledging or granting a lien on
Collateral or guarantying the payment and performance of the Obligations now or
hereafter delivered pursuant to or in connection with the transactions
contemplated hereby, and all financing statements (or comparable documents now
or hereafter filed in accordance with the UCC or comparable law) contemplated
thereunder.

 

“Commodity Exchange Act” means the Commodity Exchange Act (7 U.S.C. § 1 et
seq.). “Commitment Percentage” means, as to any Lender, the percentage
equivalent of such Lender’s Term Loan Commitment divided by the Aggregate Term
Loan Commitment.

 

“Compliance Certificate” means a certificate given by Borrower Representative to
Agent pursuant to Schedule 5.01, in substantially the form of Section 5.01.

 

“Connection Income Taxes” means Other Connection Taxes that are imposed on or
measured by net income (however denominated) or that are franchise Taxes or
branch profit Taxes.

 

“Consolidated Group” means JAKKS and all Persons whose financial results are
consolidated with JAKKS for financial reporting purposes under GAAP.

 

“Contested in Good Faith” means contested in good faith and by appropriate
proceedings diligently prosecuted, which proceedings have the effect of
preventing the forfeiture or sale of the Property subject thereto and for which
adequate reserves in accordance with GAAP are being maintained.

 

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“Contingent Obligation” means, as to any Person, any direct or indirect
liability, contingent or otherwise, of that Person: (a) with respect to any
Indebtedness, lease, dividend or other obligation of another Person if the
primary purpose or intent of the Person incurring such liability, or the primary
effect thereof, is to provide assurance to the obligee of such liability that
such liability will be paid or discharged, or that any agreements relating
thereto will be complied with, or that the holders of such liability will be
protected (in full or in part) against loss with respect thereto; (b) with
respect to any letter of credit issued for the account of that Person or as to
which that Person is otherwise liable for reimbursement of drawings; (c) under
any Rate Contracts; (d) to make take-or-pay or similar payments if required
regardless of nonperformance by any other party or parties to an agreement; or
(e) for the obligations of another Person through any agreement to purchase,
repurchase or otherwise acquire such obligation or any Property constituting
security therefor, to provide funds for the payment or discharge of such
obligation or to maintain the solvency, financial condition or any balance sheet
item or level of income of another Person. The amount of any Contingent
Obligation shall be equal to the amount of the obligation so guaranteed or
otherwise supported or, if not a fixed and determined amount, the maximum amount
so guaranteed or supported.

 

“Contractual Obligations” means, as to any Person, any provision of any security
issued by such Person or of any agreement, indenture, mortgage, deed of trust,
instrument or other document (other than a Loan Document) to which such Person
is a party or to which it or any of its Property is bound or subject.

 

“Control Agreement” means, with respect to any deposit account, securities
account, commodity account, securities entitlement or commodity contract, an
agreement, in form and substance satisfactory to Agent, among ABL Agent, Agent,
the financial institution or other Person at which such account is maintained or
with which such entitlement or contract is carried and Credit Party maintaining
such account, effective to grant “control” (within the meaning of Articles 8 and
9 under the applicable UCC) over such account to Agent and ABL Agent, as
applicable (subject to the Intercreditor Agreement).

 

“Copyrights” means all rights, title and interests (and all related IP Ancillary
Rights) arising under any Requirement of Law in or relating to copyrights and
all mask work, database and design rights, whether or not registered or
published, all registrations and recordations thereof and all applications in
connection therewith.

 

“Credit Parties” means each Borrower and each Guarantor.

 

“Default” means any event or circumstance that, with the passing of time or the
giving of notice or both, would (if not cured or otherwise remedied during such
time) become an Event of Default.

 

“Default Rate” means a per annum rate equal to 2% plus the rate otherwise
applicable to such Term Loan as provided in Section 1.03(a).

 

“Disguise Limited” means Disguise Limited, a company incorporated in Hong Kong
with registered number 1287686.

 

“Disqualified Institution” means, on any date, (a) any Person designated by
Borrower Representative as a “Disqualified Institution” by written notice
delivered to Agent prior to the date hereof, and (b) those Persons who are
direct competitors of the Borrowers identified in writing by Borrower
Representative to Agent from time to time, subject to the written consent of
Agent; provided, that “Disqualified Institutions” shall exclude any Person that
Borrower Representative has designated as no longer being a “Disqualified
Institution” by written notice delivered to Agent from time to time;
provided further, that in connection with any assignment or participation, the
Assignee or Participant with respect to such proposed assignment or
participation that is an investment bank, a commercial bank, a finance company,
a fund, or other Person which merely has an economic interest in any such direct
competitor, and is not itself such a direct competitor of Borrower or its
Subsidiaries, shall not be deemed to be a Disqualified Institution for the
purposes of this definition. For the avoidance of doubt, Borrower Representative
may not retroactively designate a Person as a Disqualified Institution after an
assignment has been made to such Person.

 

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“Disney Entities” means Disney Consumer Products, Inc. and/or any one or more of
its Affiliates, including, without limitation, including Disney Enterprises,
Inc., Disney Consumer Products Latin America, Inc., Disney Interactive, Inc.,
Disney Children’s Book Group, LLC, Disney Licensed Publishing, Disney Publishing
Worldwide, Inc., Walt Disney Company Limited, Walt Disney Company (Asia Pacific)
Limited, Walt Disney Company (Australia) Pty Ltd., Walt Disney Company
(Australia) Limited, Walt Disney Music Company, Walt Disney Music
Company/Wonderland Music Company, Inc., Walt Disney Music Company/Wonderland
Music Company, Inc./Five Hundred South Songs and Seven Peaks Music, Walt Disney
Records (a division of ABC, Inc.), Marvel Characters, Inc., Marvel Enterprises
Inc., Marvel Characters B.V., Spider-Man Merchandising L.P. and Lucasfilm Ltd.

 

“Disney Consent Agreement” means a consent and agreement of Disney consenting
to, among other things, the grant of a security interest in favor of the Agent
and the Agent’s ability to liquidate the Disney Inventory, in form and substance
satisfactory to the Agent in the Agent’s Permitted Discretion.

 

“Disney Inventory” means Inventory that is subject to any license under which
one or more Borrowers is the licensee and any Disney Entity is the Licensor and
for which the Borrowers have obtained the Disney Consent Agreement.

 

“Disney License” means any Applicable License Agreement between any Credit Party
and any Disney Entity.

 

“Disposition” means (a) the sale, lease, conveyance or other disposition of
Property, other than sales or other dispositions expressly permitted under
Section 6.02(a), (c) and (d), and (b) the sale or transfer by a Borrower or any
Subsidiary of any Stock or Stock Equivalent issued by any Subsidiary of a
Borrower and held by such transferor Person.

 

“Dollars,” “dollars” and “$” each mean lawful money of the United States of
America. “Domestic Subsidiary” means any Subsidiary other than a Foreign
Subsidiary.

 

“EBITDA” means, with respect to any period for any Person, (a) Net Income plus
(b) without duplication and to the extent deducted in determining Net Income the
sum of:

 

(i)            Interest Expense;

 

(ii)           provision for income tax expenses (or minus any income tax
credits);

 

(iii)          depreciation and amortization expense;

 

(iv)          any non-cash expenses, non-cash charges or non-cash losses but
excluding any non-cash expense, charge or loss that is an accrual of, or a
reserve for, a cash expenditure to be made in a future period and any non-cash
charge that relates to the write-down or write-off of Accounts and Inventory;

 

(v)           transaction fees and expenses incurred in connection with this
consummation of this Agreement;

 

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(vi)          any loss (or minus any gain) from foreign currency translation;

 

(vii)         capital losses (or minus any capital gains) arising from any
disposition, minus (c) without duplication and to the extent included in Net
Income;

 

(viii)        interest income;

 

(ix)           any extraordinary gains and any non-cash gains or non-cash
income;

 

(x)            income (or minus any loss) of any joint venture or other Person
that is not a Subsidiary of a Borrower (except to the extent of the amount of
dividends actually received in cash by any Borrower or any Subsidiary).

 

“Electronic Transmission” means each document, instruction, authorization, file,
information and any other communication transmitted, posted or otherwise made or
communicated by e-mail or E-Fax, or otherwise to or from an E-System.

 

“Eligible Accounts” means, collectively, Eligible Domestic Accounts and Eligible
Foreign Accounts.

 

“Environmental Laws” means all Requirements of Law and Permits imposing
liability or standards of conduct for or relating to the regulation and
protection of human health, safety, the workplace, the environment and natural
resources, and including public notification requirements and environmental
transfer of ownership, notification or approval statutes.

 

“Environmental Liabilities” means all Liabilities (including costs of Remedial
Actions, natural resource damages and costs and expenses of investigation and
feasibility studies, including the cost of environmental consultants and
Attorney Costs) that may be imposed on, incurred by or asserted against any
Credit Party or any Subsidiary as a result of, or related to, any claim, suit,
action, investigation, proceeding or demand by any Person, whether based in
contract, tort, implied or express warranty, strict liability, criminal or civil
statute or common law or otherwise, arising under any Environmental Law or in
connection with any environmental, health or safety condition or with any
Release and resulting from the ownership, lease, sublease or other operation or
occupation of property by any Credit Party or any Subsidiary, whether on, prior
or after the Closing Date.

 

“Equipment” means all “equipment,” as such term is defined in the UCC, now owned
or hereafter acquired by any Credit Party, wherever located.

 

“ERISA” means the Employee Retirement Income Security Act of 1974.

 

“ERISA Affiliate” means, collectively, any Credit Party and any Person under
common control or treated as a single employer with, any Credit Party, within
the meaning of Section 414(b), (c), (m) or (o) of the Code.

 

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“ERISA Event” means any of the following: (a) a reportable event described in
Section 4043(b) of ERISA (or, unless the 30-day notice requirement is duly
waived under the applicable regulations, Section 4043(c) of ERISA) with respect
to a Title IV Plan; (b) the withdrawal of any ERISA Affiliate from a Title IV
Plan subject to Section 4063 of ERISA during a plan year in which it was a
substantial employer, as defined in Section 4001(a)(2) of ERISA; (c) the
complete or partial withdrawal of any ERISA Affiliate from any Multiemployer
Plan; (d) with respect to any Multiemployer Plan, the filing of a notice of
reorganization, insolvency or termination (or treatment of a plan amendment as
termination) under Section 4041A of ERISA; (e) the filing of a notice of intent
to terminate a Title IV Plan (or treatment of a plan amendment as termination)
under Section 4041 of ERISA; (f) the institution of proceedings to terminate a
Title IV Plan or Multiemployer Plan by the PBGC; (g) the failure to make any
required contribution to any Title IV Plan or Multiemployer Plan when due; (h)
the imposition of a lien under Section 412 or 430(k) of the Code or Section 303
or 4068 of ERISA on any property (or rights to property, whether real or
personal) of any ERISA Affiliate; (i) the failure of a Benefit Plan or any trust
thereunder intended to qualify for tax exempt status under Section 401 or 501 of
the Code or other Requirements of Law to qualify thereunder; (j) a Title IV plan
is in “at risk” status within the meaning of Code Section 430(i); (k) a
Multiemployer Plan is in “endangered status” or “critical status” within the
meaning of Section 432(b) of the Code; and (l) any other event or condition that
might reasonably be expected to constitute grounds under Section 4042 of ERISA
for the termination of, or the appointment of a trustee to administer, any Title
IV Plan or Multiemployer Plan or for the imposition of any material liability
upon any ERISA Affiliate under Title IV of ERISA other than for PBGC premiums
due but not delinquent.

 

“Event of Loss” means, with respect to any Property, (a) any loss, destruction
or damage of such Property; (b) any pending or threatened institution of any
proceedings for the condemnation or seizure of such Property or for the exercise
of any right of eminent domain; or (c) any actual condemnation, seizure or
taking, by exercise of the power of eminent domain or otherwise, of such
Property, or confiscation of such Property or the requisition of the use of such
Property.

 

“Excluded Domestic Subsidiary” means any Domestic Subsidiary that is a direct or
indirect Subsidiary of an Excluded Foreign Subsidiary.

 

“Excluded Equity Issuance” means Net Issuance Proceeds resulting from the
issuance of (a) Stock or Stock Equivalents by JAKKS to management or employees
of a Credit Party under any employee stock option or stock purchase plan or
other employee benefits plan in existence from time to time, (b) Stock or Stock
Equivalents by a Wholly-Owned Subsidiary of a Borrower to a Borrower or another
Wholly-Owned Subsidiary of a Borrower constituting an Investment permitted
hereunder and Stock or Stock Equivalents by a Foreign Subsidiary of such Foreign
Subsidiary to qualify directors where required pursuant to a Requirement of Law
or to satisfy other requirements of applicable law, in each instance, with
respect to the ownership of Stock of Foreign Subsidiaries.

 

“Excluded Foreign Subsidiary” means a Foreign Subsidiary which is (a) a
controlled foreign corporation (as defined in the Code) that has not guaranteed
or pledged any of its assets to secure, or with respect to which there shall not
have been pledged two-thirds or more of the voting Stock and Stock Equivalents
to secure, any Indebtedness (other than the Loans) of a Credit Party or (b) a
Foreign Subsidiary owned by a Foreign Subsidiary described in clause (a) above.
Notwithstanding the generality of the foregoing, in no event shall any of the
JAKKS HK Credit Parties be an “Excluded Foreign Subsidiary.”

 

“Excluded Rate Contract Obligation” means, with respect to any Guarantor, any
guaranty of any Swap Obligations if, and only to the extent that and for so long
as, all or a portion of the guaranty of such Guarantor of, or the grant by such
Guarantor of a security interest to secure, such Swap Obligation (or any
guaranty thereof) is or becomes illegal under the Commodity Exchange Act or any
rule, regulation or order of the Commodity Futures Trading Commission (or the
application or official interpretation of any thereof) by virtue of such
Guarantor’s failure for any reason to constitute an “eligible contract
participant” as defined in the Commodity Exchange Act at the time the guaranty
of such Guarantor or the grant of such security interest becomes effective with
respect to such Swap Obligation. If a Swap Obligation arises under a master
agreement governing more than one swap, such exclusion shall apply only to the
portion of such Swap Obligation that is attributable to swaps for which such
guaranty or security interest is or becomes illegal.

 

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“Excluded Tax” means with respect to any Secured Party: (a) Taxes measured by
net income (including branch profit Taxes) and franchise Taxes imposed in lieu
of net income Taxes, in each case (i) imposed on any Secured Party as a result
of being organized under the laws of, or having its principal office or, in the
case of any Lender, its applicable lending office located in, the jurisdiction
imposing such Tax (or any political subdivision thereof) or (ii) that are Other
Connection Taxes; (b) withholding Taxes to the extent that the obligation to
withhold amounts existed on the date that such Person became a Secured Party
under this Agreement in the capacity under which such Person makes a claim under
Section 11.01(a) or designates a new Lending Office, except in each case to the
extent such Person is a direct or indirect assignee (other than pursuant to
Section 10.18) of any other Secured Party that was entitled, at the time the
assignment to such Person became effective, to receive additional amounts under
Section 11.01(a); (c) Taxes that are directly attributable to the failure (other
than as a result of a change in any Requirement of Law) by any Secured Party to
deliver the documentation required to be delivered pursuant to (i); and (d) any
United States federal withholding Taxes imposed under FATCA.

 

“E-Fax” means any system used to receive or transmit faxes electronically.

 

“E-Signature” means the process of attaching to or logically associating with an
Electronic Transmission an electronic symbol, encryption, digital signature or
process (including the name or an abbreviation of the name of the party
transmitting the Electronic Transmission) with the intent to sign, authenticate
or accept such Electronic Transmission.

 

“E-System” means any electronic system approved by Agent, including Syndtrak®,
Intralinks® and ClearPar® and any other Internet or extranet-based site, whether
such electronic system is owned, operated or hosted by Agent, any of its Related
Persons or any other Person, providing for access to data protected by passcodes
or other security system.

 

“Facilities” means, collectively, the ABL Facility and the Term Loan Facility.

 

““FATCA” means Sections 1471 through 1474 of the IRC, as of the date of this
Agreement (or any amended or successor version that is substantively comparable
and not materially more onerous to comply with), and (a) any current or future
regulations or official interpretations thereof, (b) any agreements entered into
pursuant to Section 1471(b)(1) of the IRC, and (c) any intergovernmental
agreement entered into by the United States (or any fiscal or regulatory
legislation, rules, or practices adopted pursuant to any such intergovernmental
agreement entered into in connection therewith).

 

“FCPA” means the Foreign Corrupt Practices Act of 1977, as amended, and the
rules and regulations thereunder.

 

“Federal Flood Insurance” means federally backed Flood Insurance available under
the National Flood Insurance Program to owners of real property improvements
located in Special Flood Hazard Areas in a community participating in the
National Flood Insurance Program.

 

“Federal Funds Rate” means, for any period, a fluctuating interest rate per
annum equal to, for each day during such period, the weighted average of the
rates on overnight federal funds transactions with members of the Federal
Reserve System, as published on the next succeeding Business Day by the Federal
Reserve Bank of New York, or, if such rate is not so published for any day which
is a Business Day, the average of the quotations for such day on such
transactions received by Agent from three Federal funds brokers of recognized
standing selected by it (and, if any such rate is below zero, then the rate
determined pursuant to this definition shall be deemed to be zero).

 

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“Federal Reserve Board” means the Board of Governors of the Federal Reserve
System, or any entity succeeding to any of its principal functions.

 

“Fee Letter” means the Fee Letter, dated as of the Closing Date, by and among
the Borrower Representative, the other Borrowers, GACP, and the other parties
thereto, as amended, amended and restated, supplemented or replaced and in
effect from time to time.

 

“FEMA” means the Federal Emergency Management Agency, a component of the U.S.
Department of Homeland Security that administers the National Flood Insurance
Program.

 

“Final Satisfaction” means the date all of the following have occurred (a)
payment and satisfaction in full of the Term Loan and all other Obligations
under the Loan Documents, (b) deposit of cash collateral with respect to all
contingent Obligations, in amounts and on terms and conditions and with parties
satisfactory to Agent and each Indemnitee that is, or may be, owed such
Obligations (excluding contingent Obligations as to which no claim has been
asserted) and (c) to the extent requested by Agent, receipt by Agent and Secured
Parties of liability releases from Credit Parties each in form and substance
acceptable to Agent.

 

“Financial Statements” means with respect to each applicable accounting period,
consolidated and consolidating balance sheets of the Consolidated Group as at
the end of such period and the related consolidated and consolidating statements
of income or operations, shareholders’ equity and cash flows for such period,
certified by an appropriate Responsible Officer of Borrower Representative as
being complete and correct and fairly presenting, in all material respects, in
accordance with GAAP, the financial position and the results of operations of
the Consolidated Group, subject to normal year-end adjustments and absence of
footnote disclosures.

 

“FIRREA” means the Financial Institutions Reform, Recovery and Enforcement Act
of 1989. “Fiscal Quarter” means any of the quarterly accounting periods of
Credit Parties, ending on March 31, June 30, September 30, and December 31 of
each year.

 

“Fiscal Year” means any of the annual accounting periods of Credit Parties
ending on December 31 of each year.

 

“Fixed Charge Coverage Ratio” means, with respect to any period for the
Consolidated Group, the ratio of (a) EBITDA to (b) Fixed Charges (but excluding
from Fixed Charges the use of any funds by JAKKS to repurchase and prepay the
purchase price for its common stock in accordance with Section 6.10(e)).

 

“Fixed Charges” means, with respect to any period for any Person, the sum of (a)
Interest Expense, (b) the principal payments made or due on Indebtedness, (c)
Restricted Payments, including cash dividends, and (d) federal income taxes and
other taxes measured by net income actually paid in cash by the Consolidated
Group.

 

“Flood Insurance” means, for any Real Estate located in a Special Flood Hazard
Area, Federal Flood Insurance or private insurance that (a) meets the
requirements set forth by FEMA in its Mandatory Purchase of Flood Insurance
Guidelines and (b) shall be in an amount equal to the full, unpaid balance of
the Loans and any prior liens on the Real Estate up to the maximum policy limits
set under the National Flood Insurance Program, or as otherwise required by
Agent, with deductibles not to exceed $50,000.

 

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“Foreign Subsidiary” means, with respect to any Person, a Subsidiary of such
Person that is a “controlled foreign corporation” under Section 957 of the Code.

 

“GAAP” means generally accepted accounting principles in the United States of
America, as in effect from time to time, set forth in the opinions and
pronouncements of the Accounting Principles Board and the American Institute of
Certified Public Accountants, in the statements and pronouncements of the
Financial Accounting Standards Board (or agencies with similar functions and
comparable stature and authority within the accounting profession) that are
applicable to the circumstances as of the date of determination, applied
consistently as provided in and subject to Section 12.04.

 

“GACP” means Great American Capital Partners and its successors.

 

“Governmental Authority” means any nation, sovereign or government, any state or
other political subdivision thereof, any agency, authority or instrumentality
thereof and any entity or authority exercising executive, legislative, Taxing,
judicial, regulatory or administrative functions of or pertaining to government,
including any central bank, stock exchange, regulatory body, arbitrator, public
sector entity, supra-national entity (including the European Union and the
European Central Bank) and any self- regulatory organization (including the
National Association of Insurance Commissioners).

 

“Guarantor” means JAKKS HK and each other Subsidiary of Borrowers that is or
becomes a party to the Guaranty and Security Agreement, and any other Person
that has guaranteed any Obligations.

 

“Guaranty and Security Agreement” means that certain Guaranty and Security
Agreement, dated as of even date herewith, made by Credit Parties in favor of
Agent, for the benefit of Secured Parties, as the same may be amended, restated,
supplemented ort otherwise modified from time to time.

 

“Hazardous Material” means any substance, material or waste that is classified,
regulated or otherwise characterized under any Environmental Law as hazardous,
toxic, a contaminant or a pollutant or by other words of similar meaning or
regulatory effect, including petroleum or any fraction thereof, asbestos,
polychlorinated biphenyls and radioactive substances.

 

“HK Collateral Documents” means the HK Security Debenture, the HK Share Charge,
the HK Security Trust and all documents delivered to Agent or any Lender in
connection with any of the foregoing, as each such document may be amended,
restated, supplemented or otherwise modified from time to time.

 

“HK Credit Parties” means Credit Parties incorporated or otherwise registered at
the Hong Kong Companies Registry or Credit Parties otherwise having a place of
business in Hong Kong.

 

“HK Security Debenture” means the Debenture dated as of the Closing Date, made
by HK Credit Parties in favor of Agent for the benefit of Secured Parties in
respect of all the assets and undertaking of HK Credit Parties, as the same may
be amended, restated, supplemented or otherwise modified from time to time.

 

“HK Security Trust” means the Security Trust dated as of Closing Date, made by
HK Credit Parties in favor of Agent for the benefit of Secured Parties in
respect of Collateral granted by HK Credit Parties, as the same may be amended,
restated, supplemented or otherwise modified from time to time.

 

“HK Share Charge” means the Share Charge dated as of Closing Date, made by
JAKKS, JAKKS Hong Kong and JAKKS Pacific (Asia) Limited in favor of Agent for
the benefit of Secured Parties in respect of all the issued shares in the HK
Credit Parties, as the same may be amended, restated, supplemented or otherwise
modified from time to time.

 

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“Hong Kong” means the Hong Kong Special Administrative Region of the People’s
Republic of China.

 

“Indebtedness” of any Person means, without duplication: (a) all indebtedness
for borrowed money; (b) all obligations issued, undertaken or assumed as the
deferred purchase price of Property or services (other than Accounts owing in
the Ordinary Course of Business); (c) the face amount of all letters of credit
issued for the account of such Person and without duplication, all drafts drawn
thereunder and all reimbursement or payment obligations with respect to letters
of credit, surety bonds and other similar instruments issued by such Person; (d)
all obligations evidenced by notes, bonds, debentures or similar instruments;
(e) all indebtedness created or arising under any conditional sale or other
title retention agreement, or incurred as financing, in either case with respect
to Property acquired by such Person (even though the rights and remedies of the
seller or lender under such agreement in the event of default are limited to
repossession or sale of such Property); (f) all Capital Lease Obligations; (g)
the principal balance outstanding under any synthetic lease, off-balance sheet
loan or similar off balance sheet financing product; (h) all obligations,
whether or not contingent, to purchase, redeem, retire, defease or otherwise
acquire for value any of its own Stock or Stock Equivalents (or any Stock or
Stock Equivalent of a direct or indirect parent entity thereof) prior to the
date that is 180 days after the Stated Maturity Date, valued at, in the case of
redeemable preferred Stock, the greater of the voluntary liquidation preference
and the involuntary liquidation preference of such Stock plus accrued and unpaid
dividends; (i) all indebtedness referred to in clauses (a) through (h) above
secured by (or for which the holder of such Indebtedness has an existing right,
contingent or otherwise, to be secured by) any Lien upon or in Property
(including accounts and contracts rights) owned by such Person, even though such
Person has not assumed or become liable for the payment of such indebtedness;
and (j) all Contingent Obligations described in clause (a) of the definition
thereof in respect of indebtedness or obligations of others of the kinds
referred to in clauses (a) through (i) above.

 

“Indemnified Tax” means (a) any Tax other than an Excluded Tax and (b) to the
extent not otherwise described in clause (a) above, Other Taxes.

 

“Insolvency Proceeding” means (a) any case, action or proceeding before any
court or other Governmental Authority relating to bankruptcy, reorganization,
insolvency, administration, liquidation, receivership, administrative
receivership, dissolution, winding-up or relief of debtors, or (b) any general
assignment for the benefit of creditors, composition, marshaling of assets for
creditors, or other, similar arrangement in respect of its creditors generally
or any substantial portion of its creditors; in each case in clauses (a) and (b)
above, undertaken under U.S. federal, state or foreign law, including the
Bankruptcy Code.

 

“Intellectual Property” means all rights, title and interests in or relating to
intellectual property and industrial property arising under any Requirement of
Law and all IP Ancillary Rights relating thereto, including all Copyrights,
Patents, Trademarks, Internet Domain Names, Trade Secrets and IP Licenses.

 

“Intercreditor Agreement” means that certain Intercreditor Agreement dated as of
the Closing Date by and between the Agent and the ABL Agent, and acknowledged by
the Credit Parties and other parties thereto (if any), as amended, restated, or
otherwise modified from time to time.

 

“Interest Expense” means, with respect to any period for any Person, total
interest expense calculated in accordance with GAAP (including that portion
attributable to Capital Leases in accordance with GAAP and capitalized interest)
with respect to all outstanding Indebtedness, including all commissions,
discounts and other fees and charges owed with respect to letters of credit for
such period (in each case calculated without regard to any limitations on
payment thereof).

 

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“Interest Payment Date” means, with respect to any LIBOR Rate Loan, the last day
of each Interest Period applicable to such Loan.

 

“Interest Period” means, with respect to any LIBOR Rate Loan, the period
commencing on the Business Day such Loan is disbursed or continued and ending on
the date one, two or three months thereafter, as selected by Borrower
Representative; provided, that:

 

(a)            if any Interest Period pertaining to a LIBOR Rate Loan would
otherwise end on a day which is not a Business Day, that Interest Period shall
be extended to the next succeeding Business Day unless the result of such
extension would be to carry such Interest Period into another calendar month, in
which event such Interest Period shall end on the immediately preceding Business
Day;

 

(b)           any Interest Period pertaining to a LIBOR Rate Loan that begins on
the last Business Day of a calendar month (or on a day for which there is no
numerically corresponding day in the calendar month at the end of such Interest
Period) shall end on the last Business Day of the calendar month at the end of
such Interest Period; and

 

(c)           no Interest Period for any Loan shall extend beyond the
Termination Date.

 

“Internet Domain Name” means all right, title and interest (and all related IP
Ancillary Rights) arising under any Requirement of Law in or relating to
internet domain names.

 

“Inventory” means all of the “inventory” (as such term is defined in the UCC) of
Credit Parties, including all merchandise, raw materials, parts, supplies, works
in progress and finished goods intended for sale, together with all the
containers, packing, packaging, shipping and similar materials related thereto,
and including such inventory as is temporarily out of a Credit Party’s custody
or possession, including inventory on the premises of others and items in
transit.

 

“Investment Grade” means, in reference to any Person, that such Person has (a) a
rating from S&P of (i) A-1 or better for its commercial paper or (ii) BBB or
better for its long term debt, or (b) a rating from Moody's of (i) P-1 or better
for its commercial paper or (ii) Baa or better for its long term debt.

 

“IP Ancillary Rights” means, with respect to any Intellectual Property, as
applicable, all foreign counterparts to, and all divisionals, reversions,
continuations, continuations-in-part, reissues, reexaminations, renewals and
extensions of, such Intellectual Property and all income, royalties, proceeds
and Liabilities at any time due or payable or asserted under or with respect to
any of the foregoing or otherwise with respect to such Intellectual Property,
including all rights to sue or recover at law or in equity for any past, present
or future infringement, misappropriation, dilution, violation or other
impairment thereof, and, in each case, all rights to obtain any other IP
Ancillary Right.

 

“IP License” means all Contractual Obligations (and all related IP Ancillary
Rights), whether written or oral, granting any right, title and interest in or
relating to any Intellectual Property.

 

“IRS” means the Internal Revenue Service of the United States and any successor
thereto.

 

“JAKKS Canada” means JAKKS Pacific (Canada), Inc., a company organized under the
laws of the province of New Brunswick, Canada.

 

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“JAKKS HK” is a collective reference to each of JAKKS Hong Kong, JAKKS Pacific
(Asia) Limited, Moose Mountain Toymakers Limited, Disguise Limited, A.S. Design
Limited, Arbor Toys Company Limited, Kids Only, Limited and Tollytots Limited.

 

“JAKKS Hong Kong” means JAKKS Pacific (H.K.) Limited, a company incorporated in
Hong Kong with registered number 468246.

 

“JAKKS Pacific (Asia) Limited” means JAKKS Pacific (Asia) Limited, a company
incorporated in Hong Kong with registered number 971208.

 

“JV Entities” means each of Pacific Animation Partners, LLC, DreamPlay Toys,
LLC, DreamPlay, LLC, JAKKS Pacific Trading Limited, JAKKS Meisheng Trading
(Shanghai) Limited, and JAKKS Meisheng Animation (H.K.) Limited.

 

“Kids Only, Limited” means Kids Only, Limited, a company incorporated in Hong
Kong with registered number 455075.

 

“Lender” means each Lender with a Term Loan Commitment (or if the Term Loan
Commitments have terminated, who hold Term Loans).

 

“Lending Office” means, with respect to any Lender, the office or offices of
such Lender specified as its “Lending Office” on Schedule 10.02, or such other
office or offices of such Lender as it may from time to time notify Borrower
Representative and Agent.

 

“Liabilities” means all claims, actions, suits, judgments, damages, losses,
liability, obligations, responsibilities, fines, penalties, sanctions, costs,
fees, Taxes, commissions, charges, disbursements and expenses (including those
incurred upon any appeal or in connection with the preparation for and/or
response to any subpoena or request for document production relating thereto),
in each case of any kind or nature (including interest accrued thereon or as a
result thereto and fees, charges and disbursements of financial, legal and other
advisors and consultants), whether joint or several, whether or not indirect,
contingent, consequential, actual, punitive, treble or otherwise.

 

“LIBOR” means, for each Interest Period, the greater of (i) 1.50% per annum, and
(ii) the rate per annum as published by ICE Benchmark Administration Limited (or
any successor page or other commercially available source as Agent may designate
from time to time) as of 11:00 a.m., London time, two Business Days prior to the
commencement of the requested Interest Period, for a term, and in an amount,
comparable to the Interest Period and the amount of the LIBOR Rate Loan
requested (whether as an initial LIBOR Rate Loan or as a continuation of a LIBOR
Rate Loan) by Borrowers in accordance with this Agreement (and, if any such
published rate is below zero, then the rate determined shall be deemed to be
zero). Each determination of the LIBOR Rate shall be made by Agent and shall be
conclusive in the absence of manifest error.

 

“LIBOR Rate Loan” means a Loan that bears interest based on LIBOR.

 

“License Agreement Guaranty” means a guaranty by JAKKS of the obligations of any
of its Subsidiaries owing to a Licensor under a licensing agreement between such
Subsidiary and such Licensors.

 

“Licensor” means an owner of certain Intellectual Property that licenses all or
any portion of such Intellectual Property to a Credit Party or any of its
Subsidiaries.

 

 69 

 

 

“Lien” means any mortgage, deed of trust, pledge, hypothecation, assignment,
charge, deposit arrangement, encumbrance, easement, lien (statutory or
otherwise), security interest or other security arrangement and any other
preference, priority or preferential arrangement of any kind or nature
whatsoever, including those created by, arising under or evidenced by any
conditional sale contract or other title retention agreement, the interest of a
lessor under a Capital Lease and any synthetic or other financing lease having
substantially the same economic effect as any of the foregoing.

 

“Liquidity” means an amount equal to the sum of (a) Availability plus (b) all
unrestricted and unencumbered (other than Liens created pursuant to any Loan
Document or any ABL Loan Document and Liens of the type described in Section
6.01(n)) cash and Cash Equivalents of the Credit Parties (provided, that at any
time fifteen (15) days after the Closing Date (or such later time as agreed to
by the Agent), such cash and Cash Equivalents must be held in deposit accounts
and/or securities accounts in the United States that are subject to Control
Agreements granting “control” (as defined in the UCC) to the Agent over such
deposit accounts and securities accounts.

 

“Loan Documents” means this Agreement, the Notes, the Fee Letter, the
Intercreditor Agreement, the Collateral Documents and all documents delivered to
Agent and/or any Lender in connection with any of the foregoing, as each such
document may be amended, restated, supplemented or otherwise modified from time
to time.

 

“Margin Stock” as defined in Regulation U of the Board of Governors as in effect
from time to time.

 

“Material Adverse Effect” means an effect that results in or causes, or could
reasonably be expected to result in or cause, a material adverse change in or a
material adverse effect on any of (a) the condition (financial or otherwise) or
prospects of any Credit Party or, business, performance, operations or Property
of Credit Parties and their Subsidiaries taken as a whole, (b) the ability of
any Credit Party or any other Person (other than Agent or Lenders) to perform
its obligations under any Loan Document, or (c) the validity or enforceability
of any Loan Document or the rights and remedies of Agent, Lenders and the other
Secured Parties under any Loan Document. Without limiting the generality of the
foregoing, any event or occurrence which results or would reasonably be expected
to result in Liabilities to Credit Parties in excess of $5,000,000 individually
or in the aggregate shall be deemed to have a Material Adverse Effect.

 

“Material Environmental Liabilities” means Environmental Liabilities exceeding
$500,000 in the aggregate.

 

“Meisheng Transaction” means the acquisition by Hongkong Meisheng Cultural
Company Limited of additional shares of common stock of the Borrower
Representative, resulting in the increase of Hongkong Meisheng Cultural Company
Limited’s shareholdings and voting rights in the Borrower Representative to 51%.

 

“Moose Mountain Toymakers Limited” means Moose Mountain Toymakers Limited, a
company incorporated in Hong Kong with registered number 540751.

 

“Mortgage” means any deed of trust, leasehold deed of trust, mortgage, leasehold
mortgage, deed to secure debt, leasehold deed to secure debt or other document
creating a Lien on Real Estate or any interest in Real Estate.

 

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“Multiemployer Plan” means any multiemployer plan, as defined in Section 3(37)
or 4001(a)(3) of ERISA, as to which any ERISA Affiliate incurs or otherwise has
any obligation or liability, contingent or otherwise.

 

“National Flood Insurance Program” means the program created by the U.S.
Congress pursuant to the National Flood Insurance Act of 1968 and the Flood
Disaster Protection Act of 1973, as revised by the National Flood Insurance
Reform Act of 1994, that mandates the purchase of flood insurance to cover real
property improvements located in Special Flood Hazard Areas in participating
communities and provides protection to property owners through a federal
insurance program.

 

“Net Income” means, with respect to any Person, for any period, the consolidated
net income (or loss) of such Person and its Subsidiaries for such period
determined in accordance with GAAP.

 

“Net Issuance Proceeds” means, in respect of any issuance of debt or equity,
cash proceeds (including cash proceeds as and when received in respect of
non-cash proceeds received or receivable in connection with such issuance), net
of underwriting discounts and reasonable out-of-pocket costs and expenses paid
or incurred in connection therewith in favor of any Person not an Affiliate of a
Borrower.

 

“Net Orderly Liquidation Value” means the cash proceeds of Inventory which could
be obtained in an orderly liquidation (net of all liquidation expenses, costs of
sale, operating expenses and retrieval and related costs), as determined
pursuant to the most recent third-party appraisal of such Inventory delivered to
Agent by an appraiser acceptable to Agent.

 

“Net Proceeds” means proceeds in cash, checks or other cash equivalent financial
instruments (including Cash Equivalents) as and when received by the Person
making a Disposition, as well as insurance proceeds and condemnation and similar
awards received on account of an Event of Loss, net of: (a) in the event of a
Disposition (i) the direct costs relating to such Disposition excluding amounts
payable to a Borrower or any Affiliate of a Borrower, (ii) sale, use or other
transaction Taxes paid or payable as a result thereof, and (iii) amounts
required to be applied to repay principal, interest and prepayment premiums and
penalties on Indebtedness secured by a Lien on the asset which is the subject of
such Disposition and (b) in the event of an Event of Loss, (i) so long as no
Default or Event of Default has occurred and is continuing, all money actually
applied to repair or reconstruct the damaged Property or Property affected by
the condemnation or taking, (ii) all of the costs and expenses reasonably
incurred in connection with the collection of such proceeds, award or other
payments, and (iii) any amounts retained by or paid to parties having superior
rights to such proceeds, awards or other payments.

 

“Non-U.S. Lender Party” means each of Agent, each Lender, each SPV and each
participant, in each case that is not a United States person as defined in
Section 7701(a)(30) of the Code.

 

“Note” means any Term Note and “Notes” means all such Notes.

 

“Oasis Convertible Note” means the convertible senior note due November 1, 2020
issued to Oasis Investments II Master Fund Ltd. in a face amount of $21,550,000.

 

“Obligations” means all Term Loans, and other Indebtedness, advances, debts,
liabilities, obligations, covenants and duties owing by any Credit Party to any
Lender, Agent, or any other Person required to be indemnified, that arises under
any Loan Document, whether or not for the payment of money, whether arising by
reason of an extension of credit, loan, guaranty, indemnification or in any
other manner, whether direct or indirect (including those acquired by
assignment), absolute or contingent, due or to become due, now existing or
hereafter arising and however acquired; provided, that Obligations of any
Guarantor shall not include any Excluded Rate Contract Obligations solely of
such Guarantor.

 

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“OFAC” means The Office of Foreign Assets Control of the U.S. Department of the
Treasury.

 

“Ordinary Course of Business” means, in respect of any transaction involving any
Person, the ordinary course of such Person’s business, as conducted by any such
Person in accordance with past practice and undertaken by such Person in good
faith and not for purposes of evading any covenant or restriction in any Loan
Document.

 

“Organization Documents” means, (a) for any corporation, the certificate or
articles of incorporation, the bylaws, any certificate of determination or
instrument relating to the rights of preferred shareholders of such corporation
and any shareholder rights agreement, (b) for any partnership, the partnership
agreement and, if applicable, certificate of limited partnership, (c) for any
limited liability company, the operating agreement and articles or certificate
of formation or (d) any other document setting forth the manner of election or
duties of the officers, directors, managers or other similar persons, or the
designation, amount or relative rights, limitations and preference of the Stock
of a Person.

 

“Other Connection Taxes” means, with respect to any Secured Party, Taxes imposed
as a result of a present or former connection between such Secured Party and the
jurisdiction imposing such Tax, other than any such connection arising solely
from Secured Party having executed, delivered, become a party to, performed its
obligations or received a payment under, received or perfected as a security
interest under, engaged in any other transaction pursuant to or enforced any
Loan Document or any related document, or sold or assigned an interest in any
Loan or Loan Document.

 

“Patents” means all rights, title and interests (and all related IP Ancillary
Rights) arising under any Requirement of Law in or relating to letters patent
and applications therefor.

 

“Patriot Act” means the Uniting and Strengthening America by Providing
Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001, P.L.
107-56.

 

“PBGC” means the United States Pension Benefit Guaranty Corporation any
successor thereto. “Perfection Certificate” means a written certificate from
Borrower Representative setting forth certain information regarding Credit
Parties and their Properties as contemplated by ARTICLE IV, in form and
substance acceptable to Agent and attached hereto as Schedule 4.21.

 

“Permits” means, with respect to any Person, any permit, approval,
authorization, license, registration, certificate, concession, grant, franchise,
variance or permission from, and any other Contractual Obligations with, any
Governmental Authority, in each case whether or not having the force of law and
applicable to or binding upon such Person or any of its property or to which
such Person or any of its property is subject.

 

“Permitted Discretion” means a determination made in good faith and in the
exercise of reasonable (from the perspective of a secured asset-based lender)
business judgment.

 

“Permitted Refinancing” means Indebtedness constituting a refinancing or
extension of (A) Indebtedness permitted under Section 6.05(c) or (d) that (a)
has an aggregate outstanding principal amount not greater than the aggregate
principal amount of the Indebtedness being refinanced or extended, (b) has a
weighted average maturity (measured as of the date of such refinancing or
extension) and maturity no shorter than that of the Indebtedness being
refinanced or extended, (c) is not entered into as part of a sale leaseback
transaction, (d) is not secured by a Lien on any assets other than the
collateral securing the Indebtedness being refinanced or extended, (e) the
obligors of which are the same as the obligors of the Indebtedness being
refinanced or extended and (f) is otherwise on terms no less favorable to Credit
Parties and their Subsidiaries, taken as a whole, than those of the Indebtedness
being refinanced or extended; or (B) Indebtedness under the ABL Loan Documents,
to the extent permitted under the Intercreditor Agreement and subject to joining
the Intercreditor Agreement or entering into another intercreditor agreement
acceptable to Agent.

 

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“Permitted Surety Bonds” means unsecured guaranties and reimbursement
obligations incurred in the Ordinary Course of Business with respect to surety
and appeal bonds, performance bonds, bid bonds, appeal bonds, completion
guaranty and similar obligations in an aggregate amount not to exceed $100,000.

 

“Person” means any individual, partnership, corporation (including a business
trust and a public benefit corporation), joint stock company, estate,
association, firm, enterprise, trust, limited liability company, unincorporated
association, joint venture and any other entity or Governmental Authority.

 

“Pledged Collateral” has the meaning specified in the Guaranty and Security
Agreement and shall include any other Collateral required to be delivered to
Agent pursuant to the terms of any Collateral Document.

 

“Prepaid Principal Amount” means the principal amount of the Term Loan
(including, if applicable, the amount of any capitalized interest) that (a) is
voluntary or mandatorily prepaid by the Borrowers, or (b) has become or is
deemed to be due and payable in accordance with ARTICLE VIII.

 

“Property” means any interest in any kind of property or asset (other than
cash), whether real, personal or mixed, and whether tangible or intangible.

 

“Qualified ECP Guarantor” means, in respect of any Swap Obligation, each Credit
Party that has total assets exceeding $10,000,000 at the time the relevant
guaranty or grant of the relevant security interest becomes effective with
respect to such Swap Obligation or such other person as constitutes an “eligible
contract participant” under the Commodity Exchange Act and can cause another
person to qualify as an “eligible contract participant” at such time by entering
into a keepwell under Section 1a(18)(A)(v)(II) of the Commodity Exchange Act.

 

“Rate Contracts” means swap agreements (as such term is defined in Section 101
of the Bankruptcy Code) designed to provide protection against fluctuations in
interest or currency exchange rates and any other agreements or arrangements
designed to provide such protection.

 

“Real Estate” means any real property owned, leased, subleased or otherwise
operated or occupied by any Credit Party or any Subsidiary.

 

“Related Persons” means, with respect to any Person, each Affiliate of such
Person and each director, officer, employee, investor, agent, trustee,
representative, attorney, accountant and each insurance, environmental, legal,
financial and other advisor (including those retained in connection with the
satisfaction or attempted satisfaction of any condition set forth in ARTICLE
III) and other consultants and agents of or to such Person or any of its
Affiliates.

 

“Releases” means any release, threatened release, spill, emission, leaking,
pumping, pouring, emitting, emptying, escape, injection, deposit, disposal,
discharge, dispersal, dumping, leaching or migration of Hazardous Material into
or through the environment.

 

“Remedial Action” means all actions required to (a) clean up, remove, treat or
in any other way address any Hazardous Material in the indoor or outdoor
environment, (b) prevent or minimize any Release so that a Hazardous Material
does not migrate or endanger or threaten to endanger public health or welfare or
the indoor or outdoor environment or (c) perform pre remedial studies and
investigations and post-remedial monitoring and care with respect to any
Hazardous Material.

 

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“Required Lenders” means at any time (a) Lenders then holding more than 50% of
the sum of the Aggregate Term Loan Commitment then in effect, or (b) if the
Aggregate Term Loan Commitments have terminated, Lenders then holding more than
50% of the sum of the aggregate unpaid principal amount of Term Loans then
outstanding.

 

“Requirement of Law” means, with respect to any Person, the common law and any
federal, state, local, foreign, multinational or international laws, statutes,
codes, treaties, standards, rules and regulations, guidelines, ordinances,
orders, judgments, writs, injunctions, decrees (including administrative or
judicial precedents or authorities) and the interpretation or administration
thereof by, and other determinations, directives, requirements or requests of,
any Governmental Authority, in each case whether or not having the force of law
and that are applicable to or binding upon such Person or any of its Property or
to which such Person or any of its Property is subject.

 

“Reserves” means, with respect to the Term Loan Borrowing Base (a) reserves
established by Agent from time to time against Eligible Accounts pursuant to
Section 2.01 and Eligible Licensed Inventory pursuant to Section 2.02, and (b)
such other reserves against Eligible Accounts or Eligible Licensed Inventory
that Agent may, in its Permitted Discretion, establish from time to time.
Without limiting the generality of the foregoing, Reserves established to ensure
the payment of accrued interest expenses or Indebtedness shall be deemed to be
an exercise of Agent’s Permitted Discretion.

 

“Responsible Officer” means the chief executive officer or the president of a
Borrower or Borrower Representative, as applicable, or any other officer having
substantially the same authority and responsibility; or, with respect to
compliance with financial covenants or delivery of financial information, the
chief financial officer or the treasurer of a Borrower or Borrower
Representative, as applicable, or any other officer having substantially the
same authority and responsibility.

 

“S&P” means Standard & Poor’s, a division of The McGraw-Hill Companies, Inc.

 

“Sanctioned Entity” means (a) a country or a government of a country, (b) an
agency of the government of a country, (c) an organization directly or
indirectly controlled by a country or its government, or (d) a Person resident
in or determined to be resident in a country, in each case of clauses (a)
through (d) that is a target of Sanctions, including a target of any country
sanctions program administered and enforced by OFAC.

 

“Sanctioned Person” means, at any time (a) any Person named on the list of
Specially Designated Nationals and Blocked Persons maintained by OFAC, OFAC’s
consolidated Non-SDN list or any other Sanctions-related list maintained by any
Governmental Authority, (b) a Person or legal entity that is a target of
Sanctions, (c) any Person operating, organized or resident in a Sanctioned
Entity, or (d) any Person directly or indirectly owned or controlled
(individually or in the aggregate) by or acting on behalf of any such Person or
Persons described in clauses (a) through (c) above.

 

“Sanctions” means individually and collectively, respectively, any and all
economic sanctions, trade sanctions, financial sanctions, sectoral sanctions,
secondary sanctions, trade embargoes anti-terrorism laws and other sanctions
laws, regulations or embargoes, including those imposed, administered or
enforced from time to time by: (a) the United States of America, including those
administered by OFAC, the U.S. Department of State, the U.S. Department of
Commerce, or through any existing or future executive order, (b) the United
Nations Security Council, (c) the European Union or any European Union member
state, (d) Her Majesty’s Treasury of the United Kingdom, or (d) any other
Governmental Authority with jurisdiction over any Lender or any Credit Party or
any of their respective Subsidiaries or Affiliates.

 

 74 

 

 

“Secured Party” means Agent, each Lender, each other Indemnitee and each other
holder of any Obligation of a Credit Party.

 

“Share Increase Transaction” means the acquisition (including the Meisheng
Transaction) by a Person of shares of common stock of the Borrower
Representative that has been approved by Required Lenders in their sole and
absolute discretion and which results in the increase of such Person’s
shareholdings and voting rights in the Borrower Representative to 51% or
greater.

 

“Software” means (a) all computer programs, including source code and object
code versions, (b) all data, databases and compilations of data, whether machine
readable or otherwise, and (c) all documentation, training materials and
configurations related to any of the foregoing.

 

“Solvent” means, with respect to any Person as of any date of determination,
that, as of such date, (a) the value of the assets of such Person (both at fair
value and present fair saleable value) is greater than the total amount of
liabilities (including contingent and unliquidated liabilities) of such Person,
(b) such Person is able to pay all liabilities of such Person as such
liabilities mature and (c) such Person does not have unreasonably small capital.
In computing the amount of contingent or unliquidated liabilities at any time,
such liabilities shall be computed at the amount that, in light of all the facts
and circumstances existing at such time, represents the amount that can
reasonably be expected to become an actual or matured liability.

 

“Special Flood Hazard Area” means an area that FEMA’s current flood maps
indicate has at least a 1% chance of a flood equal to or exceeding the base
flood elevation (a 100-year flood) in any given year.

 

“Specified Foreign Subsidiaries” means each of JAKKS Pacific (UK) Ltd., a
company organized under the laws of the United Kingdom, JAKKS Pacific Iberia,
S.L., a company organized under the laws of Spain, JAKKS France, S.A.S., a
company organized under the laws of France, JAKKS Pacific Germany GmbH, a
company organized under the laws of Germany, JKP Mexico Holdings, S.A. de C.V.,
JAKKS Pacific (Canada), Inc., a company organized under the laws of Canada, and
JKID, Ltd. a company organized under the laws of the United Kingdom.

 

“SPV” means any special purpose funding vehicle identified as such in a writing
by any Lender to Agent.

 

“Stated Maturity Date” means June 14, 2021.

 

“Stock” means all shares of capital stock (whether denominated as common stock
or preferred stock), equity interests, beneficial, partnership or membership
interests, joint venture interests, participations or other ownership or profit
interests in or equivalents (regardless of how designated) of or in a Person
(other than an individual), whether voting or non-voting.

 

“Stock Equivalents” means all securities convertible into or exchangeable for
Stock or any other Stock Equivalent and all warrants, options or other rights to
purchase, subscribe for or otherwise acquire any Stock or any other Stock
Equivalent, whether or not presently convertible, exchangeable or exercisable.

 

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“Subordinated Indebtedness” means (a) the 2018 Convertible Notes, the Oasis
Convertible Note, the 2020 Convertible Notes and (b) any Indebtedness of any
Credit Party or any Subsidiary which is subordinated to the Obligations as to
right and time of payment and as to other rights and remedies thereunder and
having such other terms as are, in each case, reasonably satisfactory to Agent
in its sole discretion.

 

“Subordinated Indebtedness Documents” means, collectively, the documents
evidencing the Subordinated Indebtedness, if any.

 

“Subordination Agreement” means any subordination agreement by and among Agent,
Credit Parties and the issuer of any Subordinated Indebtedness on terms and
conditions satisfactory to Agent in its sole discretion, as the same may be
amended, restated and/or modified from time to time subject to the terms
thereof. For purposes of this definition, the Intercreditor Agreement is not a
Subordination Agreement.

 

“Subsidiary” means, with respect to any Person, any corporation, partnership,
joint venture, limited liability company, association or other entity, the
management of which is, directly or indirectly, controlled by, or of which an
aggregate of more than 50% of the voting Stock is, at the time, owned or
controlled directly or indirectly by, such Person or one or more Subsidiaries of
such Person. Unless the context provides otherwise, each reference to Subsidiary
under the Loan Documents shall be deemed to be a reference to a Subsidiary of a
Credit Party. For the avoidance of doubt, DreamPlay, LLC shall not be deemed to
be a “Subsidiary” hereunder for as long as JAKKS does not increase its 5%
ownership therein as in effect on the Closing Date.

 

“Swap Obligation” means, with respect to any Guarantor, any obligation to pay or
perform under any agreement, contract or transaction that constitutes a “swap”
within the meaning of Section 1a(47) of the Commodity Exchange Act.

 

“Tax Affiliate” means, (a) each member of the Consolidated Group, (b) each other
Credit Party and (c) any Affiliate of a Borrower with which such Borrower files
or is eligible to file consolidated, combined or unitary Tax returns.

 

“Term Loan” means an extension of credit by a Lender to the Borrowers, including
any Protective Advance.

 

“Term Loan Borrowing Base” means, as of any date of determination by Agent, from
time to time, an amount equal to the sum of:

 

(1) the Applicable Advance Rate of the book value of the Eligible Domestic
Accounts at such time; plus

 

(2) the Applicable Advance Rate of the book value of the Eligible Foreign
Accounts at such time; plus

 

(3) 90% of the Net Orderly Liquidation Value of Eligible Licensed Inventory;
minus

 

(4) the then-current amount of all Reserves.

 

“Term Loan Commitment” means for each Lender, the amount set forth opposite such
Lender’s name in Schedule 1 under the heading “Term Loan Commitments” as such
amount as the same may be reduced or increased from time to time in accordance
with this Agreement.

 

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“Term Loan Outstandings” means, as of any date of determination, the aggregate
outstanding principal balance of the Term Loans made under this Agreement.

 

“Term Loan Percentage” means, as to any Lender, the percentage equivalent of
such Lender’s Term Loan Commitment, divided by the Aggregate Term Loan
Commitment; provided that following acceleration of the Term Loan, such term
means, as to any Lender, the percentage equivalent of the principal amount of
the Term Loan held by such Lender, divided by the aggregate principal amount of
the Term Loan held by all Lenders.

 

“Term Loan Push-Down Reserve” means the amount, as of any date of determination,
equal to the difference, if a positive number, between the Term Loan
Outstandings minus the Term Loan Borrowing Base.

 

“Term Note” means a promissory note of Borrowers payable to a Lender in
substantially the form of Exhibit 12.02(b), evidencing Indebtedness of Borrowers
under the Commitment of such Lender, as the same may be amended, restated,
supplemented ort otherwise modified from time to time.

 

“Termination Date” means the earliest to occur of (i) June 14, 2021, (ii) the
date of termination of the ABL Credit Agreement, (iii) the date that is 91 days
prior to the maturity of the 2020 Convertible Notes,, (iv) the date that is 91
days prior to the maturity of the Oasis Convertible Notes, or (v) the date on
which the maturity of the Obligations is accelerated (or deemed accelerated) in
accordance with ARTICLE VIII.

 

“Title IV Plan” means a pension plan subject to Title IV of ERISA, other than a
Multiemployer Plan, to which any ERISA Affiliate incurs or otherwise has any
obligation or liability, contingent or otherwise.

 

“Tollytots Limited” means Tollytots Limited, a company incorporated in Hong Kong
with registered number 1251086.

 

“Trade Secrets” means all right, title and interest (and all related IP
Ancillary Rights) arising under any Requirement of Law in or relating to trade
secrets.

 

“Trademark” means all rights, title and interests (and all related IP Ancillary
Rights) arising under any Requirement of Law in or relating to trademarks, trade
names, corporate names, company names, business names, fictitious business
names, trade styles, service marks, logos and other source or business
identifiers and, in each case, all goodwill associated therewith, all
registrations and recordations thereof and all applications in connection
therewith.

 

“Trigger Period” means the period (a) commencing on the day that (i) an Event of
Default occurs or (ii) Availability is less than $5,000,000 and (b) continuing
until the date that (i) no Event of Default exists and (ii) Availability has
been equal to or greater than $5,000,000 for a period of 60 consecutive calendar
days.

 

“TRU Event” means the bankruptcy and subsequent liquidation of Toys “R” Us, Inc.
and its subsidiaries.

 

“UCC” means the Uniform Commercial Code of any applicable jurisdiction and, if
the applicable jurisdiction shall not have any Uniform Commercial Code, the
Uniform Commercial Code as in effect from time to time in the State of New York.

 

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“United States” and “U.S.” each means the United States of America.

 

“U.S. Lender Party” means each of Agent, each Lender, each SPV and each
participant, in each case that is a United States person as defined in Section
7701(a)(30) of the Code.

 

“Wells Fargo” means Wells Fargo Bank, National Association.

 

“Wholly-Owned Subsidiary” of a Person means any Subsidiary of such Person, all
of the Stock and Stock Equivalents of which (other than directors’ qualifying
shares required by law) are owned by such Person, either directly or through one
or more Wholly-Owned Subsidiaries of such Person.

 

Section 12.03       Other Interpretive Provisions.

 

(a)          Defined Terms. Unless otherwise specified herein or therein, all
terms defined in any Loan Document shall have the defined meanings when used in
any certificate or other document made or delivered pursuant thereto. The
meanings of defined terms shall be equally applicable to the singular and plural
forms of the defined terms. Terms (including uncapitalized terms) not otherwise
defined herein and that are defined in the UCC shall have the meanings therein
described.

 

(b)          The Agreement. The words “hereof,” “herein,” “hereunder” and words
of similar import when used in any Loan Document shall refer to such Loan
Document as a whole and not to any particular provision of such Loan Document;
and section, schedule and exhibit references are to such Loan Document unless
otherwise specified.

 

(c)          Certain Common Terms. The term “documents” includes any and all
instruments, documents, agreements, certificates, indentures, notices and other
writings, however evidenced. The term “including” is not limiting and means
“including without limitation.”

 

(d)          Performance; Time. Whenever any performance obligation hereunder or
under any other Loan Document (other than a payment obligation) shall be stated
to be due or required to be satisfied on a day other than a Business Day, such
performance shall be made or satisfied on the next succeeding Business Day. All
references to time shall be based upon New York time. In the computation of
periods of time from a specified date to a later specified date, the word “from”
means “from and including”; the words “to” and “until” each mean “to but
excluding,” and the word “through” means “to and including.” If any provision of
any Loan Document refers to any action taken or to be taken by any Person, or
which such Person is prohibited from taking, such provision shall be interpreted
to encompass any and all means, direct or indirect, of taking, or not taking,
such action.

 

(e)          Contracts. Unless otherwise expressly provided herein or in any
other Loan Document, references to agreements and other contractual instruments,
including the Loan Documents, shall be deemed to include all subsequent
amendments, thereto, restatements and substitutions thereof and other
modifications and supplements thereto which are in effect from time to time, but
only to the extent such amendments and other modifications are not prohibited by
the terms of any Loan Document.

 

(f)           Laws. References to any statute or regulation may be made by using
either the common or public name thereof or a specific cite reference and,
except as otherwise provided with respect to FATCA, are to be construed as
including all statutory and regulatory provisions related thereto or
consolidating, amending, replacing, supplementing or interpreting the statute or
regulation.

 

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Section 12.04       Accounting Terms and Principles. All accounting
determinations required to be made pursuant hereto shall, unless expressly
otherwise provided herein, be made in accordance with GAAP. No change in the
accounting principles used in the preparation of any financial statement
hereafter adopted by the Consolidated Group shall be given effect for purposes
of measuring compliance with any provision of ARTICLE VI or ARTICLE VII unless
Borrowers, Agent and the Required Lenders agree to modify such provisions to
reflect such changes in GAAP and, unless such provisions are modified, all
financial statements, Compliance Certificates and similar documents provided
hereunder shall be provided together with a reconciliation between the
calculations and amounts set forth therein before and after giving effect to
such change in GAAP. Notwithstanding any other provision contained herein, all
terms of an accounting or financial nature used herein shall be construed, and
all computations of amounts and ratios referred to in ARTICLE VI and ARTICLE VII
shall be made, without giving effect to any election under Accounting Standards
Codification 825-10 (or any other Financial Accounting Standard having a similar
result or effect) to value any Indebtedness or other liabilities of any Credit
Party or any Subsidiary at “fair value.” A breach of a financial covenant
contained in ARTICLE VII shall be deemed to have occurred as of any date of
determination by Agent or as of the last day of any specified measurement
period, regardless of when the financial statements reflecting such breach are
delivered to Agent.

 

Section 12.05       Payments. Agent may set up commercially reasonable standards
and procedures to determine or redetermine the equivalent in Dollars of any
amount expressed in any currency other than Dollars and otherwise may, but shall
not be obligated to, rely on any determination made by any Credit Party. Any
such determination or redetermination by Agent shall be conclusive and binding
for all purposes, absent manifest error. No determination or redetermination by
any Secured Party or any Credit Party and no other currency conversion shall
change or release any obligation of any Credit Party or of any Secured Party
(other than Agent and its Related Persons) under any Loan Document, each of
which agrees to pay separately for any shortfall remaining after any conversion
and payment of the amount as converted. Agent may round up or down, and may set
up commercially reasonable appropriate mechanisms to round up or down, any
amount hereunder to nearest higher or lower amounts and may determine reasonable
de minimis payment thresholds.

 

Section 12.06       Intercreditor Agreement. Each Lender hereby (a) agrees that
this Agreement and the other Loan Documents, and the rights and remedies of the
Agent and the Lenders hereunder and thereunder, are subject to the terms of the
Intercreditor Agreement (and to the extent any term of this Agreement or any
other Loan Document conflicts or is inconsistent with the terms thereof, the
terms of the Intercreditor Agreement shall control), (b) agrees that it will be
bound by and will take no actions contrary to the provisions of the
Intercreditor Agreement, and (c) hereby authorizes and instructs the Agent to
enter into the Intercreditor Agreement.

 

[signature pages follow]

 

 79 

 

 

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed and delivered by their duly authorized officers as of the day and year
first above written.

 

“Borrowers”           JAKKS PACIFIC, INC.   MOOSE MOUNTAIN MARKETING, INC.  
                        By:     By:   Name:     Name:   Title:     Title:      
  MAUI, INC.   KIDS ONLY, INC.           By:     By:   Name:     Name:   Title:
    Title:         DISGUISE, INC.             By:       Name:       Title:      
      JAKKS SALES LLC             By:       Name:       Title:            
“Borrower Representative”           JAKKS PACIFIC, INC.             By:      
Name:       Title:      

 

[Signature Page to Term Loan Agreement]

 

 

 

 

“Guarantors”           JAKKS PACIFIC (H.K.) LIMITED   JAKKS PACIFIC (ASIA)
LIMITED                           By:     By:   Name:     Name:   Title:    
Title:         DISGUISE LIMITED   MOOSE MOUNTAIN TOYMAKERS LIMITED           By:
    By:   Name:     Name:   Title:     Title:         A.S. DESIGN LIMITED  
ARBOR TOYS COMPANY LIMITED           By:     By:   Name:     Name:   Title:    
Title:         KIDS ONLY, LIMITED   TOLLYTOTS LIMITED           By:     By:  
Name:     Name:   Title:     Title:  

 

[Signature Page to Term Loan Agreement]

 

 

 

 

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed and delivered by their duly authorized officers as of the day and year
first above written.

 

  GACP FINANCE CO., LLC, as Agent                 By:     Name:     Title:      
  GACP II L.P., as a Lender         By:     Name:      Title:  

 

[Signature Page to Term Loan Agreement]