Exhibit 10.19
PLEDGE AND SECURITY AGREEMENT
PLEDGE AND SECURITY AGREEMENT, made and entered into as of the 12th day of
November, 1997 (this "Agreement"), between Interactive Imaginations, Inc., a New
York corporation ("Grantor"), and The Travelers Insurance Company (the "Secured
Party").
RECITALS
WHEREAS, Grantor and Secured Party have entered into a Senior Convertible
Note (the "Note") with Warrants Purchase Agreement, dated as of November 12,
1997 (such agreement, as it may hereafter be amended, restated, supplemented or
otherwise modified from time to time, being the "Note Purchase Agreement"),
pursuant to which the Grantor has agreed to grant, assign and pledge to the
Secured Party a first priority security interest in and to certain of its
rights, properties and assets, to secure its obligations to the Secured Party
under the Note Purchase Agreement and the Note.
WHEREAS, as a condition precedent to making the loan (the "Loan") to
Grantor pursuant to the Note Purchase Agreement, the Secured Party has required
Grantor, and Grantor has agreed, to grant to the Secured Party a continuing
first and prior security interest in certain property and interests in Grantor's
"Riddler Asset," to secure all such obligations of the Grantor, including, but
not limited to, all of its right, title, and interest in and to all computer
source code, trademarks, copyrights, data base information and other proprietary
information owned by Grantor and comprising the Riddler Property and related
assets of the Grantor (as more fully described in Section 1 herein), and all
proceeds thereof (collectively, the "Collateral"), and to grant to the Secured
Party a power of attorney to foreclose upon and sell Grantor's interests in the
Collateral under the circumstances set forth in this Agreement.
NOW, THEREFORE, Grantor, intending to be bound hereby, in consideration of
the premises hereof, in order to induce Secured Party to enter into the Note
Purchase Agreement and to induce the Secured Party to make a loan to the
Grantor, and in consideration of such loan being made by the Secured Party to or
for the account of the Grantor, pursuant to the Note Purchase Agreement, and for
$1.00 and other good and valuable consideration, receipt of which is hereby
acknowledged, hereby agrees with, and for the benefit of, the Secured Party, as
follows:
AGREEMENT
SECTION 1. Security for Liabilities.
(a) This Agreement secures the full and prompt payment and performance of
(i) all obligations and liabilities of the Grantor to the Secured Party now or
hereafter existing under the Note Purchase Agreement, whether for principal,
interest, fees, indemnification, or otherwise, and (ii) all obligations and
liabilities of Grantor to the Secured Party now or hereafter existing under this
Agreement (such obligations and liabilities being collectively referred to as
the "Liabilities"). Grantor and the Secured Party agree that they intend the
security interest hereby granted to attach upon the execution and delivery of
this Agreement.
(b) To secure the payment and performance of all of the Liabilities,
Grantor hereby grants to the Secured Party a first and valid security interest
in all of Grantor's right, title and interest, in the United States and
throughout the world, in and to all of its now owned and hereafter acquired (i)
computer source and run-time coding and software employed to operate Grantor's
"Riddler" property on the World Wide Web in a manner substantially similar to
the current operation of Riddler, and any and all future upgrades and revisions
thereto (the "Riddler Software"), and (ii) all games and content (the "Content,"
and together with the Riddler Software, the "Riddler Property") used in
conjunction with Riddler and controlled by the Riddler Software. The elements of
the Riddler Software are more fully described on Exhibit A hereto.
Notwithstanding the foregoing, the Secured Party acknowledges that the security
interest set forth herein shall be subject to all the rights in respect of the
Riddler Software granted by Grantor by a License Agreement, dated as of November
22, 1996, to SegaSoft, Inc.
(c) To secure the payment and performance of all of the Liabilities,
Grantor hereby grants to the Secured Party a first and valid security interest
in all of Grantor's right, title and interest, in the United States and
throughout the world, in and to all of its now owned and hereafter acquired
computer hardware employed to serve and display Grantor's Riddler Property on
the World Wide Web in a manner substantially similar to the current operation of
Riddler, such hardware fully described on Exhibit B hereto, and as may be
amended from time to time pursuant to this Agreement.
(d) To secure the payment and performance of all of the Liabilities,
Grantor hereby grants to the Secured Party a first and valid security interest
in all of Grantor's right, title and interest, in the United States and
throughout the world, in and to all of its now owned and hereafter acquired
proprietary data and information related to or generated from the Riddler
Property, including without limitation, subject to the rights of Riddler players
as set forth in the Privacy Policy Statement posted on the Riddler Property, the
registration information of Riddler players collected by Grantor through the
Riddler Property.
(e) To secure the payment and performance of all of the Liabilities,
Grantor hereby grants to the Secured Party a first and valid security interest
in all of Grantor's right, title and interest, in the United States and
throughout the world, in and to all of its now owned and hereafter acquired
intellectual property rights, as more fully described on Exhibit C hereto,
including copyrights, trademarks, trade names, service marks and the like, which
are or were solely and directly related to or used in conjunction with the
Grantor's Riddler Property, including without limitation, all Web pages
comprising the Riddler Property, the "Ridman" logo and all other marks denoting
the Riddler Property or games, artwork, trivia, and puzzles available thereon,
and all registrations and applications to register same, and all renewals
thereof and all proceeds thereof.
(f) In addition to the security interests set forth in this Section 1,
subject to the provisions of subsection 3(c), Grantor hereby further grants to
the Secured Party a first and valid security interest in all of Grantor's right,
title and interest in and to all income, royalties, damages and payments now and
hereafter due and/or payable in respect of the Collateral and, subject to the
provisions of subsection 3(c), in and to all rights during the term of this
Agreement to xxx, collect and retain for its own benefit damages and payments
for past or future infringements on the Collateral.
SECTION 2. Grantor Remains Liable.
Anything contained herein to the contrary notwithstanding, (a) Grantor
shall remain liable under any contracts and agreements included in the
Collateral, to the extent set forth therein, to perform all of its duties and
obligations thereunder to the same extent as if this Agreement had not been
executed, (b) the exercise by Secured Party of any of its rights hereunder shall
not release Grantor from any of its duties or obligations under any contracts
and agreements included in the Collateral, and (c) Secured Party shall not have
any obligation or liability under any contracts and agreements included in the
Collateral by reason of this Agreement, nor shall Secured Party be obligated to
perform any of the obligations or duties of Grantor thereunder or to take any
action to collect or enforce any claim for payment assigned hereunder.
SECTION 3. Representations, Warranties and Covenants of Grantor.
(a) Except as otherwise set forth herein, none of the Collateral is or
shall become subject to any lien, security interest or other encumbrance other
than that of the Secured Party granted hereby, and Grantor agrees that it shall
not transfer, convey or encumber any interest in or to the Collateral without
the prior express written consent of the Secured Party, except in accordance
with the terms of the Note Purchase Agreement.
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Notwithstanding the foregoing, the Secured Party agrees that Grantor shall
be permitted to license all and any part of the Content in the ordinary course
of business in connection with distribution of the Content through third party
web sites. It is expressly understood that portions of the Riddler Software may
be necessary to accomplish any such Content distribution, but at no time is any
Riddler Software licensed in a stand-alone manner for any use other than
distributing the Content. Any such license of the Content granted by Grantor
(any "License") shall be in writing and shall reserve all rights in Grantor
except those reasonably necessary to effectuate the transaction in the ordinary
course of business.
(b) Grantor shall not take any action, or permit any action to be taken by
others subject to Grantor's control, including licensees, or fail to take any
action, or permit others subject to Grantor's control, including licensees, to
fail to take any action, which would, in the case of any such actions or
failures to act taken singly or together, materially adversely affect the
validity, grant and enforceability of the Collateral herein.
(c) During the term of this Agreement, all income, royalties, payments and
damages due and payable to Grantor under the Collateral shall be paid to, and
shall remain the property of, Grantor. Notwithstanding the foregoing, upon the
occurrence and during the continuance of an Event of Default under and as
defined in this Agreement or the Note Purchase Agreement, all income, royalty
payments and damages, if any, received thereafter shall, on the demand of the
Secured Party, be paid directly to the Secured Party and shall be applied by the
Secured Party on account of the Liabilities of Grantor. The Secured Party shall
have the right to notify payors to make their payments directly to the Secured
Party upon the occurrence and during the continuance of an Event of Default
under the Note Purchase Agreement.
(d) Grantor agrees, upon the reasonable request by the Secured Party
during the term of this Agreement, to execute, acknowledge and deliver any and
all additional instruments and documents which may be necessary or desirable to
effect the purposes of this Agreement, such instruments and documents to be in a
form reasonably acceptable to counsel for Grantor and the Secured Party.
(e) Grantor shall promptly notify the Secured Party, in writing, of any
suit, action, proceeding or counterclaim brought against Grantor relating to,
concerned with, or materially adversely affecting the Collateral, and shall, on
request, deliver to the Secured Party a copy of all pleadings, papers, orders or
decrees theretofore and thereafter filed in any such suit, action or proceeding,
and shall keep the Secured Party duly advised in writing of the progress of any
such suit.
(f) Grantor shall use its commercially reasonable efforts to take such
action, or to direct action to be taken by others subject to Grantor's control,
in order to maintain insurance coverage on the tangible Collateral, and to
maintain all Collateral in good working order in order to prevent harm to the
Collateral which may materially adversely affect the validity, grant and
enforceability of the Secured Party's interest in the Collateral granted herein.
(g) Grantor represents and warrants to the Secured Party that (i) the
Grantor's principle place of business is located at 000 Xxxxxxxx, Xxxxx 0000,
Xxx Xxxx, XX 00000 and (ii) the Collateral set forth on Exhibit B hereto is
physically present at Grantor's principle place of business; and (iii) the
Collateral will not be moved from that location without notice to the Secured
Party and appropriate filings.
SECTION 4. Indemnity.
Grantor agrees to indemnify the Secured Party from and against any and
all claims, losses and liabilities growing out of or resulting from this
Agreement (including, without limitation, enforcement of this Agreement and any
actions taken pursuant to Section 8 or any failure to act thereunder). In such
event, the Liabilities of Grantor shall include the amount of any reasonable
expenses, including the reasonable fees and disbursements of its counsel, which
Secured Party may incur in connection with (i) the custody, preservation, or the
sale of, collection from or other realization upon, any of the Collateral,
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(ii) the exercise or enforcement by Secured Party of any of its rights or powers
hereunder, or (iii) any failure by Grantor to perform or observe any of the
provisions hereof.
SECTION 5. Default. The following shall each constitute an "Event of Default"
hereunder:
(a) The failure of the Grantor to observe or perform any term, covenant or
agreement set forth in Section 3 of this Agreement; or
(b) The failure of the Grantor to observe or perform any term, covenant or
agreement set forth in this Agreement (other than Section 3) and such failure
shall have continued unremedied for a period in excess of 15 days after Grantor
is aware of such failure; or
(c) Any representation or warranty of the Grantor made in this Agreement,
or in any certificate, report, opinion or other document delivered or to be
delivered pursuant hereto, shall prove to have been incorrect or misleading
(whether because of misstatement or omission) in any material respect when made;
or
(d) The occurrence of any material loss, theft, damage or destruction of
the Collateral, and such Collateral is not replaced, recovered or repaired
within 7 days of the occurrence of such loss, theft damage or destruction; or
(e) The issuance or making of any levy, seizure, attachment execution or
similar authorized legal process on any of the Collateral; or
(f) The occurrence of an Event of Default under and as defined in the Note
Purchase Agreement.
SECTION 6. Rights and Remedies Upon Default.
Upon the occurrence of an Event of Default and at any time thereafter
(such Event of Default not having previously been cured), the Secured Party, in
addition to any rights set forth herein or in the Note Purchase Agreement, shall
have all the rights and remedies of a secured party under the Uniform Commercial
Code and shall further have, in addition to all other rights and remedies
provided herein or by law, the right to take possession of the Collateral and
from time to time to sell, assign or otherwise dispose of the Collateral, at
public or private sale or otherwise, at the option of the Secured Party, for
cash or on credit, upon such terms and conditions as the Secured Party may deem
proper, all without (except as shall be required by applicable statute and which
cannot be waived) advertisement or demand upon or notice to Grantor or right of
redemption of Grantor, which are hereby expressly waived to the fullest extent
permitted by law and any transferee with respect to the Collateral (including
the Secured Party) shall acquire the same absolutely free from any right or
claim of any kind, including without limitation any equity of redemption which,
together with all rights of redemption, stay or appraisal which Grantor may have
under any rule or statute which Grantor hereby specifically and unconditionally
waives to the fullest extent permitted by law; and, in connection with the
foregoing:
(a) The Secured Party may, unless prohibited by applicable statute which
cannot be waived, purchase the Collateral, or any part thereof, free from and
discharged of all trusts, claims, right of redemption and equities of Grantor,
which are hereby waived and released; and
(b) The Secured Party shall apply all proceeds received by Secured Party
in respect of any sale, assignment or other disposition of, collection from or
other realization upon the Collateral in whole or in part against all or any
part of the Liabilities in such order as the Secured Party shall elect, in its
discretion; any surplus of such proceeds held by the Secured Party and remaining
after payment in full of all of the Liabilities shall be paid over to Grantor or
to whomsoever may be lawfully entitled to receive such surplus; and Grantor
shall at all times remain liable for any deficiency on the Liabilities.
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SECTION 7. Remedies Cumulative.
All options, powers and rights granted to the Secured Party hereunder,
under the Note Purchase Agreement shall be cumulative and shall be in addition
to any other options, powers and rights of the Secured Party under other
applicable law or otherwise. Grantor shall at all times remain liable for any
deficiency on the Liabilities.
SECTION 8. Power of Attorney.
Grantor hereby irrevocably appoints the Secured Party, and any officer or
agent of the Secured Party, with full power of substitution, its true and lawful
attorneys-in-fact with full, irrevocable power and authority in Grantor's place,
stead, name and behalf, or in the Secured Party's own names, from time to time
and at any time in the Secured Party's absolute discretion, after an Event of
Default which is continuing, to do any and all things required to be done to
carry out the terms or to accomplish the purposes of this Agreement as fully and
effectually as Grantor could do but for this appointment, including without
limitation, the power (i) to sign Grantor's name to, and to file, Financing
Statements or other instruments reasonably required by the Secured Party to
protect or perfect any security interest given hereunder, (ii) to execute, in
connection with any sale, transfer or other disposition, any endorsements,
assignments or other instruments of conveyance or transfer with respect to the
Collateral, (iii) to notify and direct the United States Post Office authorities
by notice given in the name of Grantor and signed by the Secured Party on behalf
of Grantor to change the address for delivery of all mail addressed to Grantor
relating to the Collateral to an address to be designated by the Secured Party,
and to cause such mail to be delivered to such designated address where the
Secured Party may open all such mail and remove therefrom any notes, checks,
acceptances, drafts, money orders or other instruments included in the
Collateral, (iv) to endorse the name of Grantor upon any notes, checks,
acceptances, drafts, money orders, instruments or other documents relating to
the Collateral and to effect the deposit and collection thereof, and (v) to
endorse the name of Grantor on any other documents relating to the Collateral.
Grantor hereby ratifies all actions taken by or on behalf of the Secured
Party pursuant to this power of attorney or otherwise as provided in this
Agreement and neither the Secured Party nor any of their officers or agents
shall be liable for any acts or omissions or mistake of fact or law in its or
their capacity as such attorney-in-fact. This power of attorney is coupled with
an interest and shall be irrevocable until all of the Liabilities are paid in
full and this Agreement is terminated. The powers conferred upon the Secured
Party hereunder are solely to protect its interests and shall not impose any
duty upon it to exercise any of such powers.
SECTION 9. Termination and Release.
Upon full and complete payment and performance of the Liabilities, this
Agreement and the power of attorney granted at Section 8 shall automatically
terminate and the Secured Party shall release the Collateral from this
Agreement, and shall execute and deliver all documents as may be reasonably
necessary to render the Collateral free and clear of any security interest
created pursuant to this Agreement.
SECTION 10. Continuing Security Interest; Assignment.
This Agreement shall create a continuing security interest in the
Collateral and shall remain in full force and effect until payment in full of
the Liabilities. If at any time or times, by sale, assignment, negotiation,
pledge or otherwise, the Secured Party transfers any of the Liabilities in
accordance with the Note Purchase Agreement, such transfer shall carry with it
the Secured Party's rights, powers and remedies under this Agreement with
respect to the obligation transferred, and the transferee shall become
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vested with such rights and remedies whether or not they are specifically
referred to in the transfer, unless, and then only to the extent, that the terms
of such transfer otherwise provide. The Secured Party agrees to give Grantor
prior notice of its intention to transfer any of its rights, powers and remedies
under this Agreement, provided however, that the Secured Party's failure to do
so shall not result in any liability other than damages incurred directly by
Grantor as a result of such failure to give notice. If and to the extent the
Secured Party retains any of the Liabilities, the Secured Party shall continue
to have the rights, powers and remedies herein set forth with respect thereto.
Grantor shall not assign this Agreement except with the prior consent of the
Secured Party.
SECTION 11. Enforceability and Construction.
Should any part or provision of this Agreement be held unenforceable or
conflicting with the law of any jurisdiction, the validity of the remaining
parts or provisions hereof shall not be affected thereby. Should any part or
provision of this Agreement be deemed by a court or other governmental authority
of competent jurisdiction to be an assignment of any trademark so as to result
in Grantor's abandonment thereof, such part or provision (but no other) shall be
construed as providing for a security interest and not an assignment, all in
order to preclude such abandonment and, if such construction shall not be
accepted by such court or other governmental authority such part or provision
(but no other) shall be deemed null and void as to such trademark in the
jurisdiction where abandonment might otherwise result.
SECTION 12. Miscellaneous.
This Agreement alone fully and completely expresses the agreement of the
parties hereto with respect to the subject matter hereof. This Agreement shall
be binding upon and shall inure to the benefit of the parties hereto and their
respective successors and assigns. No failure or delay on the part of any party
in exercising any right, power or privilege hereunder or under the Note Purchase
Agreement, the other Loan Documents or any other agreement or instrument in
connection herewith or therewith shall operate as a waiver thereof or preclude
any other or further exercise thereof or of any other right, power or privilege.
No amendment or waiver of any provision of this Agreement, nor consent to any
departure herefrom, shall in any event be effective unless the same shall be in
writing and signed by the waiving or consenting party, and then such waiver or
consent shall be effective only in the specific instance and for the specific
purpose for which given.
SECTION 13. Notices, etc.
Any notice, demand, consent, approval or other thing required or desired
to be served, given or delivered hereunder shall be in writing and shall, except
as otherwise herein expressly provided, be deemed to have been validly served,
given or delivered upon delivery, if personally delivered (including delivery by
overnight private courier service), or upon transmission by telex, telegram or
telecopier or three (3) Business Days after deposit of same in the United States
mail by registered or certified mail, postage prepaid.
SECTION 14. Governing law.
This Agreement has been made and executed and is to be performed in the
State of New York. This Agreement and of all transactions provided for herein
shall be governed by, interpreted and construed under the laws of the State of
New York without regard to the conflict of laws principles thereof.
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SECTION 15. Counterparts.
This Agreement may be executed in one or more counterparts and by
different parties hereto in separate counterparts, each of which when so
executed and delivered shall be deemed an original, but all such counterparts
together shall constitute but one and the same instrument; signature pages may
be detached from multiple separate counterparts and attached to a single
counterpart so that all signature pages are physically attached to the same
document.
* * * * *
IN WITNESS WHEREOF, the parties hereto have executed this Agreement by
causing these presents to be signed by their respective duly authorized officers
as of the date first written above.
INTERACTIVE IMAGINATIONS, INC.
By:_____________________________
Name: Xxxxxxx X. Xxxxxxxx
Title: Chief Executive Officer
THE TRAVELERS INSURANCE COMPANY
By:__________________________________
Name:
Title:
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Exhibit A
INTERACTIVE IMAGINATIONS, INC.
RIDDLER PROPRIETARY SOFTWARE
The components of the Riddler Software detailed in this Exhibit consist of CGI
C++ executables, system C++ executables and the Ridmark Data System, which data
system is based upon Oracle stored procedures and tables.
Name and Description of Riddler Software Sub-Systems:
Registration: Enables forms and functions for user to enter demographic
information, which information is stored in the Ridmark Data System and
utilized by the "Ad Delivery" sub-system.
TicketBooth: Enables game play selections for users.
Ad Delivery: Enables delivery and display of full-page advertisements to users
prior to game launch; functionally utilizing a delivery algorithm which weights
several variables in determining which advertisement is displayed, including the
required circulation of the promotions, end date of promotions, as well as
player and demographic data acquired by "Registration." The Ad Delivery sub
system also utilizes weighted algorithms to create 'deals' of coins/caps for a
user (i.e. - determines the type and number of points the user will receive for
winning the game chosen through the "TicketBooth" subsystem) .
Game Launch: Enables a user to begin and play the game chosen through the
"TicketBooth" sub-system. For multi-user games, Game Launch includes IRC chat
functions allowing users to communicate prior to beginning a game.
Game Close: After the completion of a game, this sub-system closes a game,
informs the user of the results, and depending on a win or a loss, credits a
user's inventory with the value of the `deal' determined by the Ad Delivery
sub-system. "Game Close" also delivers additional a final advertising impression
(banner ad) associated with the promotion determined and displayed by the "Ad
Delivery" sub-system.
Caps Exchange and Inventory: Enables users to (i) `purchase' points (CAPS)
toward particular prizes using generic points (Riddlets) or (ii) exchange points
for a particular prize into points for another prize or generic points, and
(iii) track their progress toward each live prize competition. Along with the
'deal' created by the "Ad Delivery" sub-system, the Caps Exchange and Inventory
sub-systems are the basis of the Riddler economy which controls point
acquisition system wide and ensuring the desired duration of specific prize
promotions.
Leaderboard: Tracks game activity and displays, by individual game, a list of
users ranked in descending order beginning with the user credited with winning
that particular game the greatest number of times.
System Operations: Primarily manages loading Web-activity logs and data into the
Ridmark Data System tables, as well as managing interactions between other
system functions.
The following two pages of this Exhibit A specify each Riddler sub-system, the
"executable" files within the sub-system, and the file names containing the
source code comprising of the Riddler Software.
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EXHIBIT B
Riddler Hardware
Equipment Serial # Description Riddler Network Name
--------- -------- ----------- --------------------
Silicon Graphics 080069097ADF Single Processor Web Server Mozart
Challenge S - 200MHz
128 MB RAM
Silicon Graphics 0800690A41C3 Single Processor Web Server Old-Phobos
Challenge S - 200MHz
128 MB RAM
Silicon Graphics 0800690A46E6 Single Processor Web Server Liszt
Challenge S - 200MHz
128 MB RAM
Silicon Graphics 0800690A36E4 Single Processor Web Server Vesta
Challenge S - 200MHz
128 MB RAM
Silicon Graphics 080069097AE2 Single Processor Web Server Xxxxxx
Challenge S - 200MHz
128 MB RAM
Sun Xxxxx 0 606F0109 Saturn
Cisco FDDI Concentrator FDDI concentrator Cisco-Conc
Silicon Graphics Indy 080069097989 Development workstation Mercury
Sun Ultra 1 621F0451 Development workstation Phoebe
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