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EXHIBIT 10.10
SECURITY AGREEMENT
This SECURITY AGREEMENT is made as of the 31st day of July,
1996 by FUNDEX GAMES, INC. (f/k/a Third Quarter, Inc.), a Nevada corporation,
with its principal place of business at 0000 X. 00xx Xxxxxx, Xxxxxxxxxxxx,
Xxxxxxx 00000 ("Debtor"), in favor of PARADIGM VENTURE INVESTORS, LLC, an
Illinois limited liability company ("Paradigm"), with an address at 00 Xxxxxx
Xxxxx, Xxxxx X, Xxxxxxxxxx, Xxxxxxxx 00000, as agent (in such capacity,
"Agent") for the parties listed on the signature pages hereto (collectively,
the "Secured Parties" and each individually a "Secured Party").
1. DEFINITIONS.
As used in this Agreement,
"Agent" means Paradigm, in its capacity as agent for and on
behalf of the Secured Parties.
"Agreement" means this Security Agreement, as it may be
amended, modified or supplemented from time to time.
"Business Day" means a day other than Saturday or Sunday on
which banks are open for business in Chicago, Illinois.
"Collateral" means all personal property and interests in
personal property now owned or hereafter acquired by Debtor in or upon which a
security interest, lien or mortgage has been, or is now or hereafter, granted
to Agent, on behalf of the Secured Parties by Debtor, whether under this
Agreement or under any of the other Security Documents.
"Debentures" means the Secured Debentures of even date
herewith by Debtor issued in favor of the Secured Parties, with an aggregate
principal amount of Five Hundred Thirty Thousand Dollars ($500,000), as such
Debentures may be amended, modified or supplemented from time to time.
"Default" means the occurrence or existence of any of the
events listed in Section 4 of this Agreement.
"Obligations" means all of Debtor's liabilities, obligations
and indebtedness to the Secured Parties of any and every kind and nature,
whether heretofore, now or hereafter owing, arising, due or payable and
howsoever evidenced, created, incurred, acquired, or owing, whether primary,
secondary, direct, contingent, fixed or otherwise (including, without
limitation, obligations of performance) and whether arising or existing under
written agreement, oral agreement or by operation of law, including, without
limitation, all Debtor's indebtedness and obligations to the Secured Parties
under (i) this Agreement, (ii) the Debentures or (iii) the other Security
Documents. The term
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includes, without limitation, all interest, charges, expenses, fees,
reasonable attorneys' fees and disbursements and any other sum chargeable under
this Agreement, the Debentures, and the other Security Documents.
"Security Documents" means, collectively, this Agreement, the
Debentures and all other agreements, instruments and documents now or hereafter
executed and/or delivered by Debtor to the Secured Parties or the Agent, on
behalf of the Secured Parties, in order to evidence or secure the Obligations,
as each may be amended, modified or supplemented from time to time.
The foregoing definitions shall be equally applicable to both
the singular and plural forms of the defined terms. Terms used in this
Agreement and not defined herein or in the Debentures shall have the meanings
given such terms in the Code, as defined in Section 2.1 below.
2. SECURITY INTEREST.
2.1 Grant of Security Interest. To secure payment and
performance of the Obligations, Debtor hereby grants to the Agent a right of
setoff against and a continuing security interest in and to all of Debtor's now
existing or owned and hereafter arising or acquired: (a) accounts (including,
without limitation, all accounts receivable), chattel paper, claims, contract
rights, leases and rental income thereunder, leasehold interests, letters of
credit, instruments and documents ("Accounts"), and all goods sold, leased or
otherwise disposed of by Debtor which have given rise to Accounts and which
have been returned to or repossessed or stopped in transit by Debtor; (b) all
patents, copyrights and trademarks, and all applications for and
registrations of the foregoing, all franchise rights, tradenames, goodwill,
beneficial interests, rights to tax refunds and all other general intangibles
of any kind or nature whatsoever ("General Intangibles"); (c) all inventory and
goods of the Debtor, wherever located, whether in transit, held by others for
the Debtor's account, covered by warehouse receipts, purchase orders or
contracts, or in the possession of any carriers, forwarding agents, truckers,
warehousemen, vendors or other persons, including, without limitation, all raw
materials, work-in-process, finished merchandise, supplies, goods, incidentals,
office supplies, packaging materials and all materials used or consumed in
Debtor's business ("Inventory"); (d) goods (other than Inventory), including
all returned, reconsigned and repossessed goods, machinery, equipment,
vehicles, appliances, furniture, furnishings and fixtures ("Equipment"); (e)
monies, reserves, deposits, certificates of deposit and deposit accounts and
interest or dividends thereon, guaranties, securities, cash, cash equivalents
and other property whether or not in the possession or under the control of
Agent, any Secured Party or their respective bailee;
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(f) all books, records, computer records, ledger cards, programs and other
computer materials, customer and supplier lists, invoices, orders and other
property and general intangibles at any time evidencing or relating to the
contents thereof ("Records"); (g) all accessions to any of the foregoing and
all substitutions, renewals, improvements and replacements of and additions
thereto; (h) all other property of Debtor, real and personal; and (i) all
products and proceeds of the foregoing (whether such proceeds are in the form
of cash, cash equivalents, proceeds of insurance policies, Accounts, General
Intangibles, Inventory, Equipment, Records or otherwise). Debtor further
assigns to Agent Debtor's right of stoppage in transit and Debtor's right to
reclaim goods from customers and Account Debtors (as hereinafter defined) under
Section 2-702 of the Illinois Uniform Commercial Code, as amended (the "Code").
Debtor, Agent and the Secured Parties hereby acknowledge their mutual intention
that the security interest granted herein will attach to Collateral when Debtor
executes and delivers this Agreement or, in the case of any Collateral acquired
by Debtor after the execution and delivery hereof, upon Debtor first acquiring
rights therein. Debtor hereby acknowledges and agrees, subject hereto, that
Debtor has rights in the Collateral and that value has been given.
2.2 Preservation of Collateral and Perfection of Security
Interests Therein. Until all of the Obligations of Debtor shall have been
indefeasibly paid and satisfied in cash, Agent shall be entitled to retain its
security interests in and to all existing Collateral, and all proceeds and
products thereof. Debtor agrees that it shall execute and deliver to Agent,
concurrently with the execution of this Agreement, and at any time or times
hereafter at the request of Agent, all financing statements or other documents
(and pay the cost of filing or recording the same in all public offices deemed
necessary by Agent) as Agent may request, in a form satisfactory to Agent, to
perfect and keep perfected the security interests in the Collateral or to
otherwise protect and preserve the Collateral and Agent's security interests
therein. Should Debtor fail to do so, Agent is authorized to sign any such
financing statements as Debtor's agent. Debtor further agrees that a carbon,
photographic, photostatic or other reproduction of this Agreement or of a
financing statement is sufficient as a financing statement.
2.3 Loss of Value of Collateral. Debtor agrees to notify
Agent promptly of any material loss or depreciation in the value of the
Collateral, other than loss or depreciation occurring in the ordinary course
of Debtor's business.
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3. REPRESENTATIONS, WARRANTIES AND COVENANTS.
3.1 Recordkeeping. Debtor covenants with Agent that
Debtor shall at all times hereafter keep accurate and complete records of its
finances, in accordance with sound accounting practices and generally accepted
accounting principles, all of which records shall be available for inspection
during Debtor's usual business hours at the request of any of Agent's officers,
employees or agents.
3.2 Asset Warranties. Debtor represents and warrants to
Agent and each Secured Party that the Collateral is located on one of the
premises listed on Schedule A attached hereto and made a part hereof and is not
in transit. None of the Collateral will be removed from such locations without
prior written notice to Agent, except for use or sale in the ordinary course of
business. The Collateral is not subject to any lien, encumbrance, mortgage or
security interest whatsoever except for the security interests granted to
Agent. Debtor shall not permit any lien, encumbrance, mortgage or security
interest whatsoever to attach to any of the Collateral, except in favor of
Agent.
3.3 Verification of Accounts. After the occurrence of a
Default hereunder, Agent shall have the right, at any time or times thereafter,
in Agent's name, in the name of a nominee of Agent or in Debtor's name, to
verify the validity, amount or any other matter relating to any Accounts, by
mail, telephone, telegraph or otherwise.
3.4 Appointment of Agent as Debtor's Attorney-in-Fact.
Debtor hereby irrevocably designates, makes, constitutes and appoints Agent
(and all persons designated by Agent in writing to Debtor) as Debtor's true and
lawful attorney-in- fact, and authorizes Agent, in Debtor's or Agent's name, to
do the following: (a) at any time, (i) endorse Debtor's name upon any items of
payment or proceeds thereof and deposit the same in Agent's account on account
of the Obligations; (ii) endorse Debtor's name upon any chattel paper,
document, instrument, invoice, or similar document or agreement relating to any
Account of Debtor or any goods pertaining thereto; (iii) sign Debtor's name on
any verification of Accounts of Debtor and notices thereof to any person or
entity obligated on or under an Account or, if appropriate, General Intangibles
(an "Account Debtor"), as provided in Section 3.3 hereof; (iv) take control in
any manner of any item of payment on or proceeds of any Account of Debtor and
apply such item of payment or proceeds to the Obligations; and (v) have access
to any lock box into which any of Debtor's mail is deposited, and open and
process all mail addressed to Debtor and deposited therein; and (b) at any time
after the occurrence of a Default, (i) demand payment of Accounts of Debtor;
(ii) enforce payment of accounts of Debtor by legal proceedings or otherwise;
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(iii) exercise all of Debtor's rights and remedies with respect to proceedings
brought to collect any Account; (iv) sell or assign any Account of Debtor upon
such terms, for such amount and at such time or times as Agent deems advisable;
(v) settle, adjust, compromise, extend or renew any Account of Debtor; (vi)
discharge and release any Account of Debtor; (vii) prepare, file and sign
Debtor's name on any proof of claim in bankruptcy or other similar document
against any Account Debtor; (viii) have access to any postal box of Debtor and
notify the post office authorities to change the address for delivery of
Debtor's mail to an address designated by Agent; and (ix) do all other acts and
things which are necessary, in Agent's discretion, to fulfill Debtor's
Obligations under this Agreement. Agent shall not exercise its rights arising
as a result hereof until after the occurrence of a Default hereunder.
3.5 Notice to Account Debtors. Following the occurrence
of a Default under this Agreement, Agent may, in its sole discretion, at any
time or times, without prior notice to Debtor, notify any or all Account
Debtors that the Accounts of Debtor have been assigned to Agent, that Agent has
a security interest therein, and that all payments upon such Accounts be made
directly to Agent or as otherwise specified by Agent.
3.6 Safekeeping of Assets and Asset Covenants. Agent
shall not be responsible for: (a) the safekeeping of the Collateral; (b) any
loss or damage to all or any part of the Collateral; (c) any diminution in the
value of all or any part of the Collateral; or (d) any act or default of any
carrier, warehouseman, processor, bailee, forwarding agency or any other person
with respect to all or any part of the Collateral. All risk of loss, damage,
destruction or diminution in value of all or any part of the Collateral of
Debtor shall be borne by Debtor.
3.7 Insurance. Debtor shall insure the Collateral at all
times against all hazards specified by Agent, including, without limitation,
fire, theft and risks covered by extended coverage insurance, and such
policies shall be payable to Agent as its interest may appear. Such policies
of insurance shall be satisfactory to Agent as to form, amount and insurer. If
requested by Agent, Debtor shall furnish certificates, policies or endorsements
to Agent as proof of such insurance, and if Debtor fails to do so, Agent is
authorized but not required to obtain such insurance at Debtor's expense. All
policies shall provide for at least thirty (30) days prior written notice to
Agent of cancellation or non-renewal. Agent may act as attorney-in-fact for
Debtor in making, adjusting and settling any claims under any such insurance
policies. Debtor hereby assigns to Agent all of its right, title and interest
to any insurance policies insuring the Collateral, including, without
limitation, all rights to receive the proceeds of insurance, and directs all
insurers to pay
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all such proceeds directly to Agent and authorizes Agent to endorse Debtor's
name on any instrument for such payment.
3.8 Transfer of Collateral. Debtor shall not sell,
lease, transfer, assign or otherwise dispose of any of the Collateral or any
interest therein without the prior written consent of Agent in each instance,
except Inventory sold to buyers in the ordinary course of business.
3.9 Damage to Collateral. Debtor shall immediately
notify Agent in writing of any destruction of, or any substantial damage to,
any of the Collateral.
3.10 Change of Place of Business. Debtor shall
immediately notify Agent in writing of any change in any of its place of
business or the opening of any new place of business.
3.11 Payment of Taxes. Debtor shall pay when due all
taxes, license fees and assessments relating to the Collateral, unless such
items are being contested in good faith by appropriate procedures and Debtor
has established appropriate (in Secured party's opinion) reserves therefor.
3.12 Maintenance. Debtor shall keep the Collateral in
good condition and repair, reasonable wear and tear excepted. Debtor shall be
liable to Agent for any expenditures by Agent or any Secured Party for the
maintenance and preservation of the Collateral, including, without limitation,
taxes, levies, insurance and repairs, and for the repossession, holding,
preparation for sale, and the sale or other disposition, of the Collateral
(including, without limitation, attorneys' and accountants' fees and expenses),
as well as all damages for breach of warranty, misrepresentation, or breach of
covenant by Debtor, and all such liabilities shall be included in the
definition of Obligations herein, shall be secured by the security interest
granted herein, and shall be payable upon demand.
3.13 Inspection. Debtor shall at all times during normal
business hours allow Agent or its agents to examine and inspect the Collateral
wherever located as well as Debtor's books and records, and to make extracts
and copies of them, it being understood that Agent shall use reasonable efforts
in the normal course of its operations to keep confidential all such
information that (a) is not in the public domain, and (b) is not required to be
disclosed by any court, agency or authority of competent jurisdiction,
provided, however, that the requirement to keep such information confidential
shall not apply to the extent necessary in order for Agent to foreclose on or
otherwise deal with the Collateral in the Secured Parties' best interests upon
the occurrence of a Default.
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3.14 Segregation of Collateral. All inventory or Debtor's
premises, for equipment of other parties at any time located on Debtor's
processing or otherwise, shall be segregated from the Collateral and shall be
clearly marked as being the inventory or equipment of such other party.
3.15 Mergers, Etc. Debtor shall not become a party to any
consolidation, merger, liquidation or dissolution or organize, purchase, assume
or acquire any subsidiary or joint venture or partnership interest or interest
in any other business entity, without the prior written consent of Agent.
3.16 Distributions to Shareholders. Except for monthly
payments to the shareholders of Seven Thousand Four Hundred Dollars ($7,400)
for the payment of interest, Debtor shall not declare or pay any dividend or
return any capital to any of its stockholders on account of any of its capital
stock; advance or loan any sum to any of its stockholders, directors or
officers in an aggregate amount; pay any management or consulting fees to any
affiliated entity; redeem, repurchase or otherwise acquire any of its
outstanding capital stock; or guarantee any obligations of any director of
officer.
3.17 Change of Name. Debtor shall notify Agent of any
intended change of Debtor's name, and will notify Agent when such change
becomes effective.
3.18 Organization. Debtor is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Nevada. Debtor is duly qualified and in good standing in each state in which
the failure to so qualify would have a material adverse effect on its business.
Effective August 28, 1996, Third Quarter, Inc. was merged with and into Fundex,
Inc., and each act required to be taken by or on the part of such companies to
effectuate such merger has been duly and properly taken.
3.19 Authority. Debtor has full corporate right and power
to enter into and perform its obligations under this Agreement and the
other Security Documents. The execution, delivery and performance of this
Agreement and the other Security Documents has been duly authorized by all
necessary corporate action of Debtor, and this Agreement and the other Security
Documents constitute valid and binding obligations of Debtor enforceable
against Debtor in accordance with their respective terms, subject to applicable
bankruptcy, reorganization, insolvency or similar laws affecting the
enforcement of creditor's rights generally.
3.20 No Conflicts. The execution, delivery and
performance by Debtor of this Agreement and each of the other
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Security Documents do not and shall not: (a) contravene or constitute a default
(or an event that, with due notice or the lapse of time, or both, would
constitute a default) under or result in any breach of, or cause or permit the
acceleration of the maturity of any debt or obligation pursuant to, Debtor's
Articles of Incorporation or any document, commitment or other agreement to
which Debtor is a party or by which any of Debtor's property is bound; or (b)
violate any statute or law or any judgment, decree, order, regulation or rule
of any court or governmental authority applicable to Debtor.
3.21 Actions or Proceedings. There are no actions or
proceedings which are pending or threatened against Debtor which might result
in any material and adverse change in its financial condition or materially
affect the Collateral pledged hereunder.
3.22 Violation of Law. Debtor is not in violation of any
applicable federal, state, municipal or county statue, regulation or ordinance
which may materially and adversely affect its business, property, assets,
operations or conditions, financial or otherwise. Debtor agrees that, so long
as any Obligations shall remain unpaid or outstanding, Debtor shall comply with
all applicable laws, rules, regulations, and orders, such compliance to
include, without limitation, paying before the same become delinquent all
taxes, assessments, and governmental charges imposed upon Debtor or upon
Debtor's property.
3.23 Indebtedness. Debtor hereby agrees that it shall
not, without the prior written consent of Agent, borrow from, become indebted
to any person, proprietorship, partnership, trust, corporation, bank, insurance
company or other financial institution or business entity other than the
Secured Parties.
3.24 Issuance of Stock. Debtor shall not issue any
capital stock, warrants or options therefor, or securities convertible or
exchangeable into its capital stock if such issuance might hinder its ability
to pay the Obligations or otherwise perform pursuant to this Agreement or any
other Security Document, without the prior written consent of Agent.
3.25 Consents. All authorizations, consents, approvals,
registrations, exemptions and licenses required to be obtained by Debtor or
which are necessary for the borrowing contemplated by the Debentures and the
Security Documents and the execution and delivery by Debtor of the Debentures
and the Security Documents to which Debtor is a party, and the performance by
Debtor of each of Debtor's obligations hereunder and thereunder, if any, have
been obtained and are in full force and effect.
3.26 Use of Proceeds. Debtor will use the proceeds of
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the Debentures to finance the costs and expenses of completing an initial
public offering and for working capital purposes.
3.27 Accuracy of Information. All factual information
heretofore or contemporaneously furnished by or on behalf of Debtor to Agent
for purposes of or in connection with the Debentures or any transaction
contemplated hereby is, and all other factual information hereafter furnished
by or on behalf of Debtor to Agent will be, true and accurate in every material
respect on the date as of which such information is dated or certified, and
Debtor has not omitted and will not omit any material fact necessary to prevent
such information from being false or misleading. Debtor has disclosed to Agent
in writing all facts which might materially and adversely affect the credit,
financial condition, affairs or prospects of Debtor, or Debtor's ability to
perform Debtor's obligations under the Debentures.
3.28 Liens. Debtor shall not, without the prior written
consent of Agent, create, incur, assume or suffer to exist any lien, security
interest, encumbrance or other claim of any nature whatsoever on any of its
assets, including, without limitation, the Collateral, other than the security
interest granted in favor of Agent.
3.29 Financial Information. As soon as practicable, but
in no event later than the tenth (10th) day after the last day of each month in
which Obligations remain unpaid, Debtor shall deliver, or cause to be
delivered, to Agent financial statements fairly and accurately presenting the
financial status of Debtor, including, without limitation, Balance Sheets,
Statements of Changes in Financial Condition, and Income Statements
(collectively, the "Statements"), in form and substance acceptable to Agent. To
the best of Debtor's knowledge, Debtor is in compliance with the requirements
of all applicable laws, rules, regulations, and orders of all federal and state
governmental authorities and agencies.
4. DEFAULTS; RIGHTS AND REMEDIES OF AGENT.
4.1 Defaults. Each of the following occurrences shall
constitute a "Default" under this Agreement:
(a) Debtor's failure to pay when due any of the payment
obligations under this Agreement or under the Debentures.
(b) Debtor's failure or neglect to perform, keep or
observe any of the covenants, conditions, promises or agreements,
other than payment obligations, under this Agreement or any other
Security Document.
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(c) The occurrence of any default by Debtor, or Debtor's
failure or neglect to perform, keep or observe any of the covenants,
conditions, promises or agreements contained in one or more of the
Security Documents.
(d) Any representation or warranty made or deemed made by
Debtor to Agent or the Secured Parties herein or in any of the other
Security Documents or in any written statement or certificate at any
time given pursuant to any of the Security Documents is false or
misleading in any material respect on the date made.
(e) Debtor uses any amounts received from Agent or any
Secured Party for any purpose other than its reasonable working
capital needs and to finance the costs and expenses of completing an
initial public offering.
(f) A judgment or order shall be rendered against Debtor.
(g) A notice of lien, levy, or assessment is filed or
recorded with respect to all or a material part of the assets of
Debtor or the Collateral by the United States, or any department,
agency or instrumentality thereof, or by any state, county,
municipality or other governmental agency or any taxes or debts owing
at any time or times hereafter to any one or more of them become a
lien upon all or a material part of the Collateral.
(h) All or any part of the Collateral is attached,
seized, subjected to a writ or distress warrant, or is levied upon, or
comes within the possession of any receiver, trustee, custodian or
assignee for the benefit of creditors.
(i) A proceeding under any bankruptcy, reorganization,
arrangement of debt, insolvency, readjustment of debt or receivership
law or statute is filed against Debtor, which proceeding is either
consented to by Debtor or not dismissed, vacated or stayed within
thirty (30) days after the filing thereof, or a proceeding under any
bankruptcy, reorganization, arrangement of debt, insolvency,
readjustment of debt or receivership law or statue is filed by Debtor,
or Debtor makes an assignment for the benefit of creditors, or Debtor
takes any corporate action to authorize any of the foregoing.
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(j) Debtor voluntarily or involuntarily dissolves or is
dissolved.
(k) Debtor becomes insolvent or fails generally to pay
its debts as they become due.
(l) Debtor is enjoined, restrained, or in any way
prevented by the order of any court or any administrative or
regulatory agency from conducting all or any material part of its
business affairs.
(m) A breach by Debtor shall occur under any material
agreement, document or instrument (other than an agreement, document
or instrument evidencing the lending of money), whether heretofore,
now or hereafter existing between Debtor and any other person, and
such breach shall continue beyond any applicable cure period contained
in such agreement, document or instrument.
(n) A breach by Debtor shall occur under any agreement,
document or instrument evidencing the lending or borrowing of money
whether theretofore, now or hereafter existing between Debtor and any
other person, and the effect thereof would be to permit the
acceleration of the indebtedness thereunder.
(o) There shall occur any loss, theft, substantial damage
or destruction of any item or items of Collateral (a "Loss") if the
amount of such Loss with respect to which an insurer has not admitted
liability within a reasonable time (as determined by Agent) after the
occurrence of such Loss.
(p) A material and adverse change shall occur in the
operations or financial condition of Debtor.
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4.2 Rights and Remedies.
(a) Rights and Remedies Generally. Upon the occurrence
of a Default described in clause (i) of Section 4.1, all of the Obligations of
Debtor shall immediately and automatically, without notice of any kind, be
immediately due and payable; and upon the occurrence of any other Default, any
or all of the Obligations may, at the option of the Agent, and without
presentment, demand, protest or notice of any kind (all of which are hereby
expressly waived), be declared, and thereupon shall become, immediately due and
payable. In addition, upon the occurrence of a Default, Agent shall have, in
addition to any other rights and remedies contained in this Agreement, the
Debentures or in any of the other Security Documents, all of the rights and
remedies of a secured party under the Uniform Commercial Code, as then in
effect in Illinois, or other applicable laws, all of which rights and remedies
shall be cumulative, and non-exclusive, to the extent permitted by law. In
addition to all such rights and remedies, the sale, lease or other disposition
of the Collateral, or any part thereof, by Agent after Default may be for cash,
credit or any combination thereof, and Agent may purchase all or any part of
the Collateral at public or, if permitted by law, private sale, and in lieu of
actual payment of such purchase price, may set-off the amount of such purchase
price against the Obligations then owing. Any sales of such Collateral may be
adjourned from time to time with or without notice. Agent may, in its sole
discretion, cause the Collateral to remain on the premises of Debtor, at
Debtor's expense, pending sale or other disposition of such Collateral. At
such times, Agent shall have the right to repair, process, preserve, protect
and maintain the Collateral and make such replacements thereof and additions
thereto as Agent may deem advisable. Agent shall have the right to conduct
such sales on the premises of Debtor, at Debtor's expense, or elsewhere, on
such occasion or occasions as Agent may see fit.
(b) Entry Upon Premises and Access to Information. Upon
the occurrence of a Default described in clause (i) of Section 4.1, and ten
(10) days after the occurrence of any other Default, Agent shall have the right
to enter upon (to the exclusion of Debtor) the premises of Debtor where the
Collateral is located (or is believed to be located) without any obligation to
pay rent to Debtor, or any other place or places where such Collateral is
believed to be located and kept, and remove such Collateral therefrom to the
premises of Agent or any agent of Agent, for such time as Agent may desire, in
order effectively to collect or liquidate such Collateral or to retain such
Collateral in satisfaction of the Obligations, and/or Agent may require Debtor
to assemble such Collateral and make it available to Agent at a place or places
to be designated by Agent. Upon the occurrence of a Default described in
clause (i) of Section 4.1,
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and ten (10) days after the occurrence of any other Default and the receipt
by Agent that Debtor intends in good faith cure such Default to the
satisfaction of Agent, Agent shall have the right to obtain access to Debtor's
data processing equipment, computer hardware and software relating to the
Collateral and to use all of the foregoing and the information contained
therein in any manner Agent deems appropriate; and Agent shall have the right
to notify post office authorities to change the address for delivery of
Debtor's mail to an address designated by Agent and to receive, open and
process all mail addressed to Debtor.
(c) Sale or Other Disposition of Collateral by Agent.
Any notice required to be given by Agent of a sale, lease or other disposition
or other intended action by Agent, with respect to any of the Collateral, which
is deposited in the United States mails, postage prepaid and duly addressed to
Debtor at the address specified below, at least ten (10) days prior to such
proposed action shall constitute fair and reasonable notice to Debtor of
any such action. The net proceeds realized by Agent upon any such sale or
other disposition, after deduction for the expense of retaking, holding,
preparing for sale, selling or the like and the reasonable attorneys' and
paralegals' fees and legal expenses incurred by Agent or any Secured Party in
connection therewith, shall be applied as provided herein toward satisfaction
of the Obligations. Agent shall account to Debtor for any surplus realized
upon such sale or other disposition, and Debtor shall remain liable for any
deficiency. The commencement of any action, legal or equitable, or the
rendering of any judgment or decree for any deficiency shall not affect Agent's
or any Secured Party's security interest in the Collateral until the
Obligations are fully paid. Agent shall have the right to commence, continue
or defend proceedings in any court of competent jurisdiction in the name of
Agent, the "Receiver" (as hereinafter defined) or Debtor for the purpose of
exercising any of the rights, powers and remedies set out in this Section 4.2,
including, without limitation, the institution of proceedings for the
appointment of a Receiver. Debtor agrees that Agent has no obligation to
preserve rights to the Collateral against any other Person. Agent is hereby
granted a license or other right to use, without charge, Debtor's labels,
patents, copyrights, rights of use of any name, trade secrets, trade names,
tradestyles, trademarks, service marks and advertising matter, or any property
of a similar nature, as it pertains to the Collateral, in completing production
of, advertising for sale and selling any such Collateral, and Debtor's rights
under all licenses and all franchise agreements shall inure to Agent's benefit
until the Obligations are paid.
(d) Appointment of Receiver. Upon the occurrence of a
Default described in clause (i) of Section 4.1 and ten (10) days after the
occurrence of any other Default, Agent shall have the right to appoint any
Person to be an agent or any Person to be a
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receiver, manager or receiver and manager (the "Receiver") of the Collateral
and to remove any Receiver so appointed and to appoint another if Agent so
desires; it being agreed that any Receiver appointed pursuant to the provisions
of this Agreement will have all of the powers of Agent hereunder, and in
addition, will have the power to carry on the business of Debtor. The Receiver
will be deemed to be the agent of Debtor for the purpose of establishing
liability for the acts or omissions of the Receiver and Agent will not be
liable for such acts or omissions and, without restricting the generality of
the foregoing, Debtor hereby irrevocably authorizes Agent to give instructions
to the Receiver relating to the performance of its duties as set forth herein.
(e) Waiver of Demand. Demand, presentment, protest and
notice of nonpayment are hereby waived by Debtor. Debtor also waives the
benefit of all valuation, appraisal and exemption laws.
(f) Waiver of Notice. UPON THE OCCURRENCE OF A DEFAULT,
DEBTOR HEREBY WAIVES ALL RIGHTS TO NOTICE AND HEARING OF ANY KIND PRIOR TO THE
EXERCISE BY AGENT OF ITS RIGHTS TO REPOSSESS THE COLLATERAL WITHOUT JUDICIAL
PROCESS OR TO REPLEVY, ATTACH OR LEVY UPON THE COLLATERAL WITHOUT PRIOR NOTICE
OR HEARING.
(g) Advice of Counsel. Debtor acknowledges that it has
been advised by its counsel with respect to this transaction and this
Agreement, including without limitation any waivers contained herein.
5. AGENCY PROVISIONS
5.1 Appointment of Agent.
(a) Each Secured Party hereby appoints the Agent as its agent
hereunder and hereby authorizes the Agent to take such action on its behalf and
to exercise such rights, remedies and privileges hereunder as directed by those
Secured Parties holding more than fifty-one percent (51%) or more of the
Debentures then outstanding (the "Required Creditors"), all at the cost and
expense of Debtor. Subject to the terms and conditions hereof, the Agent
shall, on behalf of the Secured Parties, exercise such rights and remedies of
the Secured Parties under the Security Documents and take such other actions as
may be reasonably incidental thereto as and to the extent the Required
Creditors shall from time to time direct the Agent. Nothing herein
shall be deemed to constitute the Agent as a trustee or fiduciary for any
Secured Party or impose on the Agent any obligations other than those for which
express provision is made herein. The Agent shall not have any duties or
responsibilities except as expressly set forth herein and no implied covenants,
functions or responsibilities shall be read into this Agreement as to the
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Agent. Except as required by the specific terms of this Agreement, the Agent
shall not have any duty to exercise any right, power, remedy or privilege
granted to it hereby or to take any affirmative action or exercise any
discretion hereunder unless directed to do so by the Required Creditors (and
the Agent shall be fully protected in acting or refraining from acting pursuant
to such directions, each Secured Party hereby agreeing that such directions
shall be binding upon all of the Secured Parties); provided that the Agent
shall not be required to take any action which exposes the Agent to personal
liability or which is contrary to this Agreement, the Debentures, any Security
Document or applicable law. Further, the Agent shall not be authorized to
amend, modify, supplement, alter or waive any provision of or give any consent
under any of the Security Documents without the prior written consent of the
Required Creditors. The Agent shall promptly notify and transmit to each of
the Secured Parties, all information, notices, documentation or instruments it
may receive from time to time pursuant to the Security Documents.
(b) The Agent hereby accepts the appointment as agent on behalf of
the Secured Parties and agrees to act in accordance with the terms and
conditions of this Agreement. The Agent may perform any of its duties
hereunder by or through agents, affiliates or employees, and shall be entitled
to retain counsel and to act in reliance on the advice of such counsel
concerning all matters pertaining to the agencies created hereby and its duties
hereunder, and shall not be liable for any action taken or omitted to be taken
by it in good faith in accordance with the advice of counsel selected by it.
5.2 Indemnification.
(a) Each Secured Party hereby agrees, jointly and severally, to
indemnify, defend and hold harmless the Agent and its respective officers,
directors, affiliates, employees and agents from and against any and all
losses, liabilities (including liabilities for penalties), actions, suits,
judgments, demands, damages, costs and expenses (including, without limitation,
reasonable fees and expenses of attorneys, accountants and experts), reasonably
incurred or suffered by the Agent, in its capacity as such, as a result of any
action taken or omitted to be taken by the Agent in such capacity, or otherwise
incurred or suffered by, made upon, or assessed against the Agent in such
capacity, relating to or arising out of this Agreement, the Debenture, any
other Security Documents (collectively, "Agent Claims"); provided, however,
that (i) no Secured Party shall be required to indemnify or hold harmless the
Agent from and against any claims (collectively, "Nonindemnifiable Agent
Claims") resulting from or attributable to the Agent's gross negligence, bad
faith or willful misconduct. The Obligations of each Secured Party and of the
Agent under this Section 5.2 shall survive the
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termination of this Agreement and the discharge of the Obligations for the
applicable statute of limitations period with respect to claims against the
Agent.
(b) Each Secured Party hereby agrees, jointly and severally, to
reimburse the Agent promptly following such Agent's demand for any
out-of-pocket expenses (including, without limitation, attorneys' fees and
expenses) incurred by the Agent hereunder or under any other Collateral
Document which is not promptly reimbursed by Debtor. The Agent need not take
any action which in the sole and exclusive judgment of the Agent would result
in or present a material risk of incurring liability unless it receives
concurrence of the Required Creditors and indemnification hereunder to the
satisfaction of the Agent therefor. If any indemnity furnished is insufficient
or becomes impaired, the Agent may call for an additional indemnity.
5.3 Exculpation. The Agent shall be entitled to rely upon advice of
counsel concerning legal matters, and upon this Agreement, the Debenture, any
other Security Documents or any schedule, certificate, statement, report,
notice or other writing which it believes in good faith to be genuine or to
have been presented by a proper person. Neither the Agent, nor any of its
directors, officers, affiliates, employees or agents shall be (i) responsible
for any recitals, representations or warranties contained in, or for the
execution, validity, genuineness, effectiveness or enforceability of this
Agreement, the Debentures or any other Security Document, (ii) responsible for
the validity, genuineness, effectiveness, enforceability, existence or value of
any collateral security, (iii) under any duty to inquire into or pass upon any
of the foregoing matters, or to make any inquiry concerning the
performance by Debtor or any other obligor of its obligations under this
Agreement, the Debentures or any other Security Document (including, without
limitation, any Event of Default), or (iv) in any event, be liable as such for
any action taken or omitted by it or them, except for liability resulting from
its gross negligence, bad faith or willful misconduct. The Agent shall not
incur any liability acting in accordance with the direction of the Required
Creditors or the Secured Parties, as applicable, or acting upon any notice,
consent, certificate or other instrument, communication, conversation or
writing or telephonic instruction or notices to the extent authorized or
believed to be genuine and signed or sent by an authorized person. The Agent
shall not be deemed to have knowledge of any Event of Default or any comparable
event unless it has received actual notice thereof. The Agent shall not be
liable to any Secured Party for the acts or omissions of its agents (other than
acts or omissions resulting from such agents' gross negligence, bad faith or
willful misconduct) that the Agent has selected with reasonable care.
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5.4 No Diminishment of Rights. The rights and remedies herein of the
Secured Parties against Debtor shall not be deemed to be diminished,
restricted, amended, modified, altered, waived, delayed, impaired, superseded
or in any way affected by this Article 5. Debtor further agrees that this
Article 5 is solely for the benefit of Agent and shall not give Debtor, its
successors and assignees, or any other Person, any rights in addition to those
already granted or possessed, in respect of Agent or any Secured Party.
6. MISCELLANEOUS.
6.1 Waiver. Agent's failure, at any time or times
hereafter, to require strict performance by Debtor of any provision of this
Agreement shall not waive, affect or diminish any right of Agent thereafter to
demand strict compliance and performance therewith. Any suspension or waiver
by Agent of a Default under this Agreement or a default under any of the other
Security Documents shall not suspend, waive or affect any other Default under
this Agreement or any other default under any of the other Security Documents,
whether the same is prior or subsequent thereto and whether of the same or of a
different kind or character. None of the undertakings, agreements, warranties,
covenants and representations of Debtor contained in this Agreement or any of
the other Security Documents, and no Default under this Agreement or default
under any of the other Security Documents, shall be deemed to have been
suspended or waived by Agent unless such suspension or waiver is in writing
signed by an officer of Agent, and directed to Debtor specifying such
suspension or waiver.
6.2 Costs and Attorneys' Fees. If at any time or times
hereafter Agent employs counsel in connection with protecting or perfecting
Agent's security interest in the Collateral or in connection with any matters
contemplated by or arising out of this Agreement, whether (a) to commence,
defend, or intervene in any litigation or to file a petition, complaint,
answer, motion or other pleading, (b) to take any other action in or with
respect to any suit or proceeding (bankruptcy or otherwise), (c) to consult
with officers of Agent to advise Agent with respect to this Agreement or the
other Security Documents or the Collateral, (d) to protect, collect, lease,
sell, take possession of, or liquidate any of the Collateral, or (e) to attempt
to enforce or to enforce any security interest in any of the Collateral, to
attempt to enforce or to enforce any rights of Agent to collect any of the
Obligations, then in any of such events, all of the reasonable attorneys' fees
arising from such services, and any expenses, costs and charges relating
thereto, including without limitation all reasonable fees of the paralegals and
other staff employed by such attorneys, together with interest at the rate
prescribed in the Debentures and shall be part of the
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Obligations, payable on demand and secured by the Collateral. Such interest
shall accrue at the times, and in the manner, provided for in the Debentures.
6.3 Expenditures by Agent. If Debtor shall fail to pay
taxes, insurance, assessments, costs or expenses which Debtor is, under any of
the terms hereof or of any of the other Security Documents, required to pay, or
fails to keep the Collateral free from other security interests, liens or
encumbrances, except as permitted herein, Agent may, in its sole discretion,
after notice to Debtor, make expenditures for any or all of such purposes, and
the amount so expended, together with interest thereon at the rate prescribed
in the Debentures and shall be part of the Obligations, payable on demand and
secured by the Collateral.
6.4 Custody and Preservation of Collateral. Agent shall
be deemed to have exercised reasonable care in the custody and preservation of
any of the Collateral in its possession if it takes such action for that
purpose as Debtor shall request in writing, but failure by Agent to comply with
any such request shall not of itself be deemed a failure to exercise reasonable
care, and no failure by Agent to preserve or protect any right with respect to
such Collateral against prior parties, or to do any act with respect to the
preservation of such Collateral not so requested by Debtor, shall of itself be
deemed a failure to exercise reasonable care in the custody or preservation of
such Collateral.
6.5 Assignability; Parties. This Agreement may not be
assigned by Debtor without the prior written consent of Agent. Whenever in
this Agreement there is reference made to any of the parties hereto, such
reference shall be deemed to include, wherever applicable, a reference to the
successors and permitted assigns of Debtor and the successors and assigns of
Agent.
6.6 Applicable Law; Severability. THIS AGREEMENT SHALL
BE CONSTRUED IN ALL RESPECTS IN ACCORDANCE WITH, AND GOVERNED BY, THE INTERNAL
LAWS (AS OPPOSED TO CONFLICT OF LAWS PRINCIPLES) AND DECISIONS OF THE STATE OF
ILLINOIS. Whenever possible, each provision of this Agreement shall be
interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement shall be prohibited by or invalid under
applicable law, such provision shall be ineffective only to the extent of such
prohibition or invalidity, without invalidating the remainder of such
provisions or the remaining provisions of this Agreement.
6.7 Application of Payments. Notwithstanding any
contrary provision contained in this Agreement or in any of the other Security
Documents, Debtor irrevocably waives the right to
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direct the application of any and all payments at any time or times hereafter
received by Agent from Debtor or with respect to any of the Collateral, and
Debtor does hereby irrevocably agree that Agent shall have the continuing
exclusive right to apply and reapply any and all payments received at any time
or times hereafter, whether with respect to the Collateral or otherwise,
against the Obligations in such manner as Agent may deem advisable,
notwithstanding any entry by Agent upon any of its books and records.
6.8 Marshalling; Payments Set Aside. Agent shall be
under no obligation to xxxxxxxx any assets in favor of Debtor or any other
Person or against or in payment of any or all of the Obligations. To the
extent that Debtor makes a payment or payments to Agent or Agent enforces its
security interests or exercises its rights of setoff, and such payment or
payments or the proceeds of such enforcement or setoff or any part thereof are
subsequently invalidated, declared to be fraudulent or preferential, set aside
and/or required to be repaid to a trustee, receiver or any other party under
any bankruptcy law, state, federal or foreign law, common law or equitable
cause, then to the extent of such recovery, the obligation or part thereof
originally intended to be satisfied shall be revived and continued in full
force and effect as if such payment had not been made or such enforcement or
setoff had not occurred.
6.9 Section Titles. The section and subsection titles
contained in this Agreement shall be without substantive meaning or content of
any kind whatsoever and are not a part of the agreement between the parties.
6.10 Continuing Effect. This Agreement, Agent's security
interests in the Collateral of Debtor, and all of the other Security Documents
shall continue in full force and effect so long as any Obligations of Debtor
shall be owed to Agent.
6.11 Notices. Except as otherwise expressly provided
herein, any notice required or desired to be served, given or delivered
hereunder shall be in writing, and shall be deemed to have been validly served,
given or delivered upon the earlier of (a) personal delivery to the address set
forth below (b) delivery by facsimile or similar means of delivery and (c) in
the case of mailed notice, three (3) days after deposit in the United States
mails, with proper postage for certified mail, return receipt requested,
prepaid, or in the case of notice by Federal Express or other reputable
overnight courier service, one (1) Business Day after delivery to such courier
service, addressed to the party to be notified as follows:
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(i) If to Agent or any Secured Party at:
Paradigm Venture Investors, LLC
00 Xxxxxx Xxxxx
Xxxxx X
Xxxxxxxxxx, Xxxxxxxx 00000
Attention: Xx. Xxxxxxx Xxxxxx
Telephone Number: (000) 000-0000
Facsimile Number: (000) 000-0000
with a copy to:
Xxxxxx & Coff
00 X. Xxxxxx Xxxxxx, Xxxxx 0000
Xxxxxxx, Xxxxxxxx 00000
Attention: Xxxxxx X. Xxxxxxx, Esq.
Telephone Number: (000) 000-0000
Facsimile Number: (000) 000-0000
(ii) If to Debtor at:
Fundex Games, Ltd.
0000 X. 00xx Xxxxxx
Xxxxxxxxxxxx, Xxxxxxx 00000
Attention: Xx. Xxxx Xxxxx
Telephone No: (000) 000-0000
Facsimile No: (000) 000-0000
or to such other address as each party designates to the other in the manner
herein prescribed.
6.12 Equitable Relief. Debtor recognizes that, in the
event Debtor fails to perform, observe or discharge any of its obligations or
liabilities under this Agreement, any remedy at law may prove to be inadequate
relief to Agent; therefore, Debtor agrees that Agent, if Agent so requests,
shall be entitled to temporary and permanent injunctive relief in any such
case without the necessity of proving actual damages.
6.13 Entire Agreement. This Agreement, together with the
Security Documents executed in connection herewith, constitutes the entire
Agreement among the parties with respect to the subject matter hereof, and
supersedes all prior written or oral understandings with respect thereto. This
Agreement may be amended only by mutual agreement of the parties evidenced in
writing and signed by the party to be charged therewith.
6.14 Indemnity. Debtor agrees to defend, protect,
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indemnify and hold harmless Agent and each and all of its respective officers,
directors, employees, attorneys and agents ("Indemnified Parties") from and
against any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, claims, costs, expenses and disbursements of any
kind or nature whatsoever (including, without limitation, the fees and
disbursements of counsel for the Indemnified Parties in connection with any
investigative, administrative or judicial proceeding, whether or not the
Indemnified Parties shall be designated by a party thereto), which may be
imposed on, incurred by, or asserted against any Indemnified Party (whether
direct, indirect or consequential and whether based on any federal, state,
local or foreign laws or other statutory regulations, including without
limitation securities, environmental and commercial laws and regulations, under
common law or at equitable cause, or on contract or otherwise) in any manner
relating to or arising out of this Agreement or the other Security Documents,
or any act, event or transaction related or attendant thereto (including any
liability under federal, state, local or foreign environmental laws or
regulations); provided, that Debtor shall not have any obligation to any
Indemnified Party hereunder with respect to matters caused by or resulting from
the willful misconduct or gross negligence of such Indemnified Party. To the
extent that the undertaking to indemnify, pay and hold harmless set forth in
the preceding sentence may be unenforceable because it is violative of any law
or public policy, Debtor shall contribute the maximum portion which it is
permitted to pay and satisfy under applicable law, to the payment and
satisfaction of all matters incurred by the Indemnified Parties. Any
liability, obligation, loss, damage, penalty, cost or expense incurred by the
Indemnified Parties shall be paid to the Indemnified Parties on demand,
together with interest thereon at the rate prescribed for in the Debentures
from the date incurred by the Indemnified Parties until paid by Debtor, and
such amounts shall be added to the Obligations and be secured by the
Collateral. The provisions of and undertakings and indemnifications set out in
this Section 614 shall survive the satisfaction and payment of the Obligations.
6.15 Representations and Warranties. Notwithstanding
anything to the contrary contained herein, each representation or warranty
contained in this Agreement or any of the other Security Documents shall
survive the execution and delivery of this Agreement and the other Security
Documents and the repayment of the Obligations.
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IN WITNESS WHEREOF, this Agreement has been duly executed as
of the day and year first above written.
FUNDEX GAMES, LTD. (f/k/a THIRD QUARTER, INC.
By: /s/ Xxxx X. Xxxxx, XX
__________________________________
Its: President
________________________________
PARADIGM VENTURE INVESTORS, LLC
By: /s/ Xxxxxxx Xxxxxx
__________________________________
Its: Manager
________________________________
P.C. XXXXXXXXX REVOCABLE TRUST
By:__________________________________
Its: ________________________________
_____________________________________
Xxxxxxx Xxxxxx
_____________________________________
Xxxxxx Goby
_____________________________________
Xxxxx X. Xxxxxxxxx
_____________________________________
Xxxxx Xxxxxxxxx
_____________________________________
Xxxxx Xxxx
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00
XXXXXXX XXXXX XX I
By:__________________________________
Its: ________________________________
_____________________________________
Xxxxxx X. Xxxxxx
_____________________________________
Buzz Xxxxxx
_____________________________________
Xxx X. Xxxx & Xxxxxx Xxxx, joint tenants
_____________________________________
Xxxxxx Xxxxxxxxx
_____________________________________
Xxxxxxx Xxxxxx
_____________________________________
Xxxxx Xxxxxxx
_____________________________________
Xxxxxxx Xxxxxx
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