EXHIBIT 99.4
SECURITY AGREEMENT
THIS SECURITY AGREEMENT dated as of February 19, 2005 ("SECURITY
AGREEMENT"), is made by VIRTGAME CORP., a Delaware corporation ("GRANTOR"), in
favor of MIKOHN GAMING CORPORATION, D/B/A PROGRESSIVE GAMING INTERNATIONAL
CORPORATION, a Nevada corporation ("SECURED PARTY").
RECITALS
A. Secured Party has made and has agreed to make certain advances of money
and to extend certain financial accommodations to Grantor as evidenced by that
certain Secured Promissory Note dated February 19, 2005 executed by Grantor in
favor of Secured Party (the "NOTE"), such advances, future advances, and
financial accommodations being referred to herein as the "LOANS".
B. Secured Party is willing to make the Loans to Grantor, but only upon
the condition, among others, that Grantor shall have executed and delivered to
Secured Party this Security Agreement.
AGREEMENT
NOW, THEREFORE, in order to induce Secured Party to make the Loans and for
other good and valuable consideration, the receipt and adequacy of which are
hereby acknowledged, and intending to be legally bound, Grantor hereby
represents, warrants, covenants and agrees as follows:
1. DEFINED TERMS. When used in this Security Agreement the following terms
shall have the following meanings (such meanings being equally applicable to
both the singular and plural forms of the terms defined):
"BANKRUPTCY CODE" means Title XI of the United States Code.
"COLLATERAL" shall have the meaning assigned to such term in Section 2 of
this Security Agreement.
"CONTRACTS" means all contracts (including any customer, vendor, supplier,
service or maintenance contract), leases, licenses, undertakings, purchase
orders, permits, franchise agreements or other agreements (other than any right
evidenced by Chattel Paper, Documents or Instruments), whether in written or
electronic form, in or under which Grantor now holds or hereafter acquires any
right, title or interest, including, without limitation, with respect to an
Account, any agreement relating to the terms of payment or the terms of
performance thereof.
"COPYRIGHT LICENSE" means any agreement, whether in written or electronic
form, in which Grantor now holds or hereafter acquires any interest, granting
any right in or to any Copyright or Copyright registration (whether Grantor is
the licensee or the licensor thereunder) including, without limitation, licenses
pursuant to which Grantor has obtained the exclusive right to use a copyright
owned by a third party.
"COPYRIGHTS" means all of the following now owned or hereafter acquired or
created (as a work for hire for the benefit of Grantor) by Grantor or in which
Grantor now holds or hereafter acquires or receives any right or interest, in
whole or in part: (a) all copyrights, whether registered or unregistered, held
pursuant to the laws of the United States, any State thereof or any other
country; (b) registrations, applications, recordings and proceedings in the
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United States Copyright Office or in any similar office or agency of the United
States, any State thereof or any other country; (c) any continuations, renewals
or extensions thereof; (d) any registrations to be issued in any pending
applications, and shall include any right or interest in and to work protectable
by any of the foregoing which are presently or in the future owned, created or
authorized (as a work for hire for the benefit of Grantor) or acquired by
Grantor, in whole or in part; (e) prior versions of works covered by copyright
and all works based upon, derived from or incorporating such works; (f) income,
royalties, damages, claims and payments now and hereafter due and/or payable
with respect to copyrights, including, without limitation, damages, claims and
recoveries for past, present or future infringement; (g) rights to xxx for past,
present and future infringements of any copyright; and (h) any other rights
corresponding to any of the foregoing rights throughout the world.
"EVENT OF DEFAULT" means (i) any failure by Grantor forthwith to pay or
perform any of the Secured Obligations, (ii) any report, information or notice
made to, obtained or received by Secured Party at any time after the date hereof
shall indicate that Secured Party's security interest in the Collateral is not
prior to all other security interests or other interests in the Collateral
reflected in such report, information or notice, (iii) any breach by Grantor of
any warranty, representation, or covenant set forth herein, and (iv) any "Event
of Default" as defined in the Note.
"GAMING AUTHORITIES" means any or all licensing, gaming and regulatory and
other governmental authorities having jurisdiction over gaming activities and
operations in any jurisdiction and whose approval, authorization, consent or
waiver is necessary or appropriate under Gaming Laws for the ownership of an
interest in any person, the operation of any person's business or for the
consummation of the transactions contemplated by this Security Agreement.
"GAMING LAWS" means, with respect to any person, any federal, local,
municipal, tribal, foreign or other law, statute, constitution, resolution,
ordinance, code, edict, decree, rule, regulation, permit, consent, approval,
license, judgment, order, injunction, authorization, ruling or requirement
issued, enacted, adopted, promulgated, implemented, governing or otherwise put
into effect by or under the authority of any Gaming Authorities relating to the
current or contemplated gaming activities and operations of such person and its
affiliates.
"INTELLECTUAL PROPERTY" means any intellectual property, in any medium, of
any kind or nature whatsoever, now or hereafter owned or acquired or received by
Grantor or in which Grantor now holds or hereafter acquires or receives any
right or interest, and shall include, in any event, any Copyright, Trademark,
Patent, trade secret, customer list, marketing plan, internet domain name
(including any right related to the registration thereof), proprietary or
confidential information, mask work, source, object or other programming code,
ideas, concepts, products, demos, inventions (whether or not patented or
patentable), formulas, works in process, systems, technologies, technical
information, procedures, designs, diagrams, structures, plans, knowledge,
specifications, know-how, software, data base, data, skill, expertise, recipe,
experience, process, model, drawing, material or record.
"LICENSE" means any Copyright License, Patent License, Trademark License
or other license of rights or interests, whether in-bound or out-bound, whether
in written or electronic form, now or hereafter owned or acquired or received by
Grantor or in which Grantor now holds or hereafter acquires or receives any
right or interest, and shall include any renewals or extensions of any of the
foregoing thereof.
"LIEN" means any mortgage, lien, deed of trust, charge, pledge, security
interest or other encumbrance.
"PATENT LICENSE" means any agreement, whether in written or electronic
form, in which Grantor now holds or hereafter acquires any interest, granting
any right with respect to any invention on which a Patent is in existence
(whether Grantor is the licensee or the licensor thereunder).
"PATENTS" means all of the following in which Grantor now holds or
hereafter acquires any interest: (a) all letters patent of the United States or
any other country, all registrations and recordings thereof and all applications
for letters patent of the United States or any other country, including, without
limitation, registrations, recordings and applications in the United States
Patent and Trademark Office or in any similar office or agency of the United
States, any State thereof or any other country; (b) all reissues, divisions,
continuations, renewals, continuations-in-part or extensions thereof; (c) all
xxxxx patents, divisionals and patents of addition; (d) all patents to issue in
any such applications; (e) income, royalties, damages, claims and payments now
and hereafter due and/or payable with respect to patents, including, without
limitation, damages, claims and recoveries for past, present or future
infringement; and (f) rights to xxx for past, present and future infringements
of any patent.
"PERMITTED LIEN" means: (a) any Liens existing on the date of this
Security Agreement and set forth on SCHEDULE A attached hereto; (b) Liens for
taxes, fees, assessments or other governmental charges or levies, either not
delinquent or being contested in good faith by appropriate proceedings, provided
the same have no priority over any of Secured Party's security interests created
hereunder; (c) Liens (i) upon or in any Equipment acquired or held by Grantor to
secure the purchase price of such Equipment or indebtedness (including capital
leases) incurred solely for the purpose of financing the acquisition of such
Equipment or (ii) existing on such Equipment at the time of its acquisition,
provided that the Lien is confined solely to the Equipment so acquired,
improvements thereon and the Proceeds of such Equipment; (d) leases or subleases
and licenses or sublicenses granted to others in the ordinary course of
Grantor's business if such are not otherwise prohibited under this Security
Agreement and do not interfere in any material respect with the business of
Grantor; (e) any right, title or interest of a licensor under a license provided
that such license or sublicense does not prohibit the grant of the security
interest granted hereunder; (f) Liens arising from judgments, decrees or
attachments to the extent and only so long as such judgment, decree or
attachment has not caused or resulted in an Event of Default; (g) easements,
reservations, rights-of-way, restrictions, minor defects or irregularities in
title and other similar Liens affecting real property not interfering in any
material respect with the ordinary conduct of the business of Grantor; (h) Liens
in favor of customs and revenue authorities arising as a matter of law to secure
payment of customs duties in connection with the importation of goods; (i) Liens
arising solely by virtue of any statutory or common law provision relating to
banker's liens, rights of setoff or similar rights and remedies as to deposit
accounts or other funds maintained with a creditor depository institution; and
(j) liens in favor of a securities intermediary pursuant to such securities
intermediary's customary customer account agreement; provided that any such
Liens shall at no time secure any indebtedness or obligations other than
customary fees and charges payable to such securities intermediary.
"SECURED OBLIGATIONS" means (a) the obligation of Grantor to repay Secured
Party all of the unpaid principal amount of, and accrued interest on (including
any interest that accrues after the commencement of bankruptcy), the Loans, (b)
the obligation of Grantor to pay any fees, costs or expenses of Secured Party
under the Note or this Security Agreement, and (c) all other indebtedness,
liabilities and obligations of Grantor to Secured Party (other than
non-financial obligations of Grantor under that certain Agreement and Plan of
Merger and Reorganization of even date herewith by and among Secured Party,
Viking Acquisition Sub, Inc., a Delaware corporation, Viking Merger Subsidiary,
LLC, a Delaware limited liability company and Grantor), whether now existing or
hereafter incurred, and whether created under, arising out of or in connection
with any written agreement or otherwise.
"SECURITY AGREEMENT" means this Security Agreement and all Schedules
hereto, as the same may from time to time be amended, modified, supplemented or
restated.
"TRADEMARK LICENSE" means any agreement, whether in written or electronic
form, in which Grantor now holds or hereafter acquires any interest, granting
any right in and to any Trademark or Trademark registration (whether Grantor is
the licensee or the licensor thereunder).
"TRADEMARKS" means any of the following in which Grantor now holds or
hereafter acquires any interest: (a) any trademarks, tradenames, corporate
names, company names, business names, trade styles, service marks, logos, other
source or business identifiers, prints and labels on which any of the foregoing
have appeared or appear, designs and general intangibles of like nature, now
existing or hereafter adopted or acquired, all registrations and recordings
thereof and any applications in connection therewith, including, without
limitation, registrations, recordings and applications in the United States
Patent and Trademark Office or in any similar office or agency of the United
States, any State thereof or any other country (collectively, the "Marks"); (b)
any reissues, extensions or renewals thereof; (c) the goodwill of the business
symbolized by or associated with the Marks; (d) income, royalties, damages,
claims and payments now and hereafter due and/or payable with respect to the
Marks, including, without limitation, damages, claims and recoveries for past,
present or future infringement; and (e) rights to xxx for past, present and
future infringements of the Marks.
"UCC" means the Uniform Commercial Code as the same may from time to time
be in effect in the State of California (and each reference in this Security
Agreement to an Article thereof (denoted as a Division of the UCC as adopted and
in effect in the State of California) shall refer to that Article (or Division,
as applicable) as from time to time in effect; provided, however, in the event
that, by reason of mandatory provisions of law, any or all of the attachment,
perfection or priority of Secured Party's security interest in any Collateral is
governed by the Uniform Commercial Code as in effect in a jurisdiction other
than the State of California, the term "UCC" shall mean the Uniform Commercial
Code (including the Articles thereof) as in effect at such time in such other
jurisdiction for purposes of the provisions hereof relating to such attachment,
perfection or priority and for purposes of definitions related to such
provisions.
In addition, the following terms shall be defined terms having the meaning
set forth for such terms in the UCC: "Account", "Account Debtor", "Chattel
Paper", "Commercial Tort Claims", "Commodity Account", "Deposit Account",
"Documents", "Equipment", "Fixtures", "General Intangible", "Goods",
"Instrument", "Inventory", "Investment Property", "Letter-of-Credit Right",
"Money", "Payment Intangibles", "Proceeds", "Promissory Notes", "Securities
Account", and "Supporting Obligations". Each of the foregoing defined terms
shall include all of such items now owned, or hereafter acquired, by Grantor.
2. GRANT OF SECURITY INTEREST. As collateral security for the full,
prompt, complete and final payment and performance when due (whether at stated
maturity, by acceleration or otherwise) of all the Secured Obligations and in
order to induce Secured Party to cause the Loans to be made, Grantor hereby
assigns, conveys, mortgages, pledges, hypothecates and transfers to Secured
Party, and hereby grants to Secured Party, a security interest in all of
Grantor's right, title and interest in, to and under the following, whether now
owned or hereafter acquired (all of which being collectively referred to herein
as the "COLLATERAL"):
(A) All Accounts of Grantor;
(B) All Chattel Paper of Grantor;
(C) The Commercial Tort Claims of Grantor more particularly
described on Schedule F attached hereto;
(D) All Commodity Accounts of Grantor;
(E) All Contracts of Grantor;
(F) All Deposit Accounts of Grantor;
(G) All Documents of Grantor;
(H) All General Intangibles of Grantor;
(I) All Goods of Grantor, including without limitation, Equipment,
Inventory and Fixtures;
(J) All Instruments of Grantor, including, without limitation,
Promissory Note;
(K) All Investment Property of Grantor;
(L) All Letter-of Credit Rights of Grantor;
(M) All Money of Grantor;
(N) All Securities Accounts of Grantor;
(O) All Supporting Obligations of Grantor;
(P) All property of Grantor held by Secured Party, or any other
party for whom Secured Party is acting as agent, including, without limitation,
all property of every description now or hereafter in the possession or custody
of or in transit to Secured Party or such other party for any purpose,
including, without limitation, safekeeping, collection or pledge, for the
account of Grantor, or as to which Grantor may have any right or power;
(Q) All other goods and personal property of Grantor, wherever
located, whether tangible or intangible, and whether now owned or hereafter
acquired, existing, leased or consigned by or to Grantor; and
(R) To the extent not otherwise included, all Proceeds of each of
the foregoing and all accessions to, substitutions and replacements for and
rents, profits and products of each of the foregoing.
Notwithstanding the foregoing provisions of this Section 2, the grant,
assignment and transfer of a security interest as provided herein shall not
extend to, and the term "Collateral" shall not include: (a) "intent-to-use"
trademarks at all times prior to the first use thereof, whether by the actual
use thereof in commerce, the recording of a statement of use with the United
States Patent and Trademark Office or otherwise, (b) any license, permit, or
authorization issued by any Gaming Authorities, or any other Collateral, which
may not be pledged or in which a security interest may not be granted under
Gaming Laws or by directive of any Gaming Authorities, or which, under the terms
of any such license, permit, or authorization, would require an a finding of
suitability or other similar approval from or waiver of any Gaming Authorities
prior to being encumbered, pledged, hypothecated, or given as collateral
security (to the extent such finding or approval has not already been obtained)
or (c) any Account, Chattel Paper, General Intangible or Promissory Note in
which Grantor has any right, title or interest if and to the extent such
Account, Chattel Paper, General Intangible or Promissory Note includes a
provision containing a restriction on assignment such that the creation of a
security interest in the right, title or interest of Grantor therein would be
prohibited and would, in and of itself, cause or result in a default thereunder
enabling another person party to such Account, Chattel Paper, General Intangible
or Promissory Note to enforce any remedy with respect thereto; provided that the
foregoing exclusion shall not apply if (i) such prohibition has been waived or
such other person has otherwise consented to the creation hereunder of a
security interest in such Account, Chattel Paper, General Intangible or
Promissory Note or (ii) such prohibition would be rendered ineffective pursuant
to Sections 9-406(d), 9-407(a) or 9-408(a) of the UCC, as applicable and as then
in effect in any relevant jurisdiction, or any other applicable law (including
the Bankruptcy Code) or principles of equity); provided further that immediately
upon the ineffectiveness, lapse or termination of any such provision, the
Collateral shall include, and Grantor shall be deemed to have granted on the
date hereof a security interest in, all its rights, title and interests in and
to such Account, Chattel Paper, General Intangible or Promissory Note as if such
provision had never been in effect; and provided further that the foregoing
exclusion shall in no way be construed so as to limit, impair or otherwise
affect Secured Party's unconditional continuing security interest in and to all
rights, title and interests of Grantor in or to any payment obligations or other
rights to receive monies due or to become due under any such Account, Chattel
Paper, General Intangible or Promissory Note and in any such monies and other
proceeds of such Account, Chattel Paper, General Intangible or Promissory Note.
If Grantor shall at any time acquire a Commercial Tort Claim, Grantor
shall immediately notify Secured Party in a writing signed by Grantor of the
brief details thereof and grant to Secured Party in such writing a security
interest therein and in the proceeds thereof, all upon the terms of this
Security Agreement, with such writing to be in form and substance satisfactory
to Secured Party.
3. RIGHTS OF SECURED PARTY; COLLECTION OF ACCOUNTS.
(A) Notwithstanding anything contained in this Security Agreement to
the contrary, Grantor expressly agrees that it shall remain liable under each of
its Contracts, Chattel Paper, Documents, Instruments and Licenses to observe and
perform all the conditions and obligations to be observed and performed by it
thereunder and that it shall perform all of its duties and obligations
thereunder, all in accordance with and pursuant to the terms and provisions of
each such Contract, Chattel Paper, Document, Instrument, and License. Secured
Party shall not have any obligation or liability under any such Contract,
Chattel Paper, Document, Instrument, or License by reason of or arising out of
this Security Agreement or the granting to Secured Party of a lien therein or
the receipt by Secured Party of any payment relating to any such Contract,
Chattel Paper, Document, Instrument, or License pursuant hereto, nor shall
Secured Party be required or obligated in any manner to perform or fulfill any
of the obligations of Grantor under or pursuant to any such Contract, Chattel
Paper, Document, Instrument, or License, or to make any payment, or to make any
inquiry as to the nature or the sufficiency of any payment received by it or the
sufficiency of any performance by any party under any such Contract, Chattel
Paper, Document, Instrument, or License, or to present or file any claim, or to
take any action to collect or enforce any performance or the payment of any
amounts which may have been assigned to it or to which it may be entitled at any
time or times.
(B) Secured Party authorizes Grantor to collect its Accounts,
provided that such collection is performed in a prudent and businesslike manner,
and Secured Party may, upon the occurrence and during the continuation of any
Event of Default and without notice, limit or terminate said authority at any
time. At the request of Secured Party, Grantor shall deliver all original and
other documents evidencing and relating to the performance of labor or service
which created such Accounts, including, without limitation, all original orders,
invoices and shipping receipts.
(C) Subject to applicable Gaming Laws, Secured Party may at any
time, upon the occurrence and during the continuance of any Event of Default,
without notifying Grantor of its intention to do so, notify Account Debtors of
Grantor, parties to the Contracts of Grantor, and obligors in respect of
Instruments of Grantor and obligors in respect of Chattel Paper of Grantor that
the Accounts and the right, title and interest of Grantor in and under such
Contracts, Instruments and Chattel Paper have been assigned to Secured Party and
that payments shall be made directly to Secured Party. Upon the occurrence and
during the continuance of any Event of Default, upon the request of Secured
Party, Grantor shall so notify such Account Debtors, parties to such Contracts,
obligors in respect of such Instruments and obligors in respect of such Chattel
Paper. Secured Party may, in its name or in the name of others, communicate with
such Account Debtors, parties to such Contracts, obligors in respect of such
Instruments and obligors in respect of such Chattel Paper to verify with such
parties, to Secured Party's satisfaction, the existence, amount and terms of any
such Accounts, Contracts, Instruments or Chattel Paper.
4. REPRESENTATIONS AND WARRANTIES. Grantor hereby represents and warrants
to Secured Party that:
(A) Except for the security interest granted to Secured Party under
this Security Agreement and Permitted Liens, Grantor is the sole legal and
equitable owner of each item of the Collateral in which it purports to grant a
security interest hereunder, having good and marketable title thereto, free and
clear of any and all Liens.
(B) No effective security agreement, financing statement, equivalent
security or lien instrument or continuation statement covering all or any part
of the Collateral exists, except such as may have been filed by Grantor in favor
of Secured Party pursuant to this Security Agreement and except for Permitted
Liens.
(C) This Security Agreement creates a legal and valid security
interest on and in all of the Collateral in which Grantor now has rights and
will create a legal and valid security interest in the Collateral in which
Grantor later acquires rights.
(D) Grantor's taxpayer identification number is set forth in the
signature page hereof. If Grantor is a corporation, limited liability company,
limited partnership, corporate trust or other registered organization, the State
(or if not a state, the other jurisdiction) under whose law such registered
organization was organized is set forth on the signature page hereof. Grantor's
chief executive office, principal place of business, and the place where Grantor
maintains its records concerning the Collateral are presently located at the
address et forth on the signature page hereof. The Collateral consisting of
Goods, other than motor vehicles and other mobile goods, is presently located at
such address and at such additional addresses set forth on Schedule B attached
hereto.
(E) All Collateral of Grantor existing as of the date hereof
consisting of Chattel Paper, Instruments or Investment Property comprising
certificated securities is set forth on Schedule C attached hereto. All action
necessary or desirable to protect and perfect such security interest in each
item set forth on Schedule C, including the delivery of all originals thereof,
duly endorsed to Secured Party, has been duly taken. The security interest of
Secured Party in the Collateral listed on Schedule C is prior in right and
interest to all other Liens (other than Permitted Liens) and is enforceable as
such against creditors of and purchasers from Grantor.
(F) The name and address of each depository institution at which
Grantor maintains any Deposit Account and the account number and account name of
each such Deposit Account is listed on Schedule D attached hereto. The name and
address of each securities intermediary or commodity intermediary at which
Grantor maintains any Securities Account or Commodity Account and the account
number and account name is listed on Schedule D attached hereto. Grantor agrees
to amend Schedule D from time to time within five (5) business days after
opening any additional Deposit Account, Securities Account or Commodity Account,
or closing or changing the account name or number on any existing Deposit
Account, Securities Account, or Commodity Account.
(G) None of the Investment Property of Grantor has been transferred
in violation of the securities registration, securities disclosure or similar
laws of any jurisdiction to which such transfer may be subject.
(H) All Copyrights, Copyright Licenses, Patents, Patent Licenses,
Trademarks and Trademark Licenses now owned, held or in which Grantor otherwise
has any interest are listed on Schedule E attached hereto. Grantor shall amend
Schedule E from time to time in accordance with Section 5.9 below to reflect any
additions to or deletions from this list. Except as set forth on Schedule E,
none of the Patents, Trademarks or Copyrights have been licensed to any third
party.
5. COVENANTS. Grantor covenants and agrees with Secured Party that from
and after the date of this Security Agreement and until the Secured Obligations
have been performed and paid in full and any commitment of Secured Party to make
Loans to Grantor has expired or terminated:
5.1 DISPOSITION OF COLLATERAL. Grantor shall not sell, lease,
transfer or otherwise dispose of any of the Collateral, or attempt or contract
to do so, other than (a) the sale of Inventory, (b) the granting of
non-exclusive Licenses, and (c) the disposal of worn-out or obsolete Equipment,
all in the ordinary course of Grantor's business.
5.2 CHANGE OF JURISDICTION OF ORGANIZATION, RELOCATION OF BUSINESS
OR COLLATERAL. Grantor shall not change its jurisdiction of organization,
relocate its chief executive office, principal place of business or its records,
or allow the relocation of any Collateral (except as allowed pursuant to Section
5.1 immediately above) from such address(es) provided to Secured Party pursuant
to Section 4(d) above without thirty (30) days prior written notice to Secured
Party.
5.3 LIMITATION ON LIENS ON COLLATERAL. Grantor shall not, directly
or indirectly, create, permit or suffer to exist, and shall defend the
Collateral against and take such other action as is necessary to remove, any
Lien on the Collateral, except (a) Permitted Liens and (b) the Lien granted to
Secured Party under this Security Agreement. Grantor shall further defend the
right, title and interest of Secured Party in and to any of Grantor's rights
under the Collateral against the claims and demands of all persons whomsoever.
5.4 LIMITATIONS ON MODIFICATIONS OF ACCOUNTS, ETC. Upon the
occurrence and during the continuance of any Event of Default, Grantor shall
not, without Secured Party's prior written consent, grant any extension of the
time of payment of any of the Accounts, Chattel Paper, Instruments or amounts
due under any Contract or Document, compromise, compound or settle the same for
less than the full amount thereof, release, wholly or partly, any person liable
for the payment thereof, or allow any credit or discount whatsoever thereon
other than trade discounts and rebates granted in the ordinary course of
Grantor's business.
5.5 INSURANCE. Grantor shall maintain insurance policies insuring
the Collateral against loss or damage from such risks and in such amounts and
forms and with such companies as are customarily maintained by businesses
similar to Grantor.
5.6 TAXES, ASSESSMENTS, ETC. Grantor shall pay promptly when due all
property and other taxes, assessments and government charges or levies imposed
upon, and all claims (including claims for labor, materials and supplies)
against, the Goods, except to the extent the validity thereof is being contested
in good faith and adequate reserves are being maintained in connection
therewith.
5.7 MAINTENANCE OF RECORDS. Grantor shall keep and maintain at its
own cost and expense satisfactory and complete records of the Collateral.
Grantor shall not create any Chattel Paper without placing a legend on the
Chattel Paper acceptable to Secured Party indicating that Secured Party has a
security interest in the Chattel Paper.
5.8 REGISTRATION OF INTELLECTUAL PROPERTY RIGHTS. Grantor shall
promptly register or cause to be registered (to the extent not already
registered) the most recent version of any Copyright, Copyright License, Patent,
Patent License, Trademark or Trademark License, which, individually or in the
aggregate, is material to the conduct of Grantor's business, with the United
States Copyright Office or Patent and Trademark Office, as applicable,
including, without limitation, in all such cases the filing of applications for
renewal, affidavits of use, affidavits of noncontestability and opposition and
interference and cancellation proceedings. Grantor shall register or cause to be
registered with the United States Copyright Office or Patent and Trademark
Office, as applicable, those additional rights and interests developed or
acquired by Grantor after the date of this Security Agreement, including,
without limitation, any additions to the rights and interests of Grantor listed
on Schedule E hereto, which individually or in the aggregate, are material to
the conduct of Grantor's business.
5.9 NOTIFICATION REGARDING CHANGES IN INTELLECTUAL PROPERTY. Grantor
shall:
(A) promptly advise Secured Party in writing of any subsequent
ownership right or interest of the Grantor in or to any Copyright, Patent,
Trademark or License not specified on Schedule E hereto, and shall amend or
permit Secured Party to amend such Schedule, as necessary, to reflect any
addition or deletion to such ownership rights;
(B) promptly give Secured Party written notice of any applications
or registrations of intellectual property rights filed with the United States
Patent and Trademark Office, including the date of such filing and the
registration or application numbers, if any; and
(C) (i) give Secured Party not less than 30 days prior written
notice of the filing of any applications or registrations with the United States
Copyright Office, including the title of such intellectual property rights to be
registered, as such title will appear on such applications or registrations, and
the date such applications or registrations will be filed, and (ii) prior to the
filing of any such applications or registrations, shall execute such documents
as Secured Party may reasonably request for Secured Party to maintain its
perfection and priority in such intellectual property rights to be registered by
Grantor, and upon the request of Secured Party, shall file such documents
simultaneously with the filing of any such applications or registrations. Upon
filing any such applications or registrations with the United States Copyright
Office, Grantor shall promptly provide Secured Party with (x) a copy of such
applications or registrations, without the exhibits, if any, thereto, (y)
evidence of the filing of any documents requested by Secured Party to be filed
for Secured Party to maintain the perfection and priority of its security
interest in such intellectual property rights, and (z) the date of such filing.
(D) Secured Party may audit Grantor's Intellectual Property to
confirm compliance with Section 5.8 and this Section 5.9, provided such audit
may not occur more often than twice per year, unless an Event of Default has
occurred and is continuing. Secured Party shall have the right, but not the
obligation, to take, at Grantor's sole expense, any actions that Grantor is
required under this Section 5.9 to take but which Grantor fails to take, after
five (5) days' notice to Grantor (provided that no such notice shall be required
if an Event of Default has occurred and is continuing). Grantor shall reimburse
and indemnify Secured Party for all reasonable costs and reasonable expenses
incurred in the reasonable exercise of its rights under Section 5.8 or this
Section 5.9.
5.10 DEFENSE OF INTELLECTUAL PROPERTY. Grantor shall (a) protect,
defend and maintain the validity and enforceability of its Copyrights, Patents
and Trademarks, (b) use its best efforts to detect infringements of its
Copyrights, Patents and Trademarks and promptly advise Secured Party in writing
of material infringements detected and (c) not allow any of its Copyrights,
Patents or Trademarks to be abandoned, forfeited or dedicated to the public
without the prior written consent of Secured Party.
5.11 FURTHER ASSURANCES; PLEDGE OF INSTRUMENTS. At any time and from
time to time, upon the written request of Secured Party, and at the sole expense
of Grantor, Grantor shall promptly and duly execute and deliver any and all such
further instruments and documents and take such further action as Secured Party
may reasonably deem necessary or desirable to obtain the full benefits of this
Security Agreement, including, without limitation, (a) using its best efforts to
secure all consents and approvals necessary or appropriate for the grant of a
security interest to Secured Party in any item of Collateral held by Grantor or
in which Grantor has any right or interest, (b) executing, delivering and
causing to be filed any financing or continuation statements (including "in
lieu" continuation statements) under the UCC with respect to the security
interests granted hereby, (c) filing or cooperating with Secured Party in filing
any forms or other documents required to be recorded with the United States
Patent and Trademark Office, United States Copyright Office, or any actions,
filings, recordings or registrations in any foreign jurisdiction or under any
international treaty, required to secure or protect Secured Party's interest in
the Collateral, (d) transferring the Collateral to Secured Party's possession
(if a security interest in such Collateral can be perfected only by possession),
(e) at Secured Party's reasonable request, placing the interest of Secured Party
as lienholder on the certificate of title (or similar evidence of ownership) of
any vehicle, watercraft or other item of Collateral owned by Grantor which is
covered by a certificate of title (or similar evidence of ownership), (f)
executing and delivering and causing the applicable depository institution,
securities intermediary, commodity intermediary or issuer or nominated party
under a letter of credit to execute and deliver a collateral control agreement
with respect to each Deposit Account, Securities Account or Commodity Account or
Letter-of-Credit Right in or to which Grantor now or hereafter has any right or
interest in order to perfect the security interest created hereunder in favor of
Secured Party (including giving Secured Party "control" over such Collateral
within the meaning of the applicable provisions of Article 8 and Article 9 of
the UCC), (g) at Secured Party's reasonable request, executing and delivering or
causing to be delivered written notice to insurers of Secured Party's security
interest in, or claim in or under, any policy of insurance (including unearned
premiums) and (h) at Secured Party's reasonable request, using its best efforts
to obtain acknowledgments from bailees having possession of any Collateral and
waivers of liens from landlords and mortgagees of any location where any of the
Collateral may from time to time be stored or located. Secured Party may at any
time and from time to time file financing statements, continuation statements
(including "in lieu" continuation statements) and amendments thereto that
describe the Collateral as all assets of Grantor or words of similar effect. Any
such financing statements, continuation statements or amendments may be signed
by Secured Party on behalf of Grantor and may be filed at any time in any
jurisdiction. Grantor also hereby authorizes Secured Party to file any such
financing or continuation statement (including "in lieu" continuation
statements) without the signature of Grantor. If any amount payable under or in
connection with any of the Collateral is or shall become evidenced by any
Instrument, such Instrument, other than checks and notes received in the
ordinary course of business and any Instrument in the outstanding or stated
amount of less than $10,000, shall be duly endorsed in a manner reasonably
satisfactory to Secured Party and delivered to Secured Party promptly and in any
event within five (5) business days of Grantor's receipt thereof.
6. SECURED PARTY'S APPOINTMENT AS ATTORNEY-IN-FACT; PERFORMANCE BY SECURED
PARTY.
(A) Subject to Section 6(b) below and to applicable Gaming Laws,
Grantor hereby irrevocably constitutes and appoints Secured Party, and any
officer or agent of Secured Party, with full power of substitution, as its true
and lawful attorney-in-fact with full, irrevocable power and authority in the
place and stead of Grantor and in the name of Grantor or in its own name, from
time to time at Secured Party's discretion, for the purpose of carrying out the
terms of this Security Agreement, to take any and all appropriate action and to
execute and deliver any and all documents and instruments which may be necessary
or desirable to accomplish the purposes of this Security Agreement and, without
limiting the generality of the foregoing, hereby gives Secured Party the power
and right, on behalf of Grantor, without notice to or assent by Grantor to do
the following:
(I) to ask, demand, collect, receive and give acquittances and
receipts for any and all monies due or to become due under any Collateral and,
in the name of Grantor, in its own name or otherwise to take possession of,
endorse and collect any checks, drafts, notes, acceptances or other Instruments
for the payment of monies due under any Collateral and to file any claim or take
or commence any other action or proceeding in any court of law or equity or
otherwise deemed appropriate by Secured Party for the purpose of collecting any
and all such monies due under any Collateral whenever payable;
(II) to pay or discharge any Liens, including, without
limitation, any tax lien, levied or placed on or threatened against the
Collateral, to effect any repairs or any insurance called for by the terms of
this Security Agreement and to pay all or any part of the premiums therefor and
the costs thereof, which actions shall be for the benefit of Secured Party and
not Grantor;
(III) to (1) direct any person liable for any payment under or
in respect of any of the Collateral to make payment of any and all monies due or
to become due thereunder directly to Secured Party or as Secured Party shall
direct, (2) receive payment of any and all monies, claims and other amounts due
or to become due at any time arising out of or in respect of any Collateral, (3)
sign and endorse any invoices, freight or express bills, bills of lading,
storage or warehouse receipts, drafts against debtors, assignments,
verifications and notices in connection with Accounts and other Instruments and
Documents constituting or relating to the Collateral, (4) commence and prosecute
any suits, actions or proceedings at law or in equity in any court of competent
jurisdiction to collect the Collateral or any part thereof and to enforce any
other right in respect of any Collateral, (5) defend any suit, action or
proceeding brought against Grantor with respect to any Collateral, (6) settle,
compromise or adjust any suit, action or proceeding described above, and in
connection therewith, give such discharges or releases as Secured Party may deem
appropriate, (7) license, or, to the extent permitted by an applicable License,
sublicense, whether general, special or otherwise, and whether on an exclusive
or non-exclusive basis, any Copyright, Patent or Trademark throughout the world
for such term or terms, on such conditions and in such manner as Secured Party
shall in its discretion determine and (8) sell, transfer, pledge, make any
agreement with respect to or otherwise deal with any of the Collateral as fully
and completely as though Secured Party were the absolute owner thereof for all
purposes; and
(IV) to do, at Secured Party's option and Grantor's expense,
at any time, or from time to time, all acts and things which Secured Party may
reasonably deem necessary to protect, preserve or realize upon the Collateral
and Secured Party's security interest therein in order to effect the intent of
this Security Agreement, all as fully and effectively as Grantor might do.
(B) Secured Party agrees that, except upon the occurrence and during
the continuation of an Event of Default, it shall not exercise the power of
attorney or any rights granted to Secured Party pursuant to this Section 6.
Grantor hereby ratifies, to the extent permitted by law, all that said attorney
shall lawfully do or cause to be done by virtue hereof. The power of attorney
granted pursuant to this Section 6 is a power coupled with an interest and shall
be irrevocable until the Secured Obligations are completely and indefeasibly
paid and performed in full and Secured Party no longer has any commitment to
make any Loans to Grantor.
(C) If Grantor fails to perform or comply with any of its agreements
contained herein and Secured Party, as provided for by the terms of this
Security Agreement, shall perform or comply, or otherwise cause performance or
compliance, with such agreement, the reasonable expenses, including reasonable
attorneys' fees and costs, of Secured Party incurred in connection with such
performance or compliance, together with interest thereon at a rate of interest
equal to the highest per annum rate of interest charged on the Loans, shall be
payable by Grantor to Secured Party within five (5) business days of demand and
shall constitute Secured Obligations secured hereby.
7. RIGHTS AND REMEDIES UPON DEFAULT. After any Event of Default shall have
occurred and while such Event of Default is continuing, subject to applicable
Gaming Laws:
(A) Secured Party may exercise in addition to all other rights
and remedies granted to it under this Security Agreement or the Note and under
any other instrument or agreement securing, evidencing or relating to the
Secured Obligations, all rights and remedies of a secured party under the UCC.
Without limiting the generality of the foregoing, Grantor expressly agrees that
in any such event Secured Party, without demand of performance or other demand,
advertisement or notice of any kind (except the notice specified below of time
and place of public or private sale) to or upon Grantor or any other person (all
and each of which demands, advertisements and notices are hereby expressly
waived to the maximum extent permitted by the UCC and other applicable law), may
(i) reclaim, take possession, recover, store, maintain, finish, repair, prepare
for sale or lease, shop, advertise for sale or lease and sell or lease (in the
manner provided herein) the Collateral, and in connection with the liquidation
of the Collateral and collection of the accounts receivable pledged as
Collateral, use any Trademark, Copyright, or process used or owned by Grantor
and (ii) forthwith collect, receive, appropriate and realize upon the
Collateral, or any part thereof, and may forthwith sell, lease, assign, give an
option or options to purchase or sell or otherwise dispose of and deliver said
Collateral (or contract to do so), or any part thereof, in one or more parcels
at public or private sale or sales, at any exchange or broker's board or at any
of Secured Party's offices or elsewhere at such prices as it may deem best, for
cash or on credit or for future delivery without assumption of any credit risk.
To the extent Grantor has the right to do so, Grantor authorizes Secured Party,
on the terms set forth in this Section 7 to enter the premises where the
Collateral is located, to take possession of the Collateral, or any part of it,
and to pay, purchase, contact, or compromise any encumbrance, charge, or lien
which, in the opinion of Secured Party, appears to be prior or superior to its
security interest. Secured Party shall have the right upon any such public sale
or sales, and, to the extent permitted by law, upon any such private sale or
sales, to purchase the whole or any part of said Collateral so sold, free of any
right or equity of redemption, which equity of redemption Grantor hereby
releases. Grantor further agrees, at Secured Party's request, to assemble the
Collateral and make it available to the Secured Party at places which Secured
Party shall reasonably select, whether at Grantor's premises or elsewhere.
Secured Party shall apply the net proceeds of any such collection, recovery,
receipt, appropriation, realization or sale as provided in Section 7(f), below
and only after so paying over such net proceeds and after the payment by Secured
Party of any other amount required by any provision of law, need Secured Party
account for the surplus, if any, to Grantor. To the maximum extent permitted by
applicable law, Grantor waives all claims, damages, and demands against Secured
Party arising out of the repossession, retention or sale of the Collateral.
Grantor agrees that Secured Party need not give more than ten (10) days' notice
of the time and place of any public sale or of the time after which a private
sale may take place and that such notice is reasonable notification of such
matters. Grantor shall remain liable for any deficiency if the proceeds of any
sale or disposition of the Collateral are insufficient to pay all amounts to
which Secured Party is entitled from Grantor, Grantor also being liable for the
attorney costs of any attorneys employed by Secured Party to collect such
deficiency.
(B) As to any Collateral constituting certificated securities
or uncertificated securities, if, at any time when Secured Party shall determine
to exercise its right to sell the whole or any part of such Collateral
hereunder, such Collateral or the part thereof to be sold shall not, for any
reason whatsoever, be effectively registered under Securities Act of 1933, as
amended (as so amended the "ACT"), Secured Party may, in its discretion (subject
only to applicable requirements of law), sell such Collateral or part thereof by
private sale in such manner and under such circumstances as Secured Party may
deem necessary or advisable, but subject to the other requirements of this
Section 7(b), and shall not be required to effect such registration or cause the
same to be effected. Without limiting the generality of the foregoing, in any
such event Secured Party may, in its sole discretion, (i) in accordance with
applicable securities laws, proceed to make such private sale notwithstanding
that a registration statement for the purpose of registering such Collateral or
part thereof could be or shall have been filed under the Act; (ii) approach and
negotiate with a single possible purchaser to effect such sale; and (iii)
restrict such sale to a purchaser who will represent and agree that such
purchaser is purchasing for its own account, for investment, and not with a view
to the distribution or sale of such Collateral or part thereof. In addition to a
private sale as provided above in this Section 7(b), if any of such Collateral
shall not be freely distributable to the public without registration under the
Act at the time of any proposed sale hereunder, then Secured Party shall not be
required to effect such registration or cause the same to be effected but may,
in its sole discretion (subject only to applicable requirements of law), require
that any sale hereunder (including a sale at auction) be conducted subject to
such restrictions as Secured Party may, in its sole discretion, deem necessary
or appropriate in order that such sale (notwithstanding any failure so to
register) may be effected in compliance with the Bankruptcy Code and other laws
affecting the enforcement of creditors' rights and the Act and all applicable
state securities laws.
(C) Grantor agrees that in any sale of any of such Collateral,
whether at a foreclosure sale or otherwise, Secured Party is hereby authorized
to comply with any limitation or restriction in connection with such sale as it
may be advised by counsel is necessary in order to avoid any violation of
applicable law (including compliance with such procedures as may restrict the
number of prospective bidders and purchasers, require that such prospective
bidders and purchasers have certain qualifications and restrict such prospective
bidders and purchasers to persons who will represent and agree that they are
purchasing for their own account for investment and not with a view to the
distribution or resale of such Collateral), or in order to obtain any required
approval of the sale or of the purchaser by any governmental authority, and
Grantor further agrees that such compliance shall not result in such sale being
considered or deemed not to have been made in a commercially reasonable manner,
nor shall Secured Party be liable nor accountable to Grantor for any discount
allowed by the reason of the fact that such Collateral is sold in compliance
with any such limitation or restriction.
(D) Grantor also agrees to pay all fees, costs and expenses of
Secured Party, including, without limitation, attorneys' fees, incurred in
connection with the enforcement of any of its rights and remedies hereunder.
(E) Grantor hereby waives presentment, demand, protest or any
notice (to the maximum extent permitted by applicable law) of any kind in
connection with this Security Agreement or any Collateral.
(F) The Proceeds of any sale, disposition or other realization
upon all or any part of the Collateral shall be distributed by Secured Party in
the following order of priorities:
FIRST, to Secured Party in an amount sufficient to pay in full
the costs of Secured Party in connection with such sale, disposition or other
realization, including all fees, costs, expenses, liabilities and advances
incurred or made by Secured Party in connection therewith, including, without
limitation, attorneys' fees;
SECOND, to Secured Party in an amount equal to the then unpaid
Secured Obligations; and
FINALLY, upon payment in full of the Secured Obligations, to
Grantor or its representatives, in accordance with the UCC or as a court of
competent jurisdiction may direct.
(G) In the event that Secured Party exercises a remedy set
forth in this Security Agreement with respect to Collateral consisting of gaming
devices, cashless wagering systems and associated equipment (as those terms are
defined in the Gaming Laws) and a transfer, sale, distribution or other
disposition of such Collateral occurs, such transfer, sale, distribution or
other disposition may require the separate and prior approval of the Gaming
Authorities pursuant to applicable Gaming Laws or the licensing of Secured Party
or other transferee.
8. INDEMNITY. Grantor agrees to defend, indemnify and hold harmless
Secured Party and its officers, employees, and agents against (a) all
obligations, demands, claims, and liabilities claimed or asserted by any other
party in connection with the transactions contemplated by this Security
Agreement and (b) all losses or expenses in any way suffered, incurred, or paid
by Secured Party as a result of or in any way arising out of, following or
consequential to transactions between Secured Party and Grantor, whether under
this Security Agreement or otherwise (including without limitation, reasonable
attorneys fees and expenses), except for losses arising from or out of Secured
Party's gross negligence or willful misconduct.
9. LIMITATION ON SECURED PARTY'S DUTY IN RESPECT OF COLLATERAL. Secured
Party shall be deemed to have acted reasonably in the custody, preservation and
disposition of any of the Collateral if it takes such action as Grantor requests
in writing except during an Event of Default, but failure of Secured Party to
comply with any such request shall not in itself be deemed a failure to act
reasonably, and no failure of Secured Party to do any act not so requested shall
be deemed a failure to act reasonably.
10. REINSTATEMENT. This Security Agreement shall remain in full force and
effect and continue to be effective should any petition be filed by or against
Grantor for liquidation or reorganization, should Grantor become insolvent or
make an assignment for the benefit of creditors or should a receiver or trustee
be appointed for all or any significant part of Grantor's property and assets,
and shall continue to be effective or be reinstated, as the case may be, if at
any time payment and performance of the Secured Obligations, or any part
thereof, is, pursuant to applicable law, rescinded or reduced in amount, or must
otherwise be restored or returned by any obligee of the Secured Obligations,
whether as a "voidable preference," "fraudulent conveyance," or otherwise, all
as though such payment or performance had not been made. In the event that any
payment, or any part thereof, is rescinded, reduced, restored or returned, the
Secured Obligations shall be reinstated and deemed reduced only by such amount
paid and not so rescinded, reduced, restored or returned.
11. MISCELLANEOUS.
11.1 WAIVERS; MODIFICATIONS. None of the terms or provisions of this
Security Agreement may be waived, altered, modified or amended except by an
instrument in writing, duly executed by Grantor and Secured Party.
11.2 TERMINATION OF THIS SECURITY AGREEMENT. Subject to Section 10
hereof, this Security Agreement shall terminate upon the payment and performance
in full of the Secured Obligations.
11.3 SUCCESSOR AND ASSIGNS. This Security Agreement and all
obligations of Grantor hereunder shall be binding upon the successors and
assigns of Grantor, and shall, together with the rights and remedies of Secured
Party hereunder, inure to the benefit of Secured Party, any future holder of any
of the Secured Obligations and their respective successors and assigns. No sales
of participations, other sales, assignments, transfers or other dispositions of
any agreement governing or instrument evidencing the Secured Obligations or any
portion thereof or interest therein shall in any manner affect the lien granted
to Secured Party hereunder.
11.4 GOVERNING LAW. In all respects, including all matters of
construction, validity and performance, this Security Agreement shall be
governed by, and construed and enforced in accordance with, the laws of the
State of California applicable to contracts made and performed in such state,
without regard to the principles thereof regarding conflict of laws, except to
the extent that the UCC provides for the application of the law of a different
jurisdiction.
11.5 GAMING RESTRICTIONS ON PLEDGE OF INVESTMENT PROPERTY.
(A) If any subsidiary of Grantor is subject to the jurisdiction of
any Gaming Authorities as a licensee or registered company under Gaming Laws,
the pledge of any equity securities issued by such licensee or registered
company ("PLEDGED GAMING STOCK") under this Security Agreement will require the
approval of the Gaming Authorities in order to become effective and any
subsequent amendment of this Security Agreement will require the prior approval
of the Gaming Authorities in order to become effective.
(B) In the event that Secured Party exercises a remedy set forth in
this Security Agreement with respect to any Pledged Gaming Stock, that is a
foreclosure, transfer of a possessory security interest in such Collateral, the
exercise of voting and consensual rights with respect thereto afforded hereunder
and/or re-registration of such Collateral, such exercise of remedies would be
deemed a separate transfer of such Collateral and would require the separate and
prior approval of the Gaming Authorities pursuant to applicable Gaming Laws and
the licensing of the Secured Party or other transferee, unless such licensing
requirement is waived by the Gaming Authorities.
(C) The physical location of all certificates evidencing Pledged
Gaming Stock shall at all times remain within the territory of the State of
Nevada at a location designated to the Nevada Gaming Authorities (and thereafter
shall not change the location of such Pledged Gaming Stock or permit such
change, in either case, without prior notice to Grantor), and each of such
certificates shall be made available for inspection by agents of the Nevada
Gaming Authorities immediately upon request during normal business hours.
Secured Party shall not surrender possession of the Pledged Gaming Stock to any
person other than Grantor without the prior approval of the Nevada Gaming
Authorities or as otherwise permitted by applicable Nevada Gaming Laws.
IN WITNESS WHEREOF, each of the parties hereto has caused this Security
Agreement to be executed and delivered by its duly authorized officer on the
date first set forth above.
ADDRESS OF VIRTGAME CORP. VIRTGAME CORP., as Grantor
By: /s/ Xxxx X. Xxxxxxx
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Printed Name: Xxxx X. Xxxxxxx
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Title: President and CEO
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TAXPAYER IDENTIFICATION NUMBER OF GRANTOR JURISDICTION OF ORGANIZATION OF GRANTOR
____________________________________ Delaware
ACCEPTED AND ACKNOWLEDGED BY:
MIKOHN GAMING CORPORATION, D/B/A
PROGRESSIVE GAMING INTERNATIONAL
CORPORATION, as Secured Party
By: /s/ Xxxxxxx X. Xxxxxx
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Printed Name:
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Title:
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