EXHIBIT 10.37
SECURITY AGREEMENT
This SECURITY AGREEMENT (this "Agreement"), dated as of May 6, 1998,
is entered into and made by and among Alpine Associates, a New Jersey Limited
Partnership ("Alpine"), East West Capital Associates, Inc. ("Capital"), and
together with Alpine, the "Lenders"), Alpine as collateral agent for itself and
Capital (the "Agent") and 7th Level, Inc., a Delaware corporation ("7th Level").
WHEREAS, pursuant to the Securities Purchase Agreement dated as of the
date hereof by and among 7th Level and the Lenders, the Lenders have agreed to
lend 7th Level an aggregate of up to Four Million Five Hundred Thousand Dollars
($4,500,000.00) for working capital requirements and general corporate purposes,
and 7th Level is issuing Secured Promissory Notes (the "Notes") in such
aggregate principal amount and warrants exercisable for 675,000 shares of common
stock to the Lenders;
WHEREAS, as security for such loans, 7th Level has agreed to grant to
the Lenders a continuing first priority (except to the extent set forth below)
security interest in the Collateral (as hereinafter defined);
WHEREAS, it is a condition precedent to the Lenders' obligations to
make the loan to 7th Level that 7th Level execute and deliver to the Lenders
this Agreement; and
WHEREAS, 7th Level desires to execute and deliver this Agreement to
satisfy the condition described in the preceding paragraph;
NOW, THEREFORE, in consideration of the benefits accruing to 7th
Level, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, 7th Level covenants and agrees
with the Lender and the Agent as follows:
1. Security for Obligations. This Agreement is for the benefit of
the Lenders to secure the due and punctual payment and performance of all
indebtedness, liabilities and obligations of 7th Level to the Lenders, of every
kind and description, whether direct, indirect or contingent, now existing or
hereafter acquired or arising, secured or unsecured, primary or secondary, due
or to become due, arising under the Notes or this Agreement and any and all
future amendments thereto (all of the foregoing are hereinafter called the
"Obligations").
2. Definition of Collateral. As used herein, the term "Collateral"
shall mean all of the tangible and intangible personal property and fixtures of
7th Level (but none of its obligations with respect thereto), including, without
limitation, the property described below, whether now owned or existing, or
hereafter acquired or arising, wherever located, together with any and all
additions, accessions and attachments thereto and substitutions, replacements,
proceeds (including, without limitation, insurance proceeds) and products
thereof:
(a) all inventory, goods, merchandise, raw materials, parts,
components, assemblies, supplies, goods or work in process, finished goods
and other tangible personal property held by 7th Level for processing, sale
or lease or furnished or to be furnished by 7th Level under contracts of
service or to be used or consumed in 7th Level's business (the foregoing
items in this clause (a) being sometimes herein referred to collectively as
"Inventory");
(b) all accounts, accounts receivable, notes, drafts and
acceptances of 7th Level, all rights to receive the payment of money under
contracts, franchises, licenses, permits and other agreements, documents or
instruments (whether or not earned by performance) or otherwise of 7th
Level, and all rights of 7th Level to receive payments from any other
source (the foregoing items in this clause (b) being sometimes herein
referred to collectively as "Accounts Receivable"), together with all
rights of 7th Level in the goods and services which have given rise
thereto, including, without limitation, returned or repossessed goods and
unpaid sellers' rights of rescission, replevin, reclamation and rights to
stoppage in transit;
(c) all of 7th Level's equipment, machinery, fixtures,
furniture, furnishings, computers and related equipment, office equipment
and supplies, tools and vehicles; provided, however, that the security
interest granted hereby in respect of any computer or office equipment
acquired by 7th Level under capital leases shall be subject and subordinate
to the terms of such capital leases and the rights of the lessors
thereunder (the foregoing items in this clause (c) being sometimes herein
referred to collectively as "Equipment");
(d) all of 7th Level's general intangibles (including goodwill)
and other intangible property and all rights thereunder (all such items
existing on the date hereof are identified on Schedule 2(d) hereto),
including, without limitation, all of the following:
(i) all trademarks, trademark applications and
registrations and trade names, together with the goodwill
appurtenant thereto, owned, held (whether pursuant to a license
or otherwise), used or to be used, in whole or in part, in
conducting 7th Level's business (the "Trademarks");
(ii) all patents and patent applications of 7th Level,
including without limitation, the inventions and improvements
described and claimed therein (the "Patents");
(iii) all copyrights and applications for registration of
copyrights of 7th Level and all rights in literary property (the
"Copyrights");
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(iv) all reissues, divisions, continuations, renewals,
extensions and continuations-in-part of any Trademarks, Patents
and/or Copyrights; all income, royalties, damages and payments
now or hereafter due and/or payable with respect to any
Trademarks, Patents and/or Copyrights, including, without
limitation, damages and payments for past or future infringements
thereof; all rights (but no obligation) to ▇▇▇ for past, present
and future infringements of any Trademarks, Patents and/or
Copyrights or bring interference proceedings with respect
thereto; and all rights corresponding to any Trademarks, Patents
and/or Copyrights throughout the world;
(v) all rights and interests of 7th Level pertaining to
common law and statutory trademark, service marks, trade names,
slogans, labels, trade secrets, patents, copyrights, corporate
names, company names, business names, fictitious business names,
trademark or service ▇▇▇▇ registrations, designs, logos, trade
styles, applications for trademark registration and any other
indicia of origin;
(vi) all operating methods, formulas, processes, know-how
and the like of 7th Level (the foregoing items in clauses (i)
through (vi), inclusive, being sometimes herein referred to
collectively as the "Intellectual Property Collateral");
(e) all shares of capital stock and other ownership interests in
any subsidiary of 7th Level (other than 7th Level Deutschland GmbH and
Distant Thunder Entertainment, Inc.) or in any other person, including all
interests in any general or limited partnership, any joint venture or any
limited liability company or partnership; and all options, warrants and
similar rights to acquire such capital stock or such interests (the
foregoing items in this clause (e) being sometimes herein referred to as
the "Pledged Securities");
(f) all contracts, contract rights, leases (including leases of
personal property, whether 7th Level is the lessor or the lessee
thereunder), franchises, licenses, permits and other agreements (all such
items existing on the date hereof are identified on Schedule 2(f) hereto)
and all rights thereunder of 7th Level (the foregoing items in this clause
(f) being sometimes herein referred to collectively as "Contracts");
(g) all rights granted by others which permit 7th Level to
manufacture, distribute, sell or market items of property (all such items
existing on the date hereof are identified on Schedule 2(g) hereto);
(h) all chattel paper, documents, documents of title, records,
negotiable and non-negotiable instruments, hedge contracts and forward
purchase
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contracts of 7th Level (all such items existing on the date hereof
are identified on Schedule 2(h) hereto);
(i) all property or collateral granted by third party obligors
to, or held by, 7th Level with respect to any Accounts Receivable,
documents, chattel paper, instruments, leases and other items of Collateral
and all liens, rights, remedies, privileges, guarantees and other security
for any of the foregoing;
(j) all books and records, including without limitation, books
of account and ledgers of every kind and nature, all electronically
recorded data (including all computer programs, discs, tapes, electronic
data processing media and software used in maintaining 7th Level's books
and records), all files and correspondence and all receptacles and
containers for the foregoing; all computer software, designs, models,
know-how, trade secrets, rights of proprietary information, formulas,
customer lists, backlogs, orders, royalties, sales material, documents,
goodwill, inventions and processes of 7th Level;
(k) all judgments, causes of action and claims, whether or not
inchoate, of 7th Level;
(l) all cash, funds and investments, including that maintained
in any account (including any collateral account or deposit account) at any
bank or financial institution, and all rights with respect thereto;
(m) all tax refunds and abatements of every kind and nature, and
all rights and claims related thereto;
(n) all insurance policies (and all rights thereunder) which
insure against any loss or damage to any other Collateral;
(o) all other property, assets and items of value of every kind
and nature, tangible or intangible, absolute or contingent, legal or
equitable; and
(p) all proceeds, including, without limitation, insurance
proceeds, and products of the items of Collateral heretofore described.
7th Level has this day delivered to the Agent all certificates
evidencing the Pledged Securities of the subsidiaries of 7th Level (other than
7th Level Deutschland GmbH and Distant Thunder Entertainment, Inc.), accompanied
by one or more undated stock powers executed in blank.
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3. Pledge of Collateral. To secure the Obligations, 7th Level
hereby assigns, grants, conveys, pledges and sets over to the Agent a first
priority (except to the extent set forth above) security interest in all of the
Collateral.
4. Payments and Other Distributions. Unless an Event of Default (as
defined) shall have occurred and be continuing, all cash or other amounts
payable in respect of the Collateral shall be used by 7th Level for working
capital requirements, general corporate purposes or other valid business
purposes.
5. Representations, Warranties and Covenants. 7th Level hereby
represents, warrants and covenants as follows:
(a) 7th Level is, or to the extent that certain of the
Collateral is to be acquired after the date hereof will be, the owner of
the Collateral, free from any adverse lien, security interest or
encumbrance other than as set forth on Schedule 5(a) hereto. 7th Level will
defend the Collateral against all claims and demands of all persons at any
time claiming any interest therein to the extent that it is commercially
reasonable to do so. 7th Level will keep the Collateral free from any
adverse lien, security interest or encumbrance, other than those identified
on Schedule 5(a) hereto.
(b) Except as set forth on Schedule 5(a) hereto, no financing
statement covering the Collateral is on file in any public office, other
than the financing statements filed or to be filed by or on behalf of the
Agent pursuant to this Agreement.
(c) 7th Level will pay any and all taxes, assessments and
governmental charges upon the Collateral, except to the extent that such
taxes, assessments and charges have been adequately reserved for and are
currently being contested in good faith by 7th Level in appropriate
proceedings.
(d) 7th Level will promptly notify the Agent of any event
causing a substantial loss or diminution in the value of all or any
material part of the Collateral and the amount or an estimate of the amount
of such loss or diminution.
(e) 7th Level will not sell or offer to sell or otherwise
assign, transfer or dispose of the Collateral or any interest therein
(other than inventory sold or receivables collected in the ordinary course
of business or inventory sold in connection with 7th Level's exiting of the
games business), without the prior written consent of the Agent.
(f) 7th Level will have and maintain insurance at all times with
respect to the Collateral against risks of fire, theft and other
casualties. 7th Level shall give prompt written notice to the Agent and to
insurers of loss or damage to the Collateral and shall promptly file proofs
of loss with insurers.
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(g) All books and records concerning the Collateral consisting
of Contracts, Accounts Receivable and other general intangibles are located
at ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇, which
is the chief executive office and principal place of business of 7th Level.
7th Level's only additional place of business is at ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇,
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇. 7th Level shall promptly notify the Agent of
any change in the location of its chief executive office or of any new or
additional address where its books and records concerning the Collateral
are located.
(h) All Inventory and Equipment owned on the date hereof by 7th
Level are located at one of the locations shown in Schedule 5(h) hereto.
(i) Upon any Event of Default, 7th Level will pay the Agent on
demand the costs, expenses, losses, damages and liability (including
reasonable attorney's fees) incurred for pursuing, searching for,
receiving, taking, keeping, storing, advertising for the sale of and
selling the Collateral.
6. Special Provisions Concerning the Pledged Securities. Without
limiting the generality of the other provisions of this Agreement, 7th Level
hereby represents and warrants to and covenants and agrees with the Agent as
follows:
(a) A true and complete list of all Pledged Securities is
attached as Schedule 6(a) hereto and all information set forth thereon is
true, correct and complete. As of the date hereof, 7th Level does not own
any other securities or other items that would constitute Pledged
Securities. If any shares of capital stock, promissory notes or other
securities issued by any subsidiary of 7th Level or issued by any other
person are acquired by 7th Level after the date hereof, the same shall
without further action constitute Pledged Securities and shall be deposited
and pledged (together with all necessary stock or bond powers and
endorsements) with the Agent simultaneously with such acquisition.
(b) Unless an Event of Default shall have occurred and be
continuing, (i) 7th Level shall be entitled to receive all payments,
dividends and distributions on or with respect to the Pledged Securities
(except for any such payment, dividend or distribution that constitutes
additional Pledged Securities, in which case the same shall be deposited
and pledged with the Agent at the time such payment, dividend or
distribution is made) and (ii) 7th Level shall be entitled to vote or
consent with respect to the Pledged Securities in any manner.
(c) Upon the occurrence and during the continuance of an Event
of Default, (i) all payments, dividends and distributions on or with
respect to the Pledged Securities shall be deposited and pledged (together
with all necessary endorsements) with the Agent at the time such payment,
dividend or distribution is made and (ii) the Agent shall be entitled to
have any or all of the Pledged Securities transferred into its name and
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(whether or not any of the Pledged Securities has been transferred into the
name of the Agent) to vote or consent or take any other action with respect
to the Pledged Securities and to exercise any and all other incidents of
ownership thereof.
(d) Without limiting the provisions of clause (c) above, upon the
occurrence and during the continuance of an Event of Default, the Agent
shall be entitled (whether or not any of the Pledged Securities has been
transferred into the name of the Agent) to vote any or all of the Pledged
Securities and give all consents, waivers and ratifications in respect
thereof, and 7th Level hereby irrevocably constitutes and appoints the
Agent the proxy and attorney-in-fact of 7th Level, with full power of
substitution, to do so. The foregoing proxy and appointment of the Agent
as attorney-in-fact for 7th Level are irrevocable, are coupled with an
interest and, notwithstanding any provision of applicable corporate or
other law to the contrary, shall continue in full force and effect until
this Agreement has terminated by its express terms.
7. Remedies in Case of Default.
For purposes of this Agreement, an "Event of Default" shall mean the
occurrence of one or more of the following events:
(a) if 7th Level shall fail to pay when due any of the
Obligations; or if 7th Level shall breach any of the representations,
warranties or covenants contained in this Agreement provided that such
breach is not remedied within thirty (30) days after 7th Level's receipt of
written notice of same; or
(b) if an Event of Default should occur under the Notes, after
giving effect to all notice provisions and cure periods provided for
therein.
If an Event of Default shall have occurred and be continuing, the Agent shall be
entitled to exercise all of the rights, powers and remedies for the protection
and enforcement of its rights in respect of the Collateral at law or equity and,
in addition, the Agent may, without being required to give any notice, except as
herein provided or as may be required by mandatory provisions of law, sell the
Collateral, or any part thereof, at public or private sale or at any broker's
board, for cash, upon credit or for future delivery, and at such price or prices
as the Agent may deem commercially reasonable. The Agent shall have the right
to take immediate possession of the Collateral and for that purpose may enter
upon any premises on which any Collateral is located without notice and remove
the same therefrom. 7th Level hereby expressly consents to such repossession of
the Collateral and waives all rights to demand any notice with respect thereto.
The Agent may be the purchaser of any or all of the Collateral so sold at any
public sale and may apply all or any portion of the Obligations towards the
payment for any Collateral purchased by the Agent, and may thereafter hold the
same, absolutely, free from any right or claim of whatsoever kind. Upon any
such sale, the Agent shall have the right to deliver, assign and transfer to the
purchaser thereof the Collateral so sold. Each purchaser at any such sale shall
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hold the Collateral so sold absolutely, free from any claim or right of
whatsoever kind, including any equity or right of redemption. 7th Level, to the
extent permitted by law, hereby specifically waives all rights of redemption,
stay or appraisal which it has or may have under any rule of law or statute now
existing or hereafter adopted. The Agent shall give fifteen (15) days' prior
written notice of its intention to make any such public or private sale. Such
notice, in case of a public sale, shall state the time and place fixed for such
sale. Any such public sale shall be held at such time or times within ordinary
business hours and at such place or places as the Agent may fix in the notice of
such sale. At any such sale, the Collateral may be sold in one lot as an
entirety or in separate parcels, as the Agent may determine. The Agent shall
not be obligated to make any such sale pursuant to any such notice. The Agent
may, without notice or publication, adjourn any public or private sale or cause
the same to be adjourned from time to time by announcement at the time and place
fixed for the sale, and such sale may be made at any time or place to which the
same may be so adjourned.
8. Transfer by 7th Level. 7th Level shall not sell or otherwise
dispose of or grant any option with respect to, or pledge or otherwise encumber
any of the Collateral or any interest therein, except for sales of inventory or
collections of receivables in the ordinary course of business or inventory sold
in connection with 7th Level's exiting of the games business.
9. Power of Attorney. 7th Level hereby appoints the Agent and any
designee of the Agent as 7th Level's attorney-in-fact, at 7th Level's own cost
and expense, to exercise at any time after the occurrence of an Event of Default
all or any of the powers, authorities, and discretions conferred on or reserved
to the Agent by or pursuant to this Agreement or applicable law, and (without
prejudice to the generality of any of the foregoing) to seal and deliver or
otherwise perfect any deed, assurance, agreements, instrument or act as the
Agent may deem proper in or for the purpose of exercising any of such powers,
authorities or discretions. 7th Level hereby ratifies and confirms, and hereby
agrees to ratify and confirm, whatever lawful acts the Agent or any of the
Agent's sub-agents or attorneys shall do or purport to do in the exercise of the
power of attorney granted to the Agent pursuant to this paragraph 8, which power
of attorney, being given for consideration, is irrevocable. The Agent shall not
be liable to the Company or Capital for any action or inaction as Agent
hereunder except as may result from its own gross negligence or willful
misconduct.
10. Financing Statements. 7th Level will, upon request by the Agent,
promptly make, execute, acknowledge and deliver and file and record in all
proper offices and places, including, without limitation, the U.S. Patent and
Trademark Office and the U.S. Copyright Office, such financing statements,
continuation statements, certificates, collateral agreements and other
agreements, documents or instruments as may be necessary to perfect or from time
to time renew the liens arising hereunder, including, without limitation, those
that may be necessary to perfect such liens in any additional Collateral
hereafter acquired by 7th Level or in any replacements or proceeds thereof, and
7th Level will take all such action as may be deemed necessary or advisable by
7th Level for assuring and confirming to the Agent the grant and perfection of
the liens in the Collateral, including, without limitation, the Intellectual
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Property Collateral. To the extent permitted by law, 7th Level authorizes and
appoints (such appointment being coupled with an interest and irrevocable) the
Agent to execute such financing statements, continuation statements,
certificates, collateral agreements, and other agreements, documents and
instruments in its stead, with full power of substitution, as 7th Level's
attorney-in-fact. To the extent permitted by law, 7th Level further agrees that
a carbon, photographic or other reproduction of a security agreement, financing
statement or continuation statement is sufficient as a financing statement or
continuation statement.
11. Removal or Resignation of Agent. The Agent may resign at any
time by giving written notice thereof to the Lenders and 7th Level and may be
removed at any time, with or without cause, by the Required Lenders (as defined
below), and upon any such resignation or removal the Required Lenders shall have
the right to appoint a successor Agent. "Required Lenders" shall mean any
Lender or Lenders holding Notes evidencing, in the aggregate, an amount equal to
not less than a majority of the aggregate principal amount of all Notes then
outstanding. If no successor Agent shall have been so appointed by the Required
Lenders, and shall have accepted such appointment, within thirty (30) days after
the retiring Agent's giving of notice of resignation or the Required Lenders'
removal of the retiring Agent, then the retiring Agent may, on behalf of the
Lenders, appoint a successor Agent. Upon the acceptance by a successor Agent of
its appointment as Agent hereunder, such successor Agent shall thereupon succeed
to and become vested with all the rights, powers, privileges and duties of the
retiring Agent, and the retiring Agent shall be discharged from its duties and
obligations under this Agreement. After any retiring Agent's resignation or
removal hereunder as Agent, the provisions of this paragraph 11 shall inure to
its benefit as to any actions taken or omitted to be taken by it while it was
Agent under this Agreement.
12. Termination. Upon such time, if any, as 7th Level shall pay,
satisfy or otherwise discharge in full the Obligations, this Agreement shall be
null and void and the security interests granted hereunder shall terminate.
Notwithstanding the foregoing, 7th Level shall be permitted from time to time to
prepay any portion of the Notes in accordance with the terms thereof. Upon
termination of this Agreement or any release of Collateral in accordance with
the provisions of the preceding sentence, the Agent shall, upon the request and
at the sole cost and expense of 7th Level, forthwith assign, transfer and
deliver to 7th Level, against receipt and without recourse to or warranty by the
Agent, such of the Collateral to be released (in the case of a release) as may
be in possession of the Agent and as shall not have been sold or otherwise
applied pursuant to the terms hereof, and, with respect to any other Collateral,
proper instruments (including Uniform Commercial Code termination statements on
Form UCC-3) acknowledging the termination of this Agreement or the release of
such Collateral, as the case may be.
13. Notices. Unless otherwise provided herein or in the Purchase
Agreement, any notice or other communication herein required or permitted to be
given shall be given in accordance with the provisions of Section 10.4 of the
Purchase Agreement.
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14. Governing Law. This Agreement shall be construed in accordance
with, and governed by, the internal laws of the State of New York, without
giving effect to the principles of conflict of laws thereof.
15. Miscellaneous. 7th Level agrees with the Agent that each of the
obligations and liabilities of 7th Level to the Agent under this Agreement may
be enforced against 7th Level without the necessity of joining any other person
as a party. This Agreement shall create a continuing first priority security
interest in the Collateral and shall be binding upon the successors and assigns
of 7th Level and shall inure to the benefit of and be enforceable by the Agent
and its permitted successors and assigns. The headings in this Agreement are
for purposes of reference only and shall not limit or define the meaning hereof.
This Agreement may be executed in any number of counterparts, each of which
shall be an original, but all of which shall constitute one instrument. In the
event that any provision of this Agreement shall prove to be invalid or
unenforceable, such provision shall be deemed to be severable from the other
provisions of this Agreement which shall remain binding on all parties hereto.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.
ALPINE ASSOCIATES,
a New Jersey Limited Partnership
By: ▇▇▇▇▇▇ Corp.,
Its General Partner
By: /s/ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
---------------------------------
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
President
EAST WEST CAPITAL ASSOCIATES, INC.
By: /s/ ▇▇▇▇ ▇▇▇▇▇
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Name: ▇▇▇▇ ▇▇▇▇▇
Title: President
ALPINE ASSOCIATES,
a New Jersey Limited Partnership,
as collateral agent for itself and the other
Lender
By: ▇▇▇▇▇▇ Corp.,
Its General Partner
By: /s/ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
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▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
President
7TH LEVEL, INC.
By: /s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
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Name: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
Title: Chairman of the Board
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