Exhibit 10.43

 

 

 

LOAN AND SECURITY AGREEMENT

 

 

MMB Holdings LLC,

as Lender,

and

Zoo Entertainment, Inc., Zoo Games, Inc., Zoo Publishing, Inc., and indiePub,
Inc.,

as Borrowers,

 

 

Dated: March 9, 2012

 

 

 

 

 

Table of Contents

 

    Page   Article I
Definitions and Interpretation   1.1 Definitions 1 1.2 Terms Generally 9 1.3 UCC
Terms 9 1.4 Accounting Terms; GAAP 10 1.5 Joint and Several Obligations 10  
Article II
The Loans   2.1 The Loans 10 2.2 Drawdown Procedure 11 2.3 Interest 11 2.4
Lender Costs 12 2.5 Payments 12   Article III
Conditions to Lending   3.1 Closing Date Conditions 13 3.2 Each Drawdown Date 15
  Article IV
Grant of Security and Remedial Provisions   4.1 Grant of Security 16 4.2
Delivery of Collateral 17 4.3 Remedial Provisions 17 4.4 Specific Performance 24
  Article V
Representations and Warranties   5.1 Financial Condition 24 5.2 No Material
Adverse Effect 24 5.3 Corporate Existence; Compliance with Law 25 5.4 Corporate
Power; Authorization; Enforceable Obligations 25 5.5 No Legal Bar 25 5.6 No
Material Litigation 25

 

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Table of Contents

(continued)

 

 

    Page 5.7 No Default 25 5.8 Indebtedness 26 5.9 Ownership of Property; Liens
26 5.10 Intellectual Property 26 5.11 Taxes 26 5.12 Ownership of Capital Stock
26 5.13 Accuracy of Information, etc 26 5.14 Perfected First Priority Liens 27
5.15 Solvency 27 5.16 Financial Advisors 27 5.17 Deposit Accounts and Securities
Accounts 27 5.18 Capitalization 27   Article VI
Certain Covenants   6.1 Affirmative Covenants 28 6.2 Negative Covenants 29 6.3
Certain Post-Closing Covenants 31   Article VII
Events of Default   7.1 Events of Default 32   Article VIII
Conversion Rights   8.1 Conversion into Common Stock 34 8.2 Conversion Price 35
8.3 Preservation of Rights 35   Article IX         9.1 Notices 36 9.2 Waivers;
Amendments 37 9.3 Indemnity; Damage Waiver 37 9.4 Successors and Assigns 38

 

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Table of Contents

(continued)

 

    Page 9.5 Survival 38 9.6 Counterparts; Integration; Effectiveness 39 9.7
Severability 39 9.8 Right of Setoff 39 9.9 Governing Law; Jurisdiction; Consent
to Service of Process 39 9.10 No Third Party Rights 40 9.11 Relationship of
Parties 40 9.12 WAIVER OF JURY TRIAL 40 9.13 Time 41 9.14 Headings 41 9.15
Waivers and Agreements of Borrowers 41

 

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LOAN AND SECURITY AGREEMENT

This Loan and Security Agreement (as amended, restated, modified or supplemented
from time to time, this “Agreement”) is made as of March 9, 2012 (the “Closing
Date”), among Zoo Entertainment, Inc., a Delaware corporation (“Zoo
Entertainment”), Zoo Games, Inc., a Delaware corporation (“Zoo Games”), Zoo
Publishing, Inc., a New Jersey corporation (“Zoo Publishing”), and indiePub,
Inc., a Delaware corporation (“indiePub,” and, together with Zoo Entertainment,
Zoo Games and Zoo Publishing, the “Borrowers”), and MMB Holdings LLC, a Delaware
limited liability company (the “Lender”).

 

Recitals

 

Whereas, the parties hereto wish for the Lender to provide the Borrowers with
loans pursuant to this Agreement (the “Loans”) (a) for purposes of paying and
satisfying most of the Borrowers’ obligations under that certain Second Amended
and Restated Factoring and Security Agreement, dated as of October 28, 2011, as
amended by (i) the First Amendment thereto, dated as of January 5, 2012, (ii)
the Second Amendment thereto, dated as of January 30, 2012, (iii) the Third
Amendment thereto, dated as of February 14, 2012, and (iv) the Fourth Amendment
thereto, dated as of February 29, 2012 (the “Factoring Agreement”), (b) for
purposes of settling, at a discount, claims existing on or prior to the Closing
Date of unsecured creditors of the Borrowers (the “Existing Unsecured Claims”),
and (c) for other purposes permitted under this Agreement;

 

Now, therefore, in consideration of the mutual covenants and promises contained
herein, and for other good and valuable consideration the receipt and adequacy
of which are hereby acknowledged, the parties hereto agree as follows:

 

Article I

Definitions and Interpretation

 

1.1 Definitions. As used in this Agreement, the following terms shall have the
following meanings:

 

Account Debtor: any Person who is or may be obligated with respect to, or on
account of, an Account, Chattel Paper or General Intangibles (including a
Payment Intangible).

 

Accounts: all “accounts”, as such term is defined in the UCC, now owned or
hereafter acquired by any Person, including: (a) all accounts receivable, other
receivables, book debts and other forms of obligations (other than forms of
obligations evidenced by Chattel Paper or Instruments) (including any such
obligations that may be characterized as an account or contract right under the
UCC); (b) all of such Person’s rights in, to and under all purchase orders or
receipts for goods or services; (c) all of such Person’s rights to any goods
represented by any of the foregoing (including unpaid sellers’ rights of
rescission, replevin, reclamation and stoppage in transit and rights to
returned, reclaimed or repossessed goods); (d) all rights to payment due to such
Person for Goods or other property sold, leased, licensed, assigned or otherwise
disposed of, for a policy of insurance issued or to be issued, for a secondary
obligation incurred or to be incurred, for energy provided or to be provided,
for the use or hire of a vessel under a charter or other contract, arising out
of the use of a credit card or charge card, or for services rendered or to be
rendered by such Person or in connection with any other transaction (whether or
not yet earned by performance on the part of such Person); and (e) all
collateral security of any kind given by any Account Debtor or any other Person
with respect to any of the foregoing.

 

 

 

 

 

Affiliate: with respect to any Person, (a) any Person which, directly or
indirectly, is in control of, is controlled by, or is under common control with
such Person, or (b) any Person who is a director or officer (i) of such Person,
(ii) of any Affiliate of such Person or (iii) of any Person described in clause
(a) above. For purposes of this definition, control of a Person shall mean the
power, directly or indirectly, (x) to vote five percent (5%) or more of the
securities having ordinary voting power for the election of directors (or
equivalent control persons) of such Person, or (y) to direct or cause the
direction of the management and policies of such Person whether by contract,
exercise of voting rights or otherwise; provided that the Borrowers, on the one
hand, and the Lender and its Affiliates, on the other hand, shall not be deemed
to Affiliates of each other.

 

Books and Records: means all books, records, board minutes, contracts, licenses,
insurance policies, environmental audits, business plans, files, computer files,
computer discs and other data and software storage and media devices, accounting
books and records, financial statements (actual and pro forma), filings with
Governmental Authorities and any and all records and instruments relating to the
Collateral or otherwise necessary or helpful in the collection thereof or the
realization thereupon.

 

Business Day: a day other than a Saturday, Sunday or other day on which
commercial banks in the State of California or the State of Ohio are authorized
or required by law to close.

 

Capital Stock: all certificated and uncertificated stock, shares, options,
warrants, membership interests, general or limited partnership interests,
participation or other equivalents (regardless of how designated) of or in a
corporation, partnership, limited liability company or equivalent entity whether
voting or nonvoting, including common stock, preferred stock, or any other
“equity security” (as such term is defined in Rule 3a11-1 promulgated under the
Securities Exchange Act of 1934).

 

Chattel Paper: all “chattel paper,” as such term is defined in the UCC,
including electronic chattel paper, now owned or hereafter acquired by any
Person.

 

Collateral Account: a lockbox or blocked account under the dominion and control
of the Lender, maintained at a banking institution to be designated by the
Lender into which all cash, checks, notes, drafts and other similar items
relating to or constituting Proceeds of or payments made in respect of any
Collateral shall be deposited.

 

-2-

 

 

 

Commercial Tort Claims: all “commercial tort claims” as such term is defined in
the UCC, now owned or hereafter acquired by any Person.

 

Common Stock: the common stock of Zoo Entertainment, par value $0.001 per share,
as it exists on the Closing Date, and any shares of any class or classes of
Capital Stock of Zoo Entertainment resulting from any reclassification or
reclassifications thereof, or, in the event of a merger, consolidation or other
similar transaction involving Zoo Entertainment that is otherwise permitted
hereunder in which Zoo Entertainment is not the surviving corporation, the
common stock, common equity interests, ordinary shares or depositary shares or
other certificates representing common equity interests of such surviving
corporation or its direct or indirect parent corporation, and which have no
preference in respect of dividends or of amounts payable in the event of any
voluntary or involuntary liquidation, dissolution or winding-up of Zoo
Entertainment and which are not subject to redemption by Zoo Entertainment;
provided that if at any time there shall be more than one such resulting class,
the shares of each such class then so issuable on conversion of Obligations
shall be substantially in the proportion which the total number of shares of
such class resulting from all such reclassifications bears to the total number
of shares of all such classes resulting from all such reclassifications.

 

Contractual Obligation: with respect to any Person, any provision of any
security issued by such Person or of any agreement, instrument or other
undertaking to which such Person is a party or by which it or any of its
property is bound.

 

Default: any act or event which, with the giving of notice or passage of time or
both, would constitute an Event of Default.

 

Deposit Accounts: all “deposit accounts” as such term is defined in the UCC, now
or hereafter held in the name of any Person.

 

Disposition: with respect to any property, any sale, lease, sale and leaseback,
assignment, conveyance, transfer or other disposition thereof; and the terms
“Dispose” and “Disposed of” shall have correlative meanings.

 

Documents: all “documents”, as such term is defined in the UCC, now owned or
hereafter acquired by any Person, wherever located, including all bills of
lading, dock warrants, dock receipts, warehouse receipts, and other documents of
title, whether negotiable or non-negotiable.

 

Drawdown Date: the date on which a Drawdown is funded by the Lender, which in
all events shall be a Business Day.

 

Equipment: all “equipment” as such term is defined in the UCC, now owned or
hereafter acquired by any Person, wherever located, including any and all
machinery, apparatus, equipment, fittings, furniture, fixtures, motor vehicles
and other tangible personal property (other than Inventory) of every kind and
description that may be now or hereafter used in such Person’s operations or
that are owned by such Person or in which such Person may have an interest, and
all parts, accessories and accessions thereto and substitutions and replacements
therefor.

 

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Exchange Act: the Securities Exchange Act of 1934, as amended, and the rules and
regulations promulgated thereunder.

 

Factoring Agreement Liens: the Liens granted under the Factoring Agreement and
related documents that are in existence prior to the Closing Date to secure Zoo
Publishing’s obligations under the Factoring Agreement.

 

Fixtures: all “fixtures” as such term is defined in the UCC, now owned or
hereafter acquired by any Person.

 

GAAP: generally accepted accounting principles, practices and procedures in
effect from time to time in the United States of America.

 

General Intangibles: all “general intangibles” as such term is defined in the
UCC, now owned or hereafter acquired by any Person, including all right, title
and interest that such Person may now or hereafter have in or under any
contract, all Payment Intangibles, customer lists, Licenses, Intellectual
Property, interests in partnerships, joint ventures and other business
associations, permits, proprietary or confidential information, inventions
(whether or not patented or patentable), technical information, procedures,
designs, knowledge, know-how, Software, data bases, data, skill, expertise,
experience, processes, models, drawings, materials, Books and Records, Goodwill
(including the Goodwill associated with any Intellectual Property), all rights
and claims in or under insurance policies (including insurance for fire, damage,
loss, and casualty, whether covering personal property, real property, tangible
rights or intangible rights, all liability, life, key-person, and business
interruption insurance, and all unearned premiums), uncertificated securities,
choses in action, deposit accounts, rights to receive tax refunds and other
payments, rights to received dividends, distributions, cash, Instruments and
other property in respect of or in exchange for pledged Capital Stock and
Investment Property, and rights of indemnification.

 

Goods: all “goods”, as such term is defined in the UCC, now owned or hereafter
acquired by any Person, wherever located, including embedded software to the
extent included in “goods” as defined in the UCC.

 

Goodwill: all goodwill, trade secrets, proprietary or confidential information,
technical information, procedures, formulae, quality control standards, designs,
operating and training manuals, customer lists, and distribution agreements now
owned or hereafter acquired by any Person.

 

Governmental Authority: any nation or government, any state or other political
subdivision thereof, and any agency, department or other entity exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government.

 

Indebtedness: of any Person at any date, without duplication, (a) all
indebtedness of such Person for borrowed money, (b) all obligations of such
Person for the deferred purchase price of property or services (other than trade
payables incurred in the ordinary course of such Person’s business), (c) all
obligations of such Person evidenced by notes, bonds, debentures or other
similar instruments, (d) all indebtedness created or arising under any
conditional sale or other title retention agreement with respect to property
acquired by such Person (even though the rights and remedies of the seller or
lender under such agreement in the event of default are limited to repossession
or sale of such property), (e) all obligations of such Person, contingent or
otherwise, as an account party or applicant under acceptance, letter of credit
or similar facilities, (f) all obligations of such Person as a guarantor with
respect to any obligations of the kind referred to in clauses (a) through (e)
above, and (g) all obligations of the kind referred to in clauses (a) through
(f) above secured by (or for which the holder of such obligation has an existing
right, contingent or otherwise, to be secured by) any Lien on property
(including, without limitation, accounts and contract rights) owned by such
Person, whether or not such Person has assumed or become liable for the payment
of such obligation, but in the case of this clause (g) only to the extent of the
fair market value of such property, if less than such obligation.

 

-4-

 

 

 

Instruments: all “instruments”, as such term is defined in the UCC, now owned or
hereafter acquired by any Person, wherever located, including all certificated
securities and all promissory notes and other evidences of indebtedness, other
than instruments that constitute, or are a part of a group of writings that
constitute, Chattel Paper.

 

Insurance: (a) all insurance policies covering any or all of the Collateral
(regardless of whether the Lender is the loss payee thereof), and (b) any key
man life insurance policies.

 

Intellectual Property: any and all Licenses, patents, patent registrations,
copyrights, copyright registrations, trademarks, trademark registrations, domain
names, trade secrets and customer lists.

 

Inventory: all “inventory”, as such term is defined in the UCC, now owned or
hereafter acquired by any Person, wherever located, including all inventory,
merchandise, goods and other personal property that are held by or on behalf of
such Person for sale or lease or are furnished or are to be furnished under a
contract of service or that constitute raw materials, work in process, finished
goods, returned goods, or materials or supplies of any kind, nature or
description used or consumed or to be used or consumed in such Person’s business
or in the processing, production, packaging, promotion, delivery or shipping of
the same, including all supplies and embedded software.

 

Investment Property: (a) all “investment property”, as such term is defined in
the UCC, now owned or hereafter acquired by any Person, wherever located, and
(b) whether or not constituting “investment property” as so defined, all Pledged
Equity Interests.

 

Lender’s Liens: the Liens granted under the Loan Documents in favor of the
Lender, including the Liens granted under Article IV with respect to the
Collateral.

 

Letter-of-Credit Rights: “letter-of-credit rights” as such term is defined in
the UCC, now owned or hereafter acquired by any Person, including rights to
payment or performance under a letter of credit, whether or not such Person, as
beneficiary, has demanded or is entitled to demand payment or performance.

 

License: any rights under any written agreement now held or hereafter acquired
by any Person to use any trademark, trademark registration, copyright, copyright
registration or invention for which a patent is in existence or other license of
rights or interests now held or hereafter acquired by any Person, including the
Trademark Security Agreement.

 

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Lien: any mortgage, security deed, deed of trust, pledge, hypothecation,
assignment, security interest, lien (whether statutory or otherwise), charge,
claim or encumbrance, or preference, priority or other security agreement or
preferential arrangement held or asserted in respect of any asset of any kind or
nature whatsoever including any conditional sale or other title retention
agreement, any lease having substantially the same economic effect as any of the
foregoing, and the filing of, or agreement to give, any financing statement
under the UCC or comparable law of any jurisdiction.

 

Loan Balance: as of any date, the aggregate outstanding principal amount of all
of all Loans as of such date.

 

Loan Documents: collectively, (a) this Agreement, (b) the Promissory Note, (c)
the Trademark Security Agreement, (d) the Warrant, and (e) each other agreement,
instrument or document executed and delivered by any Borrower in connection with
the transactions contemplated by any of the foregoing (including, upon their
execution and delivery by the Borrower, the agreements described in Sections
6.3(a)(i) and 6.3(b)).

 

Material Adverse Effect: a material adverse effect on (a) the condition,
operations, assets, or business of any Borrower, (b) any Borrower’s ability to
pay the Obligations in accordance with the terms hereof or perform this
Agreement or any other Loan Document, (c) the value of the Collateral, the
Lender’s Liens or the priority of any of the Lender’s Liens, or (d) the
legality, validity or enforceability of this Agreement or any other Loan
Document or any of the Lender’s remedies hereunder or thereunder.

 

Obligations: the Loan, all advances, debts, liabilities, obligations, fees,
expense reimbursement obligations (including pursuant to Section 9.3), covenants
and duties owing by the Borrowers to the Lender (or any Person that directly or
indirectly controls or is controlled by or is under common control with the
Lender) of every kind and description (whether or not evidenced by any note or
other instrument and whether or not for the payment of money or the performance
or non-performance of any act), direct or indirect, absolute or contingent, due
or to become due, contractual or tortious, liquidated or unliquidated, whether
arising under this Agreement or the other Loan Documents, including all interest
(including interest accruing at the then applicable rate provided in this
Agreement and interest accruing at the then applicable rate provided in this
Agreement after the filing of any petition in bankruptcy, or the commencement of
any insolvency, reorganization or like proceeding, whether or not a claim for
post-filing or post-petition interest is allowed in such proceeding), charges or
any other payments any Borrower is required to make by law or otherwise arising
under or as a result of this Agreement or the other Loan Documents, together
with all reasonable expenses and reasonable attorneys’ fees chargeable to any
Borrower’s account or incurred by the Lender in connection with any Borrower’s
account whether provided for herein or in any other Loan Document.

 

Organizational Documents: means (a) with respect to any corporation, the
certificate or articles of incorporation (or equivalent) and the bylaws of such
corporation, (b) with respect to any general or limited partnership, the
certificate of formation (or equivalent) and partnership agreement (if any) of
such partnership, (c) with respect to any limited liability company, the
certificate of formation (or equivalent) and limited liability company agreement
or operating agreement (or equivalent) of such limited liability company, and
(d) with respect to any other legal entity, the equivalent formation and
governing documents of such entity.

 

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Payment Date: (a) each June 30 (or, if such day is not a Business Day, then the
first Business Day thereafter), (b) each December 31 (or, if such day is not a
Business Day, then the first Business Day thereafter), and (c) the Maturity
Date.

 

Payment Intangibles: all “payment intangibles” as such term is defined in the
UCC, now owned or hereafter acquired by any Person, including, all General
Intangibles under which any Account Debtor’s principal obligation is a monetary
obligation.

 

Person: any individual, sole proprietorship, partnership, limited liability
partnership, joint venture, trust, unincorporated organization, association,
corporation, limited liability company, institution, public benefit corporation,
entity or government (whether federal, state, county, city, municipal or
otherwise, including any instrumentality, division, agency, body or department
thereof), and shall include such Person’s successors and assigns.

 

Pledged Equity Interests: all Capital Stock now owned or hereafter acquired by
any Borrower, including all shares of Capital Stock described on Schedule 4.1(a)
hereto and the certificates (if any) representing such shares and any interest
of such Borrower in the entries on the books of the issuer of such Capital
Stock, and all dividends, distributions, cash, warrants, rights, options,
instruments, securities and other property or proceeds from time to time
received, receivable or otherwise distributed in respect of or in exchange for
any or all of such shares and any other warrant, right or option to acquire any
of the foregoing.

 

Proceeds: all “proceeds”, as such term is defined in the UCC and, in any event,
including: (a) all proceeds of any insurance, indemnity, warranty or guaranty
payable to any Borrower from time to time with respect to any Collateral;
(b) all payments (in any form whatsoever) made or due and payable to any
Borrower from time to time in connection with any requisition, confiscation,
condemnation, seizure or forfeiture of any Collateral by any Governmental
Authority (or any person acting under color of a Governmental Authority);
(c) all claims of any Borrower against third parties (i) for past, present or
future infringement of any Intellectual Property or (ii) for past, present or
future infringement or dilution of any trademark or trademark license or for
injury to the goodwill associated with any trademark, trademark registration or
trademark licensed under any trademark License; (d) all recoveries by any
Borrower against third parties with respect to any litigation or dispute
concerning any Collateral, including claims arising out of the loss or
nonconformity of, interference with the use of, defects in, or infringement of
rights in, or damage to, any Collateral; (e) all amounts collected on, or
distributed on account of, other Collateral, including dividends, interest,
distributions and Instruments with respect to Investment Property and pledged
Capital Stock; and (f) all other amounts, rights to payment or other property
acquired upon the sale, lease, license, exchange or other disposition of
Borrower Collateral and all rights arising out of Borrower Collateral.

 

Receivable: all Accounts and any other any right to payment for goods or other
property sold, leased, licensed, assigned or otherwise disposed of or for
services rendered, whether or not such right is evidenced by an Instrument or
Chattel Paper or classified as a Payment Intangible and whether or not it has
been earned by performance. References herein to Receivables shall include any
Supporting Obligations or collateral securing such Receivables.

 

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Remaining Drawdown Amount: as of any date of determination, the excess of (x)
Four Million Three Hundred Eighty One Thousand One Hundred and Ten Dollars
($4,381,110) over (y) the sum of (i) the Factoring Agreement Rollover Advance,
(ii) the Initial Advance and (iii) all Drawdowns.

 

Restricted Payment: (a) the declaration or payment of any dividend or
distribution or the incurrence of any liability or obligation to make any other
payment, dividend or distribution of cash or other property or assets (including
any stock dividend) on or in respect of the Borrower’s equity interests; (b) any
payment or distribution made in respect of any indebtedness other than the Loan
or other indebtedness expressly permitted hereunder or permitted by the Lender
in writing; (c) any payment on account of the purchase, redemption, defeasance
or other retirement of the Borrower’s equity interests or indebtedness or any
other payment or distribution made in respect of any thereof, either directly or
indirectly; or (d) any payment, loan, contribution, or other transfer of funds
or other property to the Borrower’s equity holders that is not expressly and
specifically permitted in this Agreement.

 

Responsible Officer: as to any Person, the chief executive officer, president or
chief financial officer of such Person, but in any event, with respect to
financial matters, the chief financial officer of such Person. Unless otherwise
qualified, all references to a “Responsible Officer” shall refer to a
Responsible Officer of a Borrower.

 

Requirement of Law: as to any Person, any law, treaty, rule or regulation or
determination of an arbitrator or a court or other Governmental Authority, in
each case applicable to or binding upon such Person or any of its property or to
which such Person or any of its property is subject.

 

Securities Account: as defined in the UCC.

 

Software: all “software” as such term is defined in the UCC, now owned or
hereafter acquired by any Person, including all computer programs and all
supporting information provided in connection with a transaction related to any
program.

 

Solvent: with respect to any Person, as of any date of determination, (a) the
amount of the “present fair saleable value” of the assets of such Person will,
as of such date, exceed the amount of all “liabilities of such Person,
contingent or otherwise,” as of such date, as such quoted terms are determined
in accordance with applicable federal and state laws governing determinations of
the insolvency of debtors, (b) the present fair saleable value of the assets of
such Person will, as of such date, be greater than the amount that will be
required to pay the liability of such Person on its debts as such debts become
absolute and matured, (c) such Person will not have, as of such date, an
unreasonably small amount of capital with which to conduct its business, (d)
such Person will be able to pay its debts as they mature, and (e) such Person is
not insolvent within the meaning of any applicable Requirements of Law.

 

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Subsidiary: with respect to any Person, a corporation or other entity whose
shares of Capital Stock or other ownership interests having ordinary voting
power (other than Capital Stock or other ownership interests having such power
only by reason of the happening of a contingency) to elect a majority of the
directors (or equivalent controlling persons) of such corporation or entity, or
other Persons performing similar functions for such entity, are owned, directly
or indirectly, by such Person.

 

Supporting Obligations: all “supporting obligations” as such term is defined in
the UCC, including letters of credit and guaranties issued in support of
Accounts, Chattel Paper, Documents, General Intangibles, Instruments, or
Investment Property.

 

Transactions: collectively, the execution, delivery and performance of this
Agreement and the other Loan Documents and the consummation of the transactions
contemplated hereby and thereby, including the borrowing and lending
contemplated by this Agreement.

 

UCC: the Uniform Commercial Code as in effect from time to time in the State of
Delaware; provided that if, by reason of mandatory provisions of any Requirement
of Law, any or all of the perfection or priority of, or remedies with respect
to, any Collateral is governed by the Uniform Commercial Code as enacted and in
effect in a jurisdiction other than the State of Delaware, then the term “UCC”
shall mean the Uniform Commercial Code as enacted and in effect in such other
jurisdiction solely for purposes of the provisions hereof relating to such
perfection, priority or remedies.

 

1.2 Terms Generally. The definitions of terms herein shall apply equally to the
singular and plural forms of the terms defined. Whenever the context may
require, any pronoun shall include the corresponding masculine, feminine and
neuter forms. The words “include”, “includes” and “including” shall be deemed to
be followed by the phrase “without limitation”. The word “will” shall be
construed to have the same meaning and effect as the word “shall”. Unless the
context requires otherwise: (a) any definition of or reference to any agreement,
instrument or other document herein shall be construed as referring to such
agreement, instrument or other document as from time to time amended,
supplemented or otherwise modified (subject to any restrictions on such
amendments, supplements or modifications set forth herein); (b) any reference
herein to any Person shall be construed to include such Person’s successors and
assigns; (c) the words “herein”, “hereof” and “hereunder”, and words of similar
import, shall be construed to refer to this Agreement in its entirety and not to
any particular provision hereof, (d) all references herein to Articles,
Sections, Exhibits and Schedules shall be construed to refer to articles and
sections of, and exhibits and schedules to, this Agreement; and (e) the words
“asset” and “property” shall be construed to have the same meaning and effect
and to refer to any and all tangible and intangible assets and properties,
including cash, securities, accounts and contract rights.

 

1.3 UCC Terms. All terms defined in the UCC and not defined in this Agreement
have the meanings specified therein. The term “instrument” shall have the
meaning specified in Article 9 of the UCC. Where the context requires, terms
relating to the Collateral or any part thereof, when used in relation to a
Borrower, shall refer to such Borrower’s Collateral or the relevant part
thereof. The expressions “payment in full”, “paid in full” and any other similar
terms or phrases when used herein with respect to the Obligations shall mean the
unconditional, final and irrevocable payment in full, in immediately available
funds, of all of the Obligations. All references herein to provisions of the UCC
shall include all successor provisions under any subsequent version or amendment
to any Article of the UCC.

 

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1.4 Accounting Terms; GAAP. Any accounting terms used in this Agreement (whether
or not capitalized) which are not specifically defined herein shall have the
meanings customarily ascribed to such terms in accordance with GAAP and all
financial computations shall be computed, unless specifically provided herein,
in accordance with GAAP consistently applied.

 

1.5 Joint and Several Obligations. Each Borrower agrees that its obligations and
liabilities under this Agreement and all other Loan Documents are joint and
several obligations with the other Borrowers. Each Borrower acknowledges and
agrees that it receives a benefit from the availability of credit under this
Agreement to itself and to the other Borrowers.

 

Article II

The Loans

 

2.1 The Loans.

 

(a) Subject to the terms and conditions of this Agreement and in reliance on the
representations and warranties set forth in this Agreement, the Lender hereby
agrees to make Loans to the Borrowers, as follows:

 

(i) on the Closing Date, the Lender shall make a Loan to the Borrowers in an
amount equal to One Million Eight Hundred Thirty One Thousand One Hundred and
Ten Dollars ($1,831,110) (the “Factoring Agreement Rollover Advance”), which the
Borrowers shall use solely for purposes of satisfying most of the Borrowers’
obligations under the Factoring Agreement;

 

(ii) on the Closing Date, the Lender shall make a Loan to the Borrowers in an
amount equal to Five Hundred Eighty-Three Thousand Forty-Eight Dollars
($583,048) (the “Initial Advance”), which the Borrowers shall use solely for
purposes of settling Existing Unsecured Claims identified on the certificate
delivered pursuant to Section 3.1(a)(vii), upon terms and conditions
satisfactory to the Lender in its sole discretion; and

 

(iii) subject to the satisfaction of the conditions set forth in Section 3.2,
the Lender shall make additional Loans to the Borrower from time to time (each
such additional Loan, a “Drawdown”), up to an aggregate amount not to exceed One
Million Nine Hundred Sixty-Six Thousand Nine Hundred Fifty-Two Dollars
($1,966,952) (the “Maximum Drawdown Amount”), which the Borrowers shall use
solely for purposes approved by the Lender in its sole discretion.

 

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(b) All Loans shall be evidenced by a promissory note substantially in the form
attached hereto as Exhibit A (the “Promissory Note”). The Lender may make
notations upon such Promissory Note from time to time, including to reflect the
making of Loans from time to time, and any such notation shall be deemed to be
conclusive and binding upon the Borrowers except to the extent of manifest
error.

 

2.2 Drawdown Procedure.

 

(a) So long as no Default or Event of Default has occurred and is continuing the
Borrowers may, at any time prior to September 30, 2012, request Drawdowns
pursuant to this Section 2.2 by delivery of written notice (a “Borrowing
Notice”) to the Lender no later than ten Business Days prior to the date on
which funding of the Drawdown is sought. The Borrower Notice shall:

 

(i) state the amount of such Drawdown;

 

(ii) state the date on which funding of the Drawdown is sought, which shall be a
Business Day;

 

(iii) state the Remaining Drawdown Amount before giving effect to such Drawdown
and the Remaining Drawdown Amount after giving effect to such Drawdown;

 

(iv) contain a reasonably detailed description of the purposes for which such
Drawdown will be used, including, in the case such Drawdown is for purposes of
settling Existing Unsecured Claims, the particular Existing Unsecured Claims to
be settled and the material terms and conditions of such settlement;

 

(v) contain wire instructions for the Borrowers’ account to which such Drawdown
is to be funded;

 

(vi) contain a certification from a Responsible Officer of each of the Borrowers
that no Default or Event of Default has occurred and is continuing; and

 

(vii) contain such other information as the Lender may require from time to time
to be included in Borrowing Notices.

 

(b) The Lender’s obligation to lend, and the Borrower’s right to borrow, any
Drawdown shall be subject to the satisfaction, on and as of the applicable
Drawdown Date, of the conditions precedent specified in Section 3.2.

 

2.3 Interest.

 

(a) The Loan Balance shall accrue interest at the rate of 10% per annum;
provided that, effective upon the occurrence of any Default or Event of Default
and for so long as any Default or Event of Default shall be continuing, such
rate shall automatically be increased to 18% per annum; provided further that in
the event any such rate exceeds the maximum interest rate permitted under law,
then such interest rate shall be the maximum interest permitted under law. All
interest hereunder shall be computed on the basis of actual days elapsed in a
year of 360 days.

 

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(b) On each Payment Date, the Borrowers shall pay to the Lender all then accrued
and unpaid interest; provided that the Lender may, in its sole discretion, at
any time and from time to time by written notice to the Borrowers, elect for all
or any portion of such accrued and unpaid interest to be capitalized into the
Loan Balance (the amount so elected, the “Capitalized Interest”), in which case,
(i) the Lender shall be treated as if it had made a Loan to the Borrowers in the
amount of such Capitalized Interest, (ii) the Capitalized Interest shall cease
to be treated as accrued and unpaid interest, and (iii) for the avoidance of
doubt, the Loan Balance shall be increased by the amount of such Capitalized
Interest, in each case, effective as of the Payment Date upon which such accrued
and unpaid interest is due.

 

2.4 Lender Costs. The Borrowers shall pay the Lender, upon demand, all
out-of-pocket costs incurred by the Lender in connection with any of this
Agreement, the other Loan Documents and the Transactions (collectively, “Lender
Costs”), including the Lender’s reasonable attorneys’ fees and expenses incurred
by the Lender in connection with (a) preparing and negotiating the Loan
Documents, (b) collecting upon amounts owed by the Borrower hereunder, (c)
perfecting the Lender’s Liens, and (d) the enforcement of the Lender’s rights
hereunder (including any enforcement of its rights under Article IV); provided
that the Lender may, in its sole discretion, at any time and from time to time
by written notice to the Borrowers, elect for all or any portion of any accrued
and unpaid Lender Cost to be capitalized into the Loan Balance (the amount so
elected, the “Capitalized Cost”), in which case, (i) the Lender shall be treated
as if it had made a Loan to the Borrowers in the amount of such Capitalized
Cost, (ii) the Capitalized Cost shall cease to be treated as accrued and unpaid
Lender Costs, and (iii) for the avoidance of doubt, the Loan Balance shall be
increased by the amount of such Capitalized Cost, in each case, effective as of
the date upon which such accrued and unpaid Capitalized Cost is due.

 

2.5 Payments.

 

(a) All Obligations (including all accrued and unpaid Lender Costs, all accrued
and unpaid interest and the Loan Balance) shall mature, and all amounts owing
hereunder, shall (to the extent not already due and payable) immediately and
automatically become due and payable upon the earlier of (the “Maturity Date”)
(i) March 31, 2014 or (ii) the acceleration of the Obligations pursuant to
Section 7.1.

 

(b) No prepayments of the Loan Balance shall be permitted, except (i) with the
prior written consent of the Lender or (ii) to the extent (A) the Borrowers
provide the Lender with at least 60 days prior written irrevocable notice of its
intent to prepay and (B) such prepayment is for all Obligations (including the
entire Loan Balance and all accrued and unpaid interest) then outstanding. For
the avoidance of doubt, the Lender may, after its receipt of such written
notice, but prior to such prepayment, exercise its rights under Article VIII
and, in the event of such exercise, such prepayment shall be only of the
remaining Obligations (but shall be for all of such remaining Obligations) after
giving effect to such exercise. For the avoidance of doubt, in no event shall
the Borrowers be permitted to make any partial prepayment of the Loan Balance
without the prior written consent of the Lender.

 

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(c) Each payment made in respect of the Obligations, regardless of whether such
payment is a prepayment permitted under Section 2.5(b), a payment upon maturity
of any Loan, any set off pursuant to Section 4.3(j), the application of the
proceeds realized from the sale of Collateral, a payment in respect of accrued
and unpaid Lender Costs or accrued and unpaid interest, or otherwise, shall be
applied in the following order of priority:

 

(i) first, against Lender Costs then outstanding, until all such Lender Costs
have been paid in full;

 

(ii) second, against all other amounts (if any) owed to the Lender under any of
the Loan Documents (other than the Loan Balance and accrued and unpaid interest)
until all such amounts have been paid in full;

 

(iii) third, against accrued and unpaid interest, until all such accrued and
unpaid interest has been paid in full; and

 

(iv) last, against the Loan Balance, until all of the Loan Balance has been paid
in full.

 

(d) Manner of Payment. Any payment in respect of the Obligations shall be made
in immediately available funds by wire transfer to the account designated from
time to time by the Lender and shall be deemed to have been made on the date
such payment is received into such account if such receipt occurs on or prior to
9:00 a.m. (Los Angeles time) or the first Business Day thereafter if such
receipt occurs after 9:00 a.m. (Los Angeles time).

 

(e) No Right to Reborrow. For the avoidance of doubt, under no circumstances
shall the Borrowers have the right to reborrow the Loans, or any portion
thereof, after the same have been repaid.

 

Article III

Conditions to Lending

 

3.1 Closing Date Conditions. The obligation of the Lender to lend the Factoring
Agreement Rollover Advance and the Initial Advance shall not become effective
until the date on which each of the following conditions is satisfied (or waived
in accordance with Section 9.2):

 

(a) Delivery of Documents. The Lender has received the following, each of which
shall be originals or facsimiles (followed promptly by originals) unless
otherwise specified, each properly and duly authorized, executed and delivered
by the signing Borrower and each other party thereto, and each in form and
substance satisfactory to the Lender (in its sole discretion):

 

(i) certificates representing all certificated Capital Stock included in the
Collateral, accompanied by undated stock powers duly executed in blank;

 

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(ii) proper financing statements in form appropriate for filing under the UCC of
all jurisdictions that the Lender may deem necessary or desirable in order to
perfect all of the Lender’s Liens;

 

(iii) evidence of the completion of all other actions, recordings and filings of
or with respect to the Collateral that the Lender may deem necessary or
desirable in order to perfect all of the Lender’s Liens;

 

(iv) a Trademark Security Agreement, dated as of the Closing Date, substantially
in the form attached hereto as Exhibit B, pursuant to which the Borrowers shall
grant to the Lenders a Lien with respect to the trademarks and related
Intellectual Property described therein to secure the Obligations (the
“Trademark Security Agreement”), duly executed by the Borrowers;

 

(v) a Warrant, dated as of the Closing Date, substantially in the form attached
hereto as Exhibit C, pursuant to which Zoo Entertainment shall grant to the
Lenders the right to purchase Ten Million Nine Hundred Fifty Two Thousand Seven
Hundred Seventy-Five (10,952,775) shares of the Common Stock at the exercise
price of $.40 per share (the “Warrant”), duly executed by Zoo Entertainment;

 

(vi) a favorable written fairness opinion (addressed to the Borrowers and the
Lender and dated as of the Closing Date) of ValueScope, Inc., substantially in
the form attached hereto as of Exhibit D;

 

(vii) a certificate executed by the Borrowers and in a form satisfactory to the
Lender setting forth the aggregate amount of Existing Unsecured Claims that will
be settled on the Closing Date;

 

(viii) such evidence as the Lender deems appropriate that: (A) 100% of the
Capital Stock of Zoo Games and Zoo Publishing is owned by Zoo Entertainment,
free and clear of any Lien (other than the Lender’s Liens); and (B) 100% of the
Capital Stock of indiePub is owned by Zoo Publishing, free and clear of any Lien
(other than the Lender’s Liens and the Factoring Agreement Liens);

 

(ix) a certificate signed by a Responsible Officer of each Borrower, dated as of
the Closing Date, certifying that: (A) the conditions specified in this Section
3.1 have been satisfied; (B) each of the Borrowers is Solvent, both before and
after giving effect to each advance of the Loans; (C) no Material Adverse Effect
has occurred since September 30, 2011; and (D) no Default or Event of Default
has occurred and is continuing;

 

(x) a certificate signed by a Responsible Officer of each Borrower, dated as of
the Closing Date, to which are attached true and correct copies of (A) the
Organizational Documents of each Borrower and (B) the resolutions of the board
of directors of each Borrower which approve the Transactions; and

 

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(xi) such other deliverables as may be reasonably requested by the Lender.

 

(b) Representations and Warranties; Covenants; Absence of Default. Each of the
representations and warranties made by or on behalf of the Borrowers under the
Loan Documents is true and correct in all material respects on and as of the
Closing Date. Each Borrower has performed in all material respects all covenants
and other agreements that are required under Loan Documents to be performed by
such Borrower on or prior to the Closing Date. No Default or Event of Default
has occurred and is continuing on the Closing Date. There has been no
development or event that has had or could reasonably be expected to have a
Material Adverse Effect.

 

(c) Consents and Approvals. All governmental and third party approvals
reasonably necessary in connection with the continuing operations of the
Borrowers and the Transactions shall have been obtained and be in full force and
effect, and the Lender shall have received satisfactory evidence thereof.

 

3.2 Each Drawdown Date. The obligation of the Lender to lend any Drawdown shall
not become effective until the date on which each of the following conditions is
satisfied (or waived in accordance with Section 9.2) on and as of the applicable
Drawdown Date:

 

(a) The Lender shall have received the following, each of which shall be
originals or facsimiles (followed promptly by originals) unless otherwise
specified, each properly and duly authorized, executed and delivered by the
signing Borrower and each other party thereto, and each in form and substance
satisfactory to the Lender (in its sole discretion):

 

(i) a Borrowing Request for such Drawdown in accordance with Section 2.2(a);

 

(ii) a certificate signed by a Responsible Officer of each Borrower, dated as of
the Closing Date, certifying that: (A) that the conditions specified in this
Section 3.2 have been satisfied; (B) each of the Borrowers is Solvent, both
before and after giving effect to each advance of the Loans; (C) no Material
Adverse Effect has occurred since the Closing Date, and (D) no Default or Event
of Default has occurred and is continuing; and

 

(iii) such other deliverables as the Lender may request in its sole discretion.

 

(b) Representations and Warranties; Covenants; Absence of Default. Each of the
representations and warranties made by or on behalf of the Borrowers under the
Loan Documents is true and correct in all material respects on and as of such
Drawdown Date as if made as on such Drawdown Date. Each Borrower has performed
in all material respects all covenants and other agreements that are required
under Loan Documents to be performed by such Borrower on or prior to such
Drawdown Date. No Default or Event of Default has occurred and is continuing on
such Drawdown Date. There has been no development or event that has had or could
reasonably be expected to have a Material Adverse Effect.

 

-15-

 

 

 

(c) Consents and Approvals. All governmental and third party approvals
reasonably necessary in connection with the continuing operations of the
Borrowers and the Transactions shall have been obtained and be in full force and
effect, and the Lender shall have received satisfactory evidence thereof.

 

(d) Use of Proceeds. The Lender, in its sole discretion, agrees with the manner
in which the Borrower will use the proceeds of such Drawdown.

 

Article IV

Grant of Security and Remedial Provisions

 

4.1 Grant of Security. Each Borrower hereby assigns and transfers to the Lender,
and hereby grants to the Lender, a security interest in and continuing lien on
all of the personal property of such Borrower, including the following property,
in each case, wherever located and now owned or at any time hereafter acquired
by such Borrower or in which such Borrower now has or at any time in the future
may acquire any right, title or interest (collectively, the “Collateral”), as
collateral security for the prompt and complete payment and performance when due
(whether at the stated maturity, by acceleration or otherwise) of the
Obligations:

 

(a) the Pledged Equity Interests;

 

(b) all Accounts;

 

(c) all Chattel Paper;

 

(d) all Commercial Tort Claims;

 

(e) all Deposit Accounts;

 

(f) all Documents;

 

(g) all Equipment;

 

(h) all Fixtures

 

(i) all General Intangibles;

 

(j) all Instruments;

 

(k) all Insurance;

 

(l) all Intellectual Property;

 

(m) all Inventory;

 

(n) all Investment Property;

 

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(o) all Letter of Credit Rights;

 

(p) all Receivables;

 

(q) all Books and Records;

 

(r) (i) all money, cash and cash equivalents, and (ii) all cash held as cash
collateral to the extent not otherwise constituting Collateral, all other cash
or property at any time on deposit with or held by the Lender for the account of
any Borrower (whether for safekeeping, custody, pledge, transmission or
otherwise);

 

(s) to the extent not otherwise included, all other property of such Borrower
and all Proceeds and products, accessions, rents and profits of any and all of
the foregoing and all collateral security and guarantees given by any Person
with respect to any of the foregoing; and

 

(t) all Goods not otherwise described above.

 

Notwithstanding anything herein to the contrary, (w) each Borrower shall remain
liable for all obligations under the Collateral and nothing contained herein is
intended or shall be a delegation of duties to the Lender, (x) each Borrower
shall remain liable under each of the agreements included in the Collateral,
including any Receivables and any agreements relating to Pledged Equity
Interests, to perform all of the obligations undertaken by it thereunder all in
accordance with and pursuant to the terms and provisions thereof, (y) the Lender
shall not have (i) obligation or liability under any of such agreements by
reason of or arising out of this Agreement or any other document related
thereto, (ii) any obligation to make any inquiry as to the nature or sufficiency
of any payment received by it or (iii) any obligation to take any action to
collect or enforce any rights under any agreement included in the Collateral,
including any agreement relating to any Receivables and any agreements relating
to Pledged Equity Interests, and (z) the exercise by the Lender of any of its
rights hereunder shall not release any Borrower from any of its duties or
obligations under the contracts and agreements included in the Collateral.

 

4.2 Delivery of Collateral. All certificates and instruments evidencing the
Collateral shall be delivered to and held by or on behalf of the Lender pursuant
hereto. All such certificates shall be accompanied by duly executed instruments
of transfer or assignment in blank, all in form and substance reasonably
satisfactory to the Lender.

 

4.3 Remedial Provisions.

 

(a) Certain Matters Relating to Receivables.

 

(i) During the continuance of an Event of Default, at any time and from time to
time, the Lender shall have the right but not the obligation to make test
verifications of the Receivables in any manner and through any medium that it
considers advisable, and each Borrower shall furnish all such assistance and
information as the Lender may require in connection with such test
verifications. At any time and from time to time during the continuance of an
Event of Default, upon the Lender’s request and at the expense of the relevant
Borrower, such Borrower shall cause independent public accountants or others
satisfactory to the Lender to furnish to the Lender reports showing
reconciliations, aging and test verifications of, and trial balances for, the
Receivables.

 

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(ii) At any time and from time to time during the continuance of an Event of
Default, the Lender may collect each Borrower’s Receivables and any Supporting
Obligation and exercise each right such Borrower may have under any Receivable
and any Supporting Obligation, in each case, at the Borrowers’ own expense. If
required by the Lender at any time upon the occurrence and during the
continuance of an Event of Default, any payments of Receivables, when collected
by any Borrower, (x) shall be forthwith (and, in any event, within two Business
Days) deposited by such Borrower in the exact form received, duly endorsed by
such Borrower to the Lender if required, in a Collateral Account maintained
under the sole dominion and control of the Lender, subject to withdrawal by the
Lender for the account of the Lenders only as provided in Section 4.3(f), and
(y) until so turned over, shall be held by such Borrower in trust for the
Lenders, segregated from other funds of such Borrower. Each such deposit of
Proceeds of Receivables shall be accompanied by a report identifying in
reasonable detail the nature and source of the payments included in the deposit.

 

(iii) At the Lender’s request upon a Default or an Event of Default, each
Borrower shall deliver to the Lender all original and other documents
evidencing, and relating to, the agreements and transactions which gave rise to
the Receivables, including, without limitation, all original orders, invoices
and shipping receipts.

 

(b) Communications with Obligors; Borrowers Remain Liable.

 

(i) The Lender in its own name or in the name of others may at any time upon the
occurrence and during the continuance of an Event of Default communicate with
obligors under the Receivables to verify with them to the Lender’s satisfaction
the existence, amount and terms of any Receivables.

 

(ii) In addition, upon the occurrence and during the continuance of an Event of
Default, the Lender may upon written notice to the applicable Borrower, notify,
or require any Borrower to notify, the Account Debtor or counterparty to make
all payments under the Receivables directly to the Lender.

 

(iii) Notwithstanding anything herein to the contrary, each Borrower shall
remain liable under each of the Receivables (or any agreement giving rise
thereto) to observe and perform all the conditions and obligations to be
observed and performed by it thereunder, all in accordance with the terms of any
agreement giving rise thereto. The Lender shall have no obligation or liability
under any Receivable (or any agreement giving rise thereto) by reason of or
arising out of this Agreement or the receipt by the Lender of any payment
relating thereto, nor shall the Lender be obligated in any manner to perform any
of the obligations of any Borrower under or pursuant to any Receivable (or any
agreement giving rise thereto), to make any payment, to make any inquiry as to
the nature or the sufficiency of any payment received by it or as to the
sufficiency of any performance by any party thereunder, to present or file any
claim, to take any action to enforce any performance or to collect the payment
of any amounts which may have been assigned to it or to which it may be entitled
at any time or times.

 

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(c) Investment Property.

 

(i) Unless an Event of Default shall have occurred and be continuing, each
Borrower shall be permitted to receive all cash dividends and other payments
paid in respect of the Pledged Equity Interests and to exercise all voting and
corporate rights with respect to the Pledged Equity Interests.

 

(ii) If an Event of Default shall occur and be continuing, then except to the
extent otherwise permitted by the Lender: (x) all rights of each Borrower to
exercise or refrain from exercising the voting and other consensual rights which
it would otherwise be entitled to exercise with respect to the Investment
Property shall cease and all such rights shall thereupon become vested in the
Lender who shall thereupon have the sole right, but shall be under no
obligation, to exercise or refrain from exercising such voting and other
consensual rights, and (y) the Lender shall have the right, without notice to
any Borrower, to transfer all or any portion of the Investment Property to its
name or the name of its nominee or agent. In addition, if an Event of Default
shall occur and be continuing, the Lender shall have the right at any time,
without notice to any Borrower, to exchange any certificates or instruments
representing any Investment Property for certificates or instruments of smaller
or larger denominations. In order to permit the Lender to exercise the voting
and other consensual rights which it may be entitled to exercise pursuant hereto
and to receive all dividends and other distributions which it may be entitled to
receive hereunder, each Borrower shall promptly execute and deliver (or cause to
be executed and delivered) to the Lender all proxies, dividend payment orders
and other instruments as the Lender may from time to time reasonably request,
and each Borrower acknowledges that the Lender may utilize the power of attorney
set forth herein.

 

(iii) Each Borrower hereby authorizes and instructs each issuer of Investment
Property to (x) comply with any instruction received by it from the Lender in
writing that states that an Event of Default has occurred and is continuing,
without any other or further instructions from such Borrower, and each Borrower
agrees that each such issuer shall be fully protected in so complying, and (y)
if an Event of Default has occurred and is continuing, pay any dividends or
other payments with respect Investment Property directly to the Lender.

 

(d) Proceeds to be Turned Over to Lender. In addition to the rights of the the
Lender specified in Section 4.3(a) with respect to payments of Receivables, if
an Event of Default shall occur and be continuing, all Proceeds received by any
Borrower consisting of cash, cash equivalents, checks and other near-cash items
shall be held by such Borrower in trust for the Lender, segregated from other
funds of such Borrower or in a Deposit Account over which the Lender has
“control” (within the meaning of Section 9-104 of the UCC), and shall, forthwith
upon receipt by such Borrower, be turned over to the Lender in the exact form
received by such Borrower (duly endorsed by such Borrower to the Lender, if
required). All Proceeds received by the Lender hereunder shall be held by the
Lender in a Collateral Account maintained under its sole dominion and control.
All Proceeds while held by the Lender in a Collateral Account (or by such
Borrower in trust for the Secured Parties) shall continue to be held as
collateral security for all the Obligations and shall not constitute payment
thereof until applied as provided in Section 4.3(f).

 

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(e) Additional Remedial Rights. During the continuance of an Event of Default,
at any time and from time to time, the Lender shall have the right but not the
obligation to:

 

(i) require the Borrowers to assemble and make available to the Lender, at the
expense of Borrowers, the Collateral at any place mutually convenient to the
Lender and the Borrowers;

 

(ii) remove of all or any part of the Collateral from any premise on which any
part may be located for the purpose of effecting a sale or any disposition
thereof; and

 

(iii) enter upon the premises wherever the Collateral may be, freely and without
being deemed to disrupt the peace, and take possession of the Collateral, and
demand and receive such possession from any person or organization which has
possession thereof, and to take such measures as it may deem necessary or proper
for the care or protection thereof, including the right to remove all or any
portion of the Collateral, and with or without taking such possession may sell
or cause to be sold whenever the Lender shall decide such Collateral in
accordance with Section 4.3(g).

 

(f) Application of Proceeds. If an Event of Default shall have occurred and be
continuing, at any time at the Lender’s election, the Lender may apply all or
any part of the net Proceeds (after deducting fees and expenses as provided in
Section 4.3(g)) constituting Collateral realized through the exercise by the
Lender of its rights and remedies hereunder, whether or not held in any
Collateral Account, and any other amounts received on account of the
Obligations, in payment of the Obligations in the following order:

 

(i) first, to the Lender in accordance with Section 2.5(c);

 

(ii) second, to the Lender, for application by it towards prepayment of all
Obligations (if any) not yet due; and

 

(iii) thereafter, any balance of such Proceeds remaining after the Obligations
shall have been paid in full shall be paid over to the Borrowers or to
whomsoever may be lawfully entitled to receive the same.

 

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(g) UCC and Other Remedies.

 

(i) If an Event of Default shall occur and be continuing, the Lender may
exercise, in addition to all other rights and remedies granted to it in this
Agreement and in any other instrument or agreement securing, evidencing or
relating to the Obligations, all rights and remedies of a secured party under
the UCC as enacted in any applicable jurisdiction (whether or not the UCC
applies to the affected Collateral) or its rights under any other applicable law
or in equity. Without limiting the generality of the foregoing, the Lender,
without demand of performance or other demand, presentment, protest,
advertisement or notice of any kind (except any notice required by law referred
to below) to or upon any Borrower or any other Person (all and each of which
demands, defenses, advertisements and notices are hereby waived), may in such
circumstances forthwith collect, receive, appropriate and realize upon the
Collateral, or any part thereof, and may forthwith sell, lease, license, assign,
give option or options to purchase, or otherwise dispose of and deliver the
Collateral or any part thereof (or contract to do any of the foregoing), in one
or more parcels at public or private sale or sales, at any exchange, broker’s
board or office of the Lender or elsewhere upon such terms and conditions as it
may deem advisable and at such prices as it may deem best, for cash or on credit
or for future delivery without assumption of any credit risk. The Lender 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 the Collateral so sold, free of any right or equity of redemption in any
Borrower, which right or equity is hereby waived and released. For the avoidance
of doubt, each of the parties hereto, by their acceptance of the benefits of
this Agreement, agree that the Lender shall be entitled, for the purpose of
bidding and making settlement or payment of the purchase price for all or any
portion of the Collateral sold at any sale or foreclosure proceeding in respect
of the Collateral, including sales occurring pursuant to Section 363 of the
United States Bankruptcy Code or included as part of any plan subject to
confirmation under Section 1129(b)(2)(A)(iii) of the United States Bankruptcy
Code, to use and apply any of the Obligations as a credit on account of the
purchase price for any Collateral payable by the Lender at such sale or
foreclosure proceeding, as applicable. Each purchaser at any such sale shall
hold the property sold absolutely free from any claim or right on the part of
any Borrower, and each Borrower hereby waives (to the extent permitted by
applicable law) all rights of redemption, stay or appraisal which it now has or
may at any time in the future have under any rule of law or statute now existing
or hereafter enacted. Each Borrower agrees that, to the extent notice of sale
shall be required by law, at least ten days notice to such Borrower of the time
and place of any public sale or the time after which any private sale is to be
made shall constitute reasonable notification and that a notice given as
provided in this Agreement shall constitute reasonable notice. The Lender shall
not be obligated to make any sale of Collateral regardless of notice of sale
having been given. The Lender may adjourn any public or private sale from time
to time by announcement at the time and place fixed therefor, and such sale may,
without further notice, be made at the time and place to which it was so
adjourned. The Lender may sell the Collateral without giving any warranties as
to the Collateral. The Lender may specifically disclaim or modify any warranties
of title or the like. This procedure will not be considered to adversely affect
the commercial reasonableness of any sale of the Collateral. Each Borrower
agrees that it would not be commercially unreasonable for the Lender to dispose
of the Collateral or any portion thereof by using internet sites of recognized
standing that provide for the auction of assets of the types included in the
Collateral or that have the reasonable capability of doing so, or that match
buyers and sellers of assets, if such disposition otherwise complies with the
conditions set forth in this Section 4.3(g). Each Borrower hereby waives any
claims against the Lender arising by reason of the fact that the price at which
any Collateral may have been sold at such a private sale was less than the price
which might have been obtained at a public sale, even if the Lender accepts the
first offer received and does not offer such Collateral to more than one
offeree. Each Borrower further agrees, at the Lender’s request, to assemble the
Collateral and make it available to the Lender at places which the Lender shall
reasonably select, whether at such Borrower’s premises or elsewhere. The Lender
shall have the right to enter onto the property where any Collateral is located
and take possession thereof with or without judicial process either personally
or by means of a receiver appointed by a court therefor, and may, at its option,
use, operate, manage and control the Collateral in any lawful manner and may
collect and receive all rents, income, revenue, earnings, issues and profits
therefrom, and may maintain, repair, renovate, alter or remove the Collateral as
the Lender may determine in its discretion, and any such monies so collected or
received shall be remitted to the Lender and shall be applied to, or may be
accumulated for application upon, the Obligations in accordance with Section
4.3(f) of this Agreement.

 

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(ii) The Lender shall apply the net Proceeds of any action taken by it pursuant
to this Section 4.3(g), after deducting all reasonable costs and expenses of
every kind incurred in connection therewith or incidental to the care or
safekeeping of any of the Collateral or in any way relating to the Collateral or
the rights of the Lender hereunder, including reasonable attorneys’ fees and
disbursements, to the payment in whole or in part of the Obligations and only
after such application and after the payment by the Lender of any other amount
required by any provision of law need the Lender account for the surplus, if
any, to any Borrower or any other Person. If the Lender sells any of the
Collateral upon credit, the Borrower will be credited only with payments
actually made by the purchaser and received by the Lender and applied to
indebtedness of the purchaser. In the event the purchaser fails to pay for the
Collateral, the Lender may resell the Collateral and the Borrower shall be
credited with the net Proceeds of the sale. To the extent permitted by
applicable law, each Borrower waives all claims, damages and demands it may
acquire against the Lender arising out of the exercise by them of any rights
hereunder.

 

(iii) In the event of any Disposition of any of the Intellectual Property
pursuant to this Section 4.3(g), the Goodwill of the business connected with and
symbolized by any Trademarks subject to such Disposition shall be included, and
the applicable Borrower shall supply the Lender or its designee with such
Borrower’s know-how and expertise, and with documents and things embodying the
same, relating to the manufacture, distribution, advertising and sale of
products or the provision of services relating to any Intellectual Property
subject to such Disposition, and such Borrower’s customer lists and other
records and documents relating to such Intellectual Property and to the
manufacture, distribution, advertising and sale of such products and services.

 

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(h) Waiver; Deficiency. Each Borrower shall remain liable for any deficiency if
the proceeds of any sale or other disposition of the Collateral are insufficient
to pay its Obligations and the fees and disbursements of any attorneys employed
by any Secured Party to collect such deficiency.

 

(i) Protective Advances. Without limiting any provisions contained herein or in
any other Loan Documents, at its option, the Lender may make “protective
advances” to pay for any obligation of any Borrower that has not been timely
paid or to make any payments necessary to maintain or preserve value (including
going concern value) of the Collateral following and during the continuance of
an Event of Default; provided that nothing in this paragraph shall be
interpreted as imposing any obligation on the Lender to (i) make any such
“protective advance”, or any similar advance or disbursement, or otherwise to
establish any course of dealing between the Lender and the Borrowers of any kind
or nature or (ii) cure or perform any obligations or other promises of any
Borrower. The making of any such “protective advance” shall not be construed as
a waiver of any Defaults or Events of Default nor shall the making of any such
“protective advance” be construed as a satisfaction, reinstatement,
modification, amendment or extension by the Lender of any of the Loans or Loan
Documents, or as a waiver, relinquishment or forbearance by the Lender of any of
its rights and remedies under any of the Loans or the Loan Documents. All
“protective advances” disbursed by the Lender in connection with this paragraph,
including reasonable attorneys’ fees, court costs, reasonable expenses and other
charges relating thereto, shall be payable, upon demand, by the Borrowers to the
Lender and shall be additional Obligations secured hereby and shall bear
interest until paid at the Default Rate.

 

(j) Right of Set-off. From and after any Event of Default, the Lender may, at
any time and from time to time, without notice to the Borrowers or any other
Person, and to the fullest extent permitted by applicable law, set off and apply
any and all deposits (general or special, time or demand, provisional or final)
at any time held to or for the credit or the account of the Borrowers against
any Obligations, irrespective of whether or not the Lender has made any demand
hereunder.

 

(k) Cumulative Remedies. No delay or omission of the Lender to exercise any
right or power arising under this Agreement or any other Loan Document with
respect to any Event of Default shall exhaust or impair any such right or power
or prevent its exercise during the continuance of any other Event of Default, or
impair the rights resulting therefrom. The remedies provided in this Agreement
are cumulative and are not exclusive of any remedies provided by applicable law.

 

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(l) Cooperation. Each Borrower agrees to the maximum extent permitted by
applicable law that, following the occurrence and during the continuance of an
Event of Default, it will not at any time plead, claim or take the benefit of
any appraisal, valuation, stay, extension, moratorium or redemption law now or
hereafter in force in order to prevent or delay the enforcement of this
Agreement, or the absolute sale of the whole or any part of the Collateral or
the possession thereof by any purchaser at any sale hereunder, and each Borrower
waives the benefit of all such laws to the extent it lawfully may do so. Each
Borrower agrees that it will not interfere with any right, power and remedy of
the Lender provided for in this Agreement or now or hereafter existing at law or
in equity or by statute or otherwise, or the exercise or beginning of the
exercise by the Lender of any one or more of such rights, powers or remedies. No
failure or delay on the part of the Lender to exercise any such right, power or
remedy and no notice or demand which may be given to or made upon a Borrower by
the Lender with respect to any such remedies shall operate as a waiver thereof,
or limit or impair the Lender’s right to take any action or to exercise any
power or remedy hereunder, without notice or demand, or prejudice its rights as
against the Borrowers in any respect.

 

4.4 Specific Performance. The Borrower further agrees that a breach of any of
the covenants contained in this Article IV will cause irreparable injury to the
Lenders, and that the Lenders shall have no adequate remedy at law in respect of
such breach and, as a consequence, agrees that each and every covenant contained
in this Article IV shall be specifically enforceable against the Borrowers, and
the Borrowers hereby waive and agree not to assert any defenses against an
action for specific performance of such covenants except for a defense that the
Obligations are not then due and payable in accordance with this Agreement and
the other Loan Documents.

 

Article V

Representations and Warranties

 

To induce the Lender to enter into this Agreement and, in the case of the
Lenders, to make the Loans, the Borrowers hereby jointly and severally represent
and warrant to the Lender, as of the Closing Date and as of each Drawdown Date,
that:

 

5.1 Financial Condition. The financial statements contained in Zoo
Entertainment’s SEC Reports or otherwise provided to the Lender pursuant to
Section 6.1(a) have been prepared based on the best information available to the
Borrowers as of the date of filing or delivery, as applicable, thereof, and
present fairly in all material respects the financial condition of the Borrowers
as of the date thereof. All such financial statements, including the related
schedules and notes thereto, have been prepared in accordance with GAAP applied
consistently throughout the periods involved.

 

5.2 No Material Adverse Effect. There has been no development or event that has
had or could reasonably be expected to have individually or in the aggregate a
Material Adverse Effect.

 

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5.3 Corporate Existence; Compliance with Law. Except as set forth on Schedule
5.3, each Borrower (a) is duly organized, validly existing and in good standing
under the laws of the jurisdiction of its organization, (b) has the corporate or
other power and authority, and the legal right, to conduct the business in which
it is currently engaged, (c) is duly qualified as a foreign corporation or other
organization and in good standing under the laws of each jurisdiction where the
conduct of its business requires such qualification, (d) maintains all rights,
privileges, franchises, Permits and licenses necessary in the normal conduct of
its business, and (e) is in compliance with all Requirements of Law, except as,
in the case of the foregoing clauses (c), (d), and (e), could not reasonably be
expected to have individually or in the aggregate a Material Adverse Effect.

 

5.4 Corporate Power; Authorization; Enforceable Obligations. Each Borrower has
the corporate or other power and authority, and the legal right, to execute,
deliver and perform the Loan Documents to which it is a party, including to
borrow hereunder. Each Borrower has taken all necessary corporate or other
action to authorize the execution, delivery and performance of the Loan
Documents and to authorize the borrowings on the terms and conditions of this
Agreement. No consent or authorization of, filing with, notice to, registration
with or other act by or in respect of, any Governmental Authority or any other
Person is required in connection with the borrowings hereunder or the execution,
delivery, performance, validity or enforceability of this Agreement or any of
the other Loan Documents. Each Loan Document has been duly executed and
delivered on behalf of each Borrower that is a party thereto. This Agreement
constitutes, and each other Loan Document upon execution and delivery will
constitute, a legal, valid and binding obligation of each Borrower that is a
party thereto, enforceable against each such Borrower in accordance with its
terms, except as enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting the enforcement
of creditors’ rights generally and by general equitable principles (whether
enforcement is sought by proceedings in equity or at law).

 

5.5 No Legal Bar. The execution, delivery and performance of this Agreement and
the other Loan Documents, the borrowings hereunder and the use of the proceeds
thereof will not violate any Requirement of Law, any Organizational Documents or
any Contractual Obligation of any of the Borrowers and will not result in, or
require, the creation or imposition of any Lien on any of their respective
properties or revenues pursuant to any Requirement of Law or any such
Contractual Obligation (other than the Liens created pursuant to this
Agreement). No Requirement of Law or Contractual Obligation applicable to any
Borrower could reasonably be expected to have individually or in the aggregate a
Material Adverse Effect.

 

5.6 No Material Litigation. Except as disclosed on Schedule 5.6, no litigation,
investigation or proceeding of or before any arbitrator or Governmental
Authority is pending or, to the knowledge of any Borrower, threatened by or
against any Borrower or against any of their respective properties or revenues
that could reasonably be expected to have individually or in the aggregate a
Material Adverse Effect.

 

5.7 No Default. Except as disclosed on Schedule 5.7, no Borrower is in default
under or with respect to any of its Contractual Obligations or Requirements of
Law, and the Transactions will not be in conflict with, result in a breach of or
constitute (alone or with notice or lapse of time or both) a default under, or
give rise to any right to accelerate or to require the prepayment, repurchase or
redemption of any obligation under any Contractual Obligation or Requirement of
Law, in each case, except as could not reasonably be expected to have
individually or in the aggregate a Material Adverse Effect. No Default or Event
of Default has occurred and is continuing.

 

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5.8 Indebtedness. The Borrowers have no Indebtedness other than Indebtedness
permitted pursuant to Section 6.2(a).

 

5.9 Ownership of Property; Liens. Each Borrower has (a) valid leasehold
interests in (in the case of leasehold interests in real or personal property),
(b) valid licensed rights in (in the case of licensed interests in Intellectual
Property), and (c) good title to (in the case of all other personal property),
all of their respective properties and assets reflected in their most recent
financial statements referred to in Section 5.1, to the extent necessary or used
in the ordinary conduct of the respective business of the Borrowers. All such
properties and assets are free and clear of Liens except for Liens permitted
under Section 6.2(b).

 

5.10 Intellectual Property. Each Borrower owns, or is licensed to use, all
Intellectual Property necessary for the conduct of its business as currently
conducted. No material claim or litigation has been asserted and is pending
involving any Intellectual Property owned or exclusively licensed by any
Borrower by any Person challenging or questioning the use of any such
Intellectual Property or the validity or effectiveness of such Intellectual
Property, nor does any Borrower know of any valid basis for any such claim. The
use of Intellectual Property by the Borrowers does not infringe on the rights of
any Person.

 

5.11 Taxes. Each Borrower has filed or caused to be filed all tax returns that
are required to be filed and has paid or caused to be paid all taxes shown to be
due and payable on said returns, except any Taxes (a) not yet delinquent or that
otherwise remain payable without penalty or (b) which are currently being
contested in good faith by appropriate actions and with respect to which
adequate reserves in conformity with GAAP have been provided on the books of
such Borrower.

 

5.12 Ownership of Capital Stock. No Borrower owns any Capital Stock except for
Capital Stock issued by another Borrower. Schedule 5.12 sets forth (a) the exact
legal name and jurisdiction of organization of each Borrower, (b) the principal
office of such Borrower, and (c) the percentage and number of each class of
Capital Stock owned by such Borrower. There are no outstanding subscriptions,
options, warrants, calls, rights or other agreements or commitments (other than
stock options granted to employees or directors and directors’ qualifying
shares) of any nature relating to the right to purchase or otherwise acquire any
Capital Stock of any Borrower, except as created pursuant to this Agreement or
under the Warrant.

 

5.13 Accuracy of Information, etc. The statements and information contained in
this Agreement, any other Loan Document or any other document, certificate or
written statement furnished to any Lender, by or on behalf of any Borrower for
use in connection with the Transactions, when taken as a whole as of the date
such statement, information, document or certificate was so furnished, do not
contain any untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements contained herein or therein not
materially misleading in light of the circumstances under which such statements
were made.

 

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5.14 Perfected First Priority Liens. Upon (a) completion of the filings and
other actions specified on Schedule 5.14 (which, in the case of all filings and
other documents referred to on said Schedule, have been delivered to the Lender
in completed and, where required, duly executed form), and (b) the taking or
making of other actions and filings, as set forth on Schedule 5.14 hereto, the
Lender’s Liens (including the security interests granted in Section 4.1) will
constitute valid perfected first priority security interests (except to the
extent subordinated to the Factoring Agreement Liens) in favor of the Lender
upon all of the Collateral, enforceable in accordance with the terms hereof
against all creditors of the Borrowers and any Persons purporting to purchase
any such Collateral from any Borrower.

 

5.15 Solvency. Each Borrower is, and after the incurrence of all Obligations
being incurred in connection herewith will be, Solvent. Each of the chief
executive officer and chief financial officer, if any, of each Borrower acting
in their capacity as such have made the determination necessary for each
Borrower to make this representation after having conducted a diligent inquiry
on a good faith basis and based on such officer’s actual knowledge; and such
officers have not conveyed any information to the contrary to any other Person
at any time.

 

5.16 Financial Advisors. Other than fees payable to the Lender in connection
with the Agreement, no agent, broker, investment banker, finder, financial
advisor or other Person is or will be entitled to any broker’s or finder’s fee
or any other commission or similar fee from the Borrowers with respect to this
Agreement or any of the other Loan Documents or any of the transactions
contemplated hereby, and the Borrower hereby indemnifies the Lender against, and
agrees that it will hold the Lender harmless from, any claim, demand or
liability for any such broker’s or finder’s fees alleged to have been incurred
in connection herewith or therewith and any expenses (including reasonable fees,
expenses and disbursements of counsel) arising in connection with any such
claim, demand or liability.

 

5.17 Deposit Accounts and Securities Accounts. Set forth on Schedule 5.17 is a
listing of all of the Borrowers’ Deposit Accounts and Securities Accounts,
including, with respect to each bank or securities intermediary, (a) the name
and address of such Person, (b) the account numbers of the Deposit Accounts or
Securities Accounts maintained with such Person, and (c) the relevant Borrower
or Borrowers.

 

5.18 Capitalization. If Four Million Three Hundred Eighty One Thousand One
Hundred and Ten Dollars ($4,381,110) in Obligations were converted into Common
Stock pursuant to Section 8.1 and the Warrant were fully exercised, in each
case, by the Lender on the Closing Date, the Lender would receive no less than
Ten Million Nine Hundred Fifty Two Thousand Seven Hundred Seventy-Five
(10,952,775) shares of Common Stock, which would represent at least 30.1% of the
issued and outstanding Common Stock as of the Closing Date on a fully diluted
basis.

 

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Article VI

Certain Covenants

 

6.1 Affirmative Covenants. The Borrowers hereby jointly and severally agree
that, until the later of the Maturity Date or the payment and other satisfaction
in full of all Obligations, the Borrowers shall:

 

(a) Delivery of Information. furnish promptly to the Lender such (i) annual,
quarterly or other periodic financial statements (which, if requested by the
Lender shall be audited by an independent public accountant of national
standing), (ii) annual, quarterly or other periodic reports, or (iii) other
information regarding the Borrowers (including all information that would be
contained in an annual report on Form 10-K, a quarterly report on Form 10-Q, and
periodic reports on Form 8-K and filed with the Securities and Exchange
Commission (the “SEC”) if Zoo Entertainment were an issuer of a security
registered pursuant to Section 12 of the Exchange Act), in each case, as the
Lender may request from time to time in its sole discretion;

 

(b) Notices of Material Events. furnish promptly to the Lender written notice,
of the following events (in each case, describing such event in reasonable
detail and no later than the second Business Day after becoming aware thereof):

 

(i) the occurrence of any Default or Event of Default;

 

(ii) the filing or commencement of any action, suit or proceeding by or before
any arbitrator or Governmental Authority against or affecting any Borrower or
any Affiliate thereof that, if adversely determined, would reasonably be
expected to result in a Material Adverse Effect;

 

(iii) the creation or existence of any Lien (other than a Lender’s Lien or the
Factoring Agreement Liens) on any of the Collateral that would adversely affect
the ability of the Lender to exercise any of its remedies hereunder; or

 

(iv) any other development that results in, or would reasonably be expected to
result in, a Material Adverse Effect;

 

(c) Conduct of Business.

 

(i) do or cause to be done all things necessary to preserve, renew and keep in
full force and effect the Borrowers’ respective legal existence and the rights,
licenses, permits, privileges and franchises material to the conduct of their
respective business;

 

(ii) keep and maintain all property material to the conduct of their respective
business in good working order and condition, ordinary wear and tear excepted;
and

 

(iii) maintain, with financially sound and reputable insurance companies,
insurance in such amounts and against such risks as are customarily maintained
by companies engaged in the same or similar businesses operating in the same or
similar locations;

 

 

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(iv) pay their respective obligations, including tax liabilities before the same
shall become delinquent or in default, except where (A) the validity or amount
thereof is being contested in good faith by appropriate proceedings, (B) any
Borrower has set aside on its books adequate reserves with respect thereto if
required in accordance with GAAP, and (C) the failure to make payment pending
such contest could not reasonably be expected to result individually or in the
aggregate in a Material Adverse Effect; and

 

(v) comply with (i) their respective Organizational Documents and (ii) all
Requirements of Law;

 

(d) Books and Records; Inspection Rights.

 

(i) keep proper books of record and account in which full, true and correct
entries are made of all dealings and transactions in relation to the Borrowers’
business and activities; and

 

(ii) permit any representative designated by any Lender, upon reasonable prior
notice, to visit and inspect a Borrower’s properties, to examine and make
extracts from its books and records, and to discuss its affairs, finances and
condition with its officers and independent accountants, all at such reasonable
times and as often as reasonably requested; and

 

(e) Maintenance of Perfected Security Interest; Further Documentation.

 

(i) maintain and preserve the Lender’s Liens as security interests having at
least the perfection and priority described in Section 5.14 and use best efforts
to defend the title to the Collateral and the Lender’s Liens against the claims
and demands of all Persons whomsoever, subject to the rights (if any) of a
Borrower under this Agreement to dispose of the Collateral;

 

(ii) at any time and from time to time, upon the written request of the Lender,
and at the sole expense of such Borrower, promptly and duly execute, acknowledge
and deliver, and have recorded, all such further instruments and documents, and
take such further actions as the Lender may reasonably request for the purpose
of creating, perfecting, ensuring the priority of, protecting or enforcing the
Lender’s security interest in the Collateral or otherwise conferring or
preserving the full benefits of this Agreement, the Lender’s Liens and of the
interests, rights and powers herein granted; and

 

(iii) cooperate with the Lender, at the Borrowers’ sole expense, in obtaining
all necessary approvals and making all necessary filings under federal, state,
local or foreign law in connection with the Lender’s Liens or any sale or
transfer of the Collateral.

 

6.2 Negative Covenants. The Borrowers hereby jointly and severally agree that,
until the later of the Maturity Date or the payment and other satisfaction in
full of all Obligations, none of the Borrowers shall:

 

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(a) Limitation on Indebtedness. (i) create, incur, assume or suffer to exist any
Indebtedness (whether as a borrower, guarantor or otherwise), except for (x) the
Obligations and (y) unsecured trade indebtedness that is incurred in the
ordinary course of business in an aggregate principal amount (for all Borrowers,
collectively) not to exceed Five Million Dollars ($5,000,000) at any time
outstanding, and (z) Zoo Publishing’s obligations under the Factoring Agreement,
which shall not, in the aggregate, after giving effect to the Factoring
Agreement Rollover Advance, exceed $250,000; or (ii) cancel any Indebtedness
owing to any Borrower;

 

(b) Limitation on Liens. create, incur, assume or suffer to exist any Lien upon
any of its property, whether now owned or hereafter acquired, except for:

 

(i) the Lender’s Liens;

 

(ii) the Factoring Agreement Liens;

 

(iii) Liens for taxes not yet delinquent or that otherwise remain payable
without penalty, or which are being contested in good faith by appropriate
actions, provided that adequate reserves with respect thereto are maintained on
the books of such Borrower, as the case may be, in conformity with GAAP; and

 

(iv) carriers,’ warehousemen’s, mechanics,’ materialmen’s, repairmen’s or other
like Liens arising in the ordinary course of business which are not overdue for
a period of more than thirty days or otherwise remain payable without penalty or
that are being contested in good faith by appropriate actions; provided that
adequate reserves with respect thereto are maintained on the books of such
Borrower, as the case may be, in conformity with GAAP.

 

(c) Limitation on Fundamental Changes; Dispositions of Collateral. enter into
any merger, consolidation or other reorganization with or into any other Person,
or sell, transfer or assign to any Person all or a portion of the assets or any
of the Borrowers (other than the sale of inventory in the ordinary course of
business consistent with past practices), permit any other Person to consolidate
with or merge with it, or engage in any transaction having a substantially
similar result as any of the foregoing, or attempt, offer or contract to do any
of the foregoing;

 

(d) Limitation on Restricted Payments. make any Restricted Payment, except that,
so long as no Default or Event of Default shall exist and be continuing, any
Borrower that is a Subsidiary of another Borrower may declare and pay dividends
and other distributions to such other Borrower;

 

(e) Limitation on Investments. make any advance, loan, extension of credit (by
way of guaranty or otherwise) or capital contribution to, or purchase any
Capital Stock, bonds, notes, debentures or other debt securities of, or any
assets constituting an ongoing business from, or make any other investment in,
any other Person, except (i) extensions of trade credit in the ordinary course
of business and (ii) investments in cash equivalents for cash management
purposes;

 

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(f) Limitations on Changes in Locations or Name. except upon not less than
twenty Business Days’ prior written notice and delivery to the Lender of all
additional financing statements and other documents (executed where appropriate)
reasonably requested by the Lender to maintain the validity, perfection and
priority of the Lender’s Liens:

 

(i) to the extent that an additional financing statement would need to be filed,
change its jurisdiction of organization or the location of its chief executive
office or sole place of business from that listed on Schedule 5.12; or

 

(ii) change its name, identity or corporate structure to such an extent that any
financing statement filed by the Lender in connection with any Loan Document
would become misleading; or

 

(iii) bill Accounts under any name except the present name of the Borrower to
which such Accounts are owing;

 

(g) Limitation on New Subsidiaries. create or permit to exist any Subsidiary of
any Borrower other than Zoo Games, Zoo Publishing, indiePub, or Zoo
Entertainment Europe, Ltd. (“Zoo Europe”);

 

(h) Limitation on Issuances of Capital Stock. issue any Capital Stock, except
for (i) Common Stock issued to the Lender or its designee pursuant to Article
VIII or the Warrant, (ii) Common Stock issued to bona fide third-party
purchasers that results in the receipt by Zoo Entertainment of net proceeds from
such issuance of at least 150% of the Conversion Price per share of Common Stock
so issued, (iii) up to 1,270,068 shares of Common Stock issuable upon the
exercise of the 1,270,068 Zoo Entertainment warrants outstanding as of September
30, 2011, as disclosed on page 23 of the Quarterly Report on Form 10-Q filed by
Zoo Entertainment with the SEC on November 21, 2011 (the “November 10-Q”), (iv)
up to 1,222,659 shares of Common Stock issuable upon exercise of Zoo
Entertainment stock options outstanding as of September 30, 2011, as disclosed
on page 22 of the November 10-Q, and (v) without duplication of shares included
in the foregoing clause (iii) or (iv), up to 992,770 shares of Common Stock
issuable pursuant to Zoo Entertainment’s 2007 Employee, Director and Consultant
Stock Plan, as amended prior to the Closing Date; or

 

(i) Limitation on Account Changes. change its fiscal year or make any changes in
accounting treatment and reporting practices, except as required by GAAP or by
Requirement of Law.

 

6.3 Certain Post-Closing Covenants. The Borrowers hereby jointly and severally
agree that, in addition to the covenants set forth in Sections 6.1 and 6.2, the
Borrowers shall:

 

(a) no later than five (5) Business Days after the Closing Date, deliver to
Lender:

 

(i) account control agreements substantially in the form of that attached hereto
as Exhibit E with respect to all of the Borrowers’ Deposit Accounts, in each
case duly executed by (A) the Borrower in whose name such Deposit Account is
held, and (B) Fifth Third Bank, an Ohio banking corporation, and each other bank
with which such Deposit Account is maintained

 

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(ii) a certificate of good standing issused by the Secretary of State of the
State of Delaware evidencing that Zoo Entertainment is a corporation existing
and in good standing under the laws of the State of Delaware;

 

(iii) a favorable written legal opinion (addressed to the Lender and dated as of
the Closing Date) of Keating Meuthing and Klekamp PLL, counsel to the Borrowers,
in the form reasonably requested by the Lender;

 

(iv) proper terminations of the following financing statements in a form
appropriate for filing under the UCC of the State of Delaware: (A) Delaware
Financing Statement 12283185, filed June 15, 2011, specifying indiePub as
“Debtor” and Working Capital Solutions, as “Secured Party”; and (B) Delaware
Financing Statement 12283367 filed June 15, 2011, specifying indiePub as
“Debtor” and Working Capital Solutions, as “Secured Party”;

 

(v) with respect to Zoo Europe, (A) certificates representing all certificated
Capital Stock of Zoo Europe accompanied by undated stock powers duly executed in
blank; and (B) account control agreements reasonably acceptable to Lender with
respect to the Deposit Accounts maintained by Zoo Europe; and

 

(b) no later than ten (10) Business Days after the Closing Date after the
Closing Date, deliver to Lender a Registration Rights Agreement, effective as of
the Closing Date, in a form satisfactory to Lender in its reasonable discretion
and pursuant to which Zoo Entertainment shall agree to register, upon demand by
the Lender, all Capital Stock received by the Lender pursuant to this Agreement
(including pursuant to Article VIII) or the exercise of the Warrant.

 

Article VII

Events of Default

 

7.1 Events of Default. If any of the following events (“Events of Default”)
shall occur:

 

(a) any Borrower shall fail to pay any Obligation (including any accrued and
unpaid interest or any portion of the Loan Balance) when and as the same shall
become due and payable, whether at the due date thereof or at a date fixed for
prepayment thereof or otherwise;

 

(b) any representation or warranty made or deemed made by or on behalf of any
Borrower in or in connection with this Agreement or the other Loan Documents or
any amendment or modification hereof or thereof, or in any report, certificate,
financial statement or other document furnished pursuant to or in connection
with this Agreement or the other Loan Documents or any amendment or modification
hereof or thereof, shall prove to have been materially incorrect when made or
deemed made;

 

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(c) any Borrower shall fail to observe or perform any covenant, condition or
agreement contained in Section 6.1(b), 6.1(c)(i), (with respect to such
Borrower’s existence) or 6.2; provided that with respect to any non-consensual
Lien on any property or asset of any Borrower, no Default or Event of Default
shall exist under this Section 7.1(c) unless any such Lien shall not have been
terminated, removed or released within thirty days from the date such Lien was
initially placed thereon;

 

(d) any Borrower shall fail to observe or perform any covenant, condition or
agreement contained in this Agreement or any other Loan Document (other than
those specified in Section 6.1(b), 6.1(c)(i), (with respect to such Borrower’s
existence) or 6.2), and such failure shall continue unremedied for a period of
thirty days after notice thereof from the Lender (given at the request of any
Lender) to the Borrowers;

 

(e) an involuntary proceeding shall be commenced or an involuntary petition
shall be filed seeking (i) liquidation, reorganization or other relief in
respect of any Borrower or their respective debts, or of a material part of
their respective assets, under any federal, state or foreign bankruptcy,
insolvency, receivership or similar law now or hereafter in effect or (ii) the
appointment of a receiver, trustee, custodian, sequestrator, conservator or
similar official for any Borrower or for a material part of its assets, and, in
any such case, such proceeding or petition shall continue undismissed for ninety
days or an order or decree approving or ordering any of the foregoing shall be
entered;

 

(f) any Borrower shall (i) voluntarily commence any proceeding or file any
petition seeking liquidation, reorganization or other relief under any federal,
state or foreign bankruptcy, insolvency, receivership or similar law now or
hereafter in effect, (ii) consent to the institution of, or fail to contest in a
timely and appropriate manner, any proceeding or petition described in Section
7.1(e), (iii) apply for or consent to the appointment of a receiver, trustee,
custodian, sequestrator, conservator or similar official for any Borrower or for
a material part of its assets, (iv) file an answer admitting the material
allegations of a petition filed against any of them in any such proceeding, (v)
make a general assignment for the benefit of creditors, or (vi) take any action
for the purpose of effecting any of the foregoing;

 

(g) any Borrower shall become unable, admit in writing or fail generally to pay
its debts as they become due;

 

(h) one or more judgments for the payment of money arising after the Closing
Date in an aggregate amount in excess of $200,000 in excess of applicable
insurance shall be rendered against any Borrower or group of Borrowers and the
same shall remain undischarged for a period of thirty consecutive days during
which execution shall not be effectively stayed, or any action shall be legally
taken by a judgment creditor to attach or levy upon any assets of any Borrower
to enforce any such judgment;

 

(i) any party to a judgment in excess of $200,000 against a Borrower shall seek
to enforce such judgment against any Borrower;

 

(j) the Lender shall cease to have a valid, perfected, first priority Lien
(except to the extent subordinated to the Factoring Agreement Liens) on all of
the Collateral or any Borrower shall assert that the Lender does not have a
valid, perfected, first priority Lien (except to the extent subordinated to the
Factoring Agreement Liens) on any Collateral; or

 

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(k) any Loan Document or any material term thereof shall cease to be, or be
asserted by any Borrower not to be, a legal, valid and binding obligation of
such Borrower (or any other Borrower) enforceable in accordance with its terms;

 

then, and in every such event (other than an event with respect to any Borrower
described in Section 7.1(e) or 7.1(f)), and at any time thereafter during the
continuance of such event, the Lender may, by notice to the Borrowers take one
or all of the following actions, at the same or different times: (i) declare all
or a portion of the Loans then outstanding to be due and payable in whole (or in
part, in which case any principal not so declared to be due and payable may
thereafter be declared to be due and payable), and thereupon the Obligations
related to the Loans so declared, including the principal of such Loans,
together with accrued interest thereon and all fees and other obligations of the
Borrowers accrued hereunder, shall become due and payable immediately, without
presentment, demand, protest or other notice of any kind, all of which are
hereby waived by the Borrowers to the extent permitted by applicable law, and
(ii) exercise all other rights and remedies under the Loan Documents and
applicable law; and in case of any event with respect to any Borrower described
in clause Section 7.1(e) or 7.1(f), all Obligations shall automatically become
due and payable, without presentment, demand, protest or other notice of any
kind, all of which are hereby waived by the Borrowers.

 

Article VIII

Conversion Rights

 

8.1 Conversion into Common Stock. The Lender may, at its sole option at any time
and from time to time, by written notice elect to convert all or any part of the
Obligations into shares of Common Stock (a “Conversion”). Upon a Conversion, the
Lender (or its designee) shall be entitled to receive, and shall be issued, the
number of shares of Common Stock (the “Conversion Securities”) equal to the
amount converted divided by the then Conversion Price, subject to adjustment
pursuant to Section 8.2; provided that no fractional Conversion Securities shall
be issued upon any Conversion, and any fractional Conversion Securities to which
the Lender would otherwise be entitled shall be rounded up to the nearest whole
share. Such Conversion shall be effective, and the Lender (or its designee)
shall be deemed to be the holder of the Conversion Securities, as of the date
upon which the Lender delivers such written notice or such later date as may be
agreed by the Lender and Zoo Entertainment (such date, the “Conversion Date”).
Zoo Entertainment covenants and agrees that all Conversion Securities shall be
duly and validly authorized and issued, fully paid and nonassessable, and free
from all Liens. As soon as reasonably practicable after the Conversion Date, Zoo
Entertainment shall, at its expense, issue and deliver to the Lender (or its
designee) (a) one or more certificates (bearing such legends as are required by
applicable state and federal securities laws in the opinion of counsel to Zoo
Entertainment) for the applicable Conversion Securities, registered in the name
of the Lender (or its designee), free of any and all Liens, and (b) if requested
by the Lender, a legal opinion from counsel to Zoo Entertainment, in form and
substance reasonably satisfactory to the Lender that such Conversion Securities
are duly and validly authorized and issued, fully paid and nonassessable.

 

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8.2 Conversion Price. The “Conversion Price” shall initially be $0.40 per share
of Common Stock. The Conversion Price shall be subject to adjustments as
follows:

 

(a) In case Zoo Entertainment shall (i) pay a dividend on the Common Stock in
shares of Common Stock, (ii) subdivide its outstanding shares of Common Stock
into a greater number of shares, (iii) combine its outstanding shares of Common
Stock into a lesser number of shares, or (iv) issue by reclassification of its
shares of Common Stock any shares of its Capital Stock, then the Conversion
Price shall be adjusted so that the Lender (or its designee) shall be entitled
to receive, upon such Conversion, the number of Conversion Securities which the
Lender (or its designee) would have owned or have been entitled to receive after
the happening of such event had such Conversion occurred immediately prior to
the record date in the case of such dividend or the effective date in the case
of any such subdivision, combination or reclassification. In addition, in the
case (x) Zoo Entertainment shall pay a dividend on the Common Stock in assets
(other than cash or Common Stock) or (y) the Common Stock is or becomes
converted into any other security or asset, then the Conversion Securities to
which the Lender (or its designee) is entitled shall include such other security
or assets that the Lender (or its designee) would have owned or have been
entitled to receive after the happening of such event had such Conversion
occurred immediately prior to the record date in the case of such dividend or
the effective date in the case of any such conversion. An adjustment made
pursuant to this Section 8.2(a) shall be made whenever any such events shall
happen, but shall become effective retroactively after such record date or such
effective date, as the case may be, as to portion of the Obligations for which
there is a Conversion between such record date or effective date and the date of
happening of any such event.

 

(b) All adjustments under this Section 8.2 shall be made to the nearest cent.

 

(c) In case at any time conditions arise by reason of action taken by Zoo
Entertainment which, in the opinion of its board of directors or in the opinion
of the Lender, are not adequately covered by the other provisions of this
Section 8.2 and which might materially and adversely affect the rights of the
Lender, then the board of directors of Zoo Entertainment shall appoint a firm of
independent certified public accountants of recognized national standing, who
may be the accountants then auditing the books of Zoo Entertainment. Such
accountant shall determine the adjustment, if any, on a basis consistent with
the standards established in the other provisions of this Section 8.2, necessary
with respect to the Conversion Price so to preserve, without dilution, the
rights of the Lender and the economic benefit intended to be conferred upon the
Lender and to otherwise ensure that the Lender is not prejudiced by such action.
Upon receipt of such opinion, the board of directors of Zoo Entertainment shall
forthwith make the adjustments described in such report. In this regard, Zoo
Entertainment shall be deemed to have undertaken a fiduciary duty with respect
to the Lender.

 

(d) Whenever the Conversion Price is adjusted pursuant to this Section 8.2, Zoo
Entertainment shall promptly deliver to the Lender a certificate signed by a
Responsible Officer setting forth the adjusted Conversion Price and showing in
reasonable detail the facts upon which such adjustment is based.

 

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8.3 Preservation of Rights.

 

(a) Zoo Entertainment covenants and agrees that it shall at all times reserve
and keep available, free from preemptive rights, out of its authorized Common
Stock, solely for the purpose of effecting the Conversions, the full number of
Conversion Securities then deliverable in the event and upon a Conversion.

 

(b) Notwithstanding anything herein to the contrary, Zoo Entertainment shall
not, by amendment of its Organizational Documents or through any reorganization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action avoid or seek to avoid the observance
or performance of any of the terms of this Article VIII, but will at all times
in good faith assist in the carrying out of all such terms and in the taking of
all such action as may be necessary or appropriate in order to protect the
rights of the Lender against dilution. Without limiting the generality of the
foregoing, Zoo Entertainment (i) shall not increase the par value of any shares
of Capital Stock receivable on a Conversion, (ii) shall take all such action as
may be necessary or appropriate in order that Zoo Entertainment may validly and
legally issue fully paid and non-assessable shares of Common Stock on a
Conversion, and (iii) shall not issue any Capital Stock of any class which is
preferred as to dividends or as to the distribution of assets upon voluntary or
involuntary dissolution, liquidation or winding up, unless the rights of the
holders thereof shall be limited to a fixed sum or percentage of par value in
respect of participation in dividends and in any such distribution of assets.

 

Article IX

 

Miscellaneous

 

9.1 Notices. Except as otherwise provided herein, all notices, requests,
demands, consents, instructions or other communications to or upon the Borrowers
or the Lender under this Agreement or the other Loan Documents shall be in
writing and faxed, mailed, e-mailed or delivered, if to the Borrowers or to the
Lender, at its respective fax number or address set forth below. All such
notices and communications shall be effective (a) when sent by an overnight
courier service of recognized standing, on the second Business Day following the
deposit with such service; (b) when mailed, first-class postage prepaid and
addressed as aforesaid through the United States Postal Service, upon receipt;
(c) when delivered by hand, upon delivery; and (d) when sent by telecopy
transmission, upon confirmation of receipt:

 

The Lender:

MMB Holdings LLC

888 Linda Flora Drive

Los Angeles, CA 90049

Attention: David E. Smith

Fax Number: 310-576-3520

 

with a copy to:

 

Munger, Tolles & Olson LLP

355 South Grand Avenue, 35th Floor

Los Angeles, CA 90071

Attention: C. David Lee

Fax Number: (213) 687-3702

 

 

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The Borrowers:

c/o Zoo Entertainment, Inc.

11258 Cornell Park Drive, Suite 608

Blue Ash, OH 45252

Attention: Chief Executive Officer

 

with a copy to:

 

Keating Muething & Klekamp PLL

One East 4th Street

Suite 1400

Cincinnati, OH 45202

Attention: F. Mark Reuter

Fax Number: (513) 579-6457

 

 

9.2 Waivers; Amendments.

 

(a) No failure or delay by the Lender in exercising any right or power hereunder
shall operate as a waiver thereof, nor shall any single or partial exercise of
any such right or power, or any abandonment or discontinuance of steps to
enforce such a right or power, preclude any other or further exercise thereof or
the exercise of any other right or power. The rights and remedies of the Lender
hereunder are cumulative and are not exclusive of any rights or remedies that
they would otherwise have. No waiver of any provision of this Agreement or
consent to any departure by the Borrowers therefrom shall in any event be
effective unless the same shall have been made in writing pursuant to Section
9.2(b), and then such waiver or consent shall be effective only in the specific
instance and for the purpose for which given. Without limiting the generality of
the foregoing, the making of a Loan shall not be construed as a waiver of any
Default or Event of Default, regardless of whether the Lender may have had
notice or knowledge of such Default or Event of Default at the time.

 

(b) Neither this Agreement, nor any other Loan Document, nor any provision
hereof or thereof may be waived, amended or modified except pursuant to an
agreement or agreements in writing entered into by the Borrowers and Lender.

 

9.3 Indemnity; Damage Waiver.

 

(a) The Borrowers shall, jointly and severally, indemnify the Lender, the
Lender’s Affiliates, and the members, managers, directors, officers, employees,
agents and advisors of the Lender and its Affiliates (each such Person, an
“Indemnitee”) against, and defend and hold each Indemnitee harmless from, any
and all losses, claims, damages, liabilities, costs and related expenses,
including the fees, charges and disbursements of counsel for the Indemnitees
and, if any Indemnitee determines in good faith (on its own or on the advice of
counsel) that there are actual or potential conflicts of interest among one or
more such Indemnitees, any counsel for each such Indemnitee making such
determination, incurred by or asserted against any Indemnitee arising out of, in
connection with, or as a result of (a) the execution or delivery of this
Agreement, the Loan Documents or any agreement or instrument contemplated
hereby, the performance by the parties hereto of their respective obligations
hereunder or the consummation of the Transactions, (b) the Loans or the use of
the proceeds therefrom, or (c) any actual or prospective claim, litigation,
investigation or proceeding relating to any of the foregoing, whether based on
contract, tort or any other theory and regardless of whether any Indemnitee is a
party thereto; provided that such indemnity shall not, as to any Indemnitee, be
available to the extent that such losses, claims, damages, liabilities, costs or
related expenses have resulted from the gross negligence or willful misconduct
of such Indemnitee.

 

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(b) To the extent permitted by applicable law, the Borrowers shall not assert,
and hereby waive, any claim against any Indemnitee, on any theory of liability,
for special, indirect, consequential or punitive damages (as opposed to direct
or actual damages) arising out of, in connection with, or as a result of, this
Agreement, the other Loan Documents or any agreement or instrument contemplated
hereby, the Transactions, or the Loans or the use of the proceeds thereof.

 

9.4 Successors and Assigns.

 

(a) The provisions of this Agreement and the Loan Documents shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors and assigns permitted hereby, except that (i) the Borrowers may not
assign or otherwise transfer any of their rights or obligations hereunder
without the prior written consent of the Lender (and any attempted assignment or
transfer by the Borrowers without such consent shall be null and void) and (ii)
the Lender may not assign or otherwise transfer its rights or obligations
hereunder except in accordance with Section 9.4(b).

 

(b) Lender may at any time and from time to time assign to one or more Persons
(each an “Assignee”), all or a proportionate part of all of its rights and
obligations under this Agreement, the Promissory Note, the other Loan Documents
and otherwise in respect of the Obligations, on the condition that the Assignee
assumes the Lender’s rights and obligations to the extent assigned. Upon such
assignment, the Assignee will have the rights and obligations of the “Lender”
under this Agreement to the extent of the portion of the Obligations assigned to
Assignee, and the Lender will be released from its obligations hereunder to a
corresponding extent, and no further consent or action by any other Person will
be required. In the event of such an assignment, each Borrower agrees to take
such actions and make such modifications to this Agreement and to the other Loan
Documents as will facilitate such assignment (including the execution of a new
Promissory Note or Promissory Notes), provided that such actions or
modifications do not materially increase or otherwise materially adversely
affect the Obligations of any Borrower or materially impair such Borrower’s
rights under this Agreement or any other Loan Document.

 

9.5 Survival. All covenants, agreements, representations and warranties made by
the Borrowers herein and in the certificates or other instruments delivered in
connection with or pursuant to this Agreement shall be considered to have been
relied upon by the other parties hereto and shall survive the execution and
delivery of this Agreement and the making of any Loans regardless of any
investigation made by any such other party or on its behalf and notwithstanding
that the Lender may have had notice or knowledge of any Default, Event of
Default or incorrect representation or warranty at the time any credit is
extended hereunder, and shall continue in full force and effect as long as any
Obligation is outstanding. The provisions of Section 9.3 shall survive and
remain in full force and effect regardless of the consummation of Transactions,
the repayment of the Obligations, and the termination of this Agreement or any
provision hereof.

 

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9.6 Counterparts; Integration; Effectiveness. This Agreement may be executed in
counterparts (and by different parties hereto on different counterparts), each
of which shall constitute an original, but all of which when taken together
shall constitute a single contract. This Agreement and the Loan Documents
constitute the entire agreement among the parties relating to the subject matter
hereof and supersede any and all previous agreements and understandings, oral or
written, relating to the subject matter hereof. Except as provided in Article
III, this Agreement shall become effective when it shall have been executed by
the Borrower and the Lender. Delivery of an executed counterpart of a signature
page of this Agreement by telecopy or by e-mail of a PDF or similar electronic
image file shall be effective as delivery of a manually executed counterpart of
this Agreement.

 

9.7 Severability. Any provision of this Agreement held to be invalid, illegal or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such invalidity, illegality or unenforceability without
affecting the validity, legality and enforceability of the remaining provisions
hereof; and the invalidity of a particular provision in a particular
jurisdiction shall not invalidate such provision in any other jurisdiction.

 

9.8 Right of Setoff. If an Event of Default shall have occurred and be
continuing, the Lender is hereby authorized at any time and from time to time,
to the fullest extent permitted by law, to set off and apply any and all
deposits (general or special, time or demand, provisional or final) at any time
held and other indebtedness at any time owing by the Lender to or for the credit
or the account of the Borrowers against any of and all the obligations any
Borrower now or hereafter existing under this Agreement held by the Lender,
irrespective of whether or not the Lender shall have made any demand under this
Agreement and although such obligations may be unmatured. The rights of the
Lender under this Section 9.8 are in addition to other rights and remedies
(including other rights of setoff) which the Lender may have.

 

9.9 Governing Law; Jurisdiction; Consent to Service of Process.

 

(a) This Agreement and each of the other Loan Documents shall be governed by and
construed in accordance with the laws of the State of Delaware without reference
to conflicts of law rules. The scope of the foregoing governing law provision is
intended to be all-encompassing of any and all disputes that may be brought in
any court or any mediation or arbitration proceeding and that relate to the
subject matter of the Loan Documents, including contract claims, tort claims,
breach of duty claims and all other common law and statutory claims.

 

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(b) Each Borrower hereby irrevocably and unconditionally submits, for itself and
its property, to the nonexclusive jurisdiction of the state and federal courts
within the State of California, and any appellate court from any thereof, in any
action or proceeding arising out of or relating to this Agreement, or for
recognition or enforcement of any judgment, and each of the parties hereto
hereby irrevocably and unconditionally agrees that all claims in respect of any
such action or proceeding may be heard and determined in such court. Each of the
parties hereto agrees that a final judgment in any such action or proceeding
shall be conclusive and may be enforced in other jurisdictions by suit on the
judgment or in any other manner provided by law. Nothing in this Agreement shall
affect any right that the Lender may otherwise have to bring any action or
proceeding relating to this Agreement against any Borrower or its properties in
the courts of any jurisdiction.

 

(c) Each Borrower hereby irrevocably and unconditionally waives, to the fullest
extent it may legally and effectively do so, any objection which it may now or
hereafter have to the laying of venue of any suit, action or proceeding arising
out of or relating to this Agreement in the federal courts located within County
of Los Angeles, State of California. Each of the parties hereto hereby
irrevocably waives, to the fullest extent permitted by law, the defense of an
inconvenient forum to the maintenance of such action or proceeding in any such
court.

 

(d) Each party to this Agreement irrevocably consents to service of process in
the manner provided for notices in Section 9.1. Nothing in this Agreement will
affect the right of any party to this Agreement to serve process in any other
manner permitted by law.

 

9.10 No Third Party Rights. Nothing expressed in or to be implied from this
Agreement is intended to give, or shall be construed to give, any Person, other
than the parties hereto and their permitted successors and assigns hereunder,
any benefit or legal or equitable right, remedy or claim under or by virtue of
this Agreement or under or by virtue of any provision herein.

 

9.11 Relationship of Parties. The relationship between the Borrowers, on the one
hand, and the Lender, on the other, is, and at all times shall remain, solely
that of borrowers and lender. The Lender shall not under any circumstances be
construed to be a partner or joint venturer of the Borrowers or any of their
Affiliates; nor shall the Lender under any circumstances be deemed to be in a
relationship of confidence or trust or a fiduciary, advisory or agency
relationship with the Borrowers or any of their Affiliates, or to owe any
fiduciary duty to the Borrowers or any of their Affiliates. The Lender does not
undertake or assume any responsibility or duty to the Borrowers or any of their
Affiliates to select, review, inspect, supervise, pass judgment upon or
otherwise inform the Borrowers or any of their Affiliates of any matter in
connection with its or their property, any security held by the Lender or the
operations of the Borrowers or any of their Affiliates. The Lender and its
Affiliates may have economic interests that conflict with those of the
Borrowers. The Borrowers and each of their Affiliates shall rely entirely on
their own judgment with respect to such matters, and any review, inspection,
supervision, exercise of judgment or supply of information undertaken or assumed
by the Lender in connection with such matters is solely for the protection of
the Lender and neither the Borrowers nor any of their Affiliates is entitled to
rely thereon.

 

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9.12 WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST
EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN
ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY (WHETHER BASED ON CONTRACT,
TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO
REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY
OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK
TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER
PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER
THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.

 

9.13 Time. Time is of the essence as to each term or provision of this Agreement
and each of the other Loan Documents.

 

9.14 Headings. Article and Section headings and the Table of Contents used
herein are for convenience of reference only, are not part of this Agreement and
shall not affect the construction of, or be taken into consideration in
interpreting, this Agreement.

 

9.15 Waivers and Agreements of Borrowers. While not intended by the parties
hereto, if it is determined that any Borrower is a surety of any other Borrower:

 

(a) without limiting the provisions of Section 1.5, the covenants, agreements
and obligations of each Borrower set forth herein are joint and several and
shall be primary obligations of such Borrower, and such obligations shall be
absolute, unconditional and irrevocable, and shall remain in full force and
effect without regard to, and shall not be released, discharged or in any way
affected by, any circumstance or condition whatsoever, foreseeable or
unforeseeable;

 

(b) each Borrower hereby waives, to the fullest extent permitted by applicable
law, (i) any right of redemption with respect to any of the Collateral after the
sale hereunder, and all rights, if any, of marshalling of any of the Collateral
or other security for the Obligations, and (ii) any right (except as shall be
required by applicable statute and cannot be waived) to require the Lender to
(A) proceed against any other Borrower or any other Person, (B) proceed against
or exhaust any other Collateral or security for any of the Obligations, or (C)
pursue any remedy in the Lender’s power whatsoever;

 

(c) each Borrower hereby waives any defense based on or arising out of any
defense of any other Borrower or any other Person other than payment in full of
the Obligations, including any defense based on or arising out of the disability
of any other Borrower or any other Person, or the enforceability of any of the
Obligations or any part thereof from any cause, or the cessation from any cause
of the liability of any other Borrower other than payment in full of the
Obligations;

 

(d) each Borrower waives all rights and defenses arising out of an election of
remedies by the Lender, even though that election of remedies, such as
nonjudicial foreclosure with respect to security for a guaranteed obligation,
has destroyed such Borrower’s rights of subrogation and reimbursement against
the other Borrower; and

 

-41-

 

 

 

(e) each Borrower waives any and all other rights and defenses that might
otherwise be available to it by reason of Sections 2787 to 2855, inclusive, 2899
and 3433 of the California Civil Code, including any and all rights or defenses
such Borrower may have by reason of protection afforded to any Borrower with
respect to any of the Obligations or any other Borrower, in either case pursuant
to the antideficiency or other laws of the State of California limiting or
discharging the principal’s indebtedness, including Section 580a, 580b, 580d, or
726 of the California Code of Civil Procedure; as provided above, this Agreement
and all of the Loan Documents shall be governed by, and shall be construed and
enforced in accordance with, the laws of the State of Delaware, without regard
to conflicts of laws principles and this Section 9.15 is included herein solely
out of an abundance of caution, and shall not be construed to mean that any of
the above-referenced provisions of California law in any way govern this
Agreement, any other Loan Document or any of the Obligations.

 

[The signatures are on the following page.]

 

 

-42-

 

 

In witness whereof, the parties hereto have executed this Agreement as of the
date first written above.

 

BORROWERS:

 

  Zoo Entertainment, Inc.                 By:          Name:
Title:                   Zoo Games, Inc.                     By:         Name:
Title:                   Zoo Publishing, Inc.                     By:        
Name:
Title:                   indiePub, Inc.                     By:         Name:
Title:        

 

 

Signature Page – Loan and Security Agreement

 

 

 

In witness whereof, the parties hereto have executed this Agreement as of the
date first written above.

 

Lender:

 

  MMB Holdings LLC           By:  Mojobear Capital LLC, its managing member    
                By:         Name:
Title:        

 

 

Signature Page – Loan and Security Agreement