**EXHIBIT 10.3**

 

**FORM OF SECURITY AGREEMENT**

** **

THIS SECURITY AGREEMENT (this “Agreement”) is made and entered into asof the date set forth on the signature page hereto, by and between VENDINGDATACORPORATION, a Nevada corporation (“Debtor”), and the parties listed on thesignature pages hereto (each a “Secured Party” and together the “SecuredParties”).

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**WITNESSETH:**

 

WHEREAS, Debtor is conducting a private placement (the “Private Placement”)of units exempt from the registration requirements of the Securities Act of1933, as amended (the “Securities Act”), where said units shall consist of a 9%secured promissory note and a warrant to purchase shares of common stock (the “Units”);

 

WHEREAS, Debtor proposes to sell through the Private Placement aminimum of Three Million Dollars ($3,000,000) and a maximum of Ten MillionDollars ($10,000,000) in Units;

 

WHEREAS, pursuant to the Private Placement, Debtor has borrowed moneyfrom Secured Parties in the original principal amount of up to Ten MillionDollars ($10,000,000) pursuant to the promissory notes issued as part of thePrivate Placement (the “Notes”);

 

WHEREAS, Debtor has agreed to secure its obligations arising under theNotes, including all debts, obligations, liabilities, interest, fees, chargesand expenses arising under the Notes (the “Obligations”), by entering into thisAgreement with Secured Parties;

 

NOW, THEREFORE,for and in consideration of the premises and mutual covenants, agreements,understandings, undertakings, representations, warranties and promises, andsubject to the conditions hereinafter set forth, and intending to be legallybound thereby, the parties do hereby covenant and agree that the recitals setforth above are true and accurate and are hereby incorporated in and made apart of this Agreement, and further covenant and agree as follows:

 

**1.****                                      SECURITYINTEREST**

 

Subject to the terms and conditions of this Agreement, Debtor herebygrants to Secured Parties, as a group, a security interest in all of Debtor’sright, title and interest in all property and interests of Debtor, tangible orintangible, whether now or hereafter existing, wherever located (collectively,the “Collateral”), including all:

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## 1.1.                              Accounts, including but notlimited to, all accounts, all rights of Debtor to payment for goods sold orleased or for services rendered, all accounts receivable of Debtor; allobligations owing to Debtor evidenced by an instrument or chattel paper; allobligations owing to Debtor of any kind or nature, including all writings, ifany, evidencing the same, including all instruments, drafts, acceptances andchattel paper; any and all proceeds of any of the foregoing. Further includedwithin the term “Accounts” are all right, title and interest of Debtor in andany security and liens with respect to any Account, and all Accounts, Documentsand Contract Rights of Debtor as defined in the Uniform Commercial Code asenacted in the State of Nevada (the “Uniform Commercial Code”); and

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## 1.2.                              Investment Property,including all of Debtor’s investment property (as defined in the UniformCommercial Code) and all of Debtor’s other securities (whether certificated oruncertificated), security entitlements, financial assets, securities accounts,commodity contracts, and commodity accounts (as each such term is defined inthe Uniform Commercial Code), including all substitutions and additions

 

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thereto, all dividends, distributions and sums distributable or payablefrom, upon or in respect of such property, and all rights and privilegesincident to such property; and

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## 1.3.                              Instruments and ChattelPaper, including all instruments and chattel paper as defined in the UniformCommercial Code and all proceeds thereof; and

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## 1.4.                              General Intangibles,including but not limited to, all general intangibles as defined in the UniformCommercial Code and all proceeds thereof, including without limitation, any andall rights of Debtor to any refund of any tax assessed against Debtor or paidby Debtor, loss carry-back tax refunds, insurance premium rebates, unearnedpremiums, insurance proceeds, chooses in action, names, trade names, goodwill,trade secrets, computer programs, computer records, data, computer software,customer lists, patents, patent rights, patent applications, patents pending,patent licenses or assignments, development ideas and concepts, licenses,permits, franchises, literary rights, rights to performance, trademarks,trademark applications, trademark rights, logos, intellectual property,copyrights, proprietary or other processes, drawings, designs, diagrams, plans,reports, charts, catalogs, manuals, research, literature, proposals and otherreproductions on paper or otherwise, of any and all concepts or ideas, whetheror not related to the business or operations of Debtor; and

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## 1.5.                              Equipment as defined in theUniform Commercial Code, including but not limited to, all equipment, vehicles,machinery, tools, furniture, fixtures, trade fixtures, parts, all tangiblepersonal property utilized in the conduct of Debtor’s business and alladditions, accessions, substitutions, components, and replacements thereto,therefor and thereof and all proceeds thereof; and

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## 1.6.                              Inventory as defined in theUniform Commercial Code, including without limitation, all raw materials andother materials and supplies, work-in-progress and finished goods and anyproducts made or processed therefrom and all substances, if any, commingledtherewith or added thereto; and

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## 1.7.                              All products and proceeds ofthe above, including insurance proceeds.

 

**2.****                                      OBLIGATIONSSECURED**

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## 2.1.                              Obligations Secured.  The security interest granted hereby securespayment and performance of the Obligations under the Notes on a *pari passu*basis.

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## 2.2.                              Seniority.  The payment of the Notes is senior to allother obligations of Debtor whether now existing or hereinafter incurred exceptfor:  (1) existing asset-based borrowingsand lines of credit from commercial or financial institutions, includingMadison Leasing or Central Leasing; and (2) indebtedness approved by the priorwritten consent from Secured Parties holding at least two-thirds (2/3rds) ofthe then outstanding and unpaid principal on the Notes issued under the PrivatePlacement.  Notwithstanding theforegoing, the limitation set forth in this Section 2.2 shall expire when lessthan fifteen percent (15%) of the original outstanding principal on the Notesissued under the Private Placement remains outstanding.

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## 2.3.                              Representative of SecuredParties.  In a acknowledgement of thedesire to act as a group in an orderly and efficient manner, Secured Partieshereby agree that any action with respect to this Agreement on behalf ofSecured Parties may be taken only by: (1) the Secured Parties holding a majority of the then outstanding andunpaid principal on the Notes issued under the Private Placement; or (2) theperson appointed by the Secured Parties holding a majority of the thenoutstanding and unpaid principal on the Notes issued under the PrivatePlacement (in either case, a “Representative”); provided, however, each SecuredParty shall be provided with notice of any action taken by theRepresentative.  Secured Parties may takeaction by either written consent or at a physical or telephonic meeting atwhich the Secured Parties holding a majority of the then outstanding and unpaidprincipal on the Notes issued under the Private Placement is present.

 

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**3.****                                      DEBTOR’SREPRESENTATIONS AND WARRANTIES**

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Debtor represents and warrants that:

 

## 3.1.                              Authorization.  The execution, delivery and performance ofthis Agreement, the Notes and the Warrants are within Debtor’s corporatepowers, and are not in contravention of law nor of the terms of Debtor’sArticles of Incorporation or Bylaws, as amended, nor of any indenture,agreement or undertaking to which Debtor is a party or by which it is bound.

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## 3.2.                              Place of Business.  Debtor’s principal place of business islocated at the address provided on the signature page of this Agreement, andDebtor keeps its records concerning inventory, accounts, contract rights andother property at that location.

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## 3.3.                              Title to Collateral.  With the exception of liens created hereunderand liens related to certain existing asset-based borrowings and lines ofcredit from Madison Leasing or Central Leasing, Debtor owns all of its personalproperty and has good, clear and marketable title thereto, free and clear ofall liens and encumbrances.

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## 3.4.                              Collateral and Perfection.  Neither Debtor nor, to the best of Debtor’sknowledge, any affiliate (as such term is used in Rule 405 under the SecuritiesAct of 1933, as amended (“Affiliates”)) have performed any acts which mightprevent the Representative from enforcing any of the terms of this Agreement orwhich would limit the Representative in any such enforcement.  No collateral is in the possession of any person(other than Debtor) asserting any claim thereto or security interesttherein.  The security interests createdhereunder constitute valid security interests under the Uniform Commercial Codesecuring the Obligations to the extent that a security interest may be createdin the Collateral.

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# **4.**                                      GENERAL OBLIGATIONS OF DEBTOR

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## 4.1.                              Financing Statements.  Debtor agrees to execute one or morefinancing statements, to pay the cost of filing the same in all public officeswherever filing is required by applicable law to perfect a security interest oris deemed by Secured Parties to be necessary or desirable and to execute suchother documents as Secured Parties shall reasonably request.

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## 4.2.                              Insurance.  Debtor agrees to keep or cause to be kept allthe Collateral insured with coverages in amounts not less than usually carriedby one engaged in a like business.

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## 4.3.                              Inspection.  Debtor will keep accurate and completerecords of the Collateral and provide Secured Parties or any of their agentswith the right to:  (1) inspect theCollateral wherever located; (2) visit Debtor’s place or places of business;and (3) audit, check and make extracts from any copies of books, records,journals, orders, receipts and correspondence that relate to the Collateral orto the general financial condition of Debtor or any Affiliate.  The rights granted to Secured Parties shallbe subject to prior written notice of five (5) business days, shall be atreasonable intervals and shall not adversely affect, disrupt or hinder Debtor’soperations.

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## 4.4.                              Negative Pledge.  Debtor will not assign any accounts or otherCollateral to any person other than Secured Parties, nor create or permit to becreated any lien, encumbrance or security interest of any kind on any of itsaccounts, contract rights or inventory other than for the benefit of SecuredParties, nor grant or permit to be granted any corporate guaranty other thanfor the benefit of Secured Parties, except in connection with:  (1) debt expressly subordinate to theNotes; or (2) purchase price liens.

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## 4.5.                              Existence; Perfection.  Debtor will maintain its corporate existencein good standing comply with all laws and regulations of the United States orany state or political subdivision thereof, or of any governmental authoritywhich may have jurisdiction over it or its business.  Debtor will not change its name, identity orcorporate structure in any manner unless it shall have given Secured Partiesprior notice

 

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thereof and delivered an opinion of counsel satisfactory to SecuredParties with respect thereto.  Debtorwill not establish or change the location of its chief executive office or itschief place of business or except in the ordinary course of business, thelocations where it keeps or holds any Collateral or records relating thereto orin any event change the location of any Collateral if such change would causethe security interests hereunder to lapse or cease to be perfected.

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## 4.6.                              Taxes.  Debtor will pay all real and personal propertytaxes, assessments and charges as well as all franchise, income, unemployment,old age benefit, withholding, sales and other taxes assessed against it, orpayable by it at such times and in such manner as to prevent any penalty fromaccruing or any lien or charge from attaching to its property, and will furnishSecured Parties upon request, receipts or other evidence that deposits orpayments have been made.

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## 4.7.                              Sales.  Debtor will not sell or dispose of any of itsassets, including the Collateral, except in the ordinary and usual course ofits business.

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## 4.8.                              Repair.  Debtor will maintain its equipment andproperty in good repair and working order.

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## 4.9.                              Continuing Representations.  The warranties and representations made byDebtor in this Agreement are continuing. In the event that any obligation, representation or warranty is nolonger true or correct, Debtor will immediately notify Secured Parties inwriting.

 

# **5.**                                      DEFAULT

 

Debtor shall be in default under this Agreement andunder any other agreement with Secured Parties upon the happening of any of thefollowing events or conditions, without demand or notice:

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## 5.1.                              Failure of Debtor to paywhen due any Obligation, whether by maturity, acceleration or otherwise;

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## 5.2.                              Failure of Debtor tomaterially perform any of its agreements, warranties or representations in thisAgreement or in the Notes;

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## 5.3.                              Material loss or theft,substantial damage or destruction or unauthorized sale or encumbrance of anymaterial portion of the Collateral in excess of reasonably expected recoveriesunder insurance policies, or the making of any levy on, or seizure orattachment of a material portion of the Collateral; or

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## 5.4.                              The occurrence of a defaultunder the Notes.

 

# **6.**                                      RIGHTS OF SECURED PARTIES UPON DEFAULT

 

Through the Representative, as appointed pursuant to this Agreement,Secured Parties shall upon the occurrence of a default hereunder and at anytime thereafter, without presentment, demand, notice, protest or advertisementof any kind have the following rights in addition to all other rightshereunder:

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## 6.1.                              Acceleration.  Subject to the terms of the Notes, theRepresentative may make all Obligations under this or any other agreement withDebtor immediately due and payable without presentment, demand, protest, hearingor notice of any kind and may exercise the rights of a secured party under lawor under the terms of this or any other agreement with Debtor.

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## 6.2.                              Possession.  On behalf of all Secured Parties, theRepresentative may:  (1) enter and takepossession of all Equipment, Inventory and other Collateral and the premises onwhich they are located; (2) operate and use Debtor’s equipment, whether or notCollateral hereunder; (3) complete work in process; (4) apply as Debtor’sattorney-in-fact for domestic or foreign patents or other intellectual propertyrights with

 

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respect to inventions; (5) seek registration or assignment, foreign anddomestic, of any trademarks, trade names, styles, logos or copyrights; and (6)sell, lease or license the Collateral to third persons or associations withoutbeing liable to Debtor on account of any losses, damage or depreciation thatmay occur as a result thereof so long as the Representative shall actreasonably and in good faith.  TheRepresentative shall give Debtor and all Secured Parties at least thirty (30)days’ notice by hand delivery at or by United States certified mail, postageprepaid (in which event notice shall be deemed to have been given when sodelivered), to the address specified herein, of the time and place of anypublic or private sale or other disposition unless the Collateral isperishable, threatens to decline speedily in value, or is the type customarilysold in a recognized market. Upon such sale, a Secured Party may become thepurchaser of the whole or any part of the Collateral, discharged from allclaims and free from any right of redemption. In case of any such sale by the Representative of all or any of said Collateralon credit or for future delivery, property so sold may be retained by theRepresentative until the selling price is paid by the purchaser.  The Representative shall incur no liabilityin case of the failure of the purchaser to take up and pay for the property sosold.  In case of any such failure, thesaid property may again be sold.

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## 6.3.                              Power of Attorney andNotification.  At Debtor’sexpense and subject to the rights of the other Lenders, the Representative maycommunicate with account debtors in order to verify with them to its satisfactionthe existence, amount and terms of any accounts or contract rights and alsonotify account debtors that Collateral has been assigned for the benefit of theSecured Parties and that payments shall be made directly to the Representative.  Upon request of the Representative, Debtorwill so notify such account debtors and will indicate on all billings to suchaccount debtors that their accounts must be paid to the Representative.  Debtor does hereby appoint the Representativeand its agents as Debtor’s attorney-in-fact: to, upon an event of defaulthereunder, collect, compromise, endorse, sell or otherwise deal with theCollateral or proceeds thereof in its own name or in the name of Debtor; toendorse the name of Debtor upon any Note, checks, drafts, money orders, orother instruments, documents, receipts or Collateral that may come into itspossession and to apply the same in full or part payment of any amounts owingto Secured Parties; to sign and endorse the name of Debtor upon any documents,instruments, drafts against account debtors, assignments, verifications andnotices in connection with Accounts, and any instrument or document relatingthereto or to Debtor’s rights therein; and to give written notice to any officeand officials of the United States Post Office to effect such change or changesof address that all mail addressed to Debtor may be delivered directly to theRepresentative.  Debtor hereby grants toits said attorney-in-fact full power to do any and all things necessary to bedone in and about the premises as fully and effectually as Debtor might orcould do, and hereby ratifies all that its attorney-in-fact shall lawfully door cause to be done by virtue hereof. This power of attorney is coupled with an interest and is irrevocable forthe term of this Agreement for all transactions hereunder and thereafter aslong as Debtor may be indebted to Secured Parties.

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## 6.4.                              Application of Proceeds.  Any and all proceeds of any Collateralrealized or obtained by Representative upon exercise of the rights and remedieshereunder, shall be applied as follows:

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### 6.4.1.                     Toward the payment of any and all costs and expenses,fees and commission and taxes of such sale, collection or other realizationincurred by the Representative or any Secured Party:

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### 6.4.2.                     With respect to any surplus remaining afterapplication of proceeds as provided in Section 6.4.1, toward the payment of theObligations on a pro rata basis, and any costs, fees or expenses incurred inconnection with the administration, collection or enforcement thereof,including, without limitation, reasonable attorney’s fees and otherprofessionals’ out of pocket costs and fees, until payment and satisfaction infull thereof; and

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### 6.4.3.                     With respect to any surplus remaining afterapplication of proceeds as provided in Section 6.4.2 above, shall be paid toDebtor, or its successors or assigns, or to whomsoever may be lawfully entitledto receive the same.

 

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**7.****                                      DEBTOR’SOBLIGATION TO PAY EXPENSES**

 

In the event the Representative is the prevailing party in any actionbrought to enforced the rights of Secured Parties hereunder, Debtor shall payto the Representative on demand any and all reasonable****expenses(including, but not limited to, a collection charge on all accounts collected,all reasonable****attorney’s fees and expenses, andall other expenses of like or unlike nature) that may be incurred or paid bythe Representative or Secured Parties to obtain or enforce payment of anyaccount against the account debtor, Debtor or any guarantor or surety of or inthe prosecution or defense of any action or concerning any matter growing outof or connected with the subject matter of this Agreement, the Obligations,such Collateral or the rights or interests of Secured Parties therein orthereto.  All such expenses may be addedto the principal amount of any indebtedness owed by Debtor to Secured Partiesand shall constitute part of such Obligations secured hereby.

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# **8.**                                      WAIVERS

 

Debtor waives demand, presentment, protest, notice of nonpayment andall other notices.  No delay or omissionby the Representative in exercising any rights shall operate as a waiver ofsuch right or any other right.  Waiver onany one occasion shall not be construed as a bar to or waiver of any right orremedy on any future occasion.  Therights and remedies of Secured Parties, whether evidenced hereby or by anyother agreement, instrument or paper, shall be cumulative and may be exercisedsingularly or concurrently.

 

**9.****                                      FURTHERASSURANCES**

 

Debtor, at its own expense, shall do, make, execute and deliver allsuch additional and further acts, deeds, assurances, documents, instruments andcertificates as the Representative may reasonably require, including, withoutlimitation:  (1) executing, deliveringand filing financial statements and continuation statements under the UniformCommercial Code as applicable in any relevant jurisdiction; (2) obtaininggovernmental and other third party consents and approvals; and (3) obtainingwaivers from mortgagees and landlords.

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# **10.**                               CHOICE OF LAW

 

THIS AGREEMENT AND THE NOTES SHALL BE GOVERNED BY AND CONSTRUED ANDENFORCED IN ACCORDANCE WITH THE LAWS (AND NOT THE LAW OF CONFLICTS) OF THESTATE OF NEVADA.  THE PARTIES HERETOHEREBY SUBMIT TO THE EXCLUSIVE JURISDICTION OF THE COURTS LOCATED IN CLARKCOUNTY, NEVADA WITH RESPECT TO ANY DISPUTE ARISING UNDER THIS AGREEMENT AND THETRANSACTIONS CONTEMPLATED HEREBY.

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# **11.**                               WAIVER OF JURY TRIAL

 

DEBTOR HEREBY WAIVES TRIAL BY JURY IN ANY JUDICIAL PROCEEDINGINVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER (WHETHER SOUNDING IN TORT,CONTRACT OR OTHERWISE) IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WTTHTHIS AGREEMENT OR THE NOTES OR THE RELATIONSHIP ESTABLISHED HEREUNDER,THEREUNDER.

 

*[Signature page follows]*

 

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IN WITNESS WHEREOF, the parties hereto have signedthis Agreement as of the         day of                 2004.

 
| **“DEBTOR”**                             | ** **                             | **ADDRESS**    |
|----------------------------------------------------|----------------------------------------|----------------|
| ** **                                         | ** **                             |
| **VENDINGDATA  CORPORATION,**a Nevada  corporation | 6830 Spencer Street                    |
|                                               | Las Vegas, Nevada 89119                |
| By:                                                |                                   |           |   |
|                                               | Steven J. Blad                         | **TELEPHONE:** | 702-733-7195 |
| Its:                                               | President  and Chief Executive Officer | **FACSIMILE:** | 702-733-7197 |
|                                                    |                                        |                |  |  |  |  |

 
| **“SECURED PARTIES”** | ** ** | **ADDRESS** |
|---------------------------------|------------|-------------|
|                            |       |
|                            |       |        |   |
| (Insert Name)                   |       |        |
|                            |       |
| By:                             |       |        |   |
|                            |       |        | **TELEPHONE:** |   | - |   | - |   |   |
| Its:                            |       |        | **FACSIMILE:** |   | - |   | - |   |   |
| ** **                      | ** ** |
|                            |       |        |   |
| (Insert Name)                   |       |        |
|                            |       |
| By:                             |       |        |   |
|                            |       |        | **TELEPHONE:** |   | - |   | - |   |   |
| Its:                            |       |        | **FACSIMILE:** |   | - |   | - |   |   |
| ** **                      | ** ** |
|                            |       |        |   |
| (Insert Name)                   |       |        |
|                            |       |
| By:                             |       |        |   |
|                            |       |        | **TELEPHONE:** |   | - |   | - |   |   |
| Its:                            |       |        | **FACSIMILE:** |   | - |   | - |   |   |
| ** **                      | ** ** |
|                            |       |        |   |
| (Insert Name)                   |       |        |
|                            |       |
| By:                             |       |        |   |
|                            |       |        | **TELEPHONE:** |   | - |   | - |   |   |
| Its:                            |       |        | **FACSIMILE:** |   | - |   | - |   |   |
|                                 |            |             |  |  |  |  |  |  |  |  |  |  |  |

 

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| **“SECURED PARTIES”** | ** ** | **ADDRESS** |
|---------------------------------|------------|-------------|
| ** **                      | ** ** |
|                            |       |        |   |
| (Insert Name)                   |       |        |
|                            |       |
| By:                             |       |        |   |
|                            |       |        | **TELEPHONE:** |   | - |   | - |   |   |
| Its:                            |       |        | **FACSIMILE:** |   | - |   | - |   |   |
| ** **                      | ** ** |
|                            |       |        |   |
| (Insert Name)                   |       |        |
|                            |       |
| By:                             |       |        |   |
|                            |       |        | **TELEPHONE:** |   | - |   | - |   |   |
| Its:                            |       |        | **FACSIMILE:** |   | - |   | - |   |   |
| ** **                      | ** ** |
|                            |       |        |   |
| (Insert Name)                   |       |        |
|                            |       |
| By:                             |       |        |   |
|                            |       |        | **TELEPHONE:** |   | - |   | - |   |   |
| Its:                            |       |        | **FACSIMILE:** |   | - |   | - |   |   |
| ** **                      | ** ** |
|                            |       |        |   |
| (Insert Name)                   |       |        |
|                            |       |
| By:                             |       |        |   |
|                            |       |        | **TELEPHONE:** |   | - |   | - |   |   |
| Its:                            |       |        | **FACSIMILE:** |   | - |   | - |   |   |
| ** **                      | ** ** |
|                            |       |        |   |
| (Insert Name)                   |       |        |
|                            |       |
| By:                             |       |        |   |
|                            |       |        | **TELEPHONE:** |   | - |   | - |   |   |
| Its:                            |       |        | **FACSIMILE:** |   | - |   | - |   |   |
| ** **                      | ** ** |
|                            |       |        |   |
| (Insert Name)                   |       |        |
|                            |       |
| By:                             |       |        |   |
|                            |       |        | **TELEPHONE:** |   | - |   | - |   |   |
| Its:                            |       |        | **FACSIMILE:** |   | - |   | - |   |   |
|                                 |            |             |  |  |  |  |  |  |  |  |  |  |  |  |

 

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