PLEDGE AGREEMENT
PLEDGE
AGREEMENT (this
"Agreement"),
dated
as of November 30, 2007, made by each entity listed as a pledgor on the
signature pages hereto (each a "Pledgor"
and
collectively, the "Pledgors"),
in
favor of PORTSIDE
GROWTH AND OPPORTUNITY FUND
a
company organized under the laws of the Cayman Islands, in its capacity as
collateral agent (in such capacity, the "Collateral
Agent")
for the
"Buyers"
(as
defined below) party to the Securities Purchase Agreement, dated as of November
29, 2007 (as amended, restated or otherwise modified from time to time, the
"Securities
Purchase Agreement").
WITNESSETH:
WHEREAS,
DigitalFX International, Inc., a Florida corporation (the "Company")
and
each party listed as a "Buyer"
on the
Schedule of Buyers attached to the Securities Purchase Agreement (collectively,
the "Buyers")
are
parties to the Securities Purchase Agreement, pursuant to which the Company
has
agreed to sell, and the Buyers have agreed to purchase, the "Notes"
(as
defined therein);
WHEREAS,
it is a condition precedent to the Buyers purchasing the Notes that the Pledgors
shall have executed and delivered to the Collateral Agent for the benefit of
itself and the Buyers this Agreement to secure all of the Company's obligations
under the Securities Purchase Agreement, the Notes issued pursuant thereto
(as
such Notes may be amended, restated, replaced or otherwise modified from time
to
time in accordance with the terms thereof, collectively, the "Notes")
and the
other "Transaction Documents" (as defined in the Securities Purchase Agreement,
the "Transaction
Documents"),
on
such terms and conditions as are set forth herein;
WHEREAS,
each of the Pledgors other than the Company (i) shall have executed a Guaranty,
dated as of the date hereof, in favor of the Collateral Agent (the "Guaranty"),
guaranteeing all present and future obligations of the Company under the
Securities Purchase Agreement, the Notes and the other Transaction Documents
on
such terms and conditions as are set forth therein and (ii) shall have executed,
together with the Company, a Security Agreement granting the Collateral Agent
a
first priority perfected lien in certain of their personal property (the
"Security
Agreement")
on
such terms and conditions as are set forth therein;
WHEREAS,
the Pledgors are mutually dependent on each other in the conduct of their
respective businesses as an integrated operation, with the credit needed from
time to time by each Pledgor often being provided through financing obtained
by
the other Pledgors and the ability to obtain such financing being dependent
on
the successful operations of all of the Pledgors as a whole; and
WHEREAS,
each Pledgor has determined that the execution, delivery and performance of
this
Agreement directly benefits, and is in the best interest of, such
Pledgor.
NOW,
THEREFORE, in consideration of the premises and the agreements herein and in
order to induce the Buyers to perform under the Securities Purchase Agreement,
each Pledgor agrees with the Collateral Agent as follows:
SECTION
1. Definitions
and Rules of Interpretation.
(a) Definitions.
Reference is made to the Securities Purchase Agreement and the Notes for a
statement of terms thereof. All terms used in this Agreement which are defined
in the Securities Purchase Agreement or the Notes or in Article 8 or Article
9
of the Uniform Commercial Code as in effect from time to time in the State
of
New York (the "Code"),
and
which are not otherwise defined herein shall have the same meanings herein
as
set forth therein; provided,
that
terms used herein which are defined in the Code as in effect in the State of
New
York on the date hereof shall continue to have the same meaning notwithstanding
any replacement or amendment of such statute except as the Collateral Agent
may
otherwise determine. In the event that any such term is defined in both the
Securities Purchase Agreement or the Notes and the Code, the definition of
such
term in the Securities Purchase Agreement or the Notes shall
control.
(b) Rules
of Interpretation.
Except
as otherwise expressly provided in this Agreement, the following rules of
interpretation apply to this Agreement: (i) the singular includes the plural
and
the plural includes the singular; (ii) "or" and "any" are not exclusive and
"include" and "including" are not limiting; (iii) a reference to any agreement
or other contract includes permitted supplements and amendments; (iv) a
reference to a law includes any amendment or modification to such law and any
rules or regulations issued thereunder; (v) a reference to a person includes
its
permitted successors and assigns; and (vi) a reference in this Agreement to
an
Article, Section, Annex, Exhibit or Schedule is to the Article, Section, Annex,
Exhibit or Schedule of this Agreement.
SECTION
2. Pledge
and Grant of Security Interest. As collateral security for all of the
Obligations (as defined in Section 3 hereof), each of the Pledgors hereby
pledges and assigns and grants to the Collateral Agent a continuing security
interest in, and Lien on, all of such Pledgor's right, title and interest in
and
to the following (collectively, the "Collateral"):
(a) all
present, as set forth in Schedule
I,
and all
future, issued and outstanding shares of capital stock, or other equity or
investment securities of, or partnership, membership, or joint venture interests
in, each Subsidiary (as defined in the Securities Purchase Agreement), whether
now owned or hereafter acquired by such Pledgor and whether or not evidenced
or
represented by any stock certificate, certificated security or other instrument,
together with the certificates representing such equity interests, all options
and other rights, contractual or otherwise, in respect thereof and all
dividends, distributions, cash, instruments, investment property and any other
property (including, but not limited to, any stock dividend and any distribution
in connection with a stock split) from time to time received, receivable or
otherwise distributed in respect of or in exchange for any or all of the
foregoing and all cash and noncash proceeds thereof (collectively, the
"Pledged
Shares");
(b) all
present and future increases, profits, combinations, reclassifications, and
substitutes and replacements for all or part of the foregoing Collateral
heretofore described;
(c) all
investment property, financial assets, securities, capital stock, other equity
interests, stock options and commodity contracts of such Pledgor, all notes,
debentures, bonds, promissory notes or other evidences of indebtedness payable
or owing to such Pledgor, and all other assets now or hereafter received or
receivable with respect to the foregoing;
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(d) all
securities entitlements of such Pledgor in any and all of the foregoing;
and
(e) all
proceeds (including proceeds of proceeds) of any and all of the
foregoing;
in
each
case, whether now owned or hereafter acquired by such Pledgor and howsoever
its
interest therein may arise or appear (whether by ownership, security interest,
Lien, claim or otherwise).
Notwithstanding
anything herein to the contrary, the term "Collateral"
shall
not include in the case of a Subsidiary organized under the laws of a
jurisdiction other than the United States, any of the states thereof or the
District of Columbia (a "Foreign
Subsidiary"),
more
than 65% (or
such
greater percentage that,
due
to a change in applicable law after the date hereof, (i) would not reasonably
be
expected to cause the undistributed earnings of such Foreign Subsidiary as
determined for United States federal income tax purposes to be treated as a
deemed dividend to such Foreign Subsidiary's United States parent and (ii)
would
not reasonably be expected to cause any
material
adverse tax consequences) of the issued and outstanding shares of Capital
Stock entitled to vote (within the meaning of Treas. Reg. Section 1.956-2(c)(2))
(it being understood and agreed that the Collateral shall include 100%
of
the
issued and outstanding shares of Capital
Stock not entitled to vote (within the meaning of Treas. Reg. Section
1.956-2(c)(2)) or other equity interest of such Foreign Subsidiary).
"Capital
Stock"
means
(i) with respect to any Person that is a corporation, any and all shares,
interests, participations or other equivalents (however designated and whether
or not voting) of corporate stock, and (ii) with respect to any Person that
is
not a corporation, any and all partnership, membership or other equity interests
of such Person. "Person"
means an
individual, corporation, limited liability company, partnership, association,
joint-stock company, trust, unincorporated organization, joint venture or other
enterprise or entity or Governmental Authority. "Governmental
Authority"
means
any nation or government, any Federal, state, city, town, municipality, county,
local or other political subdivision thereof or thereto and any department,
commission, board, bureau, instrumentality, agency or other entity exercising
executive, legislative, judicial, taxing, regulatory or administrative powers
or
functions of or pertaining to government.
The
Pledgors agree that the pledge of the shares of Capital Stock acquired by a
Pledgor of any and all Persons now or hereafter existing who is a Foreign
Subsidiary may be supplemented by one or more separate pledge agreements, deeds
of pledge, share charges, or other similar agreements or instruments, executed
and delivered by the relevant Pledgors in favor of the Collateral Agent, which
pledge agreements will provide for the pledge of such shares of Capital Stock
in
accordance with the laws of the applicable foreign jurisdiction. With respect
to
such shares of Capital Stock, the Collateral Agent may, at any time and from
time to time, in its sole discretion, take actions in such foreign jurisdictions
that will result in the perfection of the Lien created in such shares of Capital
Stock.
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SECTION
3. Security
for Obligations. The security interest created hereby in the Collateral
constitutes continuing collateral security for all of the following obligations,
whether now existing or hereafter incurred (the "Obligations"):
(a) (i)
the
payment by the Company, as and when due and payable (by scheduled maturity,
required prepayment, acceleration, demand or otherwise), of all amounts from
time to time owing by it in respect of the Securities Purchase Agreement, the
Notes and the other Transaction Documents, and (ii) the payment by each of
the
Guarantors (as defined in the Guaranty), as and when due and payable of all
“Guaranteed Obligations” under (and as defined in) the Guaranty, including,
without limitation, (A) all principal of and interest on the Notes (including,
without limitation, all interest that accrues after the commencement of any
bankruptcy proceeding of the Pledgors, whether or not the payment of such
interest is unenforceable or is not allowable due to the existence of such
bankruptcy proceeding), and (B) all fees, commissions, expense reimbursements,
indemnifications and all other amounts due or to become due under any of the
Transaction Documents; and
(b) the
due
performance and observance by each Pledgor of all of its other obligations
from
time to time existing in respect of any of the Transaction Documents for so
long
as the Notes are outstanding.
SECTION
4. Delivery
of the Collateral.
(a) All
certificates currently representing the Pledged Shares shall be delivered to
the
Collateral Agent on or prior to the execution and delivery of this Agreement.
All other promissory notes, certificates and instruments constituting Collateral
from time to time or required to be pledged to the Collateral Agent pursuant
to
the terms of this Agreement (the "Additional
Collateral")
shall
be delivered to the Collateral Agent promptly upon receipt thereof by or on
behalf of any of the Pledgors. All such promissory notes, certificates and
instruments shall be held by the Collateral Agent pursuant hereto and shall
be
delivered in suitable form for transfer by delivery or shall be accompanied
by
duly executed instruments of transfer or assignment or undated stock powers
executed in blank, all in form and substance reasonably satisfactory to the
Collateral Agent. If any Collateral consists of uncertificated securities,
unless the immediately following sentence is applicable thereto, the Pledgors
shall cause the Collateral Agent (or its designated custodian, nominee or other
designee) to become the registered holder thereof, or cause each issuer of
such
securities to agree that it will comply with instructions originated by the
Collateral Agent (or its designated custodian, nominee or other designee) with
respect to such securities without further consent by the Pledgors. If any
Collateral consists of securities entitlements, the Pledgors shall transfer
such
securities entitlements to the Collateral Agent (or its designated custodian,
nominee or other designee) or cause the applicable securities intermediary
to
agree that it will comply with entitlement orders by the Collateral Agent (or
its designated custodian, nominee or other designee) without further consent
by
the Pledgors.
(b) Promptly
upon the receipt by any Pledgor of any Additional Collateral, a Pledge
Amendment, duly executed by such Pledgor, in substantially the form of
Annex
I
hereto
(a "Pledge
Amendment"),
shall
be delivered to the Collateral Agent, in respect of the Additional Collateral
which is or are to be pledged pursuant to this Agreement, which Pledge Amendment
shall from and after delivery thereof constitute part of Schedule
I
hereto.
Each Pledgor hereby authorizes the Collateral Agent to attach each Pledge
Amendment to this Agreement and agrees that all promissory notes, certificates
or instruments listed on any Pledge Amendment shall for all purposes hereunder
constitute Collateral and such Pledgor shall be deemed upon delivery thereof
to
have made the representations and warranties set forth in Section
5
with
respect to such Additional Collateral as of the date of the Pledge
Amendment.
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(c) If
any
Pledgor shall receive, by virtue of such Pledgor's being or having been an
owner
of any Collateral, any (i) stock certificate (including, without limitation,
any
certificate representing a stock dividend or distribution in connection with
any
increase or reduction of capital, reclassification, merger, consolidation,
sale
of assets, combination of shares, stock split, spin-off or split-off),
promissory note or other instrument, (ii) option or right, whether as an
addition to, substitution for, or in exchange for, any Collateral, or otherwise,
(iii) dividends payable in cash (except such dividends permitted to be
retained by such Pledgor pursuant to Section
7
hereof)
or in securities or other property or (iv) dividends, distributions, cash,
instruments, investment property and other property in connection with a partial
or total liquidation or dissolution or in connection with a reduction of
capital, capital surplus or paid-in surplus, such Pledgor shall receive such
stock certificate, promissory note, instrument, option, right, payment or
distribution in trust for the benefit of the Collateral Agent, shall segregate
it from such Pledgor's other property and shall deliver it forthwith to the
Collateral Agent in the exact form received, with any necessary endorsement
and/or appropriate stock powers duly executed in blank, to be held by the
Collateral Agent as Collateral and as further collateral security for the
Obligations.
SECTION
5. Representations
and Warranties. Each Pledgor jointly and severally represents and warrants
as of the date of this Agreement as follows:
(a) Each
Pledgor (i) is a corporation, limited liability company or limited partnership
duly organized, validly existing and in good standing under the laws of the
state or jurisdiction of its organization, and (ii) has all corporate, limited
liability company or limited partnership power and authority to execute, deliver
and perform this Agreement.
(b) The
execution, delivery and performance by each Pledgor of this Agreement (i) have
been duly authorized by all necessary corporate, limited liability company
or
limited partnership action, (ii) do not and will not contravene its charter
or
bylaws, its limited liability company or operating agreement or its certificate
of partnership or partnership agreement, as applicable, or any applicable law
or
any contractual restriction binding on or affecting it or any of its properties,
and (iii) do not and will not result in or require the creation of any Lien
upon
or with respect to any of its properties other than pursuant to this
Agreement.
(c) The
issuers of the Pledged Shares set forth in Schedule
I
hereto
are the
Pledgors' only Subsidiaries existing on the date hereof. The
Pledged Shares have been duly authorized and validly issued, are fully paid
and
nonassessable and the holders thereof are not entitled to any preemptive first
refusal or other similar rights.
Except
as noted in Schedule
I
hereto,
the Pledged Shares constitute 100% of the issued shares of capital stock,
partnership interests or membership or other equity interests, as applicable,
of
the Subsidiaries. All other shares of stock constituting Collateral will be,
when issued, duly authorized and validly issued, fully paid and
nonassessable.
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(d) The
Pledgors are and will be at all times the legal and beneficial owners of the
Collateral free and clear of any Lien, other than Permitted Liens.
(e) The
exercise by the Collateral Agent of any of its rights and remedies hereunder
will not contravene any law or any contractual restriction binding on or
affecting any Pledgor or any of the properties of any Pledgor and will not
result in or require the creation of any Lien upon or with respect to any of
the
properties of any Pledgor other than pursuant to this Agreement and the other
Transaction Documents.
(f) No
authorization or approval or other action by, and no notice to or filing with,
any governmental authority is required to be obtained by any Pledgor for (i)
the
due execution, delivery and performance by any Pledgor of this Agreement, (ii)
the grant by any Pledgor, or the perfection of the security interest and Lien
purported to be created hereby in the Collateral or (iii) the exercise by the
Collateral Agent of any of its rights and remedies hereunder, except as may
be
required in connection with any sale of any Collateral by laws affecting the
offering and sale of securities generally.
(g) This
Agreement creates a valid security interest and Lien in favor of the Collateral
Agent in the Collateral, as security for the Obligations. The Collateral Agent's
having possession of the promissory notes evidencing the Collateral, the
certificates representing the Pledged Shares and all other certificates,
instruments and cash constituting Collateral from time to time results in the
perfection of the security interest in such Collateral. Such security interest
and Lien is, or in the case of Collateral in which any of the Pledgors obtains
rights after the date hereof, will be, a perfected Lien. All action necessary
to
perfect and protect such security interest and Lien has been duly taken,
except
for the Collateral Agent's having possession of certificates, instruments,
securities entitlements and cash constituting Collateral
after
the date hereof.
SECTION
6. Covenants
as to the Collateral. So long as any Obligations shall remain outstanding
and the Securities Purchase Agreement and the other Transaction Documents shall
not have been terminated, each Pledgor will, unless the Collateral Agent shall
otherwise consent in writing:
(a) keep
adequate records concerning the Collateral owned or purported to be owned by
it,
and permit, in accordance with Section 4 (i) of the Securities Purchase
Agreement, the Collateral Agent, or any designees or representatives thereof
at
any time or from time to time during reasonable hours after prior written notice
to examine and make copies of and abstracts from such records;
(b) at
the
Pledgors' joint and several expense, promptly deliver to the Collateral Agent
a
copy of each material notice or other material communication received by any
Pledgor in respect of the Collateral;
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(c) at
the
Pledgors' joint and several expense, defend the Collateral Agent's right, title
and security interest in and to the Collateral against the claims of any Person
(other than the holders of Permitted Liens);
(d) at
the
Pledgors' joint and several expense, at any time and from time to time, promptly
execute and deliver all further instruments and documents and take all further
action that may be necessary or that the Collateral Agent may reasonably request
in order to (i) perfect and protect, or maintain the perfection of, the
security interest and Lien purported to be created hereby, (ii) enable the
Collateral Agent to exercise and enforce its rights and remedies hereunder
in
respect of the Collateral or (iii) otherwise effect the purposes of this
Agreement, including, without limitation, delivering to the Collateral Agent
irrevocable proxies in respect of the Collateral for exercise pursuant to
Section 7 hereof;
(e) not
sell,
assign (by operation of law or otherwise), exchange or otherwise dispose of
any
Collateral or any interest therein except in the ordinary course of business
or
as expressly permitted by the Securities Purchase Agreement or the
Notes;
(f) not
create or suffer to exist any Lien, upon or with respect to any Collateral
except for Permitted Liens;
(g) not
make
or consent to any amendment or other modification or waiver with respect to
any
Collateral or enter into any agreement or permit to exist any restriction with
respect to any Collateral other than pursuant to the Transaction
Documents;
(h) except
as
expressly permitted by the Securities Purchase Agreement, not permit the
issuance of (i) any additional shares of any class of capital stock, partnership
interests, member interests or other equity of any Subsidiary, (ii) any
securities convertible voluntarily by the holder thereof or automatically upon
the occurrence or non-occurrence of any event or condition into, or exchangeable
for, any such shares of capital stock of any Subsidiary or (iii) any warrants,
options, contracts or other commitments entitling any Person to purchase or
otherwise acquire any such shares of capital stock of any
Subsidiary;
(i) not
issue
any stock certificate, certificated security or other instrument to evidence
or
represent any shares of capital stock, any partnership interest or membership
interest of any Subsidiary described in Schedule
I
hereto;
and
(j) not
take
or fail to take any action which would in any manner impair the validity or
enforceability of the Collateral Agent's security interest in and Lien on any
Collateral.
SECTION
7. Voting
Rights, Dividends, Etc. in Respect of the Collateral.
(a) So
long
as no Event of Default (as defined in the Notes) (an "Event
of Default") shall
have occurred and be continuing:
(i) each
Pledgor may exercise any and all voting and other consensual rights pertaining
to any Collateral for any purpose not inconsistent with the terms of this
Agreement, the Securities Purchase Agreement or the other Transaction
Documents;
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(ii) the
Pledgors may receive and retain any and all dividends, interest or other
distributions paid in respect of the Collateral to the extent permitted by
the
Securities Purchase Agreement; provided,
however,
that
any and all (A) dividends and interest paid or payable other than in cash in
respect of, and instruments and other property received, receivable or otherwise
distributed in respect of or in exchange for, any Collateral, (B) dividends
and
other distributions paid or payable in cash in respect of any Collateral in
connection with a partial or total liquidation or dissolution or in connection
with a reduction of capital, capital surplus or paid-in surplus, and (C) cash
paid, payable or otherwise distributed in redemption of, or in exchange for,
any
Collateral, together with any dividend, distribution, interest or other payment
which at the time of such dividend, distribution, interest or other payment
was
not permitted by the Securities Purchase Agreement, shall be, and shall
forthwith be delivered to the Collateral Agent to hold as, Collateral and shall,
if received by any of the Pledgors, be received in trust for the benefit of
the
Collateral Agent, shall be segregated from the other property or funds of the
Pledgors, and shall be forthwith delivered to the Collateral Agent in the exact
form received with any necessary indorsement and/or appropriate stock powers
duly executed in blank, to be held by the Collateral Agent as Collateral and
as
further collateral security for the Obligations; and
(iii) the
Collateral Agent will execute and deliver (or cause to be executed and
delivered) to a Pledgor all such proxies and other instruments as such Pledgor
may reasonably request for the purpose of enabling such Pledgor to exercise
the
voting and other rights which it is entitled to exercise pursuant to paragraph
(i) of this Section
7(a)
and to
receive the dividends, distributions, interest and other payments which it
is
authorized to receive and retain pursuant to paragraph (ii) of this Section
7(a),
in each
case, to the extent that the Collateral Agent has possession of such
Collateral.
(b) Upon
the
occurrence and during the continuance of an Event of Default:
(i) all
rights of each Pledgor to exercise the voting and other consensual rights which
it would otherwise be entitled to exercise pursuant to paragraph (i) of
subsection (a) of this Section
7,
and to
receive the dividends, distributions, interest and other payments which it
would
otherwise be authorized to receive and retain pursuant to paragraph (ii) of
subsection (a) of this Section 7,
shall
cease, and all such rights shall thereupon become vested in the Collateral
Agent
which shall thereupon have the sole right to exercise such voting and other
consensual rights and to receive and hold as Collateral such dividends,
distributions, interest and other payments;
(ii) without
limiting the generality of the foregoing, the Collateral Agent may at its option
exercise any and all rights of conversion, exchange, subscription or any other
rights, privileges or options pertaining to any of the Collateral as if it
were
the absolute owner thereof, including, without limitation, the right to
exchange, in its discretion, any and all of the Collateral upon the merger,
consolidation, reorganization, recapitalization or other adjustment of any
issuer of the Collateral or upon the exercise by any issuer of the Collateral
of
any right, privilege or option pertaining to any Collateral, and, in connection
therewith, to deposit and deliver any and all of the Collateral with any
committee, depository, transfer collateral agent, registrar or other designated
collateral agent upon such terms and conditions as it may determine; and
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(iii) all
dividends, distributions, interest and other payments which are received by
any
Pledgor contrary to the provisions of paragraph (i) of this Section
7(b)
shall be
received in trust for the benefit of the Collateral Agent, shall be segregated
from other funds of such Pledgor, and shall be forthwith paid over to the
Collateral Agent as Collateral in the exact form received with any necessary
indorsement and/or appropriate stock powers duly executed in blank, to be held
by the Collateral Agent as Collateral and as further collateral security for
the
Obligations.
SECTION
8. Additional
Provisions Concerning the Collateral.
(a) Each
Pledgor hereby (i) authorizes the Collateral Agent to file one or more financing
or continuation statements, and amendments thereto, relating to the Collateral,
without the signature of such Pledgor where permitted by law, (ii) ratifies
such
authorization to the extent that the Collateral Agent has filed any such
financing or continuation statements, or amendments thereto, without the
signature of such Pledgor prior to the date hereof and (iii) authorizes the
Collateral Agent to execute any agreements, instruments or other documents
in
such Pledgor's name and to file such agreements, instruments or other documents
to perfect, protect or enforce the security interest and Lien of the Collateral
Agent in the Collateral or as provided under Article 8 or Article 9 of the
Code
in any appropriate filing office.
(b) Each
Pledgor hereby irrevocably appoints the Collateral Agent as its attorney-in-fact
and proxy, with full authority in the place and stead and in its name or
otherwise, from time to time in the Collateral Agent's discretion to take any
action and to execute any instrument which the Collateral Agent may deem
necessary or advisable to accomplish the purposes of this Agreement (subject
to
the rights of such Pledgor under Section
7(a)
hereof),
including, without limitation, to receive, indorse and collect all instruments
made payable to such Pledgor representing any dividend, interest payment or
other distribution in respect of any Collateral and to give full discharge
for
the same. This power is coupled with an interest and is irrevocable until the
termination of this Agreement in accordance with Section 13(e)
hereof.
(c) If
any
Pledgor fails to perform any agreement or obligation contained herein, the
Collateral Agent itself may perform, or cause performance of, such agreement
or
obligation, and the expenses of the Collateral Agent incurred in connection
therewith shall be jointly and severally payable by the Pledgors pursuant to
Section
10
hereof
and shall be secured by the Collateral.
(d) Other
than the exercise of reasonable care to assure the safe custody of the
Collateral while held hereunder, the Collateral Agent shall have no duty or
liability to preserve rights pertaining thereto and shall be relieved of all
responsibility for the Collateral upon surrendering it or tendering surrender
of
it to any of the Pledgors. The Collateral Agent shall be deemed to have
exercised reasonable care in the custody and preservation of the Collateral
in
its possession if the Collateral is accorded treatment substantially equal
to
that which the Collateral Agent accords its own property, it being understood
that the Collateral Agent shall not have responsibility for (i) ascertaining
or
taking action with respect to calls, conversions, exchanges, maturities, tenders
or other matters relating to any Collateral, whether or not the Collateral
Agent
has or is deemed to have knowledge of such matters, or (ii) taking any necessary
steps to preserve rights against any parties with respect to any
Collateral.
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(e) The
powers conferred on the Collateral Agent hereunder are solely to protect its
interest in the Collateral and shall not impose any duty upon it to exercise
any
such powers. Except for the safe custody of any Collateral in its possession
and
the accounting for monies actually received by it hereunder, the Collateral
Agent shall have no duty as to any Collateral or as to the taking of any
necessary steps to preserve rights against prior parties or any other rights
pertaining to any Collateral.
(f) Upon
the
occurrence and during the continuation of any Event of Default, the Collateral
Agent may at any time in its discretion (i) without notice to the Pledgors,
transfer or register in the name of the Collateral Agent or any of its nominees
any or all of the Collateral, subject only to the revocable rights of the
Pledgors under Section
7(a)
hereof,
and (ii) exchange certificates or instruments constituting Collateral for
certificates or instruments of smaller or larger denominations.
SECTION
9. Remedies
Upon Default. If any Event of Default shall have occurred and be
continuing:
(a) The
Collateral Agent may exercise in respect of the Collateral, in addition to
other
rights and remedies provided for herein or otherwise available to it, all of
the
rights and remedies of a secured party on default under the Code then in effect
in the State of New York; and without limiting the generality of the foregoing
and without notice except as specified below, sell the Collateral or any part
thereof in one or more parcels at public or private sale, at any exchange or
broker's board or elsewhere, at such price or prices and on such other terms
as
the Collateral Agent may deem commercially reasonable. The Pledgors agree that,
to the extent notice of sale shall be required by law, at least ten (10) days'
notice to any of the Pledgors 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. The Collateral Agent shall not be obligated to make any sale
of
Collateral regardless of notice of sale having been given. The Collateral Agent
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.
(b) Each
Pledgor recognizes that it may be impracticable to effect a public sale of
all
or any part of the Pledged Shares or any other securities constituting
Collateral and that the Collateral Agent may, therefore, determine to make
one
or more private sales of any such securities to a restricted group of purchasers
who will be obligated to agree, among other things, to acquire such securities
for its own account, for investment and not with a view to the distribution
or
resale thereof. Each Pledgor acknowledges that any such private sale may be
at
prices and on terms less favorable to the seller than the prices and other
terms
which might have been obtained at a public sale and, notwithstanding the
foregoing, agrees that such private sales shall be deemed to have been made
in a
commercially reasonable manner and that the Collateral Agent shall have no
obligation to delay sale of any such securities for the period of time necessary
to permit the issuer of such securities to register such securities for public
sale under the Securities Act of 1933, as amended (the "Securities
Act").
Each
Pledgor further acknowledges and agrees that any offer to sell such securities
which has been (i) publicly advertised on a bona fide basis in a newspaper
or
other publication of general circulation in the financial community of New
York,
New York (to the extent that such an offer may be so advertised without prior
registration under the Securities Act) or (ii) made privately in the manner
described above to not less than fifteen (15) bona fide
offerees
shall be deemed to involve a "public disposition" for the purposes of Section
9-610 of the Code (or any successor or similar, applicable statutory provision)
as then in effect in the State of New York, notwithstanding that such sale
may
not constitute a "public offering" under the Securities Act, and that the
Collateral Agent may, in such event, bid for the purchase of such
securities.
-10-
(c) Any
cash
held by the Collateral Agent as Collateral and all cash proceeds received by
the
Collateral Agent in respect of any sale of, collection from, or other
realization upon, all or any part of the Collateral shall be applied (after
payment of any amounts payable to the Collateral Agent pursuant to Section
10
hereof)
by the Collateral Agent against, all or any part of the Obligations in such
order as the Collateral Agent shall elect consistent with the provisions of
the
Securities Purchase Agreement.
(d) In
the
event that the proceeds of any such sale, collection or realization are
insufficient to pay all amounts to which the Collateral Agent is legally
entitled, the Pledgors shall be jointly and severally liable for the deficiency,
together with interest thereon at the highest rate specified in the Notes for
interest on overdue principal thereof or such other rate as shall be fixed
by
applicable law, together with the costs of collection and the reasonable fees,
costs and expenses of any attorneys employed by the Collateral Agent to collect
such deficiency.
SECTION
10. Indemnity
and Expenses.
(a) Each
of
the Pledgors, jointly and severally, hereby agrees to indemnify and hold the
Collateral Agent (and all of its officers, directors, employees, attorneys,
and
consultants) harmless from and against any and all claims, damages, losses,
liabilities, obligations, penalties, fees, costs and expenses (including,
without limitation, reasonable legal fees and disbursements of counsel) to
the
extent that they arise out of or otherwise result from this Agreement
(including, without limitation, enforcement of this Agreement), except such
claims, losses or liabilities arising or resulting directly from such Person's
gross negligence or willful misconduct as determined by a court of competent
jurisdiction.
(b) Each
Pledgor shall be jointly and severally obligated for, and will upon demand
pay
to the Collateral Agent the reasonable amount of any and all out-of-pocket
costs
and expenses, including the reasonable fees and disbursements of the Collateral
Agent's counsel and of any experts which the Collateral Agent may incur in
connection with (i) the preparation, negotiation, execution, delivery,
recordation, administration, amendment, waiver or other modification or
termination of this Agreement, (ii) the custody, preservation, use or operation
of, or the sale of, collection from, or other realization upon, any Collateral,
(iii) the exercise or enforcement of any of the rights of the Collateral Agent
hereunder, or (iv) the failure by any Pledgor to perform or observe any of
the
provisions hereof.
-11-
SECTION
11. Notices,
Etc. All notices and other communications provided for hereunder shall be
in
writing and shall be mailed (by certified mail, postage prepaid and return
receipt requested), sent by Federal Express or other recognized courier service
(return receipt requested), telecopied or delivered, if to any Pledgor, to
it at
the address specified for the Company in the Securities Purchase Agreement
or if
to the Collateral Agent, to it at the address specified in the Securities
Purchase Agreement; or as to either such Person at such other address as shall
be designated by such Person in a written notice to such other Person complying
as to delivery with the terms of this Section 11. All such notices and other
communications shall be effective (i) if sent by certified mail, postage
prepaid, return receipt requested, when received or three (3) Business Days
after mailing, whichever first occurs, (ii) if telecopied, when transmitted
and
confirmation is received, provided same is on a Business Day and, if not, on
the
next Business Day or (iii) if delivered or sent by Federal Express or other
recognized courier service (return receipt requested), upon delivery, provided
same is on a Business Day and, if not, on the next Business Day.
SECTION
12. Security
Interest Absolute. All rights of the Collateral Agent, all Liens and all
obligations of each of the Pledgors hereunder shall be absolute and
unconditional irrespective of: (i) any lack of validity or enforceability of
the
Securities Purchase Agreement or any other Transaction Document, (ii) any change
in the time, manner or place of payment of, or in any other term in respect
of,
all or any of the Obligations, or any other amendment or waiver of or consent
to
any departure from the Securities Purchase Agreement or any other Transaction
Document, (iii) any exchange or release of, or non-perfection of any Lien on
any
Collateral, or any release or amendment or waiver of or consent to departure
from any guaranty, for all or any of the Obligations, or (iv) any other
circumstance which might otherwise constitute a defense available to, or a
discharge of, any of the Pledgors in respect of the Obligations (other than
the
payment in full of the Obligations). All authorizations and agencies contained
herein with respect to any of the Collateral are irrevocable and powers coupled
with an interest.
SECTION
13. Miscellaneous.
(a) No
amendment of any provision of this Agreement shall be effective unless it is
in
writing and signed by each Pledgor and the Collateral Agent, and no waiver
of
any provision of this Agreement, and no consent to any departure by the Pledgors
therefrom, shall be effective unless it is in writing and signed by the
Collateral Agent, and then such waiver or consent shall be effective only in
the
specific instance and for the specific purpose for which given.
(b) No
failure on the part of the Collateral Agent to exercise, and no delay in
exercising, any right hereunder or under any other Transaction Document shall
operate as a waiver hereof or thereof; nor shall any single or partial exercise
of any such right preclude any other or further exercise hereof or thereof
or
the exercise of any other right. The rights and remedies of the Collateral
Agent
provided herein and in the other Transaction Documents are cumulative and are
in
addition to, and not exclusive of, any rights or remedies provided by law.
The
rights of the Collateral Agent under any Transaction Document against any party
thereto are not conditional or contingent on any attempt by the Collateral
Agent
to exercise any of its rights under any other Transaction Document against
such
party or against any other Person.
-12-
(c) Any
provision of this Agreement which is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining portions
hereof or affecting the validity or enforceability of such provision in any
other jurisdiction.
(d) This
Agreement shall create a continuing security interest in and Lien on the
Collateral and shall (i) remain in full force and effect until the termination
of this Agreement in accordance with Section 13 (e) hereof and (ii) be
binding on the Pledgors and their respective successors and assigns and shall
inure, together with all rights and remedies of the Collateral Agent, to the
benefit of the Collateral Agent and its successors, transferees and assigns.
Without limiting the generality of clause (ii) of the immediately preceding
sentence, the Collateral Agent may assign or otherwise transfer its rights
and
obligations under this Agreement and any other Transaction Document to any
other
Person pursuant to the terms of the Securities Purchase Agreement, and such
other Person shall thereupon become vested with all of the benefits in respect
thereof granted to the Collateral Agent herein or otherwise. Upon any such
assignment or transfer, all references in this Agreement to the Collateral
Agent
shall mean the assignee of the Collateral Agent. None of the rights or
obligations of any of the Pledgors hereunder may be assigned or otherwise
transferred without the prior written consent of the Collateral Agent, and
any
such assignment or transfer without such consent shall be null and
void.
(e) Notwithstanding
anything to the contrary in this Agreement, (i) this Agreement (along with
all
powers of attorney granted hereunder) and the security interests and Lien
created hereby shall terminate and all rights to the Collateral shall revert
to
the Pledgors upon the repayment in full and/or complete conversion to equity
securities of the Company of all indebtedness obligations owed by the Company
to
the Buyers under the Notes (including, without limitation, all principal,
interest and fees related to the Notes), and (ii) the Collateral Agent will,
upon each Pledgor's request and at each such Pledgor's expense, (A) return
to
such Pledgor such of the Collateral (to the extent delivered to the Collateral
Agent) as shall not have been sold or otherwise disposed of or applied pursuant
to the terms hereof, and (B) execute and deliver to such Pledgor, without
recourse, representation or warranty, such documents as such Pledgor shall
reasonably request to evidence such termination.
(f) The
internal laws, and not the laws of conflicts, of New York shall govern the
enforceability and validity of this Agreement, the construction of its terms
and
the interpretation of the rights and duties of the parties, except as required
by mandatory provisions of law and except to the extent that the validity and
perfection or the perfection and the effect of perfection or non-perfection
of
the security interest and Lien created hereby, or remedies hereunder, in respect
of any particular Collateral are governed by the law of a jurisdiction other
than the State of New York.
-13-
(g) Each
party to this Agreement hereby irrevocably and unconditionally submits, for
itself and its property, to the exclusive jurisdiction of the United States
District Court for the Southern District of New York sitting in Manhattan or
the
Commercial Division, Civil Branch of the Supreme Court of the State of Yew
York
sitting in New York County in connection with any suit, action or proceeding
directly or indirectly arising out of, under or in connection with this
Agreement or the other Transaction Documents or the transactions contemplated
hereby or thereby. No party to this Agreement may move to (i) transfer any
such
suit, action or proceeding brought in such New York court or federal court
to
another jurisdiction, (ii) consolidate any such suit, action or proceeding
brought in such New York court or federal court with a suit, action or
proceeding in another jurisdiction or (iii) dismiss any such suit, action or
proceeding brought in such New York court or federal court for the purpose
of
bringing the same in another jurisdiction. Each party to this Agreement agrees
that a final judgment in any such suit, action or proceeding shall be conclusive
and may be enforced in any other jurisdiction by suit on the judgment or in
any
other manner provided by law. Each party to this Agreement 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
or the other Transaction Documents, in any New York court sitting in the County
of New York or any federal court sitting in the Southern District of New
York.
(h) Each
Pledgor irrevocably consents to the service of process of any of the aforesaid
courts in any such action, suit or proceeding by the mailing of copies thereof
by registered or certified mail (or any substantially similar form of mail),
postage prepaid, to such
Pledgor at its address provided herein, such service to become effective when
received or 10 days after such mailing, whichever first occurs.
(i) Nothing
contained herein shall affect the right of the Collateral Agent to serve process
in any other manner permitted by law or commence legal proceedings or otherwise
proceed against any Pledgor or any property of any Pledgor in any other
jurisdiction.
(j) Each
Pledgor irrevocably and unconditionally waives any right it may have to claim
or
recover in any legal action, suit or proceeding referred to in this Section
any
special, exemplary, punitive or consequential damages.
(k) EACH
PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW,
ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY SUIT, ACTION OR
PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN CONNECTION WITH
THIS AGREEMENT OR OTHER TRANSACTION DOCUMENTS.
(l) The
headings herein are for convenience only, do not constitute a part of this
Agreement and shall not be deemed to limit or affect any of the provisions
hereof. The language used in this Agreement will be deemed to be the language
chosen by the parties to express their mutual intent, and no rules of strict
construction will be applied against any party.
(m) This
Agreement may be executed in any number of counterparts and by different parties
hereto in separate counterparts, each of which shall be deemed to be an
original, but all of which taken together shall constitute one and the same
agreement.
-14-
(n) All
of
the obligations of the Pledgors hereunder are joint and several. The Collateral
Agent may, in its sole and absolute discretion, enforce the provisions hereof
against any of the Pledgors and shall not be required to proceed against all
Pledgors jointly or seek payment from the Pledgors ratably. In addition, the
Collateral Agent may, in its sole and absolute discretion, select the Collateral
of any one or more of the Pledgors for sale or application to the Obligations,
without regard to the ownership of such Collateral, and shall not be required
to
make such selection ratably from the Collateral owned by all of the Pledgors.
The release or discharge of any Pledgor by the Collateral Agent shall not
release or discharge any other Pledgor from the obligations of such Person
hereunder.
[Signature
Page Follows]
-15-
IN
WITNESS
WHEREOF,
each
Pledgor has caused this Agreement to be executed and delivered by its officer
thereunto duly authorized, as of the date first above
written.
| DIGITALFX INTERNATIONAL, INC. | ||
| |
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| By: | ||
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Name: |
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Title:
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| DIGITALFX NETWORKS, LLC | ||
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| By: | ||
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Name: |
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Title:
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| DIGITALFX SOLUTIONS, LLC | ||
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| By: | ||
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Name: |
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Title:
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| VMDIRECT L.L.C. | ||
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| By: | ||
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Name: |
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Title:
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| ACCEPTED BY: | |||
| PORTSIDE GROWTH AND OPPORTUNITY FUND | |||
| By: | |||
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Name:
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Title:
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