Security Agreement
Exhibit
10.5
Exhibit
E-1
I. Security
Interest.
For
good and valuable consideration, the receipt and adequacy of which is hereby
acknowledged, Syzygy Entertainment, Ltd., a Nevada corporation (“Pledgor”),
hereby assigns and grants to Shelter Island Opportunity Fund, LLC (“Secured
Party”) a security interest in the Collateral (as hereinafter defined) to secure
the payment and the performance of the Obligations (as hereinafter
defined).
II. Collateral.
The
pledge and security interest described above are granted in respect of the
following collateral (the “Collateral”):
B. Proceeds.
All
additions, substitutes, replacements for and proceeds of the property described
in Section II.A (including all income and benefits resulting from any of the
above, including, without limitation, dividends or distributions payable or
distributable in cash, property, or stock; interest, premium and principal
payments; redemption proceeds, and subscription rights; and shares or other
proceeds of conversions or splits of any securities in such property). Any
securities received by Pledgor which shall constitute such additions,
substitutes and replacements for, or proceeds of, the property described in
Section II.A., shall, if delivered to Pledgor, be held in trust by Pledgor
for the Secured Party and shall be delivered immediately to the Secured Party.
III. Obligations.
The
following obligations (collectively, the “Obligations”) are secured by this
Agreement: all costs and expenses of collection incurred by the Secured Party
in
enforcing any of such Obligations, all of the liabilities and obligations
(primary, secondary, direct, contingent, sole, joint or several) due or to
become due, or that are now or may be hereafter contracted or acquired, of
the
Pledgor to the Secured Party, including, without limitation, all obligations
under the Debenture, any Additional Debenture and each other Transaction
Document, in each case, whether now or hereafter existing, voluntary or
involuntary, direct or indirect, absolute or contingent, liquidated or
unliquidated, whether or not jointly owed with others, and whether or not from
time to time decreased or extinguished and later increased, created or incurred,
and all or any portion of such obligations or liabilities that are paid, to
the
extent all or any part of such payment is avoided or recovered directly or
indirectly from the Secured Party as a preference, fraudulent transfer or
otherwise as such obligations may be amended, supplemented, converted, extended
or modified from time to time. Without limiting the generality of the foregoing,
the term “Obligations” shall include, without limitation: (i) principal of, and
interest on the Debentures and any Additional Debenture and the loans extended
pursuant thereto; (ii) any and all other fees, indemnities, costs, obligations
and liabilities of the Pledgor from time to time under or in connection with
the
Debentures, any Additional Debenture and any other Transaction Documents; and
(iii) all amounts (including but not limited to post-petition interest) in
respect of the foregoing that would be payable but for the fact that the
obligations to pay such amounts are unenforceable or not allowable due to the
existence of a bankruptcy, reorganization or similar proceeding involving the
Pledgor.
IV. Pledgor’s
Warranties.
Pledgor
hereby represents and warrants to the Secured Party as follows:
A. Authority
and Compliance.
The
Pledgor has full power and authority to execute and deliver this Agreement
and
to incur and perform the obligations provided for herein. No consent or approval
of any governmental authority or other third party is or will be required as
a
condition to the enforceability of this Agreement, and the Collateral is and
will be in compliance in all material respects with all laws and regulatory
requirements to which it is subject.
B. Binding
Agreement.
This
Agreement is duly authorized, executed and delivered by the Pledgor and is
enforceable against the Pledgor in accordance with its terms. The Collateral
secures all of the Obligations, without limitation as to amount or the nature
of
the Obligations.
C. Ownership.
Pledgor
is the sole record and beneficial owner of the Collateral and (i) the Collateral
is and will be free and clear of any setoff, claim, restriction, pledge, lien,
security interest, encumbrance or other charge of any type, except for the
security interest created hereunder, (ii) the Shares were acquired in a
transaction that complied with the requirements of the Securities Act of 1933,
as amended, and all applicable state securities or “blue sky” laws and (iii) the
Shares constitute all of the issued and outstanding shares of capital stock
of
the Company. The Shares have been duly authorized and validly issued and are
fully paid and non-assessable.
D. No
Conflict.
Neither
the execution and delivery of this Agreement, nor the consummation of the
transactions contemplated hereby, nor the fulfillment of, nor the compliance
with, the terms, conditions or provisions hereof nor the pledge of any
Collateral, will conflict with, result in a breach of, or constitute a default
under (i) any relevant statute, law, ordinance, rule or regulation
applicable to Pledgor or the Collateral (including, without limitation, any
of
the foregoing issued or enforced by the Board) or (ii) any indenture,
agreement or other instrument, or any judgment, order or decree, to which
Pledgor is a party or by which any of its assets including, without limitation,
the Collateral, may be bound. There is no litigation, claim or judicial,
administrative or governmental proceeding of which Pledgor has been notified
or,
to the knowledge of Pledgor, threatened with respect to the Collateral, nor
is
there any basis for any such litigation, claim or proceeding.
E. Security
Interest.
The
pledge of the Collateral pursuant to this Agreement, together with the delivery
to the Secured Party of certificates with respect to the Shares and stock powers
in blank with respect thereto, creates a valid and perfected first priority
security interest in the Collateral, securing the payment of the Obligations.
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F. Financing
Statements.
No
financing statement or similar instrument covering the Collateral is or will
be
on file in any public office, and no security interest, other than the one
herein created, has attached or been perfected in the Collateral or any part
thereof.
V. Pledgor’s
Covenants.
Until
full payment and performance of all of the Obligations, unless the Secured
Party
otherwise consents in writing:
A. Rights
to Collateral.
Pledgor
shall defend the Collateral against all claims and demands of all persons at
any
time claiming any interest therein adverse to the Secured Party. Pledgor shall
keep the Collateral free from all claims, restrictions, encumbrances, security
interests, pledges, liens, demands or charges of any type, except the security
interest hereby created. Pledgor shall not lease, lend, assign, or otherwise
hypothecate, pledge or encumber the Collateral or any interest therein. Without
Secured Party’s prior written consent, Pledgor shall not consent to the
amendment to any document, instrument or agreement governing the terms of the
Collateral or the rights of Pledgor with respect thereto.
B.
Sale
of Collateral.
Without
the prior written consent of the Secured Party, Pledgor shall not sell or
otherwise dispose of the Collateral or any part thereof.
C. Secured
Party’s Costs.
Pledgor
shall pay all costs necessary to obtain, create, preserve, perfect, defend
and
enforce the security interest created by this Agreement, collect the
Obligations, and preserve, defend, enforce and collect the Collateral, including
but not limited to taxes, assessments, reasonable attorney’s fees, legal
expenses and expenses of sales. Whether the Collateral is or is not in the
Secured Party’s possession, and without any obligation to do so and without
waiving Pledgor’s default for failure to make any such payment, the Secured
Party at its option may pay any such costs and expenses and discharge
encumbrances on the Collateral, and such payments shall be a part of the
Obligations and bear interest at the rate set out in the documents evidencing
the Obligations. Pledgor agrees to reimburse the Secured Party on demand for
any
costs so incurred.
D. Information
and Inspection.
Pledgor
shall (i) promptly furnish to the Secured Party any information with respect
to
the Collateral requested by the Secured Party; (ii) allow the Secured Party
or
its representatives to inspect and copy, or furnish to the Secured Party or
its
representatives with copies of, all records relating to the Collateral and
the
Obligations; and (iii) promptly furnish the Secured Party or its representatives
with any other information reasonably requested by the Secured Party with
respect to the Collateral.
E. Additional
Documents.
Pledgor
shall sign and deliver, at the sole cost of Pledgor, any instruments furnished
by the Secured Party, including, without limitation, financing statements and
continuation statements, which are necessary or desirable in the judgment of
the
Secured Party to obtain, create, maintain and perfect the security interest
hereunder and to enable the Secured Party to comply with any federal or state
law in order to obtain, create or perfect the Secured Party’s interest in the
Collateral or to obtain proceeds of the Collateral.
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F. Notice
of Changes.
Pledgor
shall notify the Secured Party immediately of (i) any material change in the
Collateral, (ii) a change in Pledgor’s address specified above and (iii) a
change in any matter warranted or represented by Pledgor in this
Agreement.
G. Possession
of Collateral.
Pledgor
shall deliver all investment securities and other instruments and documents
which are a part of the Collateral and in Pledgor’s possession to the Secured
Party immediately, or if hereafter acquired, immediately following acquisition,
in a form suitable for transfer by delivery or accompanied by duly executed
instruments of transfer or assignment in blank with signatures appropriately
guaranteed in form and substance suitable to the Secured Party.
H. Power
of Attorney.
Pledgor
appoints the Secured Party and any officer thereof as Pledgor’s attorney-in-fact
with full power in Pledgor’s name and on Pledgor’s behalf to do every act which
Pledgor is obligated to do or may be required to do hereunder; provided,
however, nothing in this paragraph shall be construed to obligate the Secured
Party to take any action hereunder nor shall the Secured Party be liable to
Pledgor for any action or the failure to take any action hereunder. This
appointment shall be deemed a power coupled with an interest and shall not
be
terminable as long as the Obligations are outstanding. Without limiting the
generality of the foregoing, the Secured Party shall have the right and power
to
receive, endorse and collect all checks and other orders for the payment of
money made payable to Pledgor representing any dividend, interest payment or
other distribution payable in respect of the Collateral or any part
thereof.
I. Other
Parties and Other Collateral.
No
renewal or extensions of or any other indulgence with respect to the Obligations
or any part thereof, no modification of any Transaction Documents, no release
of
any security, no release of any person (including any maker, indorser, guarantor
or surety) liable on the Obligations, no delay in enforcement of payment, and
no
delay or omission or lack of diligence or care in exercising any right or power
with respect to the Obligations or any security therefor or guaranty thereof
or
under this Agreement shall in any manner impair or affect the rights of the
Secured Party under any law, hereunder, or under any other Transaction Document.
The Secured Party shall not be required to file suit or assert a claim for
personal judgment against any person for any part of the Obligations or seek
to
realize upon any other security for the Obligations, before foreclosing or
otherwise realizing upon the Collateral. Pledgor waives any right that can
be
waived to require or control application of any other security or proceeds
thereof, and agrees that the Secured Party shall have no duty or obligation
to
Pledgor to apply to the Obligations any such other security or proceeds
thereof.
J. Waivers
by Pledgor.
Pledgor
hereby waives (i) notice of the creation, advance, increase, existence,
extension or renewal of, and of any indulgence with respect to, the Obligations;
(ii) presentment, demand, notice of dishonor, and protest; and (iii) notice
of
the amount of the Obligations outstanding at any time. Pledgor waives any right
to require that any action be brought against any other person or to require
that resort be had to any other security. Pledgor further waives any right
of
subrogation or to enforce any right of action against any other obligor on
any
Obligation or other pledgor to the Secured Party of collateral for the
Obligations until the Obligations are paid in full.
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VI. Rights
and Powers of the Secured Party.
A. General.
Before
or after an Event of Default, the Secured Party, without liability to Pledgor,
may: (a) take control of proceeds of the Collateral, including stock or other
securities received as distributions; (b) release any Collateral in its
possession to Pledgor, temporarily or otherwise; and (c) exercise all other
rights which an owner of such Collateral may exercise, except that before an
Event of Default shall occur, the Secured Party shall not have the right to
receive cash dividends, interest, premium and other cash payments with respect
to the Shares or to vote or dispose of the Shares. At any time, the Secured
Party may transfer any of the Collateral or evidence thereof into its own name
or that of its nominee and if Secured Party is still in possession of the
Collateral after the Obligations have been paid in full, Secured Party shall
cause any Collateral that has been transferred to Secured Party’s name or that
of its nominee to be re-transferred into such names as Pledgor shall reasonably
request. The Secured Party shall not be liable for failure to collect any
account or instruments, or for any act or omission on the part of the Secured
Party, its officers, agents or employees, except for its or their own willful
misconduct or gross negligence. The foregoing rights and powers of the Secured
Party will be in addition to, and not a limitation upon, any rights and powers
of the Secured Party given by law, elsewhere in this Agreement, or
otherwise.
B. Dividends
and Voting Rights.
So long
as no Event of Default has occurred, Pledgor may (a) retain all cash dividends
and cash distributions paid with respect to the Shares and (b) subject to the
provisions of Section V.A., exercise or refrain from exercising any and all
voting and other consensual rights pertaining to the Shares. The Secured Party
will cooperate with any reasonable requests of Pledgor to effectuate the
foregoing.
C. Convertible
or Exercisable Collateral.
The
Secured Party may present for conversion or exercise any Collateral which is
convertible or exercisable into any other instrument or investment security
or a
combination thereof with cash, but the Secured Party shall not have any duty
to
present for conversion or exercise any Collateral unless it shall have received
from Pledgor detailed written instructions to that effect at a time reasonably
far in advance of the final conversion date to make such conversion possible.
Pledgor shall not present for conversion or exercise any Collateral that is
so
convertible or exercisable.
VII. Default.
A. Event
of Default; Rights and Remedies.
If any
Event of Default shall occur, then, in each and every such case, the Secured
Party may, without (a) presentment, demand, or protest, (b) notice of
default, dishonor, demand, non-payment, or protest, (c) notice of intent to
accelerate all or any part of the Obligations, (d) notice of acceleration of
all
or any part of the Obligations, or (e) notice of any other kind, all of
which Pledgor hereby expressly waives (except for any notice required under
this
Agreement which may not be waived under any applicable law), at any time
thereafter exercise and/or enforce any of the following rights and remedies,
at
the Secured Party’s option:
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(i) Direct
Delivery of Dividends and Other Distributions.
Direct
that all dividends, interest, premium and other payments with respect to the
Collateral of whatever kind or nature thereafter paid with respect to the
Collateral be paid directly to the Secured Party, and Pledgor shall execute
and
deliver to the Secured Party any and all documents necessary to effectuate
the
foregoing.
(ii) Liquidation
of Collateral.
Sell,
or instruct any agent to sell, all or any part of the Collateral, and direct
such agent to deliver all proceeds thereof to the Secured Party, and apply
all
proceeds to the payment of any or all of the Obligations in such order and
manner as the Secured Party shall, in its discretion, choose.
(iii) Acceleration.
Declare
the Obligations immediately due and payable.
(iv) Uniform
Commercial Code.
Exercise all of the rights, powers and remedies of a secured creditor under
the
Uniform Commercial Code then in effect in the State of New York.
Pledgor
specifically understands and agrees that any sale or redemption by the Secured
Party of all or part of the Collateral pursuant to the terms of this Agreement
may be effected by the Secured Party at times and in manners which could result
in the proceeds of such sale or redemption being significantly and materially
less than might have been received if such sale or redemption had occurred
at
different times or in different manners, and Pledgor hereby releases the Secured
Party and its officers and representatives from and against any and all
obligations and liabilities arising out of or related to the timing or manner
of
any such sale or redemption. The Pledgor agrees that the Collateral may be
sold
as provided for in this Agreement and expressly waives any rights of notice
of
sale, advertisement procedures, or related provisions granted under applicable
law, including the New York Lien Law.
VIII. General.
A. Parties
Bound.
The
Secured Party’s rights hereunder shall inure to the benefit of the Secured Party
and its successors and assigns, and in the event of any assignment or transfer
by the Secured Party of any of the Obligations or the Collateral, the Secured
Party thereafter shall be fully discharged from any responsibility with respect
to the Collateral so assigned or transferred, but the Secured Party shall retain
all rights and powers hereby given with respect to any of the Obligations or
Collateral not so assigned or transferred. All representations, warranties
and
agreements of Pledgor shall be binding upon the successors and permitted assigns
of Pledgor.
B. Waiver.
No
delay of the Secured Party in exercising any power or right shall operate as
a
waiver thereof; nor shall any single or partial exercise of any power or right
preclude other or further exercise thereof or the exercise of any other power
or
right. No waiver by the Secured Party of any right hereunder or of any default
by Pledgor shall be binding upon the Secured Party unless in writing, and no
failure by the Secured Party to exercise any power or right hereunder or waiver
of any default by Pledgor shall operate as a waiver of any other or further
exercise of such right or power or of any further default. Each right, power
and
remedy of the Secured Party as provided for herein or in any of the Loan
Documents, or which shall now or hereafter exist at law or in equity or by
statute or otherwise, shall be cumulative and concurrent and shall be in
addition to every other such right, power or remedy. The exercise or beginning
of the exercise by the Secured Party of any one or more of such rights, powers
or remedies shall not preclude the simultaneous or later exercise by the Secured
Party of any or all other such rights, powers or remedies.
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C. Notice.
Notice
shall be deemed reasonable if mailed postage prepaid at least five (5) days
before the related action to the address of the parties set forth below, or
to
such other address as any party may designate by written notice to the other
party. Each notice, request and demand shall be deemed given or made, if sent
by
mail, upon the earlier of the date of receipt or five (5) days after deposit
in
the mail, first class postage prepaid, or if sent by any other means, upon
delivery.
D. Modifications.
No
provision hereof shall be modified or limited except by a written agreement
expressly referring hereto and to the provisions so modified or limited, which
shall be signed by Pledgor and the Secured Party. The provisions of this
Agreement shall not be modified or limited by course of conduct or usage of
trade.
E. Partial
Invalidity.
The
unenforceability or invalidity of any provision of this Agreement shall not
affect the enforceability or validity of any other provision herein, and the
invalidity or unenforceability of any provision of any Transaction Document
to
any person or circumstance shall not affect the enforceability or validity
of
such provision as it may apply to other persons or circumstances.
F. Applicable
Law and Venue.
This
Agreement has been executed and delivered in the State of New York and shall
be
governed by the laws of that State. Wherever possible each provision of this
Agreement shall be interpreted in such manner as to be effective and valid
under
applicable law, but if any provision of this Agreement shall be prohibited
by or
invalid under applicable law, such provision shall be ineffective to the extent
of such prohibition or invalidity, without invalidating the remainder of such
provisions or the remaining provisions of this Agreement.
G. Financing
Statement.
To the
extent permitted by applicable law, a carbon, photographic or other reproduction
of this Agreement or any financing statement covering the Collateral shall
be
sufficient as a financing statement.
H. Definitions.
Capitalized terms used herein without definition have the meaning ascribed
to
those terms in the Securities Purchase Agreement, dated as of the date hereof,
between the Secured Party and Pledgor, and in the Transaction Documents
delivered pursuant thereto.
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IN
WITNESS WHEREOF, the parties hereto have caused this Pledge Agreement to be
duly
executed by their duly authorized representatives as of July 25,
2008.
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PLEDGOR:
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SHELTER
ISLAND OPPORTUNITY FUND, LLC
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SYZYGY
ENTERTAINMENT, LTD.
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By:
By: Shelter Island GP, LLC, its Manager
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By:
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/s/
Xxxx Xxxxxxxx
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Name:
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Name:
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Xxxx
Xxxxxxxx
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Title:
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Title:
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President
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