SECURITY AGREEMENT
THIS SECURITY AGREEMENT (the "Agreement"), is entered into and made
effective as of June 28, 2005, by and between CKRUSH ENTERTAINMENT, INC., a
Delaware corporation with its principal place of business located at 0000 Xxxxxx
xx xxx Xxxxxxxx, Xxxxx 000, Xxx Xxxx, XX 00000 (the "Company"), and the CORNELL
CAPITAL PARTNERS, LP (the "Secured Party").
WHEREAS, the Company and Headliners Entertainment, Inc. ("Headliners")
entered into a Subscription Agreement dated as of the date hereof (the
"Subscription Agreement") in connection with an investment by Headliners in
units of revenue participation rights (the "Units") in connection with two
motion pictures (the "Pictures");
WHEREAS, Cornell has purchased, and Headliners has issued to Cornell, a
Convertible Debenture dated as of the date hereof with a principal amount of
$3,000,000 (the "Convertible Debenture"), the net proceeds of which will be used
by Headliners for its purchase of the Units;
WHEREAS, to induce Cornell to purchase the Convertible Debenture and to
finance Headliners investment in the Pictures, Xxxxxx Xxxxxxx Promotions, Inc.
("CKP"), the Company, and the Secured Party have entered into a Guaranty
Agreement, dated as of the date hereof (the "Guaranty Agreement") pursuant to
which CKP and the Company Guaranty the repayment of the Convertible Debenture to
Cornell.
WHEREAS, to induce the Secured Party to enter into the transaction
contemplated by the Convertible Debenture and the Guaranty Agreement the Company
hereby grants to the Secured Party a security interest in and to the pledged
property identified on Exhibit A hereto (collectively referred to as the
"Pledged Property") until the satisfaction of the Obligations, as defined herein
below.
NOW, THEREFORE, in consideration of the promises and the mutual covenants
herein contained, and for other good and valuable consideration, the adequacy
and receipt of which are hereby acknowledged, the parties hereto hereby agree as
follows:
ARTICLE 1.
DEFINITIONS AND INTERPRETATIONS
Section 1.1. Recitals.
The above recitals are true and correct and are incorporated herein, in
their entirety, by this reference.
Section 1.2. Interpretations.
Nothing herein expressed or implied is intended or shall be construed to
confer upon any person other than the Secured Party any right, remedy or claim
under or by reason hereof.
Section 1.3. Obligations Secured.
The obligations secured hereby are any and all obligations of the Company
now existing or hereinafter incurred to the Secured Party under the Guaranty
Agreement (collectively, the "Obligations").
ARTICLE 2.
PLEDGED PROPERTY, ADMINISTRATION OF COLLATERAL
AND TERMINATION OF SECURITY INTEREST
Section 2.1. Pledged Property.
(a) Company hereby pledges to the Secured Party, and creates in the
Secured Party for its benefit, a security interest for such time until the
Obligations are paid in full, in and to all of the property of the Company as
set forth in Exhibit "A" attached hereto and the products thereof and the
proceeds of all such items (collectively, the "Pledged Property"):
(b) Simultaneously with the execution and delivery of this Agreement,
the Company shall make, execute, acknowledge, file, record and deliver to the
Secured Party any documents reasonably requested by the Secured Party to perfect
its security interest in the Pledged Property. Simultaneously with the execution
and delivery of this Agreement, the Company shall make, execute, acknowledge and
deliver to the Secured Party such documents and instruments, including, without
limitation, financing statements, certificates, affidavits and forms as may, in
the Secured Party's reasonable judgment, be necessary to effectuate, complete or
perfect, or to continue and preserve, the security interest of the Secured Party
in the Pledged Property, and the Secured Party shall hold such documents and
instruments as secured party, subject to the terms and conditions contained
herein.
Section 2.2. Rights; Interests; Etc.
(a) So long as no Event of Default (as hereinafter defined) shall have
occurred and be continuing:
(i) the Company shall be entitled to exercise any and all rights
pertaining to the Pledged Property or any part thereof for any purpose not
inconsistent with the terms hereof or applicable law; and
(ii) the Company shall be entitled to receive and retain any and
all payments paid or made in respect of the Pledged Property.
(b) Upon the occurrence and during the continuance of an Event of
Default:
(i) All rights of the Company to exercise the rights which it
would otherwise be entitled to exercise pursuant to Section 2.2(a)(i) hereof and
to receive payments which it would otherwise be authorized to receive and retain
pursuant to Section 2.2(a)(ii) hereof shall be suspended, and all such rights
shall thereupon become vested in the Secured Party who shall thereupon have the
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sole right to exercise such rights and to receive and hold as Pledged Property
such payments; provided, however, that if the Secured Party shall become
entitled and shall elect to exercise its right to realize on the Pledged
Property pursuant to Article 5 hereof, then all cash sums received by the
Secured Party, or held by Company for the benefit of the Secured Party and paid
over pursuant to Section 2.2(b)(ii) hereof, shall be applied against any
outstanding Obligations; and
(ii) All interest, dividends, income and other payments and
distributions which are received by the Company contrary to the provisions of
Section 2.2(b)(i) hereof shall be received in trust for the benefit of the
Secured Party, shall be segregated from other property of the Company and shall
be forthwith paid over to the Secured Party; or
(iii) The Secured Party in its sole discretion shall be
authorized to sell any or all of the Pledged Property at public or private sale
in order to recoup all of the outstanding principal plus accrued interest owed
pursuant to the Convertible Debenture as described herein
(c) An "Event of Default" shall be deemed to have occurred under this
Agreement upon an Event of Default under the Guaranty Agreement.
ARTICLE 3.
ATTORNEY-IN-FACT; PERFORMANCE
Section 3.1. Secured Party Appointed Attorney-In-Fact.
Upon the occurrence of an Event of Default, the Company hereby appoints the
Secured Party as its attorney-in-fact, with full authority in the place and
stead of the Company and in the name of the Company or otherwise, from time to
time in the Secured Party's discretion to take any action and to execute any
instrument which the Secured Party may reasonably deem necessary to accomplish
the purposes of this Agreement, including, without limitation, to receive and
collect all instruments made payable to the Company representing any payments in
respect of the Pledged Property or any part thereof and to give full discharge
for the same. The Secured Party may demand, collect, receipt for, settle,
compromise, adjust, xxx for, foreclose, or realize on the Pledged Property as
and when the Secured Party may determine. To facilitate collection, the Secured
Party may notify account debtors and obligors on any Pledged Property to make
payments directly to the Secured Party.
Section 3.2. Secured Party May Perform.
If the Company fails to perform any agreement contained herein, the Secured
Party, at its option, may itself perform, or cause performance of, such
agreement, and the expenses of the Secured Party incurred in connection
therewith shall be included in the Obligations secured hereby and payable by the
Company under Section 8.3.
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ARTICLE 4.
REPRESENTATIONS AND WARRANTIES
Section 4.1. Authorization; Enforceability.
Each of the parties hereto represents and warrants that it has taken all
action necessary to authorize the execution, delivery and performance of this
Agreement and the transactions contemplated hereby; and upon execution and
delivery, this Agreement shall constitute a valid and binding obligation of the
respective party, subject to applicable bankruptcy, insolvency, reorganization,
moratorium and similar laws affecting creditors' rights or by the principles
governing the availability of equitable remedies.
Section 4.2. Ownership of Pledged Property.
The Company warrants and represents that it is the legal and beneficial
owner of the Pledged Property free and clear of any lien, security interest,
option or other charge or encumbrance except for the security interest created
by this Agreement.
ARTICLE 5.
DEFAULT; REMEDIES; SUBSTITUTE COLLATERAL
Section 5.1. Default and Remedies.
(a) If an Event of Default described in Section 2.2(c) occurs, then in
each such case the Secured Party may declare the Obligations to be due and
payable immediately, by a notice in writing to the Company, and upon any such
declaration, the Obligations shall become immediately due and payable.
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(b) Upon the occurrence of an Event of Default, the Secured Party
shall: (i) be entitled to receive all distributions with respect to the Pledged
Property, (ii) to cause the Pledged Property to be transferred into the name of
the Secured Party or its nominee, (iii) to dispose of the Pledged Property, and
(iv) to realize upon any and all rights in the Pledged Property then held by the
Secured Party.
Section 5.2. Method of Realizing Upon the Pledged Property: Other Remedies.
Upon the occurrence of an Event of Default, in addition to any rights and
remedies available at law or in equity, the following provisions shall govern
the Secured Party's right to realize upon the Pledged Property:
(a) Any item of the Pledged Property may be sold for cash or other
value in any number of lots at brokers board, public auction or private sale and
may be sold without demand, advertisement or notice (except that the Secured
Party shall give the Company ten (10) days' prior written notice of the time and
place or of the time after which a private sale may be made (the "Sale
Notice")), which notice period is hereby agreed to be commercially reasonable.
At any sale or sales of the Pledged Property, the Company may bid for and
purchase the whole or any part of the Pledged Property and, upon compliance with
the terms of such sale, may hold, exploit and dispose of the same without
further accountability to the Secured Party. The Company will execute and
deliver, or cause to be executed and delivered, such instruments, documents,
assignments, waivers, certificates, and affidavits and supply or cause to be
supplied such further information and take such further action as the Secured
Party reasonably shall require in connection with any such sale.
(b) Any cash being held by the Secured Party as Pledged Property and
all cash proceeds received by the Secured Party in respect of, sale of,
collection from, or other realization upon all or any part of the Pledged
Property shall be applied as follows:
(i) to the payment of all amounts due the Secured Party for the
expenses reimbursable to it hereunder or owed to it pursuant to Section 8.3
hereof;
(ii) to the payment of the Obligations then due and unpaid.
(iii) the balance, if any, to the person or persons entitled
thereto, including, without limitation, the Company.
(c) In addition to all of the rights and remedies which the Secured Party
may have pursuant to this Agreement, the Secured Party shall have all of the
rights and remedies provided by law, including, without limitation, those under
the Uniform Commercial Code.
(i) If the Company fails to pay such amounts due upon the
occurrence of an Event of Default which is continuing, then the Secured Party
may institute a judicial proceeding for the collection of the sums so due and
unpaid, may prosecute such proceeding to judgment or final decree and may
enforce the same against the Company and collect the monies adjudged or decreed
to be payable in the manner provided by law out of the property of Company,
wherever situated.
(ii) The Company agrees that it shall be liable for any
reasonable fees, expenses and costs incurred by the Secured Party in connection
with enforcement, collection and preservation of this Agreement, including,
without limitation, reasonable legal fees and expenses, and such amounts shall
be deemed included as Obligations secured hereby and payable as set forth in
Section 8.3 hereof.
Section 5.3. Proofs of Claim.
In case of the pendency of any receivership, insolvency, liquidation,
bankruptcy, reorganization, arrangement, adjustment, composition or other
judicial proceeding relating to the Company or the property of the Company or of
such other obligor or its creditors, the Secured Party (irrespective of whether
the Obligations shall then be due and payable as therein expressed or by
declaration or otherwise and irrespective of whether the Secured Party shall
have made any demand on the Company for the payment of the Obligations), subject
to the rights of previous security holders, shall be entitled and empowered, by
intervention in such proceeding or otherwise:
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(i) to file and prove a claim for the whole amount of the
Obligations and to file such other papers or documents as may be necessary or
advisable in order to have the claims of the Secured Party (including any claim
for the reasonable legal fees and expenses and other expenses paid or incurred
by the Secured Party permitted hereunder and of the Secured Party allowed in
such judicial proceeding), and
(ii) to collect and receive any monies or other property payable
or deliverable on any such claims and to distribute the same; and any custodian,
receiver, assignee, trustee, liquidator, sequestrator or other similar official
in any such judicial proceeding is hereby authorized by the Secured Party to
make such payments to the Secured Party and, in the event that the Secured Party
shall consent to the making of such payments directed to the Secured Party, to
pay to the Secured Party any amounts for expenses due it hereunder.
Section 5.4. Duties Regarding Pledged Property.
The Secured Party shall have no duty as to the collection or protection of
the Pledged Property or any income thereon or as to the preservation of any
rights pertaining thereto, beyond the safe custody and reasonable care of any of
the Pledged Property actually in the Secured Party's possession.
ARTICLE 6.
AFFIRMATIVE COVENANTS
The Company covenants and agrees that, from the date hereof and until the
Obligations have been fully paid and satisfied, unless the Secured Party shall
consent otherwise in writing (as provided in Section 8.4 hereof):
Section 6.1. Existence, Properties, Etc.
(a) The Company shall do, or cause to be done, all things, or proceed
with due diligence with any actions or courses of action, that may be reasonably
necessary (i) to maintain Company's due organization, valid existence and good
standing under the laws of its state of incorporation, and (ii) to preserve and
keep in full force and effect all qualifications, licenses and registrations in
those jurisdictions in which the failure to do so could have a Material Adverse
Effect (as defined below); and
(b) the Company shall not do, or cause to be done, any act impairing
the Company's corporate power or authority to execute or deliver this Agreement
or any other document delivered in connection herewith, including, without
limitation, any UCC-1 Financing Statements required by the Secured Party to
which it is or will be a party, or perform any of its obligations hereunder or
thereunder. For purpose of this Agreement, the term "Material Adverse Effect"
shall mean any material and adverse affect, whether individually or in the
aggregate, upon (a) the Company's assets, business, operations, properties or
condition, financial or otherwise; (b) the Company's failure to make payment as
and when due of all or any part of the Obligations; or (c) the Pledged Property.
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Section 6.2. Contracts and Other Collateral.
The Company shall perform all of its obligations under or with respect to
each instrument, receivable, contract and other intangible included in the
Pledged Property to which the Company is now or hereafter will be party on a
timely basis and in the manner therein required, including, without limitation,
this Agreement.
Section 6.3. Defense of Collateral, Etc.
The Company shall defend and enforce its right, title and interest in and
to any part of: (a) the Pledged Property; and (b) if not included within the
Pledged Property, those assets and properties whose loss could have a material
adverse effect, the Company shall defend the Secured Party's right, title and
interest in and to each and every part of the Pledged Property, each against all
manner of claims and demands on a timely basis to the full extent permitted by
applicable law.
Section 6.4 Notice of Default.
The Company shall give written notice to the Secured Party of the
occurrence of any default or Event of Default under this Agreement or the
Guaranty Agreement promptly upon the occurrence thereof.
Section 6.5 Notice of Litigation.
The Company shall give notice, in writing, to the Secured Party of (a) any
actions, suits or proceedings wherein the amount at issue is in excess of
$50,000, instituted by any persons against the Company, or affecting any of the
assets of the Company, and (b) any dispute, not resolved within fifteen (15)
days of the commencement thereof, between the Company on the one hand and any
governmental or regulatory body on the other hand, which might reasonably be
expected to have a Material Adverse Effect on the business operations or
financial condition of the Company.
ARTICLE 7.
NEGATIVE COVENANTS
The Company covenants and agrees that, from the date hereof until the
Obligations have been fully paid and satisfied, the Company shall not, unless
the Secured Party shall consent otherwise in writing:
Section 7.1. Liens and Encumbrances.
The Company shall not directly or indirectly make, create, incur, assume or
permit to exist any assignment, transfer, pledge, mortgage, security interest or
other lien or encumbrance of any nature in, to or against any part of the
Pledged Property, or offer or agree to do so, or own or acquire or agree to
acquire any asset or property of any character subject to any of the foregoing
encumbrances (including any conditional sale contract or other title retention
agreement), or assign, pledge or in any way transfer or encumber its right to
receive any income or other distribution or proceeds from any part of the
Pledged Property; or enter into any sale-leaseback financing respecting any part
of the Pledged Property as lessee, or cause or assist the inception or
continuation of any of the foregoing.
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ARTICLE 8.
MISCELLANEOUS
Section 8.1. Notices.
All notices or other communications required or permitted to be given
pursuant to this Agreement shall be in writing and shall be considered as duly
given on: (a) the date of delivery, if delivered in person, by nationally
recognized overnight delivery service or (b) five (5) days after mailing if
mailed from within the continental United States by certified mail, return
receipt requested to the party entitled to receive the same:
If to the Secured Party: Cornell Capital Partners, LP
000 Xxxxxx Xxxxxx-Xxxxx 0000
Xxxxxx Xxxx, Xxx Xxxxxx 00000
Attention: Xxxx Xxxxxx
Portfolio Manager
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
With a copy to: Xxxxx Xxxxxxxx, Esq.
000 Xxxxxx Xxxxxx, Xxxxx 0000
Xxxxxx Xxxx, XX 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
And if to the Company: Ckrush Entertainment, Inc.
0000 Xxxxxx xx xxx Xxxxxxxx, Xxxxx 000
Xxx Xxxx, XX 00000
Attention: Xxx XxXxxxxxx
With a copy to: Xxxxxxxx Xxxxxxx LLP
The Chrysler Building
000 Xxxxxxxxx Xxxxxx
Xxx Xxxx, XX 00000
Attention: Xxxxxxx X. Xxxxxxxx, Esq.
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
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Any party may change its address by giving notice to the other party
stating its new address. Commencing on the tenth (10th) day after the giving of
such notice, such newly designated address shall be such party's address for the
purpose of all notices or other communications required or permitted to be given
pursuant to this Agreement.
Section 8.2. Severability.
If any provision of this Agreement shall be held invalid or unenforceable,
such invalidity or unenforceability shall attach only to such provision and
shall not in any manner affect or render invalid or unenforceable any other
severable provision of this Agreement, and this Agreement shall be carried out
as if any such invalid or unenforceable provision were not contained herein.
Section 8.3. Expenses.
In the event of an Event of Default, the Company will pay to the Secured
Party the amount of any and all reasonable expenses, including the reasonable
fees and expenses of its counsel, which the Secured Party may incur in
connection with: (i) the custody or preservation of, or the sale, collection
from, or other realization upon, any of the Pledged Property; (ii) the exercise
or enforcement of any of the rights of the Secured Party hereunder or (iii) the
failure by the Company to perform or observe any of the provisions hereof.
Section 8.4. Waivers, Amendments, Etc.
The Secured Party's delay or failure at any time or times hereafter to
require strict performance by Company of any undertakings, agreements or
covenants shall not waiver, affect, or diminish any right of the Secured Party
under this Agreement to demand strict compliance and performance herewith. Any
waiver by the Secured Party of any Event of Default shall not waive or affect
any other Event of Default, whether such Event of Default is prior or subsequent
thereto and whether of the same or a different type. None of the undertakings,
agreements and covenants of the Company contained in this Agreement, and no
Event of Default, shall be deemed to have been waived by the Secured Party, nor
may this Agreement be amended, changed or modified, unless such waiver,
amendment, change or modification is evidenced by an instrument in writing
specifying such waiver, amendment, change or modification and signed by the
Secured Party.
Section 8.5. Continuing Security Interest.
This Agreement shall create a continuing security interest in the Pledged
Property and shall: (i) remain in full force and effect until payment in full of
the Obligations; and (ii) be binding upon the Company and its successors and
heirs and (iii) inure to the benefit of the Secured Party and its successors and
assigns. Upon the payment or satisfaction in full of the Obligations, the
Company shall be entitled to the return, at its expense, of such of the Pledged
Property as shall not have been sold in accordance with Section 5.2 hereof or
otherwise applied pursuant to the terms hereof.
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Section 8.6. Independent Representation.
Each party hereto acknowledges and agrees that it has received or has had
the opportunity to receive independent legal counsel of its own choice and that
it has been sufficiently apprised of its rights and responsibilities with regard
to the substance of this Agreement.
Section 8.7. Applicable Law: Jurisdiction.
This Agreement shall be governed by and interpreted in accordance with the
laws of the State of New Jersey without regard to the principles of conflict of
laws. The parties further agree that any action between them shall be heard in
Xxxxxx County, New Jersey, and expressly consent to the jurisdiction and venue
of the Superior Court of New Jersey, sitting in Xxxxxx County and the United
States District Court for the District of New Jersey sitting in Newark, New
Jersey for the adjudication of any civil action asserted pursuant to this
Paragraph.
Section 8.8. Waiver of Jury Trial.
AS A FURTHER INDUCEMENT FOR THE SECURED PARTY TO ENTER INTO THIS AGREEMENT
AND TO MAKE THE FINANCIAL ACCOMMODATIONS TO THE COMPANY, THE COMPANY HEREBY
WAIVES ANY RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING RELATED IN ANY WAY TO
THIS AGREEMENT AND/OR ANY AND ALL OTHER DOCUMENTS RELATED TO THIS TRANSACTION.
Section 8.9. Entire Agreement.
This Agreement constitutes the entire agreement among the parties and
supersedes any prior agreement or understanding among them with respect to the
subject matter hereof.
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IN WITNESS WHEREOF, the parties hereto have executed this Security
Agreement as of the date first above written.
COMPANY:
CKRUSH ENTERTAINMENT, INC.
By: /s/ Xxx XxXxxxxxx
------------------
Name: Xxx XxXxxxxxx
Title: President
SECURED PARTY:
CORNELL CAPITAL PARTNERS, LP
By: Yorkville Advisors, LLC
Its: General Partner
By: /s/ Xxxx Xxxxxx
----------------
Name: Xxxx Xxxxxx
Title: Portfolio Manager
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EXHIBIT A
DEFINITION OF PLEDGED PROPERTY
For the purpose of securing prompt and complete payment and performance by
the Company of all of the Obligations, the Company unconditionally and
irrevocably hereby grants to the Secured Party a continuing security interest in
and to, and lien upon, the following Pledged Property of the Company:
(a) any and all rights or interests of the Company in TV The Movie
Holdings, LLC, and Beer League Holdings, LLC including, without limitation, any
distributions from TV The Movie Holdings, LLC and Beer League Holdings, LLC, any
distributions under the limited liability company operating agreements of TV The
Movie Holdings, LLC and Beer League Holdings, LLC, any and all rights to the
proceeds of the movies being made by TV The Movie Holdings, LLC, Beer League
Holdings, LLC and its subsidiaries, however titled (which are currently titled
"TV The Movie" and "Beer League"), derived from the commercial exploitation of
the movie, on a worldwide basis in perpetuity, including, without limitation,
the proceeds of the screenplay and script upon which it is based, and any and
all other proceeds from the commercial exploitations thereof, including (without
limitation) any and all proceeds derived from the commercial exploitation of:
(i) motion picture, film, video tape, digital or other productions or
embodiments of the foregoing, whether made for theatrical, non-theatrical,
television, broadcast, cable, satellite, syndication, internet, video, pay per
view, dvd, tape, hd, tivo or other medium or manner of intermediate or ultimate
delivery, and whether recorded or preserved on film, videotape, cassette,
cartridge, disc or on or by any other means, method, process or device (whether
now known or hereafter developed), or any other parts of or work related
thereto, related trailers, "making of" or other features, and masters, prints or
other storage or embodiment thereof, in each case whether rough, deleted,
finished or final, (ii) screenplays, props and other production materials, and
still prints, promotional materials and rights, (iii) box office share,
payments, percentages, fees, revenues and other proceeds from any and all of the
foregoing, and (iv) and other rights, powers, privileges, remedies and interests
of the Pledgor under, in or with respect to any of the foregoing.
(b) all products and proceeds (including, without limitation,
insurance proceeds) derived from the above-described Pledged Property.
A-1
