Exhibit 10.5
 
SECURITY AGREEMENT

This Security Agreement (this “Agreement”) is made on the 28th day of September,
2012, by and between THE NEW JERSEY ECONOMIC DEVELOPMENT AUTHORITY (“Secured
Party”), having an address at 36 West State Street, PO Box 990, Trenton, New
Jersey 08625-0990, and X-FACTOR COMMUNICATIONS HOLDINGS, INC., a Delaware
corporation, having an address at 3 Empire Boulevard, 5th Floor, South
Hackensack, NJ 07606  (“Debtor”).

RECITALS:

A.           This Agreement is made to secure the performance of the Debtor
pursuant to a Corporate Guarantee Agreement of even date herewith, to secure the
payment of all obligations pursuant to a Secured Convertible Promissory Note as
amended and Convertible Loan Agreement dated July 31, 2009 as amended (the "Loan
Agreement") made and given by X-FACTOR COMMUNICATIONS, LLC (the "Borrower").

B.           Borrower and Debtor have completed a reverse merger pursuant to
which Borrower has become the wholly owned subsidiary of Debtor (the
“Transaction”). In connection with the Transaction, the Secured Party, Borrower
and Debtor have agreed that Debtor will pledge certain collateral to the Secured
Party to further secure the payment of all obligations under the Agreements.

C.           To secure all current and future obligations and indebtedness of
the Debtor to the Secured Party, the Debtor has agreed to grant to the Secured
Party a continuing valid first priority general lien upon and a security
interest in the Collateral (as defined below) of the Debtor, including any
Intellectual Property (as defined below) of Debtor, on the terms and conditions
provided herein.

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

1.           DEFINITIONS:  As used herein, the term:

A.  “Obligations and Indebtedness” shall mean any and all indebtedness which may
now or hereafter be owing by the Debtor to the Secured Party, whether secured by
pledge or lien upon or security interest in its properties, or in the properties
of any other person, firm or corporation, whether such indebtedness is absolute
or contingent, joint or several, matured or unmatured, direct or indirect, and
whether the liability for such indebtedness is as principal, surety, endorser,
guarantor or otherwise, and the performance and fulfillment by the Debtor of all
of the terms, conditions, promises, covenants and provisions contained in this
Security Agreement, and any other agreement to which the Debtor and the Secured
Party are parties or otherwise bound.

B.  “Accounts” or “Accounts Receivable” shall have the meaning set forth in the
Code and shall include the Debtor’s rights to payment for goods and Equipment
(as hereinafter defined) sold, rented or leased, or services performed and
includes open accounts, installment contracts receivable, notes, bills,
acceptances, leases and all other forms or obligation for goods sold or services
rendered, whether the same now exist or are hereafter created or possessed by
the Debtor.

C.  “Inventory” shall have the meaning set forth in the Code and shall include
all of the products sold or to be sold by the Debtor, and all work in process
and materials used or consumed by the Debtor in connection with the sale of the
products, now existing or hereafter arising, and shall also include all packing,
shipping, advertising and promotional materials and supplies.

 
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D.  “Equipment” shall have the meaning set forth in the Code and shall include
all machinery, equipment (including but not limited to, cash registers,
computers, safes and display fixtures), vehicles, trailers, trucks, automobiles,
trade styles, furniture and fixtures, now existing or hereafter arising, of the
Debtor.

E.  “Other Assets” shall mean all membership interests in Borrower, all contract
rights, chattel paper, leasehold improvements and general intangibles,
including, without limitation, goodwill, patents, trademarks, trade names, art
work, catalogs, brochures, merchandising, promotional and advertising material,
blueprints, mailing lists, designs, product lines, research and development and
other personal property of the Debtor, whether the same now exist or are
hereafter created or possessed by the Debtor.

F.  “Collateral” shall mean all Accounts Receivable, Inventory, Equipment, and
Other Assets of the Debtor, now existing or hereafter acquired or arising, and
their respective proceeds, cash and non-cash, as well as all Collateral
referenced in any Financing Statement (Form UCC-1) filed by Secured Party and/or
the Debtor.

G. “Intellectual Property” shall mean any and all worldwide industrial and
intellectual property rights and all rights associated therewith, including all
patents and applications therefor and all reissues, divisions, renewals,
extensions, provisionals, continuations and continuations-in-part thereof, all
inventions (whether patentable or not), invention disclosures, improvements,
trade secrets, proprietary information, know how, technology, technical data,
proprietary processes and formulae, algorithms, specifications, customer lists
and supplier lists, all industrial designs and any registrations and
applications therefor, all trade names, logos, common law trademarks and service
marks, trademark and service mark registrations and applications therefor,
Internet domain names, Internet and World Wide Web URLs or addresses, all
copyrights, copyright registrations and applications therefor, and all other
rights corresponding thereto, all mask works, mask work registrations and
applications therefor, and any equivalent or similar rights in semiconductor
masks, layouts, architectures or topology, all computer software, including all
source code, object code, firmware, development tools, files, records and data,
all schematics, netlists, test methodologies, test vectors, emulation and
simulation tools and reports, hardware development tools, and all rights in
prototypes, breadboards and other devices, all databases and data collections
and all rights therein, all moral and economic rights of authors and inventors,
however denominated, and any similar or equivalent rights to any of the
foregoing, and all tangible embodiments of the foregoing.

H.  Except as heretofore modified, all terms used herein which are defined in
the Uniform Commercial Code of the State of New Jersey as from time to time in
effect (the “Code”) shall have the same meaning herein as in the Code.

2.  DEBTOR’S PLACES OF BUSINESS:  The Debtor warrants that the primary place of
business is the address and location designated as such on Schedule A, annexed
hereto and made a part hereof.  The Debtor further warrants that all records
relating to the Collateral are and will be located at said premises and shall
not be removed therefrom.  In addition to the primary places of business, the
Debtor further warrants that the Collateral, other than the outstanding shares
of common stock, is located only at the locations set forth on Schedule A, and
at no other places.  The Debtors shall notify Secured Party in writing of any
changes or discontinuance of its respective place of business, of any other
places at which either of them may hereafter conduct business, and any change in
the place where the Collateral shall be located and kept, all at least fifteen
(15) days prior to any such change.

 
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3.  GRANT OF SECURITY INTEREST:  As security for the prompt performance and
payment in full by the Debtor of all of its respective Obligations and
Indebtedness, the Debtor hereby assigns, transfers, pledges and grants to the
Secured Party a continuing general lien upon and a security interest in the
Collateral, whether now existing or hereafter acquired by way of replacement,
substitution, addition, accession or otherwise, and all books and records of
account, documents and papers relating to such Collateral.  The security
interest and lien created and provided for herein shall, without break in
continuity and without further formality or act, continue in and attach to all
proceeds thereof no matter how or when arising and regardless of the nature
thereof.

4.  COLLATERAL CONTROL:  The Borrower agrees that it will not transfer, or cause
to have been transferred, title to or possession of any interest in the
Collateral, or any part thereof, other than in the normal course of business, to
any person or entity, without the prior express written consent of the Secured
Party.  The Debtor shall provide the Secured Party promptly with any information
concerning the Collateral which shall be reasonably required by the Secured
Party.  So long as no event of default exists under this Agreement or under any
of the Transaction Documents as that term is defined in the Loan Agreement, the
Debtor shall be entitled to receive and collect, comprise and settle all
proceeds of its Collateral.  Upon a default under this Agreement or the
Transaction Documents, the Debtor’s right to collect said proceeds shall be
terminated and the Debtor shall hold all of said proceeds in trust for the
account of the Secured Party in a separate lock box or specifically designated
account, and shall deliver the same of the Secured Party in the identical form
received.

5.  TITLE; LIENS:  (a)  The Debtor hereby represents and warrants that it is or
will be, at the time additional property of such nature is acquired by the
Debtor, the absolute owner of the Collateral, with full right to pledge, assign,
transfer and create a security interest therein, free and clear of all claims
and demands of all other persons or entities, except as may be permitted by this
Agreement or the Loan Agreement.  The Debtor shall not grant, create, permit or
suffer to exist any additional lien upon or security interest in the Collateral
in favor of any party other than the Secured Party, except as may be permitted
by sub-paragraph (b), below.

(b) The Secured Party hereby acknowledges that the Debtor may, from time to
time, seek financing or credit in connection with its business and/or
operations, from a state or federally chartered institutional lender
(“Bank”).  The Secured Party hereby agrees to subordinate the liens on the
Collateral (except Intellectual Property and Debtor’s membership interest in
Borrower, as mentioned in Section 12.01 herein), granted herein to the extent of
the aggregate amount of $125,000, to any liens granted to a Bank for the
purposes expressed above (“Senior Indebtedness”).  To effect such subordination,
the Secured Party agrees to execute a valid and binding inter-creditor agreement
with any such Bank in form and substance reasonably acceptable to the Secured
Party’s counsel.  Nothing in this Paragraph 5 (b) shall obligate Secured Party
to diminish any rights other than the subordination of the priority of the liens
in the Collateral granted to the Secured Party pursuant to this Security
Agreement in favor of such Bank, and then only to the extent of $125,000 nor to
take any act or enter into any agreement that is inconsistent with the board
action of Secured Party authorizing the transactions associated with this
Agreement.  Any amount in excess of $125,000 requires the express prior written
consent of Secured Party authorizing the transaction associated with this
Agreement. Said consent shall not be unreasonably withheld.

6.  PERFECTING SECURITY INTEREST:  The Debtor agrees to perform any and all
steps requested by the Secured Party to perfect the security interest granted
herein by way of filing notices of lien, financing statements, control
agreements continuation statements or amendments thereto, and grants to the
Secured Party the right to file any of the above in which a debtor’s signature
is required under the Code.  Where Collateral or any of the proceeds thereof are
in the hands of third parties, agents or custodians of the Debtor, it shall,
after default and on the Secured Party’s request, notify such third parties,
agents or custodians of the Secured Party’s security interest therein, and
instruct them to hold the same for Secured Party’s account and subject to
Secured Party’s instructions.

 
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7.  TAXES, CHARGES:  The Debtor shall pay, when due, all taxes, assessments and
other charges lawfully levied or assessed upon the Collateral subject to the
Secured Party’s security interest, and if such taxes, assessments or charges
remain unpaid after the date fixed for payment of same, or if any lien shall be
claimed which in the Secured Party’s opinion might create a valid obligation
having priority over the rights granted to the Secured Party herein, the Secured
Party may, upon notice to the Debtor, pay those taxes, assessments, charges or
claims, and the amount thereof shall be added the Obligations and Indebtedness
hereby secured.  All expenses incurred by the Secured Party (including, but not
limited to, attorney’s fees) in protecting, enforcing or foreclosing the
security interest granted to the Secured Party hereunder, whether through
judicial proceedings or otherwise, or in defending or prosecuting any actions or
proceedings arising out of or related to the Secured Party’s transactions with
the Debtor, as applicable, shall be borne and paid for by the Debtor, and, until
paid, shall be added to the Obligations and Indebtedness hereby secured.  Any
additional indebtedness created or incurred pursuant to the provisions of this
Paragraph 7, shall bear interest at the rate of default interest per month until
paid, subject to the limitations of applicable law.

8.  DEFAULT:  (i) Upon the happening of an event that constitutes an “Event of
Default” under the Loan Agreement, or (ii) in the event of a breach by the
Debtor of this Agreement, the Corporate Guarantee Agreement, the Membership
Interest Pledge Agreement or any agreement herein contained or referred to if
such breach is not cured within any applicable grace period, or (iii) if, in the
reasonable judgment of the Secured Party, the Debtor has taken action or has
failed to take action which has resulted or will result in a material impairment
of the Collateral, the Secured Party shall have the right, without notice to the
Debtor, take possession of the Collateral, and all books and records of account,
documents and papers relating thereto, without judicial process, and to enter
any premises where the same may be located for the purpose of taking possession
of or removing same.  Upon the occurrence of an Event of Default, the Secured
Party shall have the right to sell, lease or otherwise dispose of all or any
part of the Collateral, either at public or private sale, in lots or in bulk,
for cash or for credit, under the provisions of the Code or any other law(s)
that may be applicable, and it shall have the right to purchase at any such sale
free of any right of redemption which is hereby expressly waived by the
Debtor.  Unless Collateral is perishable or threatens to decline speedily in
value or is of a type customarily sold on a recognizable market, the Secured
Party shall give the Debtor reasonable notice of the time and place of any
public sale thereof or of the time after which any private sale or intent to
purchase is to be made.  The requirement of reasonable notice shall be met if
such notice is given as provided herein, at least ten (10) days before the time
of sale or disposition.  The proceeds of any sales, collections or other
dispositions of Collateral shall be applied first to the reasonable expenses of
retaking, holding, storing, processing, preparing for sale, collection and the
like, and then to the satisfaction of the Obligations and Indebtedness of the
Debtor, application as to particular Obligations and Indebtedness or as to
principal or interest to be in the Secured Party’s sole discretion.  The Debtor
shall be liable for and shall pay to the Secured Party on demand any deficiency
that may remain after any disposition as herein provided.  In addition to the
foregoing, the Secured Party shall have all other rights, as a secured party,
under the Code and any other applicable law(s).

9.  POWER OF ATTORNEY:  The Debtor irrevocably makes, constitutes and appoints
the Secured Party, any of its officers, employees or agents as its
attorneys-in-fact, with full power of substitution, to receive, open and dispose
of all mail addressed to the Debtor.  Until satisfaction and payment of all
Obligations and Indebtedness, the Secured Party shall have the irrevocable right
and authority to direct post office authorities, by notice given in the name of
the Debtor and signed by the Secured Party or any agent thereof, to deliver all
such mail to whatever address the Secured Party may designate.  The Secured
Party is hereby authorized to sign and endorse and use the name of the Debtor or
any trade name or bank name, upon any and all checks, drafts, acceptances, money
orders, notes and other similar instruments, by designated officers, employees
or agents, and the Debtor hereby releases any bank, trust company or other
institution accepting any of those instruments from any liability arising
therefrom.  The powers contained in this Paragraph 9 shall be and become
effective only upon the happening of a default under, or breach of the
Transaction Documents or a default or breach hereunder, and shall be used solely
for the purpose of protecting the security interest granted herein.

 
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10.  TERM:  The lien, rights and security interest granted to the Secured Party
hereunder shall continue in full force and effect until the final payment and
full performance of all Obligations and Indebtedness of the Debtor to the
Secured Party or the loan disbursed under the Loan Agreement is fully converted.

11.  SUCCESSORS AND ASSIGNS:  This Agreement is subject to modification only in
writing, and cannot be changed orally.  All of the rights, privileges, remedies
and options given to the Secured Party shall inure to the benefit of its
successors and assigns; and all of the terms, conditions, promises, covenants,
provisions and warranties of this Agreement shall inure to the benefit of and
shall bind the Debtor, its respective successors and assigns.  The Debtor cannot
assign this Agreement without the written consent of the Secured Party. All
attempts to assign the Agreement without such consent shall be null and void.

12.           MISCELLANEOUS:

12.01.           Entire Understanding; Amendment.  This Agreement and the
documents referenced herein represent the entire understanding of the parties
hereto with respect to the subject matter hereof and thereof, and supersede all
prior and contemporaneous negotiations, understandings and agreements, written
or oral, between the parties hereto with respect to the subject matter hereof
and thereof, all of which prior agreements and understandings are hereby
rendered null and void.  This Agreement may not be amended or modified except by
a writing executed by the parties hereto. Notwithstanding the foregoing, it is
acknowledged and agreed that the Debtor and Secured Party have also executed a
Membership Interest Pledge Agreement, dated the date hereof, which separately
addresses Debtor’s granting to Secured Party a first lien on Debtor’s membership
interest in Borrower.

12.02.           No Waiver.  No waiver of any provision hereof shall be
effective unless set forth by a written instrument signed by the parties hereto.

12.03.           Counterparts.  This Agreement may be executed and delivered by
telecopier, e-mail, PDF or other facsimile transmission all with the same force
and effect as if the same were a fully executed and delivered original manual
counterpart.

12.04.           Headings. Paragraph and Section headings contained in this
Agreement are for convenience of reference only and shall not be deemed a part
of this Agreement.

12.05           Jurisdiction.  This Agreement and the performance of the parties
hereunder shall be construed and interpreted in accordance with the laws of the
State of New Jersey, wherein it was negotiated and executed, and the parties
hereunder consent and agree that the State and Federal Courts which sit in the
State of New Jersey shall have jurisdiction with respect to all controversies
and disputes arising hereunder.

12.06.           WAIVER OF JURY TRIAL AND SETOFF.  THE DEBTOR HEREBY WAIVES THE
RIGHT TO INTERPOSE COUNTERCLAIMS OR SETOFFS OF ANY KIND AND DESCRIPTION IN ANY
LITIGATION ARISING HEREUNDER AND WAIVES THE RIGHT IN ANY LITIGATION WITH SECURED
PARTY (WHETHER OR NOT ARISING OUT OF OR RELATING TO THIS SECURITY AGREEMENT) TO
TRIAL BY JURY.

 
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12.07.           Construction.  Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law.  If any such provision shall be prohibited by or invalid under
any law, such provision shall be effective to the extent permitted by such
prohibition or invalidity without invalidating the remainder of such provision
or the remaining provisions of this Agreement.

12.08           Rights Cumulative; Forbearance.  The rights, powers and remedies
given to the Secured Party under this Agreement shall be in addition to and not
in lieu of all rights, powers and remedies given to it by virtue of any other
document or instrument executed and delivered by the Debtor and the Secured
Party or to which the Debtor and the Secured Party are both parties or both
otherwise bound, or otherwise available to the Secured Party under the law or in
equity.  Any forbearance, failure or delay by the Secured Party in exercising
any right, power or remedy under this Agreement or in any other documents or
instrument executed and delivered by the Debtor and the Secured Party or to
which the Debtor and the Secured Party are both parties or both otherwise bound,
or otherwise available to the Secured Party shall not be deemed to be a waiver
of such right, power or remedy, nor shall any single or partial exercise of any
right, power or remedy preclude the further exercise thereof.

[SIGNATURE PAGE FOLLOWS]
 
 
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IN WITNESS WHEREOF, the parties hereto have executed this Security Agreement the
day and year first above written.
 

  DEBTOR:           X-FACTOR COMMUNICATION HOLDINGS, INC.          
 
By:
/s/  Charles Saracino     Name: Charles Saracino     Title: President & CEO  

  SECURED PARTY:          
NEW JERSEY ECONOMIC DEVELOPMENT AUTHORITY
         
 
By:
/s/ Daniel Weick     Name: Daniel Weick     Title: Director-Finance and Bond
Portfolio Management          

 
 
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ACKNOWLEDGMENT
 
STATE OF NEW JERSEY      :
          ss.:
COUNTY OF __________    :

BE IT REMEMBERED, that on this _____ day of September, 2012, before me, the
subscriber, personally appeared CHARLES SARACINO, who, being by me duly sworn,
did depose and make proof to my satisfaction that he is the PRESIDENT & CEO of
X-FACTOR COMMUNICATIONS HOLDINGS, INC., the entity mentioned in the within
Instrument; that the execution, as well as the making of this Instrument, has
been duly authorized by a proper resolution of the Board of Directors of said
entity; and said Instrument was signed and delivered by said officer as and for
the voluntary act and deed of said entity.
 
_____________________________
 
 
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ACKNOWLEDGMENT
 
STATE OF NEW JERSEY    :
ss.:
COUNTY OF MERCER        :

BE IT REMEMBERED, that on this ____ day of __________, 2012, before me, the
subscriber, personally appeared DANIEL WEICK, who, being by me duly sworn, did
depose and make proof to my satisfaction that she is the DIRECTOR – FINANCE AND
BOND PORTFOLIO MANAGEMENT of the NEW JERSEY ECONOMIC DEVELOPMENT AUTHORITY, the
authority mentioned in the within Instrument; that the execution, as well as the
making of this Instrument, has been duly authorized by a proper resolution of
the Board of Members of said authority; and said Instrument was signed and
delivered by said officer as and for the voluntary act and deed of said
authority.
 
_____________________________
 
 
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SCHEDULE A
 
Primary Places of Debtor’s Business
 
3 Empire Boulevard, 5th Floor
South Hackensack, NJ 07606
 
Additional Collateral Locations:
 
None
 
 
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