Filed by sedaredgar.com - Panglobal Brands Inc. - Exhibit 10.5







	
      SECURITY AGREEMENT 

       

	 


          THIS
SECURITY AGREEMENT, dated as of March 8, 2008 (the “Security Agreement”),
is executed by PANGLOBAL BRANDS INC, a company incorporated under
the laws of Delaware (“Debtor”), for the benefit of Sinecure Holdings
Limited, a company incorporated under the laws of the British Virgin
Islands, and Capella Investments Inc, a company incorporated under the
laws of the State of Nevada, (each a “Secured Party”). 

          WHEREAS,
Secured Parties have together agreed to provide to Debtor a loan in the maximum
principal amount of $750,000 (the “Loan”), as evidenced by that certain
Revolving Loan Agreement, dated as of even date herewith (the “Loan
Agreement”), made by Debtor, as borrower, in favor of Secured Party, as
lender. 

          WHEREAS,
it is a condition precedent to the extension of the Loan that Debtor enter into
this Agreement to secure, among other things, the Indebtedness (as defined
below), and Debtor has agreed to enter into this Agreement in furtherance of the
same. 

          NOW
THEREFORE, in consideration of the premises and mutual covenants and agreements
set forth herein, Debtor hereby agrees as follows: 

                              
For value received, Debtor grants to Secured Party a continuing security
interest in the Collateral (as defined below) to secure payment when due,
whether by stated maturity, demand, acceleration or otherwise, of all existing
and future indebtedness and obligations of Debtor (“Indebtedness”),
including but not limited to Indebtedness arising under the Loan Agreement and
all other agreements and instruments related thereto. Indebtedness includes
without limitation any and all obligations or liabilities of Debtor to Secured
Party, whether absolute or contingent, direct or indirect, voluntary or
involuntary, liquidated or unliquidated, joint or several, known or unknown; any
and all obligations or liabilities for which Debtor would otherwise be liable to
Secured Party were it not for the invalidity or unenforceability of such
obligations or liabilities by reason of any bankruptcy, insolvency or other law,
or for any other reason; any and all amendments, modifications, renewals and/or
extensions of any of the above; all costs incurred by Secured Party in
establishing, determining, continuing, or defending the validity or priority of
its security interest, or in pursuing its rights and remedies under this
Agreement or under any other agreement between Secured Party and Debtor or in
connection with any proceeding involving Secured Party as a result of any
financial accommodation to Debtor; and all other costs of collecting
indebtedness, including without limitation attorneys’ fees. Debtor agrees to pay
Secured Party all such costs incurred by Secured Party, immediately upon demand,
and until paid all costs shall bear interest at the highest per annum rate
applicable to any of the indebtedness, but not in excess of the maximum rate
permitted by law. Any reference in this Agreement to attorney fees shall be
deemed a reference to actual fees, costs, and expenses of both in-house and
outside counsel and paralegals, whether or not a suit or action is instituted,
and to court costs if a suit or action is instituted, and whether attorneys’
fees or court costs are incurred at the trial court level, on appeal, in a
bankruptcy, administrative or probate proceeding or otherwise. 

                         1.       
Collateral. Collateral shall mean all the following property Debtor now
or later owns or has an interest in, wherever located:

1




                                   1.1      All
present and future accounts, accounts receivable, agreements, contracts, leases,
contract rights, rights to payment, instruments, documents, chattel paper,
security agreements, guaranties, letters of credit, undertakings, surety bonds,
insurance policies, notes and drafts, and all forms of obligations owing to
Debtor or in which Debtor may have any interest, however created or arising and
whether or not earned by performance; 

                                   1.2      All
present and future general intangibles, payment intangibles, all tax refunds of
every kind and nature to which Debtor now or hereafter may become entitled,
however arising, all other refunds, and all deposits, reserves, loans,
royalties, cost savings, deferred payments, goodwill, chooses in action,
liquidated damages, rights to indemnification, trade secrets, computer programs,
software, customer and supplier lists, trademarks, trade names, patents,
licenses, permits, copyrights, technology, processes, proprietary information
and insurance proceeds of which Debtor is a beneficiary; 

                                   1.3      All
present and future deposit accounts of Debtor, including, without
limitation, any demand, time, savings, passbook or like account maintained by
Debtor with Secured Party or any other bank, savings and loan association,
credit union or like organization, and all money, cash and cash equivalents of
Debtor, whether or not deposited in any such deposit account; 

                                   1.4     
All present and future books and records, including, without limitation,
books of account and ledgers of every kind and nature, all electronically
recorded data relating to Debtor or the business thereof, all receptacles and
containers for such records, and all files and correspondence; 

                                   1.5      All
present and future goods, inventory, equipment and merchandise,
including, without limitation, all present and future goods held for sale
or lease or to be furnished under a contract of service, all raw materials, work
in process and finished goods, all packing materials, supplies and containers
relating to or used in connection with any of the foregoing, and all bills of
lading, warehouse receipts or documents of title relating to any of the
foregoing; 

                                   1.6      All
present and future investment collateral and all rights, preferences, privileges
and distributions with respect thereto; 

                                   1.7      All
present and future accessions, appurtenances, components, repairs, repair parts,
spare parts, replacements, substitutions, additions, issue and/or improvements
to or of or with respect to any of the foregoing; 

                                   1.8     
All rights, remedies, powers and/or privileges with respect to any of the
foregoing, including the right to make claims thereunder or with respect
thereto; 

                                   1.9      Any
and all balances, credits, deposits, accounts or moneys of or in its name
arising from any of the foregoing in the possession or control of, or in transit
to, Secured Party or any other financial institution and all sums on deposit
therein from time to time and all securities, instruments and accounts in which
such sums are invested from time to time; 

                                   1.10      Any
other collateral, rights and properties described in each and every deed of
trust, mortgage, security agreement, pledge, assignment and other agreement
which has been, or will at any time(s) later be, executed by Debtor or its
affiliates for the benefit of Secured Party; and 

2




                                   1.11     
All products, rents, issues, profits, returns, income and proceeds of and from
any and all of the foregoing (including proceeds which constitute property of
the types described in the foregoing clauses (1.1) through (1.10),
and any and all money, accounts, general intangibles, deposit accounts,
documents, instruments, chattel paper, goods, insurance proceeds, and any other
tangible or intangible property received upon the sale or disposition of any of
the foregoing).

                         2.       
Warranties, Covenants and Agreements. Debtor warrants, covenants and
agrees as follows: 

                                   2.1     
Debtor shall furnish to Secured Party, in form and at intervals as Secured Party
may request, any information Secured Party may reasonably request and shall
allow Secured Party to examine, inspect, and copy any of Debtor’s books and
records. Debtor shall, at the request of Secured Party, mark its records and the
Collateral to clearly indicate the security interest of Secured Party under this
Agreement. 

                                   2.2      At
the time any Collateral becomes, or is represented to be, subject to a security
interest in favor of Secured Party, Debtor shall be deemed to have warranted
that (a) Debtor is the lawful owner of the Collateral and has the right and
authority to subject it to a security interest granted to Secured Party; (b)
none of the Collateral is subject to any security interest other than that in
favor of Secured Party and there are no financing statements on file, other than
in favor of Secured Party; and (c) Debtor acquired its rights in the Collateral
in the ordinary course of its business. 

                                   2.3     
Debtor confirms that the Collateral is and will keep the Collateral free at all
times from all claims, liens, security interests and encumbrances other than
those in favor of Secured Party, and other than those agreed to by the Secured
Party in writing. Debtor will not, without the prior written consent of Secured
Party, sell, transfer, or lease, or permit to be sold, transferred or leased,
any or all of the Collateral, except (where inventory is pledged as Collateral)
for inventory in the ordinary course of its business and will not return any
inventory to its supplier. Secured Party or its representatives may at all
reasonable times inspect the Collateral and may enter upon all premises where
the Collateral is kept or might be located. 

                                   2.4     
Debtor will do all acts and or cause to be executed all writings requested by
Secured Party to establish, maintain and continue a perfected and first security
interest of Secured Party in the Collateral. Debtor agrees that Secured Party
has no obligation to acquire or perfect any lien on or security interest in any
asset(s), whether realty or personalty, to secure payment of the Indebtedness,
and Debtor is not relying upon assets in which Secured Party may have a lien or
security interest for payment of the Indebtedness. Without limiting the
generality of the foregoing, Debtor hereby authorizes Secured Party to prepare,
execute and file all financing statements, continuation statements or other
documents or instruments as Secured Party shall determine are necessary or
desirable to perfect, evidence, continue or otherwise take action in connection
with the security interests granted hereunder. 

                                   2.5     
Debtor will pay within the time that they can be paid without interest or
penalty all taxes, assessments and similar charges which at any time are or may
become a lien, charge, or encumbrance upon any Collateral, except to the extent
contested in good faith and bonded in a manner satisfactory to Secured Party. If
Debtor fails to pay any of these taxes, assessments, or other charges in the
time provided above, Secured Party has the option (but not the obligation) to do
so, and Debtor agrees to repay all amounts so expended by Secured Party
immediately upon demand, together with interest at the highest lawful default
rate which could be charged by Secured Party to Debtor on any indebtedness. 

3




                                   2.6      Debtor
will keep the Collateral in good condition and will protect it from loss,
damage, or deterioration from any cause. Debtor has and will maintain at all
times (a) with respect to the Collateral, insurance under an “all risk” policy
against fire and other risks customarily insured against; and (b) public
liability insurance and other insurance as may be required by law or reasonably
required by Secured Party; all of which insurance shall be in amount, form and
content, and written by companies as may be satisfactory to Secured Party,
containing a lender’s loss payable endorsement acceptable to Secured Party.
Debtor will deliver to Secured Party immediately upon demand evidence
satisfactory to Secured Party that the required insurance has been procured. If
Debtor fails to maintain satisfactory insurance, Secured Party has the option
(but not the obligation) to do so and Debtor agrees to repay all amounts so
expended by Secured Party immediately upon demand, together with interest at the
highest lawful default rate which could be charged by Secured Party to Debtor on
any indebtedness. 

                                   2.7      If
Debtor’s accounts are pledged as Collateral under this Agreement, then on each
occasion on which Debtor evidences to Secured Party the account balances on, and
the nature and extent of, the accounts, Debtor shall be deemed to have warranted
that except as otherwise indicated (a) each of those accounts is valid and
enforceable without performance by Debtor of any act; (b) each of those account
balances are in fact owing, (c) there are no setoffs, recoupments, credits,
contra accounts, counterclaims or defenses against any of those accounts, (d) as
to any accounts represented by a note, trade acceptance, draft or other
instrument or by any chattel paper or document, the same have been endorsed
and/or delivered by Debtor to Secured Party, (e) Debtor has not received with
respect to any account, any notice of the death of the related account debtor,
nor the dissolution, liquidation, termination of existence, insolvency, business
failure, appointment of a receiver for, assignment for the benefit of creditors
by, or filing of a petition in bankruptcy by or against, the account debtor, and
(f) as to each account, the account debtor is not an affiliate of Debtor, the
United States of America or any department, agency or instrumentality of it, or
a citizen or resident of any jurisdiction outside of the United States. Debtor
will do all acts and will execute all writings requested by Secured Party to
perform, enforce performance of, and collect all accounts. Debtor shall neither
make nor permit any modification, compromise or substitution for any account
without the prior written consent of Secured Party. Debtor shall, at Secured
Party’s request arrange for verification of accounts directly with account
debtors or by other methods acceptable to Secured Party. 

                                   2.8     
Debtor at all times shall be in strict compliance with all applicable laws,
including without limitation any laws, ordinances, directives, orders, statutes,
or regulations an object of which is to regulate or improve health, safety, or
the environment (“Environmental Laws”). 

                                   2.9     
If Secured Party, acting in its sole discretion, redelivers Collateral to Debtor
or Debtor’s designee for the purpose of (a) the ultimate sale or exchange
thereof; or (b) presentation, collection, renewal, or registration of transfer
thereof; or (c) loading, unloading, storing, shipping, transshipping,
manufacturing, processing or otherwise dealing with it preliminary to sale or
exchange; such redelivery shall be in trust for the benefit of Secured Party and
shall not constitute a release of Secured Party’s security interest in it or in
the proceeds or products of it unless Secured Party specifically so agrees in
writing. If Debtor requests any such redelivery, Debtor will deliver with such
request a duly executed financing statement in form and substance satisfactory
to Secured Party. Any proceeds of Collateral coming into Debtor’s possession as
a result of any such redelivery shall be held in trust for Secured Party and
immediately delivered to Secured Party for application on the Indebtedness.
Secured Party may (in its sole discretion) deliver any or all of the Collateral
to Debtor, and such delivery by Secured Party shall discharge Secured Party from
all liability or responsibility for such Collateral. Secured Party, at its
option, may require delivery of any Collateral to Secured Party at any time with
such endorsements or assignments of the Collateral as Secured Party may request.


4




                                   2.10      At
any time and without notice, Secured Party may as to Collateral other than
equipment, fixtures or inventory (a) cause any or all of such Collateral to be
transferred to its name or to the name of its nominees; (b) receive or collect
by legal proceedings or otherwise all dividends, interest, principal payments
and other sums and all other distributions at any time payable or receivable on
account of such Collateral, and hold the same as Collateral, or apply the same
to the Indebtedness, the manner and distribution of the application to be in the
sole discretion of Secured Party; (c) enter into any extension, subordination,
reorganization, deposit, merger or consolidation agreement or any other
agreement relating to or affecting such Collateral, and deposit or surrender
control of such Collateral, and accept other property in exchange for such
Collateral and hold or apply the property or money so received pursuant to this
Agreement. 

                                   2.11     
Secured Party may assign any of the Indebtedness and deliver any or all the
Collateral to its assignee, who then shall have with respect to Collateral so
delivered all the rights and powers of Secured Party under this Agreement, and
after that Secured Party shall be fully discharged from all liability and
responsibility with respect to Collateral so delivered. 

                                   2.12      Debtor
shall defend, indemnify and hold harmless Secured Party, its employees, agents,
shareholders, officers, and directors from and against any and all claims,
damages, fines, expenses, liabilities or causes of action of whatever kind,
including without limitation consultant fees, legal expenses, and actual
attorneys’ fees, suffered by any of them as a direct or indirect result of any
actual or asserted violation of any law, including, without limitation,
Environmental Laws, or of any remediation relating to any property required by
any law, including without limitation Environmental Laws. 

                         3.       
Collection of Proceeds. 

                                   3.1     
Debtor agrees to collect and enforce payment of all Collateral until Secured
Party shall direct Debtor to the contrary. Immediately upon notice to Debtor by
Secured Party and at all times after that, Debtor agrees to fully and promptly
cooperate and assist Secured Party in the collection and enforcement of all
Collateral and to hold in trust for Secured Party all payments received in
connection with Collateral and from the sale, lease or other disposition of any
Collateral, all rights by way of suretyship, guaranty or indemnity and all
rights in the nature of a lien or security interest which Debtor now or later
has regarding Collateral. Immediately upon and after such notice, Debtor agrees
to (a) endorse to Secured Party and immediately deliver to Secured Party all
payments received on Collateral or from the sale, lease or other disposition of
any Collateral or arising from any other rights or interests of Debtor in the
Collateral, in the form received by Debtor without commingling with any other
funds, and (b) immediately deliver to Secured Party all property in Debtor’s
possession or later coming into Debtor’s possession through enforcement of
Debtor’s rights or interests in the Collateral. Debtor irrevocably authorizes
Secured Party or any Secured Party employee or agent to endorse the name of
Debtor upon any checks or other items which are received in payment for any
Collateral, and to do any and all things necessary in order to reduce these
items to money. Secured Party shall have no duty as to the collection or
protection of Collateral or the proceeds of it, nor as to the preservation of
any related rights, beyond the use of reasonable care in the custody and
preservation of Collateral in the possession of Secured Party. Debtor agrees to
take all steps necessary to preserve rights against prior parties with respect
to the Collateral. Nothing in this Section 3.1 shall be deemed a consent by
Secured Party to any sale, lease or other disposition of any Collateral. 

5




                         4.     
Defaults, Enforcement and Application of Proceeds. 

                                   4.1      Upon
the occurrence of any of the following events (each an “Event of
Default”), Debtor shall be in default under this Agreement: 

                                        
     (a)      Any failure
to pay the Indebtedness or any other indebtedness when due, or such portion of
it as may be due, by acceleration or otherwise; or 

                                              (b)      Any
failure or neglect to comply with, or breach of, or default under, any term of
this Agreement, the Loan Agreement or any other agreement or commitment between
Debtor and Secured Party; or 

                                              (c)      Any
warranty, representation, financial statement, or other information made, given
or furnished to Secured Party by or on behalf of Debtor shall be, or shall prove
to have been, false or materially misleading when made, given, or furnished; or


                                              (d)     
Sale or other disposition by Debtor of any substantial portion of its assets or
assignment for the benefit of creditors of or by Debtor; or commencement of any
proceedings under any state or federal bankruptcy or insolvency law or laws for
the relief of debtors by or against Debtor; or the appointment of a receiver,
trustee, court appointee, sequestrator or otherwise, for all or any part of the
property of Debtor. 

                                   4.2     
Upon the occurrence of any Event of Default, Secured Party may at its discretion
and without prior notice to Debtor declare any or all of the Indebtedness to be
immediately due and payable, and shall have and may exercise any one or more of
the following rights and remedies: 

                                              (a)     
exercise all the rights and remedies upon default, in foreclosure and otherwise,
available to secured parties under the provisions of the Uniform Commercial Code
and other applicable law including without limitation such rights and remedies
as are available under the Deeds of Trust; 

                                              (b)     
institute legal proceedings to foreclose upon the lien and security interest
granted by this Agreement, to recover judgment for all amounts then due and
owing as Indebtedness, and to collect the same out of any Collateral or the
proceeds of any sale of it; 

                                              (c)      institute
legal proceedings for the sale, under the judgment or decree of any court of
competent jurisdiction, of any or all Collateral; and/or 

                                              (d)      personally
or by agents, attorneys, or appointment of a receiver, enter upon any premises
where Collateral may then be located, and take possession of all or any of it
and/or render it unusable; and without being responsible for loss or damage to
such Collateral, hold, operate, sell, lease, or dispose of all or any Collateral
at one or more public or private sales, leasings or other dispositions, at
places and times and on terms and conditions as Secured Party may deem fit,
without any previous demand or advertisement; and except as provided in this
Agreement, all notice of sale, lease or other disposition, and advertisement,
and other notice or demand, any right or equity of redemption, and any
obligation of a prospective purchaser or lessee to inquire as to the power and
authority of Secured Party to sell, lease, or otherwise dispose of the
Collateral or as to the application by Secured Party of the proceeds of sale or
otherwise, which would otherwise be required by, or available to Debtor under,
applicable law are expressly waived by Debtor to the fullest extent permitted.


6




                        At
any sale pursuant to this Section 4.2, whether under the power of sale, by
virtue of judicial proceedings or otherwise, it shall not be necessary for
Secured Party or a public officer under order of a court to have present
physical or constructive possession of Collateral to be sold. The recitals
contained in any conveyances and receipts made and given by Secured Party or the
public officer to any purchase at any sale made pursuant to this Agreement
shall, to the extent permitted by applicable law, conclusively establish the
truth and accuracy of the matters stated (including, without limitation, as to
the amounts of the principal of and interest on the Indebtedness, the accrual
and nonpayment of it and advertisement and conduct of the sale); and all
prerequisites to the sale shall be presumed to have been satisfied and
performed. Upon any sale of any Collateral, the receipt of the officer making
the sale under judicial proceedings or of Secured Party shall be sufficient
discharge to the purchaser for the purchase money, and the purchaser shall not
be obligated to see to the application of the money. Any sale of any Collateral
under this Agreement shall be a perpetual bar against Debtor with respect to
that Collateral. 

                                   4.3     
Secured Party may, itself, upon the occurrence of any Event of Default notify
and direct any account debtor or obligor. 

                                   4.4      The
proceeds of any sale or other disposition of Collateral authorized by this
Agreement shall be applied by Secured Party first upon all expenses authorized
by the Uniform Commercial Code and all reasonable attorneys’ fees and legal
expenses incurred by Secured Party; the balance of the proceeds of the sale or
other disposition shall be applied in the payment of the Indebtedness, first to
interest, then to principal, then to remaining Indebtedness and the surplus, if
any, shall be paid over to Debtor or to such other person(s) as may be entitled
to it under applicable law. Debtor shall remain liable for any deficiency, which
it shall pay to Secured Party immediately upon demand. 

                                   4.5     
Nothing in this Agreement is intended, nor shall it be construed, to preclude
Secured Party from pursuing any other remedy provided by law for the collection
of the Indebtedness or for the recovery of any other sum to which Secured Party
may be entitled for the breach of this Agreement by Debtor. Nothing in this
Agreement shall reduce or release in any way any rights or security interests of
Secured Party contained in any existing agreement between Debtor and Secured
Party. 

                                   4.6     
No waiver of default or consent to any act by Debtor shall be effective unless
in writing and signed by an authorized officer of Secured Party. No waiver of
any default or forbearance on the part of Secured Party in enforcing any of its
rights under this Agreement shall operate as a waiver of any other default or of
the same default on a future occasion or of any rights. 

                                   4.7     
Debtor irrevocably appoints Secured Party or any agent of Secured Party (which
appointment is coupled with an interest) the true and lawful attorney of Debtor
(with full power of substitution ) in the name, place and stead of, and at the
expense of, Debtor: 

                                              (a)     
to demand, receive, sue for, and give receipts or acquittances for any monies
due or to become due on any Collateral and to endorse any item representing any
payment on or proceeds of the Collateral; 

                                              (b)     
to execute and file in the name of and on behalf of Debtor all financing
statements or other filings deemed necessary or desirable by Secured Party to
evidence, perfect, or continue the security interests granted in this Agreement;
and 

7




                                              (c)     
to do and perform any act on behalf of Debtor permitted or required under this
Agreement. 

                         Upon
the occurrence of an Event of Default, Debtor also agrees, upon request of
Secured Party, to assemble the Collateral and make it available to Secured Party
at any place designated by Secured Party which is reasonably convenient to
Secured Party and Debtor. 

                         5.      Miscellaneous.


                                   5.1      Each
Secured Party will be equal in all respects of this Agreement and the rights and
obligations it imposes. Each will rank equally with the other in respect of all
rights conferred and payments made.

                                   5.2      Until
Secured Party is advised in writing by Debtor to the contrary, all notices,
requests and demands required under this Agreement or by law shall be given to,
or made upon , Debtor at the address indicated in Section 5.15 below. 

                                   5.3      Debtor
will give Secured Party not less than 90 days prior written notice of all
contemplated changes in Debtor’s name, chief executive office location, and/or
location of any Collateral, but the giving of this notice shall not cure any
Event of Default caused by this change. 

                                   5.4      Secured
Party assumes no duty of performance or other responsibility under any contracts
contained within the Collateral. 

                                   5.5     
Secured Party has the right to sell, assign, transfer, negotiate or grant
participations or any interest in, any or all of the Indebtedness and any
related obligations, including without limitation this Agreement. In connection
with the above, but without limiting its ability to make other disclosures to
the full extent allowable, Secured Party may disclose all documents and
information which Secured Party now or later has relating to Debtor, the
Indebtedness or this Agreement, however obtained. Debtor further agree(s) that
Secured Party may provide information relating to this Agreement or relating to
Debtor to Secured Party’s parent, affiliates, subsidiaries and service
providers. 

                                   5.6      In
addition to Secured Party’s other rights, any Indebtedness owing from Secured
Party to Debtor can be set off and applied by Secured Party on any Indebtedness
at any time(s) either before or after maturity or demand without notice to
anyone. 

                                   5.7      Debtor
waives any right to require Secured Party to: (a) proceed against any person or
property; (b) give notice of the terms, time and place of any public or private
sale of personal property security held from Debtor or any other person, or
otherwise comply with the provisions of Section 9607 of the California
Commercial Code or other applicable Uniform Commercial Code, or any similar
provision; or (c) pursue any other remedy in Secured Party’s power. Debtor
waives notice of acceptance of this Agreement and presentment, demand, protest,
notice of protest, dishonor, notice of dishonor, notice of default, notice of
intent to accelerate or demand payment of any Indebtedness, any and all other
notices to which the undersigned might otherwise be entitled, and diligence in
collecting any Indebtedness, and agree(s) that Secured Party may, once or any
number or times, modify the terms of any Indebtedness, compromise, extend,
increase, accelerate, renew or forbear to enforce payment of any or all
Indebtedness, all without notice to Debtor and without affecting in any manner
the unconditional obligation of Debtor under this Agreement. Debtor
unconditionally and irrevocably waives each and every defense and setoff of any
nature which, under principles of guaranty or otherwise, would operate to impair
or diminish in any way the obligation of Debtor under this Agreement and
acknowledges that such 

8




waiver is by this reference incorporated into each security
agreement, collateral assignment, pledge and/or other document from Debtor now
or later securing the Indebtedness, and acknowledges that as of the date of this
Agreement no such defense or setoff exists. 

                                   5.8     
Debtor waives any and all rights (whether by subrogation, indemnity,
reimbursement, or otherwise) to recover from any person, including without
limitation the Debtor, if different that Debtor, any amounts paid or the value
of any Collateral given by Debtor pursuant to this Agreement. 

                                   5.9      In
the event that applicable law shall obligate Secured Party to give prior notice
to Debtor of any action to be taken under this Agreement, Debtor agrees that a
written notice given to Debtor at least five (5) days before the date of the act
shall be reasonable notice of the act and, specifically, reasonable notification
of the time and place of any public sale or of the time after which any private
sale, lease, or other disposition is to be made, unless a shorter notice period
is reasonable under the circumstances. A notice shall be deemed to be given
under this Agreement when delivered to Debtor or when placed in an envelope
addressed to Debtor and deposited, with postage prepaid, in a post office or
official depository under the exclusive care and custody of the United States
Postal Service or delivered to an overnight courier. The mailing shall be by
overnight courier, certified, or first class mail. 

                                   5.10      Notwithstanding
any prior revocation, termination, surrender, or discharge of this Agreement in
whole or in part, the effectiveness of this Agreement shall automatically
continue or be reinstated in the event that any payment received or credit given
by Secured Party in respect of the Indebtedness is returned, disgorged, or
rescinded under any applicable law, including, without limitation, bankruptcy or
insolvency laws, in which case this Agreement, shall be enforceable against
Debtor as if the returned, disgorged, or rescinded payment or credit had not
been received or given by Secured Party, and whether or not Secured Party relied
upon this payment or credit or changed its position as a consequence of it. In
the event of continuation or reinstatement of this Agreement, Debtor agrees upon
demand by Secured Party to execute and deliver to Secured Party those documents
which Secured Party determines are appropriate to further evidence (in the
public records or otherwise) this continuation or reinstatement, although the
failure of Debtor to do so shall not affect in any way the reinstatement or
continuation. 

                                   5.11      This
Agreement and all the rights and remedies of Secured Party under this Agreement
shall inure to the benefit of Secured Party’s successors and assigns and to any
other holder who derives from Secured Party title to or an interest in the
Indebtedness or any portion of it, and shall bind Debtor and the heirs, legal
representatives, successors, and assigns of Debtor. Nothing in this Section 5.10
is deemed a consent by Secured Party to any assignment by Debtor. 

                                   5.12     
If there is more than one Debtor, all undertakings, warranties and covenants
made by Debtor and all rights, powers and authorities given to or conferred upon
Secured Party are made or given jointly and severally. 

                                   5.13      Except
as otherwise provided in this Agreement, all terms in this Agreement have the
meanings assigned to them in Division 9 (or, absent definition in Division 9, in
any other Division) of the Uniform Commercial Code, as of the date of this
Agreement. “Uniform Commercial Code” means the California Commercial
Code, as amended. 

                                   5.14      No
single or partial exercise, or delay in the exercise, of any right or power
under this Agreement, shall preclude other or further exercise of the rights and
powers under this Agreement. The unenforceability of any provision of this
Agreement shall not affect the enforceability of 

9




the remainder of this Agreement. This Agreement constitutes the
entire agreement of Debtor and Secured Party with respect to the subject matter
of this Agreement. No amendment or modification of this Agreement shall be
effective unless the same shall be in writing and signed by Debtor and an
authorized officer of Secured Party. This Agreement shall in all respects be
governed by and construed in accordance with the internal laws of the State of
California without regard to conflict of laws principles. 

                                   5.15      To
the extent that any of the Indebtedness is payable upon demand, nothing
contained in this Agreement shall modify the terms and conditions of that
Indebtedness nor shall anything contained in this Agreement prevent Secured
Party from making demand, without notice and with or without reason, for
immediate payment of any or all of that Indebtedness at any time(s), whether or
not an Event of Default has occurred. 

                                   5.16     
Debtor’s chief executive office is located and shall be maintained at 2853 E.
Pico Blvd, Los Angeles, CA 90023. Debtor is organized under the laws of Delaware
and maintains all of its assets in the state of California and shall not
reorganize in any other jurisdiction or move any part of its assets into any
other jurisdiction without the prior written consent of the Secured Party. 

                                   5.17     
A carbon, photographic or other reproduction of this Agreement shall be
sufficient as a financing statement under the Uniform Commercial Code and may be
filed by Secured Party in any filing office. 

                                   5.18      This
Agreement shall be terminated only by the filing of a termination statement in
accordance with the applicable provisions of the Uniform Commercial Code, but
the obligations contained in Section 2.12 of this Agreement shall survive
termination. 

                         6.      Governing
Law. This Agreement shall be interpreted and the rights and liabilities of
the parties hereto determined in accordance with the internal laws and decisions
of the State of California without regard to conflict of law principles. THE
BORROWER HEREBY IRREVOCABLY SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF THE
STATE AND FEDERAL COURTS LOCATED IN LOS ANGELES COUNTY, CALIFORNIA WITH RESPECT
TO ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER OR IN CONNECTION WITH
THIS AGREEMENT AND HEREBY WAIVES ANY OBJECTION TO SUCH FORUM BASED ON FORUM
NON-CONVENIENS. IN ADDITION, TO THE EXTENT PERMITTED BY APPLICABLE LAW, THE
LENDER AND THE BORROWER HEREBY WAIVE TRIAL BY JURY IN ANY ACTION OR PROCEEDING
WHICH PERTAINS DIRECTLY OR INDIRECTLY TO THIS NOTE. 

DEBTOR: 

 

 

By: /s/ Stephen Soller 
Name: Stephen Soller

Title: CEO 

10