Document:

Unassociated Document

    SECURITY
      AGREEMENT

     

    SECURITY
      AGREEMENT,
      dated
      as of November 30, 2007 (this "Agreement")
      made
      by DIGITALFX
      INTERNATIONAL, INC.,
      a
      Florida corporation (the "Company"),
      and
      the undersigned subsidiaries of the Company (each a "Grantor"
      and
      collectively and together with the Company, the "Grantors"),
      in
      favor of PORTSIDE
      GROWTH AND OPPORTUNITY FUND,
      a
      company organized under the laws of the Cayman Islands, in its capacity as
      collateral agent (in such capacity, the "Collateral
      Agent")
      for
      the "Buyers" (as defined below) party to the Securities Purchase Agreement,
      dated as of November 29, 2007 (as amended, restated or otherwise modified from
      time to time, the "Securities
      Purchase Agreement").

     

    W I T N E
      S S E T H:

     

    WHEREAS,
      the Company and each party listed as a "Buyer" on the Schedule of Buyers
      attached to the Securities Purchase Agreement (collectively, the "Buyers")
      are
      parties to the Securities Purchase Agreement, pursuant to which the Company
      has
      agreed to sell, and the Buyers agreed to purchase, the "Notes" (as defined
      in
      the Securities Purchase Agreement) to be issued pursuant thereto (as such Notes
      may be amended, restated, replaced or otherwise modified from time to time
      in
      accordance with the terms thereof, collectively, the "Notes");

     

    WHEREAS,
      each of the Grantors (other than the Company) (each a "Guarantor" and
      collectively, the "Guarantors")
      has
      executed and delivered a Guaranty dated the date hereof (the "Guaranty") in
      favor of the Collateral Agent for the benefit of itself and the Buyers, with
      respect to the Company's obligations under the Securities Purchase Agreement,
      the Notes and the Transaction Documents (as defined below); 

     

    WHEREAS,
      it is a condition precedent to the Buyers purchasing the Notes pursuant to
      the
      Securities Purchase Agreement that the Grantors execute and deliver to the
      Collateral Agent this Agreement providing for the grant to the Collateral Agent
      for the benefit of the Buyers of a first priority perfected security interest
      in
      the personal property of each Grantor to secure all of the Company's obligations
      under the Securities Purchase Agreement, the Notes, the "Transaction Documents"
      (as defined in the Securities Purchase Agreement) (the "Transaction
      Documents")
      and
      the Guarantors' obligations under the Guaranty; and

     

    WHEREAS,
      the Grantors have determined that the execution, delivery and performance of
      this Agreement directly benefits, and is in the best interest of, the
      Grantors.

     

    NOW,
      THEREFORE, in consideration of the premises and the agreements herein and in
      order to induce the Buyers to perform under the Securities Purchase Agreement,
      each Grantor agrees with the Collateral Agent, for the benefit of the Buyers,
      as
      follows:

     

    SECTION
      1. Definitions.

     

    (a) Reference
      is hereby made to the Securities Purchase Agreement and the Notes for a
      statement of the terms thereof. All terms used in this Agreement and the
      recitals hereto which are defined in the Securities Purchase Agreement, the
      Notes or in Articles 8 or 9 of the Uniform Commercial Code as in effect from
      time to time in the State of New York (the "Code"),
      and
      which are not otherwise defined herein shall have the same meanings herein
      as
      set forth therein; provided
      that
      terms used herein which are defined in the Code as in effect
      in
      the State of New York on the date hereof shall continue to have the same meaning
      notwithstanding any replacement or amendment of such statute except as the
      Collateral Agent may otherwise determine. 

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    (b) The
      following terms shall have the respective meanings provided for in the Code:
      "Accounts", "Cash Proceeds", "Chattel Paper", "Commercial Tort Claim",
      "Commodity Account", "Commodity Contracts", "Deposit Account", "Documents",
      "Equipment", "Fixtures", "General Intangibles", "Goods", "Instruments",
      "Inventory", "Investment Property", "Letter-of-Credit Rights", "Noncash
      Proceeds", "Payment Intangibles", "Proceeds", "Promissory Notes", "Security",
      "Record", "Security Account", "Software", and "Supporting
      Obligations".

     

    (c) As
      used
      in this Agreement, the following terms shall have the respective meanings
      indicated below, such meanings to be applicable equally to both the singular
      and
      plural forms of such terms:

     

    "Capital
      Stock"
      means
      (i) with respect to any Person that is a corporation, any and all shares,
      interests, participations or other equivalents (however designated and whether
      or not voting) of corporate stock, and (ii) with respect to any Person that
      is
      not a corporation, any and all partnership, membership or other equity interests
      of such Person.

     

    "Copyright
      Licenses"
      means
      all licenses, contracts or other agreements, whether written or oral, naming
      any
      Grantor as licensee or licensor and providing for the grant of any right to
      use
      or sell any works covered by any copyright (including, without limitation,
      all
      Copyright Licenses set forth in Schedule
      II
      hereto).

     

    "Copyrights"
      means
      all domestic and foreign copyrights, whether registered or not, including,
      without limitation, all copyright rights throughout the universe (whether now
      or
      hereafter arising) in any and all media (whether now or hereafter developed),
      in
      and to all original works of authorship fixed in any tangible medium of
      expression, acquired or used by any Grantor (including, without limitation,
      all
      copyrights described in Schedule
      II
      hereto),
      all applications, registrations and recordings thereof (including, without
      limitation, applications, registrations and recordings in the United States
      Copyright Office or in any similar office or agency of the United States or
      any
      other country or any political subdivision thereof), and all reissues,
      divisions, continuations, continuations in part and extensions or renewals
      thereof.

     

    "Event
      of Default"
      shall
      have the meaning set forth in the Notes.

     

    "Governmental
      Authority"
      means
      any nation or government, any Federal, state, city, town, municipality, county,
      local or other political subdivision thereof or thereto and any department,
      commission, board, bureau, instrumentality, agency or other entity exercising
      executive, legislative, judicial, taxing, regulatory or administrative powers
      or
      functions of or pertaining to government.

     

    "Insolvency
      Proceeding"
      means
      any proceeding commenced by or against any Person under any provision of the
      Bankruptcy Code (Chapter 11 of Title 11 of the United States Code) or under
      any other bankruptcy or insolvency law, assignments for the benefit of
      creditors, formal or informal moratoria, compositions, or extensions generally
      with creditors, or proceedings seeking reorganization, arrangement, or other
      similar relief.

     

    
      
        
        

      

      
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    "Intellectual
      Property"
      means
      the Copyrights, Trademarks and Patents.

     

    "Licenses"
      means
      the Copyright Licenses, the Trademark Licenses and the Patent
      Licenses.

     

    "Lien"
      means
      any mortgage, lien, pledge, charge, security interest or other encumbrance
      upon
      or in any Collateral (including accounts and contract rights). 

     

    "Patent
      Licenses"
      means
      all licenses, contracts or other agreements, whether written or oral, naming
      any
      Grantor as licensee or licensor and providing for the grant of any right to
      manufacture, use or sell any invention covered by any Patent (including, without
      limitation, all Patent Licenses set forth in Schedule
      II
      hereto).

     

    "Patents"
      means
      all domestic and foreign letters patent, design patents, utility patents,
      industrial designs, inventions, trade secrets, ideas, concepts, methods,
      techniques, processes, proprietary information, technology, know-how, formulae,
      rights of publicity and other general intangibles of like nature, now existing
      or hereafter acquired (including, without limitation, all domestic and foreign
      letters patent, design patents, utility patents, industrial designs, inventions,
      trade secrets, ideas, concepts, methods, techniques, processes, proprietary
      information, technology, know-how and formulae described in Schedule
      II
      hereto),
      all applications, registrations and recordings thereof (including, without
      limitation, applications, registrations and recordings in the United States
      Patent and Trademark Office, or in any similar office or agency of the United
      States or any other country or any political subdivision thereof), and all
      reissues, divisions, continuations, continuations in part and extensions or
      renewals thereof.

     

    "Person"
      means an
      individual, corporation, limited liability company, partnership, association,
      joint-stock company, trust, unincorporated organization, joint venture or other
      enterprise or entity or Governmental Authority.

     

    "Trademark
      Licenses"
      means
      all licenses, contracts or other agreements, whether written or oral, naming
      any
      Grantor as licensor or licensee and providing for the grant of any right
      concerning any Trademark, together with any goodwill connected with and
      symbolized by any such trademark licenses, contracts or agreements and the
      right
      to prepare for sale or lease and sell or lease any and all Inventory now or
      hereafter owned by any Grantor and now or hereafter covered by such licenses
      (including, without limitation, all Trademark Licenses described in Schedule
      II
      hereto).

     

    "Trademarks"
      means
      all domestic and foreign trademarks, service marks, collective marks,
      certification marks, trade names, business names, d/b/a's, Internet domain
      names, trade styles, designs, logos and other source or business identifiers
      and
      all general intangibles of like nature, now or hereafter owned, adopted,
      acquired or used by any Grantor (including, without limitation, all domestic
      and
      foreign trademarks, service marks, collective marks, certification marks, trade
      names, business names, d/b/a's, Internet domain names, trade styles, designs,
      logos and other source or business identifiers described in Schedule
      II
      hereto),
      all applications, registrations and recordings thereof (including, without
      limitation, applications, registrations and recordings in the United States
      Patent and Trademark Office or in any similar office or agency of the United
      States, any state thereof or any other country or any political subdivision
      thereof), and all reissues, extensions or renewals thereof, together with all
      goodwill of the business symbolized by such marks and all customer lists,
      formulae and other Records of any Grantor relating to the distribution of
      products and services in connection with which any of such marks are
      used.

     

    
      
        
        

      

      
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    SECTION
      2. Grant
      of Security Interest.
      As
      collateral security for all of the "Obligations" (as defined in Section
      3
      hereof),
      each Grantor hereby pledges and assigns to the Collateral Agent for the benefit
      of the Buyers, and grants to the Collateral Agent for the benefit of the Buyers
      a continuing security interest in, all personal property of each Grantor,
      wherever located and whether now or hereafter existing and whether now owned
      or
      hereafter acquired, of every kind and description, tangible or intangible
      (collectively, the "Collateral"),
      including, without limitation, the following:

     

    (a) all
      Accounts;

     

    (b) all
      Chattel Paper (whether tangible or electronic);

     

    (c) the
      Commercial Tort Claims specified on Schedule VI hereto;

     

    (d) all
      Deposit Accounts, all cash and other property from time to time deposited
      therein and the monies and property in the possession or under the control
      of
      the Collateral Agent or Buyer or any affiliate, representative, agent or
      correspondent of the Collateral Agent or Buyer; 

     

    (e) all
      Documents;

     

    (f) all
      Equipment;

     

    (g) all
      Fixtures;

     

    (h) all
      General Intangibles (including, without limitation, all Payment
      Intangibles);

     

    (i) all
      Goods

     

    (j) all
      Instruments (including, without limitation, Promissory Notes and each
      certificated Security);

     

    (k) all
      Inventory;

     

    (l) all
      Investment Property;

     

    (m) all
      Copyrights, Patents and Trademarks, and all Licenses;

     

    
      
        
        

      

      
        -4-

        
          

        

      

      
        
        

      

    

     

    (n) all
      Letter-of-Credit Rights;

     

    (o) all
      Supporting Obligations;

     

    (p) all
      other
      tangible and intangible personal property of each Grantor (whether or not
      subject to the Code), including, without limitation, all bank and other accounts
      and all cash and all investments therein, all proceeds, products, offspring,
      accessions, rents, profits, income, benefits, substitutions and replacements
      of
      and to any of the property of any Grantor described in the preceding clauses
      of
      this Section 2 (including, without limitation, any proceeds of insurance thereon
      and all causes of action, claims and warranties now or hereafter held by each
      Grantor in respect of any of the items listed above), and all books,
      correspondence, files and other Records, including, without limitation, all
      tapes, desks, cards, Software, data and computer programs in the possession
      or
      under the control of any Grantor or any other Person from time to time acting
      for any Grantor, in each case, to the extent of such Grantors rights therein,
      that at any time evidence or contain information relating to any of the property
      described in the preceding clauses of this Section 2 or are otherwise necessary
      or helpful in the collection or realization thereof;
      and

     

    (q) all
      Proceeds, including all Cash Proceeds and Noncash Proceeds, and products of
      any
      and all of the foregoing Collateral; 

     

    in
      each
      case howsoever any Grantor's interest therein may arise or appear (whether
      by
      ownership, security interest, claim or otherwise).

     

    Notwithstanding
      anything herein to the contrary, the term "Collateral" shall not include, in
      the
      case of a Subsidiary organized under the laws of a jurisdiction other than
      the
      United States, any of the states thereof or the District of Columbia (a
      "Foreign
      Subsidiary"),
      more
      than 65% (or
      such
      greater percentage that,
      due
      to a change in applicable law after the date hereof, (i) would not reasonably
      be
      expected to cause the undistributed earnings of such Foreign Subsidiary as
      determined for United States federal income tax purposes to be treated as a
      deemed dividend to such Foreign Subsidiary's United States parent and (ii)
      would
      not reasonably be expected to cause any
      material
      adverse tax consequences) of the issued and outstanding shares of Capital
      Stock entitled to vote (within the meaning of Treas. Reg. Section 1.956-2(c)(2))
      (it being understood and agreed that the Collateral shall include 100%
of
      the
      issued and outstanding shares of Capital
      Stock not entitled to vote (within the meaning of Treas. Reg. Section
      1.956-2(c)(2)) or other equity interest of such Foreign
      Subsidiary).

     

    The
      Grantors agree that the pledge of the shares of Capital Stock acquired by a
      Grantor of any and all Persons now or hereafter existing who is a Foreign
      Subsidiary may be supplemented by one or more separate pledge agreements, deeds
      of pledge, share charges, or other similar agreements or instruments, executed
      and delivered by the relevant Grantors in favor of the Collateral Agent, which
      pledge agreements will provide for the pledge of such shares of Capital Stock
      in
      accordance with the laws of the applicable foreign jurisdiction. With respect
      to
      such shares of Capital Stock, the Collateral Agent may, at any time and from
      time to time, in its sole discretion, take actions in such foreign jurisdictions
      that will result in the perfection of the Lien created in such shares of Capital
      Stock.

     

    
      
        
        

      

      
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    SECTION
      3. Security
      for Obligations.
      The
      security interest created hereby in the Collateral constitutes continuing
      collateral security for all of the following obligations, whether now existing
      or hereafter incurred (collectively, the "Obligations"):

     

    (a) for
      so
      long as the Notes are outstanding, (i) the payment by the Company, as and when
      due and payable (by scheduled maturity, required prepayment, acceleration,
      demand or otherwise), of all amounts from time to time owing by it in respect
      of
      the Securities Purchase Agreement, the Notes and the other Transaction
      Documents, and (ii) in the case of any Guarantors, the payment by such Grantors,
      as and when due and payable of all "Guaranteed Obligations" under (and as
      defined in) the Guaranty, including, without limitation, in both cases, (A)
      all
      principal of and interest on the Notes (including, without limitation, all
      interest that accrues after the commencement of any Insolvency Proceeding of
      any
      Grantor, whether or not the payment of such interest is unenforceable or is
      not
      allowable due to the existence of such Insolvency Proceeding), and (B) all
      fees,
      commissions, expense reimbursements, indemnifications and all other amounts
      due
      or to become due under any of the Transaction Documents; and

     

    (b) for
      so
      long as the Notes are outstanding, the due performance and observance by each
      Grantor of all of its other obligations from time to time existing in respect
      of
      any of the Transaction Documents, including without limitation, with respect
      to
      any conversion or redemption rights of the Buyers under the Notes.

     

    SECTION
      4. Representations
      and Warranties.
      Each
      Grantor represents and warrants as of the date of this Agreement as
      follows:

     

    (a) Schedule
      I
      hereto
      sets forth (i) the exact legal name of each Grantor, and (ii) the state of
      incorporation, organization or formation and the organizational identification
      number of each Grantor in such state.

     

    (b) There
      is
      no pending or, to its knowledge, written notice threatening any action, suit,
      proceeding or claim affecting any Guarantor before any governmental authority
      or
      any arbitrator, or any order, judgment or award issued by any governmental
      authority or arbitrator, in each case, that may adversely affect the grant
      by
      any Grantor, or the perfection, of the security interest purported to be created
      hereby in the Collateral, or the exercise by the Collateral Agent of any of
      its
      rights or remedies hereunder.

     

    (c) All
      Federal, state and local tax returns and other reports required by applicable
      law to be filed by any Grantor have been filed, or extensions have been
      obtained, and all taxes, assessments and other governmental charges imposed
      upon
      any Grantor or any property of any Grantor (including, without limitation,
      all
      federal income and social security taxes on employees' wages) and which have
      become due and payable on or prior to the date hereof have been paid, except
      to
      the extent contested in good faith by proper proceedings which stay the
      imposition of any penalty, fine or Lien resulting from the non-payment thereof
      and with respect to which adequate reserves have been set aside for the payment
      thereof in accordance with generally accepted accounting principles consistently
      applied ("GAAP").

     

    
      
        
        

      

      
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    (d) All
      Equipment, Fixtures, Goods and Inventory of each Grantor now existing are,
      and
      all Equipment, Fixtures, Goods and Inventory of each Grantor hereafter existing
      will be, located and/or based at the addresses specified therefor in Schedule
      III hereto, except that each Grantor will give the Collateral Agent written
      notice of any change in the location of any such Collateral within 20 days
      of
      such change, other than to locations set forth on Schedule III hereto (or a
      new
      Schedule III delivered by the Grantors to the Collateral Agent from time to
      time) and with respect to which the Collateral Agent has filed financing
      statements and otherwise fully perfected its Liens thereon or will take such
      actions pursuant to Section 5(n). Each Grantor's chief place of business and
      chief executive office, the place where each Grantor keeps its Records
      concerning Accounts and all originals of all Chattel Paper are located at the
      addresses specified therefor in Schedule III hereto. None of the Accounts is
      evidenced by Promissory Notes or other Instruments. Set forth in Schedule IV
      hereto is a complete and accurate list, as of the date of this Agreement, of
      (i)
      each Promissory Note, Security and other Instrument owned by each Grantor and
      (ii) each Deposit Account, Securities Account and Commodities Account of each
      Grantor, together with the name and address of each institution at which each
      such account is maintained, the account number for each such account and a
      description of the purpose of each such account. Set forth in Schedule II hereto
      is a complete and correct list of each trade name used by each Grantor.

     

    (e) Each
      Grantor has delivered to the Collateral Agent complete and correct copies of
      each License described in Schedule II hereto, including all schedules and
      exhibits thereto, which represents all of the Licenses existing on the date
      of
      this Agreement. Each such License sets forth the entire agreement and
      understanding of the parties thereto relating to the subject matter thereof,
      and
      there are no other agreements, arrangements or understandings, written or oral,
      relating to the matters covered thereby or the rights of such Grantor or any
      of
      its affiliates in respect thereof. Each material License now existing is, and
      any material License entered into in the future will be, the legal, valid and
      binding obligation of the parties thereto, enforceable against such parties
      in
      accordance with its terms. No default under any material License by any such
      party has occurred, nor does any defense, offset, deduction or counterclaim
      exist thereunder in favor of any such party.

     

    (f) Each
      Grantor owns and controls, or otherwise possesses adequate rights to use, all
      Trademarks, Patents and Copyrights, which are the only trademarks, patents,
      copyrights, inventions, trade secrets, proprietary information and technology,
      know-how, formulae, rights of publicity necessary to conduct its business in
      substantially the same manner as conducted as of the date hereof. Schedule
      II
      hereto sets forth a true and complete list of all registered copyrights, issued
      Patents, Trademarks, and Licenses annually owned or used by each Grantor as
      of
      the date hereof. To the best knowledge of each Grantor, all such Intellectual
      Property of each Grantor is subsisting and in full force and effect, has not
      been adjudged invalid or unenforceable, is valid and enforceable and has not
      been abandoned in whole or in part. Except as set forth in Schedule II, no
      such
      Intellectual Property is the subject of any licensing or franchising agreement.
      Each Grantor has no knowledge of any conflict with the rights of others to
      any
      such Intellectual Property and, to the best knowledge of each Grantor, each
      Grantor is not now infringing or in conflict with any such rights of others
      in
      any material respect, and to the best knowledge of each Grantor, no other Person
      is now infringing or in conflict in any material respect with any such
      properties, assets and rights owned or used by each Grantor. No Grantor has
      received any notice that it is violating or has violated the trademarks,
      patents, copyrights, inventions, trade secrets, proprietary information and
      technology, know-how, formulae, rights of publicity or other intellectual
      property rights of any third party.

     

    
      
        
        

      

      
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    (g) Each
      Grantor is and will be at all times the sole and exclusive owner of, or
      otherwise has and will have adequate rights in, the Collateral free and clear
      of
      any Liens, except for Permitted Liens. No effective financing statement or
      other
      instrument similar in effect covering all or any part of the Collateral is
      on
      file in any recording or filing office except such as (i) may have been filed
      in
      favor of the Collateral Agent and/or the Buyers relating to this Agreement
      or
      the other Security Documents and (ii) are described on Schedule
      4(g)
      hereto.

     

    (h) The
      exercise by the Collateral Agent of any of its rights and remedies hereunder
      will not contravene any law or any contractual restriction binding on or
      otherwise affecting each Grantor or any of its properties and will not result
      in
      or require the creation of any Lien, upon or with respect to any of its
      properties.

     

    (i) No
      authorization or approval or other action by, and no notice to or filing with,
      any governmental authority or other regulatory body, is required for
      (i) the grant by each Grantor, or the perfection, of the security interest
      purported to be created hereby in the Collateral, or (ii) the exercise by
      the Collateral Agent of any of its rights and remedies hereunder, except
      (A) for the filing under the Uniform Commercial Code as in effect in the
      applicable jurisdiction of the financing statements described in Schedule
      V
      hereto
      (or a new Schedule
      V
      delivered by the Grantors to the Collateral Agent from time to time), all of
      which financing statements have been duly filed and are in full force and effect
      or will be duly filed and in full force and effect, (B) with respect to Deposit
      Accounts, and all cash and other property from time to time deposited therein,
      for the execution of a control agreement with the depository institution with
      which such account is maintained, as provided in Section
      5(i),
      (C) with respect to Commodity Contracts, for the execution of a control
      agreement with the commodity intermediary with which such commodity contract
      is
      carried, as provided in Section
      5(i),
      (D) with respect to the perfection of the security interest created hereby
      in the United States Intellectual Property and Licenses, for the recording
      of
      the appropriate Assignment for Security, substantially in the form of
Exhibit
      A
      hereto
      in the United States Patent and Trademark Office or the United States Copyright
      Office, as applicable, (E) with respect to the perfection of the security
      interest created hereby in foreign Intellectual Property and Licenses, for
      registrations and filings in jurisdictions located outside of the United States
      and covering rights in such jurisdictions relating to such foreign Intellectual
      Property and Licenses, (F) with respect to the perfection of the security
      interest created hereby in Titled Collateral, for the submission of an
      appropriate application requesting that the Lien of the Collateral Agent be
      noted on the Certificate of Title or certificate of ownership, completed and
      authenticated by the applicable Grantor, together with the Certificate of Title
      or certificate of ownership, with respect to such Titled Collateral, to the
      appropriate governmental authority, (G) with respect to the perfection of the
      security interest created hereby in any Letter-of-Credit Rights, for the consent
      of the issuer of the applicable letter of credit to the assignment of proceeds
      as provided in the Uniform Commercial Code as in effect in the applicable
      jurisdiction, (H) with respect to any action that may be necessary to obtain
      control of Collateral constituting Deposit Accounts, Commodity Contracts,
      Electronic Chattel Paper, Investment Property or Letter-of-Credit Rights, the
      taking of such actions, and (I) the Collateral Agent having possession of all
      Documents, Chattel Paper, Instruments and cash constituting
      Collateral
      (subclauses (A), (B), (C), (D), (E), (F), G), (H) and (I), each a "Perfection
      Requirement"
      and
      collectively, the "Perfection
      Requirements").

     

    
      
        
        

      

      
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    (j) This
      Agreement creates in favor of the Collateral Agent a legal, valid and
      enforceable security interest in the Collateral, as security for the
      Obligations. The Perfection Requirements result in the perfection of such
      security interests. Such security interests are, or in the case of Collateral
      in
      which each Grantor obtains rights after the date hereof, will be, perfected,
      first priority security interests, subject only to Permitted Liens and the
      Perfection Requirements and the financing statements described in Schedule
      4(g).
      Such
      recordings and filings and all other action necessary to perfect and protect
      such security interest have been duly taken or will be taken pursuant to Section
      5(n), and, in the case of Collateral in which each Grantor obtains rights after
      the date hereof, will be duly taken, except for the Collateral Agent's having
      possession of all Documents, Chattel Paper, Instruments and cash constituting
      Collateral after the date hereof and the other actions, filings and recordations
      described above, including the Perfection Requirements.

     

    (k) As
      of the
      date hereof, no Grantor holds any Commercial Tort Claims or has knowledge of
      any
      pending Commercial Tort Claims, except for such Commercial Tort Claims described
      in Schedule
      VI.

     

    SECTION
      5. Covenants
      as to the Collateral.
      So long
      as any of the Obligations shall remain outstanding, unless the Collateral Agent
      shall otherwise consent in writing:

     

    (a) Further
      Assurances.
      Each
      Grantor will at its expense, at any time and from time to time, promptly execute
      and deliver all further instruments and documents and take all further action
      that the Collateral Agent may reasonably request in order to: (i) perfect and
      protect the security interest purported to be created hereby; (ii) enable the
      Collateral Agent to exercise and enforce its rights and remedies hereunder
      in
      respect of the Collateral; or (iii) otherwise effect the purposes of this
      Agreement, including, without limitation: (A) marking conspicuously all Chattel
      Paper and each License and, at the request of the Collateral Agent, each of
      its
      Records pertaining to the Collateral with a legend, in form and substance
      satisfactory to the Collateral Agent, indicating that such Chattel Paper,
      License or Collateral is subject to the security interest created hereby, (B)
      delivering and pledging to the Collateral Agent pursuant to the Pledge each
      Promissory Note, Security, Chattel Paper or other Instrument, now or hereafter
      owned by any Grantor, duly endorsed and accompanied by executed instruments
      of
      transfer or assignment, all in form and substance satisfactory to the Collateral
      Agent, (C) executing and filing (to the extent, if any, that any Grantor's
      signature is required thereon) or authenticating the filing of, such financing
      or continuation statements, or amendments thereto, as may be necessary or that
      the Collateral Agent may reasonably request in order to perfect and preserve
      the
      security interest purported to be created hereby, (D) furnishing to the
      Collateral Agent from time to time statements and schedules further identifying
      and describing the Collateral and such other reports in connection with the
      Collateral in each case as the Collateral Agent may reasonably request, all
      in
      reasonable detail, (E) if any Collateral shall be in the possession of a third
      party, notifying such Person of the Collateral Agent's security interest created
      hereby and obtaining a written acknowledgment from such Person that such Person
      holds possession of the Collateral for the benefit of the Collateral Agent,
      which such written acknowledgement shall be in form and substance reasonably
      satisfactory to the Collateral Agent, (F) if at any time after the date hereof,
      any Grantor acquires or holds any Commercial Tort Claim, promptly notifying
      the
      Collateral Agent in a writing signed by such Grantor setting forth a brief
      description of such Commercial Tort Claim and granting to the Collateral Agent
      a
      security interest therein and in the proceeds thereof, which writing shall
      incorporate the provisions hereof and shall be in form and substance
      satisfactory to the Collateral Agent, (G) upon the acquisition after the date
      hereof by any Grantor of any motor vehicle or other Equipment subject to a
      certificate of title or ownership (other than a Motor Vehicle or Equipment
      that
      is subject to a purchase money security interest), causing the Collateral Agent
      to be listed as the lienholder on such certificate of title or ownership and
      delivering evidence of the same to the Collateral Agent in accordance with
      Section 5(j) hereof; and (H) taking all actions required by any earlier versions
      of the Uniform Commercial Code or by other law, as applicable, in any relevant
      Uniform Commercial Code jurisdiction, or by other law as applicable in any
      foreign jurisdiction.

     

    
      
        
        

      

      
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    (b) Location
      of Equipment and Inventory.
      Each
      Grantor will keep the Equipment and Inventory (i) at the locations specified
      therefor on Schedule III hereto, or (ii) at such other locations set forth
      on
      Schedule III (or a new Schedule III delivered by the Grantors to Collateral
      Agent from time to time) and with respect to which the Collateral Agent has
      filed financing statements and otherwise fully perfected its Liens thereon,
      or
      (iii) at such other locations in the United States, provided that within 20
      days
      following the relocation of Equipment or Inventory to such other location or
      the
      acquisition of Equipment or Inventory, such Grantor shall deliver to the
      Collateral Agent a new Schedule III indicating such new locations.

     

    (c) Condition
      of Equipment.
      Each
      Grantor will maintain or cause the Equipment (necessary or useful to its
      business) to be maintained and preserved in good condition, repair and working
      order, ordinary wear and tear excepted, and will forthwith, or in the case
      of
      any loss or damage to any Equipment of any Grantor within a commercially
      reasonable time after the occurrence thereof, make or cause to be made all
      repairs, replacements and other improvements in connection therewith which
      are
      necessary or desirable, consistent with past practice, or which the Collateral
      Agent may request to such end. Any Grantor will promptly furnish to the
      Collateral Agent a statement describing in reasonable detail any such loss
      or
      damage in excess of $250,000 per occurrence to any Equipment.

     

    (d) Taxes,
      Etc.
      Each
      Grantor agrees to pay promptly when due all property and other taxes,
      assessments and governmental charges or levies imposed upon, and all claims
      (including claims for labor, materials and supplies) against, the Equipment
      and
      Inventory, except to the extent the validity thereof is being contested in
      good
      faith by proper proceedings which stay the imposition of any penalty, fine
      or
      Lien resulting from the non-payment thereof and with respect to which adequate
      reserves in accordance with GAAP have been set aside for the payment
      thereof.

     

    
      
        
        

      

      
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      (e) Insurance.

    

     

    (i) Each
      Grantor will, at its own expense, maintain insurance (including, without
      limitation, commercial general liability and property insurance) with respect
      to
      the Equipment and Inventory in such amounts, against such risks, in such form
      and with responsible and reputable insurance companies or associations as is
      required by any governmental authority having jurisdiction with respect thereto
      or as is carried generally in accordance with sound business practice by
      companies in similar businesses similarly situated and in any event, in amount,
      adequacy and scope reasonably satisfactory to the Collateral Agent. To the
      extent requested by the Collateral Agent at any time and from time to time,
      each
      such policy for liability insurance shall provide for all losses to be paid
      on
      behalf of the Collateral Agent and any Grantor as their respective interests
      may
      appear, and each policy for property damage insurance shall provide for all
      losses to be adjusted with, and paid directly to, the Collateral Agent. To
      the
      extent requested by the Collateral Agent at any time and from time to time,
      each
      such policy shall in addition (A) name the Collateral Agent as an additional
      insured party thereunder (without any representation or warranty by or
      obligation upon the Collateral Agent) as their interests may appear, (B) contain
      an agreement by the insurer that any loss thereunder shall be payable to the
      Collateral Agent on its own account notwithstanding any action, inaction or
      breach of representation or warranty by any Grantor, (C) provide that there
      shall be no recourse against the Collateral Agent for payment of premiums or
      other amounts with respect thereto, and (D) provide that at least 30 days'
      prior
      written notice of cancellation, lapse, expiration or other adverse change shall
      be given to the Collateral Agent by the insurer. Any Grantor will, if so
      requested by the Collateral Agent, deliver to the Collateral Agent original
      or
      duplicate policies of such insurance and, as often as the Collateral Agent
      may
      reasonably request, a report of a reputable insurance broker with respect to
      such insurance. Any Grantor will also, at the request of the Collateral Agent,
      execute and deliver instruments of assignment of such insurance policies and
      cause the respective insurers to acknowledge notice of such
      assignment.

     

    (ii) Reimbursement
      under any liability insurance maintained by any Grantor pursuant to this Section
      5(e) may be paid directly to the Person who shall have incurred liability
      covered by such insurance. Following an Event of Default, in the case of any
      loss involving damage to Equipment or Inventory, any proceeds of insurance
      maintained by any Grantor pursuant to this Section 5(e) shall be paid to the
      Collateral Agent (except as to which paragraph (iii) of this Section 5(e) is
      not
      applicable), any Grantor will make or cause to be made the necessary repairs
      to
      or replacements of such Equipment or Inventory, and any proceeds of insurance
      maintained by any Grantor pursuant to this Section 5(e) shall be paid by the
      Collateral Agent to any Grantor as reimbursement for the costs of such repairs
      or replacements.

     

    (iii) Following
      and during the continuance of an Event of Default, all insurance payments in
      respect of such Equipment or Inventory shall be paid to the Collateral Agent
      and
      applied as specified in Section
      7(b)
      hereof.

     

    (f) Provisions
      Concerning the Accounts and the Licenses.

     

    (i) Each
      Grantor will (A) give the Collateral Agent at least 30 days' prior written
      notice of any change in such Grantor's name, identity or organizational
      structure, (B) maintain its jurisdiction of incorporation, organization or
      formation as set forth in Schedule I hereto, (C) immediately notify the
      Collateral Agent upon obtaining an organizational identification number, if
      on
      the date hereof such Grantor did not have such identification number, and (D)
      keep adequate records concerning the Accounts, in accordance with Section 4
      (i)
      of the Securities Purchase Agreement and Chattel Paper.

     

    
      
        
        

      

      
        -11-

        
          

        

      

      
        
        

      

    

     

    (ii) Each
      Grantor will, except as otherwise provided in this subsection (f), continue
      to
      collect, at its own expense, all amounts due or to become due under the
      Accounts. In connection with such collections, any Grantor may (and, at the
      Collateral Agent's direction, will) take such action as any Grantor or the
      Collateral Agent may deem necessary or advisable to enforce collection or
      performance of the Accounts; provided, however, that the Collateral Agent shall
      have the right at any time, upon the occurrence and during the continuance
      of an
      Event of Default, to notify the account debtors or obligors under any Accounts
      of the assignment of such Accounts to the Collateral Agent and to direct such
      account debtors or obligors to make payment of all amounts due or to become
      due
      to any Grantor thereunder directly to the Collateral Agent or its designated
      agent and, upon such notification and at the expense of any Grantor and to
      the
      extent permitted by law, to enforce collection of any such Accounts and to
      adjust, settle or compromise the amount or payment thereof, in the same manner
      and to the same extent as any Grantor might have done. After receipt by any
      Grantor of a notice from the Collateral Agent that the Collateral Agent has
      notified, intends to notify, or has enforced or intends to enforce any Grantor's
      rights against the account debtors or obligors under any Accounts as referred
      to
      in the proviso to the immediately preceding sentence, (A) all amounts and
      proceeds (including Instruments) received by any Grantor in respect of the
      Accounts shall be received in trust for the benefit of the Collateral Agent
      hereunder, shall be segregated from other funds of any Grantor and shall be
      forthwith paid over to the Collateral Agent in the same form as so received
      (with any necessary endorsement) to be applied as specified in Section 7(b)
      hereof, and (B) no Grantor will adjust, settle or compromise the amount or
      payment of any Account or release wholly or partly any account debtor or obligor
      thereof or allow any credit or discount thereon. In addition, upon the
      occurrence and during the continuance of an Event of Default, the Collateral
      Agent may (in its sole and absolute discretion) direct any or all of the banks
      and financial institutions with which any Grantor either maintains a Deposit
      Account or a lockbox or deposits the proceeds of any Accounts to send
      immediately to the Collateral Agent by wire transfer (to such account as the
      Collateral Agent shall specify, or in such other manner as the Collateral Agent
      shall direct) all or a portion of such securities, cash, investments and other
      items held by such institution. Any such securities, cash, investments and
      other
      items so received by the Collateral Agent shall be applied as specified in
      accordance with Section 7(b) hereof.

     

    (iii) Upon
      the
      occurrence and during the continuance of any breach or default under any
      material License referred to in Schedule II hereto by any party thereto other
      than any Grantor, each Grantor party thereto will, promptly after obtaining
      knowledge thereof, give the Collateral Agent written notice of the nature and
      duration thereof, specifying what action, if any, it has taken and proposes
      to
      take with respect thereto and thereafter will take reasonable steps to protect
      and preserve its rights and remedies in respect of such breach or default,
      or
      will obtain or acquire an appropriate substitute License.

     

    (iv) Each
      Grantor will, at its expense, promptly deliver to the Collateral Agent a copy
      of
      each notice or other communication received by it by which any other party
      to
      any material License referred to in Schedule II hereto purports to exercise
      any
      of its rights or affect any of its obligations thereunder, together with a
      copy
      of any reply by such Grantor thereto.

     

    (v) Each
      Grantor will exercise promptly and diligently each and every right which it
      may
      have under each material License (other than any right of termination) and
      will
      duly perform and observe in all respects all of its obligations under each
      material License and will take all action reasonably necessary to maintain
      such
      Licenses in full force and effect. No Grantor will, without the prior written
      consent of the Collateral Agent, cancel, terminate, amend or otherwise modify
      in
      any respect, or waive any provision of, any material License referred to in
      Schedule II hereto.

     

    
      
        
        

      

      
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    (g) Transfers
      and Other Liens.

     

    (i) No
      Grantor will sell, assign (by operation of law or otherwise), lease, license,
      exchange or otherwise transfer or dispose of any of the Collateral, except
      (A)
      Inventory in the ordinary course of business, and (B) worn out or obsolete
      assets, not necessary to the business.

     

    (ii) No
      Grantor will create, suffer to exist or grant any Lien upon or with respect
      to
      any Collateral other than a Permitted Lien.

     

    (h) Intellectual
      Property.

     

    (i) If
      applicable, any Grantor shall, upon the Collateral Agent's written request,
      duly
      execute and deliver the applicable Assignment for Security in the form attached
      hereto as Exhibit A. Each Grantor (either itself or through licensees) will,
      and
      will cause each licensee thereof to, take all action necessary to maintain
      all
      of the Intellectual Property in full force and effect, including, without
      limitation, using the proper statutory notices and markings and using the
      Trademarks on each applicable trademark class of goods in order to so maintain
      the Trademarks in full force and free from any claim of abandonment for non-use,
      and each Grantor will not (nor permit any licensee thereof to) do any act or
      knowingly omit to do any act whereby any Intellectual Property may become
      invalidated; provided, however, that so long as no Event of Default has occurred
      and is continuing, no Grantor shall have an obligation to use or to maintain
      any
      Intellectual Property (A) that relates solely to any product or work, that
      has
      been, or is in the process of being, discontinued, abandoned or terminated,
      (B)
      that is being replaced with Intellectual Property substantially similar to
      the
      Intellectual Property that may be abandoned or otherwise become invalid, so
      long
      as the failure to use or maintain such Intellectual Property does not materially
      adversely affect the validity of such replacement Intellectual Property and
      so
      long as such replacement Intellectual Property is subject to the Lien created
      by
      this Agreement or (C) that is substantially the same as another Intellectual
      Property that is in full force, so long the failure to use or maintain such
      Intellectual Property does not materially adversely affect the validity of
      such
      replacement Intellectual Property and so long as such other Intellectual
      Property is subject to the Lien and security interest created by this Agreement.
      Each Grantor will cause to be taken all necessary steps in any proceeding before
      the United States Patent and Trademark Office and the United States Copyright
      Office or any similar office or agency in any other country or political
      subdivision thereof to maintain each registration of the Intellectual Property
      (other than the Intellectual Property described in the proviso to the
      immediately preceding sentence), including, without limitation, filing of
      renewals, affidavits of use, affidavits of incontestability and opposition,
      interference and cancellation proceedings and payment of maintenance fees,
      filing fees, taxes or other governmental fees. If any Intellectual Property
      (other than Intellectual Property described in the proviso to the first sentence
      of subsection (i) of this clause (h)) is infringed, misappropriated, diluted
      or
      otherwise violated in any material respect by a third party, each Grantor shall
      (x) upon learning of such infringement, misappropriation, dilution or other
      violation, promptly notify the Collateral Agent and (y) to the extent any
      Grantor shall deem appropriate under the circumstances, promptly sue for
      infringement, misappropriation, dilution or other violation, seek injunctive
      relief where appropriate and recover any and all damages for such infringement,
      misappropriation, dilution or other violation, or take such other actions as
      such Grantor shall deem appropriate under the circumstances to protect such
      Intellectual Property. Each Grantor shall furnish to the Collateral Agent from
      time to time upon its request statements and schedules further identifying
      and
      describing the Intellectual Property and Licenses and such other reports in
      connection with the Intellectual Property and Licenses as the Collateral Agent
      may reasonably request, all in reasonable detail and promptly upon request
      of
      the Collateral Agent, following receipt by the Collateral Agent of any such
      statements, schedules or reports, each Grantor shall modify this Agreement
      by
      amending Schedule II hereto, as the case may be, to include any Intellectual
      Property and License, as the case may be, which becomes part of the Collateral
      under this Agreement and shall execute and authenticate such documents and
      do
      such acts as shall be necessary or, in the reasonable judgment of the Collateral
      Agent, desirable to subject such Intellectual Property and Licenses to the
      Lien
      and security interest created by this Agreement. Notwithstanding anything herein
      to the contrary, upon the occurrence and during the continuance of an Event
      of
      Default, no Grantor may abandon or otherwise permit any Intellectual Property
      to
      become invalid without the prior written consent of the Collateral Agent, and
      if
      any Intellectual Property is infringed, misappropriated, diluted or otherwise
      violated in any material respect by a third party, each Grantor will take such
      action as the Collateral Agent shall deem appropriate under the circumstances
      to
      protect such Intellectual Property.

     

    
      
        
        

      

      
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    (ii) In
      no
      event shall any Grantor, either itself or through any agent, employee, licensee
      or designee, file an application for the registration of any Trademark or
      Copyright or the issuance of any Patent with the United States Patent and
      Trademark Office or the United States Copyright Office, as applicable, or in
      any
      similar office or agency of the United States or any country or any political
      subdivision thereof unless it gives the Collateral Agent prior written notice
      thereof. Upon request of the Collateral Agent, any Grantor shall execute,
      authenticate and deliver any and all assignments, agreements, instruments,
      documents and papers as the Collateral Agent may reasonably request to evidence
      the Collateral Agent's security interest hereunder in such Intellectual Property
      and the General Intangibles of any Grantor relating thereto or represented
      thereby, and each Grantor hereby appoints the Collateral Agent its
      attorney-in-fact to execute and/or authenticate and file all such writings
      for
      the foregoing purposes, all acts of such attorney being hereby ratified and
      confirmed, and such power (being coupled with an interest) shall be irrevocable
      until the indefeasible payment in full in cash and/or complete conversion to
      equity securities of the Company of all of the Obligations.

     

    (i) Deposit,
      Commodities and Securities Accounts.
      Upon
      the Collateral Agent's written request, each Grantor shall cause each bank
      and
      other financial institution with an account referred to in Schedule
      IV
      hereto
      to execute and deliver to the Collateral Agent a control agreement, in form
      and
      substance reasonably satisfactory to the Collateral Agent, duly executed by
      each
      Grantor and such bank or financial institution, or enter into other arrangements
      in form and substance satisfactory to the Collateral Agent, pursuant to which
      such institution shall irrevocably agree, inter alia,
      that
      (i) it will comply at any time with the instructions originated by the
      Collateral Agent to such bank or financial institution directing the disposition
      of cash, Commodity Contracts, securities, Investment Property and other items
      from time to time credited to such account, without further consent of each
      Grantor, which
      instructions the Collateral Agent will not give to such bank or other financial
      institution in the absence of a continuing Event of Default, (ii)
      all
      Commodity Contracts, securities, Investment Property and other items of each
      Grantor deposited with such institution shall be subject to a perfected, first
      priority security interest in favor of the Collateral Agent, (iii) any
      right of set off (other than recoupment of standard fees), banker's Lien or
      other similar Lien, security interest or encumbrance shall be fully waived
      as
      against the Collateral Agent, and (iv) upon receipt of written notice from
      the Collateral Agent during the continuance of an Event of Default, such bank
      or
      financial institution shall immediately send to the Collateral Agent by wire
      transfer (to such account as the Collateral Agent shall specify, or in such
      other manner as the Collateral Agent shall direct) all such cash, the value
      of
      any Commodity Contracts, securities, Investment Property and other items held
      by
      it. Without the prior written consent of the Collateral Agent, each Grantor
      shall not make or maintain any Deposit Account, Commodity Account or Securities
      Account except for the accounts set forth in Schedule IV hereto. The provisions
      of this paragraph 5(i) shall not apply to (i) Deposit Accounts for which the
      Collateral Agent is the depositary and (ii) Deposit Accounts specially and
      exclusively used for payroll, payroll taxes and other employee wage and benefit
      payments to or for the benefit of each Grantor's salaried or hourly
      employees.

     

    
      
        
        

      

      
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    (j) Motor
      Vehicles.

     

    (i) Upon
      the
      Collateral Agent's written request, each Grantor shall deliver to the Collateral
      Agent originals of the certificates of title or ownership for all motor vehicles
      with a value in excess of $50,000, owned by it with the Collateral Agent listed
      as lienholder, for the benefit of the Buyers.

     

    (ii) Each
      Grantor hereby appoints the Collateral Agent as its attorney-in-fact, effective
      the date hereof and terminating upon the termination of this Agreement, for
      the
      purpose of (A) executing on behalf of such Grantor title or ownership
      applications for filing with appropriate state agencies to enable motor vehicles
      now owned or hereafter acquired by such Grantor to be retitled and the
      Collateral Agent listed as lienholder thereof, (B) filing such applications
      with
      such state agencies, and (C) executing such other documents and instruments
      on
      behalf of, and taking such other action in the name of, such Grantor as the
      Collateral Agent may deem necessary or advisable to accomplish the purposes
      hereof (including, without limitation, for the purpose of creating in favor
      of
      the Collateral Agent a perfected Lien on the motor vehicles and exercising
      the
      rights and remedies of the Collateral Agent hereunder). This appointment as
      attorney-in-fact is coupled with an interest and is irrevocable until all of
      the
      Obligations are indefeasibly paid in full in cash and/or completely converted
      to
      equity securities of the Company.

     

    (iii) Any
      certificates of title or ownership delivered pursuant to the terms hereof shall
      be accompanied by odometer statements for each motor vehicle covered
      thereby.

     

    (iv) So
      long
      as no Event of Default shall have occurred and be continuing, upon the request
      of any Grantor, the Collateral Agent shall execute and deliver to any Grantor
      such instruments as any Grantor shall reasonably request to remove the notation
      of the Collateral Agent as lienholder on any certificate of title for any motor
      vehicle; provided,
      however,
      that
      any such instruments shall be delivered, and the release effective, only upon
      receipt by the Collateral Agent of a certificate from any Grantor stating that
      such motor vehicle is to be sold or has suffered a casualty loss (with title
      thereto in such case passing to the casualty insurance company therefor in
      settlement of the claim for such loss) and the amount that any Grantor will
      receive as sale proceeds or insurance proceeds. 

     

    
      
        
        

      

      
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    (k) Control.
      Each
      Grantor hereby agrees to take any or all action that may be necessary or that
      the Collateral Agent may reasonably request in order for the Collateral Agent
      to
      obtain control in accordance with Sections 9-105 - 9-107 of the Code with
      respect to the following Collateral: (i) Electronic Chattel Paper, (ii)
      Investment Property, and (iii) Letter-of-Credit Rights.

     

    (l) Inspection
      and Reporting.
      Each
      Grantor shall permit in accordance with Section 4(i) of the Securities Purchase
      Agreement, the Collateral Agent, or any agent or representatives thereof or
      such
      professionals or other Persons as the Collateral Agent may designate, during
      normal business hours, after reasonable prior notice, in the absence of an
      Event
      of Default and not more than once a year in the absence of an Event of Default,
      (i) to examine and make copies of and abstracts from any Grantor's records
      and
      books of account, (ii) to visit and inspect its properties, (iii) to verify
      materials, leases, Instruments, Accounts, Inventory and other assets of any
      Grantor from time to time, (iii) to conduct audits, physical counts, appraisals
      and/or valuations, examinations at the locations of any Grantor. Each Grantor
      shall also permit, in accordance with Section 4(i) of the Securities Purchase
      Agreement, the Collateral Agent, or any agent or representatives thereof or
      such
      professionals or other Persons as the Collateral Agent may designate to discuss
      such Grantor's affairs, finances and accounts with any of its directors,
      officers, managerial employees, independent accountants or any of its other
      representatives.

     

    (m) Future
      Subsidiaries.
      If any
      Grantor shall hereafter create or acquire any Subsidiary, simultaneously with
      the creation or acquisition of such Subsidiary, such Grantor shall (i) cause
      such Subsidiary to become a party to this Agreement as an additional "Grantor"
      hereunder, (ii) such Grantor shall deliver to Collateral Agent revised Schedules
      to this Agreement, as appropriate, (iii) shall duly execute and deliver a
      guaranty of the Obligations in favor of the Collateral Agent in form and
      substance reasonably acceptable to the Collateral Agent, and (iv) shall duly
      execute and/or deliver such opinions of counsel and other documents, in form
      and
      substance reasonably acceptable to the Collateral Agent, as the Collateral
      Agent
      shall reasonably request with respect thereto, provided that any Grantor that
      acquires a subsidiary on or within two days after the Closing Date shall have
      10
      Business Days in which to satisfy the requirements of this Section
      5(m).

     

    SECTION
      6. Additional
      Provisions Concerning the Collateral.

     

    (a) To
      the
      maximum extent permitted by applicable law, and for the purpose of taking any
      action that the Collateral Agent may deem necessary or advisable to accomplish
      the purposes of this Agreement, each Grantor hereby (i) authorizes the
      Collateral Agent to execute any such agreements, instruments or other documents
      in such Grantor's name and to file such agreements, instruments or other
      documents in such Grantor's name and in any appropriate filing office, (ii)
      authorizes the Collateral Agent at any time and from time to time to file,
      one
      or more financing or continuation statements, and amendments thereto, relating
      to the Collateral (including, without limitation, any such financing statements
      that (A) describe the Collateral as "all assets" or "all personal property"
      (or
      words of similar effect) or that describe or identify the Collateral by type
      or
      in any other manner as the Collateral Agent may determine regardless of whether
      any particular asset of such Grantor falls within the scope of Article 9 of
      the
      Uniform Commercial Code or whether any particular asset of such Grantor
      constitutes part of the Collateral, and (B) contain any other information
      required by Part 5 of Article 9 of the Code for the sufficiency or filing office
      acceptance of any financing statement, continuation statement or amendment,
      including, without limitation, whether such Grantor is an organization, the
      type
      of organization and any organizational identification number issued to such
      Grantor) and (iii) ratifies such authorization to the extent that the Collateral
      Agent has filed any such financing or continuation statements, or amendments
      thereto, prior to the date hereof. A photocopy or other reproduction of this
      Agreement or any financing statement covering the Collateral or any part thereof
      shall be sufficient as a financing statement where permitted by
      law.

     

    
      
        
        

      

      
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    (b) Each
      Grantor hereby irrevocably appoints the Collateral Agent as its attorney-in-fact
      and proxy, with full authority in the place and stead of such Grantor and in
      the
      name of such Grantor or otherwise, from time to time in the Collateral Agent's
      discretion, so long as an Event of Default shall have occurred and is
      continuing, to take any action and to execute any instrument which the
      Collateral Agent may reasonably deem necessary or advisable to accomplish the
      purposes of this Agreement (subject to the rights of each Grantor under Section
      5 hereof), including, without limitation, (i) to obtain and adjust insurance
      required to be paid to the Collateral Agent pursuant to Section 5(e) hereof,
      (ii) to ask, demand, collect, sue for, recover, compound, receive and give
      acquittance and receipts for moneys due and to become due under or in respect
      of
      any Collateral, (iii) to receive, endorse, and collect any drafts or other
      instruments, documents and chattel paper in connection with clause (i) or (ii)
      above, (iv) to file any claims or take any action or institute any proceedings
      which the Collateral Agent may deem necessary or desirable for the collection
      of
      any Collateral or otherwise to enforce the rights of the Collateral Agent and
      the Buyers with respect to any Collateral, and (v) to execute assignments,
      licenses and other documents to enforce the rights of the Collateral Agent
      and
      the Buyers with respect to any Collateral. This power is coupled with an
      interest and is irrevocable until all of the Obligations are indefeasibly paid
      in full in cash. 

     

    (c) For
      the
      purpose of enabling the Collateral Agent to exercise rights and remedies
      hereunder, at such time as the Collateral Agent shall be lawfully entitled
      to
      exercise such rights and remedies, and for no other purpose, each Grantor hereby
      grants to the Collateral Agent, to the extent assignable, an irrevocable,
      non-exclusive license (exercisable without payment of royalty or other
      compensation to any Grantor) to use, assign, license or sublicense any
      Intellectual Property now owned or hereafter acquired by such Grantor, wherever
      the same may be located, including in such license reasonable access to all
      media in which any of the licensed items may be recorded or stored and to all
      computer programs used for the compilation or printout thereof. Notwithstanding
      anything contained herein to the contrary, but subject to the provisions of
      the
      Securities Purchase Agreement that limit the right of any Grantor to dispose
      of
      its property, and Section 5(g) and Section 5(h) hereof, so long as no Event
      of
      Default shall have occurred and be continuing, any Grantor may exploit, use,
      enjoy, protect, license, sublicense, assign, sell, dispose of or take other
      actions with respect to the Intellectual Property in the ordinary course of
      its
      business. In furtherance of the foregoing, unless an Event of Default shall
      have
      occurred and be continuing, the Collateral Agent shall from time to time, upon
      the request of any Grantor, execute and deliver any instruments, certificates
      or
      other documents, in the form so requested, which such Grantor shall have
      certified are appropriate (in such Grantor's judgment) to allow it to take
      any
      action permitted above (including relinquishment of the license provided
      pursuant to this clause (c) as to any Intellectual Property. Further, upon
      the
      indefeasible payment in full in cash of all of the Obligations, the Collateral
      Agent (subject to Section 10(e) hereof) shall release and reassign to any
      Grantor all of the Collateral Agent's right, title and interest in and to the
      Intellectual Property, and the Licenses, all without recourse, representation
      or
      warranty whatsoever. The exercise of rights and remedies hereunder by the
      Collateral Agent shall not terminate the rights of the holders of any licenses
      or sublicenses theretofore granted by each Grantor in accordance with the second
      sentence of this clause (c). Each Grantor hereby releases the Collateral Agent
      from any claims, causes of action and demands at any time arising out of or
      with
      respect to any actions taken or omitted to be taken by the Collateral Agent
      under the powers of attorney granted herein other than actions taken or omitted
      to be taken through the Collateral Agent's gross negligence or willful
      misconduct, as determined by a final determination of a court of competent
      jurisdiction. 

     

    
      
        
        

      

      
        -17-

        
          

        

      

      
        
        

      

    

     

    (d) If
      any
      Grantor fails to perform any agreement or obligation contained herein, the
      Collateral Agent may itself perform, or cause performance of, such agreement
      or
      obligation, in the name of such Grantor or the Collateral Agent, and the
      expenses of the Collateral Agent incurred in connection therewith shall be
      payable by such Grantor pursuant to Section 8 hereof and shall be secured by
      the
      Collateral.

     

    (e) The
      powers conferred on the Collateral Agent hereunder are solely to protect its
      interest in the Collateral and shall not impose any duty upon it to exercise
      any
      such powers. Except for the safe custody of any Collateral in its possession
      and
      the accounting for moneys actually received by it hereunder, the Collateral
      Agent shall have no duty as to any Collateral or as to the taking of any
      necessary steps to preserve rights against prior parties or any other rights
      pertaining to any Collateral.

     

    (f) Anything
      herein to the contrary notwithstanding (i) each Grantor shall remain liable
      under the Licenses and otherwise with respect to any of the Collateral to the
      extent set forth therein to perform all of its obligations thereunder to the
      same extent as if this Agreement had not been executed, (ii) the exercise by
      the
      Collateral Agent of any of its rights hereunder shall not release any Grantor
      from any of its obligations under the Licenses or otherwise in respect of the
      Collateral, and (iii) the Collateral Agent shall not have any obligation or
      liability by reason of this Agreement under the Licenses or with respect to
      any
      of the other Collateral, nor shall the Collateral Agent be obligated to perform
      any of the obligations or duties of any Grantor thereunder or to take any action
      to collect or enforce any claim for payment assigned hereunder.

     

    
      
        
        

      

      
        -18-

        
          

        

      

      
        
        

      

    

     

    
      SECTION
        7. Remedies
        Upon Event of Default.
        If any
        Event of Default shall have occurred and be continuing:

    

     

    (a) The
      Collateral Agent may exercise in respect of the Collateral, in addition to
      any
      other rights and remedies provided for herein or otherwise available to it,
      all
      of the rights and remedies of a secured party upon default under the Code
      (whether or not the Code applies to the affected Collateral), and also may
      (i)
      take absolute control of the Collateral, including, without limitation, transfer
      into the Collateral Agent's name or into the name of its nominee or nominees
      (to
      the extent the Collateral Agent has not theretofore done so) and thereafter
      receive, for the benefit of the Collateral Agent, all payments made thereon,
      give all consents, waivers and ratifications in respect thereof and otherwise
      act with respect thereto as though it were the outright owner thereof, (ii)
      require each Grantor to, and each Grantor hereby agrees that it will at its
      expense and upon request of the Collateral Agent forthwith, assemble all or
      part
      of its respective Collateral as directed by the Collateral Agent and make it
      available to the Collateral Agent at a place or places to be designated by
      the
      Collateral Agent that is reasonably convenient to both parties, and the
      Collateral Agent may enter into and occupy any premises owned or leased by
      any
      Grantor where the Collateral or any part thereof is located or assembled for
      a
      reasonable period in order to effectuate the Collateral Agent's rights and
      remedies hereunder or under law, without obligation to any Grantor in respect
      of
      such occupation, and (iii) without notice except as specified below and without
      any obligation to prepare or process the Collateral for sale, (A) sell the
      Collateral or any part thereof in one or more parcels at public or private
      sale,
      at any of the Collateral Agent's offices or elsewhere, for cash, on credit
      or
      for future delivery, and at such price or prices and upon such other terms
      as
      the Collateral Agent may deem commercially reasonable and/or (B) lease, license
      or dispose of the Collateral or any part thereof upon such terms as the
      Collateral Agent may deem commercially reasonable. Each Grantor agrees that,
      to
      the extent notice of sale or any other disposition of its respective Collateral
      shall be required by law, at least ten (10) days' notice to any Grantor of
      the
      time and place of any public sale or the time after which any private sale
      or
      other disposition of its respective Collateral is to be made shall constitute
      reasonable notification. The Collateral Agent shall not be obligated to make
      any
      sale or other disposition of any Collateral regardless of notice of sale having
      been given. The Collateral Agent may adjourn any public or private sale from
      time to time by announcement at the time and place fixed therefor, and such
      sale
      may, without further notice, be made at the time and place to which it was
      so
      adjourned. Each Grantor hereby waives any claims against the Collateral Agent
      and the Buyers arising by reason of the fact that the price at which its
      respective Collateral may have been sold at a private sale was less than the
      price which might have been obtained at a public sale or was less than the
      aggregate amount of the Obligations, even if the Collateral Agent accepts the
      first offer received and does not offer such Collateral to more than one
      offeree, and waives all rights that any Grantor may have to require that all
      or
      any part of such Collateral be marshaled upon any sale (public or private)
      thereof. Each Grantor hereby acknowledges that (i) any such sale of its
      respective Collateral by the Collateral Agent shall be made without warranty,
      (ii) the Collateral Agent may specifically disclaim any warranties of title,
      possession, quiet enjoyment or the like, and (iii) such actions set forth in
      clauses (i) and (ii) above shall not adversely affect the commercial
      reasonableness of any such sale of Collateral. In addition to the foregoing,
      (1)
      upon written notice to any Grantor from the Collateral Agent after and during
      the continuance of an Event of Default, such Grantor shall cease any use of
      the
      Intellectual Property or any trademark, patent or copyright similar thereto
      for
      any purpose described in such notice; (2) the Collateral Agent may, at any
      time
      and from time to time after and during the continuance of an Event of Default,
      upon 10 days' prior notice to such Grantor, license, whether general, special
      or
      otherwise, and whether on an exclusive or non-exclusive basis, any of the
      Intellectual Property, throughout the universe for such term or terms, on such
      conditions, and in such manner, as the Collateral Agent shall in its sole
      discretion determine; and (3) the Collateral Agent may, at any time, pursuant
      to
      the authority granted in Section 6 hereof (such authority being effective upon
      the occurrence and during the continuance of an Event of Default), execute
      and
      deliver on behalf of such Grantor, one or more instruments of assignment of
      the
      Intellectual Property (or any application or registration thereof), in form
      suitable for filing, recording or registration in any country.

     

    
      
        
        

      

      
        -19-

        
          

        

      

      
        
        

      

    

     

    (b) Any
      cash
      held by the Collateral Agent as Collateral and all Cash Proceeds received by
      the
      Collateral Agent in respect of any sale of or collection from, or other
      realization upon, all or any part of the Collateral shall be applied (after
      payment of any amounts payable to the Collateral Agent pursuant to Section
      8
      hereof)
      by the Collateral Agent against, all or any part of the Obligations in such
      order as the Collateral Agent shall elect, consistent with the provisions of
      the
      Securities Purchase Agreement. Any surplus of such cash or Cash Proceeds held
      by
      the Collateral Agent and remaining after the indefeasible payment in full in
      cash of all of the Obligations shall be paid over to whomsoever shall be
      lawfully entitled to receive the same or as a court of competent jurisdiction
      shall direct.

     

    (c) In
      the
      event that the proceeds of any such sale, collection or realization are
      insufficient to pay all amounts to which the Collateral Agent and the Buyers
      are
      legally entitled, each Grantor shall be liable for the deficiency, together
      with
      interest thereon at the highest rate specified in the Notes for interest on
      overdue principal thereof or such other rate as shall be fixed by applicable
      law, together with the costs of collection and the reasonable fees, costs,
      expenses and other client charges of any attorneys employed by the Collateral
      Agent to collect such deficiency.

     

    (d) Each
      Grantor hereby acknowledges that if the Collateral Agent complies with any
      applicable state, provincial, or federal law requirements in connection with
      a
      disposition of the Collateral, such compliance will not adversely affect the
      commercial reasonableness of any sale or other disposition of the
      Collateral.

     

    (e) The
      Collateral Agent shall not be required to marshal any present or future
      collateral security (including, but not limited to, this Agreement and the
      Collateral) for, or other assurances of payment of, the Obligations or any
      of
      them or to resort to such collateral security or other assurances of payment
      in
      any particular order, and all of the Collateral Agent's rights hereunder and
      in
      respect of such collateral security and other assurances of payment shall be
      cumulative and in addition to all other rights, however existing or arising.
      To
      the extent that any Grantor lawfully may, each Grantor hereby agrees that it
      will not invoke any law relating to the marshaling of collateral which might
      cause delay in or impede the enforcement of the Collateral Agent's rights under
      this Agreement or under any other instrument creating or evidencing any of
      the
      Obligations or under which any of the Obligations is outstanding or by which
      any
      of the Obligations is secured or payment thereof is otherwise assured, and,
      to
      the extent that it lawfully may, each Grantor hereby irrevocably waives the
      benefits of all such laws.

     

    SECTION
      8. Indemnity
      and Expenses.

     

    (a) Each
      Grantor agrees, jointly and severally, to defend, protect, indemnify and hold
      the Collateral Agent and each of the Buyers, jointly and severally, harmless
      from and against any and all claims, damages, losses, liabilities, obligations,
      penalties, fees, costs and expenses (including, without limitation, reasonable
      legal fees, costs, expenses, and disbursements of such Person's counsel) to
      the
      extent that they arise out of or otherwise result from this Agreement
      (including, without limitation, enforcement of this Agreement), except to the
      extent resulting from such Person's gross negligence or willful misconduct,
      as
      determined by a final judgment of a court of competent
      jurisdiction.

     

    
      
        
        

      

      
        -20-

        
          

        

      

      
        
        

      

    

     

    (b) Each
      Grantor agrees, jointly and severally, to pay to the Collateral Agent upon
      demand the amount of any and all costs and expenses, including the reasonable
      fees, costs, expenses and disbursements of counsel for the Collateral Agent
      and
      of any experts and agents (including, without limitation, any collateral trustee
      which may act as agent of the Collateral Agent), which the Collateral Agent
      may
      incur in connection with (i) the preparation, negotiation, execution, delivery,
      recordation, administration, amendment, waiver or other modification or
      termination of this Agreement, (ii) the custody, preservation, use or operation
      of, or the sale of, collection from, or other realization upon, any Collateral,
      (iii) the exercise or enforcement of any of the rights of the Collateral Agent
      hereunder, or (iv) the failure by any Grantor to perform or observe any of
      the
      provisions hereof.

     

    SECTION
      9. Notices,
      Etc.
      All
      notices and other communications provided for hereunder shall be in writing
      and
      shall be mailed (by certified mail, postage prepaid and return receipt
      requested), telecopied, e-mailed or delivered, if to any Grantor that is a
      Foreign Subsidiary at the address of the Company, if to any Grantor that is
      not
      a Foreign Subsidiary at its address below and if to the Collateral Agent to
      it,
      at its address specified on the signature pages below; or as to any such Person,
      at such other address as shall be designated by such Person in a written notice
      to all other parties hereto complying as to delivery with the terms of this
      Section 9. All such notices and other communications shall be effective (a)
      if
      sent by certified mail, return receipt requested, when received or three days
      after deposited in the mails, whichever occurs first, (b) if telecopied or
      e-mailed, when transmitted (during normal business hours) and confirmation
      is
      received, and otherwise, the day after the notice or communication was
      transmitted and confirmation is received, or (c) if delivered in person, upon
      delivery. For the avoidance of doubt, the Foreign Subsidiaries, as Grantors,
      hereby appoint the Company as its agent for receipt of service of process and
      all notices and other communications in the United States at the address
      specified below. 

     

    SECTION
      10. Miscellaneous.

     

    (a) No
      amendment of any provision of this Agreement shall be effective unless it is
      in
      writing and signed by each Grantor and the Collateral Agent, and no waiver
      of
      any provision of this Agreement, and no consent to any departure by each Grantor
      therefrom, shall be effective unless it is in writing and signed by each Grantor
      and the Collateral Agent, and then such waiver or consent shall be effective
      only in the specific instance and for the specific purpose for which
      given.

     

    (b) No
      failure on the part of the Collateral Agent to exercise, and no delay in
      exercising, any right hereunder or under any of the other Transaction Documents
      shall operate as a waiver thereof; nor shall any single or partial exercise
      of
      any such right preclude any other or further exercise thereof or the exercise
      of
      any other right. The rights and remedies of the Collateral Agent or any Buyer
      provided herein and in the other Transaction Documents are cumulative and are
      in
      addition to, and not exclusive of, any rights or remedies provided by law.
      The
      rights of the Collateral Agent or any Buyer under any of the other Transaction
      Documents against any party thereto are not conditional or contingent on any
      attempt by such Person to exercise any of its rights under any of the other
      Transaction Documents against such party or against any other Person, including
      but not limited to, any Grantor.

     

    
      
        
        

      

      
        -21-

        
          

        

      

      
        
        

      

    

     

    (c) Any
      provision of this Agreement that is prohibited or unenforceable in any
      jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
      such prohibition or unenforceability without invalidating the remaining portions
      hereof or thereof or affecting the validity or enforceability of such provision
      in any other jurisdiction.

     

    (d) This
      Agreement shall create a continuing security interest in the Collateral and
      shall (i) remain in full force and effect until the indefeasible payment in
      full
      in cash and/or complete conversion to equity securities of the Company of the
      Obligations, and (ii) be binding on each Grantor and all other Persons who
      become bound as debtor to this Agreement in accordance with Section 9-203(d)
      of
      the Code and shall inure, together with all rights and remedies of the
      Collateral Agent and the Buyers hereunder, to the benefit of the Collateral
      Agent and the Buyers and their respective permitted successors, transferees
      and
      assigns. Without limiting the generality of clause (ii) of the immediately
      preceding sentence, without notice to any Grantor, the Collateral Agent and
      the
      Buyers may assign or otherwise transfer their rights and obligations under
      this
      Agreement and any of the other Transaction Documents in accordance with the
      respective Transaction Documents, to any other Person and such other Person
      shall thereupon become vested with all of the benefits in respect thereof
      granted to the Collateral Agent and the Buyers herein or otherwise. Upon any
      such assignment or transfer, all references in this Agreement to the Collateral
      Agent or any such Buyer shall mean the assignee of the Collateral Agent or
      such
      Buyer. None of the rights or obligations of any Grantor hereunder may be
      assigned or otherwise transferred without the prior written consent of the
      Collateral Agent, and any such assignment or transfer without the consent of
      the
      Collateral Agent shall be null and void.

     

    (e) Upon
      the
      indefeasible payment in full in cash and/or complete conversion to equity
      securities of the Company of the Obligations, (i) this Agreement and the
      security interests created hereby shall terminate and all rights to the
      Collateral shall revert to the respective Grantor that granted such security
      interests hereunder, and (ii) the Collateral Agent will, upon any Grantor's
      request and at such Grantor's expense, (A) return to such Grantor such of the
      Collateral as shall not have been sold or otherwise disposed of or applied
      pursuant to the terms hereof, and (B) execute and deliver to such Grantor such
      documents as such Grantor shall reasonably request to evidence such termination,
      all without any representation, warranty or recourse whatsoever.

     

    (f) THIS
      AGREEMENT SHALL BE GOVERNED BY, CONSTRUED AND INTERPRETED IN ACCORDANCE WITH
      THE
      LAWS OF THE STATE OF NEW YORK, EXCEPT AS REQUIRED BY MANDATORY PROVISIONS OF
      LAW
      AND EXCEPT TO THE EXTENT THAT THE VALIDITY AND PERFECTION OR THE PERFECTION
      AND
      THE EFFECT OF PERFECTION OR NON-PERFECTION OF THE SECURITY INTEREST CREATED
      HEREBY, OR REMEDIES HEREUNDER, IN RESPECT OF ANY PARTICULAR COLLATERAL ARE
      GOVERNED BY THE LAW OF A JURISDICTION OTHER THAN THE STATE OF NEW
      YORK.

     

    
      
        
        

      

      
        -22-

        
          

        

      

      
        
        

      

    

     

    (g) ANY
      LEGAL
      ACTION, SUIT OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY DOCUMENT
      RELATED HERETO MAY BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK IN THE
      COUNTY OF NEW YORK OR THE UNITED STATES OF AMERICA FOR THE SOUTHERN DISTRICT
      OF
      NEW YORK, AND APPELLATE COURTS THEREOF, AND, BY EXECUTION AND DELIVERY OF THIS
      AGREEMENT, EACH GRANTOR HEREBY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS
      PROPERTY, GENERALLY AND UNCONDITIONALLY, THE JURISDICTION OF THE AFORESAID
      COURTS. EACH GRANTOR HEREBY EXPRESSLY AND IRREVOCABLY WAIVES, TO THE FULLEST
      EXTENT PERMITTED BY LAW, ANY OBJECTION, INCLUDING, WITHOUT LIMITATION, ANY
      OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON
      CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY SUCH
      ACTION, SUIT OR PROCEEDING IN SUCH RESPECTIVE JURISDICTIONS AND CONSENTS TO
      THE
      GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED APPROPRIATE BY THE
      COURT.

     

    (h) EACH
      GRANTOR AND (BY ITS ACCEPTANCE OF THE BENEFITS OF THIS AGREEMENT) THE COLLATERAL
      AGENT WAIVES ANY RIGHT IT MAY HAVE TO TRIAL BY JURY IN RESPECT OF ANY LITIGATION
      BASED ON, ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY
      OF
      THE OTHER TRANSACTION DOCUMENTS, OR ANY COURSE OF CONDUCT, COURSE OF DEALING,
      ORAL OR WRITTEN STATEMENT OR OTHER ACTION OF THE PARTIES HERETO.

     

    (i) Each
      Grantor irrevocably consents to the service of process of any of the aforesaid
      courts in any such action, suit or proceeding by the mailing of copies thereof
      by registered or certified mail (or any substantially similar form of mail),
      postage prepaid, to any Grantor at its address provided herein, such service
      to
      become effective 10 days after such mailing.

     

    (j) Nothing
      contained herein shall affect the right of the Collateral Agent to serve process
      in any other manner permitted by law or commence legal proceedings or otherwise
      proceed against any Grantor or any property of any Grantor in any other
      jurisdiction.

     

    (k) Each
      Grantor irrevocably and unconditionally waives any right it may have to claim
      or
      recover in any legal action, suit or proceeding referred to in this Section
      any
      special, exemplary, punitive or consequential damages.

     

    (l) Section
      headings herein are included for convenience of reference only and shall not
      constitute a part of this Agreement for any other purpose.

     

    
      
        
        

      

      
        -23-

        
          

        

      

      
        
        

      

    

     

    (m) This
      Agreement may be executed in any number of counterparts and by different parties
      hereto in separate counterparts, each of which shall be deemed to be an
      original, but all of which taken together constitute one in the same
      Agreement.

     

    [REMAINDER
      OF THIS PAGE INTENTIONALLY LEFT BLANK]

     

    
      
        
        

      

      
        -24-

        
          

        

      

      
        
        

      

    

    IN
      WITNESS WHEREOF, each Grantor has caused this Agreement to be executed and
      delivered by its officer thereunto duly authorized, as of the date first above
      written.

     

    
      	 	 	 
	 	DIGITALFX INTERNATIONAL, INC.
	 
 	 
 	 
 
	 	By:  	 
	 	
              
Name:
	 	
              Title:

            

    

    
       

      
        	 	 	 
	 	DIGITALFX NETWORKS, LLC
	 
 	 
 	 
 
	 	By:  	 
	 	
                
Name:
	 	
                Title:

              

      

       

      
        	 	 	 
	 	DIGITALFX SOLUTIONS, LLC
	 
 	 
 	 
 
	 	By:  	 
	 	
                
Name:
	 	
                Title:

              

      

       

      
        	 	 	 
	 	VMDIRECT L.L.C.
	 
 	 
 	 
 
	 	By:  	 
	 	
                
Name:
	 	
                Title:

              

      

       

    

    Security
      Agreement

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    

    
      	ACCEPTED
              BY:	 	 	 
	 	 	 	 
	PORTSIDE GROWTH AND OPPORTUNITY
              FUND	 	 	 
	 	 	 	 
	By:   	 	 	 
	
              
                

              

              Name:

            	 	 	
            
	
              Title:

            	 	 	 

    

     

    Security
      AgreementUnassociated Document

    PLEDGE
      AGREEMENT

     

    PLEDGE
      AGREEMENT (this
      "Agreement"),
      dated
      as of November 30, 2007, made by each entity listed as a pledgor on the
      signature pages hereto (each a "Pledgor"
      and
      collectively, the "Pledgors"),
      in
      favor of PORTSIDE
      GROWTH AND OPPORTUNITY FUND
      a
      company organized under the laws of the Cayman Islands, in its capacity as
      collateral agent (in such capacity, the "Collateral
      Agent")
      for the
"Buyers"
      (as
      defined below) party to the Securities Purchase Agreement, dated as of November
      29, 2007 (as amended, restated or otherwise modified from time to time, the
      "Securities
      Purchase Agreement").

     

    WITNESSETH:

     

    WHEREAS,
      DigitalFX International, Inc., a Florida corporation (the "Company")
      and
      each party listed as a "Buyer"
      on the
      Schedule of Buyers attached to the Securities Purchase Agreement (collectively,
      the "Buyers")
      are
      parties to the Securities Purchase Agreement, pursuant to which the Company
      has
      agreed to sell, and the Buyers have agreed to purchase, the "Notes"
      (as
      defined therein);

     

    WHEREAS,
      it is a condition precedent to the Buyers purchasing the Notes that the Pledgors
      shall have executed and delivered to the Collateral Agent for the benefit of
      itself and the Buyers this Agreement to secure all of the Company's obligations
      under the Securities Purchase Agreement, the Notes issued pursuant thereto
      (as
      such Notes may be amended, restated, replaced or otherwise modified from time
      to
      time in accordance with the terms thereof, collectively, the "Notes")
      and the
      other "Transaction Documents" (as defined in the Securities Purchase Agreement,
      the "Transaction
      Documents"),
      on
      such terms and conditions as are set forth herein;

     

    WHEREAS,
      each of the Pledgors other than the Company (i) shall have executed a Guaranty,
      dated as of the date hereof, in favor of the Collateral Agent (the "Guaranty"),
      guaranteeing all present and future obligations of the Company under the
      Securities Purchase Agreement, the Notes and the other Transaction Documents
      on
      such terms and conditions as are set forth therein and (ii) shall have executed,
      together with the Company, a Security Agreement granting the Collateral Agent
      a
      first priority perfected lien in certain of their personal property (the
      "Security
      Agreement")
      on
      such terms and conditions as are set forth therein; 

     

    WHEREAS,
      the Pledgors are mutually dependent on each other in the conduct of their
      respective businesses as an integrated operation, with the credit needed from
      time to time by each Pledgor often being provided through financing obtained
      by
      the other Pledgors and the ability to obtain such financing being dependent
      on
      the successful operations of all of the Pledgors as a whole; and

     

    WHEREAS,
      each Pledgor has determined that the execution, delivery and performance of
      this
      Agreement directly benefits, and is in the best interest of, such
      Pledgor.

     

    NOW,
      THEREFORE, in consideration of the premises and the agreements herein and in
      order to induce the Buyers to perform under the Securities Purchase Agreement,
      each Pledgor agrees with the Collateral Agent as follows:

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    SECTION
      1. Definitions
      and Rules of Interpretation.

     

    (a) Definitions.
      Reference is made to the Securities Purchase Agreement and the Notes for a
      statement of terms thereof. All terms used in this Agreement which are defined
      in the Securities Purchase Agreement or the Notes or in Article 8 or Article
      9
      of the Uniform Commercial Code as in effect from time to time in the State
      of
      New York (the "Code"),
      and
      which are not otherwise defined herein shall have the same meanings herein
      as
      set forth therein; provided,
      that
      terms used herein which are defined in the Code as in effect in the State of
      New
      York on the date hereof shall continue to have the same meaning notwithstanding
      any replacement or amendment of such statute except as the Collateral Agent
      may
      otherwise determine. In the event that any such term is defined in both the
      Securities Purchase Agreement or the Notes and the Code, the definition of
      such
      term in the Securities Purchase Agreement or the Notes shall
      control.

     

    (b) Rules
      of Interpretation.
      Except
      as otherwise expressly provided in this Agreement, the following rules of
      interpretation apply to this Agreement: (i) the singular includes the plural
      and
      the plural includes the singular; (ii) "or" and "any" are not exclusive and
      "include" and "including" are not limiting; (iii) a reference to any agreement
      or other contract includes permitted supplements and amendments; (iv) a
      reference to a law includes any amendment or modification to such law and any
      rules or regulations issued thereunder; (v) a reference to a person includes
      its
      permitted successors and assigns; and (vi) a reference in this Agreement to
      an
      Article, Section, Annex, Exhibit or Schedule is to the Article, Section, Annex,
      Exhibit or Schedule of this Agreement.

     

    SECTION
      2. Pledge
      and Grant of Security Interest. As collateral security for all of the
      Obligations (as defined in Section 3 hereof), each of the Pledgors hereby
      pledges and assigns and grants to the Collateral Agent a continuing security
      interest in, and Lien on, all of such Pledgor's right, title and interest in
      and
      to the following (collectively, the "Collateral"):

     

    (a) all
      present, as set forth in Schedule
      I,
      and all
      future, issued and outstanding shares of capital stock, or other equity or
      investment securities of, or partnership, membership, or joint venture interests
      in, each Subsidiary (as defined in the Securities Purchase Agreement), whether
      now owned or hereafter acquired by such Pledgor and whether or not evidenced
      or
      represented by any stock certificate, certificated security or other instrument,
      together with the certificates representing such equity interests, all options
      and other rights, contractual or otherwise, in respect thereof and all
      dividends, distributions, cash, instruments, investment property and any other
      property (including, but not limited to, any stock dividend and any distribution
      in connection with a stock split) from time to time received, receivable or
      otherwise distributed in respect of or in exchange for any or all of the
      foregoing and all cash and noncash proceeds thereof (collectively, the
"Pledged
      Shares"); 

     

    (b) all
      present and future increases, profits, combinations, reclassifications, and
      substitutes and replacements for all or part of the foregoing Collateral
      heretofore described;

     

    (c) all
      investment property, financial assets, securities, capital stock, other equity
      interests, stock options and commodity contracts of such Pledgor, all notes,
      debentures, bonds, promissory notes or other evidences of indebtedness payable
      or owing to such Pledgor, and all other assets now or hereafter received or
      receivable with respect to the foregoing;

     

    
      
        
        

      

      
        -2-

        
          

        

      

      
        
        

      

    

     

    (d) all
      securities entitlements of such Pledgor in any and all of the foregoing;
      and

     

    (e) all
      proceeds (including proceeds of proceeds) of any and all of the
      foregoing;

     

    in
      each
      case, whether now owned or hereafter acquired by such Pledgor and howsoever
      its
      interest therein may arise or appear (whether by ownership, security interest,
      Lien, claim or otherwise).

     

    Notwithstanding
      anything herein to the contrary, the term "Collateral"
      shall
      not include in the case of a Subsidiary organized under the laws of a
      jurisdiction other than the United States, any of the states thereof or the
      District of Columbia (a "Foreign
      Subsidiary"),
      more
      than 65% (or
      such
      greater percentage that,
      due
      to a change in applicable law after the date hereof, (i) would not reasonably
      be
      expected to cause the undistributed earnings of such Foreign Subsidiary as
      determined for United States federal income tax purposes to be treated as a
      deemed dividend to such Foreign Subsidiary's United States parent and (ii)
      would
      not reasonably be expected to cause any
      material
      adverse tax consequences) of the issued and outstanding shares of Capital
      Stock entitled to vote (within the meaning of Treas. Reg. Section 1.956-2(c)(2))
      (it being understood and agreed that the Collateral shall include 100%
of
      the
      issued and outstanding shares of Capital
      Stock not entitled to vote (within the meaning of Treas. Reg. Section
      1.956-2(c)(2)) or other equity interest of such Foreign Subsidiary).
"Capital
      Stock"
      means
      (i) with respect to any Person that is a corporation, any and all shares,
      interests, participations or other equivalents (however designated and whether
      or not voting) of corporate stock, and (ii) with respect to any Person that
      is
      not a corporation, any and all partnership, membership or other equity interests
      of such Person. "Person"
      means an
      individual, corporation, limited liability company, partnership, association,
      joint-stock company, trust, unincorporated organization, joint venture or other
      enterprise or entity or Governmental Authority. "Governmental
      Authority"
      means
      any nation or government, any Federal, state, city, town, municipality, county,
      local or other political subdivision thereof or thereto and any department,
      commission, board, bureau, instrumentality, agency or other entity exercising
      executive, legislative, judicial, taxing, regulatory or administrative powers
      or
      functions of or pertaining to government.

     

    The
      Pledgors agree that the pledge of the shares of Capital Stock acquired by a
      Pledgor of any and all Persons now or hereafter existing who is a Foreign
      Subsidiary may be supplemented by one or more separate pledge agreements, deeds
      of pledge, share charges, or other similar agreements or instruments, executed
      and delivered by the relevant Pledgors in favor of the Collateral Agent, which
      pledge agreements will provide for the pledge of such shares of Capital Stock
      in
      accordance with the laws of the applicable foreign jurisdiction. With respect
      to
      such shares of Capital Stock, the Collateral Agent may, at any time and from
      time to time, in its sole discretion, take actions in such foreign jurisdictions
      that will result in the perfection of the Lien created in such shares of Capital
      Stock.

     

    
      
        
        

      

      
        -3-

        
          

        

      

      
        
        

      

    

     

    SECTION
      3. Security
      for Obligations. The security interest created hereby in the Collateral
      constitutes continuing collateral security for all of the following obligations,
      whether now existing or hereafter incurred (the "Obligations"):

     

    (a) (i)
      the
      payment by the Company, as and when due and payable (by scheduled maturity,
      required prepayment, acceleration, demand or otherwise), of all amounts from
      time to time owing by it in respect of the Securities Purchase Agreement, the
      Notes and the other Transaction Documents, and (ii) the payment by each of
      the
      Guarantors (as defined in the Guaranty), as and when due and payable of all
      “Guaranteed Obligations” under (and as defined in) the Guaranty, including,
      without limitation, (A) all principal of and interest on the Notes (including,
      without limitation, all interest that accrues after the commencement of any
      bankruptcy proceeding of the Pledgors, whether or not the payment of such
      interest is unenforceable or is not allowable due to the existence of such
      bankruptcy proceeding), and (B) all fees, commissions, expense reimbursements,
      indemnifications and all other amounts due or to become due under any of the
      Transaction Documents; and

     

    (b) the
      due
      performance and observance by each Pledgor of all of its other obligations
      from
      time to time existing in respect of any of the Transaction Documents for so
      long
      as the Notes are outstanding.

     

    SECTION
      4. Delivery
      of the Collateral.

     

    (a) All
      certificates currently representing the Pledged Shares shall be delivered to
      the
      Collateral Agent on or prior to the execution and delivery of this Agreement.
      All other promissory notes, certificates and instruments constituting Collateral
      from time to time or required to be pledged to the Collateral Agent pursuant
      to
      the terms of this Agreement (the "Additional
      Collateral")
      shall
      be delivered to the Collateral Agent promptly upon receipt thereof by or on
      behalf of any of the Pledgors. All such promissory notes, certificates and
      instruments shall be held by the Collateral Agent pursuant hereto and shall
      be
      delivered in suitable form for transfer by delivery or shall be accompanied
      by
      duly executed instruments of transfer or assignment or undated stock powers
      executed in blank, all in form and substance reasonably satisfactory to the
      Collateral Agent. If any Collateral consists of uncertificated securities,
      unless the immediately following sentence is applicable thereto, the Pledgors
      shall cause the Collateral Agent (or its designated custodian, nominee or other
      designee) to become the registered holder thereof, or cause each issuer of
      such
      securities to agree that it will comply with instructions originated by the
      Collateral Agent (or its designated custodian, nominee or other designee) with
      respect to such securities without further consent by the Pledgors. If any
      Collateral consists of securities entitlements, the Pledgors shall transfer
      such
      securities entitlements to the Collateral Agent (or its designated custodian,
      nominee or other designee) or cause the applicable securities intermediary
      to
      agree that it will comply with entitlement orders by the Collateral Agent (or
      its designated custodian, nominee or other designee) without further consent
      by
      the Pledgors. 

     

    (b) Promptly
      upon the receipt by any Pledgor of any Additional Collateral, a Pledge
      Amendment, duly executed by such Pledgor, in substantially the form of
Annex
      I
      hereto
      (a "Pledge
      Amendment"),
      shall
      be delivered to the Collateral Agent, in respect of the Additional Collateral
      which is or are to be pledged pursuant to this Agreement, which Pledge Amendment
      shall from and after delivery thereof constitute part of Schedule
      I
      hereto.
      Each Pledgor hereby authorizes the Collateral Agent to attach each Pledge
      Amendment to this Agreement and agrees that all promissory notes, certificates
      or instruments listed on any Pledge Amendment shall for all purposes hereunder
      constitute Collateral and such Pledgor shall be deemed upon delivery thereof
      to
      have made the representations and warranties set forth in Section
      5
      with
      respect to such Additional Collateral as of the date of the Pledge
      Amendment.

     

    
      
        
        

      

      
        -4-

        
          

        

      

      
        
        

      

    

     

    (c) If
      any
      Pledgor shall receive, by virtue of such Pledgor's being or having been an
      owner
      of any Collateral, any (i) stock certificate (including, without limitation,
      any
      certificate representing a stock dividend or distribution in connection with
      any
      increase or reduction of capital, reclassification, merger, consolidation,
      sale
      of assets, combination of shares, stock split, spin-off or split-off),
      promissory note or other instrument, (ii) option or right, whether as an
      addition to, substitution for, or in exchange for, any Collateral, or otherwise,
      (iii) dividends payable in cash (except such dividends permitted to be
      retained by such Pledgor pursuant to Section
      7
      hereof)
      or in securities or other property or (iv) dividends, distributions, cash,
      instruments, investment property and other property in connection with a partial
      or total liquidation or dissolution or in connection with a reduction of
      capital, capital surplus or paid-in surplus, such Pledgor shall receive such
      stock certificate, promissory note, instrument, option, right, payment or
      distribution in trust for the benefit of the Collateral Agent, shall segregate
      it from such Pledgor's other property and shall deliver it forthwith to the
      Collateral Agent in the exact form received, with any necessary endorsement
      and/or appropriate stock powers duly executed in blank, to be held by the
      Collateral Agent as Collateral and as further collateral security for the
      Obligations.

     

    SECTION
      5. Representations
      and Warranties. Each Pledgor jointly and severally represents and warrants
      as of the date of this Agreement as follows:

     

    (a) Each
      Pledgor (i) is a corporation, limited liability company or limited partnership
      duly organized, validly existing and in good standing under the laws of the
      state or jurisdiction of its organization, and (ii) has all corporate, limited
      liability company or limited partnership power and authority to execute, deliver
      and perform this Agreement.

     

    (b) The
      execution, delivery and performance by each Pledgor of this Agreement (i) have
      been duly authorized by all necessary corporate, limited liability company
      or
      limited partnership action, (ii) do not and will not contravene its charter
      or
      bylaws, its limited liability company or operating agreement or its certificate
      of partnership or partnership agreement, as applicable, or any applicable law
      or
      any contractual restriction binding on or affecting it or any of its properties,
      and (iii) do not and will not result in or require the creation of any Lien
      upon
      or with respect to any of its properties other than pursuant to this
      Agreement.

     

    (c) The
      issuers of the Pledged Shares set forth in Schedule
      I
      hereto
      are the
      Pledgors' only Subsidiaries existing on the date hereof. The
      Pledged Shares have been duly authorized and validly issued, are fully paid
      and
      nonassessable and the holders thereof are not entitled to any preemptive first
      refusal or other similar rights.
      Except
      as noted in Schedule
      I
      hereto,
      the Pledged Shares constitute 100% of the issued shares of capital stock,
      partnership interests or membership or other equity interests, as applicable,
      of
      the Subsidiaries. All other shares of stock constituting Collateral will be,
      when issued, duly authorized and validly issued, fully paid and
      nonassessable.

     

    
      
        
        

      

      
        -5-

        
          

        

      

      
        
        

      

    

     

    (d) The
      Pledgors are and will be at all times the legal and beneficial owners of the
      Collateral free and clear of any Lien, other than Permitted Liens.

     

    (e) The
      exercise by the Collateral Agent of any of its rights and remedies hereunder
      will not contravene any law or any contractual restriction binding on or
      affecting any Pledgor or any of the properties of any Pledgor and will not
      result in or require the creation of any Lien upon or with respect to any of
      the
      properties of any Pledgor other than pursuant to this Agreement and the other
      Transaction Documents.

     

    (f) No
      authorization or approval or other action by, and no notice to or filing with,
      any governmental authority is required to be obtained by any Pledgor for (i)
      the
      due execution, delivery and performance by any Pledgor of this Agreement, (ii)
      the grant by any Pledgor, or the perfection of the security interest and Lien
      purported to be created hereby in the Collateral or (iii) the exercise by the
      Collateral Agent of any of its rights and remedies hereunder, except as may
      be
      required in connection with any sale of any Collateral by laws affecting the
      offering and sale of securities generally.

     

    (g) This
      Agreement creates a valid security interest and Lien in favor of the Collateral
      Agent in the Collateral, as security for the Obligations. The Collateral Agent's
      having possession of the promissory notes evidencing the Collateral, the
      certificates representing the Pledged Shares and all other certificates,
      instruments and cash constituting Collateral from time to time results in the
      perfection of the security interest in such Collateral. Such security interest
      and Lien is, or in the case of Collateral in which any of the Pledgors obtains
      rights after the date hereof, will be, a perfected Lien. All action necessary
      to
      perfect and protect such security interest and Lien has been duly taken,
except
      for the Collateral Agent's having possession of certificates, instruments,
      securities entitlements and cash constituting Collateral
      after
      the date hereof.

     

    SECTION
      6. Covenants
      as to the Collateral. So long as any Obligations shall remain outstanding
      and the Securities Purchase Agreement and the other Transaction Documents shall
      not have been terminated, each Pledgor will, unless the Collateral Agent shall
      otherwise consent in writing:

     

    (a) keep
      adequate records concerning the Collateral owned or purported to be owned by
      it,
      and permit, in accordance with Section 4 (i) of the Securities Purchase
      Agreement, the Collateral Agent, or any designees or representatives thereof
      at
      any time or from time to time during reasonable hours after prior written notice
      to examine and make copies of and abstracts from such records;

     

    (b) at
      the
      Pledgors' joint and several expense, promptly deliver to the Collateral Agent
      a
      copy of each material notice or other material communication received by any
      Pledgor in respect of the Collateral;

     

    
      
        
        

      

      
        -6-

        
          

        

      

      
        
        

      

    

     

    (c) at
      the
      Pledgors' joint and several expense, defend the Collateral Agent's right, title
      and security interest in and to the Collateral against the claims of any Person
      (other than the holders of Permitted Liens);

     

    (d) at
      the
      Pledgors' joint and several expense, at any time and from time to time, promptly
      execute and deliver all further instruments and documents and take all further
      action that may be necessary or that the Collateral Agent may reasonably request
      in order to (i) perfect and protect, or maintain the perfection of, the
      security interest and Lien purported to be created hereby, (ii) enable the
      Collateral Agent to exercise and enforce its rights and remedies hereunder
      in
      respect of the Collateral or (iii) otherwise effect the purposes of this
      Agreement, including, without limitation, delivering to the Collateral Agent
      irrevocable proxies in respect of the Collateral for exercise pursuant to
      Section 7 hereof;

     

    (e) not
      sell,
      assign (by operation of law or otherwise), exchange or otherwise dispose of
      any
      Collateral or any interest therein except in the ordinary course of business
      or
      as expressly permitted by the Securities Purchase Agreement or the
      Notes;

     

    (f) not
      create or suffer to exist any Lien, upon or with respect to any Collateral
      except for Permitted Liens;

     

    (g) not
      make
      or consent to any amendment or other modification or waiver with respect to
      any
      Collateral or enter into any agreement or permit to exist any restriction with
      respect to any Collateral other than pursuant to the Transaction
      Documents;

     

    (h) except
      as
      expressly permitted by the Securities Purchase Agreement, not permit the
      issuance of (i) any additional shares of any class of capital stock, partnership
      interests, member interests or other equity of any Subsidiary, (ii) any
      securities convertible voluntarily by the holder thereof or automatically upon
      the occurrence or non-occurrence of any event or condition into, or exchangeable
      for, any such shares of capital stock of any Subsidiary or (iii) any warrants,
      options, contracts or other commitments entitling any Person to purchase or
      otherwise acquire any such shares of capital stock of any
      Subsidiary;

     

    (i) not
      issue
      any stock certificate, certificated security or other instrument to evidence
      or
      represent any shares of capital stock, any partnership interest or membership
      interest of any Subsidiary described in Schedule
      I
      hereto;
      and

     

    (j) not
      take
      or fail to take any action which would in any manner impair the validity or
      enforceability of the Collateral Agent's security interest in and Lien on any
      Collateral.

     

    SECTION
      7. Voting
      Rights, Dividends, Etc. in Respect of the Collateral.

     

    (a) So
      long
      as no Event of Default (as defined in the Notes) (an "Event
      of Default") shall
      have occurred and be continuing:

     

    (i) each
      Pledgor may exercise any and all voting and other consensual rights pertaining
      to any Collateral for any purpose not inconsistent with the terms of this
      Agreement, the Securities Purchase Agreement or the other Transaction
      Documents;

     

    
      
        
        

      

      
        -7-

        
          

        

      

      
        
        

      

    

     

    (ii) the
      Pledgors may receive and retain any and all dividends, interest or other
      distributions paid in respect of the Collateral to the extent permitted by
      the
      Securities Purchase Agreement; provided,
      however,
      that
      any and all (A) dividends and interest paid or payable other than in cash in
      respect of, and instruments and other property received, receivable or otherwise
      distributed in respect of or in exchange for, any Collateral, (B) dividends
      and
      other distributions paid or payable in cash in respect of any Collateral in
      connection with a partial or total liquidation or dissolution or in connection
      with a reduction of capital, capital surplus or paid-in surplus, and (C) cash
      paid, payable or otherwise distributed in redemption of, or in exchange for,
      any
      Collateral, together with any dividend, distribution, interest or other payment
      which at the time of such dividend, distribution, interest or other payment
      was
      not permitted by the Securities Purchase Agreement, shall be, and shall
      forthwith be delivered to the Collateral Agent to hold as, Collateral and shall,
      if received by any of the Pledgors, be received in trust for the benefit of
      the
      Collateral Agent, shall be segregated from the other property or funds of the
      Pledgors, and shall be forthwith delivered to the Collateral Agent in the exact
      form received with any necessary indorsement and/or appropriate stock powers
      duly executed in blank, to be held by the Collateral Agent as Collateral and
      as
      further collateral security for the Obligations; and

     

    (iii) the
      Collateral Agent will execute and deliver (or cause to be executed and
      delivered) to a Pledgor all such proxies and other instruments as such Pledgor
      may reasonably request for the purpose of enabling such Pledgor to exercise
      the
      voting and other rights which it is entitled to exercise pursuant to paragraph
      (i) of this Section
      7(a)
      and to
      receive the dividends, distributions, interest and other payments which it
      is
      authorized to receive and retain pursuant to paragraph (ii) of this Section
      7(a),
      in each
      case, to the extent that the Collateral Agent has possession of such
      Collateral.

     

    (b) Upon
      the
      occurrence and during the continuance of an Event of Default:

     

    (i) all
      rights of each Pledgor to exercise the voting and other consensual rights which
      it would otherwise be entitled to exercise pursuant to paragraph (i) of
      subsection (a) of this Section
      7,
      and to
      receive the dividends, distributions, interest and other payments which it
      would
      otherwise be authorized to receive and retain pursuant to paragraph (ii) of
      subsection (a) of this Section 7,
      shall
      cease, and all such rights shall thereupon become vested in the Collateral
      Agent
      which shall thereupon have the sole right to exercise such voting and other
      consensual rights and to receive and hold as Collateral such dividends,
      distributions, interest and other payments;

     

    (ii) without
      limiting the generality of the foregoing, the Collateral Agent may at its option
      exercise any and all rights of conversion, exchange, subscription or any other
      rights, privileges or options pertaining to any of the Collateral as if it
      were
      the absolute owner thereof, including, without limitation, the right to
      exchange, in its discretion, any and all of the Collateral upon the merger,
      consolidation, reorganization, recapitalization or other adjustment of any
      issuer of the Collateral or upon the exercise by any issuer of the Collateral
      of
      any right, privilege or option pertaining to any Collateral, and, in connection
      therewith, to deposit and deliver any and all of the Collateral with any
      committee, depository, transfer collateral agent, registrar or other designated
      collateral agent upon such terms and conditions as it may determine; and

     

    
      
        
        

      

      
        -8-

        
          

        

      

      
        
        

      

    

     

    (iii) all
      dividends, distributions, interest and other payments which are received by
      any
      Pledgor contrary to the provisions of paragraph (i) of this Section
      7(b)
      shall be
      received in trust for the benefit of the Collateral Agent, shall be segregated
      from other funds of such Pledgor, and shall be forthwith paid over to the
      Collateral Agent as Collateral in the exact form received with any necessary
      indorsement and/or appropriate stock powers duly executed in blank, to be held
      by the Collateral Agent as Collateral and as further collateral security for
      the
      Obligations.

     

    SECTION
      8. Additional
      Provisions Concerning the Collateral.

     

    (a) Each
      Pledgor hereby (i) authorizes the Collateral Agent to file one or more financing
      or continuation statements, and amendments thereto, relating to the Collateral,
      without the signature of such Pledgor where permitted by law, (ii) ratifies
      such
      authorization to the extent that the Collateral Agent has filed any such
      financing or continuation statements, or amendments thereto, without the
      signature of such Pledgor prior to the date hereof and (iii) authorizes the
      Collateral Agent to execute any agreements, instruments or other documents
      in
      such Pledgor's name and to file such agreements, instruments or other documents
      to perfect, protect or enforce the security interest and Lien of the Collateral
      Agent in the Collateral or as provided under Article 8 or Article 9 of the
      Code
      in any appropriate filing office. 

     

    (b) Each
      Pledgor hereby irrevocably appoints the Collateral Agent as its attorney-in-fact
      and proxy, with full authority in the place and stead and in its name or
      otherwise, from time to time in the Collateral Agent's discretion to take any
      action and to execute any instrument which the Collateral Agent may deem
      necessary or advisable to accomplish the purposes of this Agreement (subject
      to
      the rights of such Pledgor under Section
      7(a)
      hereof),
      including, without limitation, to receive, indorse and collect all instruments
      made payable to such Pledgor representing any dividend, interest payment or
      other distribution in respect of any Collateral and to give full discharge
      for
      the same. This power is coupled with an interest and is irrevocable until the
      termination of this Agreement in accordance with Section 13(e)
      hereof.

     

    (c) If
      any
      Pledgor fails to perform any agreement or obligation contained herein, the
      Collateral Agent itself may perform, or cause performance of, such agreement
      or
      obligation, and the expenses of the Collateral Agent incurred in connection
      therewith shall be jointly and severally payable by the Pledgors pursuant to
      Section
      10
      hereof
      and shall be secured by the Collateral.

     

    (d) Other
      than the exercise of reasonable care to assure the safe custody of the
      Collateral while held hereunder, the Collateral Agent shall have no duty or
      liability to preserve rights pertaining thereto and shall be relieved of all
      responsibility for the Collateral upon surrendering it or tendering surrender
      of
      it to any of the Pledgors. The Collateral Agent shall be deemed to have
      exercised reasonable care in the custody and preservation of the Collateral
      in
      its possession if the Collateral is accorded treatment substantially equal
      to
      that which the Collateral Agent accords its own property, it being understood
      that the Collateral Agent shall not have responsibility for (i) ascertaining
      or
      taking action with respect to calls, conversions, exchanges, maturities, tenders
      or other matters relating to any Collateral, whether or not the Collateral
      Agent
      has or is deemed to have knowledge of such matters, or (ii) taking any necessary
      steps to preserve rights against any parties with respect to any
      Collateral.

     

    
      
        
        

      

      
        -9-

        
          

        

      

      
        
        

      

    

     

    (e) The
      powers conferred on the Collateral Agent hereunder are solely to protect its
      interest in the Collateral and shall not impose any duty upon it to exercise
      any
      such powers. Except for the safe custody of any Collateral in its possession
      and
      the accounting for monies actually received by it hereunder, the Collateral
      Agent shall have no duty as to any Collateral or as to the taking of any
      necessary steps to preserve rights against prior parties or any other rights
      pertaining to any Collateral.

     

    (f) Upon
      the
      occurrence and during the continuation of any Event of Default, the Collateral
      Agent may at any time in its discretion (i) without notice to the Pledgors,
      transfer or register in the name of the Collateral Agent or any of its nominees
      any or all of the Collateral, subject only to the revocable rights of the
      Pledgors under Section
      7(a)
      hereof,
      and (ii) exchange certificates or instruments constituting Collateral for
      certificates or instruments of smaller or larger denominations. 

     

    SECTION
      9. Remedies
      Upon Default. If any Event of Default shall have occurred and be
      continuing:

     

    (a) The
      Collateral Agent may exercise in respect of the Collateral, in addition to
      other
      rights and remedies provided for herein or otherwise available to it, all of
      the
      rights and remedies of a secured party on default under the Code then in effect
      in the State of New York; and without limiting the generality of the foregoing
      and without notice except as specified below, sell the Collateral or any part
      thereof in one or more parcels at public or private sale, at any exchange or
      broker's board or elsewhere, at such price or prices and on such other terms
      as
      the Collateral Agent may deem commercially reasonable. The Pledgors agree that,
      to the extent notice of sale shall be required by law, at least ten (10) days'
      notice to any of the Pledgors of the time and place of any public sale or the
      time after which any private sale is to be made shall constitute reasonable
      notification. The Collateral Agent shall not be obligated to make any sale
      of
      Collateral regardless of notice of sale having been given. The Collateral Agent
      may adjourn any public or private sale from time to time by announcement at
      the
      time and place fixed therefor, and such sale may, without further notice, be
      made at the time and place to which it was so adjourned.

     

    (b) Each
      Pledgor recognizes that it may be impracticable to effect a public sale of
      all
      or any part of the Pledged Shares or any other securities constituting
      Collateral and that the Collateral Agent may, therefore, determine to make
      one
      or more private sales of any such securities to a restricted group of purchasers
      who will be obligated to agree, among other things, to acquire such securities
      for its own account, for investment and not with a view to the distribution
      or
      resale thereof. Each Pledgor acknowledges that any such private sale may be
      at
      prices and on terms less favorable to the seller than the prices and other
      terms
      which might have been obtained at a public sale and, notwithstanding the
      foregoing, agrees that such private sales shall be deemed to have been made
      in a
      commercially reasonable manner and that the Collateral Agent shall have no
      obligation to delay sale of any such securities for the period of time necessary
      to permit the issuer of such securities to register such securities for public
      sale under the Securities Act of 1933, as amended (the "Securities
      Act").
      Each
      Pledgor further acknowledges and agrees that any offer to sell such securities
      which has been (i) publicly advertised on a bona fide basis in a newspaper
      or
      other publication of general circulation in the financial community of New
      York,
      New York (to the extent that such an offer may be so advertised without prior
      registration under the Securities Act) or (ii) made privately in the manner
      described above to not less than fifteen (15) bona fide
      offerees
      shall be deemed to involve a "public disposition" for the purposes of Section
      9-610 of the Code (or any successor or similar, applicable statutory provision)
      as then in effect in the State of New York, notwithstanding that such sale
      may
      not constitute a "public offering" under the Securities Act, and that the
      Collateral Agent may, in such event, bid for the purchase of such
      securities.

     

    
      
        
        

      

      
        -10-

        
          

        

      

      
        
        

      

    

     

    (c) Any
      cash
      held by the Collateral Agent as Collateral and all cash proceeds received by
      the
      Collateral Agent in respect of any sale of, collection from, or other
      realization upon, all or any part of the Collateral shall be applied (after
      payment of any amounts payable to the Collateral Agent pursuant to Section
      10
      hereof)
      by the Collateral Agent against, all or any part of the Obligations in such
      order as the Collateral Agent shall elect consistent with the provisions of
      the
      Securities Purchase Agreement.

     

    (d) In
      the
      event that the proceeds of any such sale, collection or realization are
      insufficient to pay all amounts to which the Collateral Agent is legally
      entitled, the Pledgors shall be jointly and severally liable for the deficiency,
      together with interest thereon at the highest rate specified in the Notes for
      interest on overdue principal thereof or such other rate as shall be fixed
      by
      applicable law, together with the costs of collection and the reasonable fees,
      costs and expenses of any attorneys employed by the Collateral Agent to collect
      such deficiency.

     

    SECTION
      10. Indemnity
      and Expenses.

     

    (a) Each
      of
      the Pledgors, jointly and severally, hereby agrees to indemnify and hold the
      Collateral Agent (and all of its officers, directors, employees, attorneys,
      and
      consultants) harmless from and against any and all claims, damages, losses,
      liabilities, obligations, penalties, fees, costs and expenses (including,
      without limitation, reasonable legal fees and disbursements of counsel) to
      the
      extent that they arise out of or otherwise result from this Agreement
      (including, without limitation, enforcement of this Agreement), except such
      claims, losses or liabilities arising or resulting directly from such Person's
      gross negligence or willful misconduct as determined by a court of competent
      jurisdiction.

     

    (b) Each
      Pledgor shall be jointly and severally obligated for, and will upon demand
      pay
      to the Collateral Agent the reasonable amount of any and all out-of-pocket
      costs
      and expenses, including the reasonable fees and disbursements of the Collateral
      Agent's counsel and of any experts which the Collateral Agent may incur in
      connection with (i) the preparation, negotiation, execution, delivery,
      recordation, administration, amendment, waiver or other modification or
      termination of this Agreement, (ii) the custody, preservation, use or operation
      of, or the sale of, collection from, or other realization upon, any Collateral,
      (iii) the exercise or enforcement of any of the rights of the Collateral Agent
      hereunder, or (iv) the failure by any Pledgor to perform or observe any of
      the
      provisions hereof.

     

    
      
        
        

      

      
        -11-

        
          

        

      

      
        
        

      

    

     

    SECTION
      11. Notices,
      Etc. All notices and other communications provided for hereunder shall be
      in
      writing and shall be mailed (by certified mail, postage prepaid and return
      receipt requested), sent by Federal Express or other recognized courier service
      (return receipt requested), telecopied or delivered, if to any Pledgor, to
      it at
      the address specified for the Company in the Securities Purchase Agreement
      or if
      to the Collateral Agent, to it at the address specified in the Securities
      Purchase Agreement; or as to either such Person at such other address as shall
      be designated by such Person in a written notice to such other Person complying
      as to delivery with the terms of this Section 11. All such notices and other
      communications shall be effective (i) if sent by certified mail, postage
      prepaid, return receipt requested, when received or three (3) Business Days
      after mailing, whichever first occurs, (ii) if telecopied, when transmitted
      and
      confirmation is received, provided same is on a Business Day and, if not, on
      the
      next Business Day or (iii) if delivered or sent by Federal Express or other
      recognized courier service (return receipt requested), upon delivery, provided
      same is on a Business Day and, if not, on the next Business Day. 

     

    SECTION
      12. Security
      Interest Absolute. All rights of the Collateral Agent, all Liens and all
      obligations of each of the Pledgors hereunder shall be absolute and
      unconditional irrespective of: (i) any lack of validity or enforceability of
      the
      Securities Purchase Agreement or any other Transaction Document, (ii) any change
      in the time, manner or place of payment of, or in any other term in respect
      of,
      all or any of the Obligations, or any other amendment or waiver of or consent
      to
      any departure from the Securities Purchase Agreement or any other Transaction
      Document, (iii) any exchange or release of, or non-perfection of any Lien on
      any
      Collateral, or any release or amendment or waiver of or consent to departure
      from any guaranty, for all or any of the Obligations, or (iv) any other
      circumstance which might otherwise constitute a defense available to, or a
      discharge of, any of the Pledgors in respect of the Obligations (other than
      the
      payment in full of the Obligations). All authorizations and agencies contained
      herein with respect to any of the Collateral are irrevocable and powers coupled
      with an interest.

     

    SECTION
      13. Miscellaneous.

     

    (a) No
      amendment of any provision of this Agreement shall be effective unless it is
      in
      writing and signed by each Pledgor and the Collateral Agent, and no waiver
      of
      any provision of this Agreement, and no consent to any departure by the Pledgors
      therefrom, shall be effective unless it is in writing and signed by the
      Collateral Agent, and then such waiver or consent shall be effective only in
      the
      specific instance and for the specific purpose for which given.

     

    (b) No
      failure on the part of the Collateral Agent to exercise, and no delay in
      exercising, any right hereunder or under any other Transaction Document shall
      operate as a waiver hereof or thereof; nor shall any single or partial exercise
      of any such right preclude any other or further exercise hereof or thereof
      or
      the exercise of any other right. The rights and remedies of the Collateral
      Agent
      provided herein and in the other Transaction Documents are cumulative and are
      in
      addition to, and not exclusive of, any rights or remedies provided by law.
      The
      rights of the Collateral Agent under any Transaction Document against any party
      thereto are not conditional or contingent on any attempt by the Collateral
      Agent
      to exercise any of its rights under any other Transaction Document against
      such
      party or against any other Person.

     

    
      
        
        

      

      
        -12-

        
          

        

      

      
        
        

      

    

     

    (c) Any
      provision of this Agreement which is prohibited or unenforceable in any
      jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
      such prohibition or unenforceability without invalidating the remaining portions
      hereof or affecting the validity or enforceability of such provision in any
      other jurisdiction. 

     

    (d) This
      Agreement shall create a continuing security interest in and Lien on the
      Collateral and shall (i) remain in full force and effect until the termination
      of this Agreement in accordance with Section 13 (e) hereof and (ii) be
      binding on the Pledgors and their respective successors and assigns and shall
      inure, together with all rights and remedies of the Collateral Agent, to the
      benefit of the Collateral Agent and its successors, transferees and assigns.
      Without limiting the generality of clause (ii) of the immediately preceding
      sentence, the Collateral Agent may assign or otherwise transfer its rights
      and
      obligations under this Agreement and any other Transaction Document to any
      other
      Person pursuant to the terms of the Securities Purchase Agreement, and such
      other Person shall thereupon become vested with all of the benefits in respect
      thereof granted to the Collateral Agent herein or otherwise. Upon any such
      assignment or transfer, all references in this Agreement to the Collateral
      Agent
      shall mean the assignee of the Collateral Agent. None of the rights or
      obligations of any of the Pledgors hereunder may be assigned or otherwise
      transferred without the prior written consent of the Collateral Agent, and
      any
      such assignment or transfer without such consent shall be null and
      void.

     

    (e) Notwithstanding
      anything to the contrary in this Agreement, (i) this Agreement (along with
      all
      powers of attorney granted hereunder) and the security interests and Lien
      created hereby shall terminate and all rights to the Collateral shall revert
      to
      the Pledgors upon the repayment in full and/or complete conversion to equity
      securities of the Company of all indebtedness obligations owed by the Company
      to
      the Buyers under the Notes (including, without limitation, all principal,
      interest and fees related to the Notes), and (ii) the Collateral Agent will,
      upon each Pledgor's request and at each such Pledgor's expense, (A) return
      to
      such Pledgor such of the Collateral (to the extent delivered to the Collateral
      Agent) as shall not have been sold or otherwise disposed of or applied pursuant
      to the terms hereof, and (B) execute and deliver to such Pledgor, without
      recourse, representation or warranty, such documents as such Pledgor shall
      reasonably request to evidence such termination.

     

    (f) The
      internal laws, and not the laws of conflicts, of New York shall govern the
      enforceability and validity of this Agreement, the construction of its terms
      and
      the interpretation of the rights and duties of the parties, except as required
      by mandatory provisions of law and except to the extent that the validity and
      perfection or the perfection and the effect of perfection or non-perfection
      of
      the security interest and Lien created hereby, or remedies hereunder, in respect
      of any particular Collateral are governed by the law of a jurisdiction other
      than the State of New York.

     

    
      
        
        

      

      
        -13-

        
          

        

      

      
        
        

      

    

     

    (g) Each
      party to this Agreement hereby irrevocably and unconditionally submits, for
      itself and its property, to the exclusive jurisdiction of the United States
      District Court for the Southern District of New York sitting in Manhattan or
      the
      Commercial Division, Civil Branch of the Supreme Court of the State of Yew
      York
      sitting in New York County in connection with any suit, action or proceeding
      directly or indirectly arising out of, under or in connection with this
      Agreement or the other Transaction Documents or the transactions contemplated
      hereby or thereby. No party to this Agreement may move to (i) transfer any
      such
      suit, action or proceeding brought in such New York court or federal court
      to
      another jurisdiction, (ii) consolidate any such suit, action or proceeding
      brought in such New York court or federal court with a suit, action or
      proceeding in another jurisdiction or (iii) dismiss any such suit, action or
      proceeding brought in such New York court or federal court for the purpose
      of
      bringing the same in another jurisdiction. Each party to this Agreement agrees
      that a final judgment in any such suit, action or proceeding shall be conclusive
      and may be enforced in any other jurisdiction by suit on the judgment or in
      any
      other manner provided by law. Each party to this Agreement hereby irrevocably
      and unconditionally waives, to the fullest extent it may legally and effectively
      do so, any objection which it may now or hereafter have to the laying of venue
      of any suit, action or proceeding arising out of or relating to this Agreement
      or the other Transaction Documents, in any New York court sitting in the County
      of New York or any federal court sitting in the Southern District of New
      York.

     

    (h) Each
      Pledgor irrevocably consents to the service of process of any of the aforesaid
      courts in any such action, suit or proceeding by the mailing of copies thereof
      by registered or certified mail (or any substantially similar form of mail),
      postage prepaid, to such
      Pledgor at its address provided herein, such service to become effective when
      received or 10 days after such mailing, whichever first occurs.

     

    (i) Nothing
      contained herein shall affect the right of the Collateral Agent to serve process
      in any other manner permitted by law or commence legal proceedings or otherwise
      proceed against any Pledgor or any property of any Pledgor in any other
      jurisdiction.

     

    (j) Each
      Pledgor irrevocably and unconditionally waives any right it may have to claim
      or
      recover in any legal action, suit or proceeding referred to in this Section
      any
      special, exemplary, punitive or consequential damages.

     

    (k) EACH
      PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW,
      ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY SUIT, ACTION OR
      PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN CONNECTION WITH
      THIS AGREEMENT OR OTHER TRANSACTION DOCUMENTS.

     

    (l) The
      headings herein are for convenience only, do not constitute a part of this
      Agreement and shall not be deemed to limit or affect any of the provisions
      hereof. The language used in this Agreement will be deemed to be the language
      chosen by the parties to express their mutual intent, and no rules of strict
      construction will be applied against any party.

     

    (m) This
      Agreement may be executed in any number of counterparts and by different parties
      hereto in separate counterparts, each of which shall be deemed to be an
      original, but all of which taken together shall constitute one and the same
      agreement.

     

    
      
        
        

      

      
        -14-

        
          

        

      

      
        
        

      

    

     

    (n) All
      of
      the obligations of the Pledgors hereunder are joint and several. The Collateral
      Agent may, in its sole and absolute discretion, enforce the provisions hereof
      against any of the Pledgors and shall not be required to proceed against all
      Pledgors jointly or seek payment from the Pledgors ratably. In addition, the
      Collateral Agent may, in its sole and absolute discretion, select the Collateral
      of any one or more of the Pledgors for sale or application to the Obligations,
      without regard to the ownership of such Collateral, and shall not be required
      to
      make such selection ratably from the Collateral owned by all of the Pledgors.
      The release or discharge of any Pledgor by the Collateral Agent shall not
      release or discharge any other Pledgor from the obligations of such Person
      hereunder.

     

    [Signature
      Page Follows]

     

    
      
        
        

      

      
        -15-

        
          

        

      

      
        
        

      

    

    

          IN
        WITNESS
        WHEREOF,
        each
        Pledgor has caused this Agreement to be executed and delivered by its officer
        thereunto duly authorized, as of the date first above
        written.

    

     

    
      	 	 	 
	 	DIGITALFX INTERNATIONAL,
              INC.
	 
 	 
 	 
 
	 	By:  	 
	 	
              
Name:

	 	
              Title:

            

    

    
       

      
        	 	 	 
	 	DIGITALFX NETWORKS,
                LLC
	 
 	 
 	 
 
	 	By:  	 
	 	
                
Name:

	 	
                Title:

              

      

      
         

        
          	 	 	 
	 	DIGITALFX SOLUTIONS,
                  LLC
	 
 	 
 	 
 
	 	By:  	 
	 	
                  
Name:

	 	
                  Title:

                

        

        
           

          
            	 	 	 
	 	VMDIRECT L.L.C.
	 
 	 
 	 
 
	 	By:  	 
	 	
                    
Name:

	 	
                    Title:

                  

          

           

        

      

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
      	ACCEPTED
              BY:	 	 	 
	 	 	 	 
	PORTSIDE GROWTH AND OPPORTUNITY
              FUND	 	 	 
	 	 	 	 
	By:	 	 	 
	
              
                

              

              Name:

            	 	 	
            
	
              Title:

            	 	 	 

    

     

    
       

       

       

       

      Pledge
        Agreement

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