EXHIBIT 10.3 SECURITY AGREEMENT

 

 

                                  EXHIBIT 10.3

 

                               SECURITY AGREEMENT

 

      THIS SECURITY AGREEMENT (the "Agreement"), is entered into and made

effective as of November 10, 2005, by and between SAGAMORE HOLDINGS, a Florida

corporation with its principal place of business located at 33 Wood Avenue,

Suite 6001, Iselin, New Jersey 08830 (the "Company"), and the BUYER(S) listed on

Schedule I attached to the Securities Purchase Agreement dated the date hereof

(the "Secured Party").

 

      WHEREAS, the Company shall issue and sell to the Secured Party, as

provided in the Securities Purchase Agreement of even date herewith between the

Company and the Secured Party (the "Securities Purchase Agreement"), and the

Secured Party shall purchase up to One Million Two Hundred Fifty Thousand

($1,250,000) of secured convertible debentures (the "Convertible Debentures"),

which shall be convertible into shares of the Company's common stock, par value

$0.001 (the "Common Stock") (as converted, the "Conversion Shares") in the

respective amounts set forth opposite each Buyer(s) name on Schedule I attached

to the Securities Purchase Agreement;

 

      WHEREAS, to induce the Secured Party to enter into the transaction

contemplated by the Securities Purchase Agreement, the Convertible Debentures,

and the Investor Registration Rights Agreement of even date herewith between the

Company and the Secured Party (the "Investor Registration Rights Agreement"),

(collectively referred to as the "Transaction Documents"), the Company hereby

grants to the Secured Party a security interest in and to the pledged property

identified on Exhibit A hereto (collectively referred to as the "Pledged

Property") until the satisfaction of the Obligations, as defined herein below.

 

      NOW, THEREFORE, in consideration of the promises and the mutual covenants

herein contained, and for other good and valuable consideration, the adequacy

and receipt of which are hereby acknowledged, the parties hereto hereby agree as

follows:

 

                                    ARTICLE 1.

 

                         DEFINITIONS AND INTERPRETATIONS

 

      Section 1.1. Recitals.

 

      The above recitals are true and correct and are incorporated herein, in

their entirety, by this reference.

 

      Section 1.2. Interpretations.

 

      Nothing herein expressed or implied is intended or shall be construed to

confer upon any person other than the Secured Party any right, remedy or claim

under or by reason hereof.

 

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      Section 1.3. Obligations Secured.

 

      The obligations secured hereby are any and all obligations of the Company

now existing or hereinafter incurred to the Secured Party, whether oral or

written and whether arising before, on or after the date hereof including,

without limitation, those obligations of the Company to the Secured Party under

this Agreement, the Transaction Documents, and any other amounts now or

hereafter owed to the Secured Party by the Company thereunder or hereunder

(collectively, the "Obligations").

 

                                    ARTICLE 2.

 

                 PLEDGED PROPERTY, ADMINISTRATION OF COLLATERAL

                      AND TERMINATION OF SECURITY INTEREST

 

      Section 2.1. Pledged Property.

 

            (a) Company hereby pledges to the Secured Party, and creates in the

Secured Party for its benefit, a security interest for such time until the

Obligations are paid in full, in and to all of the property of the Company as

set forth in Exhibit "A" attached hereto and the products thereof and the

proceeds of all such items (collectively, the "Pledged Property"):

 

            (b) Simultaneously with the execution and delivery of this

Agreement, the Company shall make, execute, acknowledge, file, record and

deliver to the Secured Party any documents reasonably requested by the Secured

Party to perfect its security interest in the Pledged Property. Simultaneously

with the execution and delivery of this Agreement, the Company shall make,

execute, acknowledge and deliver to the Secured Party such documents and

instruments, including, without limitation, financing statements, certificates,

affidavits and forms as may, in the Secured Party's reasonable judgment, be

necessary to effectuate, complete or perfect, or to continue and preserve, the

security interest of the Secured Party in the Pledged Property, and the Secured

Party shall hold such documents and instruments as secured party, subject to the

terms and conditions contained herein.

 

      Section 2.2. Rights; Interests; Etc.

 

            (a) So long as no Event of Default (as hereinafter defined) shall

have occurred and be continuing:

 

                  (i) the Company shall be entitled to exercise any and all

rights pertaining to the Pledged Property or any part thereof for any purpose

not inconsistent with the terms hereof; and

 

                  (ii) the Company shall be entitled to receive and retain any

and all payments paid or made in respect of the Pledged Property.

 

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

Default:

 

 

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                  (i) All rights of the Company to exercise the rights which it

would otherwise be entitled to exercise pursuant to Section 2.2(a)(i) hereof and

to receive payments which it would otherwise be authorized to receive and retain

pursuant to Section 2.2(a)(ii) hereof shall be suspended, and all such rights

shall thereupon become vested in the Secured Party who shall thereupon have the

sole right to exercise such rights and to receive and hold as Pledged Property

such payments; provided, however, that if the Secured Party shall become

entitled and shall elect to exercise its right to realize on the Pledged

Property pursuant to Article 5 hereof, then all cash sums received by the

Secured Party, or held by Company for the benefit of the Secured Party and paid

over pursuant to Section 2.2(b)(ii) hereof, shall be applied against any

outstanding Obligations; and

 

                  (ii) All interest, dividends, income and other payments and

distributions which are received by the Company contrary to the provisions of

Section 2.2(b)(i) hereof shall be received in trust for the benefit of the

Secured Party, shall be segregated from other property of the Company and shall

be forthwith paid over to the Secured Party; or

 

                  (iii) The Secured Party in its sole discretion shall be

authorized to sell any or all of the Pledged Property at public or private sale

in order to recoup all of the outstanding principal plus accrued interest owed

pursuant to the Convertible Debenture as described herein

 

            (c) An "Event of Default" shall be deemed to have occurred under

this Agreement upon an Event of Default under the Convertible Debentures.

 

                                   ARTICLE 3.

 

                           ATTORNEY-IN-FACT; PERFORMANCE

 

      Section 3.1. Secured Party Appointed Attorney-In-Fact.

 

      Upon the occurrence of an Event of Default, the Company hereby appoints

the Secured Party as its attorney-in-fact, with full authority in the place and

stead of the Company and in the name of the Company or otherwise, from time to

time in the Secured Party's discretion to take any action and to execute any

instrument which the Secured Party may reasonably deem necessary to accomplish

the purposes of this Agreement, including, without limitation, to receive and

collect all instruments made payable to the Company representing any payments in

respect of the Pledged Property or any part thereof and to give full discharge

for the same. The Secured Party may demand, collect, receipt for, settle,

compromise, adjust, sue for, foreclose, or realize on the Pledged Property as

and when the Secured Party may determine. To facilitate collection, the Secured

Party may notify account debtors and obligors on any Pledged Property to make

payments directly to the Secured Party.

 

      Section 3.2. Secured Party May Perform.

 

      If the Company fails to perform any agreement contained herein, the

Secured Party, at its option, may itself perform, or cause performance of, such

agreement, and the expenses of the Secured Party incurred in connection

therewith shall be included in the Obligations secured hereby and payable by the

Company under Section 8.3.

 

 

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                                    ARTICLE 4.

 

                         REPRESENTATIONS AND WARRANTIES

 

      Section 4.1. Authorization; Enforceability.

 

      Each of the parties hereto represents and warrants that it has taken all

action necessary to authorize the execution, delivery and performance of this

Agreement and the transactions contemplated hereby; and upon execution and

delivery, this Agreement shall constitute a valid and binding obligation of the

respective party, subject to applicable bankruptcy, insolvency, reorganization,

moratorium and similar laws affecting creditors' rights or by the principles

governing the availability of equitable remedies.

 

      Section 4.2. Ownership of Pledged Property.

 

      The Company warrants and represents that it is the legal and beneficial

owner of the Pledged Property free and clear of any lien, security interest,

option or other charge or encumbrance except for the security interest created

by this Agreement.

 

                                   ARTICLE 5.

 

                     DEFAULT; REMEDIES; SUBSTITUTE COLLATERAL

 

      Section 5.1. Default and Remedies.

 

            (a) If an Event of Default occurs, then in each such case the

Secured Party may declare the Obligations to be due and payable immediately, by

a notice in writing to the Company, and upon any such declaration, the

Obligations shall become immediately due and payable.

 

            (b) Upon the occurrence of an Event of Default, the Secured Party

shall: (i) be entitled to receive all distributions with respect to the Pledged

Property, (ii) to cause the Pledged Property to be transferred into the name of

the Secured Party or its nominee, (iii) to dispose of the Pledged Property, and

(iv) to realize upon any and all rights in the Pledged Property then held by the

Secured Party.

 

      Section 5.2. Method of Realizing Upon the Pledged Property: Other

                   Remedies.

 

      Upon the occurrence of an Event of Default, in addition to any rights and

remedies available at law or in equity, the following provisions shall govern

the Secured Party's right to realize upon the Pledged Property:

 

            (a) Any item of the Pledged Property may be sold for cash or other

value in any number of lots at brokers board, public auction or private sale and

may be sold without demand, advertisement or notice (except that the Secured

Party shall give the Company ten (10) days' prior written notice of the time and

place or of the time after which a private sale may be made (the "Sale

Notice")), which notice period is hereby agreed to be commercially reasonable.

At any sale or sales of the Pledged Property, the Company may bid for and

purchase the whole or any part of the Pledged Property and, upon compliance with

 

 

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the terms of such sale, may hold, exploit and dispose of the same without

further accountability to the Secured Party. The Company will execute and

deliver, or cause to be executed and delivered, such instruments, documents,

assignments, waivers, certificates, and affidavits and supply or cause to be

supplied such further information and take such further action as the Secured

Party reasonably shall require in connection with any such sale.

 

            (b) Any cash being held by the Secured Party as Pledged Property and

all cash proceeds received by the Secured Party in respect of, sale of,

collection from, or other realization upon all or any part of the Pledged

Property shall be applied as follows:

 

                  (i) to the payment of all amounts due the Secured Party for

the expenses reimbursable to it hereunder or owed to it pursuant to Section 8.3

hereof;

 

                  (ii) to the payment of the Obligations then due and unpaid.

 

                  (iii) the balance, if any, to the person or persons entitled

thereto, including, without limitation, the Company.

 

            (c) In addition to all of the rights and remedies which the Secured

Party may have pursuant to this Agreement, the Secured Party shall have all of

the rights and remedies provided by law, including, without limitation, those

under the Uniform Commercial Code.

 

                  (i) If the Company fails to pay such amounts due upon the

occurrence of an Event of Default which is continuing, then the Secured Party

may institute a judicial proceeding for the collection of the sums so due and

unpaid, may prosecute such proceeding to judgment or final decree and may

enforce the same against the Company and collect the monies adjudged or decreed

to be payable in the manner provided by law out of the property of Company,

wherever situated.

 

                  (ii) The Company agrees that it shall be liable for any

reasonable fees, expenses and costs incurred by the Secured Party in connection

with enforcement, collection and preservation of the Transaction Documents,

including, without limitation, reasonable legal fees and expenses, and such

amounts shall be deemed included as Obligations secured hereby and payable as

set forth in Section 8.3 hereof.

 

      Section 5.3. Proofs of Claim.

 

             In case of the pendency of any receivership, insolvency,

liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or

other judicial proceeding relating to the Company or the property of the Company

or of such other obligor or its creditors, the Secured Party (irrespective of

whether the Obligations shall then be due and payable as therein expressed or by

declaration or otherwise and irrespective of whether the Secured Party shall

have made any demand on the Company for the payment of the Obligations), subject

to the rights of Previous Security Holders, shall be entitled and empowered, by

intervention in such proceeding or otherwise:

 

                  (i) to file and prove a claim for the whole amount of the

Obligations and to file such other papers or documents as may be necessary or

advisable in order to have the claims of the Secured Party (including any claim

 

 

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for the reasonable legal fees and expenses and other expenses paid or incurred

by the Secured Party permitted hereunder and of the Secured Party allowed in

such judicial proceeding), and

 

                  (ii) to collect and receive any monies or other property

payable or deliverable on any such claims and to distribute the same; and any

custodian, receiver, assignee, trustee, liquidator, sequestrator or other

similar official in any such judicial proceeding is hereby authorized by the

Secured Party to make such payments to the Secured Party and, in the event that

the Secured Party shall consent to the making of such payments directed to the

Secured Party, to pay to the Secured Party any amounts for expenses due it

hereunder.

 

      Section 5.4. Duties Regarding Pledged Property.

 

      The Secured Party shall have no duty as to the collection or protection of

the Pledged Property or any income thereon or as to the preservation of any

rights pertaining thereto, beyond the safe custody and reasonable care of any of

the Pledged Property actually in the Secured Party's possession.

 

                                    ARTICLE 6.

 

                              AFFIRMATIVE COVENANTS

 

      The Company covenants and agrees that, from the date hereof and until the

Obligations have been fully paid and satisfied, unless the Secured Party shall

consent otherwise in writing (as provided in Section 8.4 hereof):

 

      Section 6.1. Existence, Properties, Etc.

 

            (a) The Company shall do, or cause to be done, all things, or

proceed with due diligence with any actions or courses of action, that may be

reasonably necessary (i) to maintain Company's due organization, valid existence

and good standing under the laws of its state of incorporation, and (ii) to

preserve and keep in full force and effect all qualifications, licenses and

registrations in those jurisdictions in which the failure to do so could have a

Material Adverse Effect (as defined below); and (b) the Company shall not do, or

cause to be done, any act impairing the Company's corporate power or authority

(i) to carry on the Company's business as now conducted, and (ii) to execute or

deliver this Agreement or any other document delivered in connection herewith,

including, without limitation, any UCC-1 Financing